Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Amendment.
This Statement of Additional Information (the SAI) relates to each portfolio (each a Fund, collectively, the Funds) of
AIM International Mutual Funds (Invesco International Mutual Funds) (the Trust) listed below. Each Fund offers separate classes of shares as follows:
This SAI is not a Prospectus, and it should be read in conjunction with the Prospectuses for the Funds listed below.
Portions of each Fund’s financial statements are incorporated into this SAI by reference to such Fund’s most recent Annual and Semi-Annual Reports to shareholders. You may obtain, without charge, a copy of any Prospectus and/or Annual and
Semi-Annual Reports for any Fund listed below from an authorized dealer or by writing to:
P.O. Box 219078
This SAI, dated February 28, 2014, relates to the Class A, Class B, Class C, Class R, Class Y and Investor Class
shares (collectively, the Retail Classes) and Class R5 and Class R6 shares, as applicable, of the following Prospectuses:
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
i
APPENDICES:
ii
GENERAL INFORMATION ABOUT THE TRUST
Fund History
AIM International Mutual Funds (Invesco International Mutual Funds) (the Trust) is a Delaware statutory trust registered under the Investment
Company Act of 1940, as amended (the 1940 Act), as an open-end series management investment company. The Trust was originally organized as a Maryland Corporation on October 31, 1991 and re-organized as a Delaware statutory Trust on
November 25, 2003. Under the Trust’s Agreement and Declaration of Trust, as amended (the Trust Agreement), the Board of Trustees of the Trust (the Board) is authorized to create new series of shares without the necessity of a vote of
shareholders of the Trust.
Prior to May 1, 2008, Invesco Global Small & Mid Cap Growth Fund was known as AIM Global
Aggressive Growth Fund.
Prior to April 30, 2010, the Trust was known as AIM International Mutual Funds and the Funds were known as
AIM Asia Pacific Growth Fund, AIM European Growth Fund, AIM Global Growth Fund, AIM Global Small & Mid Cap Growth Fund, AIM International Core Equity Fund and AIM International Growth Fund.
Shares of Beneficial Interest
Shares of beneficial interest of the Trust are redeemable at their net asset value at the option of the shareholder or at the option of the
Trust in certain circumstances, subject in certain circumstances to a contingent deferred sales charge.
The Trust allocates moneys and
other property it receives from the issue or sale of shares of each of its series of shares, and all income, earnings and profits from such issuance and sales, subject only to the rights of creditors, to the appropriate Fund. These assets constitute
the underlying assets of each Fund, are segregated on the Trust’s books of account, and are charged with the expenses of such Fund and its respective classes. The Trust allocates any general expenses of the Trust not readily identifiable as
belonging to a particular Fund subject to oversight by the Board, primarily on the basis of relative net assets, or other relevant factors.
Each share of each Fund represents an equal proportionate interest in that Fund with each other share and is entitled to such dividends and
distributions out of the income belonging to such Fund as are declared by the Board.
Each class of shares represents an interest in the
same portfolio of investments. Differing sales charges and expenses will result in differing net asset values and dividends and distributions. Upon any liquidation of the Trust, shareholders of each class are entitled to share pro rata in the net
assets belonging to the applicable Fund allocable to such class available for distribution after satisfaction of outstanding liabilities of the Fund allocable to such class.
The Trust is not required to hold annual or regular meetings of shareholders. Meetings of shareholders of a Fund or class will be held from
time to time to consider matters requiring a vote of such shareholders in accordance with the requirements of the 1940 Act, state law or the provisions of the Trust Agreement. It is not expected that shareholder meetings will be held annually.
Each share of a Fund generally has the same voting, dividend, liquidation and other rights; however, each class of shares of a Fund is subject
to different sales loads, conversion features, exchange privileges and class-specific expenses. Only shareholders of a specific class may vote on matters relating to that class’s distribution plan.
1
Because Class B shares automatically convert to Class A shares on or about month-end which
is at least eight years after the date of purchase, certain Invesco Funds’ Agreement and Declaration of Trust/distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act requires that Class B shareholders must also approve any material
increase in distribution fees submitted to Class A shareholders of that Fund. A pro rata portion of shares from reinvested dividends and distributions convert along with the Class B shares.
Except as specifically noted above, shareholders of each Fund are entitled to one vote per share (with proportionate voting for fractional
shares), irrespective of the relative net asset value of the shares of a Fund. However, on matters affecting an individual Fund or class of shares, a separate vote of shareholders of that Fund or class is required. Shareholders of a Fund or class
are not entitled to vote on any matter which does not affect that Fund or class but that requires a separate vote of another Fund or class. An example of a matter that would be voted on separately by shareholders of each Fund is the approval of the
advisory agreement with Invesco Advisers, Inc. (the Adviser or Invesco). When issued, shares of each Fund are fully paid and nonassessable, have no preemptive or subscription rights, and are freely transferable. Other than the automatic conversion
of Class B shares to Class A shares, there are no automatic rights, but each Fund may offer voluntary rights to convert between certain share classes, as described in each Fund’s prospectus. Shares do not have cumulative voting rights,
which means that when shareholders elect trustees, holders of more than 50% of the shares voting for the election of trustees can elect all of the trustees of the Trust, and the holders of fewer than 50% of the shares voting for the election of
trustees will not be able to elect any trustees.
Under Delaware law, shareholders of a Delaware statutory trust shall be entitled to the
same limitation of personal liability extended to shareholders of private for-profit corporations organized under Delaware law. There is a remote possibility, however, that shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state, which does not recognize such limited liability, were to apply the laws of such state to a controversy involving such obligations. The Trust Agreement disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the trustees to all parties. The Trust Agreement provides for
indemnification out of the property of a Fund for all losses and expenses of any shareholder of such Fund held liable on account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss due to shareholder
liability is limited to circumstances in which a Fund is unable to meet its obligations and the complaining party is not held to be bound by the disclaimer.
The trustees and officers of the Trust will not be liable for any act, omission or obligation of the Trust or any trustee or officer; however,
a trustee or officer is not protected against any liability to the Trust or to the shareholders to which a trustee or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his or her office with the Trust (Disabling Conduct). The Trust’s Bylaws generally provide for indemnification by the Trust of the trustees, officers and employees or agents of the Trust, provided that such
persons have not engaged in Disabling Conduct. Indemnification does not extend to judgments or amounts paid in settlement in any actions by or in the right of the Trust. The Trust Agreement also authorizes the purchase of liability insurance on
behalf of trustees and officers. The Trust’s Bylaws provide for the advancement of payments of expenses to current and former trustees, officers and employees or agents of the Trust, or anyone serving at their request, in connection with the
preparation and presentation of a defense to any claim, action, suit or proceeding, for which such person would be entitled to indemnification; provided that any advancement of expenses would be reimbursed unless it is ultimately determined that
such person is entitled to indemnification for such expenses.
Share Certificates
. Shareholders of the Funds do not have the right
to demand or require the Trust to issue share certificates and share certificates are not issued.
2
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
Classification
The Trust is an open-end management investment company. Each of the Funds, except Invesco Select Opportunities Fund, is “diversified”
for purposes of the 1940 Act. Invesco Select Opportunities Fund is “non-diversified” for the purposes of the 1940 Act, which means the Fund can invest a greater percentage of its assets in a small number of issuers or in any one issuer
than a diversified fund can.
Investment Strategies and Risks
Set forth below are detailed descriptions of the various types of securities and investment techniques that Invesco and/or the Sub-Advisers (as
defined herein) may use in managing the Funds, as well as the risks associated with those types of securities and investment techniques. The descriptions of the types of securities and investment techniques below supplement the discussion of
principal investment strategies and risks contained in each Fund’s Prospectus. Where a particular type of security or investment technique is not discussed in a Fund’s Prospectus, that security or investment technique is not a principal
investment strategy.
Unless otherwise indicated, a Fund may invest in all of the following types of investments. Not all of the Funds
invest in all of the types of securities or use all of the investment techniques described below, and a Fund might not invest in all of these types of securities or use all of these techniques at any one time. Invesco and/or the Sub-Advisers may
invest in other types of securities and may use other investment techniques in managing the Funds, including those described below for Funds not specifically mentioned as investing in the security or using the investment technique, as well as
securities and techniques not described A Fund’s transactions in a particular type of security or use of a particular technique is subject to limitations imposed by a Fund’s investment objective(s), policies and restrictions described in
that Fund’s Prospectus and/or this SAI, as well as the federal securities laws.
Any percentage limitation relating to the
composition of a Fund’s portfolio identified in the Fund’s prospectus or this SAI apply at the time the Fund acquires an investment. Subsequent changes that result from market fluctuations generally will not require a Fund to sell any
portfolio security. However, a Fund may be required to sell its illiquid securities holdings, or reduce its borrowings, if any, in response to fluctuations in the value of such holdings.
The Funds’ investment objectives, policies, strategies and practices described below are non-fundamental and may be changed without
approval of the holders of the Funds’ voting securities unless otherwise indicated.
Equity Investments
Each Fund may invest in the Equity Investments described below:
Common Stock.
Common stock is issued by a company principally to raise cash for business purposes and represents an equity or ownership
interest in the issuing company Common stockholders are typically entitled to vote on important matters of the issuing company, including the selection of directors, and may receive dividends on their holdings. A Fund participates in the success or
failure of any company in which it holds common stock. In the event a company is liquidated or declares bankruptcy, the claims of bondholders, other debt holders, owners of preferred stock and general creditors take precedence over the claims of
those who own common stock.
The prices of common stocks change in response to many factors including the historical and prospective
earnings of the issuing company, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
3
Preferred Stock.
Preferred stock, unlike common stock, often offers a specified dividend
rate payable from a company’s earnings. Preferred stock also generally has a preference over common stock on the distribution of a company’s assets in the event the company is liquidated or declares bankruptcy; however, the rights of
preferred stockholders on the distribution of a company’s assets in the event of a liquidation or bankruptcy are generally subordinate to the rights of the company’s debt holders and general creditors. If interest rates rise, the fixed
dividend on preferred stocks may be less attractive, causing the price of preferred stocks to decline.
Some fixed rate preferred stock
may have mandatory sinking fund provisions which provide for the stock to be retired or redeemed on a predetermined schedule, as well as call/redemption provisions prior to maturity, which can limit the benefit of any decline in interest rates that
might positively affect the price of preferred stocks. Preferred stock dividends may be “cumulative,” requiring all or a portion of prior unpaid dividends to be paid before dividends are paid on the issuer’s common stock. Preferred
stock may be “participating,” which means that it may be entitled to a dividend exceeding the stated dividend in certain cases. In some cases an issuer may offer auction rate preferred stock, which means that the interest to be paid is set
by auction and will often be reset at stated intervals.
Convertible Securities.
Invesco Asia Pacific Growth Fund may invest up to
20% of its total assets in securities exchangeable for or convertible into equity securities of Asia Pacific issuers. Each of Invesco Global Growth Fund and Invesco Global Small & Mid Cap Growth Fund may invest up to 20% of its total assets
in securities exchangeable for or convertible into equity securities of foreign and domestic issuers. Invesco European Growth Fund may invest up to 20% of its total assets in securities exchangeable for or convertible into equity securities of
European issuers. Each of Invesco International Growth Fund and Invesco International Core Equity Fund may invest up to 20% of its total assets in securities exchangeable for or convertible into marketable equity securities of foreign issuers.
Invesco Global Opportunities Fund may invest up to 100% of its total assets in securities exchangeable for or convertible into marketable equity securities of foreign issuers. Invesco Select Opportunities Fund may invest up to 10% of its total
assets in securities exchangeable for or convertible into marketable equity securities of foreign issuers. Convertible securities are generally bonds, debentures, notes, preferred stocks or other securities or investments that may be converted or
exchanged (by the holder or by the issuer) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio or predetermined price (the conversion price). A convertible security is designed to provide
current income and also the potential for capital appreciation through the conversion feature, which enables the holder to benefit from increases in the market price of the underlying common stock. A convertible security may be called for redemption
or conversion by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue. If a convertible security held by a Fund is called for redemption or conversion, the Fund could be required to
tender it for redemption, convert it into the underlying common stock, or sell it to a third party, which may have an adverse effect on the Fund’s ability to achieve its investment objectives. Convertible securities have general characteristics
similar to both debt and equity securities.
A convertible security generally entitles the holder to receive interest paid or accrued
until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities have characteristics similar to non-convertible debt obligations and are designed to provide for a stable stream of income with
generally higher yields than common stocks. However, there can be no assurance of current income because the issuers of the convertible securities may default on their obligations. Convertible securities rank senior to common stock in a
corporation’s capital structure and, therefore, generally entail less risk than the corporation’s common stock. Convertible securities are subordinate in rank to any senior debt obligations of the issuer, and, therefore, an issuer’s
convertible securities entail more risk than its debt obligations. Moreover, convertible securities are often rated below investment grade or not rated because they fall below debt obligations and just above common stock in order of preference or
priority on an issuer’s balance sheet. To the extent that a Fund invests in convertible securities with credit ratings below investment grade, such securities may have a higher likelihood of default, although this may be somewhat offset by the
convertibility feature.
4
Convertible securities generally offer lower interest or dividend yields than non-convertible
debt securities of similar credit quality because of the potential for capital appreciation. The common stock underlying convertible securities may be issued by a different entity than the issuer of the convertible securities.
The value of convertible securities is influenced by both the yield of non-convertible securities of comparable issuers and by the value of
the underlying common stock. The value of a convertible security viewed without regard to its conversion feature (i.e., strictly on the basis of its yield) is sometimes referred to as its “investment value.” The investment value of the
convertible security typically will fluctuate based on the credit quality of the issuer and will fluctuate inversely with changes in prevailing interest rates. However, at the same time, the convertible security will be influenced by its
“conversion value,” which is the market value of the underlying common stock that would be obtained if the convertible security were converted. Conversion value fluctuates directly with the price of the underlying common stock, and will
therefore be subject to risks relating to the activities of the issuer and general market and economic conditions. Depending upon the relationship of the conversion price to the market value of the underlying security, a convertible security may
trade more like an equity security than a debt instrument.
If, because of a low price of the common stock, the conversion value is
substantially below the investment value of the convertible security, the price of the convertible security is governed principally by its investment value. Generally, if the conversion value of a convertible security increases to a point that
approximates or exceeds its investment value, the value of the security will be principally influenced by its conversion value. A convertible security will sell at a premium over its conversion value to the extent investors place value on the right
to acquire the underlying common stock while holding an income-producing security.
While a Fund uses the same criteria to rate a
convertible debt security that is uses to rate a more conventional debt security, a convertible preferred stock is treated like a preferred stock for the Fund’s financial reporting, credit rating and investment limitation purposes.
Alternative Entity Securities.
The Funds may invest in alternative entity securities, which are the securities of entities that are
formed as limited partnerships, limited liability companies, business trusts or other non-corporate entities that are similar to common or preferred stock of corporations.
Foreign Investments
Foreign Securities.
Each Fund may invest in foreign securities.
Foreign securities are equity or debt securities issued by issuers outside the U.S., and include securities in the form of American Depositary
Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other securities representing underlying securities of foreign issuers (foreign securities). ADRs are receipts, issued by U.S. banks, for the shares of
foreign corporations, held by the bank issuing the receipt. ADRs are typically issued in registered form, denominated in U.S. dollars and designed for use in the U.S. securities markets. GDRs are bank certificates issued in more than one country for
shares in a foreign company. The shares are held by a foreign branch of an international bank. GDRs trade as domestic shares but are offered for sale globally through the various bank branches. GDRs are typically used by private markets to raise
capital denominated in either U.S. dollars or foreign currencies. EDRs are similar to ADRs and GDRs, except they are typically issued by European banks or trust companies, denominated in foreign currencies and designed for use outside the U.S.
securities markets. ADRs and EDRs entitle the holder to all dividends and capital gains on the underlying foreign securities, less any fees paid to the bank. Purchasing ADRs or EDRs gives a Fund the ability to purchase the functional equivalent of
foreign securities without going to the foreign securities markets to do so. ADRs or EDRs that are “sponsored” are those where foreign corporation whose shares are represented by the ADR or EDR is actively involved in the issuance of the
ADR or EDR, and generally provides material information about the corporation to the U.S. market. An “unsponsored” ADR or EDR program is one where the foreign corporation whose shares are held by the bank is not obligated to disclose
material information in the United States, and, therefore, the market value of the ADR or EDR may not reflect important facts known only to the foreign company.
5
Foreign debt securities include corporate debt securities of foreign issuers, certain foreign
bank obligations (see Bank Instruments) and U.S. dollar or foreign currency denominated obligations of foreign governments or their subdivisions, agencies and instrumentalities (see Foreign Government Obligations), international agencies and
supranational entities.
The Funds consider various factors when determining whether a company is in a particular country or
region/continent, including whether (1) it is organized under the laws of a country or in a country in a particular region/continent; (2) it has a principal office in a country or in a country in a particular region/continent; (3) it
derives 50% or more of its total revenues from businesses in a country or in a country in a particular region/continent; and/or (4) its securities are traded principally on a stock exchange, or in an over-the-counter (OTC) market, in a
particular country or in a country in a particular region/continent.
Investments by a Fund in foreign securities, including ADRs and
EDRs, whether denominated in U.S. dollars or foreign currencies, may entail all of the risks set forth below in addition to those accompanying an investment in issuers in the U.S.
Currency Risk
. The value in U.S. Dollars of the Fund’s non-dollar denominated foreign investments will be affected by changes in
currency exchange rates. The U.S. dollar value of a foreign security decreases when the value of the U.S. dollar rises against the foreign currency in which the security is denominated and increases when the value of the U.S. dollar falls against
such currency.
Political and Economic Risk
. The economies of many of the countries in which the Funds may invest may not be as
developed as that of the United States’ and may be subject to significantly different forces. Political, economic or social instability and development, expropriation or confiscatory taxation, and limitations on the removal of funds or other
assets could also adversely affect the value of the Funds’ investments.
Regulatory Risk
. Foreign companies are generally
not subject to the regulatory controls imposed on U.S. issuers and, as a consequence, there is generally less publicly available information about foreign securities than is available about domestic securities. Foreign companies may not be subject
to uniform accounting, auditing and financial reporting standards, corporate governance practices and requirements comparable to those applicable to domestic companies. Therefore, financial information about foreign companies may be incomplete, or
may not be comparable to the information available on U.S. companies. Income from foreign securities owned by the Funds may be reduced by a withholding tax at the source, which tax would reduce dividend income payable to the Funds’
shareholders.
There is generally less government supervision and regulation of securities exchanges, brokers, dealers, and listed
companies in foreign countries than in the U.S., thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Foreign markets may also have different clearance and settlement procedures.
If a Fund experiences settlement problems it may result in temporary periods when a portion of the Fund’s assets are uninvested and could cause the Fund to miss attractive investment opportunities or a potential liability to the Fund arising
out of the Fund’s inability to fulfill a contract to sell such securities.
Market Risk
. Investing in foreign markets
generally involves certain risks not typically associated with investing in the United States. The securities markets in many foreign countries will have substantially lower trading volume than the United States markets. As a result, the securities
of some foreign companies may be less liquid and experience more price volatility than comparable domestic securities. Obtaining and/or enforcing judgments in foreign countries may be more difficult, which may make it more difficult to enforce
contractual obligations. Increased custodian costs as well as administrative costs (such as the need to use foreign custodians) may also be associated with the maintenance of assets in foreign jurisdictions. In addition, transaction costs in foreign
securities markets are likely to be higher, since brokerage commission rates in foreign countries are likely to be higher than in the United States.
6
Risks of Developing/Emerging Markets Countries
. Invesco Asia Pacific Growth Fund may
invest up to 100% of its net assets in securities of companies located in developing and emerging markets countries. Invesco Global Small & Mid Cap Growth Fund and Invesco European Growth Fund may each invest up to 35%, and Invesco Global
Growth Fund and Invesco International Core Equity Fund may each invest up to 20%, of their respective net assets in securities of companies located in developing and emerging markets countries. Invesco International Growth Fund may invest up to 1.25
times the amount of exposure to emerging market countries in the MSCI ACWI ex USA Growth Index. Invesco Global Opportunities Fund and Invesco Select Opportunities Fund may each invest up to 100% of their respective net assets in securities of
companies located in developing and emerging markets countries.
Unless a Fund’s prospectus includes a different definition, the
Funds consider developing and emerging markets countries to be those countries that are not included in the MCSI World Index.
Investments
in developing/emerging markets countries present risks in addition to, or greater than, those presented by investments in foreign issuers generally, and may include the following risks:
i. Restriction, to varying degrees, on foreign investment in stocks;
ii. Repatriation of investment income, capital, and the proceeds of sales in foreign countries may require foreign governmental registration
and/or approval;
iii. Greater risk of fluctuation in value of foreign investments due to changes in currency exchange rates, currency
control regulations or currency devaluation;
iv. Inflation and rapid fluctuations in inflation rates may have negative effects on the
economies and securities markets of certain developing and emerging market countries;
v. Many of the developing and emerging markets
countries’ securities markets are relatively small or less diverse, have low trading volumes, suffer periods of relative illiquidity, and are characterized by significant price volatility; and
vi. There is a risk in developing and emerging markets countries that a future economic or political crisis could lead to price controls,
forced mergers of companies, expropriation or confiscatory taxation, seizure, nationalization, or creation of government monopolies.
Foreign Government Obligations.
Each Fund may invest in debt securities of foreign governments. Debt securities issued by foreign
governments are often, but not always, supported by the full faith and credit of the foreign governments, or their subdivisions, agencies or instrumentalities, that issue them. These securities involve the risks discussed above under Foreign
Securities. Additionally, the issuer of the debt or the governmental authorities that control repayment of the debt may be unwilling or unable to pay interest or repay principal when due. Political or economic changes or the balance of trade may
affect a country’s willingness or ability to service its debt obligations. Periods of economic uncertainty may result in the volatility of market prices of sovereign debt obligations, especially debt obligations issued by the governments of
developing countries. Foreign government obligations of developing countries, and some structures of emerging market debt securities, both of which are generally below investment grade, are sometimes referred to as “Brady Bonds.” The
failure of a sovereign debtor to implement economic reforms, achieve specified levels of economic performance, or repay principal or interest when due may result in the cancellation of third-party commitments to lend funds to the sovereign debtor,
which may impair the debtor’s ability or willingness to service its debts.
Foreign Exchange Transactions.
Each Fund that may
invest in foreign currency-denominated securities has the authority to purchase and sell put on call options on foreign currencies (foreign currency options), foreign currency futures contracts and related options, currency-related swaps and
7
may engage in foreign currency transactions either on a spot (i.e., for prompt delivery and settlement) basis at the rate prevailing in the currency exchange market at the time or through forward
foreign currency contracts (see “Forward Foreign Currency Contracts”). Because forward foreign currency contracts and currency-related swap contracts are privately negotiated transactions, there can be no assurance that a counterparty will
honor its obligations.
The Funds will incur costs in converting assets from one currency to another. Foreign exchange dealers may
charge a fee for conversion. In addition, dealers may realize a profit based on the difference between the prices at which they buy and sell various currencies in the spot and forward markets.
A Fund will generally engage in foreign exchange transactions in order to complete a purchase or sale of foreign currency denominated
securities. The Funds may also use foreign currency ptions, forward foreign contracts and currency-related swap contracts to increase or reduce exposure to a foreign currency, to shift exposure from one foreign currency to another in a cross
currency hedge or to enhance returns. These transactions are intended to minimize the risk of loss due to a decline in the value of the hedged currencies; however, at the same time, they tend to limit any potential gain which might result should the
value of such currencies increase. Open positions in forward contracts used for non-hedging purposes will be covered by the segregation of a sufficient amount of liquid assets.
A Fund may purchase and write foreign currency options in connection with foreign currency futures or forward foreign currency contracts.
Foreign currency contracts are similar to forward currency exchange contracts, except that they are traded on exchanges and have standard contract sizes and delivery dates. Most currency futures contracts call for payment or delivery in U.S.
dollars. The uses and risks of foreign currency futures are similar to those of futures relating to securities or indices (see Futures Contracts). Foreign currency futures contracts values can be expected to correlate with exchange rates but may not
reflect other factors that affect the value of the Fund’s investments.
Whether or not any hedging strategy will be successful
is highly uncertain, and use of hedging strategies may leave a Fund in a less advantageous position than if a hedge had not been established. Moreover, it is impossible to forecast with precision the market value of portfolio securities at the
expiration of a foreign currency forward contract. Accordingly, a Fund may be required to buy or sell additional currency on the spot market (and bear the expense of such transaction) if Invesco’s or the Sub-Advisers’ predictions regarding
the movement of foreign currency or securities markets prove inaccurate.
Certain Funds may hold a portion of their assets in bank
deposits denominated in foreign currencies, so as to facilitate investment in foreign securities as well as protect against currency fluctuations and the need to convert such assets into U.S. dollars (thereby also reducing transaction costs). To the
extent these monies are converted back into U.S. dollars, the value of the assets so maintained will be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations. Foreign exchange transactions
may involve some of the risks of investments in foreign securities. For a discussion of tax considerations relating to foreign currency transactions, see “Dividends, Distributions, and Tax Matters — Tax Matters — Tax Treatment of
Portfolio Transactions — Foreign currency transactions.”
Exchange-Traded Funds
Exchange-Traded Funds.
Each Fund may purchase shares of exchange-traded funds (ETFs). Most ETFs are registered under the 1940 Act as
investment companies. Therefore, a Fund’s purchase of shares of an ETF may be subject to the restrictions on investments in other investment companies discussed under “Other Investment Companies.” ETFs have management fees, which
increase their cost. The Funds may invest in ETFs advised by Invesco PowerShares Capital Management LLC (PowerShares). Invesco, the Sub-Advisers and PowerShares are affiliates of each other as they are all indirect wholly-owned subsidiaries of
Invesco Ltd.
8
ETFs hold portfolios of securities, commodities and/or currencies that are designed to
replicate, as closely as possible before expenses, the price and/or yield of (i) a specified market or other index, (ii) a basket of securities, commodities or currencies, or (iii) a particular commodity or currency. The performance
results of ETFs will not replicate exactly the performance of the pertinent index, basket, commodity or currency due to transaction and other expenses, including fees to service providers, borne by ETFs. Furthermore, there can be no assurance that
the portfolio of securities, commodities and/or currencies purchased by an ETF will replicate a particular index or basket or price of a commodity or currency. Some ETFs are actively managed and instead of replicating, they seek to outperform a
particular index or basket or price of a commodity or currency. ETF shares are sold and redeemed at net asset value only in large blocks called creation units and redemption units, respectively. ETF shares also may be purchased and sold in secondary
market trading on national securities exchanges, which allows investors to purchase and sell ETF shares at their market price throughout the day.
Investments in ETFs generally present the same primary risks as an investment in a conventional mutual fund that has the same investment
objective, strategy and policies. Investments in ETFs further involve the same risks associated with a direct investment in the commodity or currency, or in the types of securities, commodities and/or currencies included in the indices or baskets
the ETFs are designed to replicate. In addition, shares of an ETF may trade at a market price that is higher or lower than their net asset value and an active trading market in such shares may not develop or continue. Moreover, trading of an
ETF’s shares may be halted if the listing exchange’s officials deem such action to be appropriate, the shares are de-listed from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases
in stock prices) halts stock trading generally.
Debt Investments
Each of Invesco Asia Pacific Growth Fund, Invesco European Growth Fund, Invesco International Core Equity Fund and Invesco International Growth
Fund may also invest up to 20% of its assets in high-grade short-term securities and debt securities including U.S. Government obligations and investment grade corporate bonds, whether denominated in U.S. dollars or foreign currencies.
Each of Invesco Global Small & Mid Cap Growth Fund and Invesco Global Growth Fund may also invest up to 35% of its assets in
high-grade short-term securities and debt securities, including U.S. Government obligations and investment grade corporate bonds, whether denominated in U.S. dollars or foreign currencies.
Invesco Select Opportunities Fund may invest up to 10% of its net assets in fixed-income securities such as investment-grade debt securities
and longer-term U.S. Government securities.
U.S. Government Obligations.
Each Fund may invest in U.S. Government obligations,
which include obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities, including bills, notes and bonds issued by the U.S. Treasury, as well as “stripped” or “zero coupon” U.S. Treasury
obligations.
U.S. Government obligations may be (i) supported by the full faith and credit of the U.S. Treasury,
(ii) supported by the right of the issuer to borrow from the U.S. Treasury, (iii) supported by the discretionary authority of the U.S. Government to purchase the agency’s obligations, or (iv) supported only by the credit of the
instrumentality. There is a risk that the U.S. Government may choose not to provide financial support to U.S. Government-sponsored agencies Fund or instrumentalities if it is not legally obligated to do so. In that case, if the issuer were to
default, a holding securitie of such issuer might not be able to recover its investment from the U.S. Government. For example, while the U.S. Government has recently provided financial support to Federal National Mortgage Association (Fannie Mae)
and Federal Home Loan Mortgage Corporation (Freddie Mac), no assurance can be given that the U.S. Government will always do so, since the U.S. Government is not so obligated by law. There also is no guarantee that the government would support
Federal Home Loan Banks. Accordingly, securities of Fannie Mae, Freddie Mac and Federal Home Loan Banks, and other agencies, may involve a risk of non-payment of principal and interest. Any downgrade of the credit rating of the securities issues by
the U.S. government may result in a downgrade of securities issued by its agencies or instrumentalities, including government-sponsored entities.
9
Temporary Investments.
Each Fund may invest a portion of its assets in affiliated
money market funds or in the types of money market instruments in which those Funds would invest or other short-term U.S. government securities for cash management purposes. Each Fund may invest up to 100% of its assets in investments that may be
inconsistent with the Fund’s principal investment strategies for temporary defensive purposes in anticipation of or in response to adverse market, economic, political or other conditions, or atypical circumstances such as unusually large cash
inflows or redemptions. As a result, the Fund may not achieve its investment objective.
Investment Grade Debt Obligations.
Each Fund may invest in U.S. dollar-denominated debt obligations issued or guaranteed by U.S. corporations or U.S. commercial banks, U.S. dollar-denominated obligations of foreign issuers and debt obligations of foreign issuers denominated in
foreign currencies. Debt obligations include, among others, bonds, notes, debentures and variable rate demand notes.
The Adviser
considers investment grade securities to include: (i) securities rated BBB-or higher by Standards & Poor’s Ratings Services (S&P) or Baa3 or higher by Moody’s Investors Services, Inc. (Moody’s) or an equivalent
rating by another nationally recognized statistical rating organization (NRSRO), or (ii) securities with comparable short-term ratings; or (iii) unrated securities determined by the Adviser to be of comparable quality at the time of
purchase. The description of debt securities ratings may be found in Appendix A.
In choosing corporate debt securities on behalf of
a Fund, portfolio managers may consider:
i. general economic and financial conditions;
ii. the specific issuer’s (a) business and management, (b) cash flow, (c) earnings coverage of interest and dividends,
(d) ability to operate under adverse economic conditions, (e) fair market value of assets, and, (f) in the case of foreign issuers, unique political, economic or social conditions applicable to such issuer’s country; and,
iii. other considerations deemed appropriate.
Debt securities are subject to a variety of risks, such as interest rate risk, income risk, prepayment risk, inflation risk, credit risk,
currency risk and default risk.
Non-Investment Grade Debt Obligations (Junk Bonds).
Each Fund may invest in lower-rated or
non-rated debt securities commonly known as junk bonds. Invesco Select Opportunities Fund may invest up to 5% of its total assets in lower-rated or non-rated debt securities commonly known as junk bonds.
Bonds rated below investment grade (as defined above in “Investment Grade Debt Obligations”) are commonly referred to as “junk
bonds.” Analysis of the creditworthiness of junk bond issuers is more complex than that of investment-grade issuers and the success of the Adviser in managing these decisions is more dependent upon its own credit analysis than is the case with
investment-grade bonds. Descriptions of debt securities ratings are found in Appendix A.
The capacity of junk bonds to pay interest and
repay principal is considered speculative. While junk bonds may provide an opportunity for greater income and gains, they are subject to greater risks than higher-rated debt securities. The prices of and yields on junk bonds may fluctuate to a
greater extent than those of higher-rated debt securities. Junk bonds are generally more sensitive to individual issuer developments, economic conditions and regulatory changes than higher-rated bonds. Issuers of junk bonds are often smaller,
less-seasoned companies or companies that are highly leveraged with more traditional methods of financing unavailable to them. Junk bonds are generally at a higher risk of default because such issues are often unsecured or otherwise subordinated to
claims of the issuer’s other creditors. If a junk bond issuer defaults, a Fund may incur additional expenses to seek recovery. The
10
secondary markets in which junk bonds are traded may be thin and less liquid than the market for higher-rated debt securities and a Fund may have difficulty selling certain junk bonds at the
desired time and price. Less liquidity in secondary trading markets could adversely affect the price at which a Fund could sell a particular junk bond, and could cause large fluctuations in the net asset value of that Fund’s shares. The lack of
a liquid secondary market may also make it more difficult for a Fund to obtain accurate market quotations in valuing junk bond assets and elements of judgment may play a greater role in the valuation.
Other Investments
Real Estate Investment Trusts (REITs).
Each Fund may invest in equity interests and/or debt obligations issued by REITs.
REITs are trusts that sell equity or debt securities to investors and use the proceeds to invest in real estate or interests therein. Equity
REITs invest the majority of their assets directly in real property and derive income primarily from the collection of rents. Equity REITs can also realize capital gains by selling property that has appreciated in value. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive income from the collection of interest payments.
Investments in REITS may be
subject to many of the same risks as direct investments in real estate. These risks include difficulties in valuing and trading real estate, declines in the value of real estate, risks related to general and local economic conditions, adverse
changes in the climate for real estate, environmental liability risks, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, limitations on rents, changes in neighborhood values, the appeal of
properties to tenants, heavy cash flow dependency and increases in interest rates. To the extent that a Fund invests in REITs, the Fund could conceivably own real estate directly as a result of a default on the REIT interests or obligations it owns.
In addition to the risks of direct real estate investment described above, equity REITs may be affected by any changes in the value of
the underlying property owned by the trusts, while mortgage REITs may be affected by the quality of any credit extended. REITs are also subject to the following risks: they are dependent upon management skill and on cash flows; are not diversified;
are subject to defaults by borrowers, self-liquidation, and the possibility of failing to maintain an exemption from the 1940 Act; and are subject to interest rate risk. A Fund that invests in REITs will bear a proportionate share of the expenses of
the REITs.
Other Investment Companies.
Unless otherwise indicated in this SAI or a Fund’s prospectus, each Fund may
purchase shares of other investment companies, including ETFs. For each Fund, the 1940 Act imposes the following restrictions on investments in other investment companies: (i) a Fund may not purchase more than 3% of the total outstanding voting
stock of another investment company; (ii) a Fund may not invest more than 5% of its total assets in securities issued by another investment company; and (iii) a Fund may not invest more than 10% of its total assets in securities issued by
other investment companies. The 1940 Act and related rules provide certain exemptions from these restrictions. These restrictions do not apply to investments by the Funds in investment companies that are money market funds, including money market
funds that have Invesco or an affiliate of Invesco as an investment adviser (the Affiliated Money Market Funds).
When a Fund
purchases shares of another investment company, including an Affiliated Money Market Fund, the Fund will indirectly bear its proportionate share of the advisory fees and other operating expenses of such investment company and will be subject to the
risks associated with the portfolio investments of the underlying investment company.
11
Privatizations.
Each Fund may invest in privatizations.
The governments of certain foreign countries have, to varying degrees, embarked on privatization programs to sell part or all of their
interests in government owned or controlled companies or enterprises (privatizations). A Fund’s investments in such privatizations may include: (i) privately negotiated investments in a government owned or controlled company or enterprise;
(ii) investments in the initial offering of equity securities of a government owned or controlled company or enterprise; and (iii) investments in the securities of a government owned or controlled company or enterprise following its
initial equity offering.
In certain foreign countries, the ability of foreign entities such as a Fund to participate in
privatizations may be limited by local law, or the terms on which the Fund may be permitted to participate may be less advantageous than those for local investors. There can be no assurance that foreign governments will continue to sell companies
and enterprises currently owned or controlled by them, that privatization programs will be successful, or that foreign governments will not re-nationalize companies or enterprises that have been privatized. If large blocks of these enterprises are
held by a small group of stockholders the sale of all or some portion of these blocks could have an adverse effect on the price.
Participation Notes.
The Funds may invest in participation notes. Participation notes, also known as participation certificates, are
issued by banks or broker-dealers and are designed to replicate the performance of foreign companies or foreign securities markets and can be used by a Funds as an alternative means to access the securities market of a country. Participation notes
are generally traded OTC. The performance results of participation notes will not replicate exactly the performance of the foreign company or foreign securities market that they seek to replicate due to transaction and other expenses. Investments in
participation notes involve the same risks associated with a direct investment in the underlying foreign companies or foreign securities market that they seek to replicate. In addition, participation notes are subject to counterparty risk, currency
risk, and reinvestment risk. Counterparty risk is the risk that the broker-dealer or bank that issues them will not fulfill its contractual obligation to complete the transaction with the Fund. Participation notes constitute general unsecured
contractual obligations of the banks or broker-dealers that issue them, and a Fund is relying on the creditworthiness of such banks or broker-dealers and has no rights under a participation note against the issuer of the underlying assets.
Additionally, there is a currency risk since the dollar value of the Fund’s foreign investments will be affected by changes in the exchange rates between the dollar and (a) the currencies in which the notes are denominated, such euro
denominated participation notes, and (b) the currency of the country in which a foreign company sits. Also, there is a reinvestment risk because the amounts from the note may be reinvested in a less valuable investment when the note matures.
Investment Techniques
Forward Commitments, When-Issued and Delayed Delivery Securities.
Each Fund may purchase or sell securities on a forward commitment,
when-issued or delayed-delivery basis.
Forward commitments, when-issued or delayed-delivery basis involve delivery and payment that
take place in the future after the date of the commitment to purchase or sell the securities at a pre-determined price and/or yield. Settlement of such transactions normally occurs a month or more after the purchase or sale commitment is made.
Typically, no interest accrues to the purchaser until the security is delivered. Forward commitments also include “To be announced” (TBA) synethetic securities, which are contracts for the purchase or sale of mortgage-backed securities to
be delivered at a future agreed upon date, whereby the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. A Fund may also enter
into buy/sell back transactions (a form of delayed delivery agreement). In a buy/sell back transaction, a Fund enters a trade to sell securities at one price and simultaneously enters a trade to buy the same securities at another price for
settlement at a future date. Although a Fund generally intends to acquire or dispose of securities on a forward commitment, when-issued or delayed-delivery basis, a Fund may sell these securities or its commitment before the settlement date if
deemed advisable.
12
When purchasing a security on a forward commitment, when-issued or delayed-delivery basis, a
Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuation, and takes such fluctuations into account when determining its net asset value. Securities purchased on a forward commitment,
when-issued or delayed-delivery basis are subject to changes in value based upon the public’s perception of the creditworthiness of the issuer and changes, real or anticipated, in the level of interest rates. Accordingly, securities acquired on
such a basis may expose a Fund to risks because they may experience such fluctuations prior to actual delivery. Purchasing securities on a forward commitment, when-issued or delayed - delivery basis may involve the additional risk that the yield
available in the market when the delivery takes place actually may be higher than that obtained in the transaction itself.
Investment in
these types of securities may increase the possibility that a Fund will incur short-term gains subject to federal taxation or short-term losses if the Fund must engage in portfolio transactions in order to honor its commitment. Until the settlement
date, a Fund will segregate liquid assets of a dollar value sufficient at all times to make payment for the forward commitment, when-issued or delayed delivery transactions. Such segregated liquid assets will be marked-to-market daily, and the
amount segregated will be increased if necessary to maintain adequate coverage of the delayed delivery commitments. No additional forward, when-issued or delayed delivery commitments will be made by a Fund if, as a result, more than 25% of the
Fund’s total assets would become so committed. The delayed delivery securities, which will not begin to accrue interest or dividends until the settlement date, will be recorded as an asset of a Fund and will be subject to the risk of market
fluctuation. The purchase price of the delayed delivery securities is a liability of a Fund until settlement.
Short Sales.
A Fund
may engage in short sales and may also make short sales against the box. The Funds do not currently intend to engage in short sales other than short sales against the box
A short sale involves the sale of a security which a Fund does not own in the hope of purchasing the same security at a later date at a lower
price. To make delivery to the buyer, a Fund must borrow the security from a broker. The Fund normally closes a short sale by purchasing an equivalent number of shares of the borrowed security on the open market and delivering them to the broker. A
short sale is typically affected when the Adviser believes that the price of a particular security will decline. Open short positions using options, futures, swaps or forward foreign currency contracts are not deemed to constitute selling securities
short.
To secure its obligation to deliver the securities sold short to the broker, a Fund will be required to deposit cash or
liquid securities with the broker. In addition, the Fund may have to pay a premium to borrow the securities, and while the loan of the security sold short is outstanding, the Fund is required to pay to the broker the amount of any dividends paid on
shares sold short. In addition to maintaining collateral with the broker, a Fund will set aside an amount of cash or liquid securities equal to the difference, if any, between the current market value of the securities sold short and any cash or
liquid securities deposited as collateral with the broker-dealer in connection with the short sale. The collateral will be marked to market daily. The amounts deposited with the broker or segregated with the custodian do not have the effect of
limiting the amount of money that the Fund may lose on a short sale. Short sale transactions covered in this manner are not considered senior securities and are not subject to the Fund’s fundamental investment limitations on senior securities
and borrowings.
Short positions create a risk that a Fund will be required to cover them by buying the security at a time when the
security has appreciated in value, thus resulting in a loss to the Fund. A short position in a security poses more risk than holding the same security long. Because a short position loses value as the security’s price increases, the loss on a
short sale is theoretically unlimited. The loss on a long position is limited to what the Fund originally paid for the security together with any transaction costs. The Fund may not always be able to borrow a security the Fund seeks to sell short at
a particular time or at an acceptable price. It is possible that the market value of the securities the Fund holds in long positions will decline at the same time that the market value of the securities the Fund has sold short increases, thereby
increasing the Fund’s potential volatility. Because the Fund may be required to pay dividends, interest, premiums and other expenses in connection with a short sale, any benefit for the Fund resulting from the short sale will be decreased, and
the amount of any ultimate gain or loss will be decreased or increased, respectively, by the amount of such expenses.
13
A Fund may also enter into short sales against the box. Short sales against the box are short
sales of securities that a Fund owns or has the right to obtain (equivalent in kind or amount to the securities sold short). If a Fund enters into a short sale against the box, it will be required to set aside securities equivalent in kind and
amount to the securities sold short (or securities convertible or exchangeable into such securities) and will be required to hold such securities while the short sale is outstanding. The Fund will incur transaction costs including interest expenses,
in connection with opening, maintaining, and closing short sales against the box.
Short sales against the box result in a
“constructive sale” and require a Fund to recognize any taxable gain unless an exception to the constructive sale applies. See “Dividends, Distributions and Tax Matters — Tax Matters — Tax Treatments of Portfolio
Transactions — options, futures, forward contracts, swap agreements and hedging transactions.”
Margin Transactions.
None of the Funds will purchase any security on margin, except that each Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of portfolio securities. The payment by a Fund of initial or variation
margin in connection with futures, swaps or related options transactions will not be considered the purchase of a security on margin.
Interfund Loans.
The Securities and Exchange Commission (SEC) has issued an exemptive order permitting the Invesco Funds to borrow
money from and lend money to each other for temporary or emergency purposes. The Invesco Funds’ interfund lending program is subject to a number of conditions, including the requirements that: (1) an interfund loan generally will occur
only if the interest rate on the loan is more favorable to the borrowing fund than the interest rate typically available from a bank for a comparable transaction and the rate is more favorable to the lending fund than the rate available on overnight
repurchase transactions; (2) an Invesco Fund may not lend more than 15% of its net assets through the program (measured at the time of the last loan); and (3) an Invesco Fund may not lend more than 5% of its net assets to another Invesco
Fund through the program (measured at the time of the loan). A Fund may participate in the program only if and to the extent that such participation is consistent with the Fund’s investment objective and investment policies. Interfund loans
have a maximum duration of seven days. Loans may be called with one day’s notice and may be repaid on any day.
Borrowing.
The Funds may borrow money to the extent permitted under the Fund Policies. Such borrowings may be utilized (i) for
temporary or emergency purposes; (ii) in anticipation of or in response to adverse market conditions; or, (iii) for cash management purposes. All borrowings are limited to an amount not exceeding 33 1/3% of a Fund’s total assets
(including the amount borrowed) less liabilities (other than borrowings). Any borrowings that exceed this amount will be reduced within three business days to the extent necessary to comply with the 33 1/3% limitation even if it is not advantageous
to sell securities at that time.
If there are unusually heavy redemptions, a Fund may have to sell a portion of its investment portfolio
at a time when it may not be advantageous to do so. Selling Fund securities under these circumstances may result in a lower net asset value per share or decreased dividend income, or both. Invesco and the Sub-Advisers believe that, in the event of
abnormally heavy redemption requests, a Fund’s borrowing ability would help to mitigate any such effects and could make the forced sale of their portfolio securities less likely.
The Funds may borrow from a bank, broker-dealer, or an Invesco Fund. Additionally, the Funds are permitted to temporarily carry a negative or
overdrawn balance in their account with their custodian bank. To compensate the custodian bank for such overdrafts, the Funds may either (i) leave Funds as a compensating balance in their account so the custodian bank can be compensated by
earning interest on such Funds; or (ii) compensate the custodian bank by paying it an agreed upon rate. A Fund may not purchase additional securities when any borrowings from banks or broker-dealers exceed 5% of the Fund’s total assets or
when any borrowings from an Invesco Fund are outstanding.
14
Lending Portfolio Securities.
Each Fund may lend its portfolio securities (principally
to broker-dealers) to generate additional income. Such loans are callable at any time and are continuously secured by segregated collateral equal to no less than the market value, determined daily, of the loaned securities. Such collateral will be
cash, letters of credit, or debt securities issued or guaranteed by the U.S. Government or any of its agencies. Each Fund may lend portfolio securities to the extent of one-third of its total assets. A Fund will loan its securities only to parties
that Invesco has determined are in good standing and when, in Invesco’s judgment, the income earned would justify the risks.
A
Fund will not have the right to vote securities while they are on loan, but it can call a loan in anticipation of an important vote. The Fund would receive income in lieu of dividends on loaned securities and may, at the same time, generate income
on the loan collateral or on the investment of any cash collateral.
If the borrower defaults on its obligation to return the
securities loaned because of insolvency or other reasons, a Fund could experience delays and costs in recovering securities loaned or gaining access to the collateral. If the Fund is not able to recover the securities loaned, the Fund may sell the
collateral and purchase a replacement security in the market. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the loaned securities increases and the collateral is not increased accordingly.
Any cash received as collateral for loaned securities will be invested, in accordance with a Fund’s investment guidelines, in
short-term money market instruments or Affiliated Money Market Funds. Investing this cash subjects that investment to market appreciation or depreciation. For purposes of determining whether a Fund is complying with its investment policies,
strategies and restrictions, the Fund will consider the loaned securities as assets of the Fund, but will not consider any collateral received as a Fund asset. The Fund will bear any loss on the investment of cash collateral.
For a discussion of tax considerations relating to lending portfolio securities, see “Dividends, Distributions and Tax Matters — Tax
Matters — Tax Treatment of Portfolio Transactions — Securities lending.”
Repurchase Agreements.
Each Fund may
engage in repurchase agreement transactions involving the types of securities in which it is permitted to invest. Repurchase agreements are agreements under which a Fund acquires ownership of a security from a broker-dealer or bank that agrees to
repurchase the security at a mutually agreed upon time and price (which is higher than the purchase price), thereby determining the yield during a Fund’s holding period. A Fund may enter into a “continuing contract” or
“open” repurchase agreement under which the seller is under a continuing obligation to repurchase the underlying securities from the Fund on demand and the effective interest rate is negotiated on a daily basis. Repurchase agreements may
be viewed as loans made by a Fund which are collateralized by the securities subject to repurchase.
If the seller of a repurchase
agreement fails to repurchase the security in accordance with the terms of the agreement, a Fund might incur expenses in enforcing its rights, and could experience a loss on the sale of the underlying security to the extent that the proceeds of the
sale including accrued interest are less than the resale price provided in the agreement, including interest. In addition, although the Bankruptcy Code and other insolvency laws may provide certain protections for some types of repurchase
agreements, if the seller of a repurchase agreement should be involved in bankruptcy or insolvency proceedings, a Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the value of the
underlying security declines. The securities underlying a repurchase agreement will be marked-to-market every business day so that the value of such securities is at least equal to the investment value of the repurchase agreement, including any
accrued interest thereon.
The Funds may invest their cash balances in joint accounts with other Invesco Funds for the purpose of
investing in repurchase agreements with maturities not to exceed 60 days, and in certain other money market instruments with remaining maturities not to exceed 90 days. Repurchase agreements are considered loans by a Fund under the 1940 Act.
15
Restricted and Illiquid Securities.
Each Fund may invest up to 15% of its net assets in
securities that are illiquid.
Illiquid securities are securities that cannot be disposed of within seven days in the normal course of
business at approximately the price at which they are valued. Illiquid securities may include a wide variety of investments, such as: (1) repurchase agreements maturing in more than seven days (unless the agreements have demand/redemption
features); (2) OTC options contracts and certain other derivatives (including certain swap agreements); (3) fixed time deposits that are not subject to prepayment or that provide for withdrawal penalties upon prepayment (other than
overnight deposits); (4) loan interests and other direct debt instruments; (5) municipal lease obligations; (6) commercial paper issued pursuant to Section 4(2) of the Securities Act of 1933, as amended (the 1933 Act); and
(7) securities that are unregistered, that can be sold to qualified institutional buyers in accordance with Rule 144A under the 1933 Act, or that are exempt from registration under the 1933 Act or otherwise restricted under the federal
securities laws.
Limitations on the resale of restricted securities may have an adverse effect on their marketability, which may
prevent a Fund from disposing of them promptly at reasonable prices. The Fund may have to bear the expense of registering such securities for resale, and the risk of substantial delays in effecting such registrations. A Fund’s difficulty
valuing and selling illiquid securities may result in a loss or be costly to the Fund.
If a substantial market develops for a restricted
security or other illiquid investment held by a Fund, it may be treated as a liquid security, in accordance with procedures and guidelines approved by the Board. While Invesco monitors the liquidity of restricted securities on a daily basis, the
Board oversees and retains ultimate responsibility for Invesco’s liquidity determinations. Invesco considers various factors when determining whether a security is liquid, including the frequency of trades, availability of quotations and number
of dealers or qualified institutional buyers in the market.
Rule 144A Securities.
Rule 144A securities are securities which,
while privately placed, are eligible for purchase and resale pursuant to Rule 144A under the 1933 Act. This Rule permits certain qualified institutional buyers, such as the Funds, to trade in privately placed securities even though such securities
are not registered under the 1933 Act. Invesco and/or Sub-Advisers, under the supervision of the Board, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund’s restriction on investment in illiquid
securities. Determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination Invesco and/or Sub-Advisers will consider the trading markets for the specific security taking into account the
unregistered nature of a Rule 144A security. In addition, Invesco and/or Sub-Advisers could consider the (i) frequency of trades and quotes; (ii) number of dealers and potential purchasers; (iii) dealer undertakings to make a market;
and (iv) nature of the security and of market place trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). Invesco and/or Sub-Advisers will also monitor the liquidity of
Rule 144A securities and, if as a result of changed conditions, Invesco and/or Sub-Advisers determines that a Rule 144A security is no longer liquid, Invesco and/or Sub-Advisers will review a Fund’s holdings of illiquid securities to determine
what, if any, action is required to assure that such Fund complies with its restriction on investment in illiquid securities. Investing in Rule 144A securities could increase the amount of each Fund’s investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
Reverse Repurchase Agreements.
Each Fund may engage
in reverse repurchase agreements.
Reverse repurchase agreements are agreements that involve the sale of securities held by a Fund to
financial institutions such as banks and broker-dealers, with an agreement that the Fund will repurchase the securities at an agreed upon price and date. During the reverse repurchase agreement period, the Fund continues to receive interest and
principal payments on the securities sold. A Fund may
16
employ reverse repurchase agreements (i) for temporary emergency purposes, such as to meet unanticipated net redemptions so as to avoid liquidating other portfolio securities during
unfavorable market conditions; (ii) to cover short-term cash requirements resulting from the timing of trade settlements; or (iii) to take advantage of market situations where the interest income to be earned from the investment of the
proceeds of the transaction is greater than the interest expense of the transaction.
Reverse repurchase agreements involve the risk
that the market value of securities to be purchased by a Fund may decline below the price at which the Fund is obligated to repurchase the securities, or that the other party may default on its obligation, so that the Fund is delayed or prevented
from completing the transaction. At the time the Fund enters into a reverse repurchase agreement, it will segregate, and maintain, liquid assets having a dollar value equal to the repurchase price. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, a Fund’s use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce
the Fund’s obligation to repurchase the securities. Reverse repurchase agreements are considered borrowings by a Fund under the 1940 Act.
Derivatives
A derivative is a financial instrument whose value is dependent upon the value of other assets, rates or indices, referred to as
“underlying reference assets .” These underlying reference assets may include commodities, stocks, bonds, interest rates, currency exchange rates or related indices. Derivatives include swaps, options, warrants, futures and forward foreign
currency contracts. Some derivatives, such as futures and certain options, are traded on U.S. exchanges, while other derivatives are privately negotiated and entered into the OTC market. In addition, the Dodd-Frank Wall Street and Consumer
Protection Act of 2010 (the Dodd–Frank Act) and implementing rules will ultimately require many types of swaps to be traded on public facilities.
Derivatives may be used for “hedging,” which means that they may be used when the portfolio manager seeks to protect the Fund’s
investments from a decline in value, which could result from changes in interest rates, market prices, currency fluctuations and other market factors. Derivatives may also be used when the portfolio manager seeks to increase liquidity, implement a
tax or cash management strategy, invest in a particular stock, bond or segment of the market in a more efficient or less expensive way, modify the characteristics of the Fund’s portfolio investments, for example, duration, and/or to enhance
return. However derivatives are used, their successful use is not assured and will depend upon, among other factors, the portfolio manager’s ability to predict and understand relevant market movements.
Because certain derivatives involve leverage, that is, the amount invested may be smaller than the full economic exposure of the derivative
instrument and a Fund could lose more than it invested, federal securities laws, regulations and guidance may require the Fund to earmark assets or to otherwise hold instruments that offset the Fund’s current obligations under the derivatives
instrument. This process is known as “cover.” A Fund will not enter into any derivative transaction unless it can comply with SEC guidance regarding cover, and, if SEC guidance so requires, a Fund will earmark cash or liquid assets with a
value at least sufficient to cover its current obligations under a derivative transaction or otherwise “cover” the transaction in accordance with applicable SEC guidance. If a large portion of a Fund’s assets is used for cover, it
could affect portfolio management or the Fund’s ability to meet redemption requests or other current obligations. The leverage involved in certain derivative transactions may result in a Fund’s net asset value being more sensitive to
changes in the value of the related investment.
Commodity Exchange Act (CEA) Exclusions and Regulation:
Exclusion of Adviser from commodity pool operator definition:
With respect to the Funds, Invesco has claimed an exclusion from the
definition of “commodity pool operator” (CPO) under the CEA and the rules of the Commodity Futures Trading Commission (CFTC) and, therefore, is not subject to CFTC registration or regulation as a CPO. In addition, Invesco is relying upon a
related exclusion from the definition of “commodity trading advisor” (CTA) under the CEA and the rules of the CFTC with respect to the Funds.
17
As of January 1, 2013, the terms of the CPO exclusion require the Funds, among other
things, to adhere to certain limits on its investments in “commodity interests.” Commodity interests include commodity futures, commodity options and swaps, which in turn include non-deliverable forwards, as further described below.
Because Invesco and the Funds intend to comply with the terms of the CPO exclusion, the Funds may, in the future, need to adjust their investment strategies, consistent with its investment objective, to limit its investments in these types of
instruments. The Funds are not intended as a vehicle for trading in the commodity futures, commodity options or swaps markets. The CFTC has neither reviewed nor approved Invesco’s reliance on these exclusions, or the Funds, their investment
strategies or this SAI.
Generally, the exclusion from CPO regulation on which Invesco relies requires the Funds to meet one of the
following tests for its commodity interest positions, other than positions entered into for bona fide hedging purposes (as defined in the rules of the CFTC): either (1) the aggregate initial margin and premiums required to establish the
Funds’ positions in commodity interests may not exceed 5% of the liquidation value of the Funds’ portfolio (after taking into account unrealized profits and unrealized losses on any such positions); or (2) the aggregate net notional
value of the Funds’ commodity interest positions, determined at the time the most recent such position was established, may not exceed the liquidation value of the Funds’ portfolio (after taking into account unrealized profits and
unrealized losses on any such positions). In addition to meeting one of these trading limitations, the Funds may not market themselves as commodity pools or otherwise as a vehicles for trading in the commodity futures, commodity options or swaps
markets. If, in the future, a Fund can no longer satisfy these requirements, Invesco would withdraw its notice claiming an exclusion from the definition of a CPO, and Invesco would be subject to registration and regulation as a CPO with respect to
the Fund. In that case, Invesco and the Fund would need to comply with all applicable CFTC disclosure, reporting, operational, and other regulations, which could increase Fund expenses.
General risks associated with derivatives:
The use by the Funds of derivatives may involve certain risks, as described below.
Counterparty Risk
: The risk that the counterparty under a derivatives agreement will not live up to its obligations, including because
of the counterparty’s bankruptcy or insolvency. Certain agreements may not contemplate delivery of collateral to support fully a counterparty’s contractual obligation; therefore, a Fund might need to rely on contractual remedies to satisfy
the counterparty’s full obligation. As with any contractual remedy, there is no guarantee that a Fund will be successful in pursuing such remedies, particularly in the event of the counterparty’s bankruptcy. The agreement may allow for
netting of the counterparty’s obligations with respect to a specific transaction, in which case a Fund’s obligation or right will be the net amount owed to or by the counterparty. The Fund will not enter into a derivative transaction with
any counterparty that Invesco and/or the Sub-Advisers believe does not have the financial resources to honor its obligations under the transaction. Invesco monitors the financial stability of counterparties. Where the obligations of the counterparty
are guaranteed, Invesco monitors the financial stability of the guarantor instead of the counterparty. If a counterparty’s creditworthiness declines, the value of the derivative would also likely decline, potentially resulting in losses to a
Fund.
A Fund will not enter into a transaction with any single counterparty if the net amount owed or to be received under existing
transactions under the agreements with that counterparty would exceed 5% of the Fund’s net assets determined on the date the transaction is entered into.
Leverage Risk
: Leverage exists when a Fund can lose more than it originally invests because it purchases or sells an instrument or
enters into a transaction without investing an amount equal to the full economic exposure of the instrument or transaction. A Fund segregates or earmarks assets or otherwise covers transactions that may give rise to leverage. Leverage may cause a
Fund to be more volatile because it may exaggerate the effect of any increase or decrease in the value of the Fund’s portfolio
18
securities. The use of some derivatives may result in economic leverage, which does not result in the possibility of a Fund incurring obligations beyond its initial investment, but that
nonetheless permits the Fund to gain exposure that is greater than would be the case in an unlevered instrument. The Funds do not segregate or otherwise cover investments in derivatives with economic leverage.
Liquidity Risk
: The risk that a particular derivative is difficult to sell or liquidate. If a derivative transaction is particularly
large or if the relevant market is illiquid, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses to a Fund.
Pricing Risk
: The risk that the value of a particular derivative does not move in tandem or as otherwise expected relative to the
corresponding underlying instruments.
Risks of Potential Increased Regulation of Derivatives
: The regulation of derivatives is
a rapidly changing area of law and is subject to modification by government and judicial action. In addition, the SEC, CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example,
the implementation or reduction of speculative position limits, the implementation of higher margin requirements, the establishment of daily price limits and the suspension of trading.
It is not possible to predict fully the effects of current or future regulation. However, it is possible that developments in government
regulation of various types of derivative instruments, such as speculative position limits on certain types of derivatives, or limits or restrictions on the counterparties with which the Funds engage in derivative transactions, may limit or prevent
a Fund from using or limit a Fund’s use of these instruments effectively as a part of its investment strategy, and could adversely affect a Fund’s ability to achieve its investment objective. Invesco will continue to monitor developments
in the area, particularly to the extent regulatory changes affect a Fund’s ability to enter into desired swap agreements. New requirements, even if not directly applicable to a Fund, may increase the cost of a Fund’s investments and cost
of doing business.
Tax Risks
: For a discussion of the tax considerations relating to derivative transactions, see
“Dividends, Distributions and Tax Matters — Tax Matters — Tax Treatment of Portfolio Transactions.”
General risks
of hedging strategies using derivatives:
The use by the Funds of hedging strategies involves special considerations and risks, as
described below.
Successful use of hedging transactions depends upon Invesco’s and the Sub-Advisers’ ability to predict
correctly the direction of changes in the value of the applicable markets and securities, contracts and/or currencies. While Invesco and the Sub-Advisers are experienced in the use of derivatives for hedging, there can be no assurance that any
particular hedging strategy will succeed.
In a hedging transaction, there might be imperfect correlation, or even no correlation, between
the price movements of an instrument used for hedging and the price movements of the investments being hedged. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as changing interest
rates, market liquidity, and speculative or other pressures on the markets in which the hedging instrument is traded.
Hedging
strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the investments being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting
the positive effect of favorable price movements in the hedged investments. Investors should bear in mind that no Fund is obligated to actively engage in hedging. For example, a Fund may not have attempted to hedge its exposure to a particular
foreign currency at a time when doing so might have avoided a loss.
19
Types of derivatives:
Swaps.
Each Fund may engage in certain strategies involving swaps to attempt to manage the risk of their investments or, in certain
circumstances, for investment purposes (e.g., as a substitute for investing in securities). All Funds may enter into swap agreements.
Generally, swap agreements are contracts between a Fund and another party (the counterparty) involving the exchange of payments on specified
terms over periods ranging from a few days to multiple years. A swap agreement may be negotiated bilaterally and traded OTC between the two parties (for an unclear swap) or, in some instances, must be transacted through a futures commission merchant
(FCM) and cleared through a clearing house that serves as a central counterparty (for a cleared swap). In a basic swap transaction, the Fund agrees with its counterparty to exchange the returns (or differentials in returns) earned or realized on a
particular asset such as an equity or debt security, commodity, currency or interest rate, calculated with respect to a “notional amount.” The notional amount is the set amount selected by the parties to use as the basis on which to
calculate the obligations that the parties to a swap agreement have agreed to exchange. The parties typically do not exchange the notional amount. Instead, they agree to exchange the returns that would be earned or realized if the notional amount
were invested in given investments or at given interest rates. Examples of returns that may be exchanged in a swap agreement are those of a particular security, a particular fixed or variable interest rate, a particular foreign currency, or a
“basket” of securities representing a particular index. Swap agreements can also be based on credit and other events. In some cases, such as cross currency swaps, the swap agreement may require delivery (exchange) of the entire notional
value of one designated currency for another designated currency.
New swaps regulation
. The Dodd-Frank Act and related regulatory
developments have imposed comprehensive new regulatory requirements on swaps and swap market participants. The new regulatory framework includes: (1) registration and regulation of swap dealers and major swap participants; (2) requiring
central clearing and execution of standardized swaps; (3) imposing margin requirements in swap transactions; (4) regulating and monitoring swap transactions through position limits and large trader reporting requirements; and
(5) imposing record keeping and centralized and public reporting requirements, on an anonymous basis, for most swaps. The CFTC is responsible for the regulation of most swaps, and has completed most of its rules implementing the Dodd-Frank Act
swap regulations. The SEC has jurisdiction over a small segment of the market referred to as “security-based swaps,” which includes swaps on single securities or credits, or narrow-based indices of securities or credits, but has not yet
completed its rulemaking.
Uncleared swaps.
In an uncleared swap, the swap counterparty is typically a brokerage firm, bank or
other financial institution. In the event that one party to the swap transaction defaults, one of the parties may be required to make an early termination payment to the other. Although early termination payments are typically made by the defaulting
party to the non-defaulting party, under certain circumstances (i.e., when the non-defaulting party is “in-the-money”) the non-defaulting party may be required to pay an early termination payment to the defaulting party. Early termination
payments may be calculated in various ways, but generally represent the amount that the non-defaulting party would have to pay to replace the swap as of the date of default.
During the term of an uncleared swap, a Fund is usually required to pledge to the swap counterparty, from time to time, an amount of cash
and/or other assets equal to the total net amount (if any) that would be payable by the Fund to the counterparty if the swap were terminated on the date in question, including any early termination payments. Periodically, changes in the amount
pledged are made to recognize changes in value of the contract resulting from, among other things, interest on the notional value of the contract, market value changes in the underlying investment, and/or dividends paid by the issuer of the
underlying instrument. Likewise, the counterparty may be required to pledge cash or other assets to cover its obligations to a Fund. However, the amount pledged may not always be equal to or more than the amount due to the other party. Therefore, if
a counterparty defaults in its obligations to a Fund, the amount pledged by the counterparty and available to the Fund may not be sufficient to cover all the amounts due to the Fund and the Fund may sustain a loss.
20
Uncleared swaps are not traded on exchanges. As a result, swap participants may not be as
protected as participants on organized exchanges. Performance of a swap agreement is the responsibility only of the swap counterparty and not of any exchange or clearinghouse.
Cleared Swaps.
Certain standardized swaps are subject to mandatory central clearing. Central clearing is intended to reduce
counterparty credit risk and increase liquidity, but central clearing does not make swap transactions risk-free. The Dodd-Frank Act and related regulatory developments will ultimately require the clearing and exchange-trading of many swaps.
Mandatory exchange-trading and clearing will occur on a phased-in basis based on the type of market participant and CFTC approval of contracts for central clearing. To date, the CFTC has designated only certain credit default swaps and certain
interest rate swaps as subject to mandatory clearing, but it is expected that additional categories of swaps will in the future be designated as subject to mandatory clearing.
In a cleared swap, a Fund’s ultimate counterparty is a central clearinghouse rather than a brokerage firm, bank or other financial
institution. The Fund initially will enter into cleared swaps through an executing broker. Such transactions will then be submitted for clearing and, if cleared, will be held at regulated FCMs that are members of the clearinghouse that serves as the
central counterparty. Cleared swaps are submitted for clearing immediately following execution of the transaction.
When a Fund enters
into a cleared swap, it must deliver to the central counterparty (via the FCM) an amount referred to as “initial margin.” Initial margin requirements are determined by the central counterparty, but an FCM may require additional initial
margin above the amount required by the central counterparty. During the term of the swap agreement, a “variation margin” amount may also be required to be paid by the Fund or may be received by the Fund in accordance with margin controls
set for such accounts, depending upon changes in the price of the underlying reference instrument subject to the swap agreement. At the conclusion of the term of the swap agreement, if the Fund has a loss equal to or greater than the margin amount,
the margin amount is paid to the FCM along with any loss in excess of the margin amount. If the Fund has a loss of less than the margin amount, the excess margin is returned to the Fund. If the Fund has a gain, the full margin amount and the amount
of the gain is paid to the Fund.
Central clearing is designed to reduce counterparty credit risk and increase liquidity compared to
bilateral swaps because central clearing interposes the central clearinghouse as the counterparty to each participant’s swap, but it does not eliminate those risks completely. There is also a risk of loss by a Fund of the initial and variation
margin deposits in the event of bankruptcy of the FCM with which the Fund has an open position in a swap contract. The assets of a Fund may not be fully protected in the event of the bankruptcy of the FCM or central counterparty because the Fund
might be limited to recovering only a pro rata share of all available funds and margin segregated on behalf of an FCM’s customers. If the FCM does not provide accurate reporting, a Fund is also subject to the risk that the FCM could use the
Fund’s assets, which are held in an omnibus account with assets belonging to the FCM’s other customers, to satisfy its own financial obligations or the payment obligations of another customer to the central counterparty.
With cleared swaps, a Fund may not be able to obtain as favorable terms as it would be able to negotiate for a bilateral, uncleared swap. In
addition, an FCM may unilaterally amend the terms of its agreement with a Fund, which may include the imposition of position limits or additional margin requirements with respect to the Fund’s investment in certain types of swaps. Central
counterparties and FCMs generally can require termination of existing cleared swap transactions at any time, and can also require increases in margin above the margin that is required at the initiation of the swap agreement. Additionally, depending
on a number of factors, the margin required under the rules of the clearinghouse and FCM may be in excess of the collateral required to be posted by a Fund to support its obligations under a similar uncleared swap. However, regulators are expected
to adopt rules imposing certain margin requirements, including minimums, on uncleared swaps in the near future, which could change this comparison.
21
Finally, a Fund is subject to the risk that, after entering into a cleared swap with an
executing broker, no FCM or central counterparty is willing or able to clear the transaction. In such an event, the Fund may be required to break the trade and make an early termination payment to the executing broker.
CFTC rules require the trading and execution of cleared swaps on public trading facilities, which will occur for each category of cleared
swaps once one or more trading facilities become accredited and make such category of swaps available to trade. Moving trading to an exchange-type system may increase market transparency and liquidity but may require the Fund to incur increased
expenses to access the same types of swaps that it has used in the past. In addition, clearance of swaps may not immediately produce the expected benefits and could, in fact, decrease liquidity until the market becomes comfortable with the clearing
process.
Commonly used swap agreements include:
Credit Default Swaps (CDS)
: A CDS is an agreement between two parties where the first party agrees to make one or more payments to the
second party, while the second party assumes the risk of certain defaults, generally a failure to pay or bankruptcy of the issuer on a referenced debt obligation. CDS transactions are typically individually negotiated and structured. A Fund may
enter into CDS to create long or short exposure to domestic or foreign corporate debt securities or sovereign debt securities.
A
Fund may buy a CDS (buy credit protection). In this transaction the Fund makes a stream of payments based on a fixed interest rate (the premium) over the life of the swap in exchange for a counterparty (the seller) taking on the risk of default of a
referenced debt obligation (the Reference Obligation). If a credit event occurs for the Reference Obligation, the Fund would cease making premium payments and it would deliver defaulted bonds to the seller. In return, the seller would pay the
notional value of the Reference Obligation to the Fund. Alternatively, the two counterparties may agree to cash settlement in which the seller delivers to the Fund (buyer) the difference between the market value and the notional value of the
Reference Obligation. If no event of default occurs, the Fund pays the fixed premium to the seller for the life of the contract, and no other exchange occurs.
Alternatively, a Fund may sell a CDS (sell credit protection). In this transaction the Fund will receive premium payments from the buyer in
exchange for taking the risk of default of the Reference Obligation. If a credit event occurs for the Reference Obligation, the buyer would cease to make premium payments to the Fund and deliver the Reference Obligation to the Fund. In return, the
Fund would pay the notional value of the Reference Obligation to the buyer. Alternatively, the two counterparties may agree to cash settlement in which the Fund would pay the buyer the difference between the market value and the notional value of
the Reference Obligation. If no event of default occurs, the Fund receives the premium payments over the life of the contract, and no other exchange occurs.
Credit Default Index Swaps (CDX)
. A CDX is a swap on an index of CDS. CDX allow an investor to manage credit risk or to take a position
on a basket of credit entities (such as CDS or CMBS) in a more efficient manner than transacting in single name CDS. If a credit event occurs in one of the underlying companies, the protection is paid out via the delivery of the defaulted bond by
the buyer of protection in return for payment of the notional value of the defaulted bond by the seller of protection or it may be settled through a cash settlement between the two parties. The underlying company is then removed from the index. New
series of CDX are issued on a regular basis. A Commercial Mortgage-Backed Index (CMBX) is a type of CDX made up of 25 tranches of commercial mortgage-backed securities (See “Debt Instruments – Mortgage-Backed and Asset-Backed
Securities”) rather than CDS. Unlike other CDX contracts where credit events are intended to capture an event of default CMBX involves a pay-as-you-go (PAUG) settlement process designed to capture non-default events that affect the cash flow of
the reference obligation. PAUG involves ongoing, two-way payments over the life of a contract between the buyer and the seller of protection and is designed to closely mirror the cash flow of a portfolio of cash commercial mortgage-backed
securities.
22
Foreign Exchange Swaps
: An agreement between two parties pursuant to which the parties
exchange a U.S. dollar-denominated payment for a payment denominated in a different currency. Foreign exchange swaps were exempted from the definition of “swaps” by the U.S. Treasury and are therefore not subject to many rules under the
CEA that apply to swaps, including the mandatory clearing requirement. They are also not considered “commodity interests” for purposes of CEA Exclusions and Regulation, discussed above. However, foreign exchange swaps nevertheless remain
subject to the CFTC’s trade reporting requirements, enhanced anti-evasion authority, and strengthened business conduct standards.
Currency Swaps:
A currency swap is an agreement between two parties to exchange periodic cash flows on a notional amount of two or more
currencies based on the relative value differential between them. Currency swaps typically involve the delivery of the entire notional values of the two designated currencies. In such a situation, the full notional value of a currency swap is
subject to the risk that the other party to the swap will default on its contractual delivery obligations. A Fund may also enter into currency swaps on a net basis, which means the two different currency payment streams under the swap agreement are
converted and netted out to a single cash payment in just one of the currencies.
Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by
governments. These actions could result in losses to a Fund if it is unable to deliver or receive a specified currency or funds in settlement of obligations, including swap transaction obligations. These actions could also have an adverse effect on
a Fund’s swap transactions or cause a Fund’s hedging positions to be rendered useless, resulting in full currency exposure as well as incurring unnecessary transaction costs.
Interest Rate Swap
: An agreement between two parties pursuant to which the parties exchange a floating rate payment for a fixed rate
payment based on a specified principal or notional amount. In other words, Party A agrees to pay Party B a fixed interest rate multiplied by the same notional amount and in return Party B agrees to pay Party A a variable interest rate multiplied by
the same notional amount.
Total Return Swap
: An agreement in which one party makes payments based on a set rate, either fixed
or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains.
Options.
Each Fund may engage in certain strategies involving swaps to attempt to manage the risk of their investments or, in certain
circumstances, for investment purposes (e.g., as a substitute for investing in securities). All Funds may invest in options.
An option is
a contract that gives the purchaser of the option, in return for the premium paid, the right, but not the obligation, to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option at the exercise price during the
term of the option (for American style options or on a specified date for European style options), the security, currency or other instrument underlying the option (or in the case of an index option the cash value of the index). An option on a CDS
or a futures contract (described below) gives the purchaser the right, but not the obligation, to enter into a CDS or assume a position in a futures contract.
The Funds may engage in certain strategies involving options to attempt to manage the risk of their investments or, in certain circumstances,
for investment (e.g., as a substitute for investing in securities). Option transactions present the possibility of large amounts of exposure (or leverage), which may result in a Fund’s net asset value being more sensitive to changes in the
value of the option.
The value of an option position will reflect, among other things, the current market value of the underlying
investment, the time remaining until expiration, the relationship of the exercise price to the market price of the underlying investment, the price volatility of the underlying investment and general market and interest rate conditions.
23
A Fund will not write (sell) options if, immediately after such sale, the aggregate value of
securities or obligations underlying the outstanding options would exceed 20% of the Fund’s total assets. A Fund will not purchase options if, immediately after such purchase, the aggregate premiums paid for outstanding options would exceed 5%
of the Fund’s total assets
A Fund may effectively terminate its right or obligation under an option by entering into an offsetting
closing transaction. For example, a Fund may terminate its obligation under a call or put option that it had written by purchasing an identical call or put option, which is known as a closing purchase transaction. Conversely, a Fund may terminate a
position in a put or call option it had purchased by writing an identical put or call option, which is known as a closing sale transaction. Closing transactions permit a Fund to realize profits or limit losses on an option position prior to its
exercise or expiration.
Options may be either listed on an exchange or traded in OTC markets. Listed options are tri-party contracts
(i.e., performance of the obligations of the purchaser and seller are guaranteed by the exchange or clearing corporation) and have standardized strike prices and expiration dates. OTC options are two-party contracts with negotiated strike prices and
expiration dates and differ from exchange-traded options in that OTC options are transacted with dealers directly and not through a clearing corporation (which guarantees performance). In the case of OTC options, there can be no assurance that a
liquid secondary market will exist for any particular option at any specific time; therefore the Fund may be required to treat some or all OTC options as illiquid securities. Although a Fund will enter into OTC options only with dealers that are
expected to be capable of entering into closing transactions with it, there is no assurance that the Fund will in fact be able to close out an OTC option position at a favorable price prior to exercise or expiration. In the event of insolvency of
the dealer, a Fund might be unable to close out an OTC option position at any time prior to its expiration.
Types of Options
:
Put Options on Securities
: A put option gives the purchaser the right to sell, to the writer, the underlying security, contract or
foreign currency at the stated exercise price at any time prior to the expiration date of the option for (American style options) or on a specified date (for European style options), regardless of the market price or exchange rate of the security,
contract or foreign currency, as the case may be, at the time of exercise. If the purchaser exercises the put option, the writer of a put option is obligated to buy the underlying security, contract or foreign currency for the exercise price.
Call Options on Securities
: A call option gives the purchaser the right to buy, from the writer, the underlying security, contract
or foreign currency at the stated exercise price at any time prior to the expiration of the option (for American style options) or on a specified date (for European style options), regardless of the market price or exchange rate of the security,
contract or foreign currency, as the case may be, at the time of exercise. If the purchaser exercises the call option, the writer of a call option is obligated to sell to and deliver the underlying security, contract or foreign currency to the
purchaser of the call option for the exercise price.
Index Options
: Index options (or options on securities indices) give the
holder the right to receive, upon exercise, cash instead of securities, if the closing level of the securities index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the
option. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the call or put times a specified multiple (the multiplier), which determines the total dollar value for each point of such
difference.
The risks of investment in index options may be greater than options on securities. Because index options are settled in
cash, when a Fund writes a call on an index it cannot provide in advance for its potential settlement obligations by acquiring and holding the underlying securities. A Fund can offset some of the risk of writing a call index option by holding a
diversified portfolio of securities similar to those
24
on which the underlying index is based. However, the Fund cannot, as a practical matter, acquire and hold a portfolio containing exactly the same securities that underlie the index and, as a
result, bears the risk that the value of the securities held will not be perfectly correlated with the value of the index.
CDS
Option
: A CDS option transaction gives the buyer the right but not the obligation, to enter into a CDS at specified future dates and under specified terms in exchange for paying a market based purchase price or premium. The writer of the option
bears the risk of any unfavorable move in the value of the CDS relative to the market value on the exercise date, while the purchaser may allow the option to expire unexercised.
Option Techniques
Writing Options
: A Fund may write options to generate additional income and to seek to hedge its portfolio against market or exchange
rate movements. As the writer of an option, the Fund may have no control over when the underlying instruments must be sold (in the case of a call option) or purchased (in the case of a put option) because the option purchaser may notify the Fund of
exercise at any time prior to the expiration of the option (for American style options). In general, options are rarely exercised prior to expiration. Whether or not an option expires unexercised, the writer retains the amount of the premium.
A Fund would write a put option at an exercise price that, reduced by the premium received on the option, reflects the price it is willing to
pay for the underlying security, contract or currency. In return for the premium received for writing a put option, the Fund assumes the risk that the price of the underlying security, contract, or foreign currency will decline below the exercise
price, in which case the put would be exercised and the Fund would suffer a loss.
In return for the premium received for writing a
call option on a security a Fund holds, the Fund foregoes the opportunity for profit from a price increase in the underlying security, contract, or foreign currency above the exercise price so long as the option remains open, but retains the risk of
loss should the price of the security, contract, or foreign currency decline.
If an option that a Fund has written expires, the Fund
will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security, contract or currency, held by the Fund during the option period. If a call option is exercised, a Fund
will realize a gain or loss from the sale of the underlying security, contract or currency, which will be increased or offset by the premium received. The obligation imposed upon the writer of an option is terminated upon the expiration of the
option, or such earlier time at which a Fund effects a closing purchase transaction by purchasing an option (put or call as the case may be) identical to that previously sold.
Purchasing Options
: A Fund may only purchase a put option on an underlying security, contract or currency owned by the Fund in order to
protect against an anticipated decline in the value of the security, contract or currency held by the Fund; or purchase put options on underlying securities, contracts or currencies against which it has written other put options. The premium paid
for the put option and any transaction costs would reduce any profit realized when the security, contract or currency is delivered upon the exercise of the put option. Conversely, if the underlying security, contract or currency does not decline in
value, the option may expire worthless and the premium paid for the protective put would be lost.
A Fund may purchase a call option
for the purpose of acquiring the underlying security, contract or currency for its portfolio, or on underlying securities, contracts or currencies against which it has written other call options. The Fund is not required to own the underlying
security in order to purchase a call option. If the Fund does not own the underlying position, the purchase of a call option would enable a Fund to acquire the security, contract or currency at the exercise price of the call option plus the premium
paid. So long as it holds a call option, rather than the underlying security, contract or currency itself, the Fund is partially protected from any unexpected increase in the market price of the underlying security, contract or currency. If the
market price does not exceed the exercise price, the Fund could purchase the security on the open market and could allow the call option to expire, incurring a loss only to the extent of the premium paid for the option.
25
Straddles/Spreads/Collars.
Each Fund may for hedging purposes, may enter into
straddles (combinations of put and call options on the same underlying security) to adjust the risk and return characteristics of the Funds’ overall position. A possible combined position would involve writing a covered call option at one
strike price and buying a call option at a lower price, in order to reduce the risk of the written covered call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
Spread and straddle options transactions
. In
“spread” transactions, a Fund buys and writes a put or buys and writes a call on the same underlying instrument with the options having different exercise prices, expiration dates, or both. In “straddles,” a Fund purchases a put
option and a call option or writes a put option and a call option on the same instrument with the same expiration date and typically the same exercise price. When a Fund engages in spread and straddle transactions, it seeks to profit from
differences in the option premiums paid and received and in the market prices of the related options positions when they are closed out or sold. Because these transactions require the Fund to buy and/or write more than one option simultaneously, the
Fund’s ability to enter into such transactions and to liquidate its positions when necessary or deemed advisable may be more limited than if the Fund were to buy or sell a single option. Similarly, costs incurred by the Fund in connection with
these transactions will in many cases be greater than if the Fund were to buy or sell a single option.
Option Collars
: A Fund also
may use option “collars.” A “collar” position combines a put option purchased by the Fund (the right of the Fund to sell a specific security within a specified period) with a call option that is written by the Fund (the right of
the counterparty to buy the same security) in a single instrument. The Fund’s right to sell the security is typically set at a price that is below the counterparty’s right to buy the security. Thus, the combined position
“collars” the performance of the underlying security, providing protection from depreciation below the price specified in the put option, and allowing for participation in any appreciation up to the price specified by the call option.
Warrants.
Each Fund may purchase warrants.
A warrant gives the holder the right to purchase securities from the issuer at a specific price within a certain time frame and is similar to
a call option. The main difference between warrants and call options is that warrants are issued by the company that will issue the underlying security, whereas options are not issued by the company. Young, unseasoned companies often issue warrants
to finance their operations.
Rights.
Rights are equity securities representing a preemptive right of stockholders to purchase
additional shares of a stock at the time of a new issuance, before the stock is offered to the general public. A stockholder who purchases rights may be able to retain the same ownership percentage after the new stock offering. A right usually
enables the stockholder to purchase common stock at a price below the initial offering price. A Fund that purchases a right takes the risk that the right might expire worthless because the market value of the common stock falls below the price fixed
by the right.
Futures Contracts.
Each Fund may enter into futures contracts.
A Futures Contract is a two-party agreement to buy or sell a specified amount of a specified security ,currency or commodity (or delivery of a
cash settlement price, in the case of certain futures such as an index future or Eurodollar Future) for a specified price at a designated date, time and place (collectively, futures contracts). A “sale” of a Futures Contract means the
acquisition of a contractual obligation to deliver the underlying instrument or asset called for by the contract at a specified price on a specified date. A “purchase” of a Futures Contract means the acquisition of a contractual obligation
to acquire the underlying instrument or asset called for by the contract at a specified price on a specified date.
26
The Funds will only enter into futures contracts that are traded (either domestically or
internationally) on futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading thereon in the United States are regulated under the Commodity Exchange Act and by CFTC. Foreign
futures exchanges and trading thereon are not regulated by the CFTC and are not subject to the same regulatory controls. In addition, futures contracts that are traded on non-U.S. exchanges may not be as liquid as those purchased on CFTC-designated
contract markets. For a further discussion of the risks associated with investments in foreign securities, see “Foreign Investments” above.
Brokerage fees are incurred when a futures contract is bought or sold, and margin deposits must be maintained at all times when a futures
contract is outstanding. “Margin” for a futures contracts is the amount of funds that must be deposited by a Fund in order to initiate futures contracts trading and maintain its open positions in futures contracts. A margin deposit made
when the futures contract is entered (initial margin) is intended to ensure the Fund’s performance under the futures contract. The margin required for a particular futures contract is set by the exchange on which the futures contract is traded
and may be significantly modified from time to time by the exchange during the term of the futures contract.
Subsequent payments, called
“variation margin,” received from or paid to the FCM through which a Fund enters into the futures contract will be made on a daily basis as the futures price fluctuates making the futures contract more or less valuable, a process known as
marking-to-market. When the futures contract is closed out, if the Fund has a loss equal to or greater than the margin amount, the margin amount is paid to the FCM along with any loss in excess of the margin amount. If the Fund has a loss of less
than the margin amount, the excess margin is returned to the Fund the Fund has a gain, the full margin amount and the amount of the gain is paid to the Fund.
There is a risk of loss by a Fund of the initial and variation margin deposits in the event of bankruptcy of the FCM with which the Fund has
an open position in a futures contract. The assets of a Fund may not be fully protected in the event of the bankruptcy of the FCM or central counterparty because the Fund might be limited to recovering only a pro rata share of all available funds
and margin segregated on behalf of an FCM’s customers. If the FCM does not provide accurate reporting, a Fund is also subject to the risk that the FCM could use the Fund’s assets, which are held in an omnibus account with assets belonging
to the FCM’s other customers, to satisfy its own financial obligations or the payment obligations of another customer to the central counterparty.
Closing out an open futures contract is effected by entering into an offsetting futures contract for the same aggregate amount of the
identical financial instrument or currency and the same delivery date. There can be no assurance, however, that a Fund will be able to enter into an offsetting transaction with respect to a particular futures contract at a particular time. If a Fund
is not able to enter into an offsetting transaction, it will continue to be required to maintain the margin deposits on the futures contract.
In addition, if a Fund were unable to liquidate a futures contract or an option on a futures contract position due to the absence of a liquid
secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund would continue
to be required to make daily variation margin payments.
Types of Futures Contracts
:
Currency Futures
: A currency futures contract is a standardized, exchange-traded contract to buy or sell a particular currency at a
specified price at a future date (commonly three months or more). Currency futures contracts may be highly volatile and thus result in substantial gains or losses to a Fund.
27
A Fund may either exchange the currencies specified at the maturity of a currency futures
contract or, prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. A Fund may also enter into currency futures contracts that do not provide for physical settlement of the two currencies but
instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount. Closing transactions with respect to currency futures
contracts are usually effected with the counterparty to the original currency futures contract.
Index Futures
: A stock index
futures contract is an exchange-traded contract that provides for the delivery, at a designated date, time and place, of an amount of cash equal to a specified dollar amount times the difference between the stock index value at the close of trading
on the date specified in the contract and the price agreed upon in the futures contract; no physical delivery of stocks comprising the index is made.
Interest Rate Futures
: An interest-rate futures contract is an exchange-traded contract in which the specified underlying security is
either an interest-bearing fixed income security or an inter-bank deposit. Two examples of common interest rate futures contracts are U.S. Treasury futures and Eurodollar futures contracts. The specified security for U.S. Treasury futures is a U.S.
Treasury security. The specified security for Eurodollar futures is the London Interbank Offered Rate (Libor) which is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London
wholesale money market.
Dividend Futures:
A dividend futures contract is an exchange-traded contract to purchase or sell an amount
equal to the total dividends paid by a selected security, basket of securities or index, over a period of time for a specified price that is based on the expected dividend payments from the selected security, basket of securities or index.
Security Futures
: A security futures contract is an exchange-traded contract to purchase or sell, in the future, a specified quantity
of a security (other than a Treasury security, or a narrow-based securities index) at a certain price.
Options on Futures
Contracts
. Options on futures contracts are similar to options on securities or currencies except that options on futures contracts give the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures contract position by the writer of the
option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer’s futures contract margin account. The Fund currently may not invest in any security (including futures contracts or options thereon)
that is secured by physical commodities.
Pursuant to federal securities laws and regulations, the Fund’s use of futures contracts
and options on futures contracts may require the Fund to set aside assets to reduce the risks associated with using futures contracts and options on futures contracts. This process is described in more detail below in the section “Cover.”
The Funds will enter into futures contracts for hedging purposes only. For example, futures contracts may be sold to protect against a
decline in the price of securities or currencies that a Fund owns, or purchased to protect the Fund against an increase in the price of securities or currencies it has committed to purchase or expects to purchase. Additionally, futures contracts may
be used to hedge against certain portfolio risks such as interest rate risk, yield curve risk and currency exchange rates.
Forward
Foreign Currency Contracts.
Each Fund may enter into forward foreign currency transactions to hedge against adverse movements in the foreign currencies in which portfolio securities are denominated.
A forward foreign currency contract is an obligation to buy or sell a particular currency at a specified price at a future date. Forward
Foreign Currency Contracts are typically individually negotiated and privately traded by currency traders and their customers in the interbank market. A Fund may enter into forward foreign currency contracts with respect to a specific purchase or
sale of a security, or with respect to its portfolio positions generally.
28
At the maturity of a forward foreign currency contract, a Fund may either exchange the
currencies specified at the maturity of the contract or, prior to maturity, enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward foreign currency contracts are
usually effected with the counterparty to the original forward contract. A Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies but instead are settled by a single cash payment
calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards).
The Funds will comply with guidelines established by the SEC with respect to “cover” requirements of forward foreign currency
contracts (See Derivatives above). Generally, with respect to forward foreign currency contracts that are not contractually required to “cash-settle” (i.e., are deliverable), a Fund covers its open positions by setting aside liquid assets
equal to the contracts’ full notional value.
Under definitions adopted by the CFTC and SEC, non-deliverable forwards are considered swaps, and
therefore are included in the definition of “commodity interests.” Although non-deliverable forwards have historically been traded in the OTC market, as swaps they may in the future be required to be centrally cleared and traded on public
facilities. For more information on central clearing and trading of cleared swaps, see “Swaps” and “Risks of Potential Regulation of Swaps and Other Derivatives.” Forward foreign currency contracts that qualify as deliverable
forwards are not regulated as swaps for most purposes, and are not included in the definition of “commodity interests.” However these forwards are subject to some requirements applicable to swaps, including reporting to swap data
repositories, documentation requirements, and business conduct rules applicable to swap dealers. CFTC regulation of forward foreign currency contracts, especially non-deliverable forwards, may restrict a Fund’s ability to use these instruments
in the manner described above or subject Invesco to CFTC registration and regulation as a CPO.
The cost to a Fund of engaging in forward
foreign currency contracts varies with factors such as the currencies involved, the length of the contract period, interest rate differentials and the prevailing market conditions. Because forward foreign currency contracts are usually entered into
on a principal basis, no fees or commissions are typically involved. The use of forward foreign currency contracts does not eliminate fluctuations in the prices of the underlying securities a Fund owns or intends to acquire, but it does establish a
rate of exchange in advance. While forward foreign currency contract sales limit the risk of loss due to a decline in the value of the hedged currencies, they also limit any potential gain that might result should the value of the currencies
increase.
Fund Policies
Fundamental Restrictions.
Except as otherwise noted below, each fund is subject to the following investment restrictions, which may be
changed only by a vote of such Fund’s outstanding shares. Fundamental restrictions may be changed only by a vote of the lesser of (i) 67% or more of the Fund’s shares present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or represented by proxy, or (ii) more than 50% of the Fund’s outstanding shares. Any investment restriction that involves a maximum or minimum percentage of securities or assets (other than with
respect to borrowing) shall not be considered to be violated unless an excess over or a deficiency under the percentage occurs immediately after, and is caused by, an acquisition or disposition of securities or utilization of assets by the Fund.
29
(1) The Fund (except for Invesco Select Opportunities Fund) is a “diversified company”
as defined in the 1940 Act. The Fund will not purchase the securities of any issuer if, as a result, the Fund would fail to be a diversified company within the meaning of the 1940 Act, and the rules and regulations promulgated thereunder, as such
statute, rules and regulations are amended from time to time or are interpreted from time to time by the SEC staff (collectively, the “1940 Act Laws and Interpretations”) or except to the extent that the Fund may be permitted to do so by
exemptive order or similar relief (collectively, with the 1940 Act Laws and Interpretations, the “1940 Act Laws, Interpretations and Exemptions”). In complying with this restriction, however, the Fund may purchase securities of other
investment companies to the extent permitted by the 1940 Act Laws, Interpretations and Exemptions.
(2) The Fund may not borrow money or
issue senior securities, except as permitted by the 1940 Act Laws, Interpretations and Exemptions.
(3) The Fund may not underwrite the
securities of other issuers. This restriction does not prevent the Fund from engaging in transactions involving the acquisition, disposition or resale of its portfolio securities, regardless of whether the Fund may be considered to be an underwriter
under the 1933 Act.
(4) The Fund will not make investments that will result in the concentration (as that term may be defined or
interpreted by the 1940 Act Laws, Interpretations and Exemptions) of its investments in the securities of issuers primarily engaged in the same industry. This restriction does not limit the Fund’s investments in (i) obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or (ii) tax-exempt obligations issued by governments or political subdivisions of governments. In complying with this restriction, the Fund will not consider a bank-issued
guaranty or financial guaranty insurance as a separate security.
(5) The Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This restriction does not prevent the Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein, or investing in
securities that are secured by real estate or interests therein.
(6) The Fund may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or other instruments. This restriction does not prevent the Fund from engaging in transactions involving futures contracts and options thereon or investing in securities that are
secured by physical commodities.
(7) The Fund may not make personal loans or loans of its assets to persons who control or are under
common control with the Fund, except to the extent permitted by 1940 Act Laws, Interpretations and Exemptions. This restriction does not prevent the Fund from, among other things, purchasing debt obligations, entering into repurchase agreements,
loaning its assets to broker-dealers or institutional investors, or investing in loans, including assignments and participation interests.
(8) The Fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its assets in the securities of a
single open-end management investment company with substantially the same fundamental investment objectives, policies and restrictions as the Fund.
The investment restrictions set forth above provide each of the Funds with the ability to operate under new interpretations of the 1940 Act or
pursuant to exemptive relief from the SEC without receiving prior shareholder approval of the change. Even though each of the Funds has this flexibility, the Board has adopted non-fundamental restrictions for each of the Funds relating to certain of
these restrictions which Invesco and, when applicable, the Sub-Advisers must follow in managing the Funds. Any changes to these non-fundamental restrictions, which are set forth below, require the approval of the Board.
Non-Fundamental Restrictions.
Non-fundamental restrictions may be changed for any Fund without shareholder approval. The
non-fundamental investment restrictions listed below apply to each of the Funds unless otherwise indicated.
30
(1) In complying with the fundamental restriction regarding issuer diversification, the Fund
(except for Invesco Select Opportunities Fund) will not, with respect to 75% of its total assets, purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities
and securities issued by other investment companies), if, as a result, (i) more than 5% of the Fund’s total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting
securities of that issuer. The Fund may purchase securities of other investment companies as permitted by the 1940 Act Laws, Interpretations and Exemptions.
In complying with the fundamental restriction regarding issuer diversification, any Fund that invests in municipal securities will regard each
state (including the District of Columbia and Puerto Rico), territory and possession of the United States, each political subdivision, agency, instrumentality and authority thereof, and each multi-state agency of which a state is a member as a
separate “issuer.” When the assets and revenues of an agency, authority, instrumentality or other political subdivision are separate from the government creating the subdivision and the security is backed only by assets and revenues of the
subdivision, such subdivision would be deemed to be the sole issuer. Similarly, in the case of an Industrial Development Bond or Private Activity bond, if that bond is backed only by the assets and revenues of the non-governmental user, then that
non-governmental user would be deemed to be the sole issuer. However, if the creating government or another entity guarantees a security, then to the extent that the value of all securities issued or guaranteed by that government or entity and owned
by the Fund exceeds 10% of the Fund’s total assets, the guarantee would be considered a separate security and would be treated as issued by that government or entity. Securities issued or guaranteed by a bank or subject to financial guaranty
insurance are not subject to the limitations set forth in the preceding sentence.
(2) In complying with the fundamental restriction
regarding borrowing money and issuing senior securities, the Fund may borrow money in an amount not exceeding 33 1/3% of its total assets (including the amount borrowed) less liabilities (other than borrowings).
(3) In complying with the fundamental restriction regarding industry concentration, the Fund may invest up to 25% of its total assets in the
securities of issuers whose principal business activities are in the same industry.
(4) Notwithstanding the fundamental restriction with
regard to engaging in transactions involving futures contracts and options thereon or investing in securities that are secured by physical commodities, the Fund currently may not invest in any security (including futures contracts or options
thereon) that is secured by physical commodities.
The Funds do not consider currencies or other financial commodities or contracts
and financial instruments to be physical commodities (which include, for example, oil, precious metals and grains). Accordingly, the Funds will interpret the fundamental restriction and the related non-fundamental restriction to permit the Funds,
subject to each Fund’s investment objectives and general investment policies (as stated in the Funds’ prospectuses and herein), to invest directly in foreign currencies and other financial commodities and to purchase, sell or enter into
commodity futures contracts and options thereon, foreign currency forward contracts, foreign currency options, currency-, commodity- and financial instrument-related swap agreements, hybrid instruments, interest rate or securities-related or foreign
currency-related hedging instruments or other currency-, commodity- or financial instrument-related derivatives, subject to compliance with any applicable provisions of the federal securities or commodities laws. The Funds also will interpret the
fundamental restriction regarding the purchase and sale of physical commodities and their related non-fundamental restriction to permit the Funds to invest in ETFs, registered investment companies and other pooled investment vehicles that invest in
physical and/or financial commodities, subject to the limits described in the Funds’ prospectuses and herein.
(5) In complying
with the fundamental restriction with regard to making loans, the Fund may lend up to 33 1/3% of its total assets and may lend money to an Invesco Fund, on such terms and conditions as the SEC may require in an exemptive order.
31
(6) Notwithstanding the fundamental restriction with regard to investing all assets in an
open-end fund, the Fund may not invest all of its assets in the securities of a single open-end management investment company with the same fundamental investment objectives, policies and restrictions as the Fund.
(7) The Funds may not acquire any securities of registered open-end investment companies or registered unit investment trusts in reliance on
Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
(8) The following apply:
|
|
(a)
|
Invesco European Growth Fund invests, under normal circumstances, at least 80% of its assets in securities of European issuers.
|
|
|
(b)
|
Invesco Asia Pacific Growth Fund invests, under normal circumstances, at least 80% of its assets in securities of issuers in the Asia Pacific region (except Japanese companies).
|
|
|
(c)
|
Invesco Global Small & Mid Cap Growth Fund invests, under normal circumstances, at least 80% of its assets in securities of small- and/or mid-capitalization issuers.
|
|
|
(d)
|
Invesco International Core Equity Fund invests, under normal circumstances, at least 80% of its assets in equity securities.
|
For purposes of the foregoing, “assets” means net assets, plus the amount of any borrowings for investment purposes. Derivatives and
other instruments that have economic characteristics similar to the securities in a Fund’s 80% policy may also be counted towards that Fund’s 80% policy. The Fund will provide written notice to its shareholders prior to any change to this
policy, as required by the 1940 Act Laws, Interpretations and Exemptions.
Geographic Asset Distribution for Invesco Asia Pacific
Growth Fund and Invesco European Growth Fund.
There are no prescribed limits on asset distribution within the Asia Pacific region for Invesco Asia Pacific Growth Fund or within Europe for Invesco European Growth Fund. Invesco Asia Pacific Growth
Fund intends to invest in securities of issuers in the Asia Pacific region, and may invest in “developing” countries or “emerging markets”
1
without limit. Invesco European
Growth Fund intends to invest in securities of issuers in Western Europe and Eastern Europe. Many of the countries in Eastern Europe are “developing” countries or “emerging
markets.”
1
Invesco European Growth Fund may invest up to 35% of its net assets in securities of European issuers located in
“developing” countries or “emerging markets.”
1
Invesco Asia Pacific Growth Fund considers issuers of securities located in the following countries to be Asian issuers:
|
|
|
|
|
|
|
Bangladesh
|
|
Indonesia
|
|
South Korea
|
|
China
|
|
Malaysia
|
|
Sri Lanka
|
|
Hong Kong
|
|
Philippines
|
|
Taiwan
|
|
India
|
|
Singapore
|
|
Thailand
|
|
1
|
The Fund defines developing/emerging markets countries as those countries which are not included in the MSCI World Index. The Fund considers various factors when determining whether a company is in a developing/emerging
markets country, including whether (1) it is organized under the laws of a developing/emerging markets country; (2) it has a principal office in a developing/emerging markets country; (3) it derives 50% or more of its total revenues
from business in a developing/emerging markets country; or (4) its securities are trading principally on a stock exchange, or in an OTC market, in developing/emerging markets countries.
|
32
Invesco Asia Pacific Growth Fund considers issuers of securities located in the following
countries to be Pacific issuers:
Invesco European Growth Fund considers issuers of securities located in the following countries to be European
issuers:
|
|
|
|
|
|
|
|
|
Austria
|
|
Germany
|
|
Montenegro
|
|
Spain
|
|
Belgium
|
|
Greece
|
|
Netherlands
|
|
Sweden
|
|
Bulgaria
|
|
Hungary
|
|
Norway
|
|
Switzerland
|
|
Croatia
|
|
Iceland
|
|
Poland
|
|
Turkey
|
|
Czech Republic
|
|
Ireland
|
|
Portugal
|
|
Ukraine
|
|
Denmark
|
|
Italy
|
|
Romania
|
|
United Kingdom
|
|
Estonia
|
|
Latvia
|
|
Russia
|
|
|
|
Finland
|
|
Liechtenstein
|
|
Serbia
|
|
|
|
France
|
|
Luxembourg
|
|
Slovenia
|
|
|
|
Georgia
|
|
Lithuania
|
|
Slovakia
|
|
|
Portfolio Turnover
For the fiscal years ended October 31, 2013 and 2012, the portfolio turnover rates for each Fund are presented in the table below. Unless
otherwise indicated, variations in turnover rate may be due to a fluctuating volume of shareholder purchase and redemption orders, market conditions and/or changes in Invesco’s investment outlook.
|
|
|
|
|
|
|
|
|
|
|
Turnover Rates
|
|
2013
|
|
|
2012
|
|
|
Invesco Asia Pacific Growth Fund
|
|
|
18
|
%
|
|
|
16
|
%
|
|
Invesco European Growth Fund
|
|
|
15
|
%
|
|
|
14
|
%
|
|
Invesco Global Growth Fund
|
|
|
29
|
%
|
|
|
33
|
%
|
|
Invesco Global Opportunities Fund
1,2
|
|
|
76
|
%
|
|
|
9
|
%
|
|
Invesco Global Small & Mid Cap Growth Fund
|
|
|
26
|
%
|
|
|
37
|
%
|
|
Invesco International Core Equity Fund
|
|
|
25
|
%
|
|
|
20
|
%
|
|
Invesco International Growth Fund
|
|
|
21
|
%
|
|
|
21
|
%
|
|
Invesco Select Opportunities Fund
1
|
|
|
10
|
%
|
|
|
7
|
%
|
|
1
|
Commenced operations August 3, 2012.
|
|
2
|
Due to a Portfolio Manager change in April 2013, the number for Fund holdings was reduced.
|
Policies and Procedures for Disclosure of Fund Holdings
The Board has adopted policies and procedures with respect to the
disclosure of the Funds’ portfolio holdings (the Holdings Disclosure Policy). Invesco and the Board may amend the Holdings Disclosure Policy at any time without prior notice. Details of the Holdings Disclosure Policy and a description of the
basis on which employees of Invesco and its affiliates may release information about portfolio securities in certain contexts are provided below.
Public release of portfolio holdings.
The Funds disclose the following portfolio holdings information on
www.invesco.comus
:
1
|
|
|
|
|
|
|
Information
|
|
Approximate Date of Website Posting
|
|
Information Remains Posted on Website
|
|
Top ten holdings as of month-end
|
|
15 days after month-end
|
|
Until replaced with the following
month’s top ten holdings
|
|
|
|
|
|
Select holdings included in the Fund’s Quarterly Performance Update
|
|
29 days after calendar quarter-end
|
|
Until replaced with the following
quarter’s Quarterly Performance
Update
|
|
|
|
|
|
Complete portfolio holdings as of calendar quarter-end
|
|
30 days after calendar quarter-end
|
|
For one year
|
|
|
|
|
|
Complete portfolio holdings as of fiscal quarter-end
|
|
60-70 days after fiscal quarter-end
|
|
For one year
|
|
1
|
To locate the Fund’s portfolio holdings information on
www.invesco.com/us
, click on the “Products” tab, then click on the “Mutual Funds” link, then select the “Fund Materials”
tab. A link to the Fund’s portfolio holdings is located in the upper left side of this website page under “View All Holdings”.
|
33
These holdings are listed along with the percentage of the Fund’s net assets they
represent. Generally, employees of Invesco and its affiliates may not disclose such portfolio holdings until one day after they have been posted on
www.invesco.comus
. You may also obtain the publicly available portfolio holdings information
described above by contacting us at 1-800-959-4246.
Selective disclosure of portfolio holdings pursuant to non-disclosure
agreement
. Employees of Invesco and its affiliates may disclose non-public full portfolio holdings on a selective basis only if the Internal Compliance Controls Committee (the ICCC) of Invesco approves the parties to whom disclosure of
non-public full portfolio holdings will be made. The ICCC must determine that the proposed selective disclosure will be made for legitimate business purposes of the applicable Fund and is in the best interest of the applicable Fund’s
shareholders. In making such determination, the ICCC will address any perceived conflicts of interest between shareholders of such Fund and Invesco or its affiliates as part of granting its approval.
The Board exercises continuing oversight of the disclosure of Fund portfolio holdings by (1) overseeing the implementation and
enforcement of the Holdings Disclosure Policy and the Invesco Funds Code of Ethics by the Chief Compliance Officer (or his designee) of Invesco and the Invesco Funds and (2) considering reports and recommendations by the Chief Compliance
Officer concerning any material compliance matters (as defined in Rule 38a-1 under the 1940 Act and Rule 206(4)-7 under the Investment Advisers Act of 1940, as amended) that may arise in connection with the Holdings Disclosure Policy. Pursuant to
the Holdings Disclosure Policy, the Board reviews the types of situations in which Invesco provides selective disclosure and approves situations involving perceived conflicts of interest between shareholders of the applicable Fund and Invesco or its
affiliates brought to the Board’s attention by Invesco.
Invesco discloses non-public full portfolio holdings information to the
following persons in connection with the day-to-day operations and management of the Invesco Funds:
|
|
•
|
|
Attorneys and accountants;
|
|
|
•
|
|
Securities lending agents;
|
|
|
•
|
|
Lenders to the Invesco Funds;
|
|
|
•
|
|
Rating and rankings agencies;
|
|
|
•
|
|
Persons assisting in the voting of proxies;
|
|
|
•
|
|
Invesco Funds’ custodians;
|
|
|
•
|
|
The Invesco Funds’ transfer agent(s) (in the event of a redemption in kind);
|
|
|
•
|
|
Pricing services, market makers, or other persons who provide systems or software support in connection with Invesco Funds’ operations (to determine the price of securities held by an Invesco Fund);
|
|
|
•
|
|
Brokers identified by the Invesco Funds’ portfolio management team who provide execution and research services to the team; and
|
|
|
•
|
|
Analysts hired to perform research and analysis to the Invesco Funds’ portfolio management team.
|
34
In many cases, Invesco will disclose current portfolio holdings on a daily basis to these
persons. In these situations, Invesco has entered into non-disclosure agreements which provide that the recipient of the portfolio holdings will maintain the confidentiality of such portfolio holdings and will not trade on such information
(Non-disclosure Agreements). Please refer to Appendix B for a list of examples of persons to whom Invesco provides non-public portfolio holdings on an ongoing basis.
Invesco will also disclose non-public portfolio holdings information if such disclosure is required by applicable laws, rules or regulations,
or by regulatory authorities having jurisdiction over Invesco and its affiliates or the Funds.
The Holdings Disclosure Policy provides
that Invesco will not request, receive or accept any compensation (including compensation in the form of the maintenance of assets in any Fund or other mutual fund or account managed by Invesco or one of its affiliates) for the selective disclosure
of portfolio holdings information.
Disclosure of certain portfolio holdings and related information without non-disclosure
agreement.
Invesco and its affiliates that provide services to the Funds, the Sub-Advisors and each of their employees may receive or have access to portfolio holdings as part of the day-to-day operations of the Funds.
From time to time, employees of Invesco and its affiliates may express their views orally or in writing on one or more of the Funds’
portfolio securities or may state that a Fund has recently purchased or sold, or continues to own, one or more securities. The securities subject to these views and statements may be ones that were purchased or sold since a Fund’s most recent
quarter-end and therefore may not be reflected on the list of the Fund’s most recent quarter-end portfolio holdings disclosed on the website. Such views and statements may be made to various persons, including members of the press, brokers and
other financial intermediaries that sell shares of the Funds, shareholders in the applicable Fund, persons considering investing in the applicable Fund or representatives of such shareholders or potential shareholders, such as fiduciaries of a
401(k) plan or a trust and their advisers, and other entities for which Invesco or its affiliates provides or may provide investment advisory services. The nature and content of the views and statements provided to each of these persons may differ.
From time to time, employees of Invesco and its affiliates also may provide oral or written information (portfolio commentary) about a
Fund, including, but not limited to, how the Fund’s investments are divided among various sectors, industries, countries, investment styles and capitalization sizes, and among stocks, bonds, currencies and cash, security types, bond maturities,
bond coupons and bond credit quality ratings. This portfolio commentary may also include information on how these various weightings and factors contributed to Fund performance. Invesco may also provide oral or written information (statistical
information) about various financial characteristics of a Fund or its underlying portfolio securities including, but not limited to, alpha, beta, R-squared, coefficient of determination, duration, maturity, information ratio, sharpe ratio, earnings
growth, payout ratio, price/book value, projected earnings growth, return on equity, standard deviation, tracking error, weighted average quality, market capitalization, percent debt to equity, price to cash flow, dividend yield or growth, default
rate, portfolio turnover, and risk and style characteristics. This portfolio commentary and statistical information about a Fund may be based on the Fund’s portfolio as of the most recent quarter-end or the end of some other interim period,
such as month-end. The portfolio commentary and statistical information may be provided to various persons, including those described in the preceding paragraph. The nature and content of the information provided to each of these persons may differ.
Disclosure of portfolio holdings by traders.
Additionally, employees of Invesco and its affiliates may disclose one or more
of the portfolio securities of a Fund when purchasing and selling securities through broker-dealers, requesting bids on securities, obtaining price quotations on securities, or in connection with litigation involving the Funds’ portfolio
securities. Invesco does not enter into formal Non-disclosure Agreements in connection with these situations; however, the Funds would not continue to conduct business with a person who Invesco believed was misusing the disclosed information.
35
Disclosure of portfolio holdings of other Invesco-managed products.
Invesco and its
affiliates manage products sponsored by companies other than Invesco, including investment companies, offshore funds, and separate accounts. In many cases, these other products are managed in a similar fashion to certain Invesco Funds (as defined
herein) and thus have similar portfolio holdings. The sponsors of these other products managed by Invesco and its affiliates may disclose the portfolio holdings of their products at different times than Invesco discloses portfolio holdings for the
Invesco Funds.
Invesco provides portfolio holdings information for portfolios of AIM Variable Insurance Funds (Invesco Variable Insurance
Funds) (the Insurance Funds) to insurance companies whose variable annuity and variable life insurance accounts invest in the Insurance Funds (Insurance Companies). Invesco may disclose portfolio holdings information for the Insurance Funds to
Insurance Companies with which Invesco has entered into Non-disclosure Agreements up to five days prior to the scheduled dates for Invesco’s disclosure of similar portfolio holdings information for other Invesco Funds on
www.invesco.comus
. Invesco provides portfolio holdings information for the Insurance Funds to such Insurance Companies to allow them to disclose this information on their websites at approximately the same time that Invesco discloses
portfolio holdings information for the other Invesco Funds on its website. Invesco manages the Insurance Funds in a similar fashion to certain other Invesco Funds and thus the Insurance Funds and such other Invesco Funds have similar portfolio
holdings. Invesco does not disclose the portfolio holdings information for the Insurance Funds on its Web site, and not all Insurance Companies disclose this information on their Web sites.
MANAGEMENT OF THE TRUST
Board of Trustees
The Trustees and officers of the Trust, their principal occupations during at least the last five years and certain other information
concerning them are set forth in Appendix C.
Qualifications and Experience. In addition to the information set forth in Appendix C, the
following sets forth additional information about the qualifications and experiences of each of the Trustees.
Interested Persons
Martin L. Flanagan, Trustee
Martin
Flanagan has been a member of the Board of Trustees of the Invesco funds since 2007. Mr. Flanagan is president and chief executive officer of Invesco Ltd., a position he has held since August 2005. He is also a member of the Board of Directors
of Invesco Ltd.
Mr. Flanagan joined Invesco Ltd. from Franklin Resources, Inc., where he was president and co-chief executive
officer from January 2004 to July 2005. Previously he had been Franklin’s co-president from May 2003 to January 2004, chief operating officer and chief financial officer from November 1999 to May 2003, and senior vice president and chief
financial officer from 1993 until November 1999.
Mr. Flanagan served as director, executive vice president and chief operating
officer of Templeton, Galbraith & Hansberger, Ltd. before its acquisition by Franklin in 1992. Before joining Templeton in 1983, he worked with Arthur Andersen & Co.
Mr. Flanagan is a chartered financial analyst and a certified public accountant. He serves as vice chairman of the Investment Company
Institute and is a member of the executive board at the SMU Cox School of Business.
The Board believes that Mr. Flanagan’s long
experience as an executive in the investment management area benefits the Funds.
36
Philip Taylor, Trustee
Philip Taylor has been a member of the Board of Trustees of the Invesco Funds since 2006. Mr. Taylor has been the head of Invesco’s
North American retail business as Senior Managing Director since April 2006. He previously served as chief executive officer of Invesco Trimark Investments since January 2002.
Mr. Taylor joined Invesco in 1999 as senior vice president of operations and client services and later became executive vice president
and chief operating officer.
Mr. Taylor was president of Canadian retail broker Investors Group Securities from 1994 to 1997 and
managing partner of Meridian Securities, an execution and clearing broker, from 1989 to 1994. He held various management positions with Royal Trust, now part of Royal Bank of Canada, from 1982 to 1989. He began his career in consumer brand
management in the U.S. and Canada with Richardson-Vicks, now part of Procter & Gamble.
The Board believes that
Mr. Taylor’s long experience in the investment management business benefits the Funds.
Wayne W. Whalen, Trustee
Wayne W. Whalen has been a member of the Board of Trustees of the Invesco Funds and their predecessor funds since 2010.
Mr. Whalen is Of Counsel, and prior to 2010, Partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP.
Mr. Whalen is Chairman and Director of the Abraham Lincoln Presidential Library Foundation. From 1995 to 2010, Mr. Whalen served as
Director or Trustee of investment companies in the Van Kampen Funds complex.
The Board believes that Mr. Whalen’s
experience as a law firm Partner and his experience as a director of investment companies benefits the Funds.
Independent Trustees
Bruce L. Crockett, Trustee and Chair
Bruce L. Crockett has been a member of the Board of Trustees of the Invesco Funds since 1978, and has served as Independent Chair of the Board
of Trustees since 2004.
Mr. Crockett has more than 30 years of experience in finance and general management in the banking,
aerospace and telecommunications industries. From 1992 to 1996, he served as president, chief executive officer and a director of COMSAT Corporation, an international satellite and wireless telecommunications company.
Mr. Crockett has also served, since 1996, as chairman of Crockett Technologies Associates, a strategic consulting firm that provides
services to the information technology and communications industries. Mr. Crockett also serves on the Board of Directors of ALPS (Attorneys Liability Protection Society) and is a life trustee of the University of Rochester Board of Directors.
The Board of Trustees elected Mr. Crockett to serve as its Independent Chair because of his extensive experience in managing
public companies and familiarity with investment companies.
37
David C. Arch, Trustee
David C. Arch has been a member of the Board of Trustees of the Invesco Funds and their predecessor funds since 2010.
Mr. Arch is the Chairman of Blistex, Inc., a consumer health care products manufacturer. Mr. Arch is a member of the Board of the
Illinois Manufacturers’ Association, the Board of Visitors, Institute for the Humanities, University of Michigan, and the Audit Committee of Edward-Elmhurst Hospital. From 1984 to 2010, Mr. Arch served as Director or Trustee of investment
companies in the Van Kampen Funds complex.
The Board believes that Mr. Arch’s experience as the CEO of a public company
and his experience with investment companies benefits the Funds.
Frank S. Bayley, Trustee
Frank S. Bayley has been a member of the Board of Trustees of the Invesco Funds since 1985. Mr. Bayley is a business consultant in San
Francisco. He is Chairman and a Director of the C. D. Stimson Company, a private investment company in Seattle.
Mr. Bayley
serves as a Trustee of the Seattle Art Museum, a Trustee of San Francisco Performances, and a Trustee of The Curtis Institute of Music in Philadelphia. He also serves on the East Asian Art Committee of the Philadelphia Museum of Art and the Visiting
Committee for Art of Asia, Oceana and Africa of the Museum of Fine Arts, Boston.
Mr. Bayley is a retired general partner and of
Counsel of the international law firm of Baker & McKenzie, LLP, where his practice focused on business acquisitions and venture capital transactions. Prior to joining Baker & McKenzie LLP in 1986, he was a partner of the San
Francisco law firm of Chickering & Gregory. He received his A.B. from Harvard College in 1961, his LL.B. from Harvard Law School in 1964, and his LL.M. from Boalt Hall at the University of California, Berkeley, in 1965. Mr. Bayley
served as a Trustee of the Badgley Funds from inception in 1998 until dissolution in 2007.
The Board believes that Mr. Bayley’s
experience as a business consultant and a lawyer benefits the Funds.
James T. Bunch, Trustee
James T. Bunch has been a member of the Board of Trustees of the Invesco Funds since 2000.
From 1988 to 2010, Mr. Bunch was Founding Partner of Green Manning & Bunch, Ltd., a leading investment banking firm located in
Denver, Colorado. Green Manning & Bunch is a FINRA-registered investment bank specializing in mergers and acquisitions, private financing of middle-market companies and corporate finance advisory services. Immediately prior to forming Green
Manning & Bunch, Mr. Bunch was Executive Vice President, General Counsel, and a Director of Boettcher & Company, then the leading investment banking firm in the Rocky Mountain region.
Mr. Bunch began his professional career as a practicing attorney. He joined the prominent Denver-based law firm of Davis
Graham & Stubbs in 1970 and later rose to the position of Chairman and Managing Partner of the firm.
At various other times
during his career, Mr. Bunch has served as Chair of the NASD Business District Conduct Committee, and Chair of the Colorado Bar Association Ethics Committee.
In June 2010, Mr. Bunch became the Managing Member of Grunman Hill Group LLC, a family office private equity investment manager.
38
The Board believes that Mr. Bunch’s experience as an investment banker and investment
management lawyer benefits the Funds.
Rodney F. Dammeyer, Trustee
Rodney F. Dammeyer has been a member of the Board of Trustees of the Invesco Funds and their predecessor funds since 2010.
Mr. Dammeyer is chairman of CAC, LLC, a private company offering capital investment and management advisory services. Prior to this,
Mr. Dammeyer was responsible for managing all of Sam Zell’s non-real estate investment activity as managing partner of Equity Group Corporate Investments.
From 1985 to 1995, Mr. Dammeyer was chief executive officer of Itel Corporation, which later changed its name to Anixter International.
From 1983 to 1985, Mr. Dammeyer was senior vice president and chief financial officer of Household International, Inc. He was executive vice president and chief financial officer of Northwest Industries, Inc. from 1979 to 1983.
After graduating from Kent State University in 1962, Mr. Dammeyer began his business career with Arthur Andersen & Co. and was
admitted to partnership in 1970. He served as chairman of the firm’s advisory council and a member of the board of director’s nominating committee.
Mr. Dammeyer is a member of the boards of directors of Stericycle, Inc. and Quidel Corporation, in addition to several private companies.
He also serves on the School of Leadership and Education Sciences (SOLES) Advisory Board of the University of San Diego, the board of directors of High Tech charter schools, and the California Charter Schools Association.
From 1987 to 2010, Mr. Dammeyer served as Director or Trustee of investment companies in the Van Kampen Funds complex.
The Board believes that Mr. Dammeyer’s experience in executive positions at a number of public companies, his accounting experience
and his experience serving as a director of investment companies benefits the Funds.
Albert R. Dowden, Trustee
Albert R. Dowden has been a member of the Board of Trustees of the Invesco Funds since 2000.
Mr. Dowden retired at the end of 1998 after a 24-year career with Volvo Group North America, Inc. and Volvo Cars of North America, Inc.
Mr. Dowden joined Volvo as general counsel in 1974 and was promoted to increasingly senior positions until 1991 when he was appointed president, chief executive officer and director of Volvo Group North America and senior vice president of
Swedish parent company AB Volvo.
Since retiring, Mr. Dowden continues to serve on the boards of the Reich & Tang Funds,
Nature’s Sunshine Products, Inc., and The Boss Group. Mr. Dowden’s charitable endeavors currently focus on Boys & Girls Clubs, where he has been active for many years, as well as several other not-for-profit organizations.
Mr. Dowden began his career as an attorney with a major international law firm, Rogers & Wells (1967-1976), which is
now Clifford Chance.
The Board believes that Mr. Dowden’s extensive experience as a corporate executive benefits the Funds.
39
Jack M. Fields, Trustee
Jack M. Fields has been a member of the Board of Trustees of the Invesco Funds since 1997.
Mr. Fields served as a member of Congress, representing the 8th Congressional District of Texas from 1980 to 1997. As a member of
Congress, Mr. Fields served as Chairman of the House Telecommunications and Finance Subcommittee, which has jurisdiction and oversight of the Federal Communications Commission and the Securities and Exchange Commission. Mr. Fields
co-sponsored the National Securities Markets Improvements Act of 1996, and played a leadership role in enactment of the Securities Litigation Reform Act.
Mr. Fields currently serves as Chief Executive Officer of the Twenty-First Century Group, Inc.in Washington, D.C., a bipartisan
Washington consulting firm specializing in Federal government affairs.
Mr. Fields also serves as a Director of Insperity, Inc.
(formerly known as Administaff), a premier professional employer organization with clients nationwide. In addition, Jack sits on the Board of the Discovery Channel Global Education Fund, a nonprofit organization dedicated to providing educational
resources to people in need around the world through the use of technology.
The Board believes that Mr. Fields’ experience in
the House of Representatives, especially concerning regulation of the securities markets, benefits the Funds.
Dr. Prema Mathai-Davis, Trustee
Dr. Prema Mathai-Davis has been a member of the Board of Trustees of the Invesco Funds since 1998.
Prior to her retirement in 2000, Dr. Mathai-Davis served as Chief Executive Officer of the YWCA of the USA. Prior to joining the YWCA,
Dr. Mathai-Davis served as the Commissioner of the New York City Department for the Aging. She was a Commissioner of the New York Metropolitan Transportation Authority of New York, the largest regional transportation network in the U.S.
Dr. Mathai-Davis also serves as a Trustee of the YWCA Retirement Fund, the first and oldest pension fund for women, and on the advisory board of the Johns Hopkins Bioethics Institute. Dr. Mathai-Davis was the president and chief executive
officer of the Community Agency for Senior Citizens, a non-profit social service agency that she established in 1981. She also directed the Mt. Sinai School of Medicine-Hunter College Long-Term Care Gerontology Center, one of the first of its kind.
The Board believes that Dr. Mathai-Davis’ extensive experience in running public and charitable institutions benefits the
Funds.
Dr. Larry Soll, Trustee
Dr. Larry Soll has been a member of the Board of Trustees of the Invesco Funds since 1997.
Formerly, Dr. Soll was Chairman of the Board (1987-1994), Chief Executive Officer (1982-1989-1993-1994) and President (1982-1989) of
Synergen, Corp. a public company, and in such capacities supervised the activities of the Chief Financial Officer. Dr. Soll also has served as a director of three other public companies and as treasurer of a non-profit corporation.
Dr. Soll currently serves as a Trustee and a member of the Audit Committee of each of the funds within the Invesco Funds.
The
Board believes that Dr. Soll’s experience as a chairman of a public company and in academia benefits the Fund.
Hugo F. Sonnenschein, Trustee
Mr. Sonnenschein has been a member of the Board of Trustees of the Invesco Funds and their predecessor funds since 2010.
40
Mr. Sonnenschein is the Distinguished Service Professor and President Emeritus of the
University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Until July 2000, Mr. Sonnenschein served as President of the University of Chicago.
Mr. Sonnenschein is a Trustee of the University of Rochester and a member of its investment committee. He is also a member of the
National Academy of Sciences and the American Philosophical Society, and a Fellow of the American Academy of Arts and Sciences. From 1994 to 2010, Mr. Sonnenschein served as Director or Trustee of investment companies in the Van Kampen Funds
complex.
The Board believes that Mr. Sonnenschein’s experiences in academia and in running a university, and his experience as
a director of investment companies benefits the Funds.
Raymond Stickel, Jr., Trustee
Raymond Stickel, Jr. has been a member of the Board of Trustees of the Invesco Funds since 2005.
Mr. Stickel retired after a 35-year career with Deloitte & Touche. For the last five years of his career, he was the managing
partner of the Investment Management practice for the New York, New Jersey and Connecticut region. In addition to his management role, he directed audit and tax services for several mutual fund clients.
Mr. Stickel began his career with Touche Ross & Co. (the Firm) in Dayton, Ohio, became a partner in 1976 and managing partner of
the office in 1985. He also started and developed an investment management practice in the Dayton office that grew to become a significant source of investment management talent for the Firm. In Ohio, he served as the audit partner on numerous
mutual funds and on public and privately held companies in other industries. Mr. Stickel has also served on the Firm’s Accounting and Auditing Executive Committee.
The Board believes that Mr. Stickel’s experience as a partner in a large accounting firm working with investment managers and
investment companies, and his status as an Audit Committee Financial Expert, benefits the Funds.
Management Information
The Trustees have the authority to take all actions necessary in connection with the business affairs of the Trust, including, among
other things, approving the investment objectives, policies and procedures for the Funds. The Trust enters into agreements with various entities to manage the day-to-day operations of the Funds, including the Funds’ investment advisers,
administrator, transfer agent, distributor and custodians. The Trustees are responsible for selecting these service providers and approving the terms of their contracts with the Funds, and exercising general oversight of these service providers on
an ongoing basis.
Certain trustees and officers of the Trust are affiliated with Invesco and Invesco Ltd., the parent corporation of
Invesco. All of the Trust’s executive officers hold similar offices with some or all of the other Funds.
Leadership Structure and
the Board of Trustees
. The Board is currently composed of fourteen Trustees, including eleven Trustees who are not “interested persons” of the Fund, as that term is defined in the 1940 Act (collectively, the Independent Trustees and
each an Independent Trustee). In addition to eight regularly scheduled meetings per year, the Board holds special meetings or informal conference calls to discuss specific matters that may require action prior to the next regular meeting. As
discussed below, the Board has established five committees to assist the Board in performing its oversight responsibilities.
41
The Board has appointed an Independent Trustee to serve in the role of Chairman. The
Chairman’s primary role is to participate in the preparation of the agenda for meetings of the Board and the identification of information to be presented to the Board and matters to be acted upon by the Board. The Chairman also presides at all
meetings of the Board and acts as a liaison with service providers, officers, attorneys, and other Trustees generally between meetings. The Chairman may perform such other functions as may be requested by the Board from time to time. Except for any
duties specified herein or pursuant to the Trust’s Declaration of Trust or By-laws, the designation of Chairman does not impose on such Independent Trustee any duties, obligations or liability that is greater than the duties, obligations or
liability imposed on such person as a member of the Board, generally. The Fund has substantially the same leadership structure as the Trust.
The Board believes that its leadership structure, which includes an Independent Trustee as Chairman, allows for effective communication
between the trustees and Fund management, among the Board’s trustees and among its Independent Trustees. The existing Board structure, including its committee structure, provides the independent Trustees with effective control over board
governance while also providing insight from the two Interested Trustees who are active officers of the Funds’ investment adviser. The Board’s leadership structure promotes dialogue and debate, which the Board believes will allow for the
proper consideration of matters deemed important to the Funds and their shareholders and result in effective decision-making.
Risk
Oversight
. The Board considers risk management issues as part of its general oversight responsibilities throughout the year at regular meetings of the Investments, Audit, Compliance and Valuation, Distribution and Proxy Oversight Committees (as
defined and further described below). These Committees in turn report to the full Board and recommend actions and approvals for the full Board to take.
Invesco prepares regular reports that address certain investment, valuation and compliance matters, and the Board as a whole or the Committees
may also receive special written reports or presentations on a variety of risk issues at the request of the Board, a Committee or the Senior Officer. In addition, the Audit Committee of the Board meets regularly with Invesco Ltd.’s internal
audit group to review reports on their examinations of functions and processes within Invesco that affect the Funds.
The Investments
Committee and its sub-committees receive regular written reports describing and analyzing the investment performance of the Funds. In addition, the portfolio managers of the Funds meet regularly with the sub-committees of the Investment Committee to
discuss portfolio performance, including investment risk, such as the impact on the Funds of the investment in particular securities or instruments, such as derivatives. To the extent that a Fund changes a particular investment strategy that could
have a material impact on the Fund’s risk profile, the Board generally is consulted in advance with respect to such change.
The
Adviser provides regular written reports to the Valuation, Distribution and Proxy Oversight Committee that enable the Committee to monitor the number of fair valued securities in a particular portfolio, the reasons for the fair valuation and the
methodology used to arrive at the fair value. Such reports also include information concerning illiquid securities within a Fund’s portfolio. In addition, the Audit Committee reviews valuation procedures and pricing results with the Fund’s
independent auditors in connection with such Committee’s review of the results of the audit of the Fund’s year-end financial statement.
The Compliance Committee receives regular compliance reports prepared by the Invesco compliance group and meets regularly with the Fund’s
Chief Compliance Officer (CCO) to discuss compliance issues, including compliance risks. As required under SEC rules, the Independent Trustees meet at least quarterly in executive session with the CCO, and the Fund’s CCO prepares and presents
an annual written compliance report to the Board. The Compliance Committee recommends and the Board adopts compliance policies and procedures for the Fund and approves such procedures for the Fund’s service providers. The compliance policies
and procedures are specifically designed to detect, prevent and correct violations of the federal securities laws.
42
Committee Structure.
The standing committees of the Board are the Audit Committee, the
Compliance Committee, the Governance Committee, the Investments Committee, and the Valuation, Distribution and Proxy Oversight Committee (the Committees).
The members of the Audit Committee are Messrs. David C. Arch, Frank S. Bayley, James T. Bunch, Bruce L. Crockett, Rodney F. Dammeyer
(Vice-Chair), Raymond Stickel, Jr. (Chair) and Dr. Larry Soll. The Audit Committee’s primary purposes are to: (i) oversee qualifications, independence and performance of the independent registered public accountants; (ii) appoint
independent registered public accountants for the Funds; (iii) pre-approve all permissible audit and non-audit services that are provided to Funds by their independent registered public accountants to the extent required by Section 10A(h)
and (i) of the Exchange Act; (iv) pre-approve, in accordance with Rule 2-01(c)(7)(ii) of Regulation S-X, certain non-audit services provided by the Funds’ independent registered public accountants to Invesco and certain other
affiliated entities; (v) review the audit and tax plans prepared by the independent registered public accountants; (vi) review the Funds’ audited financial statements; (vii) review the process that management uses to evaluate and
certify disclosure controls and procedures in Form N-CSR; (viii) review the process for preparation and review of the Funds’ shareholder reports; (ix) review certain tax procedures maintained by the Funds; (x) review modified or
omitted officer certifications and disclosures; (xi) review any internal audits of the Funds; (xii) establish procedures regarding questionable accounting or auditing matters and other alleged violations; (xiii) set hiring policies
for employees and proposed employees of the Funds who are employees or former employees of the independent registered public accountants; and (xiv) remain informed of (a) the Funds’ accounting systems and controls, (b) regulatory
changes and new accounting pronouncements that affect the Funds’ net asset value calculations and financial statement reporting requirements, and (c) communications with regulators regarding accounting and financial reporting matters that
pertain to the Funds. During the fiscal year ended October 31, 2013, the Audit Committee held six meetings.
The members of the
Compliance Committee are Messrs.’, Bayley, Bunch, Dammeyer (Vice-Chair), Dr. Soll (Chair) and Stickel. The Compliance Committee is responsible for: (i) recommending to the Board and the independent trustees the appointment,
compensation and removal of the Funds’ Chief Compliance Officer; (ii) recommending to the independent trustees the appointment, compensation and removal of the Funds’ Senior Officer appointed pursuant to the terms of the Assurances of
Discontinuance entered into by the New York Attorney General, Invesco and INVESCO Funds Group, Inc. (IFG); (iii) reviewing any report prepared by a third party who is not an interested person of Invesco, upon the conclusion by such third party
of a compliance review of Invesco; (iv) reviewing all reports on compliance matters from the Funds’ Chief Compliance Officer, (v) reviewing all recommendations made by the Senior Officer regarding Invesco’s compliance procedures,
(vi) reviewing all reports from the Senior Officer of any violations of state and federal securities laws, the Colorado Consumer Protection Act, or breaches of Invesco’s fiduciary duties to Fund shareholders and of Invesco’s Code of
Ethics; (vii) overseeing all of the compliance policies and procedures of the Funds and their service providers adopted pursuant to Rule 38a-1 of the 1940 Act; (viii) receiving and reviewing quarterly reports on the activities of
Invesco’s Internal Compliance Controls Committee; (ix) reviewing all reports made by Invesco’s Chief Compliance Officer; (x) reviewing and recommending to the independent trustees whether to approve procedures to investigate
matters brought to the attention of Invesco’s ombudsman; (xi) risk management oversight with respect to the Funds and, in connection therewith, receiving and overseeing risk management reports from Invesco Ltd. that are applicable to the
Funds or their service providers; and (xii) overseeing potential conflicts of interest that are reported to the Compliance Committee by Invesco, the Chief Compliance Officer, the Senior Officer and/or the Compliance Consultant. During the
fiscal year ended October 31, 2013, the Compliance Committee held six meetings.
The members of the Governance Committee are
Messrs. Arch, Crockett, Albert R. Dowden (Chair), Jack M. Fields (Vice-Chair), Hugo F. Sonnenschein and Dr. Prema Mathai-Davis. The Governance Committee is responsible for: (i) nominating persons who will qualify as independent trustees
43
for (a) election as trustees in connection with meetings of shareholders of the Funds that are called to vote on the election of trustees, (b) appointment by the Board as trustees in
connection with filling vacancies that arise in between meetings of shareholders; (ii) reviewing the size of the Board, and recommending to the Board whether the size of the Board shall be increased or decreased; (iii) nominating the Chair
of the Board; (iv) monitoring the composition of the Board and each committee of the Board, and monitoring the qualifications of all trustees; (v) recommending persons to serve as members of each committee of the Board (other than the
Compliance Committee), as well as persons who shall serve as the chair and vice chair of each such committee; (vi) reviewing and recommending the amount of compensation payable to the independent trustees; (vii) overseeing the selection of
independent legal counsel to the independent trustees; (viii) reviewing and approving the compensation paid to independent legal counsel to the independent trustees; (ix) reviewing and approving the compensation paid to counsel and other
advisers, if any, to the Committees of the Board; and (x) reviewing as they deem appropriate administrative and/or logistical matters pertaining to the operations of the Board. During the fiscal year ended October 31, 2013, the Governance
Committee held six meetings.
The Governance Committee will consider nominees recommended by a shareholder to serve as trustees,
provided: (i) that such person is a shareholder of record at the time he or she submits such names and is entitled to vote at the meeting of shareholders at which trustees will be elected; and (ii) that the Governance Committee or the
Board, as applicable, shall make the final determination of persons to be nominated. Notice procedures set forth in the Trust’s bylaws require that any shareholder of a Fund desiring to nominate a trustee for election at a shareholder meeting
must submit to the Trust’s Secretary the nomination in writing not later than the close of business on the later of the 90th day prior to such shareholder meeting or the tenth day following the day on which public announcement is made of the
shareholder meeting and not earlier than the close of business on the 120th day prior to the shareholder meeting.
The members of the
Investments Committee are Messrs. Arch, Bayley (Chair), Bunch (Vice-Chair), Crockett, Dammeyer, Dowden, Fields (Vice-Chair), Martin L. Flanagan, Sonnenschein (Vice-Chair), Stickel, Philip A. Taylor, Wayne W. Whalen and Drs. Mathai-Davis and Soll.
The Investments Committee’s primary purposes are to: (i) assist the Board in its oversight of the investment management services provided by Invesco Ltd. and the Sub-Advisers; and (ii) review all proposed and existing advisory and
sub-advisory arrangements for the Funds, and to recommend what action the full Boards and the independent trustees take regarding the approval of all such proposed arrangements and the continuance of all such existing arrangements. During the fiscal
year ended October 31, 2013, the Investments Committee held six meetings.
The Investments Committee has established three
sub-committees (the Sub-Committees). The Sub-Committees are responsible for: (i) reviewing the performance, fees and expenses of the Funds that have been assigned to a particular Sub-Committee (for each Sub-Committee, the Designated Funds),
unless the Investments Committee takes such action directly; (ii) reviewing with the applicable portfolio managers from time to time the investment objective(s), policies, strategies and limitations of the Designated Funds;
(iii) evaluating the investment advisory, sub-advisory and distribution arrangements in effect or proposed for the Designated Funds, unless the Investments Committee takes such action directly; (iv) being familiar with the registration
statements and periodic shareholder reports applicable to their Designated Funds; and (v) such other investment-related matters as the Investments Committee may delegate to the Sub-Committee from time to time.
The members of the Valuation, Distribution and Proxy Oversight Committee are Messrs. Dowden, Fields, Sonnenschein (Vice-Chair), Whalen and
Dr. Mathai-Davis (Chair). The primary purposes of the Valuation, Distribution and Proxy Oversight Committee are: (a) to address issues requiring action or oversight by the Board of the Invesco Funds (i) in the valuation of the Invesco
Funds’ portfolio securities consistent with the Pricing Procedures, (ii) in oversight of the creation and maintenance by the principal underwriters of the Invesco Funds of an effective distribution and marketing system to build and
maintain an adequate asset base and to create and maintain economies of scale for the Invesco Funds, (iii) in the review of existing distribution arrangements for the Invesco Funds under Rule 12b-1 and Section 15 of the 1940 Act, and
(iv) in the oversight of proxy voting on portfolio securities of the Funds; and (b) to make regular reports to the full Boards of the Invesco Funds.
44
The Valuation, Distribution and Proxy Oversight Committee is responsible for: (a) with
regard to valuation, (i) developing an understanding of the valuation process and the Pricing Procedures, (ii) reviewing the Pricing Procedures and making recommendations to the full Board with respect thereto, (iii) reviewing the
reports described in the Pricing Procedures and other information from Invesco Ltd. regarding fair value determinations made pursuant to the Pricing Procedures by Invesco’s internal valuation committee and making reports and recommendations to
the full Board with respect thereto, (iv) receiving the reports of Invesco’s internal valuation committee requesting approval of any changes to pricing vendors or pricing methodologies as required by the Pricing Procedures and the annual
report of Invesco Ltd. evaluating the pricing vendors, approving changes to pricing vendors and pricing methodologies as provided in the Pricing Procedures, and recommending annually the pricing vendors for approval by the full Board; (v) upon
request of Invesco, assisting Invesco’s internal valuation committee or the full Board in resolving particular fair valuation issues; (vi) reviewing the reports described in the Procedures for Determining the Liquidity of Securities (the
Liquidity Procedures) and other information from Invesco Ltd. regarding liquidity determinations made pursuant to the Liquidity Procedures by Invesco Ltd. and making reports and recommendations to the full Board with respect thereto, and
(vii) overseeing actual or potential conflicts of interest by investment personnel or others that could affect their input or recommendations regarding pricing or liquidity issues; (b) with regard to distribution and marketing,
(i) developing an understanding of mutual fund distribution and marketing channels and legal, regulatory and market developments regarding distribution, (ii) reviewing periodic distribution and marketing determinations and annual approval
of distribution arrangements and making reports and recommendations to the full Board with respect thereto, and (iii) reviewing other information from the principal underwriters to the Invesco Funds regarding distribution and marketing of the
Invesco Funds and making recommendations to the full Board with respect thereto; and (c) with regard to proxy voting, (i) overseeing the implementation of the Proxy Voting Guidelines (the Guidelines) and the Proxy Policies and Procedures
(the Proxy Procedures) by Invesco Ltd. and the Sub-Advisers, reviewing the Quarterly Proxy Voting Report and making recommendations to the full Board with respect thereto, (ii) reviewing the Guidelines and the Proxy Procedures and information
provided by Invesco Ltd. and the Sub-Advisers regarding industry developments and best practices in connection with proxy voting and making recommendations to the full Board with respect thereto, and (iii) in implementing its responsibilities
in this area, assisting Invesco Ltd. in resolving particular proxy voting issues. The Valuation, Distribution and Proxy Oversight Committee was formed effective January 1, 2008. It succeeded the Valuation Committee which existed prior to 2008.
During the fiscal year ended October
31, 2013, the Valuation, Distribution and Proxy Oversight Committee held six meetings.
Trustee Ownership of Fund
Shares
The dollar range of equity securities beneficially owned by each trustee (i) in the Funds and (ii) on an
aggregate basis, in all registered investment companies overseen by the trustee within the Invesco Funds complex, is set forth in Appendix C.
Compensation
Each trustee who is not affiliated with Invesco is compensated for his or her services according to a fee schedule
that recognizes the fact that such trustee also serves as a trustee of other Invesco Funds. Each such trustee receives a fee, allocated among the Invesco Funds for which he or she serves as a trustee, that consists of an annual retainer component
and a meeting fee component. The Chair of the Board and Chairs and Vice Chairs of certain committees receive additional compensation for their services.
Information regarding compensation paid or accrued for each trustee of the Trust who was not affiliated with Invesco during the year ended
December 31, 2013 is found in Appendix D.
45
Pre-Amendment Retirement Plan For Trustees
The Trustees have adopted a retirement plan for the Trustees who are not affiliated with the Adviser. The Trustees also have adopted a
retirement policy that permits each non-Invesco-affiliated Trustee to serve until December 31 of the year in which the Trustee turns 75. A majority of the Trustees may extend from time to time the retirement date of a Trustee.
Annual retirement benefits are available from the Funds and/or the other Invesco Funds for which a Trustee serves (each, a “Covered
Fund”), for each Trustee who is not an employee or officer of the Adviser, who either (a) became a Trustee prior to December 1, 2008, and who has at least five years of credited service as a Trustee (including service to a predecessor
fund) of a Covered Fund, or (b) was a member of the Board of Trustees of a Van Kampen Fund immediately prior to June 1, 2010 (“Former Van Kampen Trustee”), and has at least one year of credited service as a Trustee of a Covered
Fund after June 1, 2010.
For Trustees other than Former Van Kampen Trustees, effective January 1, 2006, for retirements after
December 31, 2005, the retirement benefits will equal 75% of the Trustee’s annual retainer paid to or accrued by any Covered Fund with respect to such Trustee during the twelve-month period prior to retirement, including the amount of any
retainer deferred under a separate deferred compensation agreement between the Covered Fund and the Trustee. The amount of the annual retirement benefit does not include additional compensation paid for Board meeting fees or compensation paid to the
Chair of the Board and the Chairs and Vice Chairs of certain Board committees, whether such amounts are paid directly to the Trustee or deferred. The annual retirement benefit is payable in quarterly installments for a number of years equal to the
lesser of (i) sixteen years or (ii) the number of such Trustee’s credited years of service. If a Trustee dies prior to receiving the full amount of retirement benefits, the remaining payments will be made to the deceased
Trustee’s designated beneficiary for the same length of time that the Trustee would have received the payments based on his or her service or, if the Trustee has elected, in a discounted lump sum payment. A Trustee must have attained the age of
65 (60 in the event of disability) to receive any retirement benefit. A Trustee may make an irrevocable election to commence payment of retirement benefits upon retirement from the Board before age 72; in such a case, the annual retirement benefit
is subject to a reduction for early payment.
If the Former Van Kampen Trustee completes at least 10 years of credited service after
June 1, 2010, the retirement benefit will equal 75% of the Former Van Kampen Trustee’s annual retainer paid to or accrued by any Covered Fund with respect to such Trustee during the twelve-month period prior to retirement, including the
amount of any retainer deferred under a separate deferred compensation agreement between the Covered Fund and such Trustee. The amount of the annual retirement benefit does not include additional compensation paid for Board meeting fees or
compensation paid to the Chair of the Board and the Chairs and Vice Chairs of certain Board committees, whether such amounts are paid directly to the Trustee or deferred. The annual retirement benefit is payable in quarterly installments for
10 years beginning after the later of the Former Van Kampen Trustee’s termination of service or attainment of age 72 (or age 60 in the event of disability or immediately in the event of death). If a Former Van Kampen Trustee dies prior to
receiving the full amount of retirement benefits, the remaining payments will be made to the deceased Trustee’s designated beneficiary or, if the Trustee has elected, in a discounted lump sum payment.
46
If the Former Van Kampen Trustee completes less than 10 years of credited service after
June 1, 2010, the retirement benefit will be payable at the applicable time described in the preceding paragraph, but will be paid in two components successively. For the period of time equal to the Former Van Kampen Trustee’s years of
credited service after June 1, 2010, the first component of the annual retirement benefit will equal 75% of the compensation amount described in the preceding paragraph. Thereafter, for the period of time equal to the Former Van Kampen
Trustee’s years of credited service after June 1, 2010, the second component of the annual retirement benefit will equal the excess of (x) 75% of the compensation amount described in the preceding paragraph, over (y) $68,041 plus
an interest factor of 4% per year compounded annually measured from June 1, 2010 through the first day of each year for which payments under this second component are to be made. In no event, however, will the retirement benefits under the
two components be made for a period of time greater than 10 years. For example, if the Former Van Kampen Trustee completes 7 years of credited service after June 1, 2010, he or she will receive 7 years of payments under the first
component and thereafter 3 years of payments under the second component, and if the Former Van Kampen Trustee completes 4 years of credited service after June 1, 2010, he or she will receive 4 years of payments under the first
component and thereafter 4 years of payments under the second component.
Amendment of Retirement Plan and Conversion to Defined Contribution
Plan
The Trustees approved an amendment to the Retirement Plan to convert it to a defined contribution plan for active Trustees
(the “Amended Plan”). Under the Amended Plan, the benefit amount was amended for each active Trustee to the present value of the Trustee’s existing retirement plan benefit as of December 31, 2013 (the “Existing Plan
Benefit”) plus the present value of retirement benefits expected to be earned under the Retirement Plan through the end of the calendar year in which the Trustee attained age 75 (the “Expected Future Benefit” and, together with the
Existing Plan Benefit, the “Accrued Benefit”). On the conversion date, the Covered Funds established bookkeeping accounts in the amount of their pro rata share of the Accrued Benefit, which is deemed to be invested in one or more Invesco
Funds selected by the participating Trustees. Such accounts will be adjusted from time to time to reflect deemed investment earnings and losses. Each Trustee’s Accrued Benefit is not funded and, with respect to the payments of amounts held in
the accounts, the participating Trustees have the status of unsecured creditors of the Covered Funds. Trustees will be paid the adjusted account balance under the Amended Plan in quarterly installments for the same period as described above.
47
Deferred Compensation Agreements
Edward K. Dunn and Carl Frischling (former Trustees of funds in the Invesco Funds complex), Messrs. Crockett, Fields and
Drs. Mathai-Davis and Soll (for purposes of this paragraph only, the ”Deferring Trustees”) have each executed a Deferred Compensation Agreement (collectively, the ”Compensation Agreements“). Pursuant to the Compensation
Agreements, the Deferring Trustees have the option to elect to defer receipt of up to 100% of their compensation payable by the Funds, and such amounts are placed into a deferral account and deemed to be invested in one or more Invesco Funds
selected by the Deferring Trustees.
Distributions from these deferral accounts will be paid in cash, generally in equal quarterly
installments over a period of up to ten (10) years (depending on the Compensation Agreement) beginning on the date selected under the Compensation Agreement. If a Deferring Trustee dies prior to the distribution of amounts in his or her
deferral account, the balance of the deferral account will be distributed to his or her designated beneficiary. The Compensation Agreements are not funded and, with respect to the payments of amounts held in the deferral accounts, the Deferring
Trustees have the status of unsecured creditors of the Funds and of each other Invesco Fund from which they are deferring compensation.
Purchase of Class A Shares of the Funds at Net Asset Value
The trustees and other affiliated persons of the Trust may
purchase Class A shares of the Invesco Funds without paying an initial sales charge. Invesco Distributors permits such purchases because there is a reduced sales effort involved in sales to such purchasers, thereby resulting in relatively low
expenses of distribution. For a complete description of the persons who will not pay an initial sales charge on purchases of Class A shares of the Invesco Funds, see “Appendix L — Purchase, Redemption and Pricing of Shares —
Purchase and Redemption of Shares—Purchases of Class A Shares Sold Without an Initial Sales Charge.”
Purchase of Class Y Shares of the Funds at Net Asset Value
The trustees and other affiliated persons of the Trust may purchase Class Y shares of the Invesco Funds. For a description please see
“Appendix L — Purchase, Redemption and Pricing of Shares — Pricing and Redemption Shares — Purchases of Class Y Shares.”
Code of Ethics
Invesco, the Trust, Invesco Distributors and the Sub-Advisers each have adopted a Code of Ethics that applies to
all Invesco Fund trustees and officers, and employees of Invesco, the Sub-Advisers and their affiliates, and governs, among other things, the personal trading activities of all such persons. Unless specifically noted, each Sub-Advisers’ Codes
of Ethics do not materially differ from Invesco Code of Ethics discussed below. The Code of Ethics is intended to address conflicts of interest with the Trust that may arise from personal trading, including personal trading in most of the Invesco
Funds. Personal trading, including personal trading involving securities that may be purchased or held by an Invesco Fund, is permitted under the Code of Ethics subject to certain restrictions; however, employees are required to pre-clear security
transactions with the Compliance Officer or a designee and to report transactions on a regular basis.
48
Proxy Voting Policies
Invesco has adopted its own specific Proxy Voting Policies.
The Board has delegated responsibility for decisions regarding proxy voting for securities held by each Fund to the following
Adviser/Sub-Adviser(s):
|
|
|
|
|
Fund
|
|
Adviser/Sub-Adviser
|
|
Invesco Asia Pacific Growth Fund
|
|
Invesco Advisers, Inc.
|
|
Invesco European Growth Fund
|
|
Invesco Advisers, Inc.
|
|
Invesco Global Growth Fund
|
|
Invesco Advisers, Inc.
|
|
Invesco Global Opportunities Fund
|
|
Invesco Advisers, Inc.
|
|
Invesco Global Small & Mid Cap Growth Fund
|
|
Invesco Advisers, Inc.
|
|
Invesco International Core Equity Fund
|
|
Invesco Advisers, Inc.
|
|
Invesco International Growth Fund
|
|
Invesco Advisers, Inc.
|
|
Invesco Select Opportunities Fund
|
|
Invesco Canada Ltd.
|
Invesco (the Proxy Voting Entity) will vote such proxies in accordance with the proxy policies and
procedures, as outlined above, which have been reviewed and approved by the Board, and which are found in Appendix E. Any material changes to the proxy policies and procedures will be submitted to the Board for approval. The Board will be supplied
with a summary quarterly report of each Fund’s proxy voting record. Information regarding how the Funds voted proxies related to their portfolio securities during the 12 months ended June 30, 2013 is available without charge at our Web
site,
www.invesco.com/us
. This information is also available at the SEC Web site
http://www.sec.gov
.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information about the ownership of each class of the Funds’ shares by
beneficial or record owners of such Fund and by trustees and officers as a group is found in Appendix F. A shareholder who owns beneficially 25% or more of the outstanding shares of a Fund is presumed to “control” that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
Invesco, the Funds’ investment adviser, was organized in 1976, and along with its subsidiaries, manages or advises investment portfolios
encompassing a broad range of investment objectives. Invesco serves as the Funds’ investment adviser. The Adviser manages the investment operations of the Funds as well as other investment portfolios that encompass a broad range of investment
objectives and has agreed to perform or arrange for the performance of the Funds’ day to day management. The Adviser, as successor in interest to multiple investment advisers, has been an investment adviser since 1976. Invesco is an indirect,
wholly owned subsidiary of Invesco Ltd. Invesco Ltd. and its subsidiaries are an independent global investment management group. Certain of the directors and officers of Invesco are also executive officers of the Trust and their affiliations are
shown under “Management Information” herein.
As investment adviser, Invesco supervises all aspects of the Funds’
operations and provides investment advisory services to the Funds. Invesco obtains and evaluates economic, statistical and financial information to formulate and implement investment programs for the Funds. The Master Investment Advisory Agreement
(Advisory Agreement) provides that, in fulfilling its responsibilities, Invesco may engage the services of other investment managers with respect to one or more of the Funds. The investment advisory services of Invesco are not exclusive and Invesco
is free to render investment advisory services to others, including other investment companies.
49
Pursuant to an administrative services agreement with the Funds, Invesco is also responsible
for furnishing to the Funds, at Invesco’s expense, the services of persons believed to be competent to perform all supervisory and administrative services required by the Funds, which in the judgment of the trustees, are necessary to conduct
the respective businesses of the Funds effectively, as well as the offices, equipment and other facilities necessary for their operations. Such functions include the maintenance of each Fund’s accounts and records, and the preparation of all
requisite corporate documents such as tax returns and reports to the SEC and shareholders.
The Advisory Agreement provides that each
Fund will pay or cause to be paid all expenses of such Fund not assumed by Invesco, including, without limitation: brokerage commissions, taxes, legal, auditing or governmental fees, custodian, transfer and shareholder service agent costs, expenses
of issue, sale, redemption, and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to trustee and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, the fees
and other expenses incurred by the Trust on behalf of each Fund in connection with membership in investment company organizations, and the cost of printing copies of prospectuses and statements of additional information distributed to the
Funds’ shareholders.
Invesco, at its own expense, furnishes to the Trust office space and facilities. Invesco furnishes to the Trust
all personnel for managing the affairs of the Trust and each of its series of shares.
Pursuant to its Advisory Agreement with the Trust,
Invesco receives a monthly fee from each Fund calculated at the annual rates indicated in the second column below, based on the average daily net assets of each Fund during the year. Each Fund allocates advisory fees to a class based on the relative
net assets of each class.
|
|
|
|
|
|
|
|
|
Fund Name
|
|
Net Assets
|
|
Annual Rate
|
|
|
Invesco Asia Pacific Growth Fund
Invesco European Growth Fund
Invesco International Growth Fund
|
|
First $250M
Next $250M
Next $500M
Next $1.5B
Next $2.5B
Next $2.5B
Next $2.5B
Amount over $10B
|
|
|
0.935
0.91
0.885
0.86
0.835
0.81
0.785
0.76
|
%
%
%
%
%
%
%
%
|
|
Invesco Global Growth Fund
Invesco Global Opportunities Fund
Invesco Global Small & Mid Cap Growth Fund
Invesco Select Opportunities Fund
|
|
First $250M
Next $250M
Next $500M
Next $1.5B
Next $2.5B
Next $2.5B
Next $2.5B
Amount over $10B
|
|
|
0.80
0.78
0.76
0.74
0.72
0.70
0.68
0.66
|
%
%
%
%
%
%
%
%
|
|
Invesco International Core Equity Fund
|
|
First $500M
Next $500M
From $1B
From $2B
From $4B
From $6B
Amount over $8B
|
|
|
0.75
0.65
0.55
0.45
0.40
0.375
0.35
|
%
%
%
%
%
%
%
|
Invesco may from time to time waive or reduce its fee. Voluntary fee waivers or reductions may be rescinded at
any time without further notice to investors. During periods of voluntary fee waivers or reductions, Invesco will retain its ability to be reimbursed for such fee prior to the end of the respective fiscal year in which the voluntary fee waiver or
reduction was made. Contractual fee waivers or reductions set forth in the Fee Table in a Prospectus may not be terminated or amended to the Funds’ detriment during the period stated in the agreement between Invesco and the Fund.
50
Invesco has contractually agreed through at least February 28, 2015 to waive advisory fees
payable by each Fund in an amount equal to 100% of the advisory fee Invesco receives from the Affiliated Money Market Funds as a result of each Fund’s investment of uninvested cash in the Affiliated Money Market Funds. See “Description of
the Funds and Their Investments and Risks- Investment Strategies and Risks- Other Investments-Other Investment Companies.”
Invesco
also has contractually agreed to waive advisory fees or reimburse expenses to the extent necessary to limit total annual fund operating expenses (excluding (i) interest; (ii) taxes; (iii) dividend expense on short sales;
(iv) extraordinary or non-routine items, including litigation expenses; and (v) expenses that each Fund has incurred but did not actually pay because of an expense offset arrangement). The expense limitations for the following Funds’
shares are:
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Expense Limitation
|
|
|
|
|
Expires
June 30, 2014
|
|
|
Expires
February 28, 2015
|
|
|
Invesco Asia Pacific Growth Fund
|
|
|
|
|
|
|
|
|
|
Class A Shares
|
|
|
2.25
|
%
|
|
|
—
|
|
|
Class B Shares
|
|
|
3.00
|
%
|
|
|
—
|
|
|
Class C Shares
|
|
|
3.00
|
%
|
|
|
—
|
|
|
Class Y Shares
|
|
|
2.00
|
%
|
|
|
—
|
|
|
Invesco European Growth Fund
|
|
|
|
|
|
|
|
|
|
Class A Shares
|
|
|
2.25
|
%
|
|
|
—
|
|
|
Class B Shares
|
|
|
3.00
|
%
|
|
|
—
|
|
|
Class C Shares
|
|
|
3.00
|
%
|
|
|
—
|
|
|
Class R Shares
|
|
|
2.50
|
%
|
|
|
|
|
|
Class Y Shares
|
|
|
2.00
|
%
|
|
|
|
|
|
Investor Class Shares
|
|
|
2.25
|
%
|
|
|
—
|
|
|
Invesco Global Growth Fund
|
|
|
|
|
|
|
|
|
|
Class A Shares
|
|
|
2.25
|
%
|
|
|
—
|
|
|
Class B Shares
|
|
|
3.00
|
%
|
|
|
—
|
|
|
Class C Shares
|
|
|
3.00
|
%
|
|
|
—
|
|
|
Class Y Shares
|
|
|
2.00
|
%
|
|
|
—
|
|
|
Class R5 Shares
|
|
|
2.00
|
%
|
|
|
—
|
|
|
Class R6 Shares
|
|
|
2.00
|
%
|
|
|
—
|
|
|
Invesco Global Opportunities Fund
|
|
|
|
|
|
|
|
|
|
Class A Shares
|
|
|
—
|
|
|
|
1.36
|
%
|
|
Class C Shares
|
|
|
—
|
|
|
|
2.11
|
%
|
|
Class R Shares
|
|
|
—
|
|
|
|
1.61
|
%
|
|
Class R5 Shares
|
|
|
—
|
|
|
|
1.11
|
%
|
|
Class R6 Shares
|
|
|
—
|
|
|
|
1.11
|
%
|
|
Class Y Shares
|
|
|
—
|
|
|
|
1.11
|
%
|
|
Invesco Global Small & Mid Cap
Growth Fund
|
|
|
|
|
|
|
|
|
|
Class A Shares
|
|
|
2.25
|
%
|
|
|
—
|
|
|
Class B Shares
|
|
|
3.00
|
%
|
|
|
—
|
|
|
Class C Shares
|
|
|
3.00
|
%
|
|
|
—
|
|
|
Class Y Shares
|
|
|
2.00
|
%
|
|
|
—
|
|
|
Class R5 Shares
|
|
|
2.00
|
%
|
|
|
—
|
|
51
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Expense Limitation
|
|
|
|
|
Expires
June 30, 2014
|
|
|
Expires
February 28, 2015
|
|
|
Invesco International Core
Equity Fund
|
|
|
|
|
|
|
|
|
|
Class A Shares
|
|
|
2.25
|
%
|
|
|
—
|
|
|
Class B Shares
|
|
|
3.00
|
%
|
|
|
—
|
|
|
Class C Shares
|
|
|
3.00
|
%
|
|
|
—
|
|
|
Class R Shares
|
|
|
2.50
|
%
|
|
|
—
|
|
|
Class Y Shares
|
|
|
2.00
|
%
|
|
|
—
|
|
|
Investor Class Shares
|
|
|
2.25
|
%
|
|
|
—
|
|
|
Class R5 Shares
|
|
|
2.00
|
%
|
|
|
—
|
|
|
Class R6 Shares
|
|
|
2.00
|
%
|
|
|
—
|
|
|
Invesco International Growth Fund
|
|
|
|
|
|
|
|
|
|
Class A Shares
|
|
|
2.25
|
%
|
|
|
—
|
|
|
Class B Shares
|
|
|
3.00
|
%
|
|
|
—
|
|
|
Class C Shares
|
|
|
3.00
|
%
|
|
|
—
|
|
|
Class R Shares
|
|
|
2.50
|
%
|
|
|
—
|
|
|
Class Y Shares
|
|
|
2.00
|
%
|
|
|
—
|
|
|
Class R5 Shares
|
|
|
2.00
|
%
|
|
|
—
|
|
|
Class R6 Shares
|
|
|
2.00
|
%
|
|
|
—
|
|
|
Invesco Select Opportunities Fund
|
|
|
|
|
|
|
|
|
|
Class A Shares
|
|
|
—
|
|
|
|
1.51
|
%
|
|
Class C Shares
|
|
|
—
|
|
|
|
2.26
|
%
|
|
Class R Shares
|
|
|
—
|
|
|
|
1.76
|
%
|
|
Class Y Shares
|
|
|
—
|
|
|
|
1.26
|
%
|
|
Class R5 Shares
|
|
|
—
|
|
|
|
1.26
|
%
|
|
Class R6 Shares
|
|
|
—
|
|
|
|
1.26
|
%
|
The Total Annual Fund Operating Expenses used in determining whether a Fund meets or exceeds the expense
limitations described above do not include Acquired Fund Fees and Expenses, which are required to be disclosed and included in the total annual fund operating expenses in a Fund’s prospectus fee table. Acquired Fund Fees and Expenses are not
operating expenses of the Fund directly, but are fees and expenses, including management fees of the investment companies in which the Fund invests. As a result, the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement
may exceed a Fund’s expense limit.
If applicable, such contractual fee waivers or reductions are set forth in the Fee Table to
each Fund’s Prospectus. Unless Invesco continues the fee waiver agreements, they will terminate on the dates discussed in the table above. The fee waiver agreements cannot be terminated during their term.
The management fees payable by each Fund, the amounts waived by Invesco and the net fees paid by each Fund for the last three fiscal years
ended October 31 are found in Appendix G.
Investment Sub-Advisers
Invesco has entered into a Sub-Advisory Agreement with certain affiliates to serve as sub-advisers to each Fund, pursuant to which these
affiliated sub-advisers may be appointed by Invesco from time to time to provide discretionary investment management services, investment advice, and/or order execution services to the Funds. These affiliated sub-advisers, each of which is a
registered investment adviser under the Investment Advisers Act of 1940 are:
Invesco Asset Management Deutschland Gmbh (Invesco
Deutschland)
Invesco Asset Management Limited (Invesco Asset Management)
Invesco Asset Management (Japan) Limited (Invesco Japan)
Invesco Australia Limited (Invesco Australia)
Invesco Hong Kong Limited (Invesco Hong Kong)
Invesco Senior Secured Management, Inc. (Invesco Senior Secured)
Invesco Canada Ltd. (Invesco Canada)
Invesco PowerShares Capital Management LLC (Invesco PowerShares); (each a Sub-Adviser and collectively, the (Sub-Advisers)
52
Invesco and each Sub-Adviser are indirect wholly owned subsidiaries of Invesco
Ltd.
The only fees payable to the Sub-Advisers under the Sub-Advisory Agreement are for providing discretionary investment management
services. For such services, Invesco will pay each Sub-Adviser a fee, computed daily and paid monthly, equal to (i) 40% of the monthly compensation that Invesco receives from the Trust, multiplied by (ii) the fraction equal to the net
assets of such Fund as to which such Sub-Adviser shall have provided discretionary investment management services for that month divided by the net assets of such Fund for that month. Pursuant to the Sub-Advisory Agreement, this fee is reduced to
reflect contractual or voluntary fee waivers or expense limitations by Invesco, if any, in effect from time to time. In no event shall the aggregate monthly fees paid to the Sub-Advisers under the Sub-Advisory Agreement exceed 40% of the monthly
compensation that Invesco receives from the Trust pursuant to its advisory agreement with the Trust, as reduced to reflect contractual or voluntary fees waivers or expense limitations by Invesco, if any.
Portfolio Managers
Appendix H contains the following information regarding the portfolio managers identified in each Fund’s prospectus:
|
|
•
|
|
The dollar range of the managers’ investments in each Fund.
|
|
|
•
|
|
A description of the managers’ compensation structure.
|
|
|
•
|
|
Information regarding other accounts managed by the manager and potential conflicts of interest that might arise from the management of multiple accounts.
|
Securities Lending Arrangements
If a Fund engages in securities lending, Invesco will provide the Fund investment advisory services and related administrative services. The
Advisory Agreement describes the administrative services to be rendered by Invesco if a Fund engages in securities lending activities, as well as the compensation Invesco may receive for such administrative services. Services to be provided include:
(a) overseeing participation in the securities lending program to ensure compliance with all applicable regulatory and investment guidelines; (b) assisting the securities lending agent or principal (the agent) in determining which specific
securities are available for loan; (c) monitoring the agent to ensure that securities loans are effected in accordance with Invesco’s instructions and with procedures adopted by the Board; (d) preparing appropriate periodic reports
for, and seeking appropriate approvals from, the Board with respect to securities lending activities; (e) responding to agent inquiries; and (f) performing such other duties as may be necessary.
Invesco’s compensation for advisory services rendered in connection with securities lending is included in the advisory fee schedule. As
compensation for the related administrative services Invesco will provide, a lending Fund will pay Invesco a fee equal to 25% of the net monthly interest or fee income retained or paid to the Fund from such activities. Invesco currently waives such
fee, and has agreed to seek Board approval prior to its receipt of all or a portion of such fee.
Service Agreements
Administrative Services Agreement.
Invesco and the Trust have entered into a Master Administrative Services Agreement
(Administrative Services Agreement) pursuant to which Invesco may perform or arrange for the provision of certain accounting and other administrative services to each Fund which are not required to be performed by Invesco under the Advisory
Agreement. The Administrative
53
Services Agreement provides that it will remain in effect and continue from year to year only if such continuance is specifically approved at least annually by the Board, including the
independent trustees, by votes cast in person at a meeting called for such purpose. Under the Administrative Services Agreement, Invesco is entitled to receive from the Funds reimbursement of its costs or such reasonable compensation as may be
approved by the Board. Currently, Invesco is reimbursed for the services of the Trust’s principal financial officer and her staff and any expenses related to fund accounting services.
Administrative services fees paid to Invesco by each Fund for the last three fiscal years ended October 31 are found in Appendix I.
Other Service Providers
Transfer Agent.
Invesco Investment Services, Inc., (Invesco Investment Services), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046, a
wholly owned subsidiary of Invesco Ltd., is the Trust’s transfer agent.
The Transfer Agency and Service Agreement (the TA
Agreement) between the Trust and Invesco Investment Services provides that Invesco Investment Services will perform certain services related to the servicing of shareholders of the Funds. Other such services may be delegated or sub-contracted to
third party intermediaries. For servicing accounts holding Class A, A2, AX, B, BX, C,CX, P, R, RX, S, Y, Invesco Cash Reserve and Investor Class shares, as applicable, the TA Agreement provides that the Trust, on behalf of the Funds, will pay
Invesco Investment Services an annual fee per open shareholder account plus certain out of pocket expenses. This fee is paid monthly at the rate of 1/12 of the annual rate and is based upon the number of open shareholder accounts during each month.
For servicing accounts holding Class R5 and R6 shares, the TA Agreement provides that the Trust, on behalf of the Funds, will pay Invesco Investment Services a fee per trade executed, to be billed monthly, plus certain out-of-pocket expenses. In
addition, all fees payable by Invesco Investment Services or its affiliates to third party intermediaries who service accounts pursuant to sub-transfer agency, omnibus account services and sub-accounting agreements are charged back to the Funds,
subject to certain limitations approved by the Board of the Trust. These payments are made in consideration of services that would otherwise be provided by Invesco Investment Services if the accounts serviced by such intermediaries were serviced by
Invesco Investment Services directly. For more information regarding such payments to intermediaries, see the discussion under “Sub-Accounting and Networking Support Payments” in Appendix L.
Sub-Transfer Agent.
Invesco Canada, 5140 Yonge Street, Suite 800, Toronto, Ontario M2N 6X7, Canada, a wholly owned, indirect subsidiary
of Invesco Ltd., provides services to the Trust as a sub-transfer agent, pursuant to an agreement between Invesco Canada and Invesco Investment Services. The Trust does not pay a fee to Invesco Canada for these services. Rather Invesco Canada is
compensated by Invesco Investment Services, as a sub-contractor.
Custodian.
State Street Bank and Trust Company (the Custodian),
225 Franklin Street, Boston, Massachusetts 02110, is custodian of all securities and cash of the Funds. The Bank of New York Mellon, 2 Hanson Place, Brooklyn, New York 11217-1431, also serves as sub-custodian to facilitate cash management.
The custodians are authorized to establish separate accounts in foreign countries and to cause foreign securities owned by the Funds to be
held outside the United States in branches of U.S. banks and, to the extent permitted by applicable regulations, in certain foreign banks and securities depositories. Invesco is responsible for selecting eligible foreign securities depositories and
for assessing the risks associated with investing in foreign countries, including the risk of using eligible foreign securities’ depositories in a country. The Custodian is responsible for monitoring eligible foreign securities depositories.
54
Under its contract with the Trust, the Custodian maintains the portfolio securities of the Funds,
administers the purchases and sales of portfolio securities, collects interest and dividends and other distributions made on the securities held in the portfolios of the Funds and performs other ministerial duties. These services do not include any
supervisory function over management or provide any protection against any possible depreciation of assets.
Independent Registered
Public Accounting Firm.
The Funds’ independent registered public accounting firm is responsible for auditing the financial statements of the Funds. The Audit Committee of the Board has appointed PricewaterhouseCoopers LLP, 1201 Louisiana,
Suite 2900, Houston, Texas 77002, as the independent registered public accounting firm to audit the financial statements of the Funds. Such appointment was ratified and approved by the Board.
Counsel to the Trust.
Legal matters for the Trust have been passed upon by Stradley Ronon Stevens & Young, LLP, 2005 Market
Street, Suite 2600, Philadelphia, Pennsylvania 19103-7018.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Sub-Advisers have adopted compliance procedures that cover, among other items, brokerage allocation and other trading practices.
If all or a portion of a Fund’s assets are managed by one or more Sub-Advisers, the decision to buy and sell securities and broker selection will be made by the Sub-Adviser for the assets it manages. Unless specifically noted, the Sub-Advisers
brokerage allocation procedures do not materially differ from Invesco Advisers, Inc.’s procedures.
Brokerage
Transactions
Placing trades generally involves acting on portfolio manager instructions to buy or sell a specified amount of portfolio
securities, including selecting one or more broker-dealers, including affiliated and third-party broker-dealers, to execute the trades, and negotiating commissions and spreads. Various Invesco Ltd. subsidiaries have created a global equity trading
desk. The global equity trading desk has assigned local traders in six primary trading centers to place equity securities trades in their regions. Invesco Advisers’ Americas desk, located in Atlanta, Houston and Toronto, generally places trades
of equity securities trading in North America, Canada and Latin America; the Hong Kong desk of Invesco Hong Kong (the Hong Kong Desk) generally places trades of equity securities in the Asia-Pacific markets, except Japan; the Japan trading desk of
Invesco Japan generally places trades of equity securities in the Japanese markets; the London trading desk of Invesco Global Investment Funds Limited (the London Desk) generally places trades of equity securities in European, Middle Eastern and
African countries; the Australia desk, located in Sydney and Melbourne, for the execution of orders of equity securities trading in the Australian and New Zealand markets and the Taipei desk, located in Taipei, for the execution of orders of
securities trading in the Chinese market. Invesco, Invesco Canada, Invesco Australia, Invesco Japan, Invesco Deutschland, Invesco Hong Kong and Invesco Asset Management use the global equity trading desk to place equity trades. Other Sub-Advisers
may use the global equity trading desk in the future. The trading procedures for the global trading desks are similar in all material respects.
References in the language below to actions by Invesco Advisers, Inc. or a Sub-Adviser (other than Invesco Canada) making determinations or
taking actions related to equity trading include these entities’ delegation of these determinations/actions to the Americas Desk, the Hong Kong Desk, and the London Desk. Even when trading is delegated by Invesco or the Sub-Adviser to the
various arms of the global equity trading desk, Invesco or the Sub-Adviser that delegates trading is responsible for oversight of this trading activity.
Invesco or the Sub-Adviser makes decisions to buy and sell securities for each Fund, selects broker-dealers (each, a Broker), effects the
Funds’ investment portfolio transactions, allocates brokerage fees in such transactions and, where applicable, negotiates commissions and spreads on transactions. Invesco’s and the Sub-Adviser’s primary consideration in effecting a
security transaction is to obtain best execution, which is defined as prompt and efficient execution of the transaction at the best obtainable price with payment of commissions, mark-ups or mark-downs which are reasonable in relation to the value of
the brokerage services provided by the Broker. While Invesco or the Sub-Adviser seeks reasonably competitive commission rates, the Funds may not pay the lowest commission or spread available. See “Broker Selection” below.
55
Some of the securities in which the Funds invest are traded in OTC markets. Portfolio
transactions in such markets may be effected on a principal basis at net prices without commissions, but which include compensation to the Broker in the form of a mark-up or mark-down, or on an agency basis, which involves the payment of negotiated
brokerage commissions to the Broker, including electronic communication networks. Purchases of underwritten issues, which include initial public offerings and secondary offerings, include a commission or concession paid by the issuer (not the Funds)
to the underwriter. Purchases of money market instruments may be made directly from issuers without the payment of commissions.
Historically, Invesco did not negotiate commission rates on stock markets outside the United States. In recent years many overseas stock
markets have adopted a system of negotiated rates; however, a number of markets maintain an established schedule of minimum commission rates.
In some cases, Invesco may decide to place trades on a “blind principal bid” basis, which involves combining all trades for one or
more portfolios into a single basket, and generating a description of the characteristics of the basket for provision to potential executing brokers. Based on the trade characteristics information provided by Invesco, these brokers submit bids for
executing all of the required trades at the market close price for a specific commission. Invesco generally selects the broker with the lowest bid to execute these trades.
Brokerage commissions paid by each of the Funds during the last three fiscal years ended October 31 are found in Appendix J.
Commissions
The Funds may engage in certain principal and agency transactions with banks and their affiliates that own 5% or more of the outstanding voting
securities of an Invesco Fund, provided the conditions of an exemptive order received by the Invesco Funds from the SEC are met. In addition, a Fund may purchase or sell a security from or to certain other Invesco Funds or other accounts (and may
invest in the Affiliated Money Market Funds) provided the Funds follow procedures adopted by the Boards of the various Invesco Funds, including the Trust. These inter-fund transactions do not generate brokerage commissions but may result in
custodial fees or taxes or other related expenses.
Broker Selection
Invesco’s or the Sub-Adviser’s primary consideration in selecting Brokers to execute portfolio transactions for a Fund is to obtain
best execution. In selecting a Broker to execute a portfolio transaction in equity securities for a Fund, Invesco or the Sub-Adviser considers the full range and quality of a Broker’s services, including the value of research and/or brokerage
services provided, execution capability, commission rate, and willingness to commit capital, anonymity and responsiveness. Invesco’s and the Sub-Adviser’s primary consideration when selecting a Broker to execute a portfolio transaction in
fixed income securities for a Fund is the Broker’s ability to deliver or sell the relevant fixed income securities; however, Invesco and the Sub-Adviser will also consider the various factors listed above. In each case, the determinative factor
is not the lowest commission or spread available but whether the transaction represents the best qualitative execution for the Fund. Invesco and the Sub-Adviser will not select Brokers based upon their promotion or sale of Fund shares.
In choosing Brokers to execute portfolio transactions for the Funds, Invesco or the Sub-Adviser may select Brokers that are not affiliated
with Invesco that provide brokerage and/or research services (Soft Dollar Products) to the Funds and/or the other accounts over which Invesco and its affiliates have investment discretion. Section 28(e) of the Securities Exchange Act of 1934,
as amended, provides that Invesco or the Sub-Adviser, under certain circumstances, lawfully may cause an account to pay a higher commission than the lowest available. Under Section 28(e)(1), Invesco or the Sub-Adviser must make a
56
good faith determination that the commissions paid are “reasonable in relation to the value of the brokerage and research services provided viewed in terms of either that particular
transaction or [Invesco’s or the Sub-Adviser’s] overall responsibilities with respect to the accounts as to which [it] exercises investment discretion.” The services provided by the Broker also must lawfully and appropriately assist
Invesco or the Sub-Adviser in the performance of its investment decision-making responsibilities. Accordingly, a Fund may pay a Broker commissions higher than those available from another Broker in recognition of the Broker’s provision of Soft
Dollar Products to Invesco or the Sub-Adviser.
Invesco and the Sub-Adviser face a potential conflict of interest when they use client
trades to obtain Soft Dollar Products. This conflict exists because Invesco and the Sub-Adviser are able to use the Soft Dollar Products to manage client accounts without paying cash for the Soft Dollar Products, which reduces Invesco’s or the
Sub-Adviser’s expenses to the extent that Invesco or the Sub-Adviser would have purchased such products had they not been provided by Brokers. Section 28(e) permits Invesco or the Sub-Adviser to use Soft Dollar Products for the benefit of
any account it manages. Certain Invesco-managed accounts (or accounts managed by the Sub-Adviser) may generate soft dollars used to purchase Soft Dollar Products that ultimately benefit other Invesco Advisers, Inc.-managed accounts (or
Sub-Adviser-managed accounts), effectively cross subsidizing the other Invesco-managed accounts (or the other Sub-Adviser-managed accounts) that benefit directly from the product. Invesco or the Sub-Adviser may not use all of the Soft Dollar
Products provided by Brokers through which a Fund effects securities transactions in connection with managing the Fund whose trades generated the soft dollars used to purchase such products.
Invesco presently engages in the following instances of cross-subsidization:
Fixed income funds normally do not generate soft dollar commissions to pay for Soft Dollar Products. Therefore, soft dollar commissions used
to pay for Soft Dollar Products which are used to manage certain fixed income Invesco Funds are generated entirely by equity Invesco Funds and other equity client accounts managed by Invesco. In other words, certain fixed income Invesco Funds are
cross-subsidized by the equity Invesco Funds in that the fixed income Invesco Funds receive the benefit of Soft Dollar Products services for which they do not pay. Similarly, other accounts managed by Invesco or certain of its affiliates may benefit
from Soft Dollar Products services for which they do not pay.
Invesco and the Sub-Adviser attempt to reduce or eliminate the potential
conflicts of interest concerning the use of Soft Dollar Products by directing client trades for Soft Dollar Products only if Invesco or the Sub-Adviser concludes that the Broker supplying the product is capable of providing best execution.
Certain Soft Dollar Products may be available directly from a vendor on a hard dollar basis; other Soft Dollar Products are available only
through Brokers in exchange for soft dollars. Invesco and the Sub-Adviser use soft dollars to purchase two types of Soft Dollar Products:
|
|
•
|
|
proprietary research created by the Broker executing the trade, and
|
|
|
•
|
|
other products created by third parties that are supplied to Invesco or the Sub-Adviser through the Broker executing the trade.
|
Proprietary research consists primarily of traditional research reports, recommendations and similar materials produced by the in-house
research staffs of broker-dealer firms. This research includes evaluations and recommendations of specific companies or industry groups, as well as analyses of general economic and market conditions and trends, market data, contacts and other
related information and assistance. Invesco periodically rates the quality of proprietary research produced by various Brokers. Based on the evaluation of the quality of information that Invesco receives from each Broker, Invesco develops an
estimate of each Broker’s share of Invesco clients’ commission dollars and attempts to direct trades to these firms to meet these estimates.
57
Invesco and the Sub-Adviser also use soft dollars to acquire products from third parties that are
supplied to Invesco or the Sub-Adviser through Brokers executing the trades or other Brokers who “step in” to a transaction and receive a portion of the brokerage commission for the trade. Invesco or the Sub-Adviser may from time to time
instruct the executing Broker to allocate or “step out” a portion of a transaction to another Broker. The Broker to which Invesco or the Sub-Adviser has “stepped out” would then settle and complete the designated portion of the
transaction, and the executing Broker would settle and complete the remaining portion of the transaction that has not been “stepped out.” Each Broker may receive a commission or brokerage fee with respect to that portion of the transaction
that it settles and completes.
Soft Dollar Products received from Brokers supplement Invesco’s and or the Sub-Adviser’s own
research (and the research of certain of its affiliates), and may include the following types of products and services:
|
|
•
|
|
Database Services – comprehensive databases containing current and/or historical information on companies and industries and indices. Examples include historical securities prices, earnings estimates and financial
data. These services may include software tools that allow the user to search the database or to prepare value-added analyses related to the investment process (such as forecasts and models used in the portfolio management process).
|
|
|
•
|
|
Quotation/Trading/News Systems – products that provide real time market data information, such as pricing of individual securities and information on current trading, as well as a variety of news services.
|
|
|
•
|
|
Economic Data/Forecasting Tools – various macro economic forecasting tools, such as economic data or currency and political forecasts for various countries or regions.
|
|
|
•
|
|
Quantitative/Technical Analysis – software tools that assist in quantitative and technical analysis of investment data.
|
|
|
•
|
|
Fundamental/Industry Analysis – industry specific fundamental investment research.
|
|
|
•
|
|
Fixed Income Security Analysis – data and analytical tools that pertain specifically to fixed income securities. These tools assist in creating financial models, such as cash flow projections and interest rate
sensitivity analyses, which are relevant to fixed income securities.
|
|
|
•
|
|
Other Specialized Tools – other specialized products, such as consulting analyses, access to industry experts, and distinct investment expertise such as forensic accounting or custom built investment-analysis
software.
|
If Invesco or the Sub-Adviser determines that any service or product has a mixed use (i.e., it also serves
functions that do not assist the investment decision-making or trading process), Invesco or the Sub-Adviser will allocate the costs of such service or product accordingly in its reasonable discretion. Invesco or the Sub-Adviser will allocate
brokerage commissions to Brokers only for the portion of the service or product that Invesco or the Sub-Adviser determines assists it in the investment decision-making or trading process and will pay for the remaining value of the product or service
in cash.
Outside research assistance is useful to Invesco or the Sub-Adviser because the Brokers used by Invesco or the Sub-Adviser tend
to provide more in-depth analysis of a broader universe of securities and other matters than Invesco’s or the Sub-Adviser’s staff follows. In addition, such services provide Invesco or the Sub-Adviser with a diverse perspective on
financial markets. Some Brokers may indicate that the provision of research services is dependent upon the generation of certain specified levels of commissions and underwriting concessions by Invesco’s or the Sub-Adviser’s clients,
including the Funds. However, the Funds are not under any obligation to deal with any Broker in the execution of transactions in portfolio securities. In some cases, Soft Dollar Products are available only from the Broker
58
providing them. In other cases, Soft Dollar Products may be obtainable from alternative sources in return for cash payments. Invesco and the Sub-Adviser believe that because Broker research
supplements rather than replaces Invesco’s or the Sub-Adviser’s research, the receipt of such research tends to improve the quality of Invesco’s or the Sub-Adviser’s investment advice. The advisory fee paid by the Funds is not
reduced because Invesco or the Sub-Adviser receives such services. To the extent the Funds’ portfolio transactions are used to obtain Soft Dollar Products, the brokerage commissions obtained by the Funds might exceed those that might otherwise
have been paid.
Invesco or the Sub-Adviser may determine target levels of brokerage business with various Brokers on behalf of its
clients (including the Funds) over a certain time period. Invesco determines target levels based upon the following factors, among others: (1) the execution services provided by the Broker; and (2) the research services provided by the
Broker. Portfolio transactions may be effected through Brokers that recommend the Funds to their clients, or that act as agent in the purchase of a Fund’s shares for their clients, provided that Invesco or the Sub-Adviser believes such Brokers
provide best execution and such transactions are executed in compliance with Invesco’s policy against using directed brokerage to compensate Brokers for promoting or selling Invesco Fund shares. Invesco and the Sub-Adviser will not enter into a
binding commitment with Brokers to place trades with such Brokers involving brokerage commissions in precise amounts.
Directed Brokerage (Research Services)
Directed brokerage (research services) paid by each of the Funds during the last fiscal year ended October 31, 2013 are found in Appendix
K.
Affiliated Transactions
Invesco may place trades with Invesco Capital Markets, Inc. (ICMI), a broker-dealer with whom it is under common control, provided Invesco
determines that the affiliate’s trade execution abilities and costs are at least comparable to those of non-affiliated brokerage firms with which Invesco could otherwise place similar trades. ICMI receives brokerage commissions in connection
with effecting trades for the Funds and, therefore, use of ICMI presents a conflict of interest for Invesco. Trades placed through ICMI, including the brokerage commissions paid to ICMI, are subject to procedures adopted by the Boards of the various
Invesco Funds, including the Trust.
Brokerage commissions on affiliated transactions paid by the Funds during the fiscal year ended
October 31, 2013, are found in Appendix J.
Regular Brokers
Information concerning the Funds’ acquisition of securities of their Brokers during the last fiscal year ended October 31, 2013 is
found in Appendix K.
Allocation of Portfolio Transactions
Invesco and the Sub-Advisers manage numerous Invesco Funds and other accounts. Some of these accounts may have investment objectives similar to
the Funds. Occasionally, identical securities will be appropriate for investment by one of the Funds and by another Fund or one or more other accounts. However, the position of each account in the same security and the length of time that each
account may hold its investment in the same security may vary. Invesco and the Sub-Adviser will also determine the timing and amount of purchases for an account based on its cash position. If the purchase or sale of securities is consistent with the
investment policies of the Fund(s) and one or more other accounts, and is considered at or about the same time, Invesco or the Sub-Adviser will allocate transactions in such securities among the Fund(s) and these accounts on a pro rata basis based
on order size or in such other manner believed by Invesco to be fair and equitable. Invesco or the Sub-Adviser may combine transactions in accordance with applicable laws and regulations to obtain the most favorable execution. Simultaneous
transactions could, however, adversely affect a Fund’s ability to obtain or dispose of the full amount of a security which it seeks to purchase or sell.
59
Allocation of Initial Public Offering (IPO) Transactions
Certain of the Invesco Funds or other accounts managed by Invesco may become interested in participating in IPOs. Purchases of IPOs by one
Invesco Fund or other accounts may also be considered for purchase by one or more other Invesco Funds or accounts. Invesco combines indications of interest for IPOs for all Invesco Funds and accounts participating in purchase transactions for that
IPO. When the full amount of all IPO orders for such Invesco Funds and accounts cannot be filled completely, Invesco shall allocate such transactions in accordance with the following procedures:
Invesco or the Sub-Adviser may determine the eligibility of each Invesco Fund and account that seeks to participate in a particular IPO by
reviewing a number of factors, including market capitalization/liquidity suitability and sector/style suitability of the investment with the Invesco Fund’s or account’s investment objective, policies, strategies and current holdings.
Invesco will allocate securities issued in IPOs to eligible Invesco Funds and accounts on a pro rata basis based on order size.
Invesco
Canada, Invesco Australia, Invesco Hong Kong and Invesco Japan allocate IPOs on a pro rata basis based on size of order or in such other manner which they believe is fair and equitable.
Invesco Asset Management allocates IPOs on a pro rata basis based on account size or in such other manner believed by Invesco Asset Management
to be fair and equitable.
Invesco Deutschland and Invesco Senior Secured do not subscribe to IPOs.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Please refer to Appendix L for information on Purchase, Redemption and Pricing of Shares.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
Dividends and Distributions
The following discussion of dividends and distributions should be read in connection with the applicable sections in the Prospectus.
All dividends and distributions will be automatically reinvested in additional shares of the same class of a Fund (hereinafter, the Fund)
unless the shareholder has requested in writing to receive such dividends and distributions in cash or that they be invested in shares of another Invesco Fund, subject to the terms and conditions set forth in the Prospectus under the caption
“Purchasing Shares — Automatic Dividend and Distribution Investment.” Such dividends and distributions will be reinvested at the net asset value per share determined on the ex-dividend date.
The Fund calculates income dividends and capital gain distributions the same way for each class. The amount of any income dividends per share
will differ, however, generally due to any differences in the distribution and service (Rule 12b-1) fees applicable to the classes, as well as any other expenses attributable to a particular class (Class Expenses). Class Expenses, including
distribution plan expenses, must be allocated to the class for which they are incurred consistent with applicable legal principles under the 1940 Act.
Tax Matters
The following is a summary of certain additional tax considerations generally affecting the Fund and its shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax treatment of the Fund or its shareholders, and the discussion here and in the Prospectus is not intended as a substitute for careful tax planning.
60
This “Tax Matters” section is based on the Internal Revenue Code (Code) and applicable
regulations in effect on the date of this SAI. Future legislative, regulatory or administrative changes, including provisions of current law that sunset and thereafter no longer apply, or court decisions may significantly change the tax rules
applicable to the Fund and its shareholders. Any of these changes or court decisions may have a retroactive effect.
This is for
general information only and not tax advice. All investors should consult their own tax advisors as to the federal, state, local and foreign tax provisions applicable to them.
Taxation of the Fund
. The Fund has elected and intends to qualify (or, if newly organized, intends to elect and qualify) each year as a
“regulated investment company” (sometimes referred to as a regulated investment company, RIC or fund) under Subchapter M of the Code. If the Fund qualifies, the Fund will not be subject to federal income tax on the portion of its
investment company taxable income (i.e., generally, taxable interest, dividends, net short-term capital gains and other taxable ordinary income net of expenses without regard to the deduction for dividends paid) and net capital gain (i.e., the
excess of net long-term capital gains over net short-term capital losses) that it distributes to shareholders.
Qualification as a
regulated investment company.
In order to qualify for treatment as a regulated investment company, the Fund must satisfy the following requirements:
|
|
•
|
|
Distribution Requirement — the Fund must distribute an amount equal to the sum of at least 90% of its investment company taxable income and 90% of its net tax-exempt income, if any, for the tax year (certain
distributions made by the Fund after the close of its tax year are considered distributions attributable to the previous tax year for purposes of satisfying this requirement).
|
|
|
•
|
|
Income Requirement — the Fund must derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived from its business of investing in such stock, securities or currencies and net income derived from qualified
publicly traded partnerships (QPTPs).
|
|
|
•
|
|
Asset Diversification Test — the Fund must satisfy the following asset diversification test at the close of each quarter of the Fund’s tax year: (1) at least 50% of the value of the Fund’s assets
must consist of cash and cash items, U.S. Government securities, securities of other regulated investment companies, and securities of other issuers (as to which the Fund has not invested more than 5% of the value of the Fund’s total assets in
securities of an issuer and as to which the Fund does not hold more than 10% of the outstanding voting securities of the issuer); and (2) no more than 25% of the value of the Fund’s total assets may be invested in the securities of any one
issuer (other than U.S. Government securities or securities of other regulated investment companies) or of two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses, or, collectively, in the
securities of QPTPs.
|
In some circumstances, the character and timing of income realized by the Fund for purposes of
the Income Requirement or the identification of the issuer for purposes of the Asset Diversification Test is uncertain under current law with respect to a particular investment, and an adverse determination or future guidance by the Internal Revenue
Service (IRS) with respect to such type of investment may adversely affect the Fund’s ability to satisfy these requirements. See “Tax Treatment of Portfolio Transactions” with respect to the application of these requirements to
certain types of investments. In other circumstances, the Fund may be required to sell portfolio holdings in order to meet the Income Requirement, Distribution Requirement, or Asset Diversification Test, which may have a negative impact on the
Fund’s income and performance. In lieu of potential disqualification, the Fund is permitted to pay a tax for certain failures to satisfy the Asset Diversification Test or Income Requirement, which, in general, are limited to those due to
reasonable cause and not willful neglect.
61
The Fund may use “equalization accounting” (in lieu of making some cash distributions)
in determining the portion of its income and gains that has been distributed. If the Fund uses equalization accounting, it will allocate a portion of its undistributed investment company taxable income and net capital gain to redemptions of Fund
shares and will correspondingly reduce the amount of such income and gains that it distributes in cash. However, the Fund intends to make cash distributions for each taxable year in an aggregate amount that is sufficient to satisfy the Distribution
Requirement without taking into account its use of equalization accounting. If the IRS determines that the Fund’s allocation is improper and that the Fund has under-distributed its income and gain for any taxable year, the Fund may be liable
for federal income and/or excise tax.
If for any taxable year the Fund does not qualify as a regulated investment company, all of its
taxable income (including its net capital gain) would be subject to tax at regular corporate rates without any deduction for dividends paid to shareholders, and the dividends would be taxable to the shareholders as ordinary income (or possibly as
qualified dividend income) to the extent of the Fund’s current and accumulated earnings and profits. Failure to qualify as a regulated investment company thus would have a negative impact on the Fund’s income and performance. Subject to
savings provisions for certain inadvertent failures to satisfy the Income Requirement or Asset Diversification Test which, in general, are limited to those due to reasonable cause and not willful neglect, it is possible that the Fund will not
qualify as a regulated investment company in any given tax year. Even if such savings provisions apply, the Fund may be subject to a monetary sanction of $50,000 or more. Moreover, the Board reserves the right not to maintain the qualification of
the Fund as a regulated investment company if it determines such a course of action to be beneficial to shareholders.
Portfolio
turnover
. For investors that hold their Fund shares in a taxable account, a high portfolio turnover rate (except in a money market fund that maintains a stable net asset value) may result in higher taxes. This is because a fund with a high
turnover rate may accelerate the recognition of capital gains and more of such gains are likely to be taxable as short-term rather than long-term capital gains in contrast to a comparable fund with a low turnover rate. Any such higher taxes would
reduce the Fund’s after-tax performance. See “Taxation of Fund Distributions — Capital gain dividends” below. For non- U.S. investors, any such acceleration of the recognition of capital gains that results in more short-term and
less long-term capital gains being recognized by the Fund may cause such investors to be subject to increased U.S. withholding taxes. See, “Foreign Shareholders — U.S. withholding tax at the source” below.
Capital loss carryovers.
The capital losses of the Fund, if any, do not flow through to shareholders. Rather, the Fund may use its
capital losses, subject to applicable limitations, to offset its capital gains without being required to pay taxes on or distribute to shareholders such gains that are offset by the losses. Under the Regulated Investment Company Modernization Act of
2010 (RIC Mod Act), if the Fund has a “net capital loss” (that is, capital losses in excess of capital gains) for a taxable year beginning after December 22, 2010, the excess (if any) of the Fund’s net short-term capital losses
over its net long-term capital gains is treated as a short-term capital loss arising on the first day of the Fund’s next taxable year, and the excess (if any) of the Fund’s net long-term capital losses over its net short-term capital gains
is treated as a long-term capital loss arising on the first day of the Fund’s next taxable year. Any such net capital losses of the Fund that are not used to offset capital gains may be carried forward indefinitely to reduce any future capital
gains realized by the Fund in succeeding taxable years. However, for any net capital losses realized in taxable years of the Fund beginning on or before December 22, 2010, the Fund is permitted to carry forward such capital losses for eight
years as a short-term capital loss. Under a transition rule, capital losses arising in a taxable year beginning after December 22, 2010 must be used before capital losses realized in a taxable year beginning on or before December 22, 2010.
The amount of capital losses that can be carried forward and used in any single year is subject to an annual limitation if there is a more than 50% “change in ownership” of the Fund. An ownership change generally results when shareholders
owning 5% or more of the Fund increase their aggregate holdings by more than 50% over a three-year look-back period. An ownership change could
62
result in capital loss carryovers being used at a slower rate (or, in the case of those realized in taxable years of the Fund beginning on or before December 22, 2010, to expire), thereby
reducing the Fund’s ability to offset capital gains with those losses. An increase in the amount of taxable gains distributed to the Fund’s shareholders could result from an ownership change. The Fund undertakes no obligation to avoid or
prevent an ownership change, which can occur in the normal course of shareholder purchases and redemptions or as a result of engaging in a tax-free reorganization with another fund. Moreover, because of circumstances beyond the Fund’s control,
there can be no assurance that the Fund will not experience, or has not already experienced, an ownership change.
Deferral of late
year losses
. The Fund may elect to treat part or all of any “qualified late year loss” as if it had been incurred in the succeeding taxable year in determining the Fund’s taxable income, net capital gain, net short-term capital
gain, and earnings and profits. The effect of this election is to treat any such “qualified late year loss” as if it had been incurred in the succeeding taxable year, which may change the timing, amount, or characterization of Fund
distributions (see, “Taxation of Fund Distributions — Capital gain dividends” below). A “qualified late year loss” includes:
|
|
(i)
|
any net capital loss, net long-term capital loss, or net short-term capital loss incurred after October 31, of the current taxable year (post-October losses), and
|
|
|
(ii)
|
the excess, if any, of (1) the sum of (a) specified losses incurred after October 31, of the current taxable year, and (b) other ordinary losses incurred after December 31, of the current
taxable year, over (2) the sum of (a) specified gains incurred after October 31 of the current taxable year, and (b) other ordinary gains incurred after December 31 of the current taxable year.
|
The terms “specified losses” and “specified gains” mean ordinary losses and gains from the sale, exchange, or other
disposition of property (including the termination of a position with respect to such property), foreign currency losses and gains, and losses and gains resulting from holding stock in a passive foreign investment company (PFIC) for which a
mark-to-market election is in effect. The terms “ordinary losses” and “ordinary gains” mean other ordinary losses and gains that are not described in the preceding sentence. Special rules apply to a fund with a fiscal year ending
in November or December that elects to use its taxable year for determining its capital gain net income for excise tax purposes.
Undistributed capital gains
. The Fund may retain or distribute to shareholders its net capital gain for each taxable year. The Fund
currently intends to distribute net capital gains. If the Fund elects to retain its net capital gain, the Fund will be taxed thereon (except to the extent of any available capital loss carryovers) at the highest corporate tax rate (currently 35%).
If the Fund elects to retain its net capital gain, it is expected that the Fund also will elect to have shareholders treated as if each received a distribution of its pro rata share of such gain, with the result that each shareholder will be
required to report its pro rata share of such gain on its tax return as long-term capital gain, will receive a refundable tax credit for its pro rata share of tax paid by the Fund on the gain and will increase the tax basis for its shares by an
amount equal to the deemed distribution less the tax credit.
Asset allocation funds
. If the Fund is a fund of funds, asset
allocation fund, or a feeder fund in a master-feeder structure (collectively referred to as a “fund of funds” which invests in one or more underlying funds taxable as regulated investment companies) distributions by the underlying funds,
redemptions of shares in the underlying funds and changes in asset allocations may result in taxable distributions to shareholders of ordinary income or capital gains. A fund of funds (other than a feeder fund in a master-feeder structure) generally
will not be able currently to offset gains realized by one underlying fund in which the fund of funds invests against losses realized by another underlying fund. If shares of an underlying fund are purchased within 30 days before or after redeeming
at a loss other shares of that underlying fund (whether pursuant to a rebalancing of the Fund’s portfolio or otherwise), all or a part of the loss will not be deductible by the Fund and instead will increase its basis for the newly purchased
shares. Also, except with respect to a qualified fund of funds, a fund of funds (a) is not eligible to pass-through to shareholders foreign tax credits from an underlying fund that pays foreign income taxes and (b) is not eligible to
pass-through to shareholders exempt-interest dividends from an underlying
63
fund. A qualified fund of funds, i.e. a fund at least 50 percent of the value of the total assets of which (at the close of each quarter of the taxable year) is represented by interests in other
RICs, is eligible to pass-through to shareholders (a) foreign tax credits and (b) exempt-interest dividends. Also a fund of funds, whether or not it is a qualified fund of funds, is eligible to pass-through to shareholders qualified
dividends earned by an underlying fund (see, “Taxation of Fund Distributions — Qualified dividend income for individuals” and “— Corporate dividends received deduction” below). However, dividends paid to shareholders by
a fund of funds from interest earned by an underlying fund on U.S. Government obligations are unlikely to be exempt from state and local income tax.
Federal excise tax
. To avoid a 4% non-deductible excise tax, the Fund must distribute by December 31 of each year an amount equal
to at least (1) 98% of its ordinary income for the calendar year, (2) 98.2% of capital gain net income (the excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges) for the one-year period
ended on October 31 of such calendar year (or, at the election of a regulated investment company having a taxable year ending November 30 or December 31, for its taxable year), and (3) any prior year undistributed ordinary income
and capital gain net income. The Fund may elect to defer to the following year any net ordinary loss incurred for the portion of the calendar year which is after the beginning of the Fund’s taxable year. Also, the Fund will defer any
“specified gain” or “specified loss” which would be properly taken into account for the portion of the calendar after October 31. Any net ordinary loss, specified gain, or specified loss deferred shall be treated as arising
on January 1 of the following calendar year. Generally, the Fund may make sufficient distributions to avoid liability for federal income and excise tax, but can give no assurances that all or a portion of such liability will be avoided. In
addition, under certain circumstances temporary timing or permanent differences in the realization of income and expense for book and tax purposes can result in the Fund having to pay an excise tax.
Foreign income tax
. Investment income received by the Fund from sources within foreign countries may be subject to foreign income tax
withheld at the source, and the amount of tax withheld generally will be treated as an expense of the Fund. The United States has entered into tax treaties with many foreign countries that entitle the Fund to a reduced rate of, or exemption from,
tax on such income. Some countries require the filing of a tax reclaim or other forms to receive the benefit of the reduced tax rate; whether or when the Fund will receive the tax reclaim is within the control of the individual country. Information
required on these forms may not be available such as shareholder information; therefore, the Fund may not receive the reduced treaty rates or potential reclaims. Other countries have conflicting and changing instructions and restrictive timing
requirements which may cause the Fund not to receive the reduced treaty rates or potential reclaims. Other countries may subject capital gains realized by the Fund on sale or disposition of securities of that country to taxation. It is impossible to
determine the effective rate of foreign tax in advance since the amount of the Fund’s assets to be invested in various countries is not known. Under certain circumstances, the Fund may elect to pass-through foreign tax credits to shareholders,
although it reserves the right not to do so.
Taxation of Fund Distributions.
The Fund anticipates distributing substantially all
of its investment company taxable income and net capital gain for each taxable year. Distributions by the Fund will be treated in the manner described regardless of whether such distributions are paid in cash or reinvested in additional shares of
the Fund (or of another Fund). The Fund will send you information annually as to the federal income tax consequences of distributions made (or deemed made) during the year.
Distributions of ordinary income
. The Fund receives income generally in the form of dividends and/or interest on its investments. The
Fund may also recognize ordinary income from other sources, including, but not limited to, certain gains on foreign currency-related transactions. This income, less expenses incurred in the operation of the Fund, constitutes the Fund’s net
investment income from which dividends may be paid to you. If you are a taxable investor, distributions of net investment income generally are taxable as ordinary income to the extent of the Fund’s earnings and profits. In the case of a Fund
whose strategy includes investing in stocks of corporations, a portion of the income dividends paid to you may be qualified dividends eligible to be taxed at reduced rates.
64
Capital gain dividends
. Taxes on distributions of capital gains are determined by how long
the Fund owned the investments that generated them, rather than how long a shareholder has owned his or her shares. In general, the Fund will recognize long-term capital gain or loss on the sale or other disposition of assets it has owned for more
than one year, and short-term capital gain or loss on investments it has owned for one year or less. Distributions of net capital gain (the excess of net long-term capital gain over net short-term capital loss) that are properly reported by the Fund
to shareholders as capital gain dividends generally will be taxable to a shareholder receiving such distributions as long-term capital gain. Long-term capital gain rates applicable to individuals are taxed at the maximum rate of 15% (20% for certain
high income taxpayers) or 25% depending on the nature of the capital gain. Distributions of net short-term capital gains for a taxable year in excess of net long-term capital losses for such taxable year generally will be taxable to a shareholder
receiving such distributions as ordinary income.
Qualified dividend income for individuals
. Ordinary income dividends reported by
the Fund to shareholders as derived from qualified dividend income will be taxed in the hands of individuals and other noncorporate shareholders at the rates applicable to long-term capital gain. Qualified dividend income means dividends paid to the
Fund (a) by domestic corporations, (b) by foreign corporations that are either (i) incorporated in a possession of the United States, or (ii) are eligible for benefits under certain income tax treaties with the United States that
include an exchange of information program, or (c) with respect to stock of a foreign corporation that is readily tradable on an established securities market in the United States. Both the Fund and the investor must meet certain holding period
requirements to qualify Fund dividends for this treatment. Income derived from investments in derivatives, fixed-income securities, U.S. REITs, PFICs, and income received “in lieu of” dividends in a securities lending transaction generally
is not eligible for treatment as qualified dividend income. If the qualifying dividend income received by the Fund is equal to 95% (or a greater percentage) of the Fund’s gross income (exclusive of net capital gain) in any taxable year, all of
the ordinary income dividends paid by the Fund will be qualifying dividend income.
Corporate dividends received deduction
.
Ordinary income dividends reported by the Fund to shareholders as derived from qualified dividends from domestic corporations will qualify for the 70% dividends received deduction generally available to corporations. The availability of the
dividends-received deduction is subject to certain holding period and debt financing restrictions imposed under the Code on the corporation claiming the deduction. Income derived by the Fund from investments in derivatives, fixed-income and foreign
securities generally is not eligible for this treatment.
Return of capital distributions
. Distributions by the Fund that are not
paid from earnings and profits will be treated as a return of capital to the extent of (and in reduction of) the shareholder’s tax basis in his shares; any excess will be treated as gain from the sale of his shares. Thus, the portion of a
distribution that constitutes a return of capital will decrease the shareholder’s tax basis in his Fund shares (but not below zero), and will result in an increase in the amount of gain (or decrease in the amount of loss) that will be
recognized by the shareholder for tax purposes on the later sale of such Fund shares. Return of capital distributions can occur for a number of reasons including, among others, the Fund over-estimates the income to be received from certain
investments such as those classified as partnerships or equity REITs. See “Tax Treatment of Portfolio Transactions — Investments in U.S. REITs.”
Impact of realized but undistributed income and gains, and net unrealized appreciation of portfolio securities
. At the time of your
purchase of shares (except in a money market fund that maintains a stable net asset value), the Fund’s net asset value may reflect undistributed income, undistributed capital gains, or net unrealized appreciation of portfolio securities held by
the Fund. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable and would be taxed as either ordinary income (some portion of which may be taxed as qualified dividend income) or capital
gain unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. The Fund may be able to reduce the amount of such distributions by utilizing its capital loss carryovers, if any.
65
Pass-through of foreign tax credits
. If more than 50% of the value of the Fund’s
total assets at the end of a fiscal year is invested in foreign securities, or if the Fund is a qualified fund of funds (i.e., a fund at least 50 percent of the value of the total assets of which, at the close of each quarter of the taxable year, is
represented by interests in other RICs), the Fund may elect to “pass through” to the Fund’s shareholders the amount of foreign income tax paid by the Fund (the Foreign Tax Election) in lieu of deducting such amount in determining its
investment company taxable income. Pursuant to the Foreign Tax Election, shareholders will be required (i) to include in gross income, even though not actually received, their respective pro-rata shares of the foreign income tax paid by the
Fund that are attributable to any distributions they receive; and (ii) either to deduct their pro-rata share of foreign tax in computing their taxable income or to use it (subject to various Code limitations) as a foreign tax credit against
federal income tax (but not both). No deduction for foreign tax may be claimed by a noncorporate shareholder who does not itemize deductions or who is subject to the alternative minimum tax. Shareholders may be unable to claim a credit for the full
amount of their proportionate shares of the foreign income tax paid by the Fund due to certain limitations that may apply. The Fund reserves the right not to pass-through to its shareholders the amount of foreign income taxes paid by the Fund.
Additionally, any foreign tax withheld on payments made “in lieu of” dividends or interest will not qualify for the pass-through of foreign tax credits to shareholders. See, “Tax Treatment of Portfolio Transactions — Securities
lending” below.
Tax credit bonds
. If the Fund holds, directly or indirectly, one or more “tax credit bonds”
(including build America bonds, clean renewable energy bonds and qualified tax credit bonds) on one or more applicable dates during a taxable year, the Fund may elect to permit its shareholders to claim a tax credit on their income tax returns equal
to each shareholder’s proportionate share of tax credits from the applicable bonds that otherwise would be allowed to the Fund. In such a case, shareholders must include in gross income (as interest) their proportionate share of the income
attributable to their proportionate share of those offsetting tax credits. A shareholder’s ability to claim a tax credit associated with one or more tax credit bonds may be subject to certain limitations imposed by the Code. Even if the Fund is
eligible to pass through tax credits to shareholders, the Fund may choose not to do so.
U.S. Government interest
. Income
earned on certain U.S. Government obligations is exempt from state and local personal income taxes if earned directly by you. States also grant tax-free status to dividends paid to you from interest earned on direct obligations of the U.S.
Government, subject in some states to minimum investment or reporting requirements that must be met by the Fund. Income on investments by the Fund in certain other obligations, such as repurchase agreements collateralized by U.S. Government
obligations, commercial paper and federal agency-backed obligations (e.g., Government National Mortgage Association (GNMA) or Federal National Mortgage Association (FNMA) obligations), generally does not qualify for tax-free treatment. The rules on
exclusion of this income are different for corporations. If the Fund is a fund of funds, see “Taxation of the Fund — Asset allocation funds.”
Dividends declared in December and paid in January
. Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which the distributions are made. However, dividends declared in October, November or December of any year and payable to shareholders of record on a specified date in such a month will be deemed to have been received by the
shareholders (and made by the Fund) on December 31 of such calendar year if such dividends are actually paid in January of the following year. Shareholders will be advised annually as to the U.S. federal income tax consequences of distributions
made (or deemed made) during the year in accordance with the guidance that has been provided by the IRS.
Medicare tax
. A 3.8%
Medicare tax is imposed on net investment income earned by certain individuals, estates and trusts . “Net investment income,” for these purposes, means investment income, including ordinary dividends and capital gain distributions received
from the Fund and net gains from redemptions or other taxable dispositions of Fund shares, reduced by the deductions properly allocable to such income. In the case of an individual, the tax will be imposed on the lesser of (1) the
shareholder’s net investment income or (2) the amount by which the shareholder’s modified adjusted gross income exceeds $250,000 (if the shareholder is married and filing jointly or a surviving spouse), $125,000 (if the shareholder is
married and filing separately) or $200,000 (in any other case). This Medicare tax, if applicable, is reported by you on, and paid with, your federal income tax return.
66
Sale or Redemption of Fund Shares.
A shareholder will recognize gain or loss on the sale
or redemption of shares of the Fund in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder’s adjusted tax basis in the shares. If you owned your shares as a capital asset, any gain or loss that
you realize will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for longer than one year. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
Tax basis information
. The Fund is required to report to you and the IRS
annually on Form 1099-B the cost basis of shares purchased or acquired on or after January 1, 2012 where the cost basis of the shares is known by the Fund (referred to as “covered shares”) and which are disposed of after that date.
However, cost basis reporting is not required for certain shareholders, including shareholders investing in the Fund through a tax-advantaged retirement account, such as a 401(k) plan or an individual retirement account, or shareholders investing in
a money market fund that maintains a stable net asset value. When required to report cost basis, the Fund will calculate it using the Fund’s default method of average cost, unless you instruct the Fund to use a different calculation method. In
general, average cost is the total cost basis of all your shares in an account divided by the total number of shares in the account. To determine whether short-term or long-term capital gains taxes apply, the IRS presumes you redeem your oldest
shares first.
The IRS permits the use of several methods to determine the cost basis of mutual fund shares. The method used will
determine which specific shares are deemed to be sold when there are multiple purchases on different dates at differing share prices, and the entire position is not sold at one time. The Fund does not recommend any particular method of determining
cost basis, and the use of other methods may result in more favorable tax consequences for some shareholders. It is important that you consult with your tax advisor to determine which method is best for you and then notify the Fund if you intend to
utilize a method other than average cost for covered shares.
In addition to the Fund’s default method of average cost, other cost
basis methods offered by Invesco, which you may elect to apply to covered shares, include:
|
|
•
|
|
First-In First-Out — shares acquired first in the account are the first shares depleted.
|
|
|
•
|
|
Last-In First-Out — shares acquired last in the account are the first shares depleted.
|
|
|
•
|
|
High Cost — shares acquired with the highest cost per share are the first shares depleted.
|
|
|
•
|
|
Low Cost — shares acquired with the lowest cost per share are the first shares depleted.
|
|
|
•
|
|
Loss/Gain Utilization — depletes shares with losses before gains, consistent with the objective of minimizing taxes. For shares that yield a loss, shares owned one year or less (short-term) will be depleted ahead
of shares owned more than one year (long-term). For gains, long-term shares will be depleted ahead of short-term gains.
|
|
|
•
|
|
Specific Lot Identification — shareholder selects which lots to deplete at time of each disposition. Transaction amount must be in shares. If insufficient shares are identified at the time of disposition, then a
secondary default method of first-in first-out will be applied.
|
You may elect any of the available methods detailed above
for your covered shares. If you do not notify the Fund of your elected cost basis method, the default method of average cost will be applied to your covered shares upon redemption. The cost basis for covered shares will be calculated separately from
any “noncovered shares” (defined below) you may own. You may change or revoke the use of the average cost method and revert to another cost basis method if you notify the Fund by the date of the first sale, exchange, or other disposition
of your covered shares. In addition, you may change to another cost basis method at any time by notifying the Fund, but only for shares acquired after the date of the change (the change is prospective). The basis of the shares that were averaged
before the change will remain averaged after the date of the change.
67
The Fund may also provide Fund shareholders (but not the IRS) with information concerning the
average cost basis of their shares purchased prior to January 1, 2012 (“noncovered shares”) in order to assist you with the calculation of gain or loss from a sale or redemption of noncovered shares. With the exception of the specific
lot identification method, Invesco first depletes noncovered shares in first-in, first-out order before applying your elected method to your remaining covered shares. If you want to deplete your shares in a different order then you must elect
specific lot identification and choose the lots you wish to deplete first. Shareholders that use the average cost method for noncovered shares must make the election to use the average cost method for these shares on their federal income tax returns
in accordance with Treasury regulations. This election for noncovered shares cannot be made by notifying the Fund.
The Fund will compute
and report the cost basis of your Fund shares sold or exchanged by taking into account all of the applicable adjustments to cost basis and holding periods as required by the Code and Treasury regulations for purposes of reporting these amounts to
you and, in the case of covered shares, to the IRS. However, the Fund is not required to, and in many cases the Fund does not possess the information to, take all possible basis, holding period or other adjustments into account in reporting cost
basis information to you. Therefore, shareholders should carefully review the cost basis information provided by the Fund, whether this information is provided pursuant to compliance with cost basis reporting requirements for shares acquired on or
after January 1, 2012, or is provided by the Fund as a service to shareholders for shares acquired prior to that date, and make any additional basis, holding period or other adjustments that are required by the Code and Treasury regulations
when reporting these amounts on their federal income tax returns. Shareholders remain solely responsible for complying with all federal income tax laws when filing their federal income tax returns.
If you hold your Fund shares through a broker (or other nominee), please contact that broker (nominee) with respect to the reporting of cost
basis and available elections for your account. For more information about the cost basis methods offered by Invesco, please refer to the Tax Center located under the Accounts & Services menu of our website at
www.Invesco.com/us
.
Wash sale rule
. All or a portion of any loss so recognized may be deferred under the wash sale rules if the shareholder purchases
other shares of the Fund within 30 days before or after the sale or redemption.
Sales at a loss within six months of purchase
. Any
capital loss arising from the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received on such shares.
Deferral of basis — any class that bears a front-end sales load
. If a shareholder (a) incurs a sales load in acquiring shares
of the Fund, (b) disposes of such shares less than 91 days after they are acquired, and (c) subsequently acquires shares of the Fund or another Fund by January 31 of the calendar year following the calendar year in which the
disposition of the original shares occurred at a reduced sales load pursuant to a right to reinvest at such reduced sales load acquired in connection with the acquisition of the shares disposed of, then the sales load on the shares disposed of (to
the extent of the reduction in the sales load on the shares subsequently acquired) shall not be taken into account in determining gain or loss on the shares disposed of, but shall be treated as incurred on the acquisition of the shares subsequently
acquired. The wash sale rules may also limit the amount of loss that may be taken into account on disposition after such adjustment.
Conversion of shares of the Fund into other shares of the same Fund
. The conversion of shares of one class of the Fund into shares of
another class of the same Fund is not taxable for federal income tax purposes and no gain or loss will be reported on the transaction. This is true whether the conversion occurs automatically pursuant to the terms of the class or is initiated by the
shareholder. Shareholders should consult their tax advisors regarding the state and local tax consequences of a conversion of shares.
68
Exchange of shares of the Fund for shares of another Fund
. The exchange of shares in one
Fund for shares of another Fund is taxable for federal income tax purposes and the exchange will be reported as a taxable sale. An exchange occurs when the purchase of shares of a Fund is made using the proceeds from a redemption of shares of
another Fund and is effectuated on the same day as the redemption. Shareholders should consult their tax advisors regarding the state and local tax consequences of an exchange of shares.
Reportable transactions
. Under Treasury regulations, if a shareholder recognizes a loss with respect to the Fund’s shares of $2
million or more for an individual shareholder or $10 million or more for a corporate shareholder (or certain greater amounts over a combination of years), the shareholder must file with the IRS a disclosure statement on Form 8886. The fact that a
loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in
light of their individual circumstances.
Tax Treatment of Portfolio Transactions.
Set forth below is a general description of
the tax treatment of certain types of securities, investment techniques and transactions that may apply to a fund. This section should be read in conjunction with the discussion under “Description of the Funds and their Investments and Risks
— Investment Strategies and Risks” for a detailed description of the various types of securities and investment techniques that apply to the Fund.
In general
. In general, gain or loss recognized by a fund on the sale or other disposition of portfolio investments will be a capital
gain or loss. Such capital gain and loss may be long-term or short-term depending, in general, upon the length of time a particular investment position is maintained and, in some cases, upon the nature of the transaction. Property held for more than
one year generally will be eligible for long-term capital gain or loss treatment. The application of certain rules described below may serve to alter the manner in which the holding period for a security is determined or may otherwise affect the
characterization as long-term or short-term, and also the timing of the realization and/or character, of certain gains or losses.
Certain fixed-income investments
. Gain recognized on the disposition of a debt obligation purchased by a fund at a market discount
(generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of the market discount that accrued during the period of time the fund held the debt obligation unless the fund made a current
inclusion election to accrue market discount into income as it accrues. If a fund purchases a debt obligation (such as a zero coupon security or pay-in-kind security) that was originally issued at a discount, the fund generally is required to
include in gross income each year the portion of the original issue discount that accrues during such year. Therefore, a fund’s investment in such securities may cause the fund to recognize income and make distributions to shareholders before
it receives any cash payments on the securities. To generate cash to satisfy those distribution requirements, a fund may have to sell portfolio securities that it otherwise might have continued to hold or to use cash flows from other sources such as
the sale of fund shares.
Investments in debt obligations that are at risk of or in default present tax issues for a fund
. Tax
rules are not entirely clear about issues such as whether and to what extent a fund should recognize market discount on a debt obligation, when a fund may cease to accrue interest, original issue discount or market discount, when and to what extent
a fund may take deductions for bad debts or worthless securities and how a fund should allocate payments received on obligations in default between principal and income. These and other related issues will be addressed by a fund in order to ensure
that it distributes sufficient income to preserve its status as a regulated investment company.
Options, futures, forward contracts,
swap agreements and hedging transactions
. In general, option premiums received by a fund are not immediately included in the income of the fund. Instead, the premiums are recognized when the option contract expires, the option is exercised by
the holder, or the fund transfers or otherwise terminates the option (e.g., through a closing transaction). If an option written by a fund is exercised and the fund sells or delivers the underlying stock, the fund generally will recognize
69
capital gain or loss equal to (a) the sum of the strike price and the option premium received by the fund minus (b) the fund’s basis in the stock. Such gain or loss generally will
be short-term or long-term depending upon the holding period of the underlying stock. If securities are purchased by a fund pursuant to the exercise of a put option written by it, the fund generally will subtract the premium received from its cost
basis in the securities purchased. The gain or loss with respect to any termination of a fund’s obligation under an option other than through the exercise of the option and related sale or delivery of the underlying stock generally will be
short-term gain or loss depending on whether the premium income received by the fund is greater or less than the amount paid by the fund (if any) in terminating the transaction. Thus, for example, if an option written by a fund expires unexercised,
the fund generally will recognize short-term gain equal to the premium received.
The tax treatment of certain futures contracts
entered into by a fund as well as listed non-equity options written or purchased by the fund on U.S. exchanges (including options on futures contracts, broad-based equity indices and debt securities) may be governed by section 1256 of the Code
(section 1256 contracts). Gains or losses on section 1256 contracts generally are considered 60% long-term and 40% short-term capital gains or losses (60/40), although certain foreign currency gains and losses from such contracts may be treated as
ordinary in character. Also, any section 1256 contracts held by a fund at the end of each taxable year (and, for purposes of the 4% excise tax, on certain other dates as prescribed under the Code) are “marked-to-market” with the result
that unrealized gains or losses are treated as though they were realized and the resulting gain or loss is treated as ordinary or 60/40 gain or loss, as applicable. Section 1256 contracts do not include any interest rate swap, currency swap,
basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement.
In addition to the special rules described above in respect of options and futures transactions, a fund’s transactions in other
derivative instruments (including options, forward contracts and swap agreements) as well as its other hedging, short sale, or similar transactions, may be subject to one or more special tax rules (including the constructive sale, notional principal
contract, straddle, wash sale and short sale rules). These rules may affect whether gains and losses recognized by a fund are treated as ordinary or capital or as short-term or long-term, accelerate the recognition of income or gains to the fund,
defer losses to the fund, and cause adjustments in the holding periods of the fund’s securities. These rules, therefore, could affect the amount, timing and/or character of distributions to shareholders. Moreover, because the tax rules
applicable to derivative financial instruments are in some cases uncertain under current law, an adverse determination or future guidance by the IRS with respect to these rules (which determination or guidance could be retroactive) may affect
whether a fund has made sufficient distributions and otherwise satisfied the relevant requirements to maintain its qualification as a regulated investment company and avoid a fund-level tax.
Certain of a fund’s investments in derivatives and foreign currency-denominated instruments, and the fund’s transactions in foreign
currencies and hedging activities, may produce a difference between its book income and its taxable income. If a fund’s book income is less than the sum of its taxable income and net tax-exempt income (if any), the fund could be required to
make distributions exceeding book income to qualify as a regulated investment company. If a fund’s book income exceeds the sum of its taxable income and net tax-exempt income (if any), the distribution of any such excess will be treated as
(i) a dividend to the extent of the fund’s remaining earnings and profits (including current earnings and profits arising from tax-exempt income, reduced by related deductions), (ii) thereafter, as a return of capital to the extent of
the recipient’s basis in the shares, and (iii) thereafter, as gain from the sale or exchange of a capital asset.
Foreign
currency transactions
. A fund’s transactions in foreign currencies, foreign currency-denominated debt obligations and certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to
ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This treatment could increase or decrease a fund’s ordinary income distributions to you, and may cause some or
all of the fund’s previously distributed income to be classified as a return of capital. In certain cases, a fund may make an election to treat such gain or loss as capital.
70
PFIC investments
. A fund may invest in securities of foreign companies that may be
classified under the Code as PFICs. In general, a foreign company is classified as a PFIC if at least one-half of its assets constitute investment-type assets or 75% or more of its gross income is investment-type income. When investing in PFIC
securities, a fund intends to mark-to-market these securities under certain provisions of the Code and recognize any unrealized gains as ordinary income at the end of the fund’s fiscal and excise tax years. Deductions for losses are allowable
only to the extent of any current or previously recognized gains. These gains (reduced by allowable losses) are treated as ordinary income that a fund is required to distribute, even though it has not sold or received dividends from these
securities. You should also be aware that the designation of a foreign security as a PFIC security will cause its income dividends to fall outside of the definition of qualified foreign corporation dividends. These dividends generally will not
qualify for the reduced rate of taxation on qualified dividends when distributed to you by a fund. Foreign companies are not required to identify themselves as PFICs. Due to various complexities in identifying PFICs, a fund can give no assurances
that it will be able to identify portfolio securities in foreign corporations that are PFICs in time for the fund to make a mark-to-market election. If a fund is unable to identify an investment as a PFIC and thus does not make a mark-to-market
election, the fund may be subject to U.S. federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income is distributed as a taxable dividend by the fund to its shareholders.
Additional charges in the nature of interest may be imposed on a fund in respect of deferred taxes arising from such distributions or gains.
Investments in non-U.S. REITs
. While non-U.S. REITs often use complex acquisition structures that seek to minimize taxation in the
source country, an investment by a fund in a non-U.S. REIT may subject the fund, directly or indirectly, to corporate taxes, withholding taxes, transfer taxes and other indirect taxes in the country in which the real estate acquired by the non-U.S.
REIT is located. The fund’s pro rata share of any such taxes will reduce the fund’s return on its investment. A fund’s investment in a non-U.S. REIT may be considered an investment in a PFIC, as discussed above in “Tax Treatment
of Portfolio Transactions — PFIC investments.” Additionally, foreign withholding taxes on distributions from the non-U.S. REIT may be reduced or eliminated under certain tax treaties, as discussed above in “Taxation of the Fund —
Foreign income tax.” Also, the fund in certain limited circumstances may be required to file an income tax return in the source country and pay tax on any gain realized from its investment in the non-U.S. REIT under rules similar to those in
the United States which tax foreign persons on gain realized from dispositions of interests in U.S. real estate.
Investments in
U.S. REITs
. A U.S. REIT is not subject to federal income tax on the income and gains it distributes to shareholders. Dividends paid by a U.S. REIT, other than capital gain distributions, will be taxable as ordinary income up to the amount of the
U.S. REIT’s current and accumulated earnings and profits. Capital gain dividends paid by a U.S. REIT to the fund will be treated as long term capital gains by the fund and, in turn, may be distributed by the fund to its shareholders as capital
gain distribution. Because of certain noncash expenses, such as property depreciation, an equity U.S. REIT’s cash flow may exceed its taxable income. The equity U.S. REIT, and in turn a fund, may distribute this excess cash to shareholders in
the form of a return of capital distribution. However, if a U.S. REIT is operated in a manner that fails to qualify as a REIT, an investment in the U.S. REIT would become subject to double taxation, meaning the taxable income of the U.S. REIT would
be subject to federal income tax at regular corporate rates without any deduction for dividends paid to shareholders and the dividends would be taxable to shareholders as ordinary income (or possibly as qualified dividend income) to the extent of
the U.S. REIT’s current and accumulated earnings and profits. Also, see “Tax Treatment of Portfolio Transactions — Investment in taxable mortgage pools (excess inclusion income)” and “Foreign Shareholders — U.S.
withholding tax at the source” with respect to certain other tax aspects of investing in U.S. REITs.
Investment in taxable
mortgage pools (excess inclusion income)
. Under a Notice issued by the IRS, the Code and Treasury regulations to be issued, a portion of a fund’s income from a U.S. REIT that is attributable to the REIT’s residual interest in a real
estate mortgage investment conduit (REMIC) or equity interests in a “taxable mortgage pool” (referred to in the Code as an excess inclusion) will be subject to federal income tax in all events. The excess inclusion income of a regulated
investment
71
company, such as a fund, will be allocated to shareholders of the regulated investment company in proportion to the dividends received by such shareholders, with the same consequences as if the
shareholders held the related REMIC residual interest or, if applicable, taxable mortgage pool directly. In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception
for certain thrift institutions), (ii) will constitute unrelated business taxable income (UBTI) to entities (including qualified pension plans, individual retirement accounts, 401(k) plans, Keogh plans or other tax-exempt entities) subject to
tax on UBTI, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return and pay tax on such income, and (iii) in the case of a foreign
stockholder, will not qualify for any reduction in U.S. federal withholding tax. In addition, if at any time during any taxable year a “disqualified organization” (which generally includes certain cooperatives, governmental entities, and
tax-exempt organizations not subject to UBTI) is a record holder of a share in a regulated investment company, then the regulated investment company will be subject to a tax equal to that portion of its excess inclusion income for the taxable year
that is allocable to the disqualified organization, multiplied by the highest federal income tax rate imposed on corporations. The Notice imposes certain reporting requirements upon regulated investment companies that have excess inclusion income.
There can be no assurance that a fund will not allocate to shareholders excess inclusion income.
These rules are potentially applicable
to a fund with respect to any income it receives from the equity interests of certain mortgage pooling vehicles, either directly or, as is more likely, through an investment in a U.S. REIT. It is unlikely that these rules will apply to a fund that
has a non-REIT strategy.
Investments in partnerships and QPTPs
. For purposes of the Income Requirement, income derived by a
fund from a partnership that is not a QPTP will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership that would be qualifying income if realized directly by the fund. While the rules
are not entirely clear with respect to a fund investing in a partnership outside a master-feeder structure, for purposes of testing whether a fund satisfies the Asset Diversification Test, the fund generally is treated as owning a pro rata share of
the underlying assets of a partnership. See “Taxation of the Fund — Qualification as a regulated investment company.” In contrast, different rules apply to a partnership that is a QPTP. A QPTP is a partnership (a) the interests
in which are traded on an established securities market, (b) that is treated as a partnership for federal income tax purposes, and (c) that derives less than 90% of its income from sources that satisfy the Income Requirement (e.g., because
it invests in commodities). All of the net income derived by a fund from an interest in a QPTP will be treated as qualifying income but the fund may not invest more than 25% of its total assets in one or more QPTPs. However, there can be no
assurance that a partnership classified as a QPTP in one year will qualify as a QPTP in the next year. Any such failure to annually qualify as a QPTP might, in turn, cause a fund to fail to qualify as a regulated investment company. Although, in
general, the passive loss rules of the Code do not apply to RICs, such rules do apply to a fund with respect to items attributable to an interest in a QPTP. Fund investments in partnerships, including in QPTPs, may result in the fund’s being
subject to state, local or foreign income, franchise or withholding tax liabilities.
Investments in commodities — structured
notes, corporate subsidiary and certain ETFs
. Gains from the disposition of commodities, including precious metals, will neither be considered qualifying income for purposes of satisfying the Income Requirement nor qualifying assets for purposes
of satisfying the Asset Diversification Test. See “Taxation of the Fund — Qualification as a regulated investment company.” Also, the IRS has issued a revenue ruling which holds that income derived from commodity-linked swaps is not
qualifying income for purposes of the Income Requirement. In a subsequent revenue ruling, as well as in a number of follow-on private letter rulings (upon which only the fund that received the private letter ruling may rely), the IRS provides that
income from certain alternative investments which create commodity exposure, such as certain commodity index-linked or structured notes or a corporate subsidiary that invests in commodities, may be considered qualifying income under the Code.
However, as of the date of this SAI, the IRS suspended the issuance of any further private letter rulings in July 2011 pending a review of its position. Should the IRS issue guidance, or Congress enact legislation, that adversely affects the tax
treatment of a fund’s use of commodity-linked notes, or a corporate subsidiary, the fund may no longer be able to utilize commodity-linked notes or a corporate subsidiary to gain
72
commodity exposure. In addition, a fund may gain exposure to commodities through investment in QPTPs such as an exchange traded fund or ETF that is classified as a partnership and which invests
in commodities. Accordingly, the extent to which a fund invests in commodities or commodity-linked derivatives may be limited by the Income Requirement and the Asset Diversification Test, which the fund must continue to satisfy to maintain its
status as a regulated investment company. A fund also may be limited in its ability to sell its investments in commodities, commodity-linked derivatives, and certain ETFs or be forced to sell other investments to generate income due to the Income
Requirement. If a fund does not appropriately limit such investments or if such investments (or the income earned on such investments) were to be recharacterized for U.S. tax purposes, the fund could fail to qualify as a regulated investment
company. In lieu of potential disqualification, a fund is permitted to pay a tax for certain failures to satisfy the Asset Diversification Test or Income Requirement, which, in general, are limited to those due to reasonable cause and not willful
neglect.
Securities lending
. While securities are loaned out by a fund, the fund generally will receive from the borrower amounts
equal to any dividends or interest paid on the borrowed securities. For federal income tax purposes, payments made “in lieu of” dividends are not considered dividend income. These distributions will neither qualify for the reduced rate of
taxation for individuals on qualified dividends nor the 70% dividends received deduction for corporations. Also, any foreign tax withheld on payments made “in lieu of” dividends or interest will not qualify for the pass-through of foreign
tax credits to shareholders. Additionally, in the case of a fund with a strategy of investing in tax-exempt securities, any payments made “in lieu of” tax-exempt interest will be considered taxable income to the fund, and thus, to the
investors, even though such interest may be tax-exempt when paid to the borrower.
Investments in convertible securities
.
Convertible debt is ordinarily treated as a “single property” consisting of a pure debt interest until conversion, after which the investment becomes an equity interest. If the security is issued at a premium (i.e., for cash in excess of
the face amount payable on retirement), the creditor-holder may amortize the premium over the life of the bond. If the security is issued for cash at a price below its face amount, the creditor-holder must accrue original issue discount in income
over the life of the debt. The creditor-holder’s exercise of the conversion privilege is treated as a nontaxable event. Mandatorily convertible debt (e.g., an exchange traded note or ETN issued in the form of an unsecured obligation that pays a
return based on the performance of a specified market index, exchange currency, or commodity) is often, but not always, treated as a contract to buy or sell the reference property rather than debt. Similarly, convertible preferred stock with a
mandatory conversion feature is ordinarily, but not always, treated as equity rather than debt. Dividends received generally are qualified dividend income and eligible for the corporate dividends received deduction. In general, conversion of
preferred stock for common stock of the same corporation is tax-free. Conversion of preferred stock for cash is a taxable redemption. Any redemption premium for preferred stock that is redeemable by the issuing company might be required to be
amortized under original issue discount (OID) principles.
Tax Certification and Backup Withholding
. Tax certification and backup
withholding tax laws may require that you certify your tax information when you become an investor in the Fund. For U.S. citizens and resident aliens, this certification is made on IRS Form W-9. Under these laws, the Fund must withhold a portion of
your taxable distributions and sales proceeds unless you:
|
|
•
|
|
provide your correct Social Security or taxpayer identification number,
|
|
|
•
|
|
certify that this number is correct,
|
|
|
•
|
|
certify that you are not subject to backup withholding, and
|
|
|
•
|
|
certify that you are a U.S. person (including a U.S. resident alien).
|
The Fund also must
withhold if the IRS instructs it to do so. When withholding is required, the amount will be 28% of any distributions or proceeds paid. Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholder’s
U.S. federal income tax liability, provided the appropriate information is furnished to the IRS. Certain payees and payments are exempt from backup withholding and information reporting.
73
Non-U.S. investors have special U.S. tax certification requirements. See “Foreign
Shareholders — Tax certification and backup withholding.”
Foreign Shareholders
.
Shareholders who, as to
the United States, are nonresident alien individuals, foreign trusts or estates, foreign corporations, or foreign partnerships (foreign shareholder), may be subject to U.S. withholding and estate tax and are subject to special U.S. tax certification
requirements.
Taxation of a foreign shareholder depends on whether the income from the Fund is “effectively connected” with a
U.S. trade or business carried on by such shareholder.
U.S. withholding tax at the source
. If the income from the Fund is not
effectively connected with a U.S. trade or business carried on by a foreign shareholder, distributions to such shareholder will be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount of the distribution,
subject to certain exemptions including those for dividends reported by the Fund to shareholders as:
|
|
•
|
|
exempt-interest dividends paid by the Fund from its net interest income earned on municipal securities;
|
|
|
•
|
|
capital gain dividends paid by the Fund from its net long-term capital gains (other than those from disposition of a U.S. real property interest), unless you are a nonresident alien present in the United States for a
period or periods aggregating 183 days or more during the calendar year; and
|
|
|
•
|
|
with respect to taxable years of the Fund beginning before January 1, 2014 (unless such provision is extended or made permanent), interest-related dividends paid by the Fund from its qualified net interest income
from U.S., sources and short-term capital gains dividends. After such sunset date, short-term capital gains are taxable to non-U.S. investors as ordinary dividends subject to U.S. withholding tax at a 30% or lower treaty rate.
|
However, the Fund does not intend to utilize the exemptions for interest-related dividends paid and short-term capital gain dividends paid.
Moreover, notwithstanding such exemptions from U.S. withholding at the source, any dividends and distributions of income and capital gains, including the proceeds from the sale of your Fund shares, will be subject to backup withholding at a rate of
28% if you fail to properly certify that you are not a U.S. person.
Foreign shareholders may be subject to U.S. withholding tax at a rate
of 30% on the income resulting from an election to pass-through foreign tax credits to shareholders, but may not be able to claim a credit or deduction with respect to the withholding tax for the foreign tax treated as having been paid by them.
Amounts reported by the Fund to shareholders as capital gain dividends (a) that are attributable to certain capital gain dividends
received from a qualified investment entity (QIE) (generally defined as either (i) a U.S. REIT or (ii) a RIC classified as a “U.S. real property holding corporation” or which would be if the exceptions for holding 5% or less of a
class of publicly traded shares or an interest in a domestically controlled QIE did not apply) or (b) that are realized by the Fund on the sale of a “U.S. real property interest” (including gain realized on sale of shares in a QIE
other than one that is a domestically controlled), will not be exempt from U.S. federal income tax and may be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) if the Fund by reason of having a REIT strategy is classified as
a QIE. If the Fund is so classified, foreign shareholders owning more than 5% of the Fund’s shares may be treated as realizing gain from the disposition of a U.S. real property interest, causing Fund distributions to be subject to U.S.
withholding tax at a rate of 35%, and requiring the filing of a nonresident U.S. income tax return. In addition, if the Fund is classified as a QIE, anti-avoidance rules apply to certain wash sale transactions. Namely, if the Fund is a
domestically-controlled QIE and a foreign shareholder disposes of the Fund’s shares prior to the Fund paying a distribution attributable to the disposition of a U.S. real property interest and the foreign shareholder later acquires an identical
stock interest in a wash sale transaction, the foreign shareholder may still be required to pay U.S. tax on the Fund’s distribution. Also, the sale of shares of the Fund, if classified as a “U.S. real property holding corporation,”
could also be
74
considered a sale of a U.S. real property interest with any resulting gain from such sale being subject to U.S. tax as income “effectively connected with a U.S. trade or business.”
These rules generally apply to dividends paid by the Fund before January 1, 2014 (unless such provision is extended or made permanent). After such sunset date, Fund distributions from a U.S. REIT (whether or not domestically controlled)
attributable to gain from the disposition of a U.S. real property interest will continue to be subject to the withholding rules described above provided the Fund is classified as a QIE.
Income effectively connected with a U.S. trade or business.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends and any gains realized upon the sale or redemption of shares of the Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations and require the filing of a nonresident U.S. income tax return.
Tax certification and backup
withholding
. Foreign shareholders may have special U.S. tax certification requirements to avoid backup withholding (at a rate of 28%) and, if applicable, to obtain the benefit of any income tax treaty between the foreign shareholder’s
country of residence and the United States. To claim these tax benefits, the foreign shareholder must provide a properly completed Form W-8BEN (or other Form W-8, where applicable, or their substitute forms) to establish his or her status as a
non-U.S. investor, to claim beneficial ownership over the assets in the account, and to claim, if applicable a reduced rate of or exemption from withholding tax under the applicable treaty. A Form W-8BEN provided without a U.S. taxpayer
identification number remains in effect for a period of three years beginning on the date that it is signed and ending on the last day of the third succeeding calendar year. However, non-U.S. investors must advise the Fund of any changes of
circumstances that would render the information given on the form incorrect, and must then provide a new W-8BEN to avoid the prospective application of backup withholding. Forms W-8BEN with U.S. taxpayer identification numbers remain valid
indefinitely, or until the investor has a change of circumstances that renders the form incorrect and necessitates a new form and tax certification. Certain payees and payments are exempt from backup withholding.
Foreign Account Tax Compliance Act (FATCA).
Under FATCA, foreign entities, referred to as foreign financial institutions (FFI) or
non-financial foreign entities (NFFE) that are shareholders in the Fund may be subject to a generally nonrefundable 30% withholding tax on: (a) income dividends paid by the Fund after June 30, 2014, and (b) certain capital gain
distributions and the proceeds of a sale of Fund shares paid after December 31, 2016. The FATCA withholding tax generally can be avoided: (a) by an FFI, if it reports certain direct and indirect ownership of foreign financial accounts held
by U.S. persons with the FFI and (b) by an NFFE, if it: (i) certifies that it has no substantial U.S. persons as owners or (ii) if it does have such owners, reporting information relating to them. The U.S. Treasury has negotiated
intergovernmental agreements (IGA) with certain countries and is in various stages of negotiations with a number of other foreign countries with respect to one or more alternative approaches to implement FATCA.
An FFI can avoid FATCA withholding by becoming a “participating FFI,” which requires the FFI to enter into a U.S. tax compliance
agreement with the IRS under section 1471(b) of the Code (FFI agreement) under which it agrees to verify, report and disclose certain of its U.S. accountholders and provided that such entity meets certain other specified requirements. The FFI will
report to the IRS, or, depending on the FFI’s country of residence, to the government of that country (pursuant to the terms and conditions of an applicable IGA and applicable law), which will, in turn, report to the IRS. An FFI that is
resident in a country that has entered into an IGA with the U.S. to implement FATCA will be exempt from FATCA withholding provided that the FFI shareholder and the applicable foreign government comply with the terms of such agreement.
An NFFE that is the beneficial owner of a payment from a Fund can avoid the FATCA withholding tax generally by certifying that it does not
have any substantial U.S. owners or by providing the name, address and taxpayer identification number of each substantial U.S. owner. The NFFE will report the information to the Fund or other applicable withholding agent, which will, in turn, report
the information to the IRS.
75
Such foreign shareholders also may fall into certain exempt, excepted or deemed compliant
categories as established by U.S. Treasury regulations and other guidance regarding FATCA. An FFI or NFFE that invests in a Fund will need to provide the Fund with documentation properly certifying the entity’s status under FATCA in order to
avoid FATCA withholding. Non-U.S. investors should consult their own tax advisors regarding the impact of these requirements on their investment in a Fund. The requirements imposed by FATCA are different from, and in addition to, the U.S. tax
certification rules to avoid backup withholding described above. Shareholders are urged to consult their tax advisors regarding the application of these requirements to their own situation
U.S. estate tax
. Transfers by gift of shares of the Fund by a foreign shareholder who is a nonresident alien individual will not be
subject to U.S. federal gift tax. An individual who, at the time of death, is a foreign shareholder will nevertheless be subject to U.S. federal estate tax with respect to shares at the graduated rates applicable to U.S. citizens and residents,
unless a treaty exemption applies. If a treaty exemption is available, a decedent’s estate may nonetheless need to file a U.S. estate tax return to claim the exemption in order to obtain a U.S. federal transfer certificate. The transfer
certificate will identify the property (i.e., Fund shares) as to which the U.S. federal estate tax lien has been released. In the absence of a treaty, there is a $13,000 statutory estate tax credit (equivalent to an estate with assets of $60,000).
Local Tax Considerations.
Rules of state and local taxation of ordinary income, qualified dividend income and capital gain
dividends may differ from the rules for U.S. federal income taxation described above. Distributions may also be subject to additional state, local and foreign taxes depending on each shareholder’s particular situation.
DISTRIBUTION OF SECURITIES
Distributor
The Trust has entered into master distribution agreements, as amended, relating to the Funds (the Distribution Agreements) with Invesco
Distributors, Inc., a registered broker-dealer and a wholly owned subsidiary of Invesco Ltd., pursuant to which Invesco Distributors acts as the distributor of shares of the Funds. The address of Invesco Distributors is 11 Greenway Plaza, Suite
1000, Houston, Texas 77046-1173. Certain trustees and officers of the Trust are affiliated with Invesco Distributors. See “Management of the Trust.” In addition to the Funds, Invesco Distributors serves as distributor to many other mutual
funds that are offered to retail investors. The following Distribution of Securities information is about all of the Invesco Funds that offer retail and/or Class R5 or Class R6 shares. Not all Invesco Funds offer all share classes.
The Distribution Agreements provide Invesco Distributors with the exclusive right to distribute shares of the Funds on a continuous basis
directly and through other broker-dealers and other financial intermediaries with whom Invesco Distributors has entered into selected dealer and/or similar agreements. Invesco Distributors has not undertaken to sell any specified number of shares of
any classes of the Funds.
Invesco Distributors expects to pay sales commissions from its own resources to dealers and institutions who
sell Class C and Class R shares of the Funds at the time of such sales. Invesco Distributors or its predecessor has paid sales commissions from its own resources to dealers who sold Class B shares of the Funds at the time of such sales.
Payments for Class B shares equaled 4.00% of the purchase price of the Class B shares sold by the dealer or institution, consisting of a sales
commission equal to 3.75% of the purchase price of the Class B shares sold plus an advance of the first year service fee of 0.25% for such shares. The portion of the payments to Invesco Distributors under the Class B Plan that constitutes an
asset-based sales charge (0.75%) is intended in part to permit Invesco Distributors to recoup a portion of such sales commissions plus financing costs.
76
Invesco Distributors may pay sales commissions to dealers and institutions who sell Class C
shares of the Invesco Funds at the time of such sales. Payments for Class C shares equal 1.00% of the purchase price of the Class C shares sold by the dealer or institution, consisting of a sales commission of 0.75% of the purchase price of the
Class C shares sold plus an advance of the first year service fee of 0.25% for such shares. Invesco Distributors will retain all payments received by it relating to Class C shares for the first year after they are purchased. The portion of the
payments to Invesco Distributors under the Class C Plan that constitutes an asset-based sales charge (0.75%) is intended in part to permit Invesco Distributors to recoup a portion of the sales commissions to dealers plus financing costs, if any.
After the first full year, Invesco Distributors will make quarterly payments to dealers and institutions based on the average net asset value of Class C shares that are attributable to shareholders for whom the dealers and institutions are
designated as dealers of record. These payments will consist of an
asset-based
sales charge of 0.75% and a service fee of 0.25%.
Invesco Distributors may pay dealers and institutions who sell Class R shares an annual fee of 0.50% of average daily net assets. These
payments will consist of an asset-based fee of 0.25% and a service fee of 0.25% and will commence either on the thirteenth month after the first purchase, on accounts on which a dealer concession was paid, or immediately, on accounts on which a
dealer concession was not paid. If Invesco Distributors pays a dealer concession, it will retain all payments received by it relating to Class R shares for the first year after they are purchased. Invesco Distributors will make quarterly payments to
dealers and institutions based on the average net asset value of Class R shares that are attributable to shareholders for whom the dealers and institutions are designated as dealers of record.
The Trust (on behalf of any class of any Fund) or Invesco Distributors may terminate the Distribution Agreements on 60 days’ written
notice without penalty. The Distribution Agreements will terminate automatically in the event of their assignment. In the event the Class B shares Distribution Agreement is terminated, Invesco Distributors would continue to receive payments of
asset-based distribution fees in respect of the outstanding Class B shares attributable to the distribution efforts of Invesco Distributors or its predecessors; provided, however that a complete termination of the Class B Plan (as defined in such
Plan) would terminate all payments to Invesco Distributors. Termination of the Class B Plan or the Distribution Agreement for Class B shares would not affect the obligation of Class B shareholders to pay CDSCs.
Total sales charges (front end and CDSCs) paid in connection with the sale of shares of each class of each Fund, if applicable, for the last
three fiscal years are found in Appendix M.
Distribution Plans
The Trust has adopted distribution plans pursuant to Rule 12b-1 under the 1940 Act for each Fund’s Class A shares, Class B shares,
Class C shares, Class R shares and Investor Class shares, if applicable (collectively the Plans).
Each Fund, pursuant to its
Class A, Class B, Class C, Class R and Investor Class shares pays Invesco Distributors compensation at the annual rate, shown immediately below, of the Fund’s average daily net assets of the applicable class.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
Class R
|
|
|
Invesco Asia Pacific Growth Fund
|
|
|
0.25
|
%
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
|
N/A
|
|
|
Invesco European Growth Fund
|
|
|
0.25
|
%
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
|
0.50
|
%
|
|
Invesco Global Growth Fund
|
|
|
0.25
|
%
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
|
N/A
|
|
|
Invesco Global Opportunities Fund
|
|
|
0.25
|
%
|
|
|
N/A
|
|
|
|
1.00
|
%
|
|
|
0.50
|
%
|
|
Invesco Global Small & Mid Cap Growth Fund
|
|
|
0.25
|
%
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
|
N/A
|
|
|
Invesco International Core Equity Fund
|
|
|
0.25
|
%
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
|
0.50
|
%
|
|
Invesco International Growth Fund
|
|
|
0.25
|
%
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
|
0.50
|
%
|
|
Invesco Select Opportunities Fund
|
|
|
0.25
|
%
|
|
|
N/A
|
|
|
|
1.00
|
%
|
|
|
0.50
|
%
|
77
Invesco International Core Equity Fund, pursuant to its Investor Class Plan, pays Invesco
Distributors compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Investor Class shares.
Invesco
European Growth Fund, pursuant to its Investor Class Plan, pays Invesco Distributors an amount necessary to reimburse Invesco Distributors for its actual allocated share of expenses incurred pursuant to the Investor Class Plan for the period, up to
a maximum annual rate of 0.25% of the Fund’s average daily net assets of the Investor Class shares of the Fund.
All of the Plans
compensate or reimburse Invesco Distributors, as applicable, for the purpose of financing any activity that is primarily intended to result in the sale of shares of the Funds. Such activities include, but are not limited to, the following: printing
of prospectuses and statements of additional information and reports for other than existing shareholders; overhead; preparation and distribution of advertising material and sales literature; expenses of organizing and conducting sales seminars;
supplemental payments to dealers and other institutions such as asset-based sales charges or as payments of service fees under shareholder service arrangements; and costs of administering each Plan.
Amounts payable by a Fund under the Class A, Class B, Class C and Class R Plans and amounts payable by Invesco International Core Equity
Fund under its Investor Class Plan need not be directly related to the expenses actually incurred by Invesco Distributors on behalf of each Fund. These Plans do not obligate the Funds to reimburse Invesco Distributors for the actual allocated share
of expenses Invesco Distributors may incur in fulfilling its obligations under these Plans. Thus, even if Invesco Distributors’ actual allocated share of expenses exceeds the fee payable to Invesco Distributors at any given time, under these
Plans, the Funds will not be obligated to pay more than that fee. If Invesco Distributors’ actual allocated share of expenses is less than the fee it receives, under these Plans, Invesco Distributors will retain the full amount of the fee.
Amounts payable by Invesco European Growth Fund under their Investor Class Plans are directly related to the expenses incurred by Invesco
Distributors on behalf of each Fund, as these Plans obligate each Fund to reimburse Invesco Distributors for their actual allocated share of expenses incurred pursuant to the Investor Class Plan for the period, up to a maximum annual rate of 0.25%
of the average daily net assets of the Investor Class shares of each Fund. If Invesco Distributors’ actual allocated share of expenses incurred pursuant to the Investor Class Plan for the period exceeds the 0.25% annual cap, under this Plan
Invesco European Growth Fund will not be obligated to pay more than the 0.25% annual cap. If Invesco Distributors’ actual allocated share of expenses incurred pursuant to the Investor Class Plan for the period is less than the 0.25% annual cap,
under this Plan Invesco Distributors is entitled to be reimbursed only for its actual allocated share of expenses.
Invesco Distributors
may from time to time waive or reduce any portion of its 12b-1 fee for Class A, Class C, Class R, or Investor Class shares. Voluntary fee waivers or reductions may be rescinded at any time without further notice to investors. During periods of
voluntary fee waivers or reductions, Invesco Distributors will retain its ability to be reimbursed for such fee prior to the end of each fiscal year. Contractual fee waivers or reductions set forth in the Fee Table in a Prospectus may not be
terminated or amended to the Funds’ detriment during the period stated in the agreement between Invesco Distributors and the Fund.
The Funds may pay a service fee of 0.25% of the average daily net assets of the Class A, Class B, Class C, Class R and Investor Class
shares, attributable to the customers selected dealers and financial institutions to such dealers and financial institutions, including Invesco Distributors, acting a principal, who furnish continuing personal shareholder services to their customers
who purchase and own the applicable class of shares of the Fund. Under the terms of a shareholder service agreement, such personal shareholder services include responding to customer inquiries and providing customers with information about their
investments. Any amounts not paid as a service fee under each Plan would constitute an asset-based sales charge.
78
Under a Shareholder Service Agreement, a Fund agrees to pay periodically fees to selected dealers
and other institutions who render the foregoing services to their customers. The fees payable under a Shareholder Service Agreement will be calculated at the end of each payment period for each business day of the Funds during such period at the
annual rate specified in each agreement based on the average daily net asset value of the Funds’ shares purchased or acquired through exchange. Fees shall be paid only to those selected dealers or other institutions who are dealers or
institutions of record at the close of business on the last business day of the applicable payment period for the account in which such Fund’s shares are held.
Selected dealers and other institutions entitled to receive compensation for selling Fund shares may receive different compensation for
selling shares of one particular class over another. Under the Plans, certain financial institutions which have entered into service agreements and which sell shares of the Funds on an agency basis, may receive payments from the Funds pursuant to
the respective Plans. Invesco Distributors does not act as principal, but rather as agent for the Funds, in making dealer incentive and shareholder servicing payments to dealers and other financial institutions under the Plans. These payments are an
obligation of the Funds and not of Invesco Distributors.
Payments pursuant to the Plans are subject to any applicable limitations imposed
by rules of FINRA.
See Appendix N for a list of the amounts paid by each class of shares of each Fund to Invesco Distributors pursuant to
the Plans for the fiscal year and Appendix O for an estimate by category of the allocation of actual fees paid by each class of shares of each Fund pursuant to its respective distribution plan for the fiscal year.
As required by Rule 12b-1, the Plans and related forms of Shareholder Service Agreements were approved by the Board, including a majority of
the trustees who are not “interested persons” (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of the Plans or in any agreements related to the Plans (the Rule 12b-1
Trustees). In approving the Plans in accordance with the requirements of Rule 12b-1, the trustees considered various factors and determined that there is a reasonable likelihood that the Plans would benefit each class of the Funds and its respective
shareholders.
The anticipated benefits that may result from the Plans with respect to each Fund and/or the classes of each Fund and its
shareholders include but are not limited to the following: (1) rapid account access; (2) relatively predictable flow of cash; and (3) a well-developed, dependable network of shareholder service agents to help to curb sharp
fluctuations in rates of redemptions and sales, thereby reducing the chance that an unanticipated increase in net redemptions could adversely affect the performance of each Fund.
Unless terminated earlier in accordance with their terms, the Plans continue from year to year as long as such continuance is specifically
approved, in person, at least annually by the Board, including a majority of the Rule 12b-1 Trustees. A Plan may be terminated as to any Fund or class by the vote of a majority of the Rule 12b-1 Trustees or, with respect to a particular class, by
the vote of a majority of the outstanding voting securities of that class.
Any change in the Plans that would increase materially the
distribution expenses paid by the applicable class requires shareholder approval; otherwise, the Plans may be amended by the trustees, including a majority of the Rule 12b-1 Trustees, by votes cast in person at a meeting called for the purpose of
voting upon such amendment. As long as the Plans are in effect, the selection or nomination of the Independent Trustees is committed to the discretion of the Independent Trustees.
79
The Class B Plan obligates Class B shares to continue to make payments to Invesco Distributors
following termination of the Class B shares Distribution Agreement with respect to Class B shares sold by or attributable to the distribution efforts of Invesco Distributors or its predecessors, unless there has been a complete termination of the
Class B Plan (as defined in such Plan) and the Class B Plan expressly authorizes Invesco Distributors to assign, transfer or pledge its rights to payments pursuant to the Class B Plan.
FINANCIAL STATEMENTS
Financial statements for the fiscal year ended October 31, 2013, including the Financial Highlights pertaining thereto, and the reports of the
independent registered public accounting firm thereon, are incorporated by reference into this SAI from each Fund’s Annual Report to shareholders filed on form N-CSR on January 9, 2014.
The portion of such Annual Reports that are not specifically listed above are not oncorpoarted by reference into this SAI and are not a part
of this Registration Statement.
80
APPENDIX A
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt ratings of Moody’s, S&P and Fitch.
Moody’s Long-Term Debt Ratings
|
Aaa:
|
Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.
|
|
Aa:
|
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
|
|
A:
|
Obligations rated A are considered upper-medium grade and are subject to low credit risk.
|
|
Baa:
|
Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics.
|
|
Ba:
|
Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.
|
|
B:
|
Obligations rated B are considered speculative and are subject to high credit risk.
|
|
Caa:
|
Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
|
|
Ca:
|
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
|
|
C:
|
Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest.
|
Note: Moody’s applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
Moody’s Short-Term Prime Rating System
P-1
Issuers (or supporting institutions) rated Prime-1
have a superior ability to repay short-term debt obligations.
P-2
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3
Issuers (or supporting institutions) rated Prime-3
have an acceptable ability to repay short-term obligations.
NP (Not Prime)
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
Note: In addition, in certain countries the prime rating may be modified by the issuer’s or guarantor’s senior unsecured long-term debt rating.
A-1
Moody’s MIG/VMIG US Short-Term Ratings
In municipal debt issuance, there are three rating categories for short-term obligations that are considered investment grade. These ratings
are designated as Moody’s Investment Grade (MIG) and are divided into three levels – MIG 1 through MIG 3.
In addition, those
short-term obligations that are of speculative quality are designated SG, or speculative grade.
In the case of variable rate demand
obligations (VRDOs), a two-component rating is assigned. The first element represents Moody’s evaluation of the degree of risk associated with scheduled principal and interest payments. The second element represents Moody’s evaluation of
the degree of risk associated with the demand feature, using the MIG rating scale.
The short-term rating assigned to the demand feature
of VRDOs is designated as VMIG. When either the long- or short-term aspect of a VRDO is not rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG ratings expire at note maturity. By contrast, VMIG rating expirations will be a function of each issue’s specific structural or
credit features.
Gradations of investment quality are indicated by rating symbols, with each symbol representing a group in which the
quality characteristics are broadly the same.
MIG 1/VMIG 1:
This designation denotes superior credit quality. Excellent protection
is afforded by established cash flows, highly reliable liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2:
This designation denotes strong credit quality. Margins of protection are ample although not as large as in the preceding
group.
MIG 3/VMIG 3:
This designation denotes acceptable credit quality. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
SG:
This designation denotes speculative-grade credit
quality. Debt instruments in this category may lack sufficient margins of protection.
Standard & Poor’s Long-Term
Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on Standard & Poor’s analysis of the
following considerations:
|
|
•
|
|
Likelihood of payment - capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
|
|
|
•
|
|
Nature of and provisions of the obligation;
|
|
|
•
|
|
Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights.
|
Issue ratings are an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate
recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated
obligations, secured and unsecured obligations, or operating company and holding company obligations.)
A-2
AAA
An
obligation rated ‘AAA’ has the highest rating assigned by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
AA
An obligation rated ‘AA’ differs from the
highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
A
An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.
BBB
An obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC, CC and C
Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant speculative
characteristics. ‘BB’ indicates the least degree of speculation and ‘C’ the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB
An obligation
rated ‘BB’ is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor’s inadequate
capacity to meet its financial commitment on the obligation.
B
An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.
CCC
An obligation rated ‘CCC’ is currently
vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC
An obligation rated ‘CC’ is currently highly vulnerable to nonpayment.
C
A ‘C’ rating is assigned to obligations that
are currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject of a bankruptcy petition or similar action which have not experienced a
payment default. Among others, the ‘C’ rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance with the instrument’s terms or when preferred stock is
the subject of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
A-3
D
An
obligation rated ‘D’ is in payment default. The ‘D’ rating category is used when payments on an obligation, including a regulatory capital instrument, are not made on the date due even if the applicable grace period has not
expired, unless Standard & Poor’s believes that such payments will be made during such grace period. The ‘D’ rating also will be used upon the filing of bankruptcy petition or the taking of similar action if payments on an
obligation are jeopardized. An obligation’s rating is lowered to ‘D’ upon completion of distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a
total value that is less than par.
Plus (+) or minus (-)
The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the
major rating categories.
NR
This indicates that no
rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor’s does not rate a particular obligation as a matter of policy.
Standard & Poor’s Short-Term Issue Credit Ratings
A-1
A short-term obligation rated ‘A-1’ is
rated in the highest category by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates
that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.
A-2
A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.
A-3
A short-term obligation rated ‘A-3’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances
are more likely to lead a weakened capacity of the obligor to meet its financial commitment on the obligation.
B
A short-term obligation rated ‘B’ is regarded as having significant speculative characteristics. Ratings of ‘B-1’, ‘B-2’, and
‘B-3” may be assigned to indicate finer distinctions within the ‘B’ category. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could
lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
B-1
A short-term obligation rated ‘B-1’ is regarded as having significant speculative characteristics, but the obligor has a relatively stronger capacity
to meet its financial commitments over the short-term compared to other speculative-grade obligors.
A-4
B-2
A
short-term obligation rated ‘B-2’ is regarded as having significant speculative characteristics, and the obligor has an average speculative-grade capacity to meet its financial commitments over the short-term compared to other
speculative-grade obligors.
B-3
A short-term
obligation rated ‘B-3’ is regarded as having significant speculative characteristics, and the obligor has a relatively weaker capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
C
A short-term obligation rated ‘C’ is
currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D
A short-term obligation rated ‘D’ is in
payment default. The ‘D’ rating category is used when payments on an obligation, including a regulatory capital instrument, are not made on the date due even if the applicable grace period has not expired, unless Standard &
Poor’s believes that such payments will be made during such grace period. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on an obligation are jeopardized.
Standard & Poor’s Municipal Short-Term Note Ratings Definitions
A Standard & Poor’s U.S. municipal note rating reflects Standard & Poor’s opinion about the liquidity factors and market access
risks unique to the notes. Notes due in three years or less will likely receive a note rating. Notes with an original maturity of more than three years will most likely receive a long-term debt rating. In determining which type of rating, if any, to
assign, Standard & Poor’s analysis will review the following considerations:
|
|
•
|
|
Amortization schedule - the larger final maturity relative to other maturities, the more likely it will be treated as a note; and
|
|
|
•
|
|
Source of payment - the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note.
|
Note rating symbols are as follows:
SP-1
Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
SP-2
Satisfactory capacity to pay principal and
interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3
Speculative capacity to pay principal and interest.
A-5
Standard & Poor’s Dual Ratings
Standard & Poor’s assigns “dual” ratings to all debt issues that have a put option or demand feature as part of their structure. The
first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term rating symbols are used for bonds to denote the long-term maturity and the short-term rating
symbols for the put option (for example, ‘AAA/A-1+’). With U.S. municipal short-term demand debt, note rating symbols are used with the short-term issue credit rating symbols (for example, ‘SP-1+/A-1+’)
The ratings and other credit related opinions of Standard & Poor’s and its affiliates are statements of opinion as of the date they are
expressed and not statements of fact or recommendations to purchase, hold or sell any securities or make any investment decisions. Standard & Poor’s assumes no obligation to update any information following publication. Users of
ratings and credit related opinions should not rely on them in making any investment decision. Standard & Poor’s opinions and analysis do not address the suitability of any security. Standard & Poor’s Financial Services
LLC does not act as a fiduciary or an investment advisor. While Standard & Poor’s has obtained information from sources it believes to be reliable, Standard & Poor’s does not perform an audit and undertakes no duty of due
diligence or independent verification of any information it receives. Ratings and credit related opinions may be changed, suspended, or withdrawn at any time.
Fitch Credit Rating Scales
Fitch
Ratings’ credit ratings provide an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit ratings are used
by investors as indications of the likelihood of receiving the money owed to them in accordance with the terms on which they invested. The agency’s credit ratings cover the global spectrum of corporate, sovereign (including supranational and
sub-national), financial, bank, insurance, municipal and other public finance entities and the securities or other obligations they issue, as well as structured finance securities backed by receivables or other financial assets.
The terms “investment grade” and “speculative grade” have established themselves over time as shorthand to describe the categories
‘AAA’ to ‘BBB’ (investment grade) and ‘BB’ to ‘D’ (speculative grade). The terms “investment grade” and “speculative grade” are market conventions, and do not imply any recommendation or
endorsement of a specific security for investment purposes. “Investment grade” categories indicate relatively low to moderate credit risk, while ratings in the “speculative” categories either signal a higher level of credit risk
or that a default has already occurred.
A designation of “Not Rated” or “NR” is used to denote securities not rated by Fitch where
Fitch has rated some, but not all, securities comprising an issuance capital structure.
Credit ratings express risk in relative rank order, which is to
say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.
Fitch Ratings’ credit ratings do not
directly address any risk other than credit risk. In particular, ratings do not deal with the risk of a market value loss on a rated security due to changes in interest rates, liquidity and other market considerations. However, in terms of payment
obligation on the rated liability, market risk may be considered to the extent that it influences the
ability
of an issuer to pay upon a commitment. Ratings nonetheless do not reflect market risk to the extent that they influence the size or
other conditionality of the
obligation
to pay upon a commitment (for example, in the case of index-linked bonds).
In the default components
of ratings assigned to individual obligations or instruments, the agency typically rates to the likelihood of non-payment or default in accordance with the terms of that instrument’s documentation. In limited cases, Fitch Ratings may include
additional considerations (i.e. rate to a higher or lower standard than that implied in the obligation’s documentation). In such cases, the agency will make clear the assumptions underlying the agency’s opinion in the accompanying rating
commentary.
A-6
Fitch Long-Term Rating Scales
Issuer Credit Rating Scales
Rated entities in a number
of sectors, including financial and non-financial corporations, sovereigns and insurance companies, are generally assigned Issuer Default Ratings (IDRs). IDRs opine on an entity’s relative vulnerability to default on financial obligations. The
“threshold” default risk addressed by the IDR is generally that of the financial obligations whose non-payment would best reflect the uncured failure of that entity. As such, IDRs also address relative vulnerability to bankruptcy,
administrative receivership or similar concepts, although the agency recognizes that issuers may also make pre-emptive and therefore voluntary use of such mechanisms.
In aggregate, IDRs provide an ordinal ranking of issuers based on the agency’s view of their relative vulnerability to default, rather than a prediction
of a specific percentage likelihood of default. For historical information on the default experience of Fitch-rated issuers, please consult the transition and default performance studies available from the Fitch Ratings website.
AAA: Highest credit quality.
‘AAA’ ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of
financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA: Very high credit quality.
‘AA’ ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
A: High credit quality.
‘A’ ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB: Good credit
quality.
‘BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is
considered adequate but adverse business or economic conditions are more likely to impair this capacity.
BB: Speculative.
‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over
time; however, business or financial flexibility exists which supports the servicing of financial commitments.
B: Highly speculative.
‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently
being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.
CCC:
Substantial credit risk.
Default is a real possibility.
CC: Very high levels of credit risk.
Default of some kind appears probable.
A-7
C: Exceptionally high levels of credit risk
Default is imminent or inevitable, or the issuer is in standstill. Conditions that are indicative of a ‘C’ category rating for an issuer include:
|
|
a.
|
the issuer has entered into a grace or cure period following non-payment of a material financial obligation;
|
|
|
b.
|
the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or
|
|
|
c.
|
Fitch Ratings otherwise believes a condition of ‘RD’ or ‘D’ to be imminent or inevitable, including through the formal announcement of a coercive debt exchange.
|
RD: Restricted default.
‘RD’
ratings indicate an issuer that in Fitch Ratings’ opinion has experienced an uncured payment default on a bond, loan or other material financial obligation but which has not entered into bankruptcy filings, administration, receivership,
liquidation or other formal winding-up procedure, and which has not otherwise ceased business. This would include:
|
|
a.
|
the selective payment default on a specific class or currency of debt;
|
|
|
b.
|
the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation;
|
|
|
c.
|
the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; or
|
|
|
d.
|
execution of a coercive debt exchange on one or more material financial obligations.
|
D:
Default.
‘D’ ratings indicate an issuer that in Fitch Ratings’ opinion has entered into bankruptcy filings, administration,
receivership, liquidation or other formal winding-up procedure, or which has otherwise ceased business.
Default ratings are not assigned prospectively to
entities or their obligations; within this context, non-payment on an instrument that contains a deferral feature or grace period will generally not be considered a default until after the expiration of the deferral or grace period, unless a default
is otherwise driven by bankruptcy or other similar circumstance, or by a coercive debt exchange.
“Imminent” default typically refers to the
occasion where a payment default has been intimated by the issuer, and is all but inevitable. This may, for example, be where an issuer has missed a scheduled payment, but (as is typical) has a grace period during which it may cure the payment
default. Another alternative would be where an issuer has formally announced a coercive debt exchange, but the date of the exchange still lies several days or weeks in the immediate future.
In all cases, the assignment of a default rating reflects the agency’s opinion as to the most appropriate rating category consistent with the rest of its
universe of ratings, and may differ from the definition of default under the terms of an issuer’s financial obligations or local commercial practice.
Note:
The modifiers “+” or “-” may
be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the ‘AAA’ Long-Term IDR category, or to Long-Term IDR categories below ‘B’.
A-8
Fitch Short-Term Rating Scales
A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity or security
stream and relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as “short term” based
on market convention. Typically, this means up to 13 months for corporate, sovereign, and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
F1: Highest short-term credit quality.
Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to denote any exceptionally strong
credit feature.
F2: Good short-term credit quality.
Good intrinsic capacity for timely payment of financial commitments.
F3: Fair short-term credit quality.
The
intrinsic capacity for timely payment of financial commitments is adequate.
B: Speculative short-term credit quality.
Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions.
C: High short-term default risk.
Default is a real possibility.
RD:
Restricted default.
Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial
obligations. Applicable to entity ratings only.
D: Default.
Indicates a broad-based default event for an entity, or the default of a short-term obligation.
A-9
APPENDIX E
PROXY
POLICIES AND PROCEDURES
Proxy Policies and Procedures
for
Invesco Advisers, Inc.
I.1. PROXY POLICIES AND PROCEDURES – INVESCO ADVISERS
|
|
|
|
|
Applicable to
|
|
All Advisory Clients, including the Invesco Funds
|
|
Risk Addressed by Policy
|
|
breach of fiduciary duty to client under Investment Advisers Act of 1940 by placing Invesco personal
interests ahead of client best economic interests in voting proxies
|
|
Relevant Law and Other Sources
|
|
Investment Advisers Act of 1940
|
|
Last
¨
Reviewed
þ
Revised
by Compliance for Accuracy
|
|
November, 2013
|
|
Policy/Procedure Owner
|
|
Advisory Compliance
|
|
Policy Approver
|
|
Invesco Advisers, Inc. Invesco Funds Board, Invesco Funds (Chicago) Board
|
|
Approved/Adopted Date
|
|
November, 2013
|
The following policies and procedures apply to all institutional and retail funds and accounts (collectively, the
“Accounts”) managed by Invesco Advisers, Inc. (“Invesco”).
A. GUIDING PRINCIPLES
Invesco may be authorized by its clients, including the funds it manages (“Clients”), to vote proxies appurtenant to the
securities owned by such Clients. If so authorized, Invesco carries out this responsibility by voting proxies in a manner reasonably designed to maximize the economic interests of its Clients and to minimize any real or perceived conflicts of
interest. Invesco may determine not to vote proxies if it determines that the cost or restrictions placed on a Client are outweighed by the benefit to such Client of voting the proxy.
Invesco is guided by the following principles:
|
|
•
|
|
Invesco votes for proposals that maximize long-term shareholder value.
|
|
|
•
|
|
Invesco believes in corporate accountability and supports governance structures reinforcing management’s accountability to the board of directors and a
board of directors’ accountability to shareholders.
|
|
|
•
|
|
In addition to the performance driven considerations noted above, Invesco believes that environmental, social and corporate governance proposals can influence
long-term shareholder value and should be voted in a manner where such long-term shareholder value is maximized.
|
November 2013
B. OPERATING PROCEDURES AND RESPONSIBLE PARTIES
Proxy administration
Guided by its philosophy that proxy voting is an asset
that is to be managed by each investment team, consistent with each team’s view as to the best economic interest of its shareholders, Invesco has created the Invesco US Proxy Advisory Committee (“IUPAC”). The IUPAC is an investments
driven committee comprised solely of representatives from each investment management team at Invesco. The purpose of the IUPAC is to provide a forum for investment teams to monitor proxy voting trends, understand inconsistent votes within the
complex, and to vote proxies where Invesco as a firm has a conflict of interest with an issuer or a member of the IUPAC has a personal conflict of interest with an issuer whose proxy he or she is charged with voting. The IUPAC also will
consider and express a view on the proxies of the top twenty-five issuers held across all Client accounts, as measured by the total market value of shares held by Invesco Client accounts, and any other proxy brought to the IUPAC by an IUPAC member
in an effort to build consensus around a proxy. Absent a conflict of interest, each investment team may deviate from the view formed by the IUPAC on any proxy. In cases where there is a firm-level or personal conflict of interest with a
proxy, the IUPAC’s vote controls the proxy across all applicable Client accounts. Representatives of the IUPAC will have access to third party proxy advisory analyses provided by each of Glass Lewis and Institutional Shareholder Services, Inc.
(“ISS”) as one of many research tools in determining how to vote a proxy and is not required to vote in accordance with the recommendations of either.
Important principles underlying the
Invesco Proxy Voting Guidelines (the “Guidelines”)
I. Corporate Governance
Management teams of companies are accountable to the boards of directors and directors of publicly held companies are accountable to shareholders.
Invesco endeavors to vote the proxies of portfolio companies in a manner that will reinforce the notion of a board’s accountability. Consequently, Invesco generally votes against any actions that would impair the rights of shareholders or would
reduce shareholders’ influence over the board or over management.
The following are specific voting issues that illustrate how
Invesco applies this principle of accountability.
|
|
•
|
|
Elections of directors.
In uncontested director elections for companies that do not have a controlling shareholder, Invesco generally votes in favor of
slates if they are comprised of at least a majority of independent directors and if the boards’ key committees are fully independent. Key committees include the Audit, Compensation and Governance or Nominating Committees. Invesco’s
standard of independence excludes directors who, in addition to the directorship, have any material business or family relationships with the companies they serve.
|
Contested director elections are evaluated on a case-by-case basis.
|
|
•
|
|
Director performance.
Invesco generally withholds votes from directors who exhibit a lack of accountability to shareholders, either through their level
of attendance at meetings or by adopting or approving egregious corporate-governance or other policies. In cases of material financial restatements, accounting fraud, habitually late filings, adopting shareholder rights plan (“poison
pills”) without shareholder
|
November 2013
|
|
approval, or other areas of poor performance, Invesco may withhold votes from some or all of a company’s directors. In situations where directors’ performance is a concern, Invesco may
also support shareholder proposals to take corrective actions such as so-called “clawback” provisions.
|
|
|
•
|
|
Auditors and Audit Committee members
. Invesco believes a company’s Audit Committee has a high degree of responsibility to shareholders in matters
of financial disclosure, integrity of the financial statements and effectiveness of a company’s internal controls. Independence, experience and financial expertise are critical elements of a well-functioning Audit Committee. When electing
directors who are members of a company’s Audit Committee, or when ratifying a company’s auditors, Invesco considers the past performance of the Committee and holds its members accountable for the quality of the company’s financial
statements and reports.
|
|
|
•
|
|
Majority standard in director elections.
The right to elect directors is the single most important mechanism shareholders have to promote
accountability. Invesco supports the nascent effort to reform the U.S. convention of electing directors, and generally votes in favor of proposals to elect directors by a majority vote.
|
|
|
•
|
|
Classified boards.
Invesco generally supports proposals to elect directors annually instead of electing them to staggered multi-year terms because
annual elections increase a board’s level of accountability to its shareholders.
|
|
|
•
|
|
Supermajority voting requirements.
Unless required by law in the state of incorporation, Invesco generally votes against actions that would impose any
supermajority voting requirement, and generally supports actions to dismantle existing supermajority requirements.
|
|
|
•
|
|
Responsiveness.
Invesco generally withholds votes from directors who do not adequately respond to shareholder proposals that were approved by a
majority of votes cast the prior year.
|
|
|
•
|
|
Cumulative voting.
The practice of cumulative voting can enable minority shareholders to have representation on a company’s board. Invesco
generally supports proposals to institute the practice of cumulative voting at companies whose overall corporate-governance standards indicate a particular need to protect the interests of minority shareholders.
|
|
|
•
|
|
Shareholder access.
On business matters with potential financial consequences, Invesco generally votes in favor of proposals that would increase
shareholders’ opportunities to express their views to boards of directors, proposals that would lower barriers to shareholder action and proposals to promote the adoption of generally accepted best practices in corporate governance.
Furthermore, Invesco generally votes for shareholder proposals that are designed to protect shareholder rights if a company’s corporate governance standards indicate that such additional protections are warranted.
|
II. Incentives
Invesco believes properly constructed compensation plans that include equity ownership are effective in creating incentives that induce management and employees of portfolio companies to create greater shareholder
wealth. Invesco generally supports equity compensation plans that promote the proper alignment of incentives with shareholders’ long-term interests, and generally votes against plans that are overly dilutive to existing shareholders, plans that
contain objectionable structural features, and plans that appear likely to reduce the value of the Client’s investment.
November 2013
Following are specific voting issues that illustrate how Invesco evaluates incentive plans.
|
|
•
|
|
Executive compensation.
Invesco evaluates compensation plans for executives within the context of the company’s performance under the
executives’ tenure. Invesco believes independent compensation committees are best positioned to craft executive-compensation plans that are suitable for their company-specific circumstances. Invesco views the election of independent
compensation committee members as the appropriate mechanism for shareholders to express their approval or disapproval of a company’s compensation practices. Therefore, Invesco generally does not support shareholder proposals to limit or
eliminate certain forms of executive compensation. In the interest of reinforcing the notion of a compensation committee’s accountability to shareholders, Invesco generally supports proposals requesting that companies subject each year’s
compensation record to an advisory shareholder vote, or so-called “say on pay” proposals.
|
|
|
•
|
|
Equity-based compensation plans.
Invesco generally votes against plans that contain structural features that would impair the alignment of incentives
between shareholders and management. Such features include the ability to reprice or reload options without shareholder approval, the ability to issue options below the stock’s current market price, or the ability automatically to replenish
shares without shareholder approval.
|
|
|
•
|
|
Employee stock-purchase plans.
Invesco generally supports employee stock-purchase plans that are reasonably designed to provide proper incentives to a
broad base of employees, provided that the price at which employees may acquire stock is at most a 15 percent discount from the market price.
|
|
|
•
|
|
Severance agreements.
Invesco generally votes in favor of proposals requiring advisory shareholder ratification of executives’ severance
agreements. However, we generally oppose proposals requiring such agreements to be ratified by shareholders in advance of their adoption. Given the vast differences that may occur in these agreements, it is necessary to note that IUPAC can and does
evaluate some severance agreements on a case-by-case basis.
|
Examples of management
proposals related to a company’s capital structure include authorizing or issuing additional equity capital, repurchasing outstanding stock, or enacting a stock split or reverse stock split. On requests for additional capital stock, Invesco
analyzes the company’s stated reasons for the request. Except where the request could adversely affect the Client’s ownership stake or voting rights, Invesco generally supports a board’s decisions on its needs for additional capital
stock. Some capitalization proposals require a case-by-case analysis. Examples of such proposals include authorizing common or preferred stock with special voting rights, or issuing additional stock in connection with an acquisition.
|
IV.
|
Mergers, Acquisitions and Other Corporate Actions
|
Issuers occasionally require shareholder approval to engage in certain corporate actions such as mergers, acquisitions, name changes, dissolutions, reorganizations, divestitures and reincorporations and the votes
for these types of corporate actions are generally determined on a case-by-case basis.
November 2013
|
V.
|
Anti-Takeover Measures
|
Practices designed to protect a company from unsolicited bids can adversely affect shareholder value and voting rights, and they create conflicts of interests among directors, management and shareholders. Except
under special issuer-specific circumstances, Invesco generally votes to reduce or eliminate such measures. These measures include adopting or renewing “poison pills”, requiring supermajority voting on certain corporate actions, classifying
the election of directors instead of electing each director to an annual term, or creating separate classes of common or preferred stock with special voting rights. Invesco generally votes against management proposals to impose these types of
measures, and generally votes for shareholder proposals designed to reduce such measures. Invesco generally supports shareholder proposals directing companies to subject their anti-takeover provisions to a shareholder vote.
|
VI.
|
Environmental and Social Issues
|
Invesco will evaluate environmental and social proposals when it believes such proposals may influence long-term shareholder value. If Invesco votes on an environmental or social proposal, it shall do so in a
manner it believes will maximize long-term shareholder value.
|
VII.
|
Routine Business Matters
|
Routine business matters rarely have the potential to have a material effect on the economic prospects of Clients’ holdings, so Invesco generally supports the board’s discretion on these items. However,
Invesco generally votes against proposals where there is insufficient information to make a decision about the nature of the proposal. Similarly, Invesco generally votes against proposals to conduct other unidentified business at shareholder
meetings.
These
Guidelines provide an important framework for making proxy-voting decisions, and should give our Clients insight into the factors driving Invesco’s decisions. The Guidelines cannot address all potential proxy issues, however. Decisions on
specific issues must be made within the context of these Guidelines. In addition, at the discretion of the portfolio managers, Invesco may also vote shares held on a Client-by-Client basis.
Client Maintains Right to Vote Proxies
In the case of institutional Clients or sub-advised Clients, Invesco will vote the proxies in accordance with these Guidelines unless a Client, ERISA or non-ERISA, retains, in writing, the right to vote or the
named fiduciary (e.g., the plan sponsor) of a Client retains in writing the right to direct the plan trustee or a third party to vote proxies.
Proxy Voting for Fixed Income Assets and Stable Value Wrap Agreements
Some of
Invesco’s fixed income Clients hold interests in preferred stock of companies and some of Invesco’s stable value clients are parties to wrap agreements. From time to time, companies that have issued preferred stock or that are parties to
wrap agreements request
November 2013
that Invesco’s Clients vote proxies on particular matters. Neither ISS nor GL currently provides proxy analysis or vote recommendations with respect to such proxy votes. Therefore, when a
particular matter arises in this category, the portfolio managers responsible for the particular mandate will review the matter and make a recommendation as to how to vote the associated proxy.
Proxy Constraints
In certain circumstances, Invesco may refrain from voting where the economic cost of voting a company’s proxy exceeds any anticipated benefits
of that proxy proposal. In addition, there may be instances in which Invesco is unable to vote a proxy despite using commercially reasonable efforts to vote all of its Clients’ proxies. Particular examples of such instances include, but are not
limited to, the following:
|
|
•
|
|
When securities are participating in the securities lending program, Invesco makes a determination of whether to terminate the loan by weighing the benefit to
the Clients of voting a particular proxy versus the revenue lost by terminating the loan and recalling the securities. In some countries the exercise of voting rights requires the Client to submit to “share-blocking.” Invesco generally
refrains from voting proxies in share-blocking countries unless the portfolio manager determines that the benefit to the Client(s) of voting a specific proxy outweighs the Client’s temporary inability to sell the security.
|
|
|
•
|
|
An inability to receive proxy materials from our Clients’ custodians with enough time and enough information to make a voting decision sometimes
precludes Invesco’s ability to vote proxies.
|
|
|
•
|
|
A requirement of some non-U.S. companies that in order to vote a proxy a representative in person must attend the proxy meeting. Invesco makes a determination
as to whether the costs of sending a representative or signing a power-of-attorney outweigh the benefit of voting a particular proxy.
|
In the great majority of instances Invesco is able to vote U.S. and non-U.S. proxies successfully. It is important to note that Invesco makes voting decisions for non-U.S. issuers using these Guidelines as its
framework, but also takes into account the corporate governance standards, regulatory environment and generally reasonable and governance-minded practices of the local market.
E. RESOLVING POTENTIAL CONFLICTS OF INTEREST
Firm Level Conflicts of Interest
. A
potential conflict of interest arises when Invesco votes a proxy for an issuer with which it also maintains a material business relationship. Examples could include issuers that are distributors of Invesco’s products, or issuers that employ
Invesco to manage portions of their retirement plans or treasury accounts.
Invesco generally resolves such potential conflicts in one
of the following ways: (1) if the proposal that gives rise to the potential conflict is specifically addressed by the Guidelines, Invesco may vote the proxy in accordance with the predetermined Guidelines; (2) Invesco may engage an
independent third party to determine how the proxy should be voted; or (3) Invesco may establish an ethical wall or other informational barrier between the persons involved in the potential conflict and the persons making the proxy-voting
decision in order to insulate the potential conflict from the decision makers.
November 2013
Because the Guidelines are pre-determined and crafted to be in the best economic interest of Clients,
applying the Guidelines to vote Client proxies should, in most instances, adequately resolve any potential conflict of interest. As an additional safeguard against potential conflicts, persons from Invesco’s marketing, distribution and other
customer-facing functions are not members of IUPAC.
Personal Conflicts of Interest.
If any member of IUPAC has a personal
conflict of interest with respect to a company or an issue presented for voting, that IUPAC member will inform IUPAC of such conflict and will abstain from voting on that company or issue. All IUPAC members shall sign an annual conflicts of interest
memorandum.
Funds of Funds
. Some Invesco Funds offering diversified asset allocation within one investment vehicle own shares in
other Invesco Funds. A potential conflict of interest could arise if an underlying Invesco Fund has a shareholder meeting with any proxy issues to be voted on, because Invesco’s asset-allocation funds or target-maturity funds may be large
shareholders of the underlying fund. In order to avoid any potential for a conflict, the asset-allocation funds and target maturity funds vote their shares in the same proportion as the votes of the external shareholders of the underlying fund.
The
Investments Administration team will be responsible for all Proxy Voting record keeping.
Policies and Vote Disclosure
A copy of these Guidelines and the voting record of each Invesco Retail Fund are available on Invesco’s web site,
www.invesco.com
. In accordance with Securities and Exchange Commission regulations, all Invesco Funds file a record of all proxy-voting activity for the prior 12 months ending June 30th. That filing is made on or before August 31st
of each year. In the case of institutional and sub-advised Clients, Clients may obtain information about how Invesco voted proxies on their behalf by contacting their client services representative.
November 2013
Proxy Policies and Procedures
for
Invesco Asset Management Limited (UK)
|
|
|
|
|
|
Invesco Perpetual
Policy on Corporate
Governance and Stewardship
|
Invesco Perpetual
Policy on Corporate Governance and Stewardship
Contents
|
|
|
|
|
|
|
Page
|
|
Section
|
|
|
|
|
|
|
|
1.
|
|
Introduction
|
|
|
|
|
|
|
|
2.
|
|
Scope
|
|
|
|
|
|
|
|
3.
|
|
Responsible voting
|
|
|
|
|
|
|
|
4.
|
|
Voting procedures
|
|
|
|
|
|
|
|
5.
|
|
Dialogue with companies
|
|
|
|
|
|
|
|
6.
|
|
Non-routine resolutions and other topics
|
|
|
|
|
|
|
|
7.
|
|
Evaluation of companies’ environmental, social and governance arrangements (ESG)
|
|
|
|
|
|
|
|
8.
|
|
Disclosure and reporting
|
|
|
|
|
|
|
|
9.
|
|
UK Stewardship Code
|
|
|
|
|
|
|
|
|
|
Appendix 1 — Voting on shares listed outside of the UK, Europe and the US
|
Invesco Perpetual
Policy on Corporate Governance and Stewardship
Invesco Perpetual (IP), a
business name of Invesco Asset Management Limited, has adopted a clear and considered policy towards its responsibility as a shareholder on behalf of all investors in portfolios managed by them. As part of this policy, IP will take steps to satisfy
itself about the extent to which the companies in which it invests look after shareholder value in their companies and comply with local recommendations and practices, such as the UK Corporate Governance Code issued by the Financial Reporting
Council and the U.S. Department of Labor Interpretive Bulletins.
IP has a responsibility to optimise returns to its clients. As a core
part of the investment process, IP’s fund managers will endeavour to establish a dialogue with company management to promote company decision making that is in the best interests of shareholders, and is in accordance with good Corporate
Governance principles.
Being a major shareholder in a company is more than simply expecting to benefit in its future earnings streams.
In IP’s view, it is about helping to provide the capital a company needs to grow, about being actively involved in its strategy, when necessary, and helping to ensure that shareholder interests are always at the forefront of management’s
thoughts.
IP primarily defines stewardship as representing the best interests of clients in its fiduciary role as a discretionary asset
manager (not asset owner) and as an institutional shareholder, i.e. an organization which pools large sums of money and invest those sums in securities, real property and other investment assets. This is considered more appropriate than undertaking
the stewardship of investee companies, which we believe should always remain the responsibility of the directors and executives of those companies. IP may at times seek to influence strategies of investee companies, where appropriate, on behalf of
its clients, but IP will never seek to be involved in the day to day running of any investee companies.
IP considers that shareholder
activism is fundamental to good Corporate Governance. Although this does not entail intervening in daily management decisions, it does involve supporting general standards for corporate activity and, where necessary, taking the initiative to ensure
those standards are met, with a view to protecting and enhancing value for our investors in our portfolios.
Engagement will also be
proportionate and will reflect the size of holdings, length of holding period and liquidity of the underlying company shares. This is because in most of IP’s investment jurisdictions, the only effective remedy of last resort available to
shareholders, other than liquidating their share ownership, is the removal of directors.
The scope of this policy covers all
portfolios that are managed by the IP investment teams located in Henley on Thames, United Kingdom and specifically excludes portfolios that are managed by other investment teams within the wider Invesco group that have their own voting, corporate
governance and stewardship policies. As an example, within IP’s ICVC range the following funds are excluded: IP UK Enhanced Index, IP Hong Kong & China, IP Japanese Smaller Companies, IP Global Balanced Index, IP Global ex-UK Core Equity
Index, IP Global ex-UK Enhanced Index and the IP Balanced Risk 6, 8 and 10 funds.
Invesco Perpetual
Policy on Corporate Governance and Stewardship
One important means of
putting shareholder responsibility into practice is via the exercising of voting rights. In deciding whether to vote, IP will take into account such factors as the likely impact of voting on management activity, and where expressed, the preference
of clients in portfolios managed by them. As a result of these two factors, IP will tend to vote on all UK, European and US shares but to vote on a more selective basis on other shares. (See Appendix I - Voting on shares listed outside of the
UK, Europe and the US).
IP considers that the voting rights attached to its clients’ investments should be actively managed with
the same duty of care as that applied to all other aspects of asset administration. As such, voting rights will be exercised on an informed and independent basis, and will not simply be passed back to the company concerned for discretionary voting
by the Chairman.
In voting for or against a proposal, IP will have in mind three objectives, as follows:
|
|
-
|
To protect the rights of its clients
|
|
|
-
|
To minimise the risk of financial or business impropriety within the companies in which its clients are invested, and
|
|
|
-
|
To protect the long-term value of its clients’ investments.
|
It is important to note that, when exercising voting rights, the third option of abstention can also be used as a means of expressing dissatisfaction, or lack of support, to a board on any particular issue.
Additionally, in the event of a conflict of interest arising between IP and its clients over a specific issue, IP will either abstain or seek instruction from each client.
IP will actively exercise the voting rights represented by the shares it manages on behalf of its clients where it is granted the discretion to do so. In certain circumstances the discretion is retained by the
client, where they wish to be responsible for applying their own right to vote.
Note: Share blocking
Generally, IP will not vote where this results in shares being blocked from trading for a period of more than a few hours. IP considers that it is
not in the interest of clients that their shares are blocked at a potentially sensitive time, such as the time around a shareholder meeting.
IP will endeavour to keep
under regular review with trustees, depositaries, custodians and third party proxy voting services the practical arrangements for circulating company resolutions and notices of meetings and for exercising votes in accordance with standing or special
instructions. Although IP’s proxy voting service will provide research and recommendations for each resolution, each fund manager will cast their vote independently considering their own research and dialogue with company management.
Proxy voting research and services are currently provided by Institutional Shareholder Services (ISS), part of the RiskMetrics Group.
IP will endeavour to review regularly any standing or special instructions on voting and where possible, discuss with company
representatives any significant issues.
IP will take into account the implications of stock lending arrangements where this is relevant
(that is, when stock is lent to the extent permitted by local regulations, the voting rights attaching to that stock pass to the borrower). However, IP does not currently enter into any stock lending arrangements as it believes the facility does not
support active shareholder engagement.
Invesco Perpetual
Policy on Corporate Governance and Stewardship
|
5.
|
Dialogue with companies
|
IP will endeavour,
where practicable and in accordance with its investment approach, to enter into a dialogue with companies’ management based on the mutual understanding of objectives. This dialogue is likely to include regular meetings with company
representatives to explore any concerns about corporate governance where these may impact on the best interests of clients. In discussion with company boards and senior non-Executive Directors, IP will endeavour to cover any matters of particular
relevance to investee company shareholder value.
Those people on the inside of a company, most obviously its executives, know their
businesses much more intimately. Therefore, it is usually appropriate to leave strategic matters in their hands. However, if that strategy is not working, or alternatives need exploring, IP will seek to influence the direction of that company where
practicable. In IP’s view, this is part of its responsibility to investors, where possible, in shaping strategy. Ultimately the business’ performance will have an impact on the returns generated by IP’s portfolios, whether it is in
terms of share price performance or dividends, and IP wants to seek to ensure that the capital IP has invested on behalf of its clients is being used as effectively as possible. In the majority of cases IP is broadly in agreement with the direction
of a company that it has invested in, as its initial decision to invest will have taken these factors into account. But these issues demand regular review, which can only be achieved through company meetings.
The building of this relationship facilitates frank and open discussion, and on-going interaction is an integral part of the fund manager’s
role. The fact that IP has been a major shareholder in a number of companies for a long time, in particular within its domestic UK portfolios, reflects both the fact that IP’s original investments were based on a joint understanding of where
the businesses were going and the ability of the companies’ management to execute that plan. Inevitably there are times when IP’s views diverge from those of the companies’ executives but, where possible, it attempts to work with
companies towards a practical solution. However, IP believes that its status as part-owner of companies means that it has both the right and the responsibility to make its views known. The option of selling out of those businesses is always open,
but normally IP prefers to push for change, even if this can be a slow process.
Specifically when considering resolutions put to
shareholders, IP will pay attention to the companies’ compliance with the relevant local requirements. In addition, when analysing companies’ prospects for future profitability and hence returns to shareholders, IP will take many variables
into account, including but not limited to, the following:
|
|
-
|
Nomination and audit committees
|
|
|
-
|
Remuneration committee and directors’ remuneration
|
|
|
-
|
Board balance and structure
|
|
|
-
|
Financial reporting principles
|
|
|
-
|
Internal control system and annual review of its effectiveness
|
|
|
-
|
Dividend and Capital Management policies
|
|
|
-
|
Socially Responsible Investing policies
|
|
6.
|
Non-routine resolutions and other topics
|
These will be considered on a case-by-case basis and where proposals are put to the vote will require proper explanation and justification by (in
most instances) the Board. Examples of such proposals would be all political donations and any proposal made by a shareholder or body of shareholders (typically a pressure group).
Apart from the three fundamental voting objectives set out under ‘Responsible Voting’ above, considerations that IP might apply to
non-routine proposals will include:
|
|
-
|
The degree to which the company’s stated position on the issue could affect its reputation and/ or sales, or leave it vulnerable to boycott or selective purchasing
|
|
|
-
|
Peer group response to the issue in question
|
|
|
-
|
Whether implementation would achieve the objectives sought in the proposal
|
|
|
-
|
Whether the matter is best left to the Board’s discretion.
|
Invesco Perpetual
Policy on Corporate Governance and Stewardship
|
7.
|
Evaluation of companies’ environmental, social and governance arrangements
|
At IP, each fund manager is individually responsible for environmental, social and governance (ESG) matters, rather than utilising ESG professionals or an internal / external discrete team independent from the
fund management process. ESG issues are deemed as an essential component of the fund manager’s overall investment responsibilities. Additionally, fund managers may call on the support of the IP Investment Management Operations team on any ESG
matter.
As mentioned in Section 5, company meetings are an integral part of IP’s investment research approach and discussions
at these meetings include all matters that might affect the share price, including ESG issues.
IP’s research is structured to give
it a detailed understanding of a company’s key historical and future, long-term business drivers, such as demand for its products, pricing power, market share trends, cash flow and management strategy. This enables IP’s investment teams to
form a holistic opinion of management strategy, the quality of the management, an opinion on a company’s competitive position, its strategic advantages/ disadvantages, and corporate governance arrangements, thus incorporating any inherent ESG
issues.
IP will, when evaluating companies’governance arrangements, particularly those relating to board structure and
composition, give due weight to all relevant factors brought to its attention.
|
8.
|
Disclosure and reporting
|
Although IP
acknowledges initiatives of transparency, it is also very aware of its fiduciary duty and the interests of all investors in portfolios managed by them. As such, IP is very cognisant that disclosure of any meeting specific information may have a
detrimental effect in its ability to manage its portfolios and ultimately would not be in the best interests of all clients. Primarily, this is for investor protection and to allow IP’s fund managers to manage their portfolios in the interests
of all its clients.
Although IP does not report specific findings of company meetings for external use, it will seek to provide regular
illustrations to demonstrate that active engagement is at the heart of its investment process.
For clients with individual mandates,
(i.e. not invested in a fund), IP may discuss specific issues where it can share details of a client’s portfolio with that specific client. Occasionally, where IP has expressed strong views to management over matters of governance, those views
have gained media attention, but IP will never seek to encourage such debates in the media.
On request from investors, IP will in good
faith provide records of voting instructions given to third parties such as trustees, depositaries and custodians provided that:
|
|
-
|
In IP’s view, it does not conflict with the best interests of other investors; and
|
|
|
-
|
It is understood that IP will not be held accountable for the expression of views within such voting instructions and
|
|
|
-
|
IP is not giving any assurance nor undertaking nor has any obligation to ensure that such instructions resulted in any votes actually being cast. Records of voting instructions
within the immediate preceding three months will not normally be provided for activities within the funds managed by IP
|
Note:
The record of votes
will reflect the voting instruction of the relevant fund manager. This may not be the same as votes actually cast as IP is entirely reliant on third parties complying promptly with such instructions to ensure that such votes are cast correctly.
Accordingly, the provision of information relating to an instruction does not mean that a vote was actually cast, just that an instruction was given in accordance with a particular view taken.
Invesco Perpetual
Policy on Corporate Governance and Stewardship
|
9.
|
The UK Stewardship Code
|
The UK Stewardship
Code (the Code) issued by the Financial Reporting Council (FRC) aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance
responsibilities. The Code sets out seven principles, which support good practice on engagement with UK investee companies and to which the FRC believes institutional investors should aspire. The Code is applied on a ‘comply or explain’
approach. IP sets out below how it complies with each principle or details why it chooses not to.
Principle 1
Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
IP complies with Principle 1 and publishes the Invesco Perpetual Policy on Corporate Governance and Stewardship, which sets out how it will
discharge its stewardship responsibilities, on the ‘About us’ page on its website:
www.invescoperpetual.co.uk
The following is a summary:
IP primarily defines stewardship as representing the best interests of clients in its fiduciary role as a discretionary asset manager (not asset owner) and as an institutional shareholder, i.e. an organization
which pools large sums of money and invest those sums in securities, and other investment assets. This is considered more appropriate than undertaking the stewardship of investee companies, which we believe should always remain the responsibility of
the directors and executives of those companies. IP may at times seek to influence strategies of investee companies, where appropriate, on behalf of its clients, but IP will never seek to be involved in the day to day running of any investee
companies. As a result, in the interests of the beneficiaries of the assets under its management, IP will engage with investee companies on strategy, share value performance, risk, capital structure, governance, culture, remuneration and other
significant matters that may be subject to voting in a general meeting and of proportional interest in terms of value discovery in a business.
Principle 2
Institutional investors should have a robust policy on managing conflicts of
interest in relation to stewardship and this policy should be publicly disclosed.
IP complies with Principle 2 by meeting its
regulatory requirement of having an effective Conflicts of Interest Policy. Any conflicts of interest arising through its stewardship of investee companies will be handled in accordance with that policy.
In respect of stewardship, IP anticipates the opportunity for conflicts arising would be limited, e.g. where it invests in a company that is also a
broker (i.e. dealing) of, or client of IP.
This Invesco UK Conflicts of Interest Policy is available on request and covers potential
conflicts of interest in relation to stewardship. The Conflicts of Interest Policy defines a conflict of interest as ‘a situation where there is a material risk of damage to the interests of a client arising because of the interests of Invesco
and our clients differ and any client and those of another client differ.’ As UK Stewardship is carried out in our clients’ interests, there are limited opportunities for conflicts of interest arising and, where they do, these are managed
appropriately.
Principle 3
Institutional investors should monitor their investee companies.
As an active shareholder, IP
complies with Principle 3. Through its investment process, fund managers endeavour to establish on a proportionate basis, on-going dialogue with company management and this is likely to include regular meetings. In discussions with company boards
and senior non-Executive Directors, IP will explore any concerns about corporate governance where these may impact on the best interests of clients, together with any other matters of particular value to shareholders.
Meeting company boards of investee companies is a core part of IP’s investment process and IP is committed to keeping records of all future
key engagement activities. As part of the engagement process IP fund managers may choose to be made insiders (i.e. to be made privy to material, non-public information) to protect and/or enhance investor value. In such circumstances they will follow
IP’s regulatory required policy and processes to mitigate against market abuse, principally by systematically blocking any trading in insider securities.
When casting votes on behalf of investors, IP keeps detailed records of all instructions given in good faith to third parties such as trustees, depositories and custodians. Although the rationale for voting in a
particular manner is not automatically captured through the voting process, the individually responsible fund manager would be expected to be able to clearly articulate their decision whenever required.
Invesco Perpetual
Policy on Corporate Governance and Stewardship
|
9.
|
The UK Stewardship Code
|
Principle 4
Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
IP complies with Principle 4 with its fund managers managing corporate governance matters independently being a key part of their investment
process to protect and add value on behalf investors. Initially any issues/concerns would be raised by its fund managers through IP’s process of on-going dialogue and company meetings. On occasions that a fund manager believes an issue is
significant enough to be escalated, this will be done through IP’s Chief Investment Officer (CIO) and the IP Investment Management Operations team who will ensure the relevant internal resources are made available to support the fund
manager in securing the most appropriate outcome for IP’s clients.
Principle 5
Institutional investors should be willing to act collectively with other investors where appropriate.
IP is supportive of collective engagement in cases where objectives between parties are mutually agreeable, there are no conflicts of interest and,
as they pertain to the UK market, are not in breach of ‘concert party’ rules. Other shareholders can engage directly with the relevant fund manager or through an investment adviser. Alternatively, enquiries can be directed to any of the
below:
|
|
-
|
Stuart Howard — Head of IP Investment Management Operations
|
|
|
-
|
Dan Baker — IP Investment Management Operations Manager
|
|
|
-
|
Charles Henderson — UK Equities Business Manager
|
Principle 6
Institutional investors should have a clear policy on voting and disclosure of
voting activity.
As detailed in Section 3, IP is committed to voting on all the UK (together with European and US) stocks it
holds for its underlying investors and where it has the full discretion to do so. Whilst comprehensive records of IP’s voting instructions are maintained, IP does not report specifically on its voting activity. Whilst being mindful of its
fiduciary duty and the interest of all investors, IP believes that automatic public disclosure of its voting records may have a detrimental effect on its ability to manage its portfolios and ultimately would not be in the best interest of all
clients.
On specific requests from clients, IP will in good faith provide records of voting instructions given to third parties such as
trustees, depositaries and custodians subject to limitations detailed in Section 8.
IP uses ISS to process its voting decisions
and the ABI’s IVIS service for research for UK securities. Its instructions to ISS include a default instruction to vote with management, which is used only on the rare occasion when instructions are not successfully transmitted to ISS. IP will
also consider the need to attend and vote at general meetings if issues prevent the casting of proxy votes within required time limits.
IP does not enter into stock lending arrangements which might impact the voting process.
Principle 7
Institutional investors should report periodically on their stewardship and voting activities.
IP complies with Principle 7 through a commitment to provide regular illustrations of its engagement activities and to respond to voting record
requests from investors in its portfolios on an individual basis.
Although IP does not report specific findings of company meetings for
external use, we will seek to provide illustrations to demonstrate that active engagement is at the heart of its investment process. On request from investors, IP will in good faith provide records of voting instructions given to third parties such
as trustees, depositaries and custodians subject to certain limitations outlined in Section 8. Although the rationale for its voting decision is not captured through the voting process, individual fund managers would be expected to articulate
their decision whenever required.
IP currently does not obtain an independent opinion on its engagement and voting processes as it
believes any value for its clients from such an opinion is outweighed by the costs of obtaining such an opinion. There is also no material demand from clients to provide such an independent assurance.
Invesco Perpetual
Policy on Corporate Governance and Stewardship
APPENDIX A
INVESCO CANADA
PROXY
VOTING GUIDELINES
Purpose
The purpose of this
document is to describe Invesco Canada Ltd.’s (“Invesco Canada”) general guidelines for voting proxies received from companies held in the accounts (“Accounts”) for which it acts as investment fund manager and/or adviser
including:
|
|
•
|
|
Investment fund manager, including investment funds offered in Canada (the “Canadian Funds”),
|
|
|
•
|
|
Adviser, including separately managed portfolios (“SMPs”),
|
|
|
•
|
|
Sub-adviser, including investment funds registered under and governed by the US Investment Company Act of 1940, as amended (the “US Funds”).
|
The Accounts referred to above, exclude Accounts that are sub-advised (“Sub-Advised Accounts”) by affiliated or third party advisers
(“Sub-Advisers”). Proxies for Sub-Advised Accounts will be voted in accordance with the Sub-Adviser’s proxy voting policy (which may contain different voting recommendations), provided the policy as a whole is designed with the
intention of voting securities in the best interest of the Account; unless the sub-advisory agreement provides otherwise.
Voting rights will not be
exercised in accordance with this policy or the Sub-Adviser’s proxy policy if the investment management agreement between the client and Invesco Canada governing the SMP provides otherwise.
Compliance will review the proxy voting policies & procedures of any new sub-advisors as part of its due diligence.
Introduction
Invesco Canada has a fiduciary obligation
to act in the best long-term economic interest of the Accounts when voting proxies of portfolio companies.
The default is to vote with the recommendation
of the publicly traded company’s management.
Page 4 of 14
As a general rule, Invesco Canada shall vote against any actions that would:
|
|
•
|
|
reduce the rights or options of shareholders,
|
|
|
•
|
|
reduce shareholder influence over the board of directors and management,
|
|
|
•
|
|
reduce the alignment of interests between management and shareholders, or
|
|
|
•
|
|
reduce the value of shareholders’ investments.
|
Since Invesco Canada’s portfolio managers follow an
investment discipline that includes investing in companies that are believed to have strong management teams, the portfolio managers will generally support the management of companies in which they invest, and will accord proper weight to the
recommendations of company management. Therefore, in most circumstances, votes will be cast in accordance with the recommendations of company management.
While Invesco Canada’s proxy voting guidelines are stated below, the portfolio managers will take into consideration all relevant facts and circumstances
(including country specific considerations), and retain the right to vote proxies as deemed appropriate.
These guidelines may be amended from time to
time.
Situations in which Voting Rights Proxies Will Not Be Exercised
Voting rights will not be exercised in situations where:
|
|
•
|
|
the securities have been sold subsequent to record date;
|
|
|
•
|
|
administrative issues prevent voting, or;
|
|
|
•
|
|
Invesco Canada sub-advises an Account for an unaffiliated third-party and the securities to be voted have been lent out by the fund manager.
|
Conflicts of Interest
When voting proxies, Invesco
Canada’s portfolio managers assess whether there are material conflicts of interest between Invesco Canada’s interests and those of the Account. A potential conflict of interest situation may include where Invesco Canada or an affiliate
manages assets for, provides other financial services to, or otherwise has a material business relationship with, a company whose management is soliciting proxies, and failure to vote in favour of management of the company may harm Invesco
Canada’s relationship with the company. In all situations, the portfolio managers will not take Invesco Canada’s relationship with the company into account, and will vote the proxies
Page 5 of 14
in the best interest of the Account. To the extent that a portfolio manager has any personal conflict of
interest with respect to a company or an issue presented, that portfolio manager should abstain from voting on that company or issue. Portfolio managers are required to report in writing to the relevant Investment Head any such conflicts of interest
and/or attempts by outside parties to improperly influence the voting process. If the portfolio manager in question is an Investment Head, such conflicts of interest and/or attempts by outside parties to improperly influence the voting process shall
be presented in writing to the Investment Leadership Team (“ILT”). The Global Investments Director (or designate) will report any conflicts of interest to the Independent Review Committee on an annual basis.
We believe that a board that has at least a majority of independent directors is
integral to good corporate governance. Unless there are restrictions specific to a company’s home jurisdiction, key board committees, including audit and compensation committees, should be completely independent.
Voting on Director Nominees in Uncontested Elections
Votes in an uncontested election of directors are evaluated on a
case-by-case
basis, considering factors that may include:
|
|
•
|
|
Long-term financial company performance relative to a market index,
|
|
|
•
|
|
Composition of the board and key board committees,
|
|
|
•
|
|
Nominee’s attendance at board meetings,
|
|
|
•
|
|
Nominee’s time commitments as a result of serving on other company boards,
|
|
|
•
|
|
Nominee’s stock ownership position in the company,
|
|
|
•
|
|
Whether the chairman is also serving as CEO, and
|
|
|
•
|
|
Whether a retired CEO sits on the board.
|
Voting on Director Nominees in Contested Elections
Votes in a contested election of directors are evaluated on a
case-by-case
basis, considering factors that may include:
|
|
•
|
|
Long-term financial performance of the company relative to its industry,
|
Page 6 of 14
|
|
•
|
|
Management’s track record,
|
|
|
•
|
|
Background to the proxy contest,
|
|
|
•
|
|
Qualifications of director nominees (both slates),
|
|
|
•
|
|
Evaluation of what each side is offering shareholders as well as the likelihood that the proposed objectives and goals can be met, and
|
|
|
•
|
|
Stock ownership positions in the company.
|
Majority Threshold Voting for Director Elections
We will generally vote
for
proposals that require directors to be elected with an affirmative majority of votes cast unless the relevant portfolio
manager believes that the company has adopted formal corporate governance principles that present a meaningful alternative to the majority voting standard.
Separating Chairman and CEO
Shareholder proposals to
separate the chairman and CEO positions should be evaluated on a
case-by-case
basis.
While we generally support these proposals, some companies
have governance structures in place that can satisfactorily counterbalance a combined position. Voting decisions will take into account factors such as:
|
|
•
|
|
Designated lead director, appointed from the ranks of the independent board members with clearly delineated duties;
|
|
|
•
|
|
Majority of independent directors;
|
|
|
•
|
|
All-independent key committees;
|
|
|
•
|
|
Committee chairpersons nominated by the independent directors;
|
|
|
•
|
|
CEO performance is reviewed annually by a committee of independent directors; and
|
|
|
•
|
|
Established governance guidelines.
|
Majority of Independent Directors
While we generally support proposals asking that a majority of directors be independent, each proposal should be evaluated on a case-by-case basis.
Page 7 of 14
We generally vote for proposals that the board’s audit, compensation, and/or nominating committees be
composed exclusively of independent directors.
Stock Ownership Requirements
We believe that individual directors should be appropriately compensated and motivated to act in the best interests of shareholders. Share ownership by
directors better aligns their interests with those of other shareholders. Therefore, we believe that meaningful share ownership by directors is in the best interest of the company.
We generally vote
for
proposals that require a certain percentage of a director’s compensation to be in the form of common stock.
Size of Boards of Directors
We believe that the number
of directors is important to ensuring the board’s effectiveness in maximizing long-term shareholder value. The board must be large enough to allow it to adequately discharge its responsibilities, without being so large that it becomes
cumbersome.
While we will prefer a board of no fewer than 5 and no more than16 members, each situation will be considered on a
case-by-case
basis
taking into consideration the specific company circumstances.
Classified or Staggered Boards
In a classified or staggered board, directors are typically elected in two or more “classes”, serving terms greater than one year.
We prefer the annual election of all directors and will generally
not support
proposals that provide for staggered terms for board members. We
recognize that there may be jurisdictions where staggered terms for board members is common practice and, in such situations, we will review the proposals on a
case-by-case
basis.
Director Indemnification and Liability Protection
We
recognize that many individuals may be reluctant to serve as corporate directors if they are personally liable for
all
lawsuits and legal costs. As a result, limitations on directors’ liability can benefit the corporation and its
shareholders by helping to attract and retain qualified directors while providing recourse to shareholders on areas of misconduct by directors.
We
generally vote
for
proposals that limit directors’ liability and provide indemnification as long as the arrangements are limited to the director acting honestly and in good faith with a view to the best interests of the company and, in
criminal matters, are limited to the director having reasonable grounds for believing the conduct was lawful.
Page 8 of 14
A strong audit process is a requirement for good corporate governance. A significant aspect of
the audit process is a strong relationship with a knowledgeable and independent set of auditors.
Ratification of Auditors
We believe a company should limit its relationship with its auditors to the audit engagement, and certain closely related activities that do not, in the
aggregate, raise an appearance of impaired independence.
We generally vote
for
the reappointment of the company’s auditors unless:
|
|
•
|
|
It is not clear that the auditors will be able to fulfill their function;
|
|
|
•
|
|
There is reason to believe the auditors have rendered an opinion that is neither accurate nor indicative of the company’s financial position; or
|
|
|
•
|
|
The auditors have a significant professional or personal relationship with the issuer that compromises their independence.
|
Disclosure of Audit vs. Non-Audit Fees
Understanding the
fees earned by the auditors is important for assessing auditor independence. Our support for the re-appointment of the auditors will take into consideration whether the management information circular contains adequate disclosure about the amount
and nature of audit vs. non-audit fees.
There may be certain jurisdictions that do not currently require disclosure of audit vs. non-audit fees. In these
circumstances, we will generally
support
proposals that call for this disclosure.
|
III.
|
COMPENSATION PROGRAMS
|
Appropriately designed equity-based compensation plans, approved by shareholders,
can be an effective way to align the interests of long-term shareholders and the interests of management, employees and directors. Plans should not substantially dilute shareholders’ ownership interests in the company, provide participants with
excessive awards or have objectionable structural features. We will consider each compensation plan in its entirety (including all incentives, awards and other compensation) to determine if the plan provides the right incentives to managers,
employees and directors and is reasonable on the whole.
While we generally encourage companies to provide more transparent disclosure related to their
compensation programs, the following are specific guidelines dealing with some
Page 9 of 14
of the more common features of these programs (features not specifically itemized below will be considered on
a
case-by-case
basis taking into consideration the general principles described above):
Cash Compensation and Severance Packages
We will generally
support
the board’s discretion to determine and grant appropriate cash compensation and severance packages.
Executive Compensation (“say on pay”)
Proposals requesting that companies subject each year’s compensation record to a non binding advisory shareholder vote, or so-called “say on
pay” proposals will be evaluated on a
case-by-case
basis.
Equity Based Plans - Dilution
Equity compensation plans can increase the number of shares of a company and therefore dilute the value of existing shares. While such plans can be an
effective compensation tool in moderation, they can be a concern to shareholders and their cost needs to be closely watched. We assess proposed equity compensation plans on a
case-by-case
basis.
Employee Stock Purchase Plans
We will generally vote
for
the use of employee stock purchase plans to increase company stock ownership by employees, provided that shares purchased under the plan are acquired for no less than 85% of their market value. It is recognized that country specific
circumstances may exist (e.g. tax issues) that require proposals to be reviewed on a
case-by-case
basis.
Loans to Employees
We will vote
against
the corporation making loans to employees to allow employees to pay for stock or stock options. It is recognized that country
specific circumstances may exist that require proposals to be reviewed on a
case-by-case
basis.
Stock Option Plans – Board Discretion
We will vote
against
stock option plans that give the board broad discretion in setting the terms and conditions of the programs. Such programs
should be submitted with detail and be reasonable in the circumstances regarding their cost, scope, frequency and schedule for exercising the options.
Page 10 of 14
Stock Option Plans – Inappropriate Features
We will generally vote
against
plans that have any of the following structural features:
|
|
•
|
|
ability to re-price “underwater” options without shareholder approval,
|
|
|
•
|
|
ability to issue options with an exercise price below the stock’s current market price,
|
|
|
•
|
|
ability to issue “reload” options, or
|
|
|
•
|
|
automatic share replenishment (“evergreen”) features.
|
Stock Option Plans – Director
Eligibility
While we prefer stock ownership by directors, we will
support
stock option plans for directors as long as the terms and conditions
of director options are clearly defined
Stock Option Plans - Repricing
We will vote
for
proposals to re-price options if there is a value-for-value (rather than a share-for-share) exchange.
Stock Option Plans - Vesting
We will vote
against
stock option plans that are 100% vested when granted.
Stock Option Plans – Authorized Allocations
We will generally vote
against
stock option plans that authorize allocation of 25% or more of the available options to any one individual.
Stock Option Plans – Change in Control Provisions
We will vote
against
stock option plans with change in control provisions that allow option holders to receive more for their options than shareholders
would receive for their shares.
We will review proposals relating to changes to capital structure and restructuring
on a case-by-case basis, taking into consideration the impact of the changes on corporate governance and shareholder rights, anticipated financial and operating benefits, portfolio manager views, level of dilution, and a company’s industry and
performance in terms of shareholder returns.
Page 11 of 14
Common Stock Authorization
We will review proposals to increase the number of shares of common stock authorized for issue on a
case-by-case
basis.
Dual Class Share Structures
Dual class share structures
involve a second class of common stock with either superior or inferior voting rights to those of another class of stock.
We will generally vote
against
proposals to create or extend dual class share structures where classes have different voting rights.
Stock Splits
We will vote
for
proposals to increase common share authorization for a stock split, provided that the increase in authorized shares would not result in
excessive dilution given a company’s industry and performance in terms of shareholder returns.
Reverse Stock Splits
We will vote
for
proposals to implement a reverse stock split.
Share Repurchase Programs
We will vote
against
proposals to institute open-market share repurchase plans if all shareholders do not participate on an equal basis.
Reincorporation
Reincorporation involves re-establishing the company in a different legal jurisdiction.
We will generally vote
for
proposals to reincorporate the company provided that the board and management have demonstrated sound financial or business
reasons for the move. Proposals to reincorporate will generally
not be supported
if solely as part of an anti-takeover defense or as a way to limit directors’ liability.
Mergers & Acquisitions
We will vote
for
merger & acquisition proposals that the relevant portfolio managers believe, based on their review of the materials:
|
|
•
|
|
will result in financial and operating benefits,
|
|
|
•
|
|
have a fair offer price,
|
Page 12 of 14
|
|
•
|
|
have favourable prospects for the combined companies, and
|
|
|
•
|
|
will not have a negative impact on corporate governance or shareholder rights.
|
We recognize that to effectively manage a corporation, directors and management
must consider not only the interests of shareholders, but the interests of employees, customers, suppliers, and creditors, among others.
We believe that
companies and their boards must give careful consideration to social responsibility issues in order to enhance long-term shareholder value.
We
support
efforts by companies to develop policies and practices that consider social responsibility issues related to their businesses.
|
VI.
|
SHAREHOLDER PROPOSALS
|
Shareholder proposals can be extremely complex, and the impact on the interests
of all stakeholders can rarely be anticipated with a high degree of confidence. As a result, shareholder proposals will be reviewed on a
case-by-case
basis with consideration of factors such as:
|
|
•
|
|
the proposal’s impact on the company’s short-term and long-term share value,
|
|
|
•
|
|
its effect on the company’s reputation,
|
|
|
•
|
|
the economic effect of the proposal,
|
|
|
•
|
|
industry and regional norms in which the company operates,
|
|
|
•
|
|
the company’s overall corporate governance provisions, and
|
|
|
•
|
|
the reasonableness of the request.
|
We will generally
support
shareholder proposals that require
additional disclosure regarding corporate responsibility issues where the relevant portfolio manager believes:
|
|
•
|
|
the company has failed to adequately address these issues with shareholders,
|
|
|
•
|
|
there is information to suggest that a company follows procedures that are not in compliance with applicable regulations, or
|
Page 13 of 14
|
|
•
|
|
the company fails to provide a level of disclosure that is comparable to industry peers or generally accepted standards.
|
We will generally
not support
shareholder proposals that place arbitrary or artificial constraints on the board, management or the company.
Ordinary Business Practices
We will generally
support
the board’s discretion regarding shareholder proposals that involve ordinary business practices.
Protection of Shareholder Rights
We will generally vote
for
shareholder proposals that are designed to protect shareholder rights if the company’s corporate governance
standards indicate that such additional protections are warranted.
Barriers to Shareholder Action
We will generally vote
for
proposals to lower barriers to shareholder action.
Shareholder Rights Plans
We will generally vote
for
proposals to subject shareholder rights plans to a shareholder vote.
We will vote
against
any proposal where the proxy materials lack sufficient information
upon which to base an informed decision.
We will vote
against
any proposals to authorize the company to conduct any other business that is not
described in the proxy statement (including the authority to approve any further amendments to an otherwise approved resolution).
Reimbursement of
Proxy Solicitation Expenses
Decisions to provide reimbursement for dissidents waging a proxy contest are made on a
case-by-case
basis.
Page 14 of 14
Proxy Policy and Procedures
for
Invesco Hong Kong Limited
Invesco Hong Kong Limited
PROXY VOTING POLICY
2 January 2014
TABLE OF CONTENTS
|
|
|
|
|
|
|
Introduction
|
|
|
2
|
|
|
|
|
|
1. Guiding Principles
|
|
|
3
|
|
|
|
|
|
2. Proxy Voting Authority
|
|
|
4
|
|
|
|
|
|
3. Key Proxy Voting Issues
|
|
|
7
|
|
|
|
|
|
4. Internal Admistration and Decision-Making Process
|
|
|
11
|
|
|
|
|
|
5. Client Reporting
|
|
|
14
|
|
INTRODUCTION
This policy sets out Invesco’s
approach to proxy voting in the context of our broader portfolio management and client service responsibilities. It applies to Asia related equity portfolios managed by Invesco on behalf of individually-managed clients and pooled fund clients
Invesco’s proxy voting policy is expected to evolve over time to cater for changing circumstances or unforeseen events.
2
|
|
1.1
|
Invesco recognises its fiduciary obligation to act in the best interests of all clients, be they retirement scheme trustees, institutional clients, unitholders in pooled investment vehicles or personal investors. The
application of due care and skill in exercising shareholder responsibilities is a key aspect of this fiduciary obligation.
|
|
|
1.2
|
The sole objective of Invesco’s proxy voting policy is to promote the economic interests of its clients. At no time will Invesco use the shareholding powers exercised in respect of its clients’ investments to
advance its own commercial interests, to pursue a social or political cause that is unrelated to clients’ economic interests, or to favour a particular client or other relationship to the detriment of others.
|
|
|
1.3
|
Invesco also recognises the broader chain of accountability that exists in the proper governance of corporations, and the extent and limitations of the shareholder’s role in that process. In particular, it is
recognised that company management should ordinarily be presumed to be best placed to conduct the commercial affairs of the enterprise concerned, with prime accountability to the enterprise’s Board of Directors which is in turn accountable to
shareholders and to external regulators and exchanges. The involvement of Invesco as an institutional shareholder will not extend to interference in the proper exercise of Board or management responsibilities, or impede the ability of companies to
take the calculated commercial risks which are essential means of adding value for shareholders.
|
|
|
1.4
|
The primary aim of the policy is to encourage a culture of performance among investee companies, rather than one of mere conformance with a prescriptive set of rules and constraints. Rigid adherence to a checklist
approach to corporate governance issues is of itself unlikely to promote the maximum economic performance of companies, or to cater for circumstances in which non-compliance with a checklist is appropriate or unavoidable.
|
|
|
1.5
|
Invesco considers that proxy voting rights are an asset which should be managed with the same care as any other asset managed on behalf of its clients.
|
3
|
2.
|
PROXY VOTING AUTHORITY
|
|
|
2.1
|
An important dimension of Invesco’s approach to corporate governance is the exercise of proxy voting authority at the Annual General Meetings or other decision-making forums of companies in which we manage
investments on behalf of clients.
|
|
|
2.2
|
An initial issue to consider in framing a proxy voting policy is the question of where discretion to exercise voting power should rest - with Invesco as the investment manager, or with each individual client? Under the
first alternative, Invesco’s role would be both to make voting decisions on clients’ behalf and to implement those decisions. Under the second alternative, Invesco would either have no role to play, or its role would be limited solely to
implementing voting decisions under instructions from our clients.
|
|
|
2.3
|
In addressing this issue, it is necessary to distinguish the different legal structures and fiduciary relationships which exist as between individually-managed clients, who hold investments directly on their own
accounts, and pooled fund clients, whose investments are held indirectly under a trust structure.
|
|
|
2.4
|
Individually-Managed Clients
|
|
|
2.4.1
|
As a matter of general policy, Invesco believes that unless a client’s mandate gives specific instructions to the contrary, discretion to exercise votes should normally rest with the investment manager, provided
that the discretion is always exercised in the client’s interests alone.
|
|
|
2.4.2
|
The reason for this position is that Invesco believes that, with its dedicated research resources and ongoing monitoring of companies, an investment manager is usually better placed to identify issues upon which a vote
is necessary or desirable. We believe it is also more practical that voting discretion rests with the party that has the authority to buy and sell shares, which is essentially what investment managers have been engaged to do on behalf of their
clients.
|
|
|
2.4.3
|
In cases where voting authority is delegated by an individually-managed client, Invesco recognises its responsibility to be accountable for the decisions it makes. If a client requires, an appropriate reporting
mechanism will be put in place.
|
|
|
2.4.4
|
While it is envisaged that the above arrangements will be acceptable in the majority of cases, it is recognised that some individually-managed clients
will
|
4
|
|
wish to retain voting authority for themselves, or to place conditions on the circumstances in which it can be exercised by investment managers. In practice, it is believed that this option is
generally only likely to arise with relatively large clients such as trustees of major superannuation funds or statutory corporations which have the resources to develop their own policies and to supervise their implementation by investment managers
and custodians. In particular, clients who have multiple equity managers and utilise a master custody arrangement may be more likely to consider retaining voting authority in order to ensure consistency of approach across their total portfolio.
|
|
|
2.4.5
|
In any event, whatever decision is taken as to where voting authority should lie, Invesco believes that the matter should be explicitly covered by the terms of the investment management agreement and clearly understood
by the respective parties.
|
|
|
2.4.6
|
Accordingly, Invesco will pursue the following policies with respect to the exercise of proxy voting authority for individually-managed clients:
|
PROXY VOTING AUTHORITY
Individually-Managed Clients
Unless an individually-managed client wishes to retain proxy voting authority, Invesco will assume proxy voting authority by
way of delegation from the client, provided that the allocation of proxy voting responsibility is clearly set out in the investment management agreement.
In the case of clients who wish to place special conditions on the delegation of proxy voting powers,
Invesco will endeavour to accommodate those clients’ requirements as far as practicable, subject to any administrative obstacles or additional costs that might arise in implementing the conditions.
|
|
2.5.1
|
The legal relationship between an investment manager and its pooled fund clients is different in a number of important respects from that applying to individually-managed clients. These differences have a bearing on how
proxy voting authority is exercised on behalf of pooled fund clients.
|
|
|
2.5.2
|
These legal relationships essentially mean that the manager is required to act solely in the collective interests of unitholders at large rather than
as a direct
|
5
|
|
agent or delegate of each unitholder. On the issue of proxy voting, as with all other aspects of our client relationships, Invesco will naturally continue to be receptive to any views and
concerns raised by its pooled fund clients. However, the legal relationship that exists means it is not possible for the manager to accept instructions from a particular pooled fund client as to how to exercise proxy voting authority in a particular
instance.
|
|
|
2.5.3
|
As in the case of individually-managed clients who delegate their proxy voting authority, Invesco’s accountability to pooled fund clients in exercising its fiduciary responsibilities is best addressed as part of
the manager’s broader client relationship and reporting responsibilities.
|
|
|
2.5.4
|
Accordingly, Invesco will pursue the following policies with respect to the exercise of proxy voting authority for pooled fund clients:
|
PROXY VOTING AUTHORITY
Pooled Fund Clients
In considering proxy voting issues arising in respect of pooled fund shareholdings, Invesco will act solely in accordance with
its fiduciary responsibility to take account of the collective interests of unitholders in the pooled fund as a whole.
Invesco cannot accept instructions from individual unitholders as to the exercise of proxy voting
authority in a particular instance.
6
|
3.
|
KEY PROXY VOTING ISSUES
|
|
|
3.1
|
This section outlines Invesco’s intended approach in cases where proxy voting authority is being exercised on clients’ behalf.
|
|
|
3.2
|
Invesco will vote on all material issues at all company meetings where it has the voting authority and responsibility to do so. We will not announce our voting intentions and the reasons behind them.
|
|
|
3.3
|
Invesco applies two underlying principles. First, our interpretation of ‘material voting issues’ is confined to those issues which affect the value of shares we hold on behalf of clients and the rights of
shareholders to an equal voice in influencing the affairs of companies in proportion to their shareholdings. We do not consider it appropriate to use shareholder powers for reasons other than the pursuit of these economic interests. Second, we
believe that a critical factor in the development of an optimal corporate governance policy is the need to avoid unduly diverting resources from our primary responsibilities to add value to our clients’ portfolios through investment performance
and client service.
|
|
|
3.4
|
In order to expand upon these principles, Invesco believes it is necessary to consider the role of proxy voting policy in the context of broader portfolio management and administrative issues which apply to our
investment management business as a whole. These are discussed as follows.
|
|
|
3.5
|
Portfolio Management Issues - Active Equity Portfolios
|
|
|
3.5.1
|
While recognising in general terms that issues concerning corporate governance practices can have a significant bearing on the financial performance of companies, the primary criterion for the selection and retention of
a particular stock in active equity portfolios remains our judgment that the stock will deliver superior investment performance for our clients, based on our investment themes and market analysis.
|
|
|
3.5.2
|
In view of these dynamics, Invesco does not consider it feasible or desirable to prescribe in advance comprehensive guidelines as to how it will exercise proxy voting authority in all circumstances. The primary aim of
Invesco’s approach to corporate governance is to encourage a culture of performance among the companies in which we manage investments in order to add value to our clients’ portfolios, rather than one of mere conformance with a
prescriptive set of rules and constraints.
|
7
|
|
3.5.3
|
Nevertheless, Invesco has identified a limited range of issues upon which it will always exercise proxy voting authority - either to register disapproval of management proposals or to demonstrate support for company
initiatives through positive use of voting powers. These issues are outlined as follows:
|
KEY VOTING ISSUES
Major Corporate Proposals
Invesco will always vote on the following issues arising in company General Meetings where it has the authority to do so on
behalf of clients.
|
|
•
|
contentious issues (eg. issues of perceived national interest, or where there has been extensive press coverage or public comment);
|
|
|
•
|
approval of changes of substantial shareholdings;
|
|
|
•
|
mergers or schemes of arrangement; and
|
|
|
•
|
approval of major asset sales or purchases.
|
As a general rule, Invesco will
vote against any actions that will reduce the rights or options of shareholders, reduce shareholder influence over the board of directors and management, reduce the alignment of interests between management and shareholders, or reduce the value of
shareholders’ investments, unless balanced by reasonable increase in net worth of the shareholding.
Where
appropriate, Invesco will also use voting powers to influence companies to adopt generally accepted best corporate governance practices in areas such as board composition, disclosure policies and the other areas of recommended corporate governance
practice.
Invesco’s approach to significant proxy voting issues which fall outside these areas
will be addressed on their merits.
|
|
3.6
|
Administrative Issues
|
|
|
3.6.1
|
In addition to the portfolio management issues outlined above, Invesco’s proxy voting policy also takes account of administrative and cost implications, together with the size of our holdings as compared to the
issue size, involved in the exercise of proxy voting authority on our clients’ behalf.
|
8
|
|
3.6.2
|
There are practical constraints to the implementation of proxy voting decisions. Proxy voting is a highly seasonal activity, with most company Annual General Meetings being collapsed into a few months, with short
deadlines for the distribution and return of notice papers, multiple resolutions from multiple companies being considered simultaneously, and under a legal system which is essentially dependent upon paper-based communication and record-keeping.
|
|
|
3.6.3
|
In addition, for investment managers such as Invesco who do not invest as principals and who consequently do not appear directly on the share registers of companies, all of these communications are channelled through
external custodians, among whom there is in turn a considerable variation in the nature and quality of systems to deal with the flow of information.
|
|
|
3.6.4
|
While Invesco has the systems in place to efficiently implement proxy voting decisions when required, it can be seen that administrative and cost considerations by necessity play an important role in the application of
a responsible proxy voting policy. This is particularly so bearing in mind the extremely limited time period within which voting decisions must often be made and implemented (which can in practice be as little as a few days). This factor also
explains why Invesco resists any suggestion that there should be compulsory proxy voting on all issues, as in our view this would only increase the costs to be borne by our clients with very little practical improvement in corporate performance in
most cases.
|
|
|
3.6.5
|
These administrative constraints are further highlighted by the fact that many issues on which shareholders are in practice asked to vote are routine matters relating to the ongoing administration of the company - eg.
approval of financial accounts or housekeeping amendments to Articles of Association. Generally in such cases, we will be in favour of the motion as most companies take seriously their duties and are acting in the best interests of shareholders.
However, the actual casting of a “yes” vote on all such resolutions in our view would entail an unreasonable administrative workload and cost.
|
|
|
3.6.6
|
Accordingly, Invesco believes that an important consideration in the framing of a proxy voting policy is the need to avoid unduly diverting resources from our primary responsibilities to add value to our clients’
investments through portfolio management and client service. The policies outlined below have been prepared on this basis.
|
9
KEY PROXY VOTING ISSUES
Administrative Constraints
In view of the administrative constraints and costs involved in the exercise of proxy voting powers, Invesco may (depending on
circumstances) not exercise its voting right unless its clients’ portfolios in aggregate represent a significant proportion of the shareholdings of the company in question.
A significant proportion in this context means 5% or more of the market capitalisation of the company.
10
|
4.
|
INTERNAL ADMINISTRATION & DECISION-MAKING PROCESS
|
|
|
4.1
|
The following diagram illustrates the procedures adopted by Invesco for the administration of proxy voting:
|
|
|
4.2
|
As shown by the diagram, a central administrative role is performed by our Global Proxy Team, located within the Client Administration section. The initial role of the Global Proxy Team is to receive company notice
papers via the range of custodians who hold shares on behalf of our clients, to ascertain which client portfolios hold the stock, and to initiate the decision-making process by distributing the company notice papers to the Primary Investment Manager
responsible for the company in question.
|
|
|
4.3
|
A voting decision on each company resolution (whether a yes or no vote, or a recommended abstention) is made by the Primary Investment Manager
responsible for the company in question. Invesco believes that this approach is preferable to the appointment of a committee with responsibility for handling
|
11
|
|
voting issues across all companies, as it takes advantage of the expertise of individuals whose professional lives are occupied by analysing particular companies and sectors, and who are familiar
with the issues facing particular companies through their regular company visits.
|
|
|
4.4
|
Moreover, the Primary Equity Manager has overall responsibility for the relevant market and this ensures that similar issues which arise in different companies are handled in a consistent way across the relevant market.
|
|
|
4.5
|
The voting decision is then documented and passed back to the Global Proxy Team, who issue the voting instructions to each custodian in advance of the closing date for receipt of proxies by the company. At the same
time, the Global Proxy Team logs all proxy voting activities for record keeping or client reporting purposes.
|
|
|
4.6
|
A key task in administering the overall process is the capture and dissemination of data from companies and custodians within a time frame that makes exercising votes feasible in practice. This applies particularly
during the company Annual General Meeting “season”, when there are typically a large number of proxy voting issues under consideration simultaneously. Invesco has no control over the former dependency and Invesco’s ability to
influence a custodian’s service levels are limited in the case of individually-managed clients, where the custodian is answerable to the client.
|
|
|
4.7
|
The following policy commitments are implicit in these administrative and decision-making processes:
|
INTERNAL ADMINISTRATION AND DECISION-MAKING PROCESS
Invesco will consider all resolutions put forward in the Annual General Meetings or other decision-making forums of all
companies in which investments are held on behalf of clients, where it has the authority to exercise voting powers. This consideration will occur in the context of our policy on Key Voting Issues outlined in Section 3.
The voting decision will be made by the Primary Investment Manager responsible for the market in question.
A written record will be kept of the voting decision in each case, and in case of an opposing vote, the
reason/comment for the decision.
12
Voting instructions will be issued to custodians as far as practicable in advance of the deadline for receipt
of proxies by the company. Invesco will monitor the efficiency with which custodians implement voting instructions on clients’ behalf.
Invesco’s ability to exercise proxy voting authority is dependent on timely receipt of notification
from the relevant custodians.
13
|
|
5.1
|
Invesco will keep records of its proxy voting activities.
|
|
|
5.2
|
Upon client request, Invesco will regularly report back to the client on proxy voting activities for investments owned by the client.
|
|
|
5.2
|
The following points summarise Invesco’s policy commitments on the reporting of proxy voting activities to clients (other than in cases where specific forms of client reporting are specified in the client’s
mandate):
|
CLIENT REPORTING
Where proxy voting authority is being exercised on a client’s behalf, a statistical summary of voting activity will be
provided on request as part of the client’s regular quarterly report.
Invesco will provide more
detailed information on particular proxy voting issues in response to requests from clients wherever possible.
14
Proxy Policies and Procedures
for
Invesco Asset Management (Japan) Limited
Guidelines on Exercising Shareholder Voting Rights and
Policies for Deciding on the Exercise of Shareholder Voting Rights
Invesco Asset Management (Japan) Limited
Enforcement Date: July 5, 2010
Revision Date: April 20, 2012
Authority to Amend or Abolish: Shareholders’ Voting Committee
Record of Amendments
|
|
|
|
|
|
|
Date
|
|
Content
|
|
|
|
April 20, 2011
|
|
Revision associated with review of proxy voting guideline
|
|
|
|
Mar 6, 2012
|
|
Revision associated with review of investment to emerging markets
|
|
|
|
April 20, 2012
|
|
Revision associated with review of proxy voting guideline
|
|
|
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
Guidelines on Exercising of Shareholder Voting Rights and
Policy Decision Making Criteria
(Japanese Equities)
Policy and Objectives of
Exercising Shareholder Voting Rights
Our company is cognizant of the importance of corporate governance, and exercises votes with the sole objective
of maximizing the long term interests of trustors (investors) and beneficiaries, pursuant to our fiduciary duty as a trustee to the trustors (investors) and the beneficiaries. We will not conduct any voting with an objective of own interest or that
of any third party other than the trustors (investors) or beneficiaries. The interests of trustors (investors) and beneficiaries means the increasing of corporate value or the increasing of the economic interests of shareholders or the preventing of
damage thereto.
Significance of Guidelines on Exercising Shareholder Voting Rights
Our company has determined the Guidelines on Exercising of Shareholder Voting Rights in accordance with our policy on exercising the voting rights of
shareholders, for the purpose of exercising votes in an appropriate manner, and will closely examine each proposal and determine the response pursuant to these Guidelines.
Guidelines on Exercising Shareholder Voting Rights
1.
Procedural Proposal
(1) Financial
Statements, Business Reports and Auditors Reports
|
|
•
|
|
In principle we will vote in favor of a proposal requesting approval of the financial statements, business reports and auditor reports, except in the following circumstances:
|
|
|
•
|
|
Concerns exist about the settlement or auditing procedures; or
|
|
|
•
|
|
The relevant company has not answered shareholders’ questions concerning matters that should be disclosed.
|
(2) Allocation of Earned Surplus and Dividends
|
|
•
|
|
A decision regarding a proposal requesting approval of the allocation of earned surplus and dividends will be made in consideration of, inter alia, the financial condition and the business performance of the relevant
company as well as the economic interests of shareholders.
|
2.
Election of Directors
A decision regarding a proposal in connection with electing a director will be made in consideration of, inter alia, the independence, suitability and
existence or absence of any antisocial activities in
- 1 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
the past on the part of a candidate for director. In the event that a candidate for director is a reelection
candidate, we will decide in consideration, inter alia, of the director candidate’s engagement in corporate governance, accountability, the business performance of the company, and the existence or absence of any antisocial act by the company
during his or her term in the office.
Definition of the independence:
A person considered to be independent shall mean a person for whom there is no relationship between the relevant company and the candidate for director other
than that of being selected as a director.
(1) Independence
|
|
•
|
|
In principle we will vote in favor of a proposal to elect an external director, however, we will oppose a candidate for an external director who is perceived to have an interest in the relevant company.
|
|
|
•
|
|
In principle we will oppose a candidate for an external director who does not have independence in the case of a committees organized company, except where the majority of the board are independent.
|
|
|
•
|
|
In principle we will oppose a top executive candidate if the board after the shareholder meeting does not include at least one external director, regardless of independence.
|
|
|
•
|
|
Listed parent and subsidiary
|
If the relevant company has a listed parent and does not have at
least one external director who is independent from the relevant company, we shall in principle oppose the top executive candidates for directors of that company.
(2) Suitability
In principle we shall
oppose a director candidate whose attendance rate is less than 75 percent at meetings of the board of directors.
(3) Accountability
|
|
•
|
|
We will consider opposing a candidate for reelection as a director, if a takeover defense strategy is introduced, and that has not been approved by a resolution of a general meeting of shareholders.
|
(4) Business Performance of the Company
|
|
•
|
|
We will consider opposing a candidate for reelection as a director in the event that business performance of the relevant company during the term in office of the candidate experienced a deficit in three consecutive
periods and no dividends were paid.
|
|
|
•
|
|
We will consider opposing a candidate for reelection as a director in the event that business
|
- 2 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
performance of the relevant company during the term in office of the candidate was inferior when compared to others in the same industry.
|
(5) Antisocial Activities on the Part of the Company
|
|
•
|
|
In principle we will oppose a candidate for reelection as a director in the event that during the term in office of the candidate a corporate scandal occurred that had a significant impact on society and caused or could
cause damage to of shareholder value.
|
|
|
•
|
|
In principle we will consider opposing a candidate for reelection as a director in the event that during the term in office of the candidate window dressing or inappropriate accounting practices occurred on the part of
the relevant company.
|
|
|
•
|
|
(6) Shareholder-unfriendly Behavior
We will consider opposing the reelection of directors particularly top executives at companies which have carried out third-party placements without an approval at a general
meeting of shareholders where the placements are likely to lead to a excessive diminution of shareholder benefits.
|
|
|
•
|
|
We will consider opposing the reelection of directors particularly top executives at companies which have carried out a large-scale public offerings without any rational explanation.
|
(7) Other
|
|
•
|
|
In principle we will oppose a candidate for director in the event that information concerning the relevant candidate has not been sufficiently disclosed.
|
3.
Amendment of the Composition of the Board of Directors and the Required Qualification of Directors
(1) Amendment of the Number of Directors or Composition of the Board of Directors
A decision regarding a proposal concerning amendment of the number
of directors or the composition of the board of directors will be made by making a comparison with the existing situation and considering, inter alia, the impact on the relevant company and the economic interests of shareholders.
|
|
•
|
|
We will consider voting in favor of a proposal to decrease the number of directors except external directors, however as for a proposal to increase the number of directors, if there is not any explicit and rational
reason, we will consider opposing the reelection of representative directors.
|
|
|
•
|
|
We will consider voting in favor of a proposal to increase the number of external directors, however as for a proposal to decrease the number of external directors, if there is not any explicit and rational reason, we
will consider opposing the reelection of representative directors.
|
(2) Amendment of Required Qualifications of Directors, Their Terms of
Office and Scope of Responsibilities
- 3 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
•
|
|
A decision regarding a proposal concerning amendment of the required qualifications of directors, their terms of office or scope of liabilities will be made by making a comparison with the existing situation and
considering, inter alia, the impact on the relevant company and the economic interests of shareholders.
|
|
|
•
|
|
In principle we will oppose a proposal requesting retention of a certain number of a company’s own shares as a condition of installation or continuation in office of a director.
|
|
|
•
|
|
In principle we will oppose a proposal to restrict a term in office of a director.
|
|
|
•
|
|
In principle we will oppose a proposal to institute a normal retirement age of directors.
|
|
|
•
|
|
In principle we will oppose a proposal to reduce the liabilities of a director from liability in connection with financial damage as a result of a violation of the fiduciary duties.
|
(3) Amendment of the Procedural Method for Election of Directors
|
|
•
|
|
A decision regarding a proposal concerning amendment of the procedural method of electing directors will be made by making a comparison with the existing situation and considering, inter alia, the reasonability of the
amendment.
|
4.
Election of Statutory Auditors
A decision regarding a proposal concerning the election of statutory auditors will be made by considering, inter alia, the independence and the suitability of
the candidate for statutory auditor.
Definition of the independence:
A person considered to be independent shall mean a person for whom there is no relationship between the relevant company and the candidate for statutory
auditor other than that of being selected as a statutory auditor.
(1) Independence
|
|
•
|
|
In principle we will oppose a candidate for an external statutory auditor if the candidate does not have independence.
|
(2) Suitability
|
|
•
|
|
In principle we shall oppose a statutory auditor candidate whose attendance rate is less than 75 percent at meetings of the board of directors or meetings of the board of auditors
|
(3) Accountability
|
|
•
|
|
In principle we will consider opposing a candidate for reelection as a statutory auditor in the event that significant concerns exist in an audit report that has been submitted or audit proceedings.
|
- 4 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
(4) Antisocial Activities on the Part of the Company
|
|
•
|
|
In principle we will consider opposing a candidate for reelection as a statutory auditor in the event that during the term in office of the candidate a corporate scandal occurred that had a significant impact on society
and caused or could cause damage to shareholder value.
|
|
|
•
|
|
In principle we will consider opposing a candidate for reelection as a statutory auditor in the event that during the term in office of the candidate window dressing or inappropriate accounting practices occurred on the
part of the relevant company.
|
5. Composition of the Board of Auditors
A decision regarding a proposal concerning amendment of the number of statutory auditors or the composition of the board of auditors will be made by making a
comparison with the existing situation and considering, inter alia, the impact on the relevant company and the economic interests of shareholders.
|
|
•
|
|
We will consider voting in favor of a proposal to increase the number of statutory auditors except external statutory auditors, however as for a proposal to decrease the number of statutory auditors, if there is not any
explicit and rational reason, we will consider opposing the reelection of representative directors.
|
|
|
•
|
|
We will consider voting in favor of a proposal to increase the number of external statutory auditors, however as for a proposal to decrease the number of external statutory auditors, if there is not any explicit and
rational reason, we will consider opposing the reelection of representative directors.
|
6.
Election of Accounting Auditors
We will decide on proposals concerning the election of an accounting auditor by considering, inter alia, the suitability of the candidate for
accounting auditor, and the level of audit fees.
|
|
•
|
|
In principle we will oppose a candidate for accounting auditor in the event that the accounting auditor can be determined to have expressed an opinion that is not accurate concerning the financial condition of the
relevant company.
|
|
|
•
|
|
In principle we will oppose in the event that a contract for non-auditing work exists between the accounting auditor and the relevant company, and it is determined that the non-auditing work can be found to present a
conflict of interest with the auditing work.
|
|
|
•
|
|
In principle we will oppose a candidate for accounting auditor in the event that an excessive auditing fee is paid.
|
|
|
•
|
|
In principle we will oppose a proposal requesting a change of accounting auditor in the event
|
- 5 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
that the reason for the change can be determined to be a result of a difference in interpretation between the accounting auditor and the relevant company regarding accounting policy.
|
7.
Compensation of Directors, Statutory Auditors, Officers and Employees
|
|
•
|
|
(1) Compensation of Directors/ Statutory Auditors
In principle we will vote in favor of a proposal to obtain approval of compensation, except in the following cases:
|
|
|
•
|
|
A negative correlation appears to exist between the business performance of the company and compensation
|
|
|
•
|
|
A compensation framework or practice exists, which presents an issue
|
|
|
•
|
|
In principle we will oppose a proposal to pay compensation only by granting shares.
|
(2) Annual Bonuses for
Directors / Statutory Auditors
In principle we will vote in favor of a proposal to pay annual bonuses, except in the following case:
|
|
•
|
|
Recipients include those who are judged to be responsible for clear mismanagement resulted in a significant decline in the stock price or severe deterioration in business performance, or shareholder-unfriendly behavior.
|
(3) Stock Option Plan
|
|
•
|
|
A proposal to introduce or amend a stock option plan will be decided in consideration of, inter alia, the impact that introducing or amending the plan will have on shareholder value and the rights of shareholders, as
well as the level of compensation, the scope of implementation, and the reasonability of the plan.
|
|
|
•
|
|
In principle we will oppose a proposal to reduce the exercise price of a stock option plan.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to request that an amendment of the exercise price of a stock option plan be made a matter for approval by the shareholders.
|
(4) Stock Purchase Plan
|
|
•
|
|
A decision regarding a proposal requesting the introduction or amendment of a stock purchase plan will be made in consideration of, inter alia, the impact that introducing or amending the plan will have on shareholder
value and the rights of shareholders, the scope of implementation, and the reasonability of the plan.
|
(5) Retirement Bonus of Directors
or Statutory Auditors
A decision regarding a proposal in connection with awarding a retirement bonus to a director or a statutory auditor will be made
in consideration of, inter alia, the extent of the persons who are to be recipients, the existence or absence of antisocial activities in the past on the part of the prospective recipients, the business performance of the company, and the existence
or absence of antisocial activities on the part of the company.
- 6 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
•
|
|
In principle we will vote in favor of a proposal to pay a retirement bonus of a director or a statutory auditor if all of the following conditions are satisfied.
|
|
|
•
|
|
Retirement bonus amount is disclosed.
|
|
|
•
|
|
The prospective recipients do not include an external director or an external statutory auditor.
|
|
|
•
|
|
None of the prospective recipients have committed a significant criminal conduct.
|
|
|
•
|
|
The business performance of the relevant company has not experienced a deficit for three consecutive periods and had no dividend or dividends or they were inferior when compared to others in the same industry.
|
|
|
•
|
|
During the terms of office of the prospective recipients there has been no corporate scandal that had a significant impact on society and caused or could cause damage to shareholder value.
|
|
|
•
|
|
During their terms in office there has been no window dressing or inappropriate accounting practices in the relevant company.
|
8.
Equity Financing Policy
(1) Amendment of
the Number of Authorized Shares
|
|
•
|
|
A decision regarding a proposal requesting an increase in the number of authorized shares will be made by considering, inter alia, the impact that amending the number of authorized shares will have on shareholder value
and the rights of shareholders, as well as the reasonability of the amendment of the number of authorized shares, and the impact on the listing of shares as well as on the continuity of the company.
|
|
|
•
|
|
In principle we will vote in favor of a proposal requesting an increase in the number of authorized shares if it can be determined that unless an increase is made to the number of authorized shares the company will be
delisted or that there is a risk of a significant impact on the continuity of the company.
|
|
|
•
|
|
In principle we will oppose a proposal to increase the number of authorized shares after the appearance of an acquirer.
|
(2) Issuing of New Shares
A decision regarding a
proposal in connection with issuing of new shares will be made in consideration of , inter alia, reasons of issuing new shares, issuing conditions and terms, the impact of the dilution on the shareholders value and rights of shareholders as well as
the impact on the listing of shares and the continuity of the company.
(3) Acquisition or Reissue by a Company of Its Own Shares
|
|
•
|
|
A decision regarding a proposal for a company to acquire or reissue its own shares shall be made by considering, inter alia, its reasonability.
|
- 7 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
(4) Stock Split
|
|
•
|
|
In principle we will vote in favor of a proposal involving a stock split.
|
(5) Consolidation of Shares
(Reverse Split)
|
|
•
|
|
A decision regarding a proposal involving a consolidation of shares (reverse split) shall be made by considering, inter alia, its reasonability.
|
(6) Preferred Shares
|
|
•
|
|
In principle we will oppose a proposal requesting the creation of new preferred shares or increasing the authorized number of preferred shares, by way of a blank power of attorney that does not specify the voting
rights, dividends, conversion or other rights.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to create new preferred shares or to increase the number of authorized preferred shares if the voting rights, dividends, conversion and other rights are stipulated and
these rights can be determined to be reasonable.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to the effect that approval of issuing preferred shares is so be obtained from shareholders.
|
(7) Issuing of Convertible Bonds
|
|
•
|
|
A decision regarding a proposal to issue convertible bonds shall be made by considering, inter alia, the number of shares into which the bonds are to be converted, and the period to maturity of the bonds.
|
(8) Issuing of Non-Convertible Bonds, and Increasing a Borrowing Limit
|
|
•
|
|
A decision regarding a proposal in connection with the issuing of non-convertible bonds or increasing a borrowing limit shall be made by considering, inter alia the financial condition of the relevant company.
|
(9) Equitization of Debt
|
|
•
|
|
A decision regarding a proposal requesting an amendment of the number of authorized shares or issuing of shares of the company in relation to a debt restructuring shall be made in consideration of, inter alia, the
conditions of amending the number of authorized shares or issuing shares of the company, the impact on shareholder value and on the rights of shareholders, the reasonability thereof, and the impact on listing of the shares as well as on the
continuity of the company.
|
(10) Capital Reduction
|
|
•
|
|
A decision regarding a proposal in connection with a capital reduction will be made in consideration of, inter alia, the impact on shareholder value
and on the rights of shareholders, the reasonability of the capital reduction, as well as the impact on listing of the shares and on
|
- 8 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
the continuity of the company.
|
|
|
•
|
|
In principle we will approve a proposal requesting a capital reduction in the form of a standard accounting processing.
|
(11) Financing Plan
|
|
•
|
|
A decision regarding a proposal in connection with a financing plan will be made in consideration of, inter alia, the impact on shareholder value and the rights of shareholders, as well as the reasonability thereof, and
the impact on the listing of shares as well as on the continuity of the company.
|
|
|
•
|
|
In principle we will vote in favor of a proposal requesting approval of a financing plan.
|
(12)
Capitalization of Reserves
|
|
•
|
|
In principle we will vote in favor of a proposal requesting a capitalization of reserves.
|
9.
Corporate
Governance
(1) Amendment of Settlement Period
|
|
•
|
|
In principle we will vote in favor of a proposal requesting an amendment of the settlement period, except when it can be determined that the objective is to delay a general meeting of shareholders.
|
(2) Amendment of Articles of Incorporation
A decision
regarding a proposal in connection with an amendment of the articles of incorporation will be made in consideration of, inter alia, the impact on shareholder value and the rights of shareholders as well as the necessity and the reasonability of
amending the articles of incorporation.
|
|
•
|
|
In principle we will vote in favor of a proposal to amend the articles of incorporation if amendment of the articles of incorporation is necessary by law.
|
|
|
•
|
|
In principle we will oppose a proposal to amend the articles of incorporation if it can be determined that there is a risk that the rights of shareholders will be infringed or a risk that a reduction in shareholder
value will occur as a result of the relevant amendment.
|
|
|
•
|
|
In principal we will vote in favor of a proposal submitted by the board in connection with transition to a committees organized company.
|
|
|
•
|
|
In principal we will vote in favor of a proposal requesting mitigation or abolishment of the requirements for special resolution.
|
(3) Amendment of the Quorum of a General Meeting of Shareholders
|
|
•
|
|
A decision regarding a proposal in connection with an amendment of the quorum of a general meeting of shareholders will be made in consideration of, inter alia, the impact on shareholder value and the rights of
shareholders as well as the customs of the region or country.
|
- 9 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
•
|
|
A proposal in connection with amending the quorum of a special resolution of a general meeting of shareholders will be made in consideration of, inter alia, the impact on shareholder value and the rights of shareholders
as well as the customs of the region or country.
|
(4) Omnibus Proposal of a General Meeting of Shareholders
|
|
•
|
|
In principle we will oppose an omnibus proposal at a general meeting of shareholders if the entire proposal will not be in the best interests of shareholders.
|
10.
Corporate Behavior
(1) Amendment of
Tradename or Location of Corporate Registration
|
|
•
|
|
In principle we will vote in favor of a proposal requesting amendment of a tradename.
|
|
|
•
|
|
In principle we will vote in favor of a proposal requesting amendment of a location of corporate registration.
|
(2) Corporate Restructuring
|
|
•
|
|
A decision regarding a proposal in connection with a corporate reorganization as set forth below will be made in consideration of, inter alia, the impact on shareholder value and the rights of shareholders, the
respective impact on the financial condition and business performance of the relevant company, as well as the reasonability thereof, and the impact on the listing of shares as well as on the continuity of the company:
|
Merger or acquisition;
Assignment or acquisition of business;
Company split (spin-off);
Sale
of assets;
Being acquired; or
Liquidation.
(3) Proxy Contest
|
|
•
|
|
A decision regarding a proposal in connection with election of a director from among opposing candidates will be made in consideration of the independence, suitability, existence or absence of any antisocial activities
in the past, actions in corporate governance and accountability on the part of the candidates for director, the business performance of the company, the existence or absence of antisocial activities of the company, and the background to the proxy
contest.
|
|
|
•
|
|
A person who is considered to be independent shall mean a person for whom there is no relationship between the relevant company and the candidate for director other than that of being selected as a candidate director of
the relevant company.
|
- 10 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
(4) Defense Strategy in Proxy Contest
|
|
•
|
|
In principle we will oppose a proposal requesting the introduction of a staggered board of directors.
|
|
|
•
|
|
In principle we will vote in favor of a proposal requesting that the terms in office of directors be one year.
|
|
|
•
|
|
Authority to Dismiss Directors
|
In principle we will oppose a proposal requesting
more stringent requirements for the shareholders to be able to dismiss a director.
|
|
•
|
|
In principle we will vote in favor of a proposal to introduce cumulative voting in connection with the election of directors.
|
|
|
•
|
|
In principle we will oppose a proposal requesting the abolition of cumulative voting in connection with the election of directors.
|
(5) Takeover Defense Strategies
|
|
•
|
|
Introduction or Amendment of Takeover Defense Strategy
|
In principle we will
oppose a proposal requesting to introduce or amend a takeover defense strategy that will reduce shareholder value or infringe the rights of shareholders.
|
|
•
|
|
Rights Plan (Poison Pill)
|
A decision regarding a proposal to introduce a rights
plan (poison pill) will be made in consideration of, inter alia, the triggering conditions, the effective period, the conditions of disclosure of content, the composition of directors of the relevant company, and the status of introducing other
takeover defense strategies.
|
|
•
|
|
In principal we will oppose a proposal in which, a triggering condition of the number of outstanding shares is less than 20%.
|
|
|
•
|
|
In principal we will oppose a proposal that the effective period is beyond 3 years.
|
|
|
•
|
|
In principal we will oppose a proposal that directors are not selected annually.
|
|
|
•
|
|
In principal we will oppose a proposal in the event that there are less than 2 directors or 20% of the board who are independent with no issue of the attendance records of the board meeting.
|
|
|
•
|
|
We will vote in favor for a proposal that a rights plan is considered by an independent committee before introducing such plan. We will vote in favor a proposal only if all special committee members are independent with
no issue of the attendance records of the board meeting.
|
|
|
•
|
|
In principal we will oppose a proposal in the event that other takeover defense
|
- 11 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
•
|
|
In principal we will oppose a proposal in the event that the issuing date of invitation notice to shareholders is less than 3 weeks before the general shareholders meeting.
|
|
|
•
|
|
In principal we will oppose a proposal unless the introduction of takeover defense strategies is considered reasonably beneficial to interests of minority shareholders.
|
|
|
•
|
|
Relaxation of Requirements to Amend the Articles of Incorporation or Company Regulations
|
A decision regarding a proposal to relax the requirements to amend the articles of incorporation or company regulations will be made in
consideration of, inter alia, the impact on shareholder value and the rights of shareholders.
|
|
•
|
|
Relaxation of Requirements for Approval of a Merger
|
A decision regarding a
proposal to relax the requirements to approve a merger will be made in consideration of, inter alia, the impact on shareholder value and the rights of shareholders.
11.
Social, Environmental and Political Problems
A decision regarding a proposal in connection with social, environmental or political problems will be made in consideration of, inter alia, the impact that
the actions on the part of the company will have on shareholder value and the rights of shareholders, or on the financial condition and business performance of the company, the reasonability of these actions, and the impact on the listing of shares
as well as on the continuity of the company.
12.
Information Disclosure
|
|
•
|
|
In principle we will oppose a proposal for which sufficient information is not disclosed for the purpose of making a voting decision.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to increase information disclosure, if all of the following standards are satisfied.
|
|
|
•
|
|
The information will be beneficial to shareholders.
|
|
|
•
|
|
The time and expense required for the information disclosure will be minimal.
|
13.
Conflicts of
Interest
We will abstain from exercising shareholder voting rights in a company that would constitute a conflict of interest.
The following company is determined to be a company that would constitute a conflict of interest:
- 12 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
14.
Shareholder proposals
A decision regarding shareholders’ proposals will be made in accordance with the Guidelines along with company’s proposal, however, will be
considered on the basis of proposed individual items.
- 13 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
Guidelines on Exercising of Shareholder Voting Rights and
Policy Decision Making Criteria
(Foreign Equities)
Policy and Objectives of
Exercising Shareholder Voting Rights
Our company is cognizant of the importance of corporate governance, and exercises votes with the sole objective
of maximizing the long term interests of trustors (investors) and beneficiaries, pursuant to our fiduciary duty as a trustee to the trustors (investors) and the beneficiaries. We will not conduct any voting with an objective of own interest or that
of any third party other than the trustors (investors) or beneficiaries. The interests of trustors (investors) and beneficiaries means the increasing of corporate value or the increasing of the economic interests of shareholders or the preventing of
damage thereto.
Significance of Guidelines on Exercising Shareholder Voting Rights
Our company has determined the Guidelines on Exercising of Shareholder Voting Rights in accordance with our policy on exercising the voting rights of
shareholders, for the purpose of exercising votes in an appropriate manner, considering, inter alia, the laws, regulations, and customs of each market, and will closely examine each proposal and determine the response pursuant to these Guidelines.
Guidelines on Exercising Shareholder Voting Rights
1.
Procedural Proposal
(1) Procedures
|
|
•
|
|
In principle we will vote in favor of a selection of the chairman of a general meeting of shareholders, approval of the minutes, approval of the shareholders registry and other proposals in connection with procedures to
hold a general meeting of shareholders.
|
|
|
•
|
|
In principle we will vote in favor of a procedural proposal such as the following:
|
|
|
•
|
|
Opening of a general meeting of shareholders
|
|
|
•
|
|
Closing of a general meeting of shareholders
|
|
|
•
|
|
Confirming the proper convening of a general meeting of shareholders
|
|
|
•
|
|
Satisfaction of the quorum for a general meeting of shareholders
|
|
|
•
|
|
Confirming the agenda items of a general meeting of shareholders
|
|
|
•
|
|
Election of a chairman of a general meeting of shareholders
|
|
|
•
|
|
Designation of shareholders who will sign the minutes of a general meeting of shareholders
|
- 14 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
•
|
|
Preparing and approving a registry of shareholders
|
|
|
•
|
|
Filing of legally prescribed documents in connection with a general meeting of shareholders
|
|
|
•
|
|
Designation of an inspector or shareholder to inspect the minutes of a general meeting of shareholders
|
|
|
•
|
|
Permission to ask questions
|
|
|
•
|
|
Approval of the issuing of minutes of a general meeting of shareholders
|
|
|
•
|
|
Approval of matters of resolution and granting to the board of directors the authority to execute matters that have been approved
|
(2) Financial Statements, Business Reports and Auditors Reports
|
|
•
|
|
In principle we will vote in favor of a proposal requesting approval of the financial statements, business reports and auditor reports, except in the following circumstances:
|
|
|
•
|
|
Concerns exist about the settlement or auditing procedures; or
|
|
|
•
|
|
The relevant company has not answered shareholders’ questions concerning matters that should be disclosed.
|
(3) Allocation of Earned Surplus and Dividends
|
|
•
|
|
A decision regarding a proposal requesting approval of the allocation of earned surplus and dividends will be made in consideration of, inter alia, the financial condition and the business performance of the relevant
company as well as the economic interests of shareholders.
|
2.
Election of Directors
A decision regarding a proposal in connection with electing a director will be made in consideration of, inter alia, the independence, suitability and
existence or absence of any antisocial activities in the past on the part of a candidate for director. In the event that a candidate for director is a reelection candidate, we will decide in consideration, inter alia, of the director
candidate’s engagement in corporate governance, accountability, the business performance of the company, and the existence or absence of any antisocial act by the company during his or her term in the office.
Definition of independence:
A person considered to be
independent shall mean a person for whom there is no relationship between the relevant company and the candidate for director other than that of being selected as a director.
(1) Independence
(United States)
- 15 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
•
|
|
In the following circumstances we will in principle oppose or withhold approval of a candidate for an internal director, or a candidate for an external director who cannot be found to have a relationship of independence
from the relevant company:
|
|
|
•
|
|
If the internal director or the external director who cannot be found to have a relationship of independence from the relevant company is a member of the compensation committee or the nominating committee;
|
|
|
•
|
|
If the audit committee, compensation committee, or nominating committee has not been established and the director functions as a committee member;
|
|
|
•
|
|
If the nominating committee has not been established;
|
|
|
•
|
|
If external directors who are independent from the relevant company do not constitute a majority of the board of directors;
|
|
|
•
|
|
A person who is independent shall mean a person for whom there is no relationship between the relevant company and the candidate for director other than that of being selected as a director.
|
(Other than United States)
A decision concerning the
independence of the candidate for director will be made in consideration of the conditions of each country.
(2) Suitability
|
|
•
|
|
In principle we shall oppose or withhold approval of a director candidate in the following circumstances:
|
|
|
•
|
|
An attendance rate of less than 75 percent at meetings of any of the board of directors, the audit committee, the compensation committee, or the nominating committee;
|
|
|
•
|
|
Serving as a director of six or more companies; or
|
|
|
•
|
|
Serving as a CEO of another company and also serving as an external director of at least two other companies.
|
(3) Corporate Governance Strategies
|
|
•
|
|
In principle we will oppose or withhold approval of all candidates for reelection in the event that the board of directors employs a system of staggered terms of office and a problem of governance has occurred in the
board of directors or committee but the responsible director is not made a subject of the current proposal to reelect directors.
|
|
|
•
|
|
In the following circumstances we will in principle oppose or withhold approval of a candidate for reelection of a director who is a member of the audit committee:
|
|
|
•
|
|
If an excessive auditing fee is being paid to the accounting auditor;
|
- 16 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
•
|
|
If the accounting auditor has expressed an opinion of non-compliance concerning the financial statements of the relevant company; or
|
|
|
•
|
|
If the audit committee has agreed with the accounting auditor to reduce or waive the liability of accounting auditor, such as by limiting the right of the company or the shareholders to take legal action against the
accounting auditor.
|
|
|
•
|
|
In the following circumstances we will in principle oppose or withhold approval of a candidate for reelection as a director who is a member of the compensation committee:
|
|
|
•
|
|
If there appears to be a negative correlation between the business performance of the company and the compensation of the CEO;
|
|
|
•
|
|
If in the case of an option for which the stock price of the relevant company is less than the exercise price, an amendment of the exercise price or an exchange for cash or the like has been made without the approval of
a general meeting of shareholders;
|
|
|
•
|
|
If an exchange (sale) of stock options which is limited to a single exercise has been made without obtaining the approval of a general meeting of shareholders;
|
|
|
•
|
|
If the burn rate has exceeded the level promised in advance to shareholders (the burn rate is the annual rate of dilution measured by the stock options or rights to shares with restriction on assignment that have been
actually granted (otherwise known as the “run rate”)); or
|
|
|
•
|
|
If a compensation system or practice exists that presents a problem.
|
|
|
•
|
|
In the following circumstances we will in principle oppose or withhold approval of all candidates for reelection as directors:
|
|
|
•
|
|
If the board of directors has not taken appropriate action regarding a shareholder’s proposal even if there was a shareholder’s proposal which was approved by a majority of the overall votes in the previous
period at a general meeting of shareholders.
|
|
|
•
|
|
If the board of directors has not taken appropriate action regarding a shareholders’ proposal even if a shareholders’ proposal has been approved by a majority of the valid votes in two consecutive periods at a
general meeting of shareholders;
|
|
|
•
|
|
If the board of directors has not taken appropriate action such as withdrawing a takeover defense strategy, despite a majority of shareholders having accepted a public tender offer; or
|
|
|
•
|
|
If the board of directors has not taken appropriate action regarding the cause of opposition or withholding of approval even though at the general meeting of shareholders for the previous period there was a candidate
for director who was opposed or for whom approval was withheld by a majority of the valid votes.
|
- 17 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
(4) Accountability
|
|
•
|
|
In the following cases we will consider opposing or withholding approval from a candidate for reelection as a director:
|
|
|
•
|
|
If a notice of convening states that there is a director with an attendance rate of less than 75% at meetings of the board of directors or committee meetings, but the name of the individual is not specifically stated.
|
|
|
•
|
|
If the relevant company has a problematic system as set forth below, and business performance of the relevant company during the term in office of candidate has been in a deficit and with no dividend or is inferior when
compared to those in the same industry in three consecutive periods :
|
|
|
•
|
|
A system of staggered terms of office;
|
|
|
•
|
|
A system of special resolution that is not by simple majority;
|
|
|
•
|
|
Shares of stock with multiple votes;
|
|
|
•
|
|
A takeover defense strategy that has not been approved by a resolution of a general meeting of shares;
|
|
|
•
|
|
No clause for exceptions exists in the event that there are competing candidates, even though a system of majority resolution has been introduced for the election of directors;
|
|
|
•
|
|
An unreasonable restriction is imposed on the authority of shareholders to convene an extraordinary general meeting of shareholders; or
|
|
|
•
|
|
An unreasonable restriction is imposed on the shareholders’ right to seek approval or disapproval on the part of shareholders by means of a letter of consent by shareholders;
|
|
|
•
|
|
In principle we will oppose or withhold approval of all candidates for reelection as directors in the event that a dead hand or similar provision is included in a poison pill, until this provision is abolished.
|
|
|
•
|
|
In principle we will oppose or withhold approval of all candidates for reelection as directors in the event of introducing a new poison pill with an effective duration of 12 months or more (a long-term pill), or any
renewal of a poison pill including a short-term pill with an effective period of less than 12 months, by the board of directors without the approval of a general meeting of shareholders. Nevertheless we will in principle vote in favor of all
candidates for reelection as directors in the event of a new introduction if a commitment is made by binding resolution to seek approval of the new introduction at a general meeting of shareholders.
|
|
|
•
|
|
In principle we will oppose or withhold approval of all candidates for reelection as directors in the event that a significant amendment to the
disadvantage of shareholders is added to a poison pill, by the board of directors without the approval of a general
|
- 18 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
(5) Business Performance of a Company
|
|
•
|
|
We will consider opposing or withholding a candidate for reelection as a director in the event that business performance of the relevant company during the term in office of the candidate experienced a deficit in three
consecutive periods and no dividends were paid.
|
|
|
•
|
|
We will consider opposing or withholding candidate for reelection as a director in the event that business performance of the relevant company during the term in office of the candidate was inferior when compared to
others in the same industry.
|
(6) Antisocial Activities on the Part of the Company
|
|
•
|
|
In principle we will oppose or withhold a candidate for reelection as a director in the event that during the term in office of the candidate a corporate scandal occurred that had a significant impact on society and
caused or could cause damage to of shareholder value.
|
|
|
•
|
|
In principle we will oppose or withhold approval of a candidate for reelection as a director who was a member of the audit committee, if inappropriate accounting practices occurred at the relevant company such as window
dressing, accounting treatment that deviates from GAAP (generally accepted accounting principles), or a significant omission in disclosure pursuant to Article 404 of the Sox Law.
|
(7) Other
|
|
•
|
|
In principle we will oppose or withhold a candidate for director in the event that information concerning the relevant candidate has not been sufficiently disclosed.
|
(8) Amendment of the Number and Composition of Directors
|
|
•
|
|
A decision regarding a proposal concerning amendment of the number of directors or the composition of the board of directors will be made by making a comparison with the existing situation and considering, inter alia,
the impact on the relevant company and the economic interests of shareholders.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to diversify the composition of a board of directors.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to fix the number of members of a board of directors, except when it is determined that this is a takeover defense strategy.
|
|
|
•
|
|
In principle we will oppose a proposal to make shareholder approval unnecessary in connection with an amendment of the number of members or composition of the board of directors.
|
(9) Amendment of Qualification Requirements, Period of Service, or Extent of Liability of Directors
|
|
•
|
|
A decision regarding a proposal concerning amendment of the required qualifications of
|
- 19 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
directors, their terms of office or scope of liabilities will be made by making a comparison with the existing situation and considering, inter alia, the impact on the relevant company and the
economic interests of shareholders
|
|
|
•
|
|
In principle we will oppose a proposal requesting retention of a certain number of a company’s own shares as a condition of installation or continuation in office of a director.
|
|
|
•
|
|
In principle we will oppose a proposal to restrict a term in office of a director.
|
|
|
•
|
|
In principle we will oppose a proposal to institute normal retirement age of directors.
|
|
|
•
|
|
In principle we will oppose a proposal to reduce the liabilities of a director from liability in connection with financial damage as a result of a violation of the fiduciary duties.
|
(10) Amendment of the Procedural Method for Election of Directors
|
|
•
|
|
We will decide on proposal concerning amendment of the procedural method of electing directors will be made by making a comparison with the existing situation and considering, inter alia, the reasonability of the
amendment.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to require the approval of the majority of the valid votes for an election of a director.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to prohibit the US style voting system.
|
3.
Election of
Statutory Auditors
|
|
•
|
|
A decision regarding a proposal in connection with electing a statutory auditor shall be made by considering, inter alia, the independence and suitability of the statutory auditor candidate.
|
|
|
•
|
|
In principle we will oppose a candidate for reelection as a statutory auditor in the event that significant concerns exist in an audit report that has been submitted or audit proceedings.
|
|
|
•
|
|
A person who is independent shall mean a person for whom there is no relationship between the relevant company and the candidate for statutory auditor other than that of being selected as a statutory auditor.
|
4.
Election of Accounting Auditor
We will decide on proposals concerning the election of an accounting auditor by considering, inter alia, the suitability of the candidate for accounting
auditor, and the level of audit fees.
|
|
•
|
|
In principle we will oppose a candidate for accounting auditor in the event that the accounting auditor can be determined to have expressed an opinion that is not accurate concerning the financial condition of the
relevant company.
|
- 20 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
•
|
|
In principle we will oppose in the event that a contract for non-auditing work exists between the accounting auditor and the relevant company, and it is determined that the non-auditing work can be found to present a
conflict of interest with the auditing work.
|
|
|
•
|
|
In principle we will oppose a candidate for accounting auditor in the event that an excessive auditing fee is paid.
|
|
|
•
|
|
In principle we will oppose a proposal requesting a change of accounting auditor in the event that the reason for the change can be determined to be a result of a difference in interpretation between the accounting
auditor and the relevant company regarding accounting policy.
|
5.
Compensation of Directors, Statutory Auditors, Officers and
Employees
(1) Compensation (Including Bonus)
|
|
•
|
|
Proposals concerning compensation will be decided in consideration of, inter alia, levels of compensation, business performance of the company, and the reasonability of the framework.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to obtain approval of compensation reports, except in the following cases:
|
|
|
•
|
|
A negative correlation appears to exist between the business performance of the company and compensation.
|
|
|
•
|
|
A compensation framework or practice exists which presents an issue.
|
|
|
•
|
|
In principle we will oppose a proposal to set an absolute level or maximum compensation.
|
|
|
•
|
|
In principle we will oppose a proposal to pay compensation only by granting shares.
|
(2) Stock Option Plan
|
|
•
|
|
A proposal to introduce or amend a stock option plan will be decided in consideration of, inter alia, the impact that introducing or amending the plan will have on shareholder value and the rights of shareholders, as
well as the level of compensation, the scope of implementation and the reasonability of the plan.
|
|
|
•
|
|
In principle we will oppose a proposal to reduce the exercise price of a stock option plan.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to request that an amendment of the exercise price of a stock option plan be made a matter for approval by the shareholders.
|
(3) Stock Purchase Plan
|
|
•
|
|
A decision regarding a proposal requesting the introduction or amendment of a stock purchase plan will be made in consideration of, inter alia, the impact that introducing or amending the plan will have on shareholder
value and the rights of shareholders, the scope of implementation and the reasonability of the plan.
|
(4) Retirement Bonus of Directors
or Statutory Auditors
- 21 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
•
|
|
A decision regarding a proposal in connection with awarding a retirement bonus to a director or a statutory auditor will be made in consideration of, inter alia, the extent of the persons who are to be recipients, the
existence or absence of antisocial activities in the past on the part of the prospective recipients, the business performance of the company, and the existence or absence of antisocial activities on the part of the company. In principle we will
oppose awarding a retirement bonus in the event that a significant criminal act has been committed by the recipient during his or her term in office. Moreover we will also consider opposing the awarding of a retirement bonus in the event that the
business performance of the relevant company during the term in office of the candidate experienced a deficit in three consecutive periods and no dividends were paid or they were inferior when compared to others in the same industry. In principle we
will oppose awarding a retirement bonus in the event that during the term in office of the recipient inappropriate accounting practices occurred such as window dressing or accounting treatment that deviates from generally accepted accounting
principles or a significant omission in disclosure, or a corporate scandal occurred, which had a significant impact on society and caused or could cause damage to shareholder value.
|
6.
Equity Financing Policy
(1) Amendment of
the Number of Authorized Shares
|
|
•
|
|
A decision regarding a proposal requesting an increase in the number of authorized shares of stock shall be made by considering, inter alia, the impact that amending the number of authorized shares will have on
shareholder value and the rights of shareholders, as well as the reasonability of the amendment of the number of authorized shares, and the impact on the listing of shares as well as on the continuity of the company.
|
|
|
•
|
|
In principle we will vote in favor of a proposal requesting an increase in the number of authorized shares if it can be determined that unless an increase is made to the number of authorized shares the company will be
delisted or that there is a risk of a significant impact on the continuity of the company.
|
|
|
•
|
|
In principle we will oppose a proposal to increase the number of authorized shares after the appearance of an acquirer.
|
(2) Issuing of New Shares
|
|
•
|
|
In principle if the existing shareholders will be granted new share subscription rights (pre-emptive purchase rights) we will vote in favor of a proposal to issue new shares up to 100 percent of the number of shares
issued and outstanding.
|
|
|
•
|
|
If the existing shareholders will not be granted new share subscription rights (pre-emptive purchase rights) we will in principle vote in favor of a proposal to issue new shares up to 20 percent of the number of shares
issued and outstanding.
|
|
|
•
|
|
In principle we will oppose a proposal to issue new shares after an acquirer has appeared.
|
- 22 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
(3) Acquisition or Reissue by a Company of Its Own Shares
|
|
•
|
|
A decision regarding a proposal for a company to acquire or reissue its own shares shall be made by considering, inter alia, its reasonability.
|
(4) Stock Split
|
|
•
|
|
In principle we will vote in favor of a proposal involving a stock split.
|
(5) Consolidation of Shares
(Reverse Split)
|
|
•
|
|
A decision regarding a proposal involving a consolidation of shares (reverse split) shall be made by considering, inter alia, its reasonability.
|
(6) Reduction in Par Value of Shares
|
|
•
|
|
In principle we will vote in favor of a proposal reducing the par value of shares.
|
(7) Preferred Shares
|
|
•
|
|
A decision regarding a proposal in connection with creating new preferred shares or amending the number of authorized preferred shares shall be made by considering, inter alia, the existence or absence of voting rights,
dividends, conversion or other rights to be granted to the preferred shares as well as the reasonability of those rights.
|
|
|
•
|
|
In principle we will oppose a proposal requesting the creation of new preferred shares or increasing the authorized number of preferred shares, by way of a blank power of attorney that does not specify the voting
rights, dividends, conversion or other rights.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to create new preferred shares or to increase the number of authorized preferred shares if the voting rights, dividends, conversion and other rights are stipulated and
these rights can be determined to be reasonable.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to make the issuing of preferred shares a matter for approval by the shareholders.
|
(8) Classified Shares
|
|
•
|
|
In principle we will oppose a proposal requesting the creation of new shares with differing voting rights or increasing the authorized number of shares with differing voting rights.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to convert to a capital structure in which there is one vote per share.
|
(9) Issuing of Convertible Bonds
|
|
•
|
|
A decision regarding a proposal to issue convertible bonds shall be made by considering, inter alia, the number of shares into which the bonds are to
be converted, and the period to
|
- 23 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
(10) Issuing of Non-Convertible Bonds, and Increasing a
Borrowing Limit
|
|
•
|
|
A decision regarding a proposal to issue non-convertible bonds will be made by considering, inter alia, the financial condition of the relevant company.
|
|
|
•
|
|
A decision regarding a proposal to increase a borrowing limit shall be made by considering, inter alia, the financial condition of the relevant company.
|
(11) Equitization of Debt
|
|
•
|
|
A decision regarding a proposal requesting an amendment of the number of authorized shares or issuing of shares of the company in relation to a debt restructuring shall be made in consideration of, inter alia, the
conditions of amending the number of authorized shares or issuing shares of the company, the impact on shareholder value and on the rights of shareholders, the reasonability thereof, as well as the impact on listing of the shares and on the
continuity of the company.
|
(12) Capital Reduction
|
|
•
|
|
A decision regarding a proposal in connection with a capital reduction will be made in consideration of, inter alia, the impact on shareholder value and on the rights of shareholders, the reasonability of the capital
reduction, as well as the impact on listing of the shares and on the continuity of the company.
|
|
|
•
|
|
In principle we will approve a proposal requesting a capital reduction in the form of a standard accounting processing.
|
(13) Financing Plan
|
|
•
|
|
A decision regarding a proposal in connection with a financing plan will be made in consideration of, inter alia, the impact on shareholder value and on the rights of shareholders, as well as the reasonability thereof,
and the impact on the listing of shares as well as on the continuity of the company.
|
|
|
•
|
|
In principle we will vote in favor of a proposal requesting approval of a financing plan.
|
(14)
Capitalization of Reserves
|
|
•
|
|
In principle we will vote in favor of a proposal requesting a capitalization of reserves.
|
7.
Corporate
Governance
(1) Amendment of Settlement Period
|
|
•
|
|
In principle we will vote in favor of a proposal requesting an amendment of the settlement period, except when it can be determined that the objective is to delay a general meeting of shareholders.
|
- 24 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
(2) Amendment of Articles of Incorporation
|
|
•
|
|
A decision regarding a proposal in connection with an amendment of the articles of incorporation will be made in consideration of, inter alia, the impact on shareholder value and the rights of shareholders as well as
the necessity and the reasonability of amending the articles of incorporation.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to amend the articles of incorporation if amendment of the articles of incorporation is necessary by law.
|
|
|
•
|
|
In principle we will oppose a proposal to amend the articles of incorporation if it can be determined that there is a risk that the rights of shareholders will be infringed or a risk that a reduction in shareholder
value will occur as a result of the relevant amendment.
|
(3) Amendment of the Quorum of a General Meeting of Shareholders
|
|
•
|
|
A decision regarding a proposal in connection with amending the quorum of a general meeting of shareholders and a special resolution of a general shareholders meeting will be made in consideration of, inter alia, the
impact on shareholder value and on the rights of shareholders as well as the customs of the region or country.
|
|
|
•
|
|
In principle we will oppose a proposal to reduce the quorum of a general meeting of shareholders.
|
|
|
•
|
|
In principle we will oppose a proposal to reduce the quorum of a special resolution.
|
(4) Omnibus Proposal
of a General Meeting of Shareholders
|
|
•
|
|
In principle we will oppose an omnibus proposal at a general meeting of shareholders if the entire proposal will not be in the best interests of shareholders.
|
(5) Other
(Anonymous Voting)
|
|
•
|
|
In principle we will vote in favor of a proposal requesting anonymous voting, an independent vote counter, an independent inspector, and separate disclosure of the results of voting on a resolution of a general meeting
of shareholders.
|
(Authority to Postpone General Meetings of Shareholders)
|
|
•
|
|
In principle we will oppose a proposal requesting to grant to a company the authority to postpone a general meeting of shareholders.
|
(Requirement of Super Majority Approval)
|
|
•
|
|
In principle we will vote in favor of a proposal requesting a relaxation or abolishment of
|
- 25 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
the requirement for a super majority.
|
8.
Corporate Behavior
(1) Amendment of Tradename or Location of Corporate Registration
|
|
•
|
|
In principle we will vote in favor of a proposal requesting amendment of a tradename.
|
|
|
•
|
|
In principle we will vote in favor of a proposal requesting amendment of a location of corporate registration.
|
(2) Corporate Restructuring
A decision regarding a
proposal in connection with a merger, acquisition, assignment or acquisition of business, company split (spin-off), sale of assets, being acquired, corporate liquidation or other corporate restructuring will be made in consideration of, inter alia,
the respective impact on shareholder value and on the rights of shareholders, the impact on the financial condition and on the business performance of the relevant company, as well as the reasonability thereof, and the impact on the listing of
shares and on the continuity of the company.
|
|
•
|
|
A decision regarding a proposal in connection with a corporate reorganization as set forth below will be made in consideration of, inter alia, the respective impact on shareholder value and on the rights of
shareholders, the impact on the financial condition and on the business performance of the relevant company, as well as the reasonability thereof, and the impact on the listing of shares as well as on the continuity of the company:
|
Merger or acquisition;
Assignment or acquisition of business;
Company split (spin-off);
Sale
of assets;
Being acquired; or
Liquidation.
(3) Proxy Contest
|
|
•
|
|
A decision regarding a proposal in connection with election of a director from among opposing candidates will be made in consideration of the independence, suitability, existence or absence of any antisocial activities
in the past on the part of a candidate for director, the actions in corporate governance, accountability the business performance of the company, the existence or absence of antisocial activities of the company, and the background to the proxy
contest.
|
|
|
•
|
|
A person who is considered to be independent shall mean a person for whom there is no relationship between the relevant company and the candidate for director other than that of being selected as a candidate director of
the relevant company.
|
- 26 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
(4) Defense Strategy in Proxy Contest
In principle we will oppose a proposal requesting the
introduction of staggered board of directors:
|
|
•
|
|
In principle we will oppose a proposal requesting the introduction of a staggered board of directors.
|
|
|
•
|
|
In principle we will vote in favor of a proposal requesting that the terms in office of directors be one year.
|
|
|
•
|
|
Authority to Dismiss Directors
|
In principle we will oppose a proposal requesting
more stringent requirements for the shareholders to be able to dismiss a director.
|
|
•
|
|
In principle we will vote in favor of a proposal to introduce cumulative voting in connection with the election of directors. However, in principle we will oppose a proposal which a majority of valid votes is required
to elect a director except in the event that shareholders are able to write-in their own candidate in the convening notice or ballot of the company and the number of candidates exceeds a prescribed number.
|
|
|
•
|
|
In principle we will oppose a proposal requesting the abolition of cumulative voting in connection with the election of directors.
|
|
|
•
|
|
Authority to Call an Extraordinary General Meeting of Shareholders
|
|
|
•
|
|
In principle we will vote in favor of a proposal requesting a right of shareholders to call an extraordinary general meeting of shareholders.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to abolish restrictions on the right of shareholders to call an extraordinary general meeting of shareholders.
|
|
|
•
|
|
In principle we will oppose a proposal to restrict or prohibit the right of shareholders to call an extraordinary general meeting of shareholders.
|
|
|
•
|
|
Letter of Consent Seeking Approval or Disapproval from Shareholders
|
|
|
•
|
|
In principle we will vote in favor of a proposal requesting that shareholders have the right to seek approval or disapproval on the part of shareholders by means of a letter of consent.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to abolish restrictions on the right of shareholders to seek approval or disapproval on the part of shareholders by means of a letter of consent.
|
|
|
•
|
|
In principle we will oppose a proposal to restrict or prohibit the right of shareholders to seek approval or disapproval on the part of shareholders
by means of a letter of
|
- 27 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
(5) Takeover Defense Strategies
|
|
•
|
|
Rights Plan (Poison Pill)
|
A decision regarding a proposal in connection with
introducing a rights plan (poison pill) will be made in consideration of, inter alia, the triggering conditions, the effective period, the conditions of disclosure of content, the composition of directors of the relevant company, and the status of
introducing other takeover defense strategies.
A decision regarding a proposal in connection with
introducing fair price conditions will be made in consideration of, inter alia, the triggering conditions, the decision-making process for triggering, and the reasonability of the plan.
|
|
•
|
|
In principle we will vote in favor of a proposal requesting the introduction of fair price conditions, provided that the following is satisfied.
|
|
|
•
|
|
At the time of triggering the fair price provision, the approval of a majority or not more than a majority of shareholders without a direct interest in the acquisition is to be sought
|
|
|
•
|
|
In principle we will vote in favor of a proposal to reduce the number of approvals by shareholders that is necessary to trigger fair price provision.
|
|
|
•
|
|
Anti-Greenmail Provision
|
A decision regarding a proposal in connection with
introducing an anti-greenmail provision will be made in consideration of, inter alia, the triggering conditions, the decision-making process for triggering, and the reasonability of the plan.
|
|
•
|
|
In principle we will vote in favor of a proposal requesting the introduction of anti-greenmail provisions, provided that all of the following standards are satisfied:
|
|
|
•
|
|
The definition of greenmail is clear
|
|
|
•
|
|
If a buyback offer is to be made to a person who holds a large number of shares, that the buy-back offer will be made to all shareholders, or confirmation will be made that shareholders who do not have a direct interest
in the takeover do not oppose the buyback offer to the person who holds a large number of shares.
|
|
|
•
|
|
No clause is included which would restrict the rights of shareholders, such as measures to deter being bought out.
|
|
|
•
|
|
Golden Parachute and Tin Parachute Conditions
|
A decision regarding a proposal in
connection with introducing a golden parachute or a tin parachute will be made in consideration of, inter alia, the triggering conditions, the
- 28 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
decision-making process for triggering, the level of compensation to be provided and the reasonability of the plan.
|
|
•
|
|
In principle we will vote in favor of a proposal to introduce or amend a golden parachute or a tin parachute if all of the following criteria are satisfied:
|
|
|
•
|
|
The triggering of the golden parachute or the tin parachute will be determined by an independent committee.
|
|
|
•
|
|
The payable compensation shall be no more than three times the employment compensation payable for a year.
|
|
|
•
|
|
Payment of compensation shall be made after the transfer of control.
|
In principle we will oppose a proposal in connection with
creating new classified shares with multiple voting rights.
A decision regarding a proposal in connection with creating new classified
shares with no voting rights or less voting rights will be made in consideration of, inter alia, the terms of the classified shares.
|
|
•
|
|
In principle we will oppose a proposal to create classified shares with multiple voting rights.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to create new classified shares with no voting rights or less voting rights if all of the following conditions are satisfied.
|
|
|
•
|
|
The objective of creating the new classified shares is to obtain financing while minimizing the dilution of the existing shareholders.
|
|
|
•
|
|
The creation of the new classified shares does not have an objective of protecting the voting rights of shareholders that have a direct interest in a takeover or of major shareholders.
|
|
|
•
|
|
Issuing New Shares to a White Squire or a White Knight
|
A decision regarding a
proposal in connection with issuing shares to a white squire or a white knight will be made in consideration of, inter alia, the conditions of issuing the shares.
|
|
•
|
|
Relaxation of Requirements to Amend the Articles of Incorporation or Company Regulations
|
A decision regarding a proposal to relax the requirements to amend the articles of incorporation or company regulations will be made in
consideration of, inter alia, the impact on shareholder value and the rights of shareholders.
- 29 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
•
|
|
Relaxation of Requirements for Approval of a Merger
|
A decision regarding a
proposal to relax the requirements to approve a merger will be made in consideration of, inter alia, the impact on shareholder value and on the rights of shareholders.
|
|
•
|
|
Introduction or Amendment of Takeover Defense Strategy
|
In principle we will
oppose a proposal in connection with introducing or amending a takeover defense strategy that will reduce shareholder value or infringe the rights of shareholders.
9.
Social, Environmental and Political Problems
A
decision regarding a proposal in connection with a social, environmental or political problems will be made in consideration of, inter alia, the impact that the actions on the part of the company will have on shareholder value and the rights of
shareholders, the impact on the financial condition and the business performance of the company, the reasonability of these actions, and the impact on the listing of shares as well as on the continuity of the company.
10.
Information Disclosure
|
|
•
|
|
In principle we will oppose a proposal for which sufficient information is not disclosed for the purpose of making a voting decision.
|
|
|
•
|
|
In principle we will vote in favor of a proposal to increase information disclosure, if all of the following criteria are satisfied.
|
|
|
•
|
|
The information will be beneficial to shareholders.
|
|
|
•
|
|
The time and expense required for the information disclosure will be minimal.
|
11.
Other
(1) Directors
|
|
•
|
|
Ex Post Facto Approval of Actions by Directors and Executive Officers
|
In principle we
will vote in favor of a proposal requesting ex post facto approval of an action taken by the directors or executive officers as long as there are no material concerns such as having committed an act in violation of fiduciary duties.
|
|
•
|
|
Separation of Chairman of the Board of Directors and CEO
|
|
|
•
|
|
In principle we will vote in favor of a proposal to have a director who is independent from the relevant company serve as the chairman of the board of
directors as long as there are not sufficient reasons to oppose the proposal, such as the existence of a
|
- 30 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
|
|
corporate governance organization that will counter a CEO who is also serving as chairman.
|
|
|
•
|
|
A person considered to be independent shall mean a person for whom there is no relationship between the relevant company and the director other than that of being selected as a director.
|
|
|
•
|
|
Independence of Board of Directors
|
|
|
•
|
|
In principle we will vote in favor of a proposal to have directors who are independent from the relevant company account for at least a majority or more than two-thirds of the members of the board of directors.
|
|
|
•
|
|
In principle we will vote in favor of a proposal that the audit committee, compensation committee and nominating committee of the board of directors shall be composed solely of independent directors.
|
|
|
•
|
|
A person considered to be independent shall mean a person for whom there is no relationship between the relevant company and the director other than that of being selected as a director.
|
(2) Statutory Auditors
|
|
•
|
|
Ex Post Facto Approval of Actions by Statutory Auditors
|
In principle we will
vote in favor of a proposal requesting ex post facto approval of an action taken by a statutory auditor as long as there are no material concerns such as having committed an act in violation of fiduciary duties.
|
|
•
|
|
Attendance by a Statutory Auditor at a General Meeting of Shareholders
|
In
principle we will vote in favor of a proposal requesting that a statutory auditor attend a general meeting of shareholders.
(3) Accounting Auditor
|
|
•
|
|
Fees of an accounting auditor
|
|
|
•
|
|
In principle we will vote in favor of a proposal requesting that the decision on the fees of an accounting auditor is left up to the discretion of the board of directors.
|
|
|
•
|
|
In principle we will oppose a proposal to reduce or waive the liability of an accounting auditor.
|
|
|
•
|
|
Selection of the Accounting Auditor by a General Meeting of Shareholders
|
|
|
•
|
|
In principle we will vote in favor of a proposal to make the selection of an accounting auditor a matter for resolution by a general meeting of shareholders.
|
- 31 -
B19-2 Giudeline on Exercising Shareholder Voting Rights and Policies for Deciding on the
Exercise of Shareholder Voting Rights. April 20, 2012
12.
Conflicts of Interest
We will abstain from exercising shareholder voting rights in a company that would constitute a conflict of interest.
The following company is determined to be a company that would constitute a conflict of interest:
13.
Shareholder Proposals
A decision regarding shareholders’ proposals will be made in accordance with the Guideline along with company’s proposal, however, will be considered
on the basis of proposed individual items.
- 32 -
Proxy Policies and Procedures
for
Invesco Asset Management Deutschland GmbH
April 2013
INVESCO CONTINENTAL EUROPE
VOTING RIGHTS POLICY
INVESCO ASSET
MANAGEMENT SA (& BRANCHES IN AMSTERDAM, BRUSSELS, MADRID, MILAN, STOCKHOLM)
INVESCO ASSET MANAGEMENT DEUTSCHLAND GMBH
INVESCO ASSET MANAGEMENT ÖSTERREICH GMBH
Approach
This document sets out the high level Proxy Voting Policy of the companies outlined above and referred to as Invesco Continental Europe (“Invesco
CE”). The principles within this policy are followed by these companies or to any of its delegates as applicable.
Invesco CE is committed to the
fair and equitable treatment of all its clients. As such Invesco CE has put in place procedures to ensure that voting rights attached to securities within a UCITS or portfolio for which it is the Management Company are exercised where appropriate
and in the best interests of the individual UCITS/ portfolio itself. Where Invesco CE delegates the activity of Investment Management it will ensure that the delegate has in place policies and procedures consistent with the principles of this
policy.
Voting Opportunities
Voting opportunities
which exist in relation to securities within each individual UCITS/ portfolio are monitored on an ongoing basis in order to ensure that advantage can be taken of any opportunity that arises to benefit the individual UCITS/ portfolio.
When is has been identified that a voting opportunity exists, an investment decisions is taken whether or not the opportunity to vote should be exercised and,
if relevant, the voting decision to be taken. Considerations which are taken into account include:
|
|
•
|
|
The cost of participating in the vote relative to the potential benefit to the UCITS/portfolio.
|
|
|
•
|
|
The impact of participation in a vote on the liquidity of the securities creating the voting opportunity due to the fact that some jurisdictions will require that the securities are not sold for a period if they are the
subject of a vote.
|
|
|
•
|
|
Other factors as deemed appropriate by the Investment Manager in relation to the investment objectives and policy of the individual UCITS/ portfolio.
|
It may be the case that an investment decision is taken not to participate in a vote. Such decisions can be equally appropriate due to the considerations
applied by the investment team to determine the relative benefit to the individual UCITS/ portfolio, based on criteria such as fund size, investment objective, policy and investment strategy applicable.
Conflicts of Interest:
Invesco CE has a Conflicts of Interest Policy which outlines the principles for avoiding, and where not possible, managing conflicts of interest. At no time
will Invesco CE use shareholding powers in respect of individual UCITS/portfolio to advance its own commercial interests, to pursue a social or political cause that is unrelated to a UCITS’/portfolio’s economic interests, or to favour
another UCITS/ portfolio or client or other relationship to the detriment of others. This policy is available, free of cost, from any of the Invesco CE companies.
Information on Voting Activity:
Further information on
votes which were available to individual UCITS and actions taken are available to unitholders free of charge and by request to the UCITS Management Company.
Proxy Policies and Procedures
for
Invesco Australia Limited
Invesco
recognises its fiduciary obligation to act in the best interests of all clients, be they superannuation trustees, institutional clients, unit-holders in managed investment schemes or personal investors. One way Invesco represents its clients in
matters of corporate governance is through the proxy voting process.
This policy sets out Invesco Australia’s approach to
proxy voting in the context of portfolio management, client service responsibilities and corporate governance principles.
This
policy applies to;
|
|
•
|
|
all Australian based and managed funds and mandates, in accordance with IFSA Standard No. 13.00 October 2004, clause 9.1 and footnote #3.
|
This policy does not apply;
|
|
•
|
|
where investment management of an international fund has been delegated to an overseas Invesco company, proxy voting will rest with that delegated
manager.
|
In order to facilitate its proxy voting process and to avoid conflicts of interest where these may
arise, Invesco may retain a professional proxy voting service to assist with in-depth proxy research, vote recommendations, vote execution, and the necessary record keeping.
|
|
1.2.1
|
The objective of Invesco’s Proxy Voting Policy is to promote the economic interests of its clients. At no time will Invesco use the shareholding powers exercised
in respect of its clients’ investments to advance its own commercial interests, to pursue a social or political cause that is unrelated to clients’ economic interests, or to favour a particular client or other relationship to the detriment
of others.
|
|
|
1.2.2
|
The involvement of Invesco as an institutional shareholder will not extend to interference in the proper exercise of Board or management responsibilities, or impede the
ability of companies to take the calculated commercial risks which are essential means of adding value for shareholders.
|
|
|
1.2.3
|
The primary aim of the policy is to encourage a culture of performance among investee companies, rather than one of mere conformance with a prescriptive set of rules
and constraints.
|
|
|
1.2.4
|
Invesco considers that proxy voting rights are an important power, which if exercised diligently can enhance client returns, and should be managed with the same care as
any other asset managed on behalf of its clients.
|
|
|
1.2.5
|
Invesco may choose not to vote on a particular issue if this results in shares being blocked from trading for a period of more than 4 hours; it may not be in the
interest of clients if the liquidity of investment holdings is diminished at a potentially sensitive time, such as that around a shareholder meeting.
|
|
|
1.3
|
Proxy Voting Authority
|
An important
dimension of Invesco’s approach to corporate governance is the exercise of proxy voting authority at the Annual General Meetings or other decision-making forums of companies in which we manage investments on behalf of clients.
Proxy voting policy follows two streams, each defining where discretion to exercise voting power should rest — with Invesco as the
investment manager (including its ability to outsource the function), or with individual mandate clients.
Under the first
alternative, Invesco’s role would be both to make voting decisions, for pooled funds and on individual mandate clients’ behalf, and to implement those decisions.
Under the second alternative, where IM clients retain voting control, Invesco has no role to play other than administering voting decisions under instructions from our clients on a cost recovery basis.
|
|
1.3.2
|
Individually-Managed Clients
|
IM
clients may elect to retain voting authority or delegate this authority to Invesco. If delegated, Invesco will employ either ISS or ASCI guidelines (selected at inception by the client) but at all times Invesco Investment Managers will retain the
ability to override any decisions in the interests of the client. Alternate overlays and ad hoc intervention will not be allowed without Board approval.
In cases where voting authority is delegated by an individually-managed client, Invesco recognises its responsibility to be accountable for the decisions it makes.
Some individually-managed clients may wish to retain voting authority for themselves, or to place conditions on the
circumstances in which it can be exercised by investment managers
1
.
The choice of this directive will occur at inception or at major review events
only. Individually managed clients will not be allowed to move on an ad hoc basis between delegating control to the funds manager and full direct control.
|
1
|
In practice, it is believed that this option is generally only likely to arise with relatively large clients such as trustees of major superannuation
funds or statutory corporations that have the resources to develop their own policies and to supervise their implementation by investment managers and custodians. In particular, clients who have multiple equity managers and utilise a master custody
arrangement may be more likely to consider retaining voting authority in order to ensure consistency of approach across their total portfolio. Such arrangements will be costed into administration services at inception.
|
|
|
1.3.3
|
Pooled Fund Clients
|
The funds
manager is required to act solely in the collective interests of unit holders at large rather than as a direct agent or delegate of each unit holder. The legal relationship that exists means it is not possible for the manager to accept instructions
from a particular pooled fund client as to how to exercise proxy voting authority in a particular instance.
Invesco’s
accountability to pooled fund clients in exercising its fiduciary responsibilities is best addressed as part of the manager’s broader client relationship and reporting responsibilities.
In considering proxy voting issues arising in respect of pooled fund shareholdings, Invesco will act solely in accordance with its
fiduciary responsibility to take account of the collective interests of unit holders in the pooled fund as a whole.
All proxy
voting decisions may be delegated to an outsourced provider, but Invesco investment managers will retain the ability to override these decisions in the interests of fund unit holders.
|
|
1.4
|
Key Proxy Voting Issues
|
Invesco will
consider voting requirements on all issues at all company meetings directly or via an outsourced provider. We will generally not announce our voting intentions and the reasons behind them.
|
|
1.4.2
|
Portfolio Management Issues
|
Invesco does not consider it feasible or desirable to prescribe in advance comprehensive guidelines as to how it will exercise proxy
voting authority in all circumstances. The primary aim of Invesco’s approach to corporate governance is to encourage a culture of performance among the companies in which we invest in order to add value to our clients’ portfolios, rather
than one of mere conformance with a prescriptive set of rules and constraints.
As a general rule, Invesco will vote against
any actions that will reduce the rights or options of shareholders, reduce shareholder influence over the board of directors and management, reduce the alignment of interests between management and shareholders, or reduce the value of
shareholders’ investments, unless balanced by reasonable increase in net worth of the shareholding.
Where appropriate,
Invesco will also use voting powers to influence companies to adopt generally accepted best corporate governance practices in areas such as board composition, disclosure policies and the other areas of recommended corporate governance practice.
Administrative constraints are highlighted by the fact that many issues on which shareholders are in practice asked to vote
are routine matters relating to the ongoing administration of the company — eg. approval of financial accounts or housekeeping amendments to Articles of Association. Generally in such cases,
Invesco will be in favour of the motion as most companies take seriously their duties and
are acting in the best interests of shareholders. However, reasonable consideration of issues and the actual casting of a vote on all such resolutions would entail an unreasonable administrative workload and cost. For this reason, Invesco may
outsource all or part of the proxy voting function at the expense of individual funds. Invesco believes that an important consideration in the framing of a proxy voting policy is the need to avoid unduly diverting resources from our primary
responsibilities to add value to our clients’ investments through portfolio management and client service.
|
|
1.5
|
Internal Proxy Voting Procedure
|
In situations where an override decision is required to be made or where the outsourced provider has recused itself from a vote recommendation, the responsible Investment Manager will have the final say
as to how a vote will be cast.
In the event that a voting decision is considered not to be in the best interests of a
particular client or where a vote is not able to be cast, a meeting may be convened at any time to determine voting intentions. The meeting will be made up of at least three of the following:
Chief Executive Officer;
Head of Operations & Finance;
Head of either Legal or Compliance; and
Relevant Investment Manager(s).
Invesco
will keep records of its proxy voting activities, directly or through outsourced reporting.
Upon client election, Invesco will
report quarterly or annually to the client on proxy voting activities for investments owned by the client.
A record will be
kept of the voting decision in each case by Invesco or its outsourced provider. Invesco will disclose on an annual basis, a summary of its proxy voting statistics on its website as required by IFSA standard No. 13 — Proxy Voting.
Proxy Policies and Procedures
for
Invesco PowerShares Capital Management LLC
Invesco PowerShares Capital Management LLC
PROXY VOTING POLICY
For the
exchange-traded funds in which Invesco PowerShares Capital Management LLC (“Invesco PowerShares”) serves as investment adviser, it retained Glass Lewis & Co. to provide in-depth proxy research and Broadridge to provide vote
execution and the recordkeeping services necessary for tracking proxy voting. Invesco PowerShares intends to vote according to Glass Lewis & Co.’s voting recommendations. Glass Lewis & Co. specializes in providing a variety of
fiduciary-level services related to proxy voting.
For investment companies in which Invesco PowerShares serves as the sub-adviser, Invesco
PowerShares will vote in accordance with the proxy voting guidelines of the adviser as determined and approved by the Board of Directors/Trustees. Invesco PowerShares will vote in accordance with the proxy voting service’ guidelines and does
not intend to form a committee to vote proxies.
For separately managed accounts, Invesco PowerShares will vote in accordance with instructions
received by the client.
February 16, 2012
