PROSPECTUS
^ January 1, 1997
INVESCO REALTY FUND
INVESCO Realty Fund (the "Fund") seeks to provide above average current
income. Long-term capital growth potential is an additional consideration in
selecting securities for the Fund's investment portfolio. The Fund normally
invests at least 65% of its total assets in dividend-paying, publicly-traded
stocks of companies in the real estate industry. The remaining assets are
invested in other income-producing securities such as corporate bonds.
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 ^ January 1, 1997, 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; or on the World Wide Web:
http://www.invesco.com.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
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TABLE OF CONTENTS
Page
ESSENTIAL INFORMATION................................................ 2
ANNUAL FUND EXPENSES................................................. 3
INVESTMENT OBJECTIVE AND STRATEGY.................................... 4
INVESTMENT POLICIES AND RISKS........................................ 4
THE FUND AND ITS MANAGEMENT.......................................... 9
FUND PRICE AND PERFORMANCE........................................... 10
HOW TO BUY SHARES.................................................... 11
FUND SERVICES........................................................ 13
HOW TO SELL SHARES................................................... 13
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS...................... 15
ADDITIONAL INFORMATION............................................... 15
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ESSENTIAL INFORMATION
Investment Goal And Strategy. INVESCO Realty Fund seeks to provide
above-average current income. Long-term capital growth potential is an
additional consideration in selecting securities for the Fund's investment
portfolio. The Fund normally invests at least 65% of its total assets in
publicly-traded stocks of companies primarily engaged in the real estate
industry. The remaining assets are invested in other income-producing securities
such as mortgage-backed securities and corporate bonds. There is no guarantee
that the Fund will meet its objective. See "Investment Objective and Strategy"
and "Investment Policies and Risks."
Designed For. Investors primarily seeking above average current income
consistent with reasonable risk, without sacrificing the potential for long-term
capital growth. While not a complete investment program, the Fund may be a
valuable element of your investment portfolio. You also may wish to consider the
Fund as part of a Uniform Gift/Trust To Minors Account or systematic investing
strategy. The Fund may be a suitable investment for many types of retirement
programs, including IRA, SEP-IRA, SARSEP, 401(k), Profit Sharing, Money Purchase
Pension, and 403(b) plans.
Time Horizon. Since stock prices fluctuate on a daily basis, the Fund's
price per share varies daily. Potential shareholders should consider this a
long-term investment.
Risks. The Fund focuses on equity securities of companies in the real
estate industry. As such, in addition to the normal market risks associated with
investments in securities generally, the Fund is particularly sensitive to
conditions in the real estate industry. Real estate is a cyclical industry that
is sensitive to, among other things, interest rates, property tax rates,
national, regional and local economic conditions and availability of materials.
The Fund's investments in debt securities are subject to credit risk and market
risk, both of which are increased by investing in lower rated securities. The
returns on foreign investments may be influenced by the risks of investing
overseas. Rapid portfolio turnover may result in higher brokerage commissions
and the acceleration of taxable capital gains. These policies make the Fund
unsuitable for that portion of your savings dedicated to preservation of capital
over the short term. See ^"Investment Objective and Strategy^" and ^ "Investment
Policies and Risks.^"
Organization and Management. The Fund is a series of Invesco Specialty
Funds, Inc., a diversified, managed no-load mutual fund. The Fund is owned by
its shareholders. It employs INVESCO Funds Group, Inc. ("IFG") (founded in 1932)
to serve as investment adviser, administrator, distributor^ and transfer agent;
and INVESCO Realty Advisors, Inc. ("IRAI") to serve as sub-adviser.
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IFG and IRAI are part of a global firm that managed approximately $90
billion as of June 30, 1996. The parent company, INVESCO PLC, is based in
London, with money managers located in Europe, North America, and the Far East.
The Fund's investments are selected by a team of IRAI portfolio managers
that is collectively responsible for the investment decisions relating to the
Fund.
This Fund offers all of the following services at no charge:
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Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
Regular investment plans, such as EasiVest (the Fund's
automatic monthly investment program), Direct Payroll
Purchase, and Automatic Monthly Exchange)
Periodic withdrawal plans
See "How To Buy Shares" and "How To Sell Shares."
Minimum Initial Investment: $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans.
Minimum Subsequent Investment: $50 (Minimums are lower for certain
retirement plans.)
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares. The Fund is authorized to pay a Rule 12b-1 distribution fee of one
quarter of one percent of the Fund's average net assets each year. (See "How To
Buy Shares --Distribution Expenses.")
Like any company, the Fund has operating expenses -- such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts^ and other expenses. These expenses are paid from the Fund's assets.
Lower expenses benefit investors by increasing the Fund's total return. Annual
operating expenses are based on the Fund's estimated expenses for the current
fiscal year.
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Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.75%
12b-1 Fees 0.25%
Other Expenses (after expense limitation)(1) 0.20%
Total Fund Operating Expenses
(after expense limitation)(1) 1.20%
(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 1.20% of the Fund's average net assets pursuant to an agreement among
the Fund, IFG and IRAI. 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, 1997, are estimated to be 1.36% and 2.36%, 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 ^ January 2, 1997.
Example
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming a hypothetical 5% annual return and redemption at
the end of each time period. (Of course, actual operating expenses are paid from
the Fund's assets, and are deducted from the amount of income available for
distribution to shareholders; they are not charged directly to shareholder
accounts.)
1 Year 3 Years
------ -------
$12 $38
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE OR EXPENSES,
AND ACTUAL ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
For more information on the Fund's expenses, see "The Fund ^ And Its Management"
and "How ^ To Buy Shares -- Distribution Expenses."
Since the Fund pays a distribution fee, investors who own Fund ^ shares
for a long period of time may pay more than the economic equivalent of the
maximum front-end sales charge permitted for mutual funds by the National
Association of Securities Dealers, Inc.
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INVESTMENT OBJECTIVE AND STRATEGY
The Fund seeks to provide above-average current income while following
sound investment practices. This investment objective is fundamental and cannot
be changed without the approval of the Fund's shareholders. Long-term capital
growth potential is an additional, but secondary, consideration in the selection
of portfolio securities. There is no assurance that the Fund's investment
objective will be met.
The Fund normally invests at least 65% of its total assets in equity
securities of companies principally engaged in the real estate industry. A
company is "principally engaged" in that industry if at least 50% of its assets,
gross income or net profits are attributable to the ownership, construction,
management or sale of residential, commercial or industrial real estate. Such
companies may include, for example, real estate investment trusts ("REITs"),
real estate brokers, home builders or real estate developers, companies with
substantial real estate holdings (such as paper and lumber producers,
agricultural businesses and lodging and entertainment companies) and companies
with significant involvement in the real estate industry, such as building
supply companies and financial institutions that write real estate mortgages. In
addition to common stocks, "equity securities" may include preferred stocks,
securities convertible into common stock and warrants.
The Fund's investments in equity securities are diversified by both
property type and geographic region. No one property type represents more than
50% of the Fund's total assets. The remaining assets of the Fund are invested in
debt securities, including mortgage-backed securities and debt or equity
securities of companies which may or may not be principally involved in the real
estate industry, including non-investment grade and unrated debt securities. The
Fund may invest up to 25% of its total assets in foreign securities.
When the Fund believes market or economic conditions are adverse, the Fund
may act defensively -- that is, temporarily invest up to 100% of its total
assets in equity, fixed-income and cash securities in whatever proportion deemed
desirable under the circumstances at such times, seeking to protect its assets
until conditions stabilize.
INVESTMENT POLICIES AND RISKS
Investors generally should expect to see their price per share vary with
movements in the securities markets, changes in economic conditions and interest
rates, and other factors.
Concentration. The Fund's performance is tied closely to conditions
affecting the real estate industry, which has historically been cyclical. The
real estate industry is highly sensitive to national, regional and local
economic conditions, in addition to such factors as interest rates, changes in
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property taxes and real estate values, overbuilding, and changes in rental
income. The structure, management and cash flow of many of the companies in the
industry also may heavily impact their performance. Although the Fund does not
intend to invest directly in private real estate assets, it conceivably could
own real estate directly as a result of default on debt securities that it holds
in its portfolio. Therefore, the Fund may be subject to certain risks associated
with the direct ownership of real estate, including, among others, difficulties
in valuing and trading real estate and declines in the value of real estate.
Corporate Bonds. When we assess an issuer's ability to meet its interest
rate obligations and repay its debt when due, we are referring to "credit risk."
Debt obligations are rated based on their estimated credit risk by independent
services such as Standard & Poor's Corporation ("S&P") or Moody's Investors
Services, Inc. ("Moody's"). "Market risk" refers to sensitivity to changes in
interest rates. For instance, when interest rates go up, the market value of a
previously issued bond generally declines; on the other hand, when interest
rates go down, bonds generally see their prices increase.
Risks of Lower Rated Bonds. The lower a bond's quality, the more it is
subject to credit risk and market risk and the more speculative it becomes. This
is also true of most unrated securities. No more than 15% of the total assets of
the Fund may be invested in issues rated below investment grade quality
(commonly called "junk bonds," and rated BB or lower by S&P or Ba or lower by
Moody's or, if unrated, are judged by the Fund's investment adviser or
sub-adviser (collectively, "Fund Management") to be of equivalent quality).
These include issues which are of poorer quality and may have some speculative
characteristics, according to the ratings services. Investments in unrated
securities may not exceed 25% of the Fund's total assets. Never, under any
circumstances, is the Fund permitted to invest in bonds which are rated below B
by Moody's or B- by S&P. Bonds rated B or B-generally lack characteristics of a
desirable investment and are deemed speculative with respect to the issuer's
capacity to pay interest and repay principal over a long period of time. While
Fund Management continuously monitors all of the corporate bonds in the Fund's
investment portfolio for the issuer's ability to make required principal and
interest payments and other quality factors, it may retain a bond whose rating
is changed to one below the minimum rating required for purchase of the
security.
Because investment in medium- and lower-rated securities involves both
greater credit risk and market risk, achievement of the Fund's investment
objective may be more dependent on Fund Management's own credit analysis than is
the case for funds investing in higher quality securities. In addition, the
share price and yield of the Fund may be expected to fluctuate more than in the
case of funds investing in higher quality, shorter term securities. Moreover, a
significant economic downturn or major increase in interest rates may result in
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issuers of lower-rated securities experiencing increased financial stress,
which would adversely affect their ability to service their principal, dividend
and interest obligations; meet projected business goals; and obtain additional
financing. In this regard, it should be noted that while the market for high
yield corporate bonds has been in existence for many years and from time to time
has experienced economic downturns, this market has involved a significant
increase in the use of high yield corporate debt securities to fund highly
leveraged corporate acquisitions and restructurings. Past experience may not,
therefore, provide an accurate indication of future performance of the high
yield bond market, particularly during periods of economic recession.
Furthermore, expenses incurred to recover an investment in a defaulted security
may adversely affect the Fund's net asset value. Finally, while Fund Management
attempts to limit purchases of medium- and lower-rated securities to securities
having an established secondary market, the secondary market for such securities
may be less liquid than the market for higher-quality securities. The reduced
liquidity of the secondary market for such securities may adversely affect the
market price of, and ability of the Fund to value, particular securities at
certain times, thereby making it difficult to make specific valuation
determinations.
For a detailed description of corporate bond ratings, refer to Appendix B
to the Statement of Additional Information.
REITs. Real estate investment trusts (REITs) are pooled investment
vehicles that invest primarily in income-producing real estate or real estate
related loans or interests. REITs are generally classified as either equity or
mortgage, or a combination of the two. An equity REIT invests the majority of
its assets directly in real estate^ and derives most of its income from rents. A
mortgage REIT invests the majority of its assets in real estate mortgages^ and
derives most of its income from interest payments. In addition to the risks
inherent in any investment in the real estate industry, investments in REITs
have certain unique risks. Equity REITs can be affected by changes in the value
of the underlying property owned by them; mortgage REITs are affected by the
quality of the credit extended. REITs are not diversified, and are subject to
the risks of real estate financing, including cash flow dependency and defaults
by borrowers. REITs attempt to qualify for beneficial tax treatment by
distributing 95% of their taxable income to their interest holders. If a REIT
fails to qualify for such beneficial tax treatment, it would be taxed as a
corporation, and distributions to its shareholders (including the Fund) would be
reduced. By investing in REITs indirectly through the Fund, a Fund shareholder
will bear not only a proportionate share of the expenses of the Fund, but also,
indirectly, similar expenses of the REIT. For taxable shareholders, a portion of
the dividends paid by a REIT may be considered return on capital and would not
currently be regarded as taxable income. Therefore, depending upon an
individual's tax bracket, the dividend yield may have a higher tax-effective
yield.
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Mortgage-Backed Securities. The Fund may invest in mortgage-backed
securities issued or guaranteed by the U.S. government or federal agencies such
as ^ Government National Mortgage Association ("GNMA"), Federal National
Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation
("FHLMC"). Some of these securities, such as GNMA certificates, are backed by
the full faith and credit of the U.S. Treasury while others, such as FHLMC
certificates, are not. Mortgage-backed securities represent interests in pools
of mortgages which have been purchased from loan institutions such as banks and
savings & loans, and packaged for resale in the secondary market. Interest and
principal are "passed through" to the holders of the securities. The timely
payment of interest and principal is guaranteed by a federal agency, but the
market value of the security is not guaranteed and will vary. The Fund also may
invest in mortgage-backed securities issued by private, non-governmental issuers
such as banks and broker-dealers. When interest rates drop, many home buyers
choose to refinance their mortgages. These prepayments may shorten the average
weighted lives of mortgage-backed securities and may lower their returns.
Prepayment rates cannot be predicted with any accuracy. Under certain interest
rate and prepayment rate structures, it is possible that the Fund may fail to
recoup the full amount of its investment in mortgage-backed securities, despite
any direct or indirect governmental or agency guarantee. When the Fund reinvests
amounts received representing unscheduled prepayments of principal, it likely
will receive a rate of interest that is lower than the rate on then-existing
adjustable rate mortgage pass-through securities.
Collateralized mortgage obligations ("CMOs") may be issued by, among
others, U.S. government agencies and instrumentalities. CMOs are issued in
classes, with the principal of, and interest on, the underlying mortgage assets
allocated among the several classes. Each class is commonly referred to as a
"tranche," and is issued at a specific or adjustable interest rate. Each tranche
must be fully retired no later than its final distribution date. Generally,
interest is paid or accrued monthly. CMOs typically are collateralized by GNMA,
FNMA or FHLMC certificates. They also may be collateralized by other mortgage
assets, including whole loans or private mortgage pass-through securities. CMOs
are paid from payments of principal and interest on collateral of mortgaged
assets^ and any reinvestment income thereon. Risks of investing in CMOs, in
addition to the general risks of investing in the real estate industry, include
failure of the counter-party to meet its commitments, the effects of prepayment
on mortgage cash flows and adverse interest rate changes. Investing in the lower
tranches of CMOs presents risks similar to investments in equity securities. The
yield of CMOs may be affected by adjustability of interest rates and the
possibility that prepayments of principal may be made significantly earlier than
the final distribution dates. These practices and risks are discussed under
"Investment Policies and ^ Restrictions" in the Statement of Additional
Information.
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Interest Rate Futures Contracts. The Fund may buy and sell interest rate
futures contracts relating to U.S. government securities for the purpose of
hedging the value of its securities portfolio. These practices and their risks
are discussed under "Investment Policies and Restrictions" in the Statement of
Additional Information.
Foreign Securities. The Fund's investments may include debt and equity
securities issued by foreign governments and foreign corporations. As a matter
of policy, which may be changed without a vote of shareholders, up to 25% of the
Fund's total assets, measured at the time of purchase, may be invested directly
in foreign securities. Securities of Canadian issuers are not subject to this
25% limitation.
Investments in foreign securities involve certain risks. For U.S.
investors, the returns on foreign securities are influenced not only by the
returns on the foreign investments themselves, but also by currency
fluctuations. That is, when the U.S. dollar generally rises against foreign
currencies, returns on foreign securities for a U.S. investor may decrease. By
contrast, in a period when the U.S. dollar generally declines, those returns may
increase.
Other aspects of international investing to consider include:
-less publicly available information than is generally available about U.S.
issuers;
-differences in accounting, auditing and financial reporting standards;
-generally higher commission rates on foreign portfolio transactions and
longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility; and
-investments in certain countries may be subject to foreign withholding
taxes, which may reduce dividends or capital gains payable to shareholders.
There is also the possibility of expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations; political
instability; potential restrictions on the flow of international capital; and
the possibility of the Fund experiencing difficulties in pursuing legal remedies
and collecting judgments.
Illiquid and Rule 144A Securities. The Fund may invest up to 15% of its
total assets, measured at the time of purchase, in securities which are illiquid
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because they are subject to restrictions on ^ their resale ("restricted
securities") or because, based upon the nature of the market for such
securities, they are not readily marketable. Investments in illiquid securities
involve the risk that the Fund may not be able to sell such securities at the
time or price desired. In addition, in order to resell a restricted security,
the Fund might have to bear the expense and incur the delays associated with
registration of the security. The Fund may purchase certain securities that are
not registered for sale to the general public, but that can be resold to
institutional investors ("Rule 144A ^ Securities"), without regard to the
foregoing 10% limitation, if a liquid trading market exists. The Company's board
of directors has delegated to Fund Management the authority to determine the
liquidity of Rule 144A Securities pursuant to guidelines approved by the board.
In the event that a Rule 144A Security held by the Fund is subsequently
determined to be illiquid, the security will be sold as soon as that can be done
in an orderly fashion consistent with the best interests of the Fund's
shareholders. For more information concerning Rule 144A Securities, see
"Investment Policies and Restrictions" in the Statement of Additional
Information.
Delayed Delivery or When-Issued Purchases. Securities may at times be
purchased or sold by the Fund with settlement taking place in the future. The
Fund may invest, and hold, up to 10% of its net assets in when-issued
securities. In the case of debt securities, the payment obligations and the
interest rates that will be received on the securities generally are fixed at
the time the Fund enters into the commitment. Between the date of purchase and
the settlement date, the value of the securities is subject to market
fluctuations, and no interest is payable to the Fund prior to the settlement
date.
Futures Contracts and Options. The Fund may enter into futures contracts
for hedging or other non-speculative purposes within the meaning and intent of
applicable rules of the Commodity Futures Trading Commission ("CFTC"). For
example, futures contracts may be purchased or sold to attempt to hedge against
the effects of interest or exchange rate changes on the Fund's current or
intended investments. If an anticipated decrease in the value of portfolio
securities occurs as a result of a general increase in interest rates or a
change in exchange rates, the adverse effects of such changes may be offset, in
whole or part, by gains on the sale of futures contracts. Conversely, an
increase in the cost of portfolio securities to be acquired caused by a general
decline in interest rates or a change in exchange rates may be offset, in whole
or part, by gains on futures contracts purchased by the Fund. The Fund will
incur brokerage fees when it purchases and sells futures contracts, and it will
be required to maintain margin deposits.
The Fund also may use options to buy or sell futures contracts or debt
securities. Such investment strategies will be used as a hedge and not for
speculation.
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Put and call options on futures contracts or securities may be traded by
the Fund in order to protect against declines in the values of portfolio
securities or against increases in the cost of securities to be acquired.
Purchases of options on futures contracts may present less dollar risk in
hedging the Fund's portfolio than the purchase and sale of the underlying
futures contracts, since the potential loss is limited to the amount of the
premium plus related transaction costs. The premium paid for such a put or call
option plus any transaction costs will reduce the benefit, if any, realized by
the Fund upon exercise or liquidation of the option; and, unless the price of
the underlying futures contract changes sufficiently, the option may expire
without value to the Fund. The writing of covered options does not present less
risk than the trading of futures contracts^ and will constitute only a partial
hedge, up to the amount of the premium received. Additionally, if an option is
exercised, the Fund may suffer a loss on the transaction.
The Fund may purchase put or call options in anticipation of changes in
interest rates or other factors which may adversely affect the value of its
portfolio or the prices of securities which the Fund anticipates purchasing at a
later date. The Fund may be able to offset such adverse effects on its
portfolio, in whole or in part, through the options purchased.
The Fund may, from time to time, also sell ("write") covered call options
or cash secured puts in order to attempt to increase the yield on its portfolio
or to protect against declines in the value of its portfolio securities. By
writing a covered call option, the Fund, in return for the premium income
realized from the sale of the option, gives up the opportunity to profit from a
price increase in the underlying security above the option exercise price, if
the price increase occurs while the option is in effect. In addition, the Fund's
ability to sell the underlying security will be limited while the option is in
effect. By writing a cash secured put, the Fund, which receives the premium, has
the obligation during the option period, upon assignment of an exercise notice,
to buy the underlying security at a specified price. A put is secured by cash if
the Fund maintains at all times cash, Treasury bills or other high grade
short-term obligations with a value equal to the option exercise price in a
segregated account with its custodian.
Although the Fund will enter into options and futures contracts solely for
hedging or other non-speculative purposes, within the meaning and intent of
applicable rules of the CFTC, their use does involve certain risks. For example,
a lack of correlation between the value of an instrument underlying an option or
futures contract and the assets being hedged, or unexpected adverse price
movements, could render the Fund's hedging strategy unsuccessful and could
result in losses. In addition, there can be no assurance that a liquid secondary
market will exist for any contract purchased or sold, and the fund may be
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required to maintain a position until exercise or expiration, which could
result in losses. Transactions in futures contracts and options are subject to
other risks as well.
The risks related to transactions in options and futures to be entered
into by the Fund are set forth in greater detail in the Statement of Additional
Information, which should be reviewed in conjunction with the foregoing
discussion.
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.
Repurchase Agreements. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price. The Fund could incur costs or delays in seeking to sell
the instrument if the prior owner defaults on its repurchase obligation. To
reduce that risk, the securities which are the subject of the repurchase
agreement will be maintained with the Fund's custodian in an amount at least
equal to the repurchase price under the agreement (including accrued interest).
These agreements are entered into only with member banks of the Federal Reserve
System, registered broker-dealers, and registered U.S. government securities
dealers that are deemed creditworthy under standards set by the Fund's board of
directors.
Portfolio Turnover. Although the Fund seeks to invest for the long term,
the Fund retains the right to sell portfolio securities without regard to how
long they have been in the Fund's portfolio. The Fund anticipates a portfolio
turnover rate of between 60% and 75%. A portfolio turnover rate of 75% would
occur if three-quarters of the Fund's portfolio securities were sold within one
year.
For a further discussion of risks associated with an investment in the
Fund, see "Investment Policies and Restrictions" and "Investment Practices" in
the Statement of Additional Information.
Investment Restrictions. Certain restrictions, which are set forth in the
Statement of Additional Information, may not be altered without the approval of
the Fund's shareholders. For example, the Fund limits to 5% the portion of its
total assets which may be invested in a single issuer. The Fund's ability to
borrow money is limited to borrowings from banks for temporary or emergency
purposes in amounts not exceeding 33-1/3% of net assets. Except where indicated
to the contrary, the investment objectives and policies described in this
prospectus are not fundamental and may be changed without a vote of the Fund's
shareholders.
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For a further discussion of risks associated with an investment in the
Fund, see "Investment Policies and Restrictions" and "Investment Practices" in
the Statement of Additional Information.
THE FUND AND ITS MANAGEMENT
On November 4, 1996 an Agreement and Plan of Merger among INVESCO PLC,
INVESCO Group Services, Inc. ("Services") and AIM Management Group, Inc. ("AIM")
was signed under which AIM will be merged with Services. When this merger takes
effect, which is expected to occur in the first part of 1997, the Fund's
Investment Advisory, Sub-Advisory, Distribution, Administrative Services,
Transfer Agency and Rule 12b-1 Agreements (the "Agreements") will automatically
terminate. Consummation of this merger is conditional, among other things, on
new Agreements, essentially identical to the existing Agreements, including the
provisions governing fees, being presented to and approved by, the Company's
board of directors, and where necessary, the Fund's shareholders prior to this
merger taking effect. The meeting of the Fund's shareholders to consider
approving the necessary new Agreements is expected to occur in early 1997. Fund
Management anticipates that the key personnel responsible for providing services
to the Fund will remain unchanged.
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 Company's board of directors has responsibility for overall
supervision of the Fund^ and reviews the services provided by the adviser and
sub-adviser. Under an agreement with the Fund, INVESCO Funds Group, Inc.
("IFG"), 7800 E. Union Avenue, Denver, Colorado 80237, serves as the Fund's
investment manager; it is primarily responsible for providing the Fund with
various administrative services.
INVESCO Realty Advisors, Inc. ("IRAI") is the Fund's sub-adviser and is
primarily responsible for 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. Together, IFG and IRAI
constitute "Fund Management."
The Fund's investments are selected by a team of IRAI portfolio managers
that is collectively responsible for the investment decisions relating to the
Fund.
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 Fund Management's personnel to conduct
<PAGE>
their personal investment activities in a manner that Fund Management
believes is not detrimental to the Fund or Fund Management's other advisory
clients. See the Statement of Additional Information for more detailed
information.
The Fund pays IFG a monthly management fee which is based upon a
percentage of the Fund's average net assets determined daily. The management fee
is computed at the annual rate of 0.75% of the Fund's average net assets. Out of
this fee, IFG pays an amount equal to 0.30% of the Fund's average net assets to
IRAI. No fee is paid by the Fund to IRAI.
Under a Transfer Agency Agreement, IFG acts as registrar, transfer agent^
and dividend disbursing agent for the Fund. The Fund pays an annual fee of
$20.00 per shareholder account or omnibus account participant for these
services. Registered broker-dealers, third party administrators of tax-qualified
retirement plans and other entities, including affiliates of IFG, may provide
equivalent services to the Fund. In these cases, IFG may pay, out of the fee it
receives from the Fund, an annual sub-transfer agency or record-keeping fee to
the third party.
In addition, under an Administrative Services Agreement, IFG handles
additional administrative, record-keeping, and internal sub-accounting services
for the Fund.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. Total expenses of the Fund are voluntarily
limited to 1.20% of the Fund's average net assets.
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 to Buy Shares --
Distribution Expenses," the Fund may market its shares through intermediary
brokers or dealers that have entered into Dealer Agreements with IFG, as the
Fund's Distributor. The Fund may place orders for portfolio transactions with
qualified broker-dealers which 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. For further information, see "Investment Practices -- Placement
of Portfolio Brokerage" in the Statement of Additional Information.
The parent company for IFG and IRAI is INVESCO PLC, a publicly traded
holding company whose subsidiaries provide investment services around the world.
IFG was established in 1932 and, as of August 31, 1996, managed 14 mutual funds,
consisting of 39 separate portfolios, with combined assets of approximately
$12.8 billion on behalf of over 827,000 shareholders. IRA (founded in 1983 and
<PAGE>
and acquired by INVESCO in 1990) is a registered investment adviser that
currently manages $2.7 billion of assets (both securities and direct investments
in real estate) for its clients. IRA's clients include corporate plans and
public pension funds, as well as endowment and foundation accounts. It presently
serves as sub- adviser to one other INVESCO mutual fund portfolio. As of
December 31, 1995, the portfolio of direct investments in real estate managed by
IRA for its clients contained 105 properties totalling more than 306.6 million
square feet of commercial real estate and 13,651 apartment units.
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the Fund will vary
daily. The price per share is also known as the Net Asset Value (NAV). IFG
prices the Fund every day that the New York Stock Exchange is open, as of the
close of regular trading (normally, 4:00 p.m., New York time). NAV is calculated
by adding together the current market value of all of the Fund's assets,
including accrued interest and dividends; then subtracting liabilities,
including accrued expenses; and finally dividing that dollar amount by the total
number of shares outstanding.
Performance Data. To keep shareholders and potential investors informed,
we will occasionally advertise the Fund's total return and yield. Total return
figures show the rate of return on a $1,000 investment in the Fund, assuming
reinvestment of all dividends and capital gain distributions for one-, five-,
and ten-year periods. Cumulative total return shows the actual rate of return on
an investment; average annual total return represents the average annual
percentage change in the value of an investment. Both cumulative and average
annual total returns tend to "smooth out" fluctuations in the Fund's investment
results, not showing the interim variations in performance over the periods
cited. The yield of the Fund refers to the income generated by an investment in
the Fund over a 30-day or one month period, and is computed by dividing the net
investment income per share earned during the period by the net asset value per
share at the end of the period, then adjusting the result to provide for
semi-annual compounding.^
When we quote mutual fund rankings published by Lipper Analytical
Services, Inc., we may compare the fund to others in its category of ^ Real
Estate Funds, as well as the broad-based Lipper general fund groupings. These
rankings allow you to compare the Fund to its peers. Other independent financial
media also produce performance- or service-related comparisons, which you may
see in our promotional materials. For more information see "Fund Performance" in
the Statement of Additional Information.
Performance figures are based on historical investment results and are not
intended to suggest future performance.
<PAGE>
HOW TO BUY SHARES
The following chart shows several convenient ways to invest in the Fund.
Your new Fund shares will be priced at the NAV next determined after your order
is received in proper form. There is no charge to invest, exchange^ or redeem
shares when you make transactions directly through IFG. However, if you invest
in the Fund through a securities broker, you may be charged a commission or
transaction fee. For all new accounts, please send a completed application form.
Please specify which Fund you wish to purchase.
IFG reserves the right to increase, reduce or waive the minimum investment
requirements in its sole discretion, where it determines this action is in the
best interests of the Fund. Further, IFG reserves the right in its sole
discretion to reject any order for the purchase of Fund shares (including
purchases by exchange) when, in its judgment, such rejection is in the Fund's
best interests.
<PAGE>
HOW TO BUY SHARES
================================================================================
Method Investment Minimum Please Remember
- --------------------------------------------------------------------------------
By Check
Mail to: $1,000 for regular If your check does
INVESCO Funds account; not clear, you will
Group, Inc. $250 for an be responsible for
P.O. Box 173706 Individual any related loss
Denver, CO 80217- Retirement Account; the Fund or IFG
3706. $50 minimum for incurs. If you are
Or you may send each subsequent already a
your check by investment. shareholder in the
overnight courier INVESCO funds, the
to: 7800 E. Union Fund may seek
Ave., Denver, CO reimbursement from
80237. your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
By Telephone or
Wire
Call 1-800-525-8085 $1,000. Payment must be
to request your received within 3
purchase. Then send business days, or
your check by the transaction may
overnight courier be cancelled. If a
to our street telephone purchase
address: is cancelled due to
7800 E. Union Ave., nonpayment, you
Denver, CO 80237. will be responsible
Or you may transmit for any related
your payment by loss the Fund or
bank wire (call IFG IFG incurs. If you
for instructions). are already a
shareholder in the
INVESCO funds, the Fund
may seek reimbursement
from your existing
account(s) for any loss
incurred.
<PAGE>
- --------------------------------------------------------------------------------
With EasiVest or
Direct Payroll
Purchase
You may enroll on $50 per month for Like all regular
the fund EasiVest; $50 per investment plans,
application, or pay period for neither EasiVest
call us for the Direct Payroll nor Direct Payroll
correct form and Purchase. You may Purchase ensures a
more details. start or stop your profit or protects
Investing the same regular investment against loss in a
amount on a monthly plan at any time, falling market.
basis allows you to with two weeks' Because you'll
buy more shares notice to IFG. invest continually,
when prices are low regardless of
and fewer shares varying price
when prices are levels, consider
high. This "dollar- your financial
cost averaging" may ability to keep
help offset market buying through low
fluctuations. Over price levels. And
a period of time, remember that you
your average cost will lose money if
per share may be you redeem your
less than the shares when the
actual average market value of all
price per share. your shares is less
than their cost.
- --------------------------------------------------------------------------------
By PAL
Your "Personal $1,000. Be sure to write
Account Line" is down the
available for confirmation number
subsequent provided by PAL.
purchases and Payment must be
exchanges 24 hours received within 3
a day. Simply call business days, or
1-800-424-8085. the transaction may
be cancelled. If a
telephone purchase is
cancelled due to
nonpayment, you will be
responsible for any
related loss the Fund or
IFG incurs. If you are
already a shareholder in
the INVESCO funds, the
Fund may seek
reimbursement from your
existing account(s) for
any loss incurred.
<PAGE>
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Privilege" ^ page
INVESCO funds. Call for written 11.
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an (The exchange
Automatic Monthly minimum is $250 for
Exchange service purchases requested
between two INVESCO by telephone.)
funds; call IFG for
further details and
the correct form.
================================================================================
Exchange Privilege. You may exchange your shares in this Fund for those in
another INVESCO fund, on the basis of their respective net asset values at the
time of the exchange. Before making any exchange, be sure to review the
prospectuses of the funds involved and consider their differences.
Please note these policies regarding exchanges of fund shares:
1) The fund accounts must be identically registered.
2) You may make four exchanges out of each fund during each
calendar year.
3) An exchange is the redemption of shares from one fund followed by
the purchase of shares in another. Therefore, any gain or loss
realized on the exchange is recognizable for federal income tax
purposes (unless, of course, your account is tax-deferred).
4) The Fund reserves the right to reject any exchange request, or to
modify or terminate exchange privileges, in the best interests of
the Fund and its shareholders. Notice of all such modifications or
termination will be given at least 60 days prior to the effective
date of the change in privilege, except for unusual instances (such
as when redemptions of the exchanged shares are suspended under
Section 22(e) of the Investment Company Act of 1940, or when sales
of the fund into which you are exchanging are temporarily stopped).
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 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
IFG to reimburse it for particular expenditures incurred by IFG in connection
<PAGE>
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 IFG 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 IFG or its affiliates or by third parties.
Under the Plan, the Company's reimbursement to IFG on behalf of the Fund
is limited to an amount computed at an annual rate of 0.25% of the Fund's
average net assets during the month. IFG 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 IFG 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 IFG in
excess of the limitations described above are not reimbursable and will be borne
by IFG. In addition, IFG 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 IFG. Payments made by the Fund under the Plan for compensation of
marketing personnel, as noted above, are based on an allocation formula designed
to ensure that all such payments are appropriate.
<PAGE>
FUND SERVICES
Shareholder Accounts. IFG will maintain a share account that reflects your
current holdings. Share certificates will be issued only upon specific request.
You will have greater flexibility to conduct transactions if you do not request
certificates.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges, and redemptions. If you choose certain
recurring transaction plans (for instance, EasiVest), your transactions will be
confirmed on your quarterly Investment Summary.
Investment Summaries. Each calendar quarter, shareholders receive a
written statement which consolidates and summarizes account activity and value
at the beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and capital gain distributions
are automatically invested in additional fund shares at the NAV on the
ex-dividend date, unless you choose to have dividends and/or capital gain
distributions automatically reinvested in another INVESCO fund or paid by check
(minimum of $10.00).
Telephone Transactions. All shareholders may exchange and redeem Fund
shares by telephone, unless they expressly decline these privileges. By signing
the new account Application, a Telephone Transaction Authorization Form, or
otherwise using these privileges, the investor has agreed that, if the Fund has
followed reasonable procedures, such as recording telephone instructions and
sending written transaction confirmations, it will not be liable for following
telephoned instructions that it believes to be genuine. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions.
Retirement Plans And IRAs. Fund shares may be purchased for Individual
Retirement Accounts (IRAs) and many types of tax-deferred retirement plans. IFG
can supply you with information and forms to establish or transfer your existing
plan or account.
HOW TO SELL SHARES
The following chart shows several convenient ways to redeem your Fund
shares. Shares of the Fund may be redeemed at any time at their current NAV next
determined after a request in proper form is received at the Fund's office. The
NAV at the time of the redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the Fund's investment
performance.
Please ^ specify from which fund you wish to redeem shares. Shareholders
have a separate account for each fund in which they invest.
<PAGE>
HOW TO SELL SHARES
================================================================================
Method Minimum Redemption Please Remember
================================================================================
By Telephone
Call us toll-free $250 (or, if less, This option is not
at 1-800-525-8085. full liquidation of available for
the account) for a shares held in
redemption check; Individual
$1,000 for a wire Retirement Accounts
to bank of record. (IRAs).
The maximum amount
which may be
redeemed by
telephone is
generally $25,000.
These telephone
redemption
privileges may be
modified or
terminated in the
future at the
discretion of IFG.
- --------------------------------------------------------------------------------
In Writing
Mail your request Any amount. The If the shares to be
to INVESCO Funds redemption request redeemed are
Group, Inc., P.O. must be signed by represented by
Box 173706 all registered stock certificates,
Denver, CO 80217- shareholders(s). the certificates
3706. You may also Payment will be must be sent to
send your request mailed to your IFG.
by overnight address of record^
courier to 7800 E. or to a pre-
Union Ave., Denver, designated bank.
CO 80237.
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Privilege," ^ page
INVESCO funds. Call for written 11.
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an (The exchange
automatic monthly minimum is $250 for
exchange service exchanges requested
between two INVESCO by telephone.)
funds; call IFG for
further details and
the correct form.
<PAGE>
- --------------------------------------------------------------------------------
Periodic Withdrawal
Plan
You may call us to $100 per payment, You must have at
request the on a monthly or least $10,000 total
appropriate form quarterly basis. invested with the
and more The redemption INVESCO funds, with
information at 1- check may be made at least $5,000 of
800-525-8085. payable to any that total invested
party you in the fund from
designate. which withdrawals
will be made.
- --------------------------------------------------------------------------------
Payment To Third
Party
Mail your request Any amount. All registered
to INVESCO Funds owners of the
Group, Inc., P.O. account must sign
Box 173706 the request, with a
Denver, CO 80217- signature guarantee
3706. from an eligible
guarantor financial
institution, such as a
commercial bank or
recognized national or
regional securities
firm.
================================================================================
While the Fund will attempt to process telephone redemptions promptly,
there may be times -- particularly in periods of severe economic or market
disruption -- when you may experience delays in redeeming shares by phone.
Payments of redemption proceeds will be mailed within seven days following
receipt of the redemption request in proper form. However, payment may be
postponed under unusual circumstances -- for instance, if normal trading is not
taking place on the New York Stock Exchange or during an emergency as defined by
the Securities and Exchange Commission. If your shares were purchased by a check
which has not yet cleared, payment will be made promptly upon clearance of the
purchase check (which may take up to 15 days).
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate any
further EasiVest purchases unless you instruct us otherwise.
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 involuntarily redeem all shares in such
account, in which case the account would be liquidated and the proceeds
<PAGE>
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.
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
whether they are received in cash or automatically distributed in shares of the
Fund or another fund in the INVESCO group.
The Fund may be subject to 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 you are subject to
backup withholding for other reasons, you can avoid backup withholding on your
Fund account by ensuring that we have a correct, certified tax identification
number.
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 on a quarterly basis, at the discretion of the Fund'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 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,
<PAGE>
have "bought" the distribution by paying the 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 upon how long
the Fund held the security which gave rise to the gains. The capital gains
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 income and are paid to shareholders as dividends.
Shareholders also may realize capital gains or losses when they sell their
Fund shares at more or less than the price originally paid.
We encourage you to consult a tax adviser 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. The Fund is not generally required and does not
expect to hold regular annual meetings of shareholders. However, when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Fund or as may be required by applicable law or the Fund's Articles of
Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Fund. The Fund will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
<PAGE>
PROSPECTUS
^ January 1, 1997
To receive general information and prospectuses on any of the INVESCO funds or
retirement plans, or to obtain current account or price information or responses
to other questions, call toll-free:
1-800-525-8085
To reach PAL, your 24-hour Personal Account Line (PAL) call:
1-800-424-8085
You can find us on the World Wide Web:
http://www.invesco.com
Or write to:
INVESCO Funds Group, Inc., Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
If you're in Denver, please 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
^ January 1, ^ 1997
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"); ^ INVESCO Asian Growth Fund (the
"Asian Growth Fund"); and INVESCO Realty Fund (the "Realty 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
<PAGE>
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
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.
The 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.
The Realty Fund seeks to achieve above average current income by
investing, under normal circumstances, at least 65% of its total assets in
publicly-traded stocks of companies primarily engaged in the real estate
industry.
Investors may purchase shares of any or all of the Funds. Additional funds
may be added in the future.
<PAGE>
Prospectuses for the Capital Goods Fund, the Communications Fund, the
European Small Company Fund, the Latin American Growth Fund, and the Asian
Growth Fund, dated December 1, 1996, and the Realty Fund dated January 1, 1997,
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.
Investment Adviser and Distributor: INVESCO FUNDS GROUP, INC.
<PAGE>
TABLE OF CONTENTS Page
INVESTMENT POLICIES AND RESTRICTIONS 5
THE FUNDS AND THEIR MANAGEMENT 19
HOW SHARES CAN BE PURCHASED 35
HOW SHARES ARE VALUED 39
FUND PERFORMANCE 41
SERVICES PROVIDED BY THE FUNDS 42
TAX-DEFERRED RETIREMENT PLANS 43
HOW TO REDEEM SHARES 44
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS^ AND TAXES 44
INVESTMENT PRACTICES 47
ADDITIONAL INFORMATION 51
<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
investment value, the price of the convertible security is governed principally
<PAGE>
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
political subdivisions, agencies and instrumentalities, to obtain funds for
<PAGE>
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 Funds also may lend their securities to qualified brokers, dealers,
banks, or other financial institutions. This practice permits the Funds to earn
income, which, in turn, can be invested in additional securities of the type
described in this Prospectus in pursuit of each Fund's investment objective.
Loans of securities by the Funds 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 Funds monitor the
creditworthiness of borrowers in order to minimize such risks. The Funds 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 each 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, with the exception of the Realty Fund, 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.
The Realty Fund also may invest in a variety of mortgage-backed securities
known as commercial mortgage-backed securities ("CMBs"). CMBs are derivative
multiple-class mortgage-backed securities. CMBs are generally structured with
two classes, each receiving a different proportion of interest and principal
distributions on a pool of mortgage assets. In general, one class will receive
most of the principal payments and some of the interest, with the other class
receiving some of the principal and most of the interest payments.
Zero Coupon Bonds and Pay-In-Kind 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
<PAGE>
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."
The Realty Fund may invest in zero coupon bonds and pay-in- kind bonds if
Fund Management determines that the risk of a default on the security, which
could result in adverse tax consequences, is not significant. Pay-in-kind
("PIK") bonds pay interest in cash or additional securities, at the issuer's
option, for a specified period. Being extremely responsive to changes in
interest rates, the market price of zero coupon and PIK securities may be more
volatile than other bonds. The Realty Fund may be required to distribute income
recognized on these bonds, even though no cash interest payments are received,
which could reduce the amount of cash available for investment by the Fund.
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
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.
The Realty Fund may invest in real estate mortgage investment conduit
certificates ("REMICs"). REMICs are a specialized form of CMOs that qualify for
favorable tax treatment because they invest in certain mortgages secured by
<PAGE>
interests in real estate and other permitted investments. Investors may
purchase "regular" and "residual" interest shares of beneficial interest in
REMIC trusts. REMICs are subject to the same general risks as CMOs.
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
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
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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
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
<PAGE>
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
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.
<PAGE>
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 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. This restriction shall not prohibit the
Realty Fund from directly holding real estate if such real estate is
acquired by that Fund as a result of a default on debt securities
held by that Fund.
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.
<PAGE>
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). The Realty Fund may invest more than 25% of
the value of its total assets in securities of the Real Estate
Industry.
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
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.
<PAGE>
(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.
(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.
<PAGE>
(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.
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).
The Company has voluntarily undertaken to 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 voluntarily
undertaken 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 voluntarily undertaken 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 FUNDS AND THEIR MANAGEMENT
The Company. The Company was incorporated on April 12, 1994,
under the laws of Maryland.
<PAGE>
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
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.
Additionally, INVESCO, as investment adviser, has contracted with INVESCO
Realty Advisors, Inc. ("IRAI") to provide investment advisory and research
services on behalf of the Realty Fund. IRAI has the primary responsibility for
providing portfolio investment management services to the Fund. IRAI 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 July 31, 1996, managed 14
mutual funds, consisting of 39 separate portfolios, on behalf of over 821,000
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. The
Agreement has been continued by action of the board of directors through April
30, 1997. 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
<PAGE>
in the 1940 Act) of any such party, cast in person at a meeting called for
the purpose of voting on such continuance. The Agreement may be terminated at
any time without penalty by either party upon sixty (60) days' written notice
and terminates automatically in the event of an assignment to the extent
required by the 1940 Act and the rules thereunder. 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 and is for an initial term expiring April 30, 1997. 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 and is for an initial term expiring
April 30, 1997. With respect to the Realty Fund, the Agreement was approved by
INVESCO on December 9, 1996, as the then sole shareholder of the Fund and is for
an initial term expiring December 9, 1998.
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% of the next $500
<PAGE>
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
0.55% on each Fund's average net assets over $1 billion. With respect to the
Realty Fund, the fee is calculated at the annual rate of 0.75% of the Fund's
average net assets.
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, 1997. 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
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. The European
and Latin American Sub-Agreement has been approved through April 30, 1997.
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
<PAGE>
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. The Asian Growth
Sub- Agreement has been approved through April 30, 1997. 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.
IRAI serves as sub-adviser to the Realty Fund pursuant to a sub-advisory
agreement (the "Realty Sub-Agreement") with INVESCO which was approved on
December 9, 1996 for an initial term expiring April 30, 1997. Thereafter, the
Realty 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 Realty 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 Realty 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 he extent required by the 1940 Act and the rules thereunder.
The Sub-Agreements provide that INVESCO Trust, IAML, ^ INVESCO Asia and
IRAI, subject to the supervision of INVESCO, shall manage the investment
portfolios of the respective Funds in conformity with each Fund's investment
policies. These 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
<PAGE>
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, IAML 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 Realty Sub-Agreement
provides that as compensation for its services, IRAI shall receive a fee from
INVESCO, at the end of each month, at the rate of 0.30% of the Fund's average
daily net assets. 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
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, 1997. 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.
<PAGE>
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.
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
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,
1997 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 $20.00 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.
Set forth below is a table showing the advisory fees, administrative
services fees, and transfer agency fees paid by each of the Funds for the period
shown.
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, 1996(1) July 31, 1995(1)
Adminis- Adminis-
Transfer trative Transfer trative
Advisory Agency Services Advisory Agency Services
Fees Fees Fees Fees Fees Fees
<S> <C> <C> <C> <C> <C> <C>
Worldwide Capital Goods $52,495 $35,801 $11,211 $32,382 $20,517 $10,747
Worldwide Communications $255,873 $151,435 $15,905 $101,129 $64,043 $12,334
European Small Company $271,008 $66,181 $15,420 $4,159(2) $2,300(2) $3,417(2)
Latin American Growth $130,913 $47,581 $12,618 $12,530(2) $5,295(2) $3,584(2)
Asian Growth Fund(3) $26,564 $16,399 $3,031 -0- -0- -0-
Realty Fund(4) -0- -0- -0- -0- -0- -0-
</TABLE>
(1) These amounts do not reflect the voluntary expense limitations described in
the Funds' prospectuses.
(2) For the period February 15, 1995 (inception) through July 31, 1995.
(3) The Asian Growth Fund did not pay any of the fees listed in this table for
the year ended July 31, 1995 since it did not commence a public offering of its
shares until March 1, 1996. In addition, the fees listed in the table for the
year ended July 31, 1996 are for the five month period begining March 1, 1996
(inception).
(4) The Realty Fund paid INVESCO no advisory, administrative or transfer agency
fees as of the date of this Statement of Additional Information since it did not
commence a public offering of securities until January 2, 1997.
<PAGE>
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
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 also are directors of INVESCO Advisor Funds, Inc. (formerly known as
The EBI Funds, Inc."); and, with the exception of Mr. Hesser, trustees of
INVESCO Treasurer's Series Trust. All of the officers of the Company also hold
comparable positions with INVESCO Value Trust. Set forth below is information
with respect to each of the Company's officers and directors. Unless otherwise
indicated, the address of the directors and officers is Post Office Box 173706,
Denver, Colorado 80217-3706. Their affiliations represent their principal
occupations during the past five years.
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive Officer and
Director of INVESCO PLC, London, England, and of various subsidiaries thereof;
Chairman of the Board of 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. Director of INVESCO Advisor Funds, Inc. Trustee of The Global
Health Sciences Fund. Born: December 27, 1939.
<PAGE>
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.
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. Executive Vice President of INVESCO PLC
(since November 1996). Formerly, Senior Executive Vice President and 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.
Trustee of The Global Health Sciences Fund. Director of Magellan Health
Services, Inc. and of Charter Medical Corp. Address: 250 Williams Street, Suite
6000, Atlanta, Georgia 30301. Born: June 23, 1944.
HUBERT L. HARRIS, JR.*, Director. Chairman (since May 1996), President
(January 1990 to April 1996) of INVESCO Services, Inc. Director of INVESCO PLC
and Chief Executive Officer of INVESCO Individual Services Group. Member of the
Executive Committee of the Alumni Board of Trustees of Georgia Institute of
Technology. Address: 1315 Peachtree Street, NE, Atlanta, Georgia. Born: July 15,
1943.
KENNETH T. KING,** Director. Formerly, Chairman of the Board of The Capitol
Life Insurance Company, Providence Washington Insurance Company, and Director of
numerous subsidiaries thereof in the U.S. Formerly, Chairman of the Board of The
Providence Capitol Companies in the United Kingdom and Guernsey. Chairman of the
<PAGE>
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.
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
Counsel of INVESCO Funds Group, Inc. and INVESCO Trust Company. Formerly,
employee of a U.S. regulatory agency, Washington, D.C. (June 1973 through May
1989). Born: September 25, 1947.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
Funds Group, Inc. and INVESCO Trust Company since January 1988. 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. Formerly, Vice President
of 440 Financial Group from June 1990 to August 1992 and Assistant Vice
President of Putnam Companies from November 1986 to June 1990. Born: August 21,
1956.
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO Funds Group,
Inc. 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.
<PAGE>
*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 November 11, 1996, officers and directors of the Company, as a
group, beneficially owned less than 1% of the Company's outstanding shares
broken down as 0.28% of the Worldwide Capital Goods Fund, 0.02% of the Worldwide
Communications Fund, 0.02% of the European Small Company Fund, 0.06% of the
Latin American Growth Fund and 0.02% of the Asian Growth Fund.
Director Compensation
The following table sets forth, for the fiscal year ending July 31, 1996:
the compensation paid by the Company to its eight eligible independent directors
for services rendered in their capacities as directors of the Company; the
benefits accrued as Company expenses with respect to the Defined Benefit
Deferred Compensation Plan discussed below; and the estimated annual benefits to
be received by these directors upon retirement as a result of their service to
the Company. In addition, the table sets forth the total compensation paid by
all of the mutual funds distributed by INVESCO Funds Group, Inc. (including the
Company), INVESCO Advisor 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 49
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, $2,388 $71 $59 $ 87,350
Vice Chairman of
the Board
Victor L. Andrews 2,363 62 65 68,000
Bob R. Baker 2,370 64 87 73,000
Lawrence H. Budner 2,353 67 65 68,350
Daniel D. Chabris 2,371 76 46 73,350
A. D. Frazier Jr.(4),(5) 2,342 0 0 63,500
<PAGE>
Kenneth T. King 2,364 73 53 70,000
John W. McIntyre(4) 2,350 0 0 67,850
------- ---- ---- --------
Total $18,9016 $413 $375 $571,400
% of Net Assets 0.0095%(7) 0.0002%(7) .0043%(8)
(1)The vice chairman of the board, the chairmen of the audit, management
liaison and compensation committees, and the members of the executive and
valuation committees each receive compensation for serving in such capacities in
addition to the compensation paid to all independent directors.
(2)Represents estimated benefits accrued with respect to the Defined
Benefit Deferred Compensation Plan discussed below, and not compensation
deferred at the election of the directors.
(3)These figures represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding 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.
(4)Messrs. Frazier and McIntyre began serving as directors of the Company
on April 19, 1995.
(5)Effective November 1, 1996, Mr. Frazier was employed by INVESCO PLC, a
company affiliated with INVESCO. Because it was possible that Mr. Frazier would
be employed with INVESCO PLC effective May 1, 1996, he was deemed to be an
"interested person" of the Company and of the other funds in the INVESCO
Complex. Effective November 1, 1996, Mr. Frazier will no longer receive any
director's fees or other compensation from the Company or other funds in the
INVESCO Complex for his service as a director.
(6)Amount includes Worldwide Communications Fund for the fiscal year ended
July 31, 1996, Worldwide Capital Goods Fund for the period October 1, 1995
through July 31, 1996, and Latin American Growth and European Small Company
<PAGE>
Funds for the period April 1, 1996 through July 31, 1996. The Asian Growth
Fund did not accrue directors fees as of July 31, 1996.
(7)Totals as a percentage of the Company's net assets as of July 31, 1996.
(8)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1995.
Messrs. Brady, Harris, Hesser and, effective November 1, 1996, Frazier, 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,
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
<PAGE>
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
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, 1996, the Capital Goods
Fund, Worldwide Communications Fund, European Small Company Fund and Latin
American Growth Fund incurred $20,544, $93,172, $64,913 and $38,021 in
distribution expenses, respectively, prior to the voluntary absorption of
certain Fund expenses by INVESCO and the applicable sub-adviser. During the
<PAGE>
period ended July 31, 1996, the Asian Growth Fund incurred $5,613 in
distribution expenses, prior to the voluntary absorption of certain Fund
expenses by INVESCO and the applicable sub-adviser. In addition, as of July 31,
1996 the Worldwide Capital Goods Fund, Worldwide Communications Fund, European
Small Company Fund, Latin American Growth Fund and Asian Growth Fund incurred
$1,746, $11,017, $26,038, $7,098 and $3,241 of additional distribution expenses
subject to the approval of the Company's directors, which approval was scheduled
for October 30, 1996. 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, 1996, allocation of 12b-1 amounts paid
by the Capital Goods Fund for the following categories of expenses were:
advertising --$4,874; sales literature, printing and postage--$8,620; direct
mail--$507; public relations/promotion- -$646; compensation to securities
dealers and other organizations-- $2,959; marketing personnel--$2,938. For the
fiscal year ended July 31, 1996, allocation of 12b-1 amounts paid by the
Communications Fund for the following categories of expenses were: advertising
- --$44,031; sales literature, printing and postage-- $23,855; direct
mail--$12,178; public relations/promotion--$1,218; compensation to securities
dealers and other organizations--$5,673; marketing personnel--$6,217. For the
fiscal year ended July 31, 1996, allocation of 12b-1 amounts paid by the
European Small Company Fund for the following categories of expenses were:
advertising --$30,195; sales literature, printing and postage-- $16,374; direct
mail--$3,195; public relations/promotion--$1,185; compensation to securities
dealers and other organizations--$6,934; marketing personnel--$7,031. For the
fiscal year ended July 31, 1996, allocation of 12b-1 amounts paid by the Latin
American Growth Fund for the following categories of expenses were: advertising
- -- $18,145; sales literature, printing and postage--$9,468; direct mail--$760;
public relations/promotion--$925; compensation to securities dealers and other
<PAGE>
organizations--$4,151; marketing personnel--$4,572. For the period March 1,
1996 (inception) through July 31, 1996, allocation of 12b-1 amounts paid by the
Asian American Growth Fund for the following categories of expenses were:
advertising --$1,440; sales literature, printing and postage--$1,233; direct
mail--$2,781; public relations/promotion-- $40; compensation to securities
dealers and other organizations-- $47; marketing personnel--$72.
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, 1997. 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, 1997. 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 and has been continued by action of the board of
directors until April 30, 1997. With respect to the Realty Fund, the Plan was
approved by INVESCO on December 9, 1996, 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
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
<PAGE>
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
which the Company believes will be reasonably likely to flow to the Funds and
their shareholders under the Plan include the following:
<PAGE>
(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
holidays, including New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas.
<PAGE>
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
Goods, Communications, European Small Company and Latin American Growth Funds
<PAGE>
for the fiscal year ended July 31, 1996 and for the Asian Growth Fund for
the period from March 1, 1996 (inception) through July 31, 1996 was as follows:
Fund One Year Life of Fund
---- -------- ------------
Capital Goods Fund* 0.27% (0.61)%
Communications Fund* 13.67% 19.12%
European Small Company Fund~ 31.07% 32.21%
Latin American Growth Fund~ 15.27% 22.13%
Asian Growth Fund^ N/A (10.31)%
*Inception date: August 1, 1994
~Inception date: February 15, 1995
^Inception date: March 1, 1996
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
Ibbotson Associates, Inc.
Institutional Investor
Investment Company Data, Inc.
<PAGE>
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 Funds' Prospectuses, 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 Funds' Prospectuses, the Funds
offer shareholders the privilege of exchanging shares of the Funds for shares of
another fund or for 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
<PAGE>
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 Funds' Prospectuses, 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.
<PAGE>
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
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, 1996, and intends to continue 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.
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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. Portfolio
turnover rates for the fiscal years ended July 31, 1996 and 1995 were 247% and
193%, respectively, for the Worldwide Capital Goods Fund and 157% and 215%,
respectively, for the Worldwide Communications Fund. Portfolio turnover rates
for the fiscal year ended July 31, 1996 and the period ended July 31, 1995 were
141% and 0.00%, respectively for the European Small Company Fund and 29% and
30%, respectively, for the Latin American Growth Fund. For the period March 1,
1996 (inception) through July 31, 1996, the portfolio turnover rate for the
Asian Growth Fund was 2%. The higher portfolio turnover rate for the Worldwide
Capital Goods Fund was primarily due to a repositioning of the Fund's portfolio.
The high portfolio turnover rate for the European Small Company Fund was
primarily due to the increase in the size of the Fund and the fact that the
fiscal year 1996 figure reflects a full year of operations. 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 ^, INVESCO Asia or IRAI, 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.
<PAGE>
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
can provide comparable best price and execution on a particular transaction, the
Company's adviser may consider the sale of Fund shares by a broker or dealer in
selecting among qualified broker-dealers.
^
Certain financial institutions (including brokers who may sell shares of
the Funds, or affiliates of such brokers) are paid a fee (the "Services Fee")
for recordkeeping, shareholder communications and other services provided by the
brokers to investors purchasing shares of the Funds through no transaction fee
programs ("NTF Programs") offered by the financial institution or its affiliates
broker (an "NTF Program Sponsor"). The Services Fee is based on the average
daily value of the investments in each Fund made in the name of such NTF Program
Sponsor and held in omnibus accounts maintained on behalf of investors
participating in the NTF Program. With respect to certain NTF Programs, the
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 Services Fee, subject to the
maximum Rule 12b-1 fee permitted by the Plan. With respect to other NTF
Programs, the Company's directors have authorized the Funds to pay transfer
agency fees to INVESCO based on the number of investors who have beneficial
interests in the NTF Program Sponsor's omnibus accounts in the Funds. INVESCO,
in turn, pays these transfer agency fees to the NTF Program Sponsor as a
sub-transfer agency or recordkeeping fee in payment of all or a portion of the
Services Fee. In the event that the sub-transfer agency or recordkeeping fee is
insufficient to pay all of the Services Fee with respect to these NTF Programs,
<PAGE>
the directors of the Company have authorized the Company to apply dollars
generated from the Plan to pay the remainder of the Services Fee, subject to the
maximum Rule 12b-1 fee permitted by the Plan. INVESCO itself pays the portion of
each Fund's Services Fee, if any, that exceeds the sum of the sub-transfer
agency or recordkeeping fee and Rule 12b-1 fee. The Company's directors have
further authorized INVESCO to place a portion of each Fund's brokerage
transactions with certain NTF Program Sponsors or their affiliated brokers, if
INVESCO reasonably believes that, in effecting the Fund's transactions in
portfolio securities, the broker is able to provide the best execution of orders
at the most favorable prices. A portion of the commissions earned by such a
broker from executing portfolio transactions on behalf of the Funds may be
credited by the NTF Program Sponsor against its Services Fee. Such credit shall
be applied first against any sub-transfer agency or recordkeeping fee payable
with respect to the Funds, and second against any Rule 12b-1 fees used to pay a
portion of the Services Fee, on a basis which has resulted from negotiations
between INVESCO and the NTF Program Sponsor. Thus, the Funds pay sub- transfer
agency or recordkeeping fees to the NTF Program Sponsor in payment of the
Services Fee only to the extent that such fees are not offset by a Fund's
credits. In the event that the transfer agency fee paid by the Funds to INVESCO
with respect to investors who have beneficial interests in a particular NTF
Program Sponsor's omnibus accounts in a Fund exceeds the Services Fee applicable
to the Fund, after application of credits, INVESCO may carry forward the excess
and apply it to future Services Fees payable to that NTF Program Sponsor with
respect to a 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 Funds. The Company's board of directors has also authorized the
Funds to pay to INVESCO the full Rule 12b-1 fees contemplated by the Plan in
reimbursement of expenses incurred by INVESCO in engaging in the activities and
providing the services on behalf of the Funds contemplated by the Plan, subject
to the maximum Rule 12b-1 fee permitted by the Plan, notwithstanding that
credits have been applied to reduce the portion of the 12b-1 fee that would have
been used to reimburse INVESCO for payments to such NTF Program Sponsor absent
such credits.
The aggregate amount of brokerage commissions paid for the fiscal years
ended July 31, 1996 and 1995 were $141,314 and $54,814, respectively, for the
Worldwide Capital Goods Fund and $239,095 and $129,085 for the Worldwide
Communications Fund. The aggregate amount of brokerage commissions paid for the
fiscal year ended July 31, 1996 and the period ended July 31, 1995 were $417,140
and $141, respectively, for the European Small Company Fund and $102,029 and
$2,012, respectively, for the Latin American Growth Fund. The aggregate amount
of brokerage commission paid for the period March 1, 1996 (inception) through
July 31, 1996 for the Asian Growth Fund was $105,714. For the fiscal years ended
July 31, 1996 and 1995, brokers providing research services received commissions
on portfolio transactions of $32,164 and $27,515, respectively, for the
Worldwide Capital Goods Fund and $64,810 and $39,843, respectively, for the
<PAGE>
Worldwide Communications Fund. For the fiscal year ended July 31, 1996 and
the period ended July 31, 1995, brokers providing research services received
commissions on portfolio transactions of $38 and $0, respectively, for the
European Small Company Fund and $0 and $0, respectively, for the Latin American
Growth Fund. For the period March 1, 1996 (inception) through July 31, 1996,
brokers providing research services received commissions on portfolio
transactions of $0 for the Asian Growth Fund. The aggregate amount of such
portfolio transactions was $15,731,437 and $10,973,188, respectively, for the
Worldwide Capital Goods Fund; $27,956,526 and $15,947,023, respectively, for the
Worldwide Communications Fund; $19,063 and $0, respectively, for the European
Small Company Fund; and $53,125 and $0, respectively, for the Latin American
Growth Fund. The Funds paid no compensation to brokers for the sales of shares
of the Funds during the year ended July 31, 1996.
At July 31, 1996, the Funds held securities of their regular brokers or
dealers, or their parents, as follows:
Value of
Securities
Fund Broker or Dealer at 7/31/96
- ---- ---------------- ----------
Capital Goods Fund State Street Bank and
Trust North America 1,506,000
Communications Fund State Street Bank and
Trust North America 11,109,000
Latin American Growth Fund None
European Small Company Fund None
Asian Growth Fund State Street Bank and
Trust North America 1,485,000
Neither INVESCO, INVESCO Trust, IAML ^, INVESCO Asia nor IRAI 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
and IRAI, or any person affiliated with INVESCO, INVESCO Trust, IAML ^, INVESCO
Asia and IRAI, 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, 1996, 804,518
shares of the Capital Goods Fund, 4,064,157 shares of the Communications Fund,
6,248,937 shares of the European Small Company Fund, 2,493,265 shares of the
<PAGE>
Latin American Growth Fund and 1,599,695 shares of the Asian 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
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 November 1, 1996, the following entities held
more than 5% of the Funds' outstanding equity securities.
<PAGE>
Amount and Nature Percent
Name and Address of Ownership of Class
- ---------------- ----------------- --------
INVESCO Worldwide
Capital Goods Fund
Charles Schwab & Co. Inc. 121,973.1510 29.854%
Special Custody Acct. for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104
INVESCO Funds Group, Inc. 30,835.7980 7.547%
P.O. Box 173706
Denver, CO 80201
INVESCO Trust Company 25,696.4980 6.289%
P.O. Box 173706
Denver, CO 80201
INVESCO Worldwide
Communications Fund
Charles Schwab & Co. Inc. 878,268.0630 22.539%
Special Custody Acct. for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104
INVESCO European
Small Company Fund
Charles Schwab & Co. Inc. 3,498,943.0080 45.598%
Special Custody Acct. for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104
<PAGE>
INVESCO Latin American Growth Fund
Charles Schwab & Co. Inc. 1,149,048.4580 47.013%
Special Custody Acct. for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104
INVESCO Asian Growth Fund
Charles Schwab & Co. Inc. 389,901.7910 22.200%
Special Custody Acct. for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104
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, Latin American Growth and
Asian Growth Funds and the notes thereto for the period ending July 31, 1996,
and the report of Price Waterhouse LLP with respect to such financial
<PAGE>
statements, are incorporated by reference from the Company's Annual Report
to Shareholders for the fiscal period ended July 31, 1996.
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
any particular time. In such event it might not be possible to effect closing
<PAGE>
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
premium paid for the option as well as any anticipated benefit of the
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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.
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Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities, U.S. Treasury Bills, bank certificates of deposit and commercial
paper. In addition, interest rate futures contracts include contracts on indices
of municipal securities. Foreign currency futures contracts currently are traded
on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German
mark and on Eurodollar deposits.
Options on Futures Contracts
An Option on a Futures Contract provides the holder with the right to
enter into a "long" position in the underlying Futures Contract, in the case of
a call option, or a "short" position in the underlying Futures Contract, in the
case of a put option, at a fixed exercise price to a stated expiration date.
Upon exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of Futures Contracts, such as payment
of variation margin deposits. In addition, the writer of an Option on a Futures
contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a Futures Contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
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APPENDIX B
BOND RATINGS
The following is a description of Standard & Poor's Ratings Services
("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.
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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 Ratings Services 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.
