PROSPECTUS
March 1, 1996
INVESCO ASIAN GROWTH FUND
INVESCO Asian Growth Fund (the "Fund") seeks to achieve capital
appreciation by investing, under normal circumstances, at least 65% of its total
assets in equity securities of companies domiciled or with primary operations in
Asia, excluding Japan. For purposes of this prospectus, Asia will include, but
not necessarily be limited to: China, Hong Kong, India, Indonesia, Malaysia,
Philippines, Singapore, South Korea, Taiwan and Thailand, as well as Pakistan
and Indochina as their markets become more accessible ("Asian Issuers.") The
Fund is not intended as a complete investment program due to risks of investing
in the Fund. For a description of risks inherent in investing in the Fund see
"Risk Factors" on page 13 and "Portfolio Turnover" on page 12.
The Fund is a series of INVESCO Specialty Funds, Inc. (the "Company"), a
diversified, open-end, managed, no-load mutual fund consisting of five separate
portfolios of investments. Separate prospectuses are available upon request from
INVESCO Funds Group, Inc. for the Company's other funds, INVESCO Worldwide
Capital Goods Fund, INVESCO Worldwide Communications Fund, INVESCO European
Small Company Fund and INVESCO Latin American Growth Fund. Investors may
purchase shares of any or all of the Funds. Additional funds may be offered in
the future.
This prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated September 11, 1995, as supplemented, has been filed with
the Securities and Exchange Commission and is incorporated by reference into
this prospectus. To obtain a free copy, write to INVESCO Funds Group, Inc., P.O.
Box 173706, Denver, Colorado 80217-3706; or call 1-800-525-8085.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
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TABLE OF CONTENTS Page
ANNUAL FUND EXPENSES 2
PERFORMANCE DATA 3
INVESTMENT OBJECTIVE AND POLICIES 3
RISK FACTORS 7
THE FUND AND ITS MANAGEMENT 10
HOW SHARES CAN BE PURCHASED 11
SERVICES PROVIDED BY THE FUND 13
HOW TO REDEEM SHARES 16
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS 17
ADDITIONAL INFORMATION 18
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ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares other than a fee to redeem or exchange shares held less than 90 days.
(See "Shareholder Transaction Expenses") . The Fund, however, is authorized to
pay a distribution fee pursuant to Rule 12b-1 under the Investment Company Act
of 1940. (See "How Shares Can Be Purchased--Distribution Expenses.") Lower
expenses benefit Fund shareholders by increasing the Fund's total return.
Shareholder Transaction Expenses
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Sales load "charge" on purchases None
Sales load "charge" on reinvested dividends None
Redemption fees 1.00%*
Exchange fees 1.00%*
Annual Fund Operating Expenses
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(as a percentage of average net assets)
Management Fee 0.75%
12b-1 Fees 0.25%
Other Expenses 1.00%
(after voluntary expense limitation)(1)
Transfer Agency Fee(2) 0.20%
General Services, Administrative 0.80%
Services, Registration, Postage (3)
Total Fund Operating Expenses 2.00%
(after voluntary expense limitation)(1)
*There is a 1% fee retained by the Fund to offset transaction costs and
other expenses associated with short-term redemptions and exchanges, which is
imposed only on redemptions or exchanges of shares held less than 90 days.
(1) Based on estimated expenses for the current fiscal year. If necessary,
certain Fund expenses will be absorbed voluntarily for at least the first fiscal
year of the Fund's operations in order to ensure that expenses for the Fund will
not exceed 2.00% of the Fund's average net assets pursuant to an agreement among
the Fund, INVESCO Funds Group, Inc. and INVESCO Asia Limited. If such voluntary
expense limit were not in effect, the Fund's "Other Expenses" and "Total Fund
Operating Expenses" for the fiscal year ending July 31, 1996 are estimated to be
1.09% and 2.29%, respectively, of the Fund's average net assets. Actual expenses
are not provided because the Fund did not begin a public offering of its
securities until March 1, 1996.
(2) Consists of the transfer agency fee described under "Additional
Information-Transfer and Dividend Disbursing Agent."
(3) Includes, but is not limited to, fees and expenses of directors,
custodian bank, legal counsel and auditors, securities pricing services, costs
of administrative services under an Administrative Services Agreement, costs of
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registration of Fund shares under applicable laws, and costs of printing and
distributing reports to shareholders.
Example
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
1 Year 3 Years
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$21 $63
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. Such expenses are paid from the Fund's assets. (See "The Fund and
Its Management.") The above figures are estimates, since the Fund did not
commence a public offering of securities until March 1, 1996. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The assumed 5% annual return
is hypothetical and should not be considered a representation of past or future
annual returns, which may be greater or less than the assumed amount.
As a result of the 0.25% 12b-1 fee paid by the Fund, investors who own
Fund shares for a long period of time may pay more than the economic equivalent
of the maximum front-end sales charge permitted for mutual funds by the National
Association of Securities Dealers, Inc.
PERFORMANCE DATA
From time to time, the Fund may advertise its total return performance.
These figures are based upon historical investment results and are not intended
to indicate future performance. The "total return" of the Fund refers to the
average annual rate of return of an investment in the Fund. This figure is
computed by calculating the percentage change in value of an investment of
$1,000, assuming reinvestment of all income dividends and capital gain
distributions, to the end of a specified period. Periods of one year, five
years, ten years and/or life of the Fund are generally used. Thus, a report of
total return performance should not be considered as representative of future
performance. The Fund charges no sales loads, redemption fees, or exchange fees
that would affect the total return computation.
In conjunction with performance reports and/or analyses of shareholder
service for the Fund, comparative data between the Fund's performance for a
given period and recognized indices of investment results for the same period,
and/or assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company,
Standard & Poor's, Lipper Analytical Services, Inc., Lehman Brothers, National
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Association of Securities Dealers Automated Quotations, Frank Russell Company,
Value Line Investment Survey, the American Stock Exchange, Morgan Stanley
Capital International, Wilshire Associates, the Financial Times-Stock Exchange,
the New York Stock Exchange, the Nikkei Stock Average and the Deutcher
Aktienindex, all of which are unmanaged market indicators. In addition,
rankings, ratings, and comparisons of investment performance and/or assessments
of the quality of shareholder service appearing in publications such as Money,
Forbes, Kiplinger's Personal Finance, Morningstar, and similar sources which
utilize information compiled (i) internally; (ii) by Lipper Analytical Services,
Inc.; or (iii) by other recognized analytical services may be used in
advertising. The Lipper Analytical Services, Inc. mutual fund rankings and
comparisons, which may be used by the Fund in performance reports, will be drawn
from the "Pacific Region" Lipper mutual fund grouping, in addition to the
broad-based Lipper general fund grouping.
INVESTMENT OBJECTIVE AND POLICIES
INVESCO Asian Growth Fund seeks to achieve capital appreciation by
investing, under normal circumstances, at least 65% of its total assets in
equity securities (common stocks and, to a lesser degree, shares of other
investment companies, preferred stocks and securities convertible into common
stocks such as rights, warrants and convertible debt securities) of large and
small companies domiciled or with primary operations in Asia, excluding Japan.
The foregoing investment objective is fundamental and may not be changed without
the approval of the Fund's shareholders. For purposes of the Fund, Asia
territories will include, but not necessarily be limited to: China, Hong Kong,
India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and
Thailand, as well as Pakistan and Indochina as their markets become more
accessible. The Fund defines securities of Asian Issuers as any issuer which, in
the opinion of the Fund's investment adviser or sub-adviser (collectively, "Fund
Management"), issues: (1) securities of companies organized under the laws of an
Asian territory, other than Japan; (2) securities of companies for which the
principal securities trading market is in Asian territories; (3) securities
issued or guaranteed by a government agency, instrumentality, political
subdivision, or central bank of an Asian territory; (4) securities of issuers,
wherever organized, with at least 50% of the issuer's assets, gross revenues, or
profit in any one of the two most current fiscal years derived from activities
or assets in Asian territories, other than Japan; or (5) securities of Asian
Issuers, as defined above, in the form of depository shares or receipts. Under
normal circumstances, the Fund will invest at least 65% of its total assets in
issuers domiciled in at least five countries, although Fund Management expects
the Fund's investments to be allocated among a larger number of countries. While
more than 25% of the Fund's total assets on occasion may be invested in
securities of Asian issuers domiciled in, or with primary operations in, a
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single country, Fund Management does not normally intend to manage the Fund's
investments with the view of investing more than 25% of the Fund's total assets
in securities of Asian Issuers domiciled in, or with primary operations in, any
one particular country.
The Fund has not established any minimum investment standards, such as
earnings history, type of industry, dividend payment history, etc. with respect
to the Fund's investments in foreign equity securities and, therefore, investors
in the Fund should consider that investments may consist of securities that may
be deemed to be speculative.
The economies of Asian countries may vary widely in their condition, and
may be subject to certain changes that could have a positive or negative impact
on the Fund. Investments in foreign securities involve certain risks which are
discussed below under "Risk Factors."
The securities in which the Fund invests will typically be listed on the
principal stock exchanges in these countries, or in the secondary or junior
markets, although the Fund may purchase securities listed on the
over-the-counter market in these countries. While Fund Management believes that
smaller companies can offer greater growth potential than larger, more
established firms, the former also involve greater risk and price volatility. To
help reduce risk, Fund Management expects, under normal market conditions, to
vary its portfolio investments by company, industry and country. Investments in
foreign securities involve certain risks which are discussed below under "Risk
Factors."
Consistent with its investment objective, the balance of the Fund's assets
may be invested in debt securities (corporate bonds, commercial paper, debt
securities issued by the U.S. government, its agencies and instrumentalities,
Asian Issuers or foreign governments and, to a lesser extent, municipal bonds,
asset-backed securities and zero coupon bonds). The Fund may invest no more than
30% of its total assets in debt securities that are rated below BBB by Standard
& Poor's "S&P") or Baa by Moody's Investors Service, Inc. ("Moody's") or, if
unrated, that are judged by Fund Management to be equivalent in quality to debt
securities having such ratings (commonly referred to as "junk bonds"). In no
event will the Fund ever invest in a debt security rated below CCC by S&P or Caa
by Moody's or, if unrated, is judged by Fund Management to be equivalent in
quality to debt securities having such ratings. The risks of investing in lower
rated debt securities are discussed below under "Risk Factors."
The amounts invested in stocks, bonds and cash securities may be varied
from time to time, depending upon Fund Management's assessment of business,
economic and market conditions. However, the Fund does not currently intend to
invest any portion of its assets in Japan. In periods of abnormal economic and
market conditions, as determined by Fund Management, the Fund may depart from
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its basic investment objective and assume a temporary defensive position, with
up to 100% of its assets invested in U.S. government and agency securities,
investment grade corporate bonds, or cash securities such as domestic
certificates of deposit and banker's acceptances, repurchase agreements and
commercial paper. The Fund reserves the right to hold equity, fixed income and
cash securities in whatever proportion is deemed desirable at any time for
temporary defensive purposes. While the Fund is in a temporary defensive
position, the opportunity to achieve capital appreciation will be limited;
however, the ability to maintain a temporary defensive position enables the Fund
to seek to avoid capital losses during market downturns. Under normal market
conditions, the Fund does not expect to have a substantial portion of its assets
invested in cash securities.
As a non-fundamental policy, the Fund may purchase and write options on
securities (including index options and options on foreign securities) and may
invest in futures contracts for the purchase or sale of foreign currencies,
fixed-income securities and instruments based on financial indices
(collectively, "futures contracts"), options on futures contracts, forward
contracts and interest rate swaps and swap-related products, in order to hedge
its portfolio. Interest rate swaps involve the exchange by the Fund with another
party of their respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments. These practices and
instruments, some of which are known as derivatives, and their risks are
discussed below under "Risk Factors" and in the Statement of Additional
Information.
Additional information on certain types of securities in which the Fund
may invest is set forth below:
When-Issued Securities
The Fund may make commitments in an amount of up to 10% of the value of
its total assets at the time any commitment is made to purchase or sell equity
or debt securities on a when-issued or delayed delivery basis (i.e., securities
may be purchased or sold by the Fund with settlement taking place in the future,
often a month later or more). The payment obligation and, in the case of debt
securities, the interest rate that will be received on the securities generally
are fixed at the time the Fund enters into the commitment. During the period
between purchase and settlement, no payment is made by the Fund and no interest
accrues to the Fund. At the time of settlement, the market value of the security
may be more or less than the purchase price, and the Fund bears the risk of such
market value fluctuations. The Fund maintains cash, U.S. government securities,
or other high-grade debt obligations readily convertible into cash having an
aggregate value equal to the amount of such purchase commitments in a segregated
account until payment is made.
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Illiquid and Rule 144A Securities
The Fund is authorized to invest in securities that are illiquid because
they are subject to restrictions on their resale ("restricted securities") or
because, based upon their nature or the market for such securities, they are not
readily marketable. However, as a non-fundamental policy the Fund will not
purchase any such security if the purchase would cause the Fund to invest more
than 15% of its net assets in illiquid securities. Repurchase agreements
maturing in more than seven days will be considered as illiquid for purposes of
this restriction. Investments in illiquid securities involve certain risks to
the extent that the Fund may be unable to dispose of such a security at the time
desired or at a reasonable price. In addition, in order to resell a restricted
security, the Fund might have to bear the expense and incur the delays
associated with effecting registration.
Certain restricted securities that are not registered for sale to the
general public, but that can be resold to institutional investors ("Rule 144A
Securities"), may be purchased without regard to the foregoing 15% limitation if
a liquid institutional trading market exists. The liquidity of the Fund's
investments in Rule 144A Securities could be impaired if dealers or
institutional investors become uninterested in purchasing these securities. The
Company's board of directors has delegated to Fund Management the authority to
determine the liquidity of Rule 144A Securities pursuant to guidelines approved
by the board. The Fund has agreed with certain states that no more than 10% of
its total assets will be invested in restricted securities that are not eligible
for resale pursuant to Rule 144A. For more information concerning Rule 144A
Securities, see the Statement of Additional Information.
Repurchase Agreements
The Fund may enter into repurchase agreements with respect to debt
instruments eligible for investment by the Fund. These agreements are entered
into with member banks of the Federal Reserve System, registered broker-dealers,
and registered government securities dealers, which are deemed creditworthy by
Fund Management. A repurchase agreement, which may be considered a "loan" under
the Investment Company Act of 1940 (the "1940 Act"), is a means of investing
monies for a short period. In a repurchase agreement, the Fund acquires a debt
instrument (generally a security issued by the U.S. government or an agency
thereof, a banker's acceptance, or a certificate of deposit) subject to resale
to the seller at an agreed upon price and date (normally, the next business
day). In the event that the original seller defaults on its obligation to
repurchase the security, the Fund could incur costs or delays in seeking to sell
such security. To minimize risk, the securities underlying each repurchase
agreement will be maintained with the Fund's custodian in an amount at least
equal to the repurchase price under the agreement (including accrued interest),
and such agreements will be effected only with parties that meet certain
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creditworthiness standards established by the Company's board of directors. The
Fund will not enter into a repurchase agreement maturing in more than seven days
if as a result more than 15% of its net assets would be invested in such
repurchase agreements and other illiquid securities. The Fund has not adopted
any limit on the amount of its net assets that may be invested in repurchase
agreements maturing in seven days or less.
Portfolio Turnover
The Fund has no fixed limitations regarding portfolio turnover. Although
the Fund does not trade for short-term profits, securities may be sold without
regard to the time they have been held in the Fund when, in the opinion of Fund
Management, investment considerations warrant such action. In addition,
portfolio turnover rates may increase as a result of large amounts of purchases
or redemptions of Fund shares due to economic, market or other factors that are
not within the control of Fund Management. As a result, while it is anticipated
that the portfolio turnover rate for the Fund's portfolio generally will not
exceed 200%, under certain market conditions the portfolio turnover rate may
exceed 200%. A portfolio turnover rate in excess of 100% may be considered
higher than that of other investment companies seeking capital appreciation.
Increased portfolio turnover would cause the 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. The Fund's
portfolio turnover rate, along with the Fund's brokerage allocation policies,
are discussed further in the Statement of Additional Information.
Investment Restrictions
The Fund is subject to a variety of restrictions regarding its investments
that are set forth in this prospectus and in the Statement of Additional
Information. Certain of the Fund's investment restrictions are fundamental, and
may not be altered without the approval of the Fund's shareholders. Such
fundamental investment restrictions include the restrictions which prohibit a
Fund from: lending more than 33-1/3% of its total assets to other parties
(excluding purchases of commercial paper, debt securities and repurchase
agreements); investing more than 25% of the value of the Fund's total assets in
one industry (other than government securities); with respect to 75% of its
total assets, purchasing the securities of any one issuer (other than cash items
and government securities) if the purchase would cause the Fund to have more
than 5% of its total assets invested in the issuer or to own more than 10% of
the outstanding voting securities of the issuer; and borrowing money or issuing
senior securities except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) except the Fund may enter
into reverse repurchase agreements in an aggregate amount not exceeding 33-1/3%
of its total assets. However, unless otherwise noted, the Fund's investment
restrictions and its investment policies are not fundamental and may be changed
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by action of the Company's board of directors. Unless otherwise noted, all
percentage limitations contained in the Fund's investment policies and
restrictions apply at the time an investment is made. Thus, subsequent changes
in the value of an investment after purchase or in the value of the Fund's total
assets will not cause any such limitation to have been violated or to require
the disposition of any investment, except as otherwise required by law. If the
credit ratings of an issuer are lowered below those specified for investment by
the Fund, the Fund is not required to dispose of the obligations of that issuer.
The determination of whether to sell such an obligation will be made by Fund
Management based upon an assessment of credit risk and the prevailing market
price of the investment. If the Fund borrows money, its share price may be
subject to greater fluctuation until the borrowing is repaid. The Fund attempts
to minimize such fluctuations by not purchasing additional securities when
borrowings, including reverse repurchase agreements, are greater than 5% of the
value of the Fund's total assets. The Fund does not intend to invest more than
5% of its assets in reverse repurchase agreements. As a fundamental policy in
addition to the above, the Fund may, notwithstanding any other investment policy
or limitation (whether or not fundamental), invest all of its assets in the
securities of a single open-end management investment company with substantially
the same fundamental investment objectives, policies and limitations as the
Fund. See "Additional Information- Master/Feeder Option."
RISK FACTORS
There can be no assurance that the Fund will achieve its investment
objective. The Fund's investments in common stocks and other equity securities
may, of course, decline in value. The Fund's assets will be invested primarily
in Asian Issuers. Investors should realize that investing in securities of Asian
Issuers involves certain risks and special considerations, including those set
forth below, which are not typically associated with investing in securities of
U.S. issuers. Further, certain investments that the Fund may purchase, and
investment techniques that the Fund may use, involve risks including those set
forth below.
Investment in the Fund involves above-average investment risk. It is
designed as a long-term investment and not for short-term trading purposes, and
should not be considered a complete investment program.
Political and Economic Risks
The Fund may make investments in developing countries which involve
exposure to economic structures that generally are less diverse and mature than
in the United States, and to political systems which may be less stable. A
developing country can be considered to be a country which is in the initial
stages of its industrialization cycle. In the past, markets of developing
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countries have been more volatile than the markets of developed countries;
however, such markets often have provided higher rates of return to investors.
Investing in securities of issuers in Asian countries involves certain
considerations not typically associated with investing in securities of United
States companies, including (1) restrictions on foreign investment and on
repatriation of capital invested in Asian countries, (2) currency fluctuations,
(3) the cost of converting foreign currency into United States dollars, (4)
potential price volatility and lesser liquidity of shares traded on Asian
country securities markets and (5) political and economic risks, including the
risk of nationalization or expropriation of assets and the risk of war.
Certain Asian countries are more vulnerable to the ebb and flow of
international trade, trade barriers and other protectionist or retaliatory
measures. Investments in countries that have recently opened their capital
market, including China, which appear to have relaxed their central planning
requirement and those that have privatized some of their state-owned industries
toward free markets, should be regarded as speculative.
Securities Markets
The settlement period of securities transactions in foreign markets may be
longer than in domestic markets. These considerations are generally more of a
concern in developing countries. For example, the possibility of political
upheaval and the dependence on foreign economic assistance may be greater in
these countries than developed countries.
Securities exchanges and broker-dealers in some Asian countries are
subject to less regulatory scrutiny than in the United States, as are Asian
Issuers in such countries. The limited size of the markets for securities may
enable adverse publicity, investors' perceptions or traders' positions or
strategies to affect prices unduly, at times decreasing not only the value but
also the liquidity of the Fund's investments. The Fund may invest no more than
15% of its net assets at the time of investment in illiquid securities.
Securities the proceeds of which are subject to limitations on repatriation of
principal or profits for more than seven days, and those for which there ceases
to be a ready market, will be deemed illiquid for this purpose.
Foreign Securities
Due to the absence of established securities markets in certain Asian
countries there may be restrictions on investment by foreigners in the
securities of companies in these countries, and difficulties in removing from
certain of these countries the dollars invested in such companies; the Fund's
ability to invest in certain countries may be restricted to the use of
investment vehicles authorized by the local government, investment in shares of
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other investment companies; or investments in American Depository Receipts
("ADRs"), American Depository Shares, and Global Depository Shares.
ADRs are receipts, typically issued by a U.S. bank or trust company,
evidencing ownership of the underlying securities. ADRs are denominated in U.S.
dollars and trade in the U.S. markets. ADRs may be issued in sponsored or
unsponsored programs. In sponsored programs, the issuer makes arrangements to
have its securities traded in the form of ADRs; in unsponsored programs, the
issuer may not be directly involved in the creation of the program. Although the
regulatory requirements with respect to sponsored and unsponsored programs are
generally similar, the issuers of unsponsored ADRs are not obligated to disclose
material information in the United States and, therefore, such information may
not be reflected in the market value of the ADRs. ADRs are subject to certain of
the same risks as direct investments in foreign securities, including the risk
that changes in the value of the currency in which the security underlying an
ADR is denominated relative to the U.S. dollar may adversely affect the value of
the ADR.
As indicated above, the Fund may deem it most practical to invest in
certain countries through other investment companies or similar vehicles,
although there can be no assurance that any such vehicles will be available or
will themselves have invested in the securities found most desirable by the
Fund. The Fund will not invest through other entities unless, in the opinion of
Fund Management, the potential advantages of such investment justify the Fund's
bearing its ratable share of the expenses of such entity (constituting duplicate
levels of advisory fees to be borne by the Fund and its shareholders) and its
share of any premium encompassed in the market value of such entity at the time
of the Fund's investment over the market value of the entity's underlying
holdings. In addition, there may be tax ramifications relating to investment in
such entities. Investments by the Fund in other investment companies are subject
to the following limits imposed by the 1940 Act: no more than 5% of the Fund's
total assets may be invested in any one investment company (but no more than 3%
of the voting stock of the underlying investment company) and no more than 10%
of the Fund's total assets may be invested in other investment companies in the
aggregate.
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
fluctuation (i.e., changes in the value of the currencies in which the
securities are denominated relative to the U.S. dollar). In a period when the
U.S. dollar generally rises against foreign currencies, the returns on foreign
securities for a U.S. investor may be reduced. By contrast, in a period when the
U.S. dollar generally declines, the returns on foreign securities generally may
be enhanced.
Other risks and considerations of international investing include the
following: differences in accounting, auditing and financial reporting
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standards, which may result in less publicly available information than is
generally available with respect to U.S. issuers; generally higher commission
rates on foreign portfolio transactions and longer settlement periods; the
smaller trading volumes and generally lower liquidity of foreign stock markets,
which may result in greater price volatility; foreign withholding taxes payable
on income and/or gains from the Fund's foreign securities, which may reduce
dividend and/or interest income or capital gains available for distribution to
shareholders; the possibility of expropriation or confiscatory taxation; adverse
changes in investment or exchange control regulations; political instability
which could affect U.S. investment in foreign countries; potential restrictions
on the flow of international capital; and the possibility of the Fund
experiencing difficulties in pursuing legal remedies and collecting judgments.
Debt Securities
The Fund's investments in debt securities generally are subject to both
credit risk and market risk. Credit risk relates to the ability of the issuer to
meet interest or principal payments, or both, as they come due. Market risk
relates to the fact that the market values of the debt securities in which the
Fund invests generally will be affected by changes in the level of interest
rates. An increase in interest rates will tend to reduce the market values of
debt securities, whereas a decline in interest rates will tend to increase their
values. Although Fund Management limits the Fund's investments in fixed-income
securities to securities it believes are not highly speculative, both kinds of
risk are increased by investing in debt securities rated below the top three
grades by Standard & Poor's or Moody's or, if unrated, securities determined by
Fund Management to be of equivalent quality. The Fund expects that most foreign
debt securities in which it would invest will not be rated by U.S. rating
services. Although bonds in the lowest investment grade debt category (those
rated BBB by Standard & Poor's or Baa by Moody's) are regarded as having
adequate capability to pay principal and interest, they have speculative
characteristics. Adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case for higher rated bonds. Lower rated bonds by Moody's
(categories Ba, B, Caa) are of poorer quality and also have speculative
characteristics. Bonds rated Caa may be in default or there may be present
elements of danger with respect to principal or interest. Lower rated bonds by
Standard & Poor's (categories BB, B, CCC) include those which are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with their terms; BB indicates
the lowest degree of speculation and CCC a high degree of speculation. While
such bonds likely will have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
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conditions. For a specific description of each corporate bond rating category,
please refer to Appendix B to the Statement of Additional Information.
Futures, Options and Other Derivative Instruments
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 will be committed to such investments. If
Fund Management seeks to protect the Fund against potential adverse movements in
the securities, foreign currency or interest rate markets using these
instruments, and such markets do not move in a direction adverse to the Fund,
the Fund could be left in a less favorable position than if such strategies had
not been used. 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; (2) imperfect
correlation between the price of futures, options and forward contracts and
movements in the prices of the securities or currencies being hedged; (3) the
fact that skills needed to use these strategies are different from those needed
to select portfolio securities; (4) the possible absence of a liquid secondary
market for any particular instrument at any time; and (5) the possible need to
defer closing out certain hedged positions to avoid adverse tax consequences.
Further information on the use of futures, options, forward foreign currency
contracts and swaps and swap-related products, and the associated risks, is
contained in the Statement of Additional Information.
Securities Lending
The Fund may seek to earn additional income by lending securities to
qualified brokers, dealers, banks, or other financial institutions, on a fully
collateralized basis. For further information on this policy, see "Investment
Policies and Restrictions" in the Statement of Additional Information.
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as an open-end, diversified, management investment company.
It was incorporated on April 12, 1994, under the laws of Maryland. The overall
supervision of the Fund is the responsibility of the Company's board of
directors.
Pursuant to an agreement with the Company, INVESCO Funds Group, Inc.
("INVESCO"), 7800 E. Union Avenue, Denver, Colorado, serves as the Fund's
investment adviser. INVESCO is primarily responsible for providing the Fund with
various administrative services and supervising the Fund's daily business
affairs. These services are subject to review by the Company's board of
directors.
INVESCO is an indirect wholly-owned subsidiary of INVESCO PLC. INVESCO PLC
is a financial holding company that, through its subsidiaries, engages in the
<PAGE>
business of investment management on an international basis. INVESCO was
established in 1932 and, as of October 31, 1995, managed 14 mutual funds,
consisting of 38 separate portfolios, with combined assets of approximately $10
billion on behalf of approximately 784,000 shareholders.
Pursuant to an agreement with INVESCO, INVESCO Asia Limited ("INVESCO
Asia") serves as the sub-adviser to the Fund. In that capacity, INVESCO Asia has
the primary responsibility, under the supervision of INVESCO, for providing
portfolio management services to the Fund. INVESCO Asia is an indirect
wholly-owned subsidiary of INVESCO PLC. INVESCO Asia, subject to the supervision
of INVESCO, is primarily responsible for selecting and managing the Fund's
investments. Although the Company is not a party to the sub-advisory agreement,
the agreement has been approved by INVESCO as the then sole shareholder of the
Fund.
The following individual serves as lead portfolio manager for the Fund and
is primarily responsible for determining, in accordance with senior investment
policy group, the country-by- country allocation of the portfolio's assets,
overall stock selection methodology and the ongoing implementation and risk
control policies applicable to the portfolio:
William Barron Portfolio manager of the Fund since 1996
(inception); Director and portfolio
manager for INVESCO Asia Limited since
1995; formerly (1990-1995), portfolio
manager, Aetna Investment Management Hong
Kong, Limited and (1985-1990) portfolio
manager for Chase Manhattan Trust; began
investment career in 1986; BA in
Government from Harvard University. He
is a Chartered Financial Analyst.
Mr. Barron heads a team of individual country specialists who are
responsible for managing security selections for their assigned country's share
of the allocation within the parameters established by INVESCO Asia's investment
policy group.
The Fund pays INVESCO a monthly advisory fee which is based upon a
percentage of the net assets of the Fund, determined daily. The maximum advisory
fee is computed 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 the Fund's average
net assets and 0.55% on the Fund's average net assets over $1 billion. The
management fee on 0.75% is higher than that charged by most other mutual funds,
but is typical of the management fees charged by funds similar to the Asian
Growth Fund.
Out of its advisory fee which it receives from the Fund, INVESCO pays
INVESCO Asia, as sub-adviser to the Fund, a monthly fee, which is computed at
<PAGE>
the annual rate of 0.375% on the first $500 million of the Fund's average net
assets, 0.325% on the next $500 million of the Fund's average net assets and
0.275% on the Fund's average net assets in excess of $1 billion. No fee is paid
by the Fund to INVESCO Asia.
The Company also has entered into an Administrative Services Agreement
(the "Administrative Agreement") with INVESCO. Pursuant to the Administrative
Agreement, INVESCO performs certain administrative, recordkeeping and internal
sub-accounting services, including without limitation, maintaining general
ledger and capital stock accounts, preparing a daily trial balance, calculating
net asset value daily, providing selected general ledger reports and providing
sub-accounting and recordkeeping services for Fund shareholder accounts
maintained by certain retirement and employee benefit plans for the benefit of
participants in such plans. For such services, the Fund pays 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 also is paid a fee by the Fund for providing transfer agent
services. See "Additional Information."
The Fund's expenses, which are accrued daily, are generally deducted from
the Fund's total income before dividends are paid. These expenses include the
fees of the investment adviser, distribution fees, legal, transfer agent,
custodian and auditor's fees, commissions, taxes, compensation of independent
directors, insurance premiums, printing, and other expenses relating to the
Fund's operations which are not expressly assumed by INVESCO under its
agreements with the Company. If necessary, certain expenses of the Fund will be
absorbed by INVESCO and INVESCO Asia voluntarily pursuant to a commitment to the
Fund for at least the first fiscal year of the Fund's operations in order to
ensure that the Fund's total expenses do not exceed 2.00%. This commitment may
be changed following consultation with the Company's board of directors. As of
the date of this prospectus, INVESCO held all of the outstanding shares of the
Fund and should be regarded as the control person of the Fund.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of
their financial responsibility coupled with their ability to effect transactions
at the best available prices. As discussed under "How Shares Can Be Purchased
Distribution Expenses," the Company may market shares of the Fund through
intermediary brokers or dealers that have entered into Dealer Agreements with
INVESCO, as the Company's distributor. The Fund may place orders for portfolio
transactions with qualified broker-dealers that recommend the Fund, or sell
shares of the Fund, to clients, or act as agent in the purchase of Fund shares
for clients, if Fund Management believes that the quality of the execution of
the transaction and level of commission are comparable to those available from
other qualified brokerage firms.
<PAGE>
Fund Management permits investment and other personnel to purchase and
sell securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires investment and other personnel to
conduct their personal investment activities in a manner that Fund Management
believes is not detrimental to the Funds or Fund Management's other advisory
clients. See the Statement of Additional Information for more detailed
information.
HOW SHARES CAN BE PURCHASED
Shares of the Fund are sold on a continuous basis by INVESCO, as the
Fund's distributor, at the net asset value per share next calculated after
receipt of a purchase order in good form. No sales charge is imposed upon the
sale of shares of the Fund. To purchase shares of the Fund, send a check made
payable to INVESCO Funds Group, Inc., together with a completed application
form, to:
INVESCO Funds Group, Inc.
Post Office Box 173706
Denver, Colorado 80217-3706
PURCHASE ORDERS MUST SPECIFY THE FUND IN WHICH THE INVESTMENT IS TO BE
MADE.
The minimum initial purchase must be at least $1,000, with subsequent
investments of not less than $50, except that: (1) those shareholders
establishing an EasiVest or direct payroll purchase account, as described below
in the prospectus section entitled "Services Provided by the Fund," may open an
account without making any initial investment if they agree to make regular,
minimum purchases of at least $50; (2) those shareholders investing in an
Individual Retirement Account ("IRA"), or through omnibus accounts where
individual shareholder recordkeeping and sub-accounting are not required, may
make initial minimum purchases of $250; (3) Fund Management may permit a lesser
amount to be invested in a Fund under a federal income tax-deferred retirement
plan (other than an IRA account), or under a group investment plan qualifying as
a sophisticated investor; and (4) Fund Management reserves the right to reduce
or waive the minimum purchase requirements in its sole discretion where it
determines such action is in the best interests of the Fund.
The purchase of Fund shares can be expedited by placing bank wire,
overnight courier or telephone orders. Overnight courier orders must meet the
above minimum requirements. In no case can a bank wire order or telephone order
be in an amount less than $1,000. For further information, the purchaser may
call the Fund's office by using the telephone number on the cover of this
prospectus. Orders sent by overnight courier, including Express Mail, should be
<PAGE>
sent to the street address, not Post Office Box, of INVESCO Funds Group, Inc.,
at 7800 E. Union Avenue, Denver, CO 80237.
Orders to purchase shares can be placed by telephone. Shares of the Fund
will be issued at the net asset value next determined after receipt of telephone
instructions. Generally, payments for telephone orders must be received by the
Fund within three business days or the transaction may be cancelled. In the
event of such cancellation, the purchaser will be held responsible for any loss
resulting from a decline in the value of the shares. In order to avoid such
losses, purchasers should send payments for telephone purchases by overnight
courier or bank wire. INVESCO has agreed to indemnify the Fund for any losses
resulting from the cancellation of telephone purchases.
If your check does not clear, or if a telephone purchase must be cancelled
due to nonpayment, you will be responsible for any related loss the Fund or
INVESCO incurs. If you are already a shareholder in the INVESCO funds, the Fund
has the option to redeem shares from any identically registered account in the
Fund or any other INVESCO fund as reimbursement for any loss incurred. You also
may be prohibited or restricted from making future purchases in any of the
INVESCO funds.
Persons who invest in the Fund through a securities broker may be charged
a commission or transaction fee by the broker for the handling of the
transaction if the broker so elects. Any investor may deal directly with the
Fund in any transaction. In that event, there is no such charge.
The Fund reserves the right in its sole discretion to reject any order for
purchase of its shares (including purchases by exchange) when, in the judgment
of Fund Management, such rejection is in the best interest of the Fund.
Net asset value per share is computed once each day that the New York
Stock Exchange is open as of the close of regular trading on that Exchange
(usually 4:00 p.m., New York time) and also may be computed on other days under
certain circumstances. Net asset value per share for the Fund is calculated by
dividing the market value of the Fund's securities plus the value of its other
assets (including dividends and interest accrued but not collected), less all
liabilities (including accrued expenses), by the number of outstanding shares of
that Fund. If market quotations are not readily available, a security or other
asset will be valued at fair value as determined in good faith by the board of
directors. Debt securities with remaining maturities of 60 days or less at the
time of purchase will be valued at amortized cost, absent unusual circumstances,
so long as the Company's board of directors believes that such value represents
fair value.
Distribution Expenses. The Fund is authorized under a Plan and Agreement of
Distribution pursuant to Rule 12b-1 under the 1940 Act (the "Plan") to use its
<PAGE>
assets to finance certain activities relating to the distribution of its shares
to investors. Under the Plan, monthly payments may be made by the Fund to
INVESCO to reimburse it for particular expenditures incurred by INVESCO in
connection with the distribution of the Fund's shares to investors. These
expenditures may include the payment of compensation (including incentive
compensation and/or continuing compensation based on the amount of customer
assets maintained in the Fund) to securities dealers and other financial
institutions and organizations, which may include INVESCO affiliated companies,
to obtain various distribution-related and/or administrative services for the
Fund. Such services may include, among other things, processing new shareholder
account applications, preparing and transmitting to the Fund's Transfer Agent
computer processable tapes of all transactions by customers, and serving as the
primary source of information to customers in answering questions concerning the
Fund and their transactions with the Fund.
In addition, other reimbursable expenditures include those incurred for
advertising, the preparation and distribution of sales literature, the cost of
printing and distributing prospectuses to prospective investors, and such other
services and promotional activities for the Fund as may from time to time be
agreed upon by the Company and its board of directors, including public
relations efforts and marketing programs to communicate with investors and
prospective investors. These services and activities may be conducted by the
staff of INVESCO or its affiliates or by third parties.
Under the Plan, the Company's reimbursement to INVESCO on behalf of the
Fund is limited to an amount computed at an annual rate of .25% of the Fund's
average net assets during the month. INVESCO is not entitled to reimbursement
for overhead expenses under the Plan, but may be reimbursed for all or a portion
of the compensation paid for salaries and other employee benefits for the
personnel of INVESCO whose primary responsibilities involve marketing shares of
the INVESCO funds, including the Fund. Payment amounts by the Fund under the
Plan, for any month, may only be made to reimburse or pay expenditures incurred
during the rolling 12- month period in which that month falls, although this
period is expanded to 24 months for expenses incurred during the first 24 months
of the Fund's operations. Therefore, any reimbursable expenses incurred by
INVESCO in excess of the limitations described above are not reimbursable and
will be borne by INVESCO. In addition, INVESCO may from time to time make
additional payments from its revenues to securities dealers and other financial
institutions that provide distribution-related and/or administrative services
for the Fund. No further payments will be made by the Fund under the Plan in the
event of its termination. Also, any payments made by the Fund may not be used to
finance the distribution of shares of any other fund of the Company or other
mutual fund advised by INVESCO. Payments made by the Fund under the Plan for
<PAGE>
compensation of marketing personnel, as noted above, are based on an allocation
formula designed to ensure that all such payments are appropriate.
SERVICES PROVIDED BY THE FUND
Shareholder Accounts. INVESCO maintains a share account that reflects the
current holdings of each shareholder. Share certificates will be issued only
upon specific request. Since certificates must be carefully safeguarded, and
must be surrendered in order to exchange or redeem Fund shares, most
shareholders do not request share certificates in order to facilitate such
transactions. Each shareholder is sent a detailed confirmation of each
transaction in shares of the Fund. Shareholders whose only transactions are
through the EasiVest, direct payroll purchase, automatic monthly exchange or
periodic withdrawal programs, or are reinvestments of dividends or capital gains
in the same or another fund, will receive confirmations of those transactions on
their quarterly statements. These programs are discussed below. For information
regarding a shareholder's account and transactions, the shareholder may call the
Fund's office by using the telephone number on the cover of this Prospectus.
Reinvestment of Distributions. Dividends and other distributions are
automatically reinvested in additional shares of the Fund at the net asset value
per share in effect on the ex- dividend date. A shareholder may, however, elect
to reinvest dividends and other distributions in certain of the other no-load
mutual funds advised and distributed by INVESCO, or to receive payment of all
dividends and other distributions in excess of $10.00 by check by giving written
notice to INVESCO at least two weeks prior to the record date on which the
change is to take effect. Further information concerning these options can be
obtained by contacting INVESCO.
Periodic Withdrawal Plan. A Periodic Withdrawal Plan is available to
shareholders who own or purchase shares of any mutual funds advised by INVESCO
having a total value of $10,000 or more; provided, however, that at the time the
Plan is established, the shareholder owns shares having a value of at least
$5,000 in the fund from which the withdrawals will be made. Under the Periodic
Withdrawal Plan, INVESCO, as agent, will make specified monthly or quarterly
payments of any amount selected (minimum payment of $100) to the party
designated by the shareholder. Notice of all changes concerning the Periodic
Withdrawal Plan must be received by INVESCO at least two weeks prior to the next
scheduled check. Further information regarding the Periodic Withdrawal Plan and
its requirements and tax consequences can be obtained by contacting INVESCO.
Exchange Privilege. Shares of the Fund may be exchanged for shares of any
other fund of the Company, as well as for shares of any of the following other
no-load mutual funds, which are also advised and distributed by INVESCO, on the
basis of their respective net asset values at the time of the exchange: INVESCO
<PAGE>
Diversified Funds, Inc., INVESCO Dynamics Fund, Inc., INVESCO Emerging
Opportunity Funds, Inc., INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc.,
INVESCO Industrial Income Fund, Inc., INVESCO International Funds, Inc., INVESCO
Money Market Funds, Inc., INVESCO Multiple Asset Funds, Inc., INVESCO Strategic
Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc. and INVESCO Value Trust.
Upon an exchange of shares held less than 90 days (other than shares
acquired through reinvestment of dividends or other distributions), a fee of 1%
of the current net asset value of the shares being exchanged will be assessed
and retained by the Fund for the benefit of the remaining shareholders. This fee
is intended to encourage long-term investment in the Fund, to avoid transaction
and other expenses caused by early redemptions or exchanges, and to facilitate
portfolio management. The fee is not a deferred sales charge, is not a
commission paid to INVESCO, and does not benefit INVESCO in any way. The fee
applies to redemptions from the Fund and exchanges into any of the other no-load
mutual funds which are also advised and distributed by INVESCO. The Fund will
use the "first-in, first-out" method to determine the 90 day holding period.
Under this method the date of redemption or exchange will be compared with the
earliest purchase date of shares held in the account. If this holding period is
less than 90 days as to any shares, the redemption/exchange fee will be assessed
on the current net asset value of those shares.
An exchange involves the redemption of shares in the Fund and investment
of the redemption proceeds in shares of another fund of the Company or in shares
of one of the funds listed above. Exchanges will be made at the net asset value
per share next determined after receipt of an exchange request in proper order.
Any gain or loss realized on such an exchange is recognizable for federal income
tax purposes by the shareholder. Exchange requests may be made either by
telephone or by written request to INVESCO Funds Group, Inc., using the
telephone number or address on the cover of this prospectus. Exchanges made by
telephone must be in an amount of at least $250, if the exchange is being made
into an existing account of one of the INVESCO funds. All exchanges that
establish a new account must meet the Fund's applicable minimum initial
investment requirements. Written exchange requests into an existing account have
no minimum requirements other than the Fund's applicable minimum subsequent
investment requirements.
The privilege of exchanging Fund shares by telephone is available to
shareholders automatically unless expressly declined. By signing the New Account
Application, a Telephone Transaction Authorization Form or otherwise utilizing
telephone exchange privileges, the investor has agreed that the Fund will not be
liable for following instructions communicated by telephone that it reasonably
believes to be genuine. The Fund employs procedures, which it believes are
reasonable, designed to confirm that exchange instructions are genuine. These
may include recording telephone instructions and providing written confirmations
<PAGE>
of exchange transactions. As a result of this policy, the investor may bear the
risk of any loss due to unauthorized or fraudulent instructions; provided,
however, that if the Fund fails to follow these or other reasonable procedures,
the Fund may be liable.
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, the Fund reserves the right to terminate the exchange privilege of
any shareholder who requests more than four exchanges in a year. The Fund will
determine whether to do so based on a consideration of both the number of
exchanges any particular shareholder or group of shareholders has requested and
the time period over which those exchange requests have been made, together with
the level of expense to the Fund which will result from effecting additional
exchange requests. The exchange privilege also may be modified or terminated at
any time. Except for those limited instances where redemptions of the exchanged
security are suspended under Section 22(e) of the 1940 Act, or where sales of
the fund into which the shareholder is exchanging are temporarily stopped,
notice of all such modifications or termination of the exchange privilege will
be given at least 60 days prior to the date of termination or the effective date
of the modification.
Before making an exchange, the shareholder should review the prospectuses
of the funds involved and consider their differences, and should be aware that
the exchange privilege may only be available in those states where exchanges
legally may be made, which will require that the shares being acquired are
registered for sale in the shareholder's state of residence. Shareholders
interested in exercising the exchange privilege may contact INVESCO for
information concerning their particular exchanges.
Automatic Monthly Exchange. Shareholders who have accounts in any one or
more of the mutual funds distributed by INVESCO may arrange for a fixed dollar
amount of their fund shares to be automatically exchanged for shares of any
other INVESCO mutual fund listed under "Exchange Privilege" on a monthly basis.
The minimum monthly exchange in this program is $50.00. This automatic exchange
program can be changed by the shareholder at any time by notifying INVESCO at
least two weeks prior to the date the change is to be made. Further information
regarding this service can be obtained by contacting INVESCO.
EasiVest. For shareholders who want to maintain a schedule of monthly
investments, EasiVest uses various methods to draw a preauthorized amount from
the shareholder's bank account to purchase Fund shares. This automatic
investment program can be changed by the shareholder at any time by writing to
INVESCO at least two weeks prior to the date the change is to be made. Further
information regarding this service can be obtained by contacting INVESCO.
Direct Payroll Purchase. Shareholders may elect to have their employer make
automatic purchases of Fund shares for them by deducting a specified amount from
<PAGE>
their regular paychecks. This automatic investment program can be modified or
terminated at any time by the shareholder, by notifying the employer. Further
information regarding this service can be obtained by contacting INVESCO.
Tax-Deferred Retirement Plans. Shares of the Fund may be purchased for
self-employed individual retirement plans, IRAs, simplified employee pension
plans and corporate retirement plans. In addition, shares can be used to fund
tax qualified plans established under Section 403(b) of the Internal Revenue
Code of 1986 by educational institutions, including public school systems and
private schools, and certain kinds of non-profit organizations, which provide
deferred compensation arrangements for their employees.
Prototype forms for the establishment of these various plans, including,
where applicable, disclosure statements required by the Internal Revenue
Service, are available from INVESCO. INVESCO Trust Company, a subsidiary of
INVESCO, is qualified to serve as trustee or custodian under these plans and
provides the required services at competitive rates. Retirement plans (other
than IRAs) receive monthly statements reflecting all transactions in their Fund
accounts. IRAs receive the confirmations and quarterly statements described
under "Shareholder Accounts." For complete information, including prototype
forms and service charges, call INVESCO at the telephone number listed on the
cover of this prospectus or send a written request to: Retirement Services,
INVESCO Funds Group, Inc., Post Office Box 173706, Denver, Colorado 80217-3706.
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed at any time at their current net asset
value per share next determined after a request in proper form is received at
the Fund's office. (See "How Shares Can Be Purchased.") Net asset value per
share at the time of redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the Fund's investment
performance. Upon the redemption of shares held less than 90 days (other than
shares acquired through reinvestment of dividends or other distributions), a fee
of 1% of the current net asset value of the shares will be assessed and retained
by the Fund for the benefit of remaining shareholders. This fee is intended to
encourage long-term investment in the Fund, to avoid transaction and other
expenses caused by early redemptions or exchanges, and to facilitate portfolio
management. The fee is not a deferred sales charge, is not a commission paid to
INVESCO, and does not benefit INVESCO in any way. The fee applies to redemptions
from the Fund and exchanges into any of the other no-load mutual funds which are
also advised and distributed by INVESCO. The Fund will use the "first-in,
first-out" method to determine the 90 day holding period. Under this method the
date of redemption or exchange will be compared with the earliest purchase date
<PAGE>
of shares held in the account. If this holding period is less than 90 days as to
any shares, the redemption/exchange fee will be assessed on the current net
asset value of those shares.
If the shares to be redeemed are represented by stock certificates, a
written request for redemption signed by the registered shareholder(s) and the
certificates must be forwarded to INVESCO Funds Group, Inc., Post Office Box
173706, Denver, Colorado 80217-3706. Redemption requests sent by overnight
courier, including Express Mail, should be sent to the street address, not Post
Office Box, of INVESCO Funds Group, Inc. at 7800 E. Union Avenue, Denver, CO
80237. If no certificates have been issued, a written redemption request signed
by each registered owner of the account must be submitted to INVESCO at the
address noted above. If shares are held in the name of a corporation, additional
documentation may be necessary. Call or write for specifics. If payment for the
redeemed shares is to be made to someone other than the registered owner(s), the
signature(s) must be guaranteed by a financial institution which qualifies as an
eligible guarantor institution. Redemption procedures with respect to accounts
registered in the names of broker/dealers may differ from those applicable to
other shareholders.
BE CAREFUL TO SPECIFY THE ACCOUNT FROM WHICH THE REDEMPTION IS TO BE MADE.
SHAREHOLDERS HAVE A SEPARATE ACCOUNT FOR EACH FUND IN WHICH THEY INVEST.
Payment of redemption proceeds will be mailed within seven days following
receipt of the required documents. However, payment may be postponed under
unusual circumstances, such as when normal trading is not taking place on the
New York Stock Exchange, or an emergency as defined by the Securities and
Exchange Commission exists. If the shares to be redeemed were purchased by check
and that check has not yet cleared, payment will be made promptly upon clearance
of the purchase check (which may take up to 15 days).
If a shareholder participates in Easivest, the Fund's automatic monthly
investment program, and redeems all of the shares in his Fund account, INVESCO
will terminate any further Easivest purchases unless otherwise instructed by the
shareholder.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to effect the involuntary redemption of all
shares in such account, in which case the account would be liquidated and the
proceeds forwarded to the shareholder. Prior to any such redemption, a
shareholder will be notified and given 60 days to increase the value of the
account to $250 or more.
Fund shareholders (other than shareholders holding Fund shares in accounts
of IRA plans) may request expedited redemption of shares having a minimum value
of $250 (or redemption of all shares if their value is less than $250) held in
<PAGE>
accounts maintained in their name by telephoning redemption instructions to
INVESCO, using the telephone number on the cover of this prospectus. The
redemption proceeds, at the shareholder's option, either will be mailed to the
address listed for the shareholder's Fund account, or wired (minimum of $1,000)
or mailed to the bank which the shareholder has designated to receive the
proceeds of telephone redemptions. The Fund charges no fee for effecting such
telephone redemptions. Unless Fund Management permits a larger redemption
request to be placed by telephone, a shareholder may not place a redemption
request by telephone in excess of $25,000. These telephone redemption privileges
may be modified or terminated in the future at the discretion of Fund
Management.
For INVESCO Trust Company-sponsored federal income tax-deferred retirement
plans, the term "shareholders" is defined to mean plan trustees that file a
written request to be able to redeem Fund shares by telephone. Shareholders
should understand that, while the Fund will attempt to process all telephone
redemption requests on an expedited basis, there may be times, particularly in
periods of severe economic or market disruption, when (a) they may encounter
difficulty in placing a telephone redemption request, and (b) processing
telephone redemptions will require up to seven days following receipt of the
redemption request, or additional time because of the unusual circumstances set
forth above.
The privilege of redeeming Fund shares by telephone is available to
shareholders automatically unless expressly declined. By signing a New Account
Application, a Telephone Transaction Authorization Form or otherwise utilizing
telephone redemption privileges, the shareholder has agreed that the Fund will
not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine. The Fund employs procedures, which it
believes are reasonable, designed to confirm that telephone instructions are
genuine. These may include recording telephone instructions and providing
written confirmation of transactions initiated by telephone. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions; provided, however, that if the Fund fails to follow
these or other reasonable procedures, the Fund may be liable.
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders substantially all of
its net investment income, net capital gains and net gains from foreign currency
transactions, if any, in order to continue to qualify for tax treatment as a
regulated investment company. Thus, the Fund does not expect to pay any federal
income or excise taxes.
Unless shareholders are exempt from income taxes, they must include all
dividends and capital gain distributions in taxable income for federal, state,
and local income tax purposes. Dividends and other distributions are taxable
<PAGE>
whether they are received in cash or automatically invested in shares of the
Fund or another fund in the INVESCO group.
The Fund may be subject to the withholding of foreign taxes on dividends
or interest it receives on foreign securities. Foreign taxes withheld will be
treated as an expense of the Fund unless the Fund meets the qualifications to
enable it to pass these taxes through to shareholders for use by them as a
foreign tax credit or deduction.
Shareholders may be subject to backup withholding of 31% on dividends,
capital gain distributions and redemption proceeds. Unless a shareholder is
subject to backup withholding for other reasons, the shareholder can avoid
backup withholding on his Fund account by ensuring that INVESCO has a correct,
certified tax identification number.
Dividends and Capital Gain Distributions. The Fund earns ordinary or net
investment income, in the form of dividends and interest on its investments. The
Fund's policy is to distribute substantially all of this income, less Fund
expenses, to shareholders annually, at the discretion of the Company's board of
directors.
In addition, the Fund realizes capital gains and losses when it sells
securities for more or less than it paid. If total gains on sales exceed total
losses (including losses carried forward from previous years), the Fund has a
net realized capital gain. Net realized capital gains, if any, are distributed
to shareholders at least annually, usually in December.
Dividends and capital gain distributions are paid to shareholders who hold
shares on the record date of the distribution regardless of how long the shares
have been held. The Fund's share price will then drop by the amount of the
distribution on the day the distribution is made. If a shareholder purchases
shares immediately prior to the distribution, the shareholder will, in effect,
have "bought" the distribution by paying full purchase price, a portion of which
is then returned in the form of a taxable distribution.
At the end of each year, information regarding the tax status of dividends
and capital gain distributions is provided to shareholders. Net realized capital
gains are divided into short-term and long-term gains depending on how long the
Fund held the security which gave rise to the gains. The capital gain
distribution consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest as ordinary income and are paid to shareholders as dividends.
Shareholders also may realize capital gains or losses when they sell Fund
shares at more or less than the price originally paid.
<PAGE>
Shareholders are encouraged to consult their tax advisers with respect to
these matters. For further information see "Dividends, Capital Gain
Distributions and Taxes" in the Statement of Additional Information.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Fund have equal voting rights, based on
one vote for each share owned and a corresponding fractional vote for each
fractional share owned. Voting with respect to certain matters, such as
ratification of independent accountants and the election of directors, will be
by all funds of the Company voting together. In other cases, such as voting upon
the investment advisory contract, voting is on a fund-by-fund basis. To the
extent permitted by law, when not all funds are affected by a matter to be voted
upon, only shareholders of the Fund or funds affected by the matter will be
entitled to vote thereon. The Company is not generally required, and does not
expect, to hold regular annual meetings of shareholders. However, the board of
directors will call special meetings of shareholders for the purpose, among
other reasons, of voting upon the question of removal of a director or directors
when requested to do so in writing by the holders of 10% or more of the
outstanding shares of the Company or as may be required by applicable law or the
Company's Articles of Incorporation. The Company will assist shareholders in
communicating with other shareholders as required by the 1940 Act. Directors may
be removed by action of the holders of a majority or more of the outstanding
shares of the Company.
Master/Feeder Option. The Company may in the future seek to achieve the
Fund's investment objective by investing all of the Fund's assets in another
investment company or partnership having the same investment objective and
substantially the same investment policies and restrictions as those applicable
to the Fund. It is expected that any such investment company would be managed by
INVESCO in substantially the same manner as the existing Fund. If permitted by
applicable laws and policies then in effect, any such investment may be made in
the sole discretion of the Company's board of directors without further approval
of the shareholders of the Fund. However, Fund shareholders will be given at
least 30 days prior notice of any such investment. Such investment would be made
only if the Company's board of directors determines it to be in the best
interests of the Fund and its shareholders. In making that determination, the
board will consider, among other things, the benefits to shareholders and/or the
opportunity to reduce costs and achieve operational efficiencies. No assurance
can be given that costs will be materially reduced if this option is
implemented.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone number or mailing address set forth on the cover
page of this prospectus.
Transfer and Dividend Disbursing Agent. INVESCO Funds Group, Inc., 7800 E.
Union Ave., Denver, Colorado 80237, acts as registrar, transfer agent, and
dividend disbursing agent for the Fund pursuant to a Transfer Agency Agreement
which provides that the Fund will pay an annual fee of $14.00 per shareholder
<PAGE>
account or omnibus account participant. The transfer agency fee is not charged
to each shareholder's or participant's account, but is an expense of the Fund to
be paid from the Fund's assets. Registered broker-dealers, third party
administrators of tax-qualified retirement plans and other entities, including
affiliates of INVESCO, may provide sub-transfer agency services to the Fund
which reduce or eliminate the need for identical services to be provided on
behalf of the Fund by INVESCO. In such cases, INVESCO may pay the third party an
annual sub-transfer agency fee of up to $14.00 per participant in the third
party's omnibus account out of the transfer agency fee which is paid to INVESCO
by the Fund.
<PAGE>
INVESCO ASIAN GROWTH FUND A no-load
mutual fund seeking capital
appreciation.
PROSPECTUS
March 1, 1996
To receive general information and prospectuses on any of INVESCO's funds or
retirement plans, or to obtain current account or price information, call
toll-free:
1-800-525-8085
To reach PAL, your 24-hour Personal Account Line, call:
1-800-424-8085
Or write to:
INVESCO Funds Group, Inc., Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
If you're in Denver, visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
Lobby Level
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September 11, 1995
As Supplemented
INVESCO SPECIALTY FUNDS, INC.
Address: Mailing Address:
7800 E. Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
- --------------------------------------------------------------------------------
INVESCO SPECIALTY FUNDS, INC. (the "Company") is a diversified, managed,
no-load mutual fund consisting of five separate portfolios of investments,
INVESCO Worldwide Capital Goods Fund (the "Capital Goods Fund"); INVESCO
Worldwide Communications Fund (the "Communications Fund"); INVESCO European
Small Company Fund (the "European Small Company Fund"); INVESCO Latin American
Growth Fund (the "Latin American Growth Fund"); and INVESCO Asian Growth Fund
(the "Asian Growth Fund") (collectively, the "Funds" and individually, a
"Fund").
The Capital Goods Fund seeks to achieve capital appreciation by investing,
under normal circumstances, at least 65% of its total assets in companies that
are primarily engaged in the design, development, manufacture, distribution,
sale or service of capital goods, or in the mining, processing, manufacture or
distribution of raw materials and intermediate goods used by industry and
agriculture. The Communications Fund seeks to achieve a high total return on
investment through capital appreciation and current income by investing, under
normal circumstances, at least 65% of its total assets in companies that are
primarily engaged in the design, development, manufacture, distribution or sale
of communications services and equipment. Up to 35% of the Communication Fund's
total assets will be invested, under normal circumstances, in companies that are
engaged in developing, constructing or operating infrastructure projects
throughout the world, or in supplying equipment or services to such companies.
Under normal circumstances, the Capital Goods Fund and Communications Fund will
invest at least 65% of their total assets in issuers domiciled in at least three
countries, one of which may be the United States, although the Capital Goods
Fund's and Communications Fund's investment adviser expects the Capital Goods
Fund's and Communications Fund's investments to be allocated among a larger
number of countries. The percentage of the Capital Goods Fund's and
Communication Fund's assets invested in United States securities normally will
<PAGE>
be higher than that invested in securities issued by companies in any other
single country. However, it is possible that at times the Capital Goods Fund or
the Communications Fund may have 65% or more of its total assets invested in
foreign securities.
The 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 in approximately the lowest 25% of market capitalization of
companies that have equity securities listed on a U.S. national securities
exchange. Under normal circumstances, the European Small Company Fund will
invest at least 65% of its total assets in issuers domiciled in at least five
countries, although the European Small Company Fund's investment adviser expects
the European Small Company Fund's investments to be allocated among a larger
number of countries. In this regard, no more than 50% of the European Small
Company Fund's total assets will be invested in issuers domiciled in any one
country.
The Latin American Growth Fund seeks to achieve capital appreciation by
investing, under normal circumstances, at least 65% of its total assets in
securities of issuers domiciled in Latin America. For purposes of this Fund,
Latin America will include: Mexico, Central America, South America, and the
Spanish speaking islands of the Caribbean.
INVESCO Asian Growth Fund seeks to achieve capital appreciation by
investing, under normal circumstances, at least 65% of its total assets in
equity securities of companies domiciled or with primary operations in Asia and
the Pacific Rim, excluding Japan. For purposes of this prospectus, Asia and
Pacific Rim territories will include, but not necessarily be limited to: China,
Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea,
Taiwan and Thailand, as well as Pakistan and Indochina as their markets become
more accessible.
Investors may purchase shares of any or all of the Funds. Additional funds
may be added in the future.
Prospectuses for the Capital Goods Fund, the Communications Fund, the
European Small Company Fund, the Latin American Growth Fund, dated September 11,
1995, and the Asian Growth Fund, dated March 1, 1996, which provide the basic
information you should know before investing in a Fund, may be obtained without
charge from INVESCO Funds Group, Inc., P.O. Box 173706, Denver, Colorado 80217-
3706. This Statement of Additional Information is not a Prospectus, but contains
information in addition to and more detailed than that set forth in the
Prospectus. It is intended to provide you with additional information regarding
the activities and operations of the Funds and should be read in conjunction
with the Prospectus.
<PAGE>
Investment Adviser and Distributor: INVESCO FUNDS GROUP, INC.
TABLE OF CONTENTS Page
INVESTMENT POLICIES AND RESTRICTIONS 4
THE FUNDS AND THEIR MANAGEMENT 19
HOW SHARES CAN BE PURCHASED 33
HOW SHARES ARE VALUED 37
FUND PERFORMANCE 39
SERVICES PROVIDED BY THE FUNDS 40
TAX-DEFERRED RETIREMENT PLANS 41
HOW TO REDEEM SHARES 41
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, AND TAXES 42
INVESTMENT PRACTICES 45
ADDITIONAL INFORMATION 48
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
As discussed in each Fund's Prospectus in the section entitled "Investment
Objective and Policies," the Funds may invest in a variety of securities, and
employ a broad range of investment techniques in seeking to achieve their
respective investment objectives. Such securities and techniques include the
following:
Types of Equity Securities
As described in the Prospectuses, equity securities which may be purchased
by the Funds consist of common, preferred and convertible preferred stocks, and
securities having equity characteristics such as rights, warrants and
convertible debt securities. Common stocks and preferred stocks represent equity
ownership interests in a corporation and participate in the corporation's
earnings through dividends which may be declared by the corporation. Unlike
common stocks, preferred stocks are entitled to stated dividends payable from
the corporation's earnings, which in some cases may be "cumulative" if prior
stated dividends have not been paid. Dividends payable on preferred stock have
priority over distributions to holders of common stock, and preferred stocks
generally have preferences on the distribution of assets in the event of the
corporation's liquidation. Preferred stocks may be "participating," which means
that they may be entitled to dividends in excess of the stated dividend in
certain cases. The rights of common and preferred stocks are generally
subordinate to rights associated with a corporation's debt securities. Rights
and warrants are securities which entitle the holder to purchase the securities
of a company (generally, its common stock) at a specified price during a
specified time period. Because of this feature, the values of rights and
warrants are affected by factors similar to those which determine the prices of
common stocks and exhibit similar behavior. Rights and warrants may be purchased
directly or acquired in connection with a corporate reorganization or exchange
offer.
Convertible securities which may be purchased by the Funds include
convertible debt obligations and convertible preferred stock. A convertible
security entitles the holder to exchange it for a fixed number of shares of
common stock (or other equity security), usually at a fixed price within a
specified period of time. Until conversion, the holder receives the interest
paid on a convertible bond or the dividend preference of a preferred stock.
Convertible securities have an "investment value" which is the theoretical
value determined by the yield they provide in comparison with similar securities
without the conversion feature. Investment value changes are based upon
prevailing interest rates and other factors. They also have a "conversion value"
which is the worth in market value if the securities were exchanged for their
underlying equity securities. Conversion value fluctuates directly with the
price of the underlying security. If conversion value is substantially below
<PAGE>
investment value, the price of the convertible security is governed principally
by its investment value. If the conversion value is near or above investment
value, the price of the convertible security generally will rise above
investment value and may represent a premium over conversion value due to the
combination of the convertible security's right to interest (or dividend
preference) and the possibility of capital appreciation from the conversion
feature. A convertible security's price, when price is influenced primarily by
its conversion value, generally will yield less than a senior non-convertible
security of comparable investment value. Convertible securities may be purchased
at varying price levels above their investment values or conversion values.
However, there is no assurance that any premium above investment value or
conversion value will be recovered because prices change and, as a result, the
ability to achieve capital appreciation through conversion may be eliminated.
Restricted/144A Securities
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act of 1933 (the "1933
Act"). Institutional investors generally will not seek to sell these instruments
to the general public, but instead will often depend on an efficient
institutional market in which such unregistered securities can readily be resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing a Rule 144A-eligible
security held by a Fund, however, could affect adversely the marketability of
such portfolio security and the Fund might be unable to dispose of such security
promptly or at reasonable prices.
Municipal Bonds
The Funds may invest in municipal bonds, the interest from which is exempt
from federal income taxes, when their investment adviser and sub-adviser
(collectively, "Fund Management") believes that the potential total return on
the investment is better than the return that otherwise would be achieved by
investing in fixed-income securities issued by corporations or the U.S.
government or its agencies, the interest from which is not exempt from federal
income taxes. Municipal bonds are issued by or on behalf of states, territories
and possessions of the United States and the District of Columbia, and their
<PAGE>
political subdivisions, agencies and instrumentalities, to obtain funds for
various public purposes, including: the construction of a wide range of public
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets, and water and sewer works; refunding
outstanding obligations; and obtaining funds for general operating expenses. The
Funds' investments in municipal bonds, as is true for any debt securities,
generally will be subject to both credit risk and market risk. See the section
of the Prospectuses entitled "Risk Factors."
Obligations of Domestic Banks
These obligations consist of certificates of deposit ("CDs") and banker's
acceptances issued by domestic banks (including their foreign branches) having
total assets in excess of $5 billion, which meet the Funds' minimum rating
requirements. CDs are issued against deposits in a commercial bank for a
specified period and rate and are normally negotiable. Eurodollar CDs are
certificates issued by a foreign branch (usually London) of a U.S. domestic
bank, and, as such, the credit is deemed to be that of the domestic bank.
Bankers' acceptances are short-term credit instruments evidencing the
promise of the bank (by virtue of the bank's "acceptance") to pay at maturity a
draft which has been drawn on it by a customer (the "drawer"). These instruments
are used to finance the import, export, transfer, or storage of goods and
reflect the obligation of both the bank and the drawer to pay the face amount.
Securities Lending
The Fund also may lend its securities to qualified brokers, dealers,
banks, or other financial institutions. This practice permits the Fund to earn
income, which, in turn, can be invested in additional securities of the type
described in this Prospectus in pursuit of the Fund's investment objective.
Loans of securities by the Fund will be collateralized by cash, letters of
credit, or securities issued or guaranteed by the U.S. government or its
agencies equal to at least 100% of the current market value of the loaned
securities, determined on a daily basis. Cash collateral will be invested only
in high quality short-term investments offering maximum liquidity. Lending
securities involves certain risks, the most significant of which is the risk
that a borrower may fail to return a portfolio security. The Fund monitors the
creditworthiness of borrowers in order to minimize such risks. The Fund will not
lend any security if, as a result of the loan, the aggregate value of securities
then on loan would exceed 33-1/3% of the Fund's total assets (taken at market
value).
Commercial Paper
The Funds may invest in these obligations, which are short-term promissory
notes issued by domestic corporations to meet current working capital
<PAGE>
requirements. Such paper may be unsecured or backed by a letter of credit.
Commercial paper issued with a letter of credit is, in effect, "two party
paper," with the issuer directly responsible for payment, plus a bank's
guarantee that if the note is not paid at maturity by the issuer, the bank will
pay the principal and interest to the buyer. Commercial paper is sold either as
interest-bearing or on a discounted basis, with maturities not exceeding 270
days. The Funds will only invest in commercial paper which at the date of
purchase is rated A-2 or higher by Standard & Poor's or Prime-2 or higher by
Moody's Investors Service, Inc. or, if unrated, commercial paper that is judged
by Fund Management to be equivalent in quality to commercial paper having such
ratings. A commercial paper rating of A-2 or Prime-2 indicates a strong capacity
for repayment of short-term promissory obligations.
Mortgage-Backed Securities
The Funds may invest in mortgage-backed securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, or institutions such as
banks, insurance companies, and savings and loans. Some of these securities,
such as Government National Mortgage Association ("GNMA") certificates, are
backed by the full faith and credit of the U.S. Treasury while others, such as
Federal Home Loan Mortgage Corporation ("Freddie Mac") certificates, are not.
The Funds currently do not intend to invest more than 5% of their respective net
assets in mortgage-backed securities.
Mortgage-backed securities represent interests in a pool of mortgages.
Principal and interest payments made on the mortgages in the underlying mortgage
pool are passed through to the Funds. Unscheduled prepayments of principal
shorten the securities' weighted average life and may lower their total return.
The value of these securities also may change because of changes in the market's
perception of the creditworthiness of the federal agency or private institution
that issued them. In addition, the mortgage securities market in general may be
adversely affected by changes in governmental regulation or tax policies.
Asset-Backed Securities
Asset-backed securities represent interests in pools of consumer loans
(generally unrelated to mortgage loans) and most often are structured as
pass-through securities. Interest and principal payments ultimately depend on
payment of the underlying loans by individuals, although the securities may be
supported by letters of credit or other credit enhancements. The underlying
assets (e.g., loans) are subject to prepayments which shorten the securities'
weighted average life and may lower their returns. If the credit support or
enhancement is exhausted, losses or delays in payment may result if the required
payments of principal and interest are not made. The value of these securities
<PAGE>
also may change because of changes in the market's perception of the
creditworthiness of the servicing agent for the pool, the originator of the
pool, or the financial institution providing the credit support or enhancement.
The Funds currently do not intend to invest more than 5% of their respective net
assets in asset- backed securities.
Zero Coupon Bonds
The Funds may invest in zero coupon bonds or "strips." Zero coupon bonds
do not make regular interest payments; rather, they are sold at a discount from
face value. Principal and accredited discount (representing interest accrued but
not paid) are paid at maturity. "Strips" are debt securities that are stripped
of their interest after the securities are issued, but otherwise are comparable
to zero coupon bonds. The issuers of all zero coupon bonds, and the obligor of
all "strips" purchased by the Funds, will be the U.S. government or its agencies
or instrumentalities. The market value of "strips" and zero coupon bonds
generally fluctuates in response to changes in interest rates to a greater
degree than interest-paying securities of comparable term and quality. In order
for a Fund to maintain its qualification as a regulated investment company, it
may be required to distribute income recognized on zero coupon bonds or "strips"
even though no cash may be paid to the Fund until the maturity or call date of
the bond, and any such distribution could reduce the amount of cash available
for investment by the Fund. The Funds currently do not intend to invest more
than 5% of their respective net assets in zero coupon bonds or "strips."
Futures and Options on Futures and Securities
As described in each Fund's Prospectus, the Funds may enter into futures
contracts, and purchase and sell ("write") options to buy or sell futures
contracts and other securities, which are included in the types of instruments
sometimes known as derivatives. The Funds will comply with and adhere to all
limitations in the manner and extent to which they effect transactions in
futures and options on such futures currently imposed by the rules and policy
guidelines of the Commodity Futures Trading Commission (the "CFTC") as
conditions for exemption of a mutual fund, or investment advisers thereto, from
registration as a commodity pool operator. Under those restrictions, a Fund will
not, as to any positions, whether long, short or a combination thereof, enter
into futures and options thereon for which the aggregate initial margins and
premiums exceed 5% of the fair market value of the Fund's total assets after
taking into account unrealized profits and losses on options it has entered
into. In the case of an option that is "in-the-money," as defined in the
Commodity Exchange Act (the "CEA"), the in-the-money amount may be excluded in
computing such 5%. (In general a call option on a future is "in-the-money" if
the value of the future exceeds the exercise ("strike") price of the call; a put
option on a future is "in-the-money" if the value of the future which is the
subject of the put is exceeded by the strike price of the put.) The Funds may
<PAGE>
use futures and options thereon solely for bona fide hedging or for other
non-speculative purposes within the meaning and intent of the applicable
provisions of the CEA and the regulations thereunder. As to long positions which
are used as part of the Funds' portfolio management strategies and are
incidental to their activities in the underlying cash market, the "underlying
commodity value" of the Funds' futures and options thereon must not exceed the
sum of (i) cash set aside in an identifiable manner, or short-term U.S. debt
obligations or other dollar-denominated high-quality, short-term money
instruments so set aside, plus sums deposited on margin; (ii) cash proceeds from
existing investments due in 30 days; and (iii) accrued profits held at the
futures commission merchant. The "underlying commodity value" of a future is
computed by multiplying the size of the future by the daily settlement price of
the future. For an option on a future, that value is the underlying commodity
value of the future underlying the option.
Unlike when a Fund purchases or sells a security, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Instead, the
Fund will be required to deposit in a segregated asset account with the broker
an amount of cash or qualifying securities (currently U.S. Treasury bills),
currently in a minimum amount of $15,000. This is called "initial margin." Such
initial margin is in the nature of a performance bond or good faith deposit on
the contract. However, since losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Fund may be
required to make additional payments during the term of the contracts to its
broker. Such payments would be required, for example, where, during the term of
an interest rate futures contract purchased by a Fund, there was a general
increase in interest rates, thereby making the Fund's portfolio securities less
valuable. In all instances involving the purchase of financial futures contracts
by a Fund, an amount of cash together with such other securities as permitted by
applicable regulatory authorities to be utilized for such purpose, at least
equal to the market value of the futures contracts, will be deposited in a
segregated account with the Fund's custodian to collateralize the position. At
any time prior to the expiration of a futures contract, the Fund may elect to
close its position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. For a more complete
discussion of the risks involved in futures and options on futures and other
securities, refer to Appendix A ("Description of Futures and Options
Contracts").
Where futures are purchased to hedge against a possible increase in the
price of a security before a Fund is able in an orderly fashion to invest in the
security, it is possible that the market may decline instead. If the Fund, as a
result, concluded not to make the planned investment at that time because of
concern as to possible further market decline or for other reasons, the Fund
would realize a loss on the futures contract that is not offset by a reduction
in the price of securities purchased.
<PAGE>
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the futures contract and the
portion of the portfolio being hedged, the price of futures may not correlate
perfectly with movements in the prices due to certain market distortions. All
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying securities and the
value of the futures contract. Moreover, the deposit requirements in the futures
market are less onerous than margin requirements in the securities market and
may therefore cause increased participation by speculators in the futures
market. Such increased participation may also cause temporary price distortions.
Due to the possibility of price distortion in the futures market and because of
the imperfect correlation between movements in the value of the underlying
securities and movements in the prices of futures contracts, the value of
futures contracts as a hedging device may be reduced.
In addition, if the Fund has insufficient available cash, it may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it may be disadvantageous to do so.
Options on Futures Contracts
The Funds may buy and write options on futures contracts for hedging
purposes, which are included in the types of instruments sometimes known as
derivatives. The purchase of a call option on a futures contract is similar in
some respects to the purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the price of the
futures contract upon which it is based or the price of the underlying
instrument, ownership of the option may or may not be less risky than ownership
of the futures contract or the underlying instrument. As with the purchase of
futures contracts, when a Fund is not fully invested it may buy a call option on
a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, a
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures price at expiration of the option is higher than the exercise price,
the
<PAGE>
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the Fund is
considering buying. If a call or put option the Fund has written is exercised,
the Fund will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between change in the value of
its portfolio securities and changes in the value of the futures positions, the
Fund's losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund may buy a put option on a futures contract to hedge the Fund's
portfolio against the risk of falling prices.
The amount of risk a Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
Forward Foreign Currency Contracts
The Funds may enter into forward currency contracts, which are included in
the types of instruments sometimes known as derivatives, to purchase or sell
foreign currencies (i.e., non-U.S. currencies) as a hedge against possible
variations in foreign exchange rates. A forward foreign currency contract is an
agreement between the contracting parties to exchange an amount of currency at
some future time at an agreed upon rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract. A
forward contract generally has no deposit requirement, and such transactions do
not involve commissions. By entering into a forward contract for the purchase or
sale of the amount of foreign currency invested in a foreign security
transaction, a Fund can hedge against possible variations in the value of the
dollar versus the subject currency either between the date the foreign security
is purchased or sold and the date on which payment is made or received or during
the time the Fund holds the foreign security. Hedging against a decline in the
value of a currency in the foregoing manner does not eliminate fluctuations in
the prices of portfolio securities or prevent losses if the prices of such
securities decline. Furthermore, such hedging transactions preclude the
opportunity for gain if the value of the hedged currency should rise. The Funds
will not speculate in forward currency contracts. Although the Funds have not
adopted any limitations on their ability to use forward contracts as a hedge
against fluctuations in foreign exchange rates, the Funds do not attempt to
hedge all of their non-U.S. portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by their investment
<PAGE>
adviser or sub-adviser. The Funds will not enter into forward contracts for a
term of more than one year.
Swaps and Swap-Related Products
Interest rate swaps involve the exchange by a Fund with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments. The exchange commitments can
involve payments to be made in the same currency or in different currencies. The
purchase of an interest rate cap entitles the purchaser, to the extent that a
specified index exceeds a predetermined interest rate, to receive payments of
interest on a contractually-based principal amount from the party selling the
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a contractually-based
principal amount from the party selling the interest rate floor.
The Funds may enter into interest rate swaps, caps and floors, which are
included in the types of instruments sometimes known as derivatives, on either
an asset-based or liability-based basis, depending upon whether they are hedging
their assets or their liabilities, and usually will enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with a Fund
receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of a Fund's obligations over its
entitlement with respect to each interest rate swap will be calculated on a
daily basis, and an amount of cash or high-grade liquid assets having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Funds' custodian. If a Fund enters
into an interest rate swap on other than a net basis, the Fund would maintain a
segregated account in the full amount accrued on a daily basis of the Fund's
obligations with respect to the swap. The Funds will not enter into any interest
rate swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in one of the three
highest rating categories of at least one nationally recognized statistical
rating organization at the time of entering into such transaction. The Funds'
adviser or sub-adviser will monitor the creditworthiness of all counterparties
on an ongoing basis. If there is a default by the other party to such a
transaction, a Fund would have contractual remedies pursuant to the agreements
related to the transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the extent a
Fund sells (i.e., writes) caps and floors, it will maintain in a segregated
account cash or high-grade liquid assets having an aggregate net asset value at
<PAGE>
least equal to the full amount, accrued on a daily basis, of the Fund's
obligations with respect to any caps or floors.
There is no limit on the amount of interest rate swap transactions that
may be entered into by a Fund. These transactions may in some instances involve
the delivery of securities or other underlying assets by a Fund or its
counterparty to collateralize obligations under the swap. The documentation
currently used in those markets attempts to limit the risk of loss with respect
to interest rate swaps to the net amount of the payments that a party is
contractually obligated to make. If the other party to an interest rate swap
that is not collateralized defaults, the Fund would anticipate losing the net
amount of the payments that the Fund contractually is entitled to receive over
the payments that the Fund is contractually obligated to make. The Funds may buy
and sell (i.e., write) caps and floors without limitation, subject to the
segregated account requirement described above as well as the Funds' other
investment restrictions set forth below.
Investment Restrictions
As described in the section of the Funds' Prospectuses entitled
"Investment Objectives and Policies," the Funds operate under certain investment
restrictions which are fundamental and may not be changed with respect to a
particular Fund without the prior approval of the holders of a majority, as
defined in the Investment Company Act of 1940 (the "1940 Act"), of the
outstanding voting securities of that Fund. For purposes of the following
limitations, all percentage limitations apply immediately after a purchase or
initial investment. Any subsequent change in a particular percentage resulting
from fluctuations in value does not require elimination of any security from a
Fund.
Each Fund, unless otherwise indicated, may not:
1. With respect to seventy-five percent (75%) of each Fund's total
assets, purchase the securities of any one issuer (except cash items
and "Government securities" as defined under the 1940 Act, if the
purchase would cause the Fund to have more than 5% of the value of its
total assets invested in the securities of such issuer or to own more
than 10% of the outstanding voting securities of such issuer;
2. Borrow money or issue senior securities (as defined in the 1940 Act),
except that the Fund may borrow money for temporary or emergency
purposes (not for leveraging or investment) and may enter into reverse
repurchase agreements in an aggregate amount not exceeding 33-1/3% of
the value of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to
exceed 33-1/3% of the value of the Fund's total assets by reason of a
decline in total assets will be reduced within three business days to
the extent necessary to comply with the 33-1/3% limitation. This
<PAGE>
restriction shall not prohibit deposits of assets to margin or
guarantee positions in futures, options, swaps or forward contracts,
or the segregation of assets in connection with such contracts.
3. Invest directly in real estate or interests in real estate; however,
the Fund may own debt or equity securities issued by companies engaged
in those businesses.
4. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this shall
not prevent the Fund from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other
instruments backed by physical commodities).
5. Lend any security or make any other loan if, as a result, more than
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.)
6. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund.
7. The European Small Company Fund, the Latin American Growth Fund and
the Asian Growth Fund may not invest more than 25% of the value of
their respective total assets in any particular industry (other than
Government securities).
As a fundamental policy in addition to the above, each Fund may,
notwithstanding any other investment policy or limitation (whether or not
fundamental), invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund.
In applying restriction 7 above, the European Small Company Fund, the
Latin American Growth Fund and the Asian Growth Fund use an industry
classification system for international securities based on the information
obtained from Bloomberg L.P., Moody's International and the O'Neil Database
published by William O'Neil & Co., Inc.
Furthermore, the board of directors has adopted additional investment
restrictions for each Fund, unless specifically noted to the contrary. These
restrictions are operating policies of each Fund and may be changed by the board
<PAGE>
of directors without shareholder approval. The additional investment
restrictions adopted by the board of directors to date include the following:
(a) The Fund's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included
within that amount, but not to exceed 2% of the value of the Fund's
net assets, may be warrants that are not listed on the New York or
American Stock Exchanges. Warrants acquired by the Fund in units or
attached to securities shall be deemed to be without value unless such
warrants are separately transferable and current market prices are
available, or unless otherwise determined by the board of directors.
(b) The Fund will not (i) enter into any futures contracts or options on
futures contracts if immediately thereafter the aggregate margin
deposits on all outstanding futures contracts positions held by the
Fund and premiums paid on outstanding options on futures contracts,
after taking into account unrealized profits and losses, would exceed
5% of the market value of the total assets of the Fund, or (ii) enter
into any futures contracts if the aggregate net amount of the Fund's
commitments under outstanding futures contracts positions of the Fund
would exceed the market value of the total assets of the Fund.
(c) The Fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short without the payment of any
additional consideration therefor, and provided that transactions in
options, swaps and forward futures contracts are not deemed to
constitute selling securities short.
(d) The Fund does not currently intend to purchase securities on margin,
except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments and other deposits in connection with transactions in
options, futures, swaps and forward contracts shall not be deemed to
constitute purchasing securities on margin.
(e) The Fund does not currently intend to (i) purchase securities of
closed end investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (ii)
purchase or retain securities issued by other open-end investment
companies. Limitations (i) and (ii) do not apply to money market funds
or to securities received as dividends, through offers of exchange, or
as a result of a reorganization, consolidation, or merger. If the Fund
invests in a money market fund, the Fund's investment adviser will
waive its advisory fee on the assets of the Fund which are invested in
the money market fund during the time that those assets are so
invested.
<PAGE>
(f) The Fund may not mortgage or pledge any securities owned or held by
the Fund in amounts that exceed, in the aggregate, 15% of the Fund's
net assets, provided that this limitation does not apply to reverse
repurchase agreements or in the case of assets deposited to margin or
guarantee positions in futures, options, swaps or forward contracts or
placed in a segregated account in connection with such contracts.
(g) The Fund does not currently intend to purchase securities of any
issuer (other than U.S. Government agencies and instrumentalities or
instruments guaranteed by an entity with a record of more than three
years' continuous operation, including that of predecessors) with a
record of less than three years' continuous operation (including that
of predecessors) if such purchase would cause the Fund's investments
in all such issuers to exceed 5% of the Fund's total assets taken at
market value at the time of such purchase.
(h) The Fund does not currently intend to invest directly in oil, gas, or
other mineral development or exploration programs or leases; however,
the Fund may own debt or equity securities of companies engaged in
those businesses.
(i) The Fund does not currently intend to purchase any security or enter
into a repurchase agreement if, as a result, more than 15% of its net
assets would be invested in repurchase agreements not entitling the
holder to payment of principal and interest within seven days and in
securities that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available market.
The board of directors, or the Fund's investment adviser acting
pursuant to authority delegated by the board of directors, may
determine that a readily available market exists for securities
eligible for resale pursuant to Rule 144A under the Securities Act of
1933, or any successor to such rule, and therefore that such
securities are not subject to the foregoing limitation.
(j) The Fund may not invest in companies for the purpose of exercising
control or management, except to the extent that exercise by the Fund
of its rights under agreements related to portfolio securities would
be deemed to constitute such control.
<PAGE>
With respect to investment restriction (i) above, the board of directors
has delegated to Fund Management the authority to determine that a liquid market
exists for securities eligible for resale pursuant to Rule 144A under the 1933
Act, or any successor to such rule, and that such securities are not subject to
restriction (i) above. Under guidelines established by the board of directors,
Fund Management will consider the following factors, among others, in making
this determination: (1) the unregistered nature of a Rule 144A security, (2) the
frequency of trades and quotes for the security; (3) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security; and (5)
the nature of the security and the nature of marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer).
On behalf of some of the Funds, the Company has given undertakings to a
number of state securities regulators and may provide additional such
undertakings in the future. Upon a change in position by any such regulator, any
undertaking given to such regulator may be modified or withdrawn without notice.
The undertakings currently in effect include the following:
The Company has given an undertaking to the State of Arizona that it will
notify the State immediately in the event of a change to its fiscal year.
The Company has given undertakings to the States of Arizona, Arkansas,
Massachusetts, Missouri, and Texas that it will comply with the Guidelines for
Registration of Master Fund/Feeder Funds adopted by the membership of the North
American Securities Administrators Association, Inc. then in effect in the event
that, in the future, any of the Funds is converted into a feeder fund in a
master fund/feeder fund structure. The Company has additionally undertaken to
the State of Massachusetts that, in the event that in the future the Company
determines that any of the Funds will be so converted, and if the NASAA
Guidelines at such time include a requirement for shareholder approval of
conversion of a fund into a feeder fund in a Master Fund/Feeder Fund structure,
the Company expressly agrees to obtain such approval prior to effecting the
conversion.
The Company has given an undertaking to the State of Arkansas that no Fund
will purchase puts, calls, straddles, spreads or any combination thereof if, by
reason thereof, the value of the Fund's aggregate investment in such classes of
securities would exceed 5% of the Fund's total assets. The European Small
Company Fund, the Latin American Growth Fund and the Asian Growth Fund have also
undertaken not to invest more than 10% of each Fund's total assets in securities
of issuers that are restricted from being sold to the public without
registration under the 1933 Act, excluding restricted securities eligible for
resale pursuant to Rule 144A under the 1933 Act that have been determined to be
<PAGE>
liquid by the Company's Board of Directors based upon the trading markets for
the securities.
The Company has given an undertaking to the State of California that its
option transactions will comply with Rule 260.140.85(b) under the California
Corporate Securities Law of 1968, and that the aggregate value of the securities
underlying the calls written by a Fund, or the obligations underlying the puts
written by a Fund, as of the date the options are sold shall not exceed 25% of
the Fund's net assets.
The Company has given an undertaking to the State of Maryland that the
European Small Company Fund will invest in no more than 15% of its total assets
in lower rated debt securities, commonly known as "junk bonds."
The Company has given undertakings to the State of Ohio that: (1) no Fund
will purchase or retain the securities of any issuer if the officers, directors,
advisers or managers of the Fund owning beneficially more than .50% of the
securities of an issuer together own beneficially more than 5% of the securities
of that issuer; (2) the Capital Goods Fund, the Communications Fund, the
European Small Company Fund, the Latin American Growth Fund and the Asian Growth
Fund will not invest more than 15% of their respective net assets in the
securities of issuers which, together with any predecessors, have a record of
less than three years continuous operation, or securities of issuers which are
restricted as to disposition; and (3) the Latin American Growth Fund and the
Asian Growth Fund will comply with the provisions of Rule 1301:6-3-09(E)(10) of
the Ohio Revised Code, which states that the borrowing, pledging, mortgaging, or
hypothecating of assets on behalf of the Latin American Growth Fund or the Asian
Growth Fund in amounts in excess of one-third of total fund assets is
prohibited. In addition, the Company has undertaken to the State of Ohio that it
will not invest in the securities of other investment companies, except by
purchase in the open market where no commission or profit to a sponsor or dealer
results from the purchase other than the customary broker's commission, or
except when the purchase is part of a plan of merger, consolidation,
reorganization, or acquisition.
The Company has given an undertaking to the State of Texas that the Funds
will not purchase or sell real estate limited partnership interests.
THE FUNDS AND THEIR MANAGEMENT
The Company. The Company was incorporated on April 12, 1994, under the laws
of Maryland.
The Investment Adviser. INVESCO Funds Group, Inc., a Delaware corporation
("INVESCO"), is employed as the Company's investment adviser. INVESCO was
established in 1932 and also serves as an investment adviser to INVESCO
Diversified Funds, Inc., INVESCO Dynamics Fund, Inc., INVESCO Emerging
<PAGE>
Opportunity Funds, Inc., INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc.,
INVESCO Industrial Income Fund, Inc., INVESCO International Funds, Inc., INVESCO
Money Market Funds, Inc., INVESCO Multiple Asset Funds, Inc., INVESCO Strategic
Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc., INVESCO Value Trust, and
INVESCO Variable Investment Funds, Inc.
The Sub-Advisers. INVESCO, as investment adviser, has contracted with
INVESCO Trust Company ("INVESCO Trust") to provide investment advisory and
research services on behalf of the Capital Goods Fund and Communications Fund.
INVESCO Trust has the primary responsibility for providing portfolio investment
management services to these Funds. INVESCO Trust, a trust company founded in
1969, is a wholly-owned subsidiary of INVESCO.
Additionally, INVESCO, as investment adviser, has contracted with INVESCO
Asset Management Limited ("IAML") to provide investment advisory and research
services on behalf of the European Small Company Fund and Latin American Growth
Fund. IAML has the primary responsibility for providing portfolio investment
management services to these Funds. IAML is an indirect wholly-owned subsidiary
of INVESCO PLC.
Additionally, INVESCO, as investment adviser, has contracted with INVESCO
Asia Ltd. ("INVESCO Asia") to provide investment advisory and research services
on behalf of the Asian Growth Fund. INVESCO Asia has primary responsibility for
providing portfolio investment management services to this Fund. INVESCO Asia is
an indirect wholly-owned subsidiary of INVESCO PLC.
INVESCO is an indirect, wholly-owned subsidiary of INVESCO PLC, a
publicly-traded holding company organized in 1935. Through subsidiaries located
in London, Denver, Atlanta, Boston, Louisville, Dallas, Tokyo, Hong Kong, and
the Channel Islands, INVESCO PLC provides investment services around the world.
INVESCO was acquired by INVESCO PLC in 1982 and as of May 31, 1995, managed 14
mutual funds, consisting of 38 separate portfolios, on behalf of over 800,000
shareholders. INVESCO PLC's other North American subsidiaries include the
following:
--INVESCO Capital Management, Inc. of Atlanta, Georgia, manages
institutional investment portfolios, consisting primarily of discretionary
employee benefit plans for corporations and state and local governments, and
endowment funds. INVESCO Capital Management, Inc. is the sole shareholder of
INVESCO Services, Inc., a registered broker-dealer whose primary business is the
distribution of shares of two registered investment companies.
--INVESCO Management & Research, Inc. (formerly Gardner and Preston Moss,
Inc.) of Boston, Massachusetts, primarily manages pension and endowment
accounts.
<PAGE>
--PRIMCO Capital Management, Inc. of Louisville, Kentucky, specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
--INVESCO Realty Advisors of Dallas, Texas, is responsible for providing
advisory services in the U.S. real estate markets for INVESCO PLC's clients
worldwide. Clients include corporate plans, public pension funds as well as
endowment and foundation accounts.
The corporate headquarters of INVESCO PLC are located at 11 Devonshire
Square, London, EC2M 4YR, England.
As indicated in the Prospectuses, INVESCO permits investment and other
personnel to purchase and sell securities for their own accounts in accordance
with a compliance policy governing personal investing by directors, officers and
employees of INVESCO and its North American affiliates. The policy requires
officers, inside directors, investment and other personnel of INVESCO and its
North American affiliates to pre-clear all transactions in securities not
otherwise exempt under the policy. Requests for trading authority will be denied
when, among other reasons, the proposed personal transaction would be contrary
to the provisions of the policy or would be deemed to adversely affect any
transaction then known to be under consideration for or to have been effected on
behalf of any client account, including the Funds. INVESCO Asia and IAML are
subject to similar policies.
In addition to the pre-clearance requirement described above, the policy
subjects officers, inside directors, investment and other personnel of INVESCO
and its North American affiliates to various trading restrictions and reporting
obligations. All reportable transactions are reviewed for compliance with the
policy. The provisions of this policy are administered by and subject to
exceptions authorized by INVESCO.
Investment Advisory Agreement. INVESCO serves as investment adviser
pursuant to an investment advisory agreement (the "Agreement") with the Company
which was approved on April 20, 1994, by a vote cast in person by a majority of
the directors of the Company, including a majority of the directors who are not
"interested persons" of the Company or INVESCO at a meeting called for such
purpose. The Agreement was approved by INVESCO Funds Group, Inc. on July 12,
1994, as the then sole shareholder of the Capital Goods Fund and Communications
Fund. The Agreement is for an initial term expiring April 30, 1996. Thereafter,
the Agreement may be continued from year to year as to each Fund as long as each
such continuance is specifically approved at least annually by the board of
directors of the Company, or by a vote of the holders of a majority, as defined
in the 1940 Act, of the outstanding shares of the Fund. Any such continuance
also must be approved by a majority of the Company's directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
<PAGE>
such continuance. The Agreement may be terminated at any time without penalty by
either party upon sixty (60) days' written notice and terminates automatically
in the event of an assignment to the extent required by the 1940 Act and the
rules thereunder. With respect to INVESCO European Small Company Fund and Latin
American Growth Fund, the agreement was approved by INVESCO on February 8, 1995
as the then sole shareholder of each Fund. With respect to the Asian Growth
Fund, the agreement was approved by INVESCO on September 12, 1995 as the then
sole shareholder of the Fund.
The Agreement provides that INVESCO shall manage the investment portfolios
of the Funds in conformity with the Funds' investment policies (either directly
or by delegation to a sub-adviser, which may be a party affiliated with
INVESCO). Further, INVESCO shall perform all administrative, internal accounting
(including computation of net asset value), clerical, statistical, secretarial
and all other services necessary or incidental to the administration of the
affairs of the Funds excluding, however, those services that are the subject of
separate agreement between the Company and INVESCO or any affiliate thereof,
including the distribution and sale of Fund shares and provision of transfer
agency, dividend disbursing agency, and registrar services, and services
furnished under an Administrative Services Agreement with INVESCO discussed
below. Services provided under the Agreement include, but are not limited to:
supplying the Company with officers, clerical staff and other employees, if any,
who are necessary in connection with the Funds' operations; furnishing office
space, facilities, equipment, and supplies; providing personnel and facilities
required to respond to inquiries related to shareholder accounts; conducting
periodic compliance reviews of the Funds' operations; preparation and review of
required documents, reports and filings by INVESCO's in-house legal and
accounting staff (including the prospectus, statement of additional information,
proxy statements, shareholder reports, tax returns, reports to the SEC, and
other corporate documents of the Funds), except insofar as the assistance of
independent accountants or attorneys is necessary or desirable; supplying basic
telephone service and other utilities; and preparing and maintaining certain of
the books and records required to be prepared and maintained by the Funds under
the 1940 Act. Expenses not assumed by INVESCO are borne by the Funds.
As full compensation for its advisory services to the Company, INVESCO
receives a monthly fee. The fee is based upon a percentage of each Fund's
average net assets, determined daily. With respect to the Capital Goods Fund and
the Communications Fund, the fee is calculated at the annual rate of: 0.65% on
the first $500 million of each Fund's average net assets; 0.55% on the next $500
million of each Fund's average net assets; and 0.45% on each Fund's average net
assets over $1 billion. With respect to the European Small Company Fund, the
Latin American Growth Fund and the Asian Growth Fund, the fee is calculated at
the annual rate of: 0.75% on the first $500 million of each Fund's average net
assets; 0.65% on the next $500 million of each Fund's average net assets; and
<PAGE>
0.55% on each Fund's average net assets over $1 billion. For the fiscal year
ended July 31, 1995, the Capital Goods Fund and the Communications Fund paid
INVESCO advisory fees of $32,382 and $101,129, respectively, prior to the
voluntary absorption of certain Fund expenses by INVESCO and the applicable
sub-adviser. For the period February 15, 1995 (inception) through July 31, 1995
the European Small Company Fund and Latin American Growth Fund paid INVESCO
advisory fees of $4,159 and $12,530, respectively, prior to the voluntary
absorption of certain Fund expenses by INVESCO and the applicable sub-adviser.
The Asian Growth Fund paid INVESCO no advisory fees as of the date of this
Statement of Additional Information since it did not commence a public offering
of securities until March 1, 1996.
Certain states in which the shares of the Funds are qualified for sale
currently impose limitations on the expenses of each of the Funds. At the date
of this Statement of Additional Information, the most restrictive state-imposed
annual expense limitation requires that INVESCO absorb the amount necessary to
prevent any Fund's aggregate ordinary operating expenses (excluding interest,
taxes, Rule 12b-1 fees, brokerage fees and commissions, and extraordinary
charges such as litigation costs) from exceeding in any fiscal year 2.5% on that
Fund's first $30 million of average net assets, 2.0% on the next $70 million of
average net assets and 1.5% on the remaining average net assets. No payment of
the investment advisory fee will be made to INVESCO which would result in a
Fund's expenses exceeding on a cumulative annualized basis this state
limitation.
Sub-Advisory Agreements. INVESCO Trust serves as sub-adviser to the
Capital Goods Fund and Communications Fund pursuant to a sub-advisory agreement
(the "Capital Goods and Communications Sub-Agreement") with INVESCO which was
approved on April 20, 1994, by a vote cast in person by a majority of the
directors of the Company, including a majority of the directors who are not
"interested persons" of the Company, INVESCO or INVESCO Trust at a meeting
called for such purpose. The Capital Goods and Communications Sub-Agreement was
approved on July 12, 1994, by INVESCO as the then sole shareholder of the
Capital Goods Fund and Communications Fund for an initial term expiring April
30, 1996. The Capital Goods and Communications Sub-Agreement has been approved
through April 30, 1996. Thereafter, the Capital Goods and Communications
Sub-Agreement may be continued from year to year as to each Fund as long as each
such continuance is specifically approved by the board of directors of the
Company, or by a vote of the holders of a majority, as defined in the 1940 Act,
of the outstanding shares of the Fund. Each such continuance also must be
approved by a majority of the directors who are not parties to the Capital Goods
and Communications Sub-Agreement or interested persons (as defined in the 1940
Act) of any such party, cast in person at a meeting called for the purpose of
voting on such continuance. The Capital Goods and Communications Sub-Agreement
may be terminated at any time without penalty by either party or the Company
<PAGE>
upon sixty (60) days' written notice, and terminates automatically in the event
of an assignment to the extent required by the 1940 Act and the rules
thereunder.
IAML serves as sub-adviser to the European Small Company Fund and the
Latin American Growth Fund pursuant to a sub-advisory agreement (the "European
and Latin American Sub-Agreement") with INVESCO that was assumed by IAML from
MIM International Limited ("MIL"), another indirect wholly-owned subsidiary of
INVESCO PLC, on November 10, 1995. This agreement was approved on October 19,
1994 by a vote cast in person by a majority of the directors of the Company,
including a majority of the directors who are not "interested persons" of the
Company, INVESCO, IAML or MIL at a meeting called for such purpose. The European
and Latin American Sub-Agreement was approved on February 8, 1995, by INVESCO as
the then sole shareholder of the European Small Company Fund and the Latin
American Growth Fund for an initial term expiring April 30, 1996. Thereafter,
the European and Latin American Sub-Agreement may be continued from year to year
as to each Fund as long as each such continuance is specifically approved by the
board of directors of the Company, or by a vote of the holders of a majority, as
defined in the Investment Company Act of 1940, of the outstanding shares of the
Fund. Each such continuance also must be approved by a majority of the directors
who are not parties to the European and Latin American Sub-Agreement or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such continuance. The
European and Latin American Sub-Agreement may be terminated at any time without
penalty by either party or the Company upon sixty (60) days' written notice, and
terminates automatically in the event of an assignment to the extent required by
the 1940 Act and the rules thereunder.
INVESCO Asia serves as sub-adviser to the Asian Growth Fund pursuant to a
sub-advisory agreement (the "Asian Growth Sub- Agreement") with INVESCO which
was approved on September 12, 1995 by INVESCO as the then sole shareholder of
the Asian Growth Fund for an initial term expiring April 30, 1996. Thereafter
the Asian Growth Sub-Agreement may be continued from year to year as long as it
is specifically approved by the board of directors of the Company, or by a vote
of the holders of a majority, as defined in the 1940 Act, of the outstanding
shares of the Fund. Each such continuance also must be approved by a majority of
directors who are not parties to the Asian Growth Sub-Agreement or interested
persons (as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such continuance. The Asian Growth
Sub-Agreement may be terminated at any time without penalty by either party or
the Company upon sixty (60) days' written notice, and terminates automatically
in the event of an assignment to the extent required by the 1940 Act and the
rules thereunder.
The Sub-Agreements provide that INVESCO Trust, IAML and INVESCO Asia,
subject to the supervision of INVESCO, shall manage the investment portfolios of
the respective Funds in conformity with each Fund's investment policies. These
<PAGE>
management services include: (a) managing the investment and reinvestment of all
the assets, now or hereafter acquired, of the Funds, and executing all purchases
and sales of portfolio securities; (b) maintaining a continuous investment
program for the Funds, consistent with (i) each Fund's investment policies as
set forth in the Company's Articles of Incorporation, Bylaws, and Registration
Statement, as from time to time amended, under the 1940 Act, and in any
prospectus and/or statement of additional information of the Company, as from
time to time amended and in use under the 1933 Act, and (ii) the Company's
status as a regulated investment company under the Internal Revenue Code of
1986, as amended; (c) determining what securities are to be purchased or sold
for each of the Funds, unless otherwise directed by the directors of the Company
or INVESCO, and executing transactions accordingly; (d) providing the Funds the
benefit of all of the investment analysis and research, the reviews of current
economic conditions and trends, and the consideration of long-range investment
policy now or hereafter generally available to investment advisory customers of
the Sub-Advisers; (e) determining what portion of each of the Funds should be
invested in the various types of securities authorized for purchase by each
Fund; and (f) making recommendations as to the manner in which voting rights,
rights to consent to Company action and any other rights pertaining to the
portfolio securities of each Fund shall be exercised.
The Capital Goods and Communications Sub-Agreements provide that as
compensation for its services, INVESCO Trust shall receive from INVESCO, at the
end of each month, a fee based upon the average daily value of the Capital Goods
Fund's and Communications Fund's net assets at the following annual rates:
0.325% on the first $500 million of each Fund's average net assets; 0.275% on
the next $500 million of each Fund's average net assets; and 0.225% on each
Fund's average net assets over $1 billion. The European and Latin American
Sub-Agreement provides that as compensation for its services, MIL shall receive
from INVESCO, at the end of each month, a fee based upon the average daily value
of the European Small Company Fund's and Latin American Growth Fund's net assets
at the following annual rates: 0.375% on the first $500 million of each Fund's
average net assets; 0.325% on the next $500 million of each Fund's average net
assets; and 0.275% on each Fund's average net assets over $1 billion. The Asian
Growth Sub-Agreement provides that, as compensation for its services, INVESCO
Asia shall receive from INVESCO, at the end of each month, a fee based upon the
average daily value of the Asian Growth Fund's net assets at the following
rates: 0.375% on the first $500 million of the Fund's average net assets; 0.325%
on the next $500 million of the Fund's average net assets; and 0.275% on the
Fund's average net assets in excess of $1 billion. The Sub-Advisory fees are
paid by INVESCO, NOT the Funds.
Administrative Services Agreement. INVESCO, either directly or through
affiliated companies, provides certain administrative, sub-accounting, and
recordkeeping services to the Funds pursuant to an Administrative Services
<PAGE>
Agreement dated May 2, 1994 (the "Administrative Agreement"). The Administrative
Agreement was approved on April 20, 1994, by a vote cast in person by all of the
directors of the Company, including all of the directors who are not "interested
persons" of the Company or INVESCO at a meeting called for such purpose. The
Administrative Agreement was for an initial term expiring April 30, 1995 and has
been renewed through April 30, 1996. The Administrative Agreement may be
continued from year to year thereafter as long as each such continuance is
specifically approved by the board of directors of the Company, including a
majority of the directors who are not parties to the Administrative Agreement or
interested persons (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such continuance. The
Administrative Agreement may be terminated at any time without penalty by
INVESCO on sixty (60) days' written notice, or by the Company upon thirty (30)
days' written notice, and terminates automatically in the event of an assignment
unless the Company's board of directors approves such assignment.
The Administrative Agreement provides that INVESCO shall provide the
following services to the Funds: (A) such sub-accounting and recordkeeping
services and functions as are reasonably necessary for the operation of the
Funds; and (B) such sub-accounting, recordkeeping, and administrative services
and functions, which may be provided by affiliates of INVESCO, as are reasonably
necessary for the operation of Fund shareholder accounts maintained by certain
retirement plans and employee benefit plans for the benefit of participants in
such plans.
As full compensation for services provided under the Administrative
Agreement, each Fund pays a monthly fee to INVESCO consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
monthly at an annual rate of 0.015% per year of the average net assets of the
Fund. For the fiscal year ended July 31, 1995, the Capital Goods Fund and the
Communications Fund paid INVESCO administrative service fees in the amount of
$10,747 and $12,334, respectively, prior to the voluntary absorption of certain
Fund expenses by INVESCO and the applicable sub-adviser. For the period February
15, 1995 (inception) through July 31, 1995 the European Small Company Fund and
Latin American Growth Fund paid INVESCO administrative service fees in the
amount of $3,417 and $3,584, respectively, prior to the voluntary absorption of
certain Fund expenses by INVESCO and the applicable sub-adviser. The Asian
Growth Fund paid INVESCO no administrative services fees as of the date of this
Statement of Additional Information, since it did not commence a public offering
of securities until March 1, 1996.
Transfer Agency Agreement. INVESCO also performs transfer agent, dividend
disbursing agent, and registrar services for the Funds pursuant to a Transfer
Agency Agreement which was approved by the board of directors of the Company,
including a majority of the Company's directors who are not parties to the
<PAGE>
Transfer Agency Agreement or "interested persons" of any such party, on April
20, 1994, for an initial term expiring April 30, 1995. The Transfer Agency
Agreement has been continued by action of the board of directors until April 30,
1996 and thereafter may be continued from year to year as to each Fund as long
as such continuance is specifically approved at least annually by the board of
directors of the Company, or by a vote of the holders of a majority of the
outstanding shares of the Fund. Any such continuance also must be approved by a
majority of the Company's directors who are not parties to the Transfer Agency
Agreement or interested persons (as defined by the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such
continuance. The Transfer Agency Agreement may be terminated at any time without
penalty by either party upon sixty (60) days' written notice and terminates
automatically in the event of assignment.
The Transfer Agency Agreement provides that the Funds will pay to INVESCO
an annual fee of $14.00 per shareholder account and omnibus account participant.
This fee is paid monthly at 1/12 of the annual fee and is based upon the actual
number of shareholder accounts and omnibus account participants in existence
during each month. For the fiscal year ended July 31, 1995, the Capital Goods
Fund and the Communications Fund paid INVESCO transfer agency fees of $20,517
and $64,043, respectively, prior to the voluntary absorption of certain Fund
expenses by INVESCO and the applicable sub-adviser. For the period February 15,
1995 (inception) through July 31, 1995, the European Small Company Fund and
Latin American Growth Fund paid INVESCO transfer agency fees of $2,300 and
$5,295, respectively, prior to the voluntary absorption of certain Fund expenses
by INVESCO and the applicable sub-adviser. The Asian Growth Fund paid INVESCO no
transfer agency fees as of the date of this Statement of Additional Information,
since it did not commence a public offering of securities until March 1, 1996.
Officers and Directors of the Company. The overall direction and
supervision of the Company is the responsibility of the board of directors,
which has the primary duty of seeing that the general investment policies and
programs of each of the Funds are carried out and that the Funds are properly
administered. The officers of the Company, all of whom are officers and
employees of, and are paid by, INVESCO, are responsible for the day-to-day
administration of the Company and each of the Funds. The investment adviser for
each Fund has the primary responsibility for making investment decisions on
behalf of that Fund. These investment decisions are reviewed by the investment
committee of INVESCO.
All of the officers and directors of the Company hold comparable positions
with INVESCO Diversified Funds, Inc., INVESCO Dynamics Fund, Inc., INVESCO
Emerging Opportunity Funds, Inc., INVESCO Growth Fund, Inc., INVESCO Income
Funds, Inc., INVESCO Industrial Income Fund, Inc., INVESCO International Funds,
Inc., INVESCO Money Market Funds, Inc., INVESCO Multiple Asset Funds, Inc.,
INVESCO Strategic Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc. and
<PAGE>
INVESCO Variable Investment Funds, Inc. All of the directors of the Company also
serve as trustees of INVESCO Value Trust. In addition, all of the directors of
the Company, with the exception of Messrs. Hesser and Sim, also are trustees of
INVESCO Treasurer's Series Trust and directors of The INVESCO Advisor Funds,
Inc. All of the officers of the Company also hold comparable positions with
INVESCO Value Trust. Set forth below is information with respect to each of the
Company's officers and directors. Unless otherwise indicated, the address of the
directors and officers is Post Office Box 173706, Denver, Colorado 80217-3706.
Their affiliations represent their principal occupations during the past five
years.
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive Officer and
Director of INVESCO PLC, London, England, and of various subsidiaries thereof;
Chairman of the Board of The INVESCO Advisor Funds, Inc., INVESCO Treasurer's
Series Trust, and The Global Heath Sciences Fund. Address: 1315 Peachtree
Street, NE, Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. Vice Chairman of INVESCO
Advisor Funds, Inc. and INVESCO Treasurer's Series Trust. Trustee of The Global
Health Sciences Fund. Formerly, Chairman of the Executive Committee and Chairman
of the Board of Security Life of Denver Insurance Company, Denver, Colorado;
Director of ING America Life Insurance Company, Urbaine Life Insurance Company
and Midwestern United Life Insurance Company. Address: Security Life Center,
1290 Broadway, Denver, Colorado. Born: January 12, 1928.
DAN J. HESSER,+* President and Director. Chairman of the Board, President,
and Chief Executive Officer of INVESCO Funds Group, Inc., and Director of
INVESCO Trust Company. Trustee of The Global Health Sciences Fund. Born:
December 27, 1939.
VICTOR L. ANDREWS,** Director. Professor Emeritus, Chairman Emeritus and
Chairman of the CFO Roundtable of the Department of Finance at Georgia State
University, Atlanta, Georgia; President, Andrews Financial Associates, Inc.
(consulting firm); formerly, member of the faculties of the Harvard Business
School and the Sloan School of Management of MIT. Dr. Andrews is also a director
of the Southeastern Thrift and Bank Fund, Inc. and The Sheffield Funds, Inc.
Address: 4625 Jettridge Drive, Atlanta, Georgia. Born: June 23, 1930.
BOB R. BAKER,+** Director. President and Chief Executive Officer of AMC
Cancer Research Center, Denver, Colorado, since January 1989; until mid-December
1988, Vice Chairman of the Board of First Columbia Financial Corporation (a
financial institution), Englewood, Colorado. Formerly, Chairman of the Board and
Chief Executive Officer of First Columbia Financial Corporation. Address: 1775
Sherman Street, #1000, Denver, Colorado. Born: August 7, 1936.
<PAGE>
FRANK M. BISHOP*, Director. President and Chief Operating Officer of
INVESCO Inc. since February, 1993; Director of INVESCO Funds Group, Inc. since
March 1993; Director (since February 1993), Vice President (since December
1991), and Portfolio Manager (since February 1987), of INVESCO Capital
Management, Inc. (and predecessor firms), Atlanta, Georgia. Address: 1315
Peachtree Street, N.E., Atlanta, Georgia. Born: December 7, 1943.
LAWRENCE H. BUDNER,# Director. Trust Consultant; prior to June 30, 1987,
Senior Vice President and Senior Trust Officer of InterFirst Bank, Dallas,
Texas. Address: 7608 Glen Albens Circle, Dallas, Texas. Born: July 25, 1930.
DANIEL D. CHABRIS,+# Director. Financial Consultant; Assistant Treasurer of
Colt Industries Inc., New York, New York, from 1966 to 1988. Address: 15
Sterling Road, Armonk, New York. Born: August 1, 1923.
A. D. FRAZIER, JR.,** Director. Chief Operating Officer of the Atlanta
Committee for the Olympic Games. From 1982 to 1991, Mr. Frazier was employed in
various capacities by First Chicago Bank, most recently as Executive Vice
President of the North American Banking Group. Trustee of The Global Health
Sciences Fund. Director of Charter Medical Corp. Address: 250 Williams Street,
Suite 6000, Atlanta, Georgia 30301. Born: June 23, 1944.
KENNETH T. KING,** Director. Formerly, Chairman of the Board of The Capitol
Life Insurance Company, Providence Washington Insurance Company, and Director of
numerous subsidiaries thereof in the U.S. Formerly, Chairman of the Board of The
Providence Capitol Companies in the United Kingdom and Guernsey. Chairman of the
Board of the Symbion Corporation (a high technology company) until 1987.
Address: 4080 North Circulo Manzanillo, Tucson, Arizona. Born: November 16,
1925.
JOHN W. MC INTYRE,# Director. Retired. Formerly, Vice Chairman of the Board
of Directors of The Citizens and Southern Corporation and Chairman of the Board
and Chief Executive Officer of The Citizens and Southern Georgia Corp. and
Citizens and Southern National Bank. Director of Golden Poultry Co., Inc.
Trustee of The Global Health Sciences Fund and Gables Residential Trust.
Address: 7 Piedmont Center, Suite 100, Atlanta, GA. Born: September 14, 1930.
R. DALTON SIM*, Director. Chairman of the Board (since March 1993) and
President (since January 1991) of INVESCO Trust Company; Director since June
1987 and, formerly, Executive Vice President and Chief Investment Officer (June
1987 to January 1991) of INVESCO Funds Group, Inc.; President (since 1994) and
Trustee (since 1991) of The Global Health Sciences Fund. Born: July 18, 1939.
GLEN A. PAYNE, Secretary. Senior Vice President, General Counsel and
Secretary of INVESCO Funds Group, Inc. and INVESCO Trust Company since April
1995 and formerly (May 1989 to April 1995) Vice President, Secretary and General
<PAGE>
Counsel of INVESCO Funds Group, Inc. and INVESCO Trust Company. Born: September
25, 1947.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
Funds Group, Inc. and INVESCO Trust Company. Born: October 1, 1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO Funds Group, Inc. and Trust Officer of INVESCO Trust Company since July
1995 and formerly (August 1992 to July 1995) Vice President of INVESCO Funds
Group, Inc. and trust officer of INVESCO Trust Company; Vice President of 440
Financial Group from June 1990 to August 1992; Assistant Vice President of
Putnam Companies from November 1986 to June 1990. Born: August 21, 1956.
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO Funds Group,
Inc. and Trust Officer of INVESCO Trust Company. Born: September 14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO Funds Group,
Inc. and Trust Officer of INVESCO Trust Company. Born: February 3, 1948.
#Member of the audit committee of the Company.
+Member of the executive committee of the Company. On occasion, the
executive committee acts upon the current and ordinary business of the Company
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
*These directors are "interested persons" of the Company as defined in the
Investment Company Act of 1940.
**Member of the management liaison committee of the Company.
As of January 31, 1996, officers and directors of the Company, as a group,
beneficially owned less than 0.26% of the Company's outstanding shares and less
than 0.14% of the Worldwide Capital Goods Fund, 0.01% of the Worldwide
Communications Fund, 0.00% of the European Small Company Fund, 0.11% of the
Latin American Growth
Fund and 0.00% of the Asian Growth Fund.
Director Compensation
The following table sets forth, for the fiscal year ending July 31, 1995:
the compensation paid by the Company to its eight eligible independent directors
<PAGE>
for services rendered in their capacities as directors of the Company; the
benefits accrued as Company expenses with respect to the Defined Benefit
Deferred Compensation Plan discussed below; and the estimated annual benefits to
be received by these directors upon retirement as a result of their service to
the Company. In addition, the table sets forth the total compensation paid by
all of the mutual funds distributed by INVESCO Funds Group, Inc. (including the
Company), The INVESCO Adviser Funds, Inc., INVESCO Treasurer's Series Trust and
The Global Health Sciences Fund (collectively, the "INVESCO Complex") to these
directors for services rendered in their capacities as directors or trustees
during the year ended December 31, 1995. As of December 31, 1995, there were 48
funds in the INVESCO Complex.
Total
Compensa-
Benefits Estimated tion From
Aggregate Accrued Annual INVESCO
Name of Compensa- As Part Benefits Complex
Person, tion From of Fund Upon Re- Paid To
Position Fund(1) Expenses(2) tirement(3) Directors(1)
Fred A.Deering, $ 529 $0 $0 $ 87,350
Vice Chairman of
the Board
Victor L. Andrews 521 0 0 68,000
Bob R. Baker 525 0 0 75,000
Lawrence H. Budner 521 0 0 68,350
Daniel D. Chabris 525 0 0 73,350
A. D. Frazier Jr.4 261 0 0 63,500
Kenneth T. King 524 0 0 70,000
John W. McIntyre4 261 0 0 67,850
------ ------ ----- ---------
Total $3,6675 $ 0 $ 571,400
% of Net Assets 0.0075%6 0.0000%6 .0043%7
1The vice chairman of the board, the chairmen of the audit, management
liaison and compensation committees, and the members of the executive and
valuation committees each receive compensation for serving in such capacities in
addition to the compensation paid to all independent directors.
2Represents estimated benefits accrued with respect to the Defined Benefit
Deferred Compensation Plan discussed below, and not compensation deferred at the
election of the directors.
<PAGE>
3These figures represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding The Global Health Sciences
Fund, which does not participate in any retirement plan) upon the directors'
retirement, calculated using the current method of allocating director
compensation among the funds in the INVESCO Complex. These estimated benefits
assume retirement at age 72 and that the basic retainer payable to the directors
will be adjusted periodically for inflation, for increases in the number of
funds in the INVESCO Complex, and for other reasons during the period in which
retirement benefits are accrued on behalf of the respective directors. This
results in lower estimated benefits for directors who are closer to retirement
and higher estimated benefits for directors who are further from retirement.
With the exception of Messrs. Frazier and McIntyre, each of these directors has
served as a director/trustee of one or more of the funds in the INVESCO Complex
for the minimum five-year period required to be eligible to participate in the
Defined Benefit Deferred Compensation Plan.
4Messrs. Frazier and McIntyre began serving as directors of the Company on
April 19, 1995.
5Amount only includes Worldwide Communications Fund effective January 1,
1995. The Worldwide Capital Goods Fund, European Small Company Fund, Latin
American Growth Fund and Asian Growth Fund were not accruing directors' fees as
of July 31, 1995.
6Totals as a percentage of the Company's net assets as of July 31, 1995.
7Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1995.
Messrs. Bishop, Brady, Hesser and Sim, as "interested persons" of the
Company and of the other funds in the INVESCO Complex, receive compensation as
officers or employees of INVESCO or its affiliated companies, and do not receive
any director's fees or other compensation from the Company or the other funds in
the INVESCO Complex for their service as directors.
The boards of directors/trustees of the mutual funds managed by INVESCO,
INVESCO Advisor Funds, Inc. and INVESCO Treasurer's Series Trust have adopted a
Defined Benefit Deferred Compensation Plan for the non-interested directors and
trustees of the funds. Under this plan, each director or trustee who is not an
interested person of the funds (as defined in the 1940 Act) and who has served
for at least five years (a "qualified director") is entitled to receive, upon
retiring from the boards at the retirement age of 72 (or the retirement age of
73 to 74, if the retirement date is extended by the boards for one or two years,
<PAGE>
but less than three years) continuation of payment for one year (the "first year
retirement benefit") of the annual basic retainer payable by the funds to the
qualified director at the time of his retirement (the "basic retainer").
Commencing with any such director's second year of retirement, and commencing
with the first year of retirement of a director whose retirement has been
extended by the board for three years, a qualified director shall receive
quarterly payments at an annual rate equal to 25% of the basic retainer. These
payments will continue for the remainder of the qualified director's life or ten
years, whichever is longer (the "reduced retainer payments"). If a qualified
director dies or becomes disabled after age 72 and before age 74 while still a
director of the funds, the first year retirement benefit and the reduced
retainer payments will be made to him or to his beneficiary or estate. If a
qualified director becomes disabled or dies either prior to age 72 or during
his/her 74th year while still a director of the funds, the director will not be
entitled to receive the first year retirement benefit; however, the reduced
retainer payments will be made to his 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, INVESCO Advisor and Treasurer's Series funds in
a manner determined to be fair and equitable by the committee. The Company is
not making any payments to directors under the plan as of the date of this
Statement of Additional Information. The Company has no stock options or other
pension or retirement plans for management or other personnel and pays no salary
or compensation to any of its officers.
The Company has an audit committee which is comprised of four of the
directors who are not interested persons of the Company. The committee meets
periodically with the Company's independent accountants and officers to review
accounting principles used by the Company, the adequacy of internal controls,
the responsibilities and fees of the independent accountants, and other matters.
The Company also has a management liaison committee which meets quarterly
with various management personnel of INVESCO in order (a) to facilitate better
understanding of management and operations of the Company, and (b) to review
legal and operational matters which have been assigned to the committee by the
board of directors in furtherance of the board of directors' overall duty of
supervision.
HOW SHARES CAN BE PURCHASED
Shares of each Fund are sold on a continuous basis at the respective net
asset value per share of the Fund next calculated after receipt of a purchase
order in good form. The net asset value per share is computed separately for
each Fund and is determined once each day that the New York Stock Exchange is
open as of the close of regular trading on that Exchange, but may also be
<PAGE>
computed at other times. See "How Shares Are Valued." INVESCO acts as the Funds'
distributor under a distribution agreement with the Company under which it
receives no compensation and bears all expenses, including the costs of printing
and distributing prospectuses, incident to marketing of the Funds' shares,
except for such distribution expenses which are paid out of Fund assets under
the Company's Plan of Distribution which has been adopted by the Company in
accordance with Rule 12b-1 under the 1940 Act.
Distribution Plan. As discussed under "How Shares Can Be Purchased" in the
Prospectuses, the Company has adopted a Plan and Agreement of Distribution (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. The Plan provides that each
of the Funds may make monthly payments to INVESCO of amounts computed at an
annual rate no greater than 0.25% on the Fund's average net assets to reimburse
it for expenses incurred by it in connection with the distribution of each
Fund's shares to investors. Payment amounts by a Fund under the Plan, for any
month, may only be made to reimburse or pay expenditures incurred during the
rolling 12-month period in which that month falls, although this period is
expanded to 24 months for expenses incurred during the first 24 months of a
Fund's operations. During the fiscal year ended July 31, 1995, the Capital Goods
Fund and Communications Fund incurred $10,355 and $33,148 in distribution
expenses, respectively, prior to the voluntary absorption of certain Fund
expenses by INVESCO and the applicable sub-adviser. During the period ended July
31, 1995, the European Small Company Fund and Latin American Growth Fund
incurred $771 and $2,696, respectively, in distribution expenses, prior to the
voluntary absorption of certain Fund expenses by INVESCO and the applicable
sub-adviser. As noted in the Prospectuses, one type of reimbursable expenditure
is the payment of compensation to securities companies and other financial
institutions and organizations, which may include INVESCO affiliated companies,
in order to obtain various distribution-related and/or administrative services
for the Funds. Each Fund is authorized by the Plan to use its assets to finance
the payments made to obtain those services. Payments will be made by INVESCO to
broker-dealers who sell shares of the Funds and may be made to banks, savings
and loan associations and other depository institutions. Although the
Glass-Steagall Act limits the ability of certain banks to act as underwriters of
mutual fund shares, the Company does not believe that these limitations would
affect the ability of such banks to enter into arrangements with INVESCO, but
can give no assurance in this regard. However, to the extent it is determined
otherwise in the future, arrangements with banks might have to be modified or
terminated, and, in that case, the size of one or more of the Funds possibly
could decrease to the extent that the banks would no longer invest customer
assets in a particular Fund. Neither the Company nor its investment adviser will
give any preference to banks or other depository institutions which enter into
such arrangements when selecting investments to be made by each Fund.
For the fiscal year ended July 31, 1995, allocation of 12b-1 amounts paid
by the Capital Goods Fund and Communications Fund for the following categories
of expenses were, respectively: advertising--$3,881 and $12,134; sales
<PAGE>
literature, printing, and postage--$2,852 and $9,128; direct mail--$2,669 and
$8,101; public relations/promotion--$293 and $1,196; compensation to securities
dealers and other organizations--$18 and $192; marketing personnel- -$642 and
$2,397. For the period February 15, 1995 (inception) through July 31, 1995,
allocations of 12b-1 amounts paid by the European Small Company Fund and Latin
American Growth Fund for the following categories of expenses were,
respectively: advertising-- $446 and $37; sales literature, printing, and
postage--$137 and $781; direct mail--$172 and $1,694; public
relations/promotion--$10 and $108; compensation to securities dealers and other
organizations--$1 and $15; marketing personnel--$5 and $61. The Asian Growth
Fund paid no 12b-1 fees as of the date of this Statement of Additional
Information since it did not commence a public offering of securities until
March 1, 1996.
The nature and scope of services which are provided by securities dealers
and other organizations may vary by dealer but include, among other things,
processing new stockholder account applications, preparing and transmitting to
the Company's Transfer Agent computer-processable tapes of each Fund's
transactions by customers, serving as the primary source of information to
customers in answering questions concerning each Fund, and assisting in other
customer transactions with each Fund.
The Plan was approved on April 20, 1994, at a meeting called for such
purpose by a majority of the directors of the Company, including a majority of
the directors who neither are "interested persons" of the Company nor have any
financial interest in the operation of the Plan ("12b-1 directors"). The Plan
was approved by INVESCO on July 12, 1994, as the then sole shareholder of the
Capital Goods Fund and Communications Fund for an initial term expiring April
30, 1995 and has been continued by action of the board of directors until April
30, 1996. With respect to the INVESCO European Small Company Fund and Latin
American Growth Fund, the Plan was approved by INVESCO on February 8, 1995 as
the then sole shareholder of each Fund and has been continued by action of the
board of directors until April 30, 1996. With respect to the Asian Growth Fund,
the Plan was approved by INVESCO on September 12, 1995 as the then sole
shareholder of the Fund.
The Plan provides that it shall continue in effect with respect to each
Fund for so long as such continuance is approved at least annually by the vote
of the board of directors of the Company cast in person at a meeting called for
the purpose of voting on such continuance. The Plan also can be terminated at
any time with respect to any Fund, without penalty, if a majority of the 12b-1
directors, or shareholders of such Fund, vote to terminate the Plan. The Company
may, in its absolute discretion, suspend, discontinue or limit the offering of
the shares of any Fund at any time. In determining whether any such action
should be taken, the board of directors intends to consider all relevant factors
including, without limitation, the size of the Funds, the investment climate for
<PAGE>
any particular Fund, general market conditions, and the volume of sales and
redemptions of Fund shares. The Plan may continue in effect and payments may be
made under the Plan following any such temporary suspension or limitation of the
offering of a Fund's shares; however, the Company is not contractually obligated
to continue the Plan for any particular period of time. Suspension of the
offering of a Fund's shares would not, of course, affect a shareholder's ability
to redeem his shares. So long as the Plan is in effect, the selection and
nomination of persons to serve as independent directors of the Company shall be
committed to the independent directors then in office at the time of such
selection or nomination. The Plan may not be amended to increase materially the
amount of any Fund's payments thereunder without approval of the shareholders of
that Fund, and all material amendments to the Plan must be approved by the board
of directors of the Company, including a majority of the 12b-1 directors. Under
the agreement implementing the Plan, INVESCO or the Funds, the latter by vote of
a majority of the 12b-1 directors or of the holders of a majority of any Fund's
outstanding voting securities, may terminate such agreement without penalty upon
30 days' written notice to the other party. No further payments will be made by
any Fund under the Plan in the event of its termination as to that Fund.
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the Act, it shall remain in effect as such, so as
to authorize the use of each Fund's assets in the amounts and for the purposes
set forth therein, notwithstanding the occurrence of an assignment, as defined
by the Act, and rules thereunder. To the extent it constitutes an agreement
pursuant to a plan, each Fund's obligation to make payments to INVESCO shall
terminate automatically, in the event of such "assignment," in which event the
Funds may continue to make payments, pursuant to the Plan, to INVESCO or another
organization only upon the approval of new arrangements, which may or may not be
with INVESCO, regarding the use of the amounts authorized to be paid by it under
the Plan, by the directors, including a majority of the 12b-1 directors, by a
vote cast in person at a meeting called for such purpose.
Information regarding the services rendered under the Plan and the amounts
paid therefor by each Fund are provided to, and reviewed by, the directors on a
quarterly basis. In the quarterly review, the directors determine whether, and
to what extent, INVESCO will be reimbursed for expenditures which it has made
that are reimbursable under the Company's Rule 12b-1 Plan. On an annual basis,
the directors consider the continued appropriateness of the Plan at the level of
compensation provided therein.
The only directors or interested persons, as that term is defined in
Section 2(a)(19) of the Act, of the Company who have a direct or indirect
financial interest in the operation of the Plan are the officers and directors
of the Company listed under "Officers and Directors of the Company" who are also
officers either of INVESCO or companies affiliated with INVESCO. The benefits
<PAGE>
which the Company believes will be reasonably likely to flow to the Funds and
their shareholders under the Plan include the following:
(1) Enhanced marketing efforts, if successful, should result in an
increase in net assets through the sale of additional shares and
afford greater resources with which to pursue the investment
objectives of the Funds;
(2) The sale of additional shares reduces the likelihood that redemption
of shares will require the liquidation of securities of the Funds in
amounts and at times that are disadvantageous for investment
purposes;
(3) The positive effect which increased Fund assets will have on its
revenues could allow INVESCO:
(a) To have greater resources to make the financial commitments
necessary to improve the quality and level of each Fund's
shareholder services (in both systems and personnel),
(b) To increase the number and type of mutual funds available to
investors from INVESCO (and support them in their infancy),
and thereby expand the investment choices available to all
shareholders, and
(c) To acquire and retain talented employees who desire
to be associated with a growing organization; and
(4) Increased Fund assets may result in reducing each investor's share
of certain expenses through economies of scale (e.g. exceeding
established breakpoints in the advisory fee schedule and allocating
fixed expenses over a larger asset base), thereby partially
offsetting the costs of the Plan.
HOW SHARES ARE VALUED
As described in the section of the Funds' Prospectuses entitled "How
Shares Can Be Purchased," the net asset value of shares of each Fund of the
Company is computed once each day that the New York Stock Exchange is open as of
the close of regular trading on that Exchange (usually 4:00 p.m., New York time)
and applies to purchase and redemption orders received prior to that time. Net
asset value per share is also computed on any other day on which there is a
sufficient degree of trading in the securities held by a Fund that the current
net asset value per share of such Fund might be materially affected by changes
in the value of the securities held, but only if on such day the Fund receives a
request to purchase or redeem shares. Net asset value per share is not
calculated on days the New York Stock Exchange is closed, such as federal
<PAGE>
holidays, including New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas.
The net asset value per share of each Fund is calculated by dividing the
value of all securities held by the Fund and its other assets (including
dividends and interest accrued but not collected), less the Fund's liabilities
(including accrued expenses), by the number of outstanding shares of the Fund.
Securities traded on national securities exchanges, the NASDAQ National Market
System, the NASDAQ Small Cap market and foreign markets are valued at their last
sale prices on the exchanges or markets where such securities are primarily
traded. Securities traded in the over-the-counter market for which last sale
prices are not available, and listed securities for which no sales were reported
on a particular date, are valued at their highest closing bid prices (or, for
debt securities, yield equivalents thereof) obtained from one or more dealers
making markets for such securities. If market quotations are not readily
available, securities or other assets will be valued at their fair values as
determined in good faith by the Company's board of directors or pursuant to
procedures adopted by the board of directors. The above procedures may include
the use of valuations furnished by a pricing service which employs a matrix to
determine valuations for normal institutional-size trading units of debt
securities. Prior to utilizing a pricing service, the Company's board of
directors reviews the methods used by such service to assure itself that
securities will be valued at their fair values. The Company's board of directors
also periodically monitors the methods used by such pricing services. Debt
securities with remaining maturities of 60 days or less at the time of purchase
are normally valued at amortized cost.
The values of securities held by the Funds are determined as of the time
regular trading in such securities or assets is completed each day. Since
regular trading in most foreign securities markets is completed simultaneously
with, or prior to, the close of regular trading on the New York Stock Exchange,
closing prices for foreign securities usually are available for purposes of
computing the Funds' net asset value. However, in the event that the closing
price of a foreign security is not available in time to calculate a Fund's net
asset value on a particular day, the Company's board of directors has authorized
the use of the market price for the security obtained from an approved pricing
service at an established time during the day which may be prior to the close of
regular trading in the security. The value of all assets and liabilities
initially expressed in foreign currencies will be converted into U.S. dollars at
the spot rate of such currencies against U.S. dollars provided by an approved
pricing service.
FUND PERFORMANCE
As discussed in the Funds' Prospectuses, the Company advertises the total
return performance of the Funds. The total return performance for the Capital
<PAGE>
Goods Fund and the Communications Fund for the fiscal year ended July 31, 1995
and for the European Small Company Fund and Latin American Growth Fund for the
period from February 15, 1995 (inception) through July 31, 1995 was as follows:
Fund Total Return
---- ------------
Capital Goods Fund (1.49)%
Communications Fund 24.83%
European Small Company Fund* 34.51%
Latin American Growth Fund* 37.10%
*not annualized
Since the Asian Growth Fund did not commence a public offering of its
securities until March 1, 1996, it does not have any investment results for the
period indicated.
Average annual total return performance is computed by finding the average
annual compounded rates of return that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
P(1 + T)n = ERV
where: P = initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
In conjunction with performance reports, comparative data between the
Funds' performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
From time to time, evaluations of performance made by independent sources
may also be used in advertisements, sales literature or shareholder reports,
including reprints of, or selections from, editorials or articles about the
Funds. Sources for Fund performance information and articles about the Funds
include, but are not limited to, the following:
American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
CNBC
CNN
Consumer Digest
Financial Times
Financial World
Forbes
Fortune
<PAGE>
Ibbotson Associates, Inc.
Institutional Investor
Investment Company Data, Inc.
Investor's Business Daily
Kiplinger's Personal Finance
Lipper Analytical Services, Inc.'s Mutual Fund
Performance Analysis
Money
Morningstar
Mutual Fund Forecaster
No-Load Analyst
No-Load Fund X
Personal Investor
Smart Money
The New York Times
The No-Load Fund Investor
U.S. News and World Report
United Mutual Fund Selector
USA Today
Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
SERVICES PROVIDED BY THE FUNDS
Periodic Withdrawal Plan. As described in the section of the Funds'
Prospectus entitled "Services Provided by the Funds," each Fund offers a
Periodic Withdrawal Plan. All dividends and distributions on shares owned by
shareholders participating in this Plan are reinvested in additional shares.
Since withdrawal payments represent the proceeds from sales of shares, the
amount of shareholders' investments in a Fund will be reduced to the extent that
withdrawal payments exceed dividends and other distributions paid and
reinvested. Any gain or loss on such redemptions must be reported for tax
purposes. In each case, shares will be redeemed at the close of business on or
about the 20th day of each month preceding payment and payments will be mailed
within five business days thereafter.
The Periodic Withdrawal Plan involves the use of principal and is not a
guaranteed annuity. Payments under such Plan do not represent income or a return
on investment.
A Periodic Withdrawal Plan may be terminated at any time by sending a
written request to INVESCO. Upon termination, all future dividends and capital
gain distributions will be reinvested in additional shares unless a shareholder
requests otherwise.
Exchange Privilege. As discussed in the section of the Funds' Prospectus
entitled "Services Provided by the Funds," the Funds offer shareholders the
privilege of exchanging shares of the Funds for shares of another fund or for
<PAGE>
shares of certain other no-load mutual funds advised by INVESCO. Exchange
requests may be made either by telephone or by written request to INVESCO Funds
Group, Inc., using the telephone number or address on the cover of this
Statement of Additional Information. Exchanges made by telephone must be in an
amount of at least $250, if the exchange is being made into an existing account
of one of the INVESCO funds. All exchanges that have established a new account
must meet the fund's applicable minimum initial investment requirements. Written
exchange requests into an existing account have no minimum requirements other
than the fund's applicable minimum subsequent investment requirements. Any gain
or loss realized on such an exchange is recognized for federal income tax
purposes. This privilege is not an option or right to purchase securities, but
is a revocable privilege permitted under the present policies of each of the
funds and is not available in any state or other jurisdiction where the shares
of the mutual fund into which transfer is to be made are not qualified for sale,
or when the net asset value of the shares presented for exchange is less than
the minimum dollar purchase required by the appropriate prospectus.
TAX-DEFERRED RETIREMENT PLANS
As described in the section of the Funds' Prospectus entitled "Services
Provided by the Funds," shares of a Fund may be purchased as the investment
medium for various tax-deferred retirement plans. Persons who request
information regarding these plans from INVESCO will be provided with prototype
documents and other supporting information regarding the type of plan requested.
Each of these plans involves a long-term commitment of assets and is subject to
possible regulatory penalties for excess contributions, premature distributions
or for insufficient distributions after age 70-1/2. The legal and tax
implications may vary according to the circumstances of the individual investor.
Therefore, the investor is urged to consult with an attorney or other tax
adviser prior to the establishment of such a plan.
HOW TO REDEEM SHARES
Normally, payments for shares redeemed will be mailed within seven days
following receipt of the required documents as described in the section of the
Funds' Prospectus entitled "How to Redeem Shares." The right of redemption may
be suspended and payment postponed when: (a) the New York Stock Exchange is
closed for other than customary weekends and holidays; (b) trading on that
exchange is restricted; (c) an emergency exists as a result of which disposal by
a Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets; or (d) the Securities and Exchange Commission by order so permits.
It is possible that in the future conditions may exist which would, in the
opinion of the Company's investment adviser, make it undesirable for a Fund to
pay for redeemed shares in cash. In such cases, the investment adviser may
<PAGE>
authorize payment to be made in portfolio securities or other property of the
Fund. However, the Company is obligated under the 1940 Act to redeem for cash
all shares of a Fund presented for redemption by any one shareholder having a
value up to $250,000 (or 1% of the Fund's net assets if that is less) in any
90-day period. Securities delivered in payment of redemptions are selected
entirely by the investment adviser based on what is in the best interests of the
Fund and its shareholders, and are valued at the value assigned to them in
computing the Fund's net asset value per share. Shareholders receiving such
securities are likely to incur brokerage costs on their subsequent sales of the
securities.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, AND TAXES
Each Fund intends to continue to conduct its business and satisfy the
applicable diversification of assets and source of income requirements to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. Each Fund so qualified in the fiscal year
ended July 31, 1995, and intends to continue to qualify during its current
fiscal year. (The Asian Growth Fund did not commence a public offering of its
securities until March 1, 1996, so it was not subject to the requirements of
Subchapter M during the fiscal year ended July 31, 1995, although it intends to
qualify during its current fiscal year.) As a result, it is anticipated that
each Fund will pay no federal income or excise taxes and will be accorded
conduit or "pass through" treatment for federal income tax purposes.
Dividends paid by each Fund from net investment income as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
each Fund sends shareholders information regarding the amount and character of
dividends paid in the year, including the dividends eligible for the
dividends-received deduction for corporations. Such amounts will be limited to
the aggregate amount of qualifying dividends which each Fund derives from its
portfolio investments.
Distributions by each Fund of net capital gain (the excess of net
long-term capital gain over net short term capital loss) are, for federal income
tax purposes, taxable to the shareholder as long-term capital gains regardless
of how long a shareholder has held shares of a Fund. Such distributions are
identified as such and are not eligible for the dividends-received deduction.
All dividends and other distributions are regarded as taxable to the
investor, whether or not such dividends and distributions are reinvested in
additional shares. If the net asset value of Fund shares should be reduced below
a shareholder's cost as a result of a distribution, such distribution would be
taxable to the shareholder although a portion would be, in effect, a return of
invested capital. The net asset value of shares of a Fund reflects accrued net
<PAGE>
investment income and undistributed realized capital and foreign currency gains;
therefore, when a distribution is made, the net asset value is reduced by the
amount of the distribution. If shares are purchased shortly before a
distribution, the full price for the shares will be paid and some portion of the
price may then be returned to the shareholder as a taxable dividend or capital
gain. However, the net asset value per share will be reduced by the amount of
the distribution, which would reduce any gain (or increase any loss) for tax
purposes on any subsequent redemption of shares.
Dividends and interest received by each Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
INVESCO may provide Fund shareholders with information concerning the
average cost basis of their shares in order to help them prepare their tax
returns. This information is intended as a convenience to shareholders, and will
not be reported to the Internal Revenue Service (the "IRS"). The IRS permits the
use of several methods to determine the cost basis of mutual fund shares. The
cost basis information provided by INVESCO will be computed using the
single-category average cost method, although neither INVESCO nor a Fund
recommends any particular method of determining cost basis. Other methods may
result in different tax consequences. If a shareholder has reported gains or
losses for a Fund in past years, the shareholder must continue to use the method
previously used, unless the shareholder applies to the IRS for permission to
change methods.
If a Fund's shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of a
Fund's total assets at the close of any taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the Internal Revenue Service that will enable its shareholders, in effect,
to receive the benefit of the foreign tax credit with respect to any foreign and
<PAGE>
U.S. possessions income taxes paid by it. Each Fund will report to its
shareholders shortly after each taxable year their respective shares of the
Fund's income from sources within, and taxes paid to, foreign countries and U.S.
possessions if it makes this election.
Each Fund may invest in the stock of "passive foreign investment
companies" (PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, a Fund will be
subject to federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if a Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC income
will be included in a Fund's investment company taxable income and, accordingly,
will not be taxable to it to the extent that income is distributed to its
shareholders.
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time each Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and capital gain
distributions will generally be subject to applicable state and local taxes.
Qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended, for income tax purposes does not entail government
supervision of management or investment policies.
INVESTMENT PRACTICES
Portfolio Turnover. There are no fixed limitations regarding the portfolio
turnover of the Funds. Brokerage costs to these Funds are commensurate with the
rate of portfolio activity. As of the date of this Statement of Additional
Information, the Asian Growth Fund had not commenced a public offering of its
shares, and therefore had not experienced any portfolio turnover. For the fiscal
year ended July 31, 1995, the portfolio turnover rates for the Capital Goods
Fund and Communications Fund were 193% and 215%, respectively. For the period
February 15, 1995 (inception) through July 31, 1995, the portfolio turnover
rates for the European Small Company Fund and Latin American Growth Fund were 0%
<PAGE>
and 30%, respectively (not annualized). In computing portfolio turnover rates,
all investments with maturities or expiration dates at the time of acquisition
of one year or less are excluded. Subject to this exclusion, the turnover rate
is calculated by dividing (A) the lesser of purchases or sales of portfolio
securities for the fiscal year by (B) the monthly average of the value of
portfolio securities owned by the Fund during the fiscal year.
Placement of Portfolio Brokerage. Either INVESCO, as the Company's
investment adviser, or INVESCO Trust, IAML or INVESCO Asia, as the Company's
sub-advisers, places orders for the purchase and sale of securities with brokers
and dealers based upon INVESCO's, INVESCO Trust's, IAML's or INVESCO Asia's
evaluation of their financial responsibility, subject to their ability to effect
transactions at the best available prices. Fund Management evaluates the overall
reasonableness of brokerage commissions paid by reviewing the quality of
executions obtained on portfolio transactions of each Fund, viewed in terms of
the size of transactions, prevailing market conditions in the security purchased
or sold, and general economic and market conditions. In seeking to ensure that
the commissions charged the Funds are consistent with prevailing and reasonable
commissions, Fund Management also endeavors to monitor brokerage industry
practices with regard to the commissions charged by brokers and dealers on
transactions effected for other comparable institutional investors. While Fund
Management seeks reasonably competitive rates, the Funds do not necessarily pay
the lowest commission or spread available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, Fund Management may select brokers that provide research
services to effect such transactions. Research services consist of statistical
and analytical reports relating to issuers, industries, securities and economic
factors and trends, which may be of assistance or value to Fund Management in
making informed investment decisions. Research services prepared and furnished
by brokers through which the Funds effect securities transactions may be used by
Fund Management in servicing all of their respective accounts and not all such
services may be used by Fund Management in connection with the Funds.
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, Fund Management, consistent with the
standard of seeking to obtain the best execution on portfolio transactions, may
place orders with such brokers for the execution of transactions for the Funds
on which the commissions are in excess of those which other brokers might have
charged for effecting the same transactions.
Portfolio transactions may be effected through qualified broker/dealers
who recommend the Funds to their clients, or who act as agent in the purchase of
any of the Fund's shares for their clients. When a number of brokers and dealers
<PAGE>
can provide comparable best price and execution on a particular transaction, the
Company's adviser may consider the sale of Fund shares by a broker or dealer in
selecting among qualified broker/dealers.
Neither INVESCO, INVESCO Trust, IAML nor INVESCO Asia receives any
brokerage commissions on portfolio transactions effected on behalf of the Funds,
and there is no affiliation between INVESCO, INVESCO Trust, IAML, INVESCO Asia
or any person affiliated with INVESCO, INVESCO Trust, IAML, INVESCO Asia or the
Funds and any broker or dealer that executes transactions for the Funds.
Certain brokers are paid a fee (the "Broker's Fee") for recordkeeping,
shareholder communications and other services provided by the brokers to
investors purchasing shares of the Funds through no transaction fee programs
("NTF Programs") offered by the brokers. The Broker's Fee is based on the
average daily value of the investments in each Fund made by a broker and held in
omnibus accounts maintained on behalf of investors participating in the NTF
Program. With respect to certain NTF Programs, the directors of the Company have
authorized the Funds to apply dollars generated from the Company's Plan and
Agreement of Distribution pursuant to Rule 12b-1 under the 1940 Act (the "Plan")
to pay the entire Broker's Fee, subject to the maximum Rule 12b-1 fee permitted
by the Plan. With respect to other NTF Programs, the Company's directors have
authorized each Fund to pay transfer agency fees to INVESCO based on the number
of investors who have beneficial interests in the broker's omnibus accounts in
that Fund. INVESCO, in turn, pays these transfer agency fees to the broker as a
sub-transfer agency or recordkeeping fee in payment of all or a portion of the
Broker's Fee. In the event that the sub-transfer agency or recordkeeping fee is
insufficient to pay all of the Broker's Fee with respect to these NTF Programs,
the directors of the Company have authorized the Funds to apply dollars
generated from the Plan to pay the remainder of the Broker's Fee, subject to the
maximum Rule 12b-1 fee permitted by the Plan. INVESCO itself pays the portion of
a Fund's Broker's Fee, if any, that exceeds the sum of the sub-transfer agency
or recordkeeping fee and Rule 12b-1 fee. The Company's directors have further
authorized INVESCO to place a portion of each Fund's brokerage transactions with
certain brokers that sponsor NTF Programs, if INVESCO reasonably believes that,
in effecting the Fund's transactions in portfolio securities, the broker is able
to provide the best execution of orders at the most favorable prices. A portion
of the commissions earned by such a broker from executing portfolio transactions
on behalf of a specific Fund may be credited by the broker first against the
sub-transfer agency or recordkeeping fee payable with respect to that Fund, and
second against any Rule 12b-1 fees used to pay a portion of the Broker's Fee, on
a basis which has resulted from negotiations between INVESCO and the broker.
Thus, the Fund pays sub-transfer agency or recordkeeping fees to the broker in
payment of the Broker's Fee only to the extent that such fees are not offset by
the Fund's credits. In the event that the transfer agency fee paid by a Fund to
INVESCO with respect to investors who have beneficial interests in a particular
broker's omnibus accounts in that Fund exceeds the Broker's Fee applicable to
that Fund, INVESCO may carry forward the excess and apply it to future Broker's
Fees payable to that broker with respect to the Fund. The amount of excess
transfer agency fees carried forward will be reviewed for possible adjustment by
INVESCO prior to each fiscal year-end of the Company. The Company's board of
directors has also authorized the Company to pay an amount equal to any credits
received by the Funds against their respective Rule 12b-1 fees as a result of
these arrangements to INVESCO in reimbursement of other expenses incurred by
<PAGE>
INVESCO in engaging in the activities and providing the services on behalf of
the respective Funds contemplated by the Plan, subject to the maximum Rule 12b-1
fee permitted by the Plan.
The Asian Growth Fund has paid no brokerage commissions as of the date of
this Statement of Additional Information, since the Fund did not commence a
public offering of securities until March 1, 1996.
The aggregate dollar amounts of brokerage commissions paid by the Capital
Goods Fund and Communications Fund for the fiscal year ended July 31, 1995 was
$54,814 and $129,085, respectively. During the same period, brokers providing
research service received $27,515 and $39,843, respectively in commissions on
portfolio transactions effected for the Capital Goods Fund and Communications
Fund. The aggregate dollar amount of such portfolio transactions was $10,973,188
and $15,947,023. Commissions of $0 and $1,463 were allocated to certain brokers
in recognition of their sales of shares of the Capital Goods Fund and
Communications Fund effected during the fiscal year ended July 31, 1995.
The aggregate dollar amount of brokerage commissions paid by the European
Small Company Fund and Latin American Growth Fund for the period February 15,
1995 (inception) through July 31, 1995 was $141 and $2,102, respectively. For
the same period, brokers providing research services received $0 and $0,
respectively, in commissions on portfolio transactions effected for the Capital
Goods Fund and Communications Fund. The aggregate dollar amount of such
portfolio transactions was $0 and $0. Commissions of $0 and $0 were allocated to
certain brokers in recognition of their sales of shares of the Capital Goods
Fund and Communications Fund on portfolio transactions of the Funds effected
during the six-month period ended July 31, 1995.
At July 31, 1995, the Funds held securities of their regular brokers or
dealers, or their parents, as follows:
Value of
Securities
Fund Broker or Dealer at 7/31/95
- ---- ---------------- ----------
Capital Goods Fund Associates Corporation 332,000
of North America
Communications Fund State Street Bank and 12,179,000
Trust Company
Latin American Growth Fund State Street Bank and 545,000
Trust Company
<PAGE>
European Small Company Fund State Street Bank and 625,000
Trust Company
Neither INVESCO, INVESCO Trust, IAML nor INVESCO Asia receives any
brokerage commissions on portfolio transactions effected on behalf of the Funds,
and there is no affiliation between INVESCO, INVESCO Trust, IAML and INVESCO
Asia, or any person affiliated with INVESCO, INVESCO Trust, IAML and INVESCO
Asia, or the Funds and any broker or dealer that executes transactions for the
Funds.
ADDITIONAL INFORMATION
Common Stock. The Company was incorporated with 500,000,000 authorized
shares of common stock with a par value of $0.01 per share. Of the Company's
authorized shares, 100,000,000 shares have been allocated to each of the five
series, representing the Company's five Funds. As of July 31, 1995, 1,053,711
shares of the Capital Goods Fund, 2,215,366 shares of the Communications Fund,
328,778 shares of the European Small Company Fund and 635,049 shares of the
Latin American Growth Fund were outstanding. The board of directors has the
authority to designate additional series of common stock without seeking the
approval of shareholders, and may classify and reclassify any authorized but
unissued shares.
Shares of each series represent the interests of the shareholders of such
series in a particular portfolio of investments of the Company. Each series of
the Company's shares is preferred over all other series in respect of the assets
specifically allocated to that series, and all income, earnings, profits and
proceeds from such assets, subject only to the rights of creditors, are
allocated to shares of that series. The assets of each series are segregated on
the books of account and are charged with the liabilities of that series and
with a share of the Company's general liabilities. The board of directors
determines those assets and liabilities deemed to be general assets or
liabilities of the Company, and these items are allocated among series in a
manner deemed by the board of directors to be fair and equitable. Generally,
such allocation will be made based upon the relative total net assets of each
series. In the unlikely event that a liability allocable to one series exceeds
the assets belonging to the series, all or a portion of such liability may have
to be borne by the holders of shares of the Company's other series.
All shares, regardless of series, have equal voting rights. Voting with
respect to certain matters, such as ratification of independent accountants or
election of directors, will be by all series of the Company. When not all series
are affected by a matter to be voted upon, such as approval of an investment
advisory contract or changes in a Fund's investment policies, only shareholders
of the series affected by the matter may be entitled to vote. Company shares
have noncumulative voting rights, which means that the holders of a majority of
<PAGE>
the shares voting for the election of directors can elect 100% of the directors
if they choose to do so. In such event, the holders of the remaining shares
voting for the election of directors will not be able to elect any person or
persons to the board of directors. After they have been elected by shareholders,
the directors will continue to serve until their successors are elected and have
qualified or they are removed from office, in either case by a shareholder vote,
or until death, resignation, or retirement. They may appoint their own
successors, provided that always at least a majority of the directors have been
elected the Company's shareholders. It is the intention of the Company not to
hold annual meetings of shareholders. The directors will call annual or special
meetings of shareholders for action by shareholder vote as may be required by
the 1940 Act or the Company's Articles of Incorporation, or at their discretion.
Principal Shareholders. As of February 1, 1996, the following entities held
more than 5% of the Funds' outstanding equity securities.
Amount and Nature Percent
Name and Address of Ownership of Class
- ---------------- ----------------- --------
INVESCO Worldwide
Capital Goods Fund
- ------------------
Resource Trust Co. Cust. For The 386,963.4700 49.715%
Exclusive Benefit of The Customers Record
of Meridian Investment Management
P.O. Box 3865
Englewood, CO 80155
Charles Schwab & Co., Inc. 104,174.7980 13.384%
Reinvest. Acct. Record
101 Montgomery St.
San Francisco, CA 94104
INVESCO Worldwide
Communications Fund
- -------------------
Charles Schwab & Co., Inc. 650,532.1760 21.911%
Reinvest. Acct. Record
101 Montgomery St.
San Francisco, CA 94104
INVESCO European
Small Company Fund
- ------------------
Charles Schwab & Co., Inc. 346,679.0610 37.796%
Reinvest. Acct. Record
101 Montgomery St.
San Francisco, CA 94104
<PAGE>
National Financial Services Corp. 57,133.8030 6.229%
The Exclusive Benefit of Cust. Record
One World Financial Center
200 Liberty St., 5th Floor
New York, NY 10281
INVESCO Latin American Growth Fund
- ----------------------------------
Charles Schwab & Co., Inc. 682,464.2750 43.185%
Reinvest. Acct. Record
101 Montgomery St.
San Francisco, CA 94104
INVESCO Asian Growth Fund
- -------------------------
INVESCO Funds Group, Inc. 1.0000 100.000%
7800 E. Union Avenue Record
Denver, CO 80237
Independent Accountants. Price Waterhouse LLP, 950 Seventeenth Street,
Denver, Colorado, has been selected as the independent accountants of the
Company. The independent accountants are responsible for auditing the financial
statements of the Company.
Custodian. State Street Bank and Trust Company, P.O. Box 351, Boston,
Massachusetts, has been designated as custodian of the cash and investment
securities of the Company. The bank is also responsible for, among other things,
receipt and delivery of the investment securities of the Company's Funds in
accordance with procedures and conditions specified in the custody agreement.
Transfer Agent. The Company is provided with transfer agent, registrar,
and dividend disbursing agent services by INVESCO Funds Group, Inc., 7800 E.
Union Avenue, Denver, Colorado 80237, pursuant to the Transfer Agency Agreement
described herein. Such services include the issuance, cancellation and transfer
of shares of the Funds, and the maintenance of records regarding the ownership
of such shares.
Reports to Shareholders. The Company's fiscal year ends on July 31. The
Company distributes reports at least semiannually to its shareholders. Financial
statements regarding the Company, audited by the independent accountants, are
sent to shareholders annually.
Legal Counsel. The firm of Kirkpatrick & Lockhart LLP, Washington, D.C., is
legal counsel for the Company. The firm of Moye, Giles, O'Keefe, Vermeire &
Gorrell LLP, Denver, Colorado, acts as special counsel to the Company.
Financial Statements. The audited financial statements for the
Communications, Capital Goods, European Small Company and Latin American Growth
<PAGE>
Funds and the notes thereto for the period ending July 31, 1995, and the report
of Price Waterhouse LLP with respect to such financial statements, are
incorporated by reference from the Company's Annual Report to Shareholders for
the fiscal period ended July 31, 1995.
Prospectus. The Company will furnish, without charge, a copy of any Fund's
Prospectus upon request. Such requests should be made to the Company at the
mailing address or telephone number set forth on the first page of this
Statement of Additional Information.
Registration Statement. This Statement of Additional Information and the
related Prospectuses do not contain all of the information set forth in the
Registration Statement the Company has filed with the Securities and Exchange
Commission. The complete Registration Statement may be obtained from the
Securities and Exchange Commission upon payment of the fee prescribed by the
rules and regulations of the Commission.
<PAGE>
APPENDIX A
DESCRIPTION OF FUTURES AND OPTIONS CONTRACTS
Options on Securities
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price, in the case of a put option. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such as
the Chicago Board of Options Exchange and the New York Stock Exchange, which are
regulated by the Securities and Exchange Commission. The Options Clearing
Corporation guarantees the performance of each party to an exchange-traded
option, by in effect taking the opposite side of each such option. A holder or
writer may engage in transactions in exchange-traded options on securities and
options on indices of securities only through a registered broker/dealer which
is a member of the exchange on which the option is traded.
An option position in an exchange-traded option may be closed out only on
an exchange which provides a secondary market for an option of the same series.
Although the Funds will generally purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option at
<PAGE>
any particular time. In such event it might not be possible to effect closing
transactions in a particular option with the result that the Funds would have to
exercise the option in order to realize any profit. This would result in the
Funds incurring brokerage commissions upon the disposition of underlying
securities acquired through the exercise of a call option or upon the purchase
of underlying securities upon the exercise of a put option. If these Funds as
covered call option writers are unable to effect a closing purchase transaction
in a secondary market, unless the Funds are required to deliver the securities
pursuant to the assignment of an exercise notice, they will not be able to sell
the underlying security until the option expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities: (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or particular class or series of options) in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange which had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at a particular time, render certain of the facilities of any of the
clearing corporations inadequate and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders. However, the Options Clearing Corporation, based on forecasts
provided by the U.S. exchanges, believes that its facilities are adequate to
handle the volume of reasonably anticipated options transactions, and such
exchanges have advised such clearing corporation that they believe their
facilities will also be adequate to handle reasonably anticipated volume.
In addition, options on securities may be traded over-the-counter through
financial institutions dealing in such options as well as the underlying
instruments. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the Funds.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between the Funds and the transacting dealer, without the
intermediation of a third party such as the OCC. If the transacting dealer fails
to make or take delivery of the securities underlying an option it has written,
in accordance with the terms of that option as written, the Funds would lose the
<PAGE>
premium paid for the option as well as any anticipated benefit of the
transaction. The Fund will engage in OTC option transactions only with primary
U.S. Government securities dealers recognized by the Federal Reserve Bank of New
York.
Futures Contracts
A Futures Contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future, for a fixed price. By its terms, a Futures Contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that they are bilateral agreements,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, Futures Contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their term.
The purchase or sale of a Futures Contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalent, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index or instrument underlying the Futures Contract fluctuates, making positions
in the Futures Contract more or less valuable, a process known as "marking to
market."
A Futures Contract may be purchased or sold only on an exchange, known as
a "contract market," designated by the Commodity Futures Trading Commission for
the trading of such contract, and only through a registered futures commission
merchant which is a member of such contract market. A commission must be paid on
each completed purchase and sale transaction. The contract market clearing house
guarantees the performance of each party to a Futures Contract, by in effect
taking the opposite side of such Contract. At any time prior to the expiration
of a Futures Contract, a trader may elect to close out its position by taking an
opposite position on the contract market on which the position was entered into,
subject to the availability of a secondary market, which will operate to
terminate the initial position. At that time, a final determination of variation
margin is made and any loss experienced by the trader is required to be paid to
the contract market clearing house while any profit due to the trader must be
delivered to it.
<PAGE>
Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities, U.S. Treasury Bills, bank certificates of deposit and commercial
paper. In addition, interest rate futures contracts include contracts on indices
of municipal securities. Foreign currency futures contracts currently are traded
on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German
mark and on Eurodollar deposits.
Options on Futures Contracts
An Option on a Futures Contract provides the holder with the right to
enter into a "long" position in the underlying Futures Contract, in the case of
a call option, or a "short" position in the underlying Futures Contract, in the
case of a put option, at a fixed exercise price to a stated expiration date.
Upon exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of Futures Contracts, such as payment
of variation margin deposits. In addition, the writer of an Option on a Futures
contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a Futures Contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
<PAGE>
APPENDIX B
BOND RATINGS
The following is a description of Standard & Poor's ("S&P") and Moody's
Investors Service, Inc. ("Moody's") bond rating categories:
Moody's Investors Service, Inc. Corporate Bond Ratings
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any longer period of time may be small.
<PAGE>
Caa - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Standard & Poor's Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to
default and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal.
