STATEMENT
OF ADDITIONAL INFORMATION
Dated
February 28, 2024
AIM
Equity Funds (Invesco Equity Funds)
This Statement of
Additional Information (the SAI) relates to each portfolio (each a Fund,
collectively the Funds) of AIM Equity Funds (Invesco Equity Funds) (the
Trust) listed below. Each Fund offers separate classes of shares as
follows:
|
Fund |
A |
C |
P |
R |
S |
Y |
Investor |
Class
R5 |
Class
R6 |
Prospectus
Date |
|
Invesco
Charter Fund |
CHTRX |
CHTCX |
N/A |
CHRRX |
CHRSX |
CHTYX |
N/A |
CHTVX |
CHFTX |
February
28, 2024 |
|
Invesco
Diversified Dividend Fund |
LCEAX |
LCEVX |
N/A |
DDFRX |
N/A |
LCEYX |
LCEIX |
DDFIX |
LCEFX |
February
28, 2024 |
|
Invesco
Main Street All Cap Fund® |
OMSOX |
OMSCX |
N/A |
OMSNX |
N/A |
OMSYX |
N/A |
MSAZX |
IOAPX |
February
28, 2024 |
|
Invesco
Main Street Fund® |
MSIGX |
MIGCX |
N/A |
OMGNX |
N/A |
MIGYX |
N/A |
MSJFX |
OMSIX |
February
28, 2024 |
|
Invesco
Rising Dividends Fund |
OARDX |
OCRDX |
N/A |
ONRDX |
N/A |
OYRDX |
N/A |
RSDQX |
OIRDX |
February
28, 2024 |
|
Invesco
Summit Fund |
ASMMX |
CSMMX |
SMMIX |
N/A |
SMMSX |
ASMYX |
N/A |
SMITX |
SMISX |
February
28, 2024 |
This SAI is not a
Prospectus, and it should be read in conjunction with the Prospectuses for the
Funds listed above. Invesco Main Street All Cap Fund®, Invesco Main Street Fund®
and Invesco Rising Dividends Fund were organized on May 24, 2019 for the purpose
of acquiring the assets and liabilities of corresponding predecessor funds (as
defined below). Portions of each Funds’ financial statements are incorporated
into this SAI by reference to each Fund’s most recent shareholder report for its
fiscal year ended October
31, 2023.
You may obtain,
without charge, a copy of any Prospectus and/or shareholder report for any Fund
listed above from an authorized dealer or by writing to:
Invesco
Investment Services, Inc.
P.O. Box 219078
Kansas City, MO 64121-9078
P.O. Box 219078
Kansas City, MO 64121-9078
or by calling (800)
959-4246
or on the Internet:
http://www.invesco.com/us
Any reference to
the term “Fund” or “Funds” throughout this SAI refers to each Fund named above
unless otherwise indicated.
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GENERAL
INFORMATION ABOUT THE TRUST
Fund
History
AIM
Equity Funds (Invesco Equity 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 May 19, 1988 and re-organized as a Delaware statutory trust on June 21, 2000.
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 April 30, 2010, the Trust was known as AIM Equity Funds.
The
following table shows each Fund’s current name and Fund history:
|
Fund
Name |
Fund
History |
|
Invesco
Charter Fund |
Prior
to April 30, 2010, Invesco Charter Fund was known as AIM Charter
Fund. |
|
Invesco
Diversified Dividend Fund |
Prior
to April 30, 2010, Invesco Diversified Dividend Fund was known as AIM
Diversified
Dividend
Fund. |
|
Invesco
Main Street All Cap Fund®* |
Prior
to September 30, 2020, Invesco Main Street All Cap Fund® was known as
Invesco
Oppenheimer
Main Street All Cap Fund®.
On
May 24, 2019, Invesco Oppenheimer Main Street All Cap Fund® assumed the
assets and
liabilities
of its predecessor fund Oppenheimer Main Street All Cap
Fund®. |
|
Invesco
Main Street Fund®* |
Prior
to September 30, 2020, Invesco Main Street Fund® was known as Invesco
Oppenheimer
Main
Street Fund®.
On
May 24, 2019, Invesco Oppenheimer Main Street Fund® assumed the assets and
liabilities
of
its predecessor fund Oppenheimer Main Street
Fund®. |
|
Invesco
Rising Dividends Fund* |
Prior
to September 30, 2020, Invesco Rising Dividends Fund was known as Invesco
Oppenheimer
Rising Dividends Fund.
On
May 24, 2019, Invesco Oppenheimer Rising Dividends Fund assumed the assets
and
liabilities
of its predecessor fund Oppenheimer Rising Dividends
Fund. |
|
Invesco
Summit Fund |
Prior
to April 30, 2010, Invesco Summit Fund was known as AIM Summit
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 accordance with any applicable provisions of the
Trust Agreement and applicable law, subject in certain circumstances to a
contingent deferred sales charge, if applicable.
The
Trust allocates cash and property it receives from the issue or sale of shares,
together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits and
proceeds thereof, to the appropriate Fund, subject only to the rights of
creditors of that Fund. These assets constitute the assets belonging to each
Fund, are segregated on the Trust’s books, and are charged with the liabilities
and expenses of such Fund and its respective classes. The Trust allocates any
general liabilities and expenses of the Trust not readily identifiable as
belonging to a particular Fund primarily on the basis of relative net assets or
other relevant factors, subject to oversight by the Board.
Each
share of each Fund represents an equal pro rata interest in that Fund with each
other share and is entitled to
dividends and other distributions with respect to the Fund, which may be from
income, capital gains, capital or distributions in kind, as declared by the
Board.
Each
class of shares of a Fund represents a proportionate undivided interest in the
net assets belonging to that Fund.
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, or reasonable provision for, the outstanding
liabilities of the Fund allocable to such class.
1
The
Trust Agreement provides that each shareholder, by virtue of having become a
shareholder of the Trust, is bound by
terms of the Trust Agreement and the Trust’s Bylaws. Ownership of shares does
not make shareholders third party beneficiaries of any contract entered into by
the Trust.
The
Trust is not required to hold annual or regular meetings of shareholders.
Meetings of shareholders of a Fund or class
will be held for any purpose determined by the Board, including 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.
The
Trust Agreement provides that the Board may authorize (i) a merger,
consolidation or sale of assets (including, but not
limited to, mergers, consolidations or sales of assets between two Funds, or
between a Fund and a series of any other registered investment company), and
(ii) the combination of two or more classes of shares of a Fund into a single
class, each without shareholder approval but subject to applicable requirements
under the 1940 Act and state law.
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, as applicable.
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 the 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. Shares do not have cumulative voting rights in connection
with the election of Trustees or on any other matter.
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 personal liability for
the debts, liabilities, obligations and expenses of the Trust and requires that
every undertaking of the Trust or the Board relating to the Trust or any Fund
include a recitation limiting such obligation to the Trust and its assets or to
one or more of the Funds and the assets belonging thereto. The Trust Agreement
provides for indemnification out of the property of a Fund (or class, as
applicable) for all losses and expenses of any shareholder of such Fund held
personally liable solely on account of being or having been a
shareholder.
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 or applicable Fund (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 with Fund assets. 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
2
that
any advancement of expenses would be reimbursed unless it is ultimately
determined that such person is entitled to
indemnification for such expenses.
The
Trust Agreement provides that any Trustee who serves as chair of the Board, a
member or chair of a committee of the
Board, lead independent Trustee, or an expert on any topic or in any area
(including an audit committee financial expert), or in any other special
appointment will not be subject to any greater standard of care or liability
because of such position.
The
Trust Agreement provides a detailed process for the bringing of derivative
actions by shareholders. A shareholder may
only bring a derivative action on behalf of the Trust if certain conditions are
met. Among other things, such conditions: (i) require shareholder(s) to make a
pre-suit demand on the Trustees (unless such effort is not likely to succeed
because a majority of the Board or the committee established to consider the
merits of such action are not independent Trustees under Delaware law); (ii)
require 10% of the beneficial owners to join in the pre-suit demand, or if a
pre-suit demand is not required, require 10% of beneficial owners to join in the
demand for the Board to commence such action; and (iii) afford the Trustees a
reasonable amount of time to consider the request and investigate the basis of
the claims (including designating a committee to consider the demand and hiring
counsel or other advisers). These conditions generally are intended to provide
the Trustees with the ability to pursue a claim if they believe doing so would
be in the best interests of the Trust and its shareholders and to preclude the
pursuit of claims that the Trustees determine to be without merit or otherwise
not in the Trust’s best interest to pursue. Insofar as the federal securities
laws supersede state law, these provisions do not apply to shareholder
derivative claims that arise under the federal securities laws.
The
Trust Agreement also generally requires that actions by shareholders in
connection with or against the Trust or a Fund
be brought only in certain Delaware courts, provided that actions arising under
the U.S. federal securities laws are required to be brought in the United States
District Court for the Southern District of New York and that the right to jury
trial be waived to the fullest extent permitted by law. These provisions may
result in increased shareholder costs in pursuing a shareholder derivative claim
and/or may limit a shareholder's ability to bring a claim in a different
forum.
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. Any certificate previously issued with respect to
any shares is deemed to be cancelled without any requirement for surrender to
the Trust.
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 Summit Fund) is classified
as “diversified” for purposes of the 1940 Act. Invesco Summit Fund is classified
as "non-diversified" for purposes of the 1940 Act, which means the Fund can
invest a greater percentage of its assets in a small number of issuers or 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.
A
Fund may invest in all of the following types of investments (unless otherwise
indicated). 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
3
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, policies and restrictions described in that Fund’s
Prospectus and/or this SAI, as well as the federal securities laws.
Unless
a Fund’s prospectus or this SAI states that a percentage limitation or
fundamental or non-fundamental restriction
applies on an ongoing basis, it applies only at the time a Fund makes an
investment. That means a Fund is not required to sell securities to meet the
percentage limits or investment restrictions if the value of the investment
increases in proportion to the size of a Fund. Percentage limits on borrowing
and
illiquid investments apply on an ongoing
basis.
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.
Over-the-Counter
Securities. Securities of
small- and mid-capitalization issuers may be traded on securities exchanges or
in the over-the-counter market. The over-the-counter markets, both in the U.S.
and abroad, may have less liquidity than securities exchanges. That lack of
liquidity can affect the price the Fund is able to obtain when it wants to sell
a security, because if there are fewer buyers and less demand for a particular
security, the Fund might not be able to sell it at an acceptable price or might
have to reduce the price in writing in order to dispose of the security. There
are a number of over-the-counter markets in the U.S., as well as those abroad,
as long as a dealer is willing to make a market in a particular
security.
Investments
in Small, Unseasoned Companies. These are
companies that have typically been in operation for less than three years,
including the operations of any predecessor. Because small, unseasoned companies
may be less secure financially, they may rely on borrowing to a greater extent.
In that case, they may be more susceptible to adverse changes in interest rates
than larger, more established companies. Small, unseasoned companies may also
offer fewer products and rely on fewer key personnel. Market or economic
developments may have a significant impact on these companies and on the value
of their securities. These companies may have a limited trading market and the
prices of their securities may be volatile, which could make them difficult to
sell in a short period of time at a reasonable price. If other investors that
own the security are trading it at the same time, it may have a more significant
effect on the security’s price than that trading activity would have on the
security price of a larger company. Securities of smaller, newer companies are
also subject to greater risks of default than those of larger, more established
issuers. These securities may be considered speculative and could increase
overall portfolio risks.
Invesco Main Street
Fund® may not invest more than 5% of its net assets in those
securities.
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
4
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.
Small-
and Mid-Capitalization Companies.
Small-capitalization (small-cap) companies may be either established or newer
companies, including “unseasoned” companies that have typically been in
operation for less than three years. Mid-capitalization (mid-cap) companies are
generally companies that have completed their initial start-up cycle, and in
many cases have established markets and developed seasoned market teams.
While smaller companies might offer greater opportunities for gain than larger
companies, they also involve greater risk of loss. They may be more sensitive to
changes in a company’s earnings expectations and may experience more abrupt and
erratic price movements. Small- and mid-cap companies’ securities often trade in
lower volumes and in many instances, are traded over-the-counter or on a
regional securities exchange, where the frequency and volume of trading is
substantially less than is typical for securities of larger companies traded on
national securities exchanges. Therefore, the securities of smaller companies
may be subject to wider price fluctuations and it might be harder for the Fund
to dispose of its holdings at an acceptable price when it wants to sell them.
Small- and mid-cap companies may not have established markets for their products
or services and may have fewer customers and product lines. They may have more
limited access to financial resources and may not have the financial strength to
sustain them through business downturns or adverse market conditions. Since
small- and mid-cap companies typically reinvest a high proportion of their
earnings in their business, they may not pay dividends for some time,
particularly if they are newer companies. Small- and mid-cap companies may have
unseasoned management or less depth in management skill than larger, more
established companies. They may be more reliant on the efforts of particular
members of their management team and management changes may pose a greater risk
to the success of the business. Securities of small, unseasoned companies may be
particularly volatile, especially in the short-term, and may have very limited
liquidity in a declining market. It may take a substantial period of time to
realize a gain on an investment in a small- or mid-cap company, if any gain is
realized at all.
When
the Fund invests in smaller company securities that might trade infrequently,
investors might seek to trade Fund
shares based on their knowledge or understanding of the value of those
securities (this is sometimes referred to as “price arbitrage”). If such price
arbitrage were successful, it might interfere with the efficient management of
the Fund’s portfolio and the Fund may be required to sell securities at
disadvantageous times or prices to satisfy the liquidity requirements created by
that activity. Successful price arbitrage might also dilute the value of fund
shares held by other shareholders.
Equity-Linked
Securities. Equity-linked
securities are instruments whose value is based upon the value of one or more
underlying equity securities, a reference rate or an index. Equity-linked
securities come in many forms and may include features, among others, such as
the following: (i) may be issued by the issuer of the underlying equity security
or by a company other than the one to which the instrument is linked (usually an
investment bank), (ii) may convert into equity securities, such as common stock,
within a stated period from the issue date or may be redeemed for cash or some
combination of cash and the linked security at a value based upon the value of
the underlying equity security within a stated period from the issue date, (iii)
may have various conversion features prior to maturity at the option of the
holder or the issuer or both, (iv) may limit the appreciation value with caps or
collars of the value of the underlying equity security and (v) may have fixed,
variable or no interest payments during the life of the security which reflect
the actual or a structured
5
return
relative to the underlying dividends of the linked equity security. Investments
in equity-linked securities may subject a Fund
to additional risks not ordinarily associated with investments in other equity
securities. Because equity-linked securities are sometimes issued by a third
party other than the issuer of the linked security, a Fund is subject to risks
if the underlying equity security, reference rate or index underperforms or if
the issuer defaults on the payment of the dividend or the common stock at
maturity. In addition, the trading market for particular equity-linked
securities may be less liquid, making it difficult for a Fund to dispose of a
particular security when necessary and reduced liquidity in the secondary market
for any such securities may make it more difficult to obtain market quotations
for valuing the Fund’s portfolio.
Convertible
Securities. 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.
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
6
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 it 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.
Contingent
Convertible Securities (CoCos). CoCos (also
referred to as contingent capital securities) are a form of hybrid fixed income
security typically issued by non-U.S. banks that may either convert into common
stock of the issuer or undergo a principal write-down by a predetermined
percentage upon the occurrence of a “trigger” event, such as if (a) the issuer’s
capital ratio falls below a specified level or (b) certain regulatory events,
such as a change in regulatory capital requirements, affect the issuer’s
continued viability. Unlike traditional convertible securities, the conversion
is not voluntary and the equity conversion or principal write-down features are
tailored to the issuing banking institution and its regulatory
requirements. In certain
circumstances, CoCos may be automatically written down to zero, thereby
cancelling the securities, and investors (including a Fund) could lose the
entire value of their investment even as the issuer remains in business. If such
an event occurs, an investor may not have any rights to repayment of the
principal amount of the securities that has not become due. Additionally, an
investor may not be able to collect interest payments or dividends on such
securities.
CoCos
are subject to credit, interest rate and market risks associated with fixed
income and equity securities
generally, along with risks typically applicable to convertible securities.
CoCos are also subject to loss absorption risk because coupon payments can
potentially be cancelled or deferred at the issuer’s discretion or at the
request of the relevant regulatory authority in order to help the bank absorb
losses. Additionally, certain call provisions permit an issuer to repurchase
CoCos if the regulatory environment or tax treatment of the security (e.g., tax
deductibility of interest payments) changes. This may result in a potential loss
to the Fund if the price at which the issuer calls or repurchases the CoCos is
lower than the initial purchase price by the Fund.
CoCos
are subordinate in rank to traditional convertible securities and other debt
obligations of an issuer in the issuer’s
capital structure, and therefore, CoCos entail more risk than an issuer’s other
debt obligations.
CoCos
are generally speculative and their market value may fluctuate based on a number
of unpredictable
factors, including, but not limited to, the creditworthiness of the issuer
and/or fluctuations in the issuer’s capital ratios, supply and demand for CoCos,
general market conditions and available liquidity, and economic, financial and
political events affecting the particular issuer or markets in
general.
Enhanced
Convertible Securities. “Enhanced”
convertible securities are equity-linked hybrid securities that automatically
convert to equity securities on a specified date. Enhanced convertibles have
been designed with a variety of payoff structures, and are known by a variety of
different names. Three features common to enhanced convertible securities are
(i) conversion to equity securities at the maturity of the convertible (as
opposed to conversion at the option of the security holder in the case of
ordinary convertibles); (ii) capped or limited appreciation potential relative
to the underlying common stock; and (iii) dividend yields that are typically
higher than that on the underlying common stock. Thus, enhanced convertible
securities offer holders the opportunity to obtain higher current income than
would be available from a traditional equity security issued by the same company
in return for reduced participation in the appreciation potential of the
underlying common stock. Other forms of enhanced convertible securities may
involve arrangements with no interest or dividend payments made until maturity
of the security or an enhanced principal amount received at maturity based on
the yield and value of the underlying equity security during the security’s term
or at maturity.
Synthetic
Convertible Securities. A synthetic
convertible security is a derivative position composed of two or more distinct
securities whose investment characteristics, taken together, resemble those of
traditional convertible securities, i.e., fixed income and the right to acquire
the underlying equity security. For example, a Fund may purchase a
non-convertible debt security and a warrant or option, which enables a Fund to
have a convertible-like position with respect to a security or
index.
7
Synthetic
convertibles are typically offered by financial institutions in private
placement transactions and are typically sold
back to the offering institution. Upon conversion, the holder generally receives
from the offering institution an amount in cash equal to the difference between
the conversion price and the then-current value of the underlying security.
Synthetic convertible securities differ from true convertible securities in
several respects. The value of a synthetic convertible is the sum of the values
of its fixed-income component and its convertibility component. Thus, the values
of a synthetic convertible and a true convertible security will respond
differently to market fluctuations. Purchasing a synthetic convertible security
may provide greater flexibility than purchasing a traditional convertible
security, including the ability to combine components representing distinct
issuers, or to combine a fixed income security with a call option on a stock
index, when the Adviser determines that such a combination would better further
a Fund’s investment goals. In addition, the component parts of a synthetic
convertible security may be purchased simultaneously or separately.
The
holder of a synthetic convertible faces the risk that the price of the stock or
the level of the market index underlying
the convertibility component will decline. In addition, in purchasing a
synthetic convertible security, a Fund may have counterparty risk with respect
to the financial institution or investment bank that offers the
instrument.
Alternative
Entity Securities. Alternative entity
securities 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.
Initial
Public Offerings. Initial Public
Offerings (IPOs) of securities issued by unseasoned companies with little or no
operating history are risky and their prices are highly volatile, but they can
result in very large gains in their initial trading. Attractive IPOs are often
oversubscribed and may not be available to a Fund, or only in very limited
quantities. Thus, when a Fund’s size is smaller, any gains from IPOs will have
an exaggerated impact on the Fund’s reported performance than when the Fund is
larger. A Fund may engage in short-term trading in connection with its IPO
investments, which could produce higher trading costs and adverse tax
consequences. There can be no assurance that a Fund will have favorable IPO
investment opportunities.
Special
Purpose Acquisition Companies. Special purpose
acquisition companies (“SPACs”) are investment entities, acquired through
stocks, warrants and other securities, that pool funds to seek potential
acquisition or merger opportunities. A SPAC is a publicly traded company that
raises funds through an initial public offering (“IPO”) for the purpose of
acquiring or merging with another company to be identified subsequent to the
SPAC’s IPO. The securities of a SPAC are often issued in “units” that include
one share of common stock and one right or warrant (or partial right or warrant)
conveying the right to purchase additional common shares or partial shares of
the SPAC. In some cases, the rights and warrants may be separated from the
common stock at the election of the holder, after which they may become freely
tradeable. If a Fund purchases shares of a SPAC in an IPO it will generally bear
a sales commission, which may be significant.
Unless
and until a business combination transaction is completed, a SPAC generally
invests its assets (which are
constituted solely by the proceeds of the IPO), less a portion retained to cover
expenses, in U.S. government securities, money market funds and similar
investments whose returns or yields may be significantly lower than those of a
Fund’s other investments. If an acquisition or merger that meets the
requirements for the SPAC is not completed within a pre-established period of
time, the invested funds are returned to the SPAC’s shareholders, less certain
permitted expenses, and any rights or warrants issued by the SPAC will expire
worthless. Under any circumstances in which a Fund receives a refund of all or a
portion of its original investment in a SPAC, the returns on that investment may
be negligible, and a Fund may be subject to opportunity costs to the extent that
alternative investments would have produced higher returns. Further, a Fund may
be delayed in receiving any redemption or liquidation proceeds from a SPAC to
which it is entitled.
Because
SPACs are in essence “blank check” companies without operating histories or
ongoing business operations (other
than identifying and pursuing acquisition or merger opportunities), the
potential for the long term capital appreciation of their securities is
dependent on the ability of the SPAC’s sponsor to identify and
8
complete
a profitable business combination. There is no guarantee that the SPACs in which
a Fund invests will complete a
business combination or that any transaction completed by the SPACs in which a
Fund invests will be profitable. Even if a SPAC in which a Fund has invested
identifies a desirable acquisition or merger target and reaches agreement with
that company as to the terms of the business combination, there can be no
guarantee that the transaction will ultimately be consummated because, among
other conditions that must be satisfied, a requisite number of shareholders of
the SPAC or of the target company do not vote in favor of the transaction. The
values of investments in SPACs may be highly volatile and may depreciate
significantly over time. Some SPACs may pursue acquisitions or mergers only
within certain industries or regions, which may ultimately lead to an increase
in the volatility of their prices following completion of a business
combination. In addition, some of these securities may be considered illiquid
and/or subject to restrictions on resale, leaving a Fund unable to sell its
interest in a SPAC or able to sell its interest only at a price below what that
Fund believes is the SPAC interest’s intrinsic value. Additionally, an
investment in a SPAC may be diluted by additional later offerings of interests
in the SPAC or by other investors exercising their warrants to purchase shares
of the SPAC.
Due
to the risk of the loss of sponsors’ and other initial investors’ capital if an
acquisition or merger is not consummated,
sponsors of SPACs may be incentivized to consummate business combinations at
less attractive valuations at the expense of SPAC shareholders. In addition, as
the number of SPACs grows, there is greater competition among SPACs and
traditional purchasers of companies, which further increases the likelihood that
SPAC sponsors may be incentivized to consummate acquisitions or mergers at less
attractive valuations, as well as the risk that SPACs cannot successfully
complete business combinations. In addition,
recent regulations promulgated by the SEC impose additional disclosure
obligations and other requirements on SPACs and may impact the ability of a SPAC
to conduct its operations.
Equity-Linked
Notes (ELNs). ELNs are hybrid
derivative-type instruments, in a single note form, that are specially designed
to combine the characteristics of one or more reference securities (such as a
single stock, exchange-traded fund, exchange-traded note, or an index or basket
of securities (underlying securities)) and a related equity derivative, such as
a put or call option. Generally, when purchasing an ELN, a Fund pays the
counterparty the current value of the underlying securities plus a commission.
Upon the maturity of the note, the Fund generally receives the par value of the
note plus a return based on the appreciation of the underlying securities. A
Fund may or may not hold an ELN until its maturity. If the underlying securities
have depreciated in value or if their price fluctuates outside of a preset
range, depending on the type of ELN, the Fund may receive only the principal
amount of the note, or may lose the entire principal invested in the ELN. ELNs
are available with an assortment of features, including periodic coupon
payments; limitations on participation in the appreciation of the underlying
securities; and different protection levels on the Fund’s principal investment.
A Fund will only invest in ELNs for which the underlying security is a
permissible investment for the Fund in accordance with its investment policies
and restrictions. ELNs are generally in two types: (1) those that provide for
protection of a Fund’s principal in exchange for limited participation in the
appreciation of the underlying securities, and (2) those that do not provide for
such protection and subject a Fund to the risk of loss of its principal
investment.
Investments
in ELNs possess the risks associated with the underlying securities, such as
management risk, market risk
and, as applicable, foreign securities and currency risks. In addition, as a
note, ELNs are also subject to certain debt securities risks, such as interest
rate and credit risk. An investment in an ELN also bears the risk that the ELN
issuer will default or become bankrupt. In such an event, the Fund may have
difficulty being repaid, or fail to be repaid, the principal amount of, or
income from, its investment. ELNs may be structured to be subordinated or
unsubordinated to other classes of debt holders' right of payment. A downgrade
or impairment to the credit rating of the issuer may also negatively impact the
price of the ELN. The Fund may also experience liquidity issues when investing
in ELNs, as ELN transactions generally take place in the over-the-counter
institutional investment market as well as in privately negotiated transactions
with ELN issuers. The secondary market for ELNs may be limited, and the lack of
liquidity may make ELNs difficult to sell at a desirable time and price and
value. ELNs may be subject
to resale restrictions such as those contained in Rule 144A promulgated under
the Securities Act of 1933, as amended (the 1933 Act). The price of an
ELN may not correlate with the price of the underlying securities or a
fixed-income investment. As
9
the
holder of an ELN, the Fund generally has no rights to the underlying securities,
including no voting rights or rights to
receive dividends. The Adviser’s ability to accurately forecast movements in the
underlying securities will determine the success of the Fund’s ELNs investments.
Should the prices of the underlying securities move in an unexpected manner, the
Fund may not achieve the anticipated benefits of its ELN investments, and it may
realize losses, which could be significant and could include the Fund’s entire
principal investment.
Foreign
Investments
Foreign
Securities. Foreign securities
are equity or debt securities issued by issuers outside the United States, 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 and are 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, EDRs and GDRs
entitle the holder to all dividends and capital gains on the underlying foreign
securities, less any fees paid to the bank. Purchasing ADRs, EDRs or GDRs gives
a Fund the ability to purchase the functional equivalent of foreign securities
without going to the foreign securities markets to do so. ADRs, EDRs or GDRs
that are “sponsored” are those where the foreign corporation whose shares are
represented by the ADR, EDR or GDR is actively involved in the issuance of the
ADR, EDR or GDR and generally provides material information about the
corporation to the U.S. market. An “unsponsored” ADR, EDR or GDR 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, EDR or GDR may not reflect important facts known only
to the foreign company.
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 in a particular
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; (4) its securities are traded
principally on a security exchange, or in an over-the-counter (OTC) market, in a
particular country or in a country in a particular region/continent; and/or (5)
its “country of risk" as determined by a third party service provider such as
Bloomberg. The issuer's “country of risk” is determined based on a number of
criteria, including its country of domicile, the primary stock exchange on which
it trades, the location from which the majority of its revenue comes, and its
reporting currency.
Investments
by a Fund in foreign securities, including ADRs, EDRs and GDRs, 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 United States.
Currency
Risk.
The value in U.S. dollars of a 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 countries may not be as developed as that of the United States’ economy and
may be subject to significantly different forces. Political, economic or social
10
instability
and development, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could
also adversely affect the value of portfolio investments. Certain foreign
companies may be subject to sanctions, embargoes, or other governmental actions
that may impair or otherwise limit the ability to invest in, receive, hold or
sell the securities of such companies. These factors may affect the value of
investments in those companies. Certain
companies may
operate in, or have dealings with, countries that the U.S. government has
identified as state sponsors of terrorism. As a result, such companies may be
subject to specific constraints or regulations under U.S. law and, additionally,
may be subject to negative investor perception, either of which could adversely
affect such companies' performance. Further, war and
military conflict between countries or in a region, for example the current
conflicts in the Ukraine and Middle East, may have an impact on the value of
portfolio investments.
Regulatory
Risk.
Foreign companies may not be registered with the SEC and are generally not
subject to the regulatory controls and disclosure requirements 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 Fund 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 that Fund’s assets are uninvested and
could cause it to miss attractive investment opportunities or create a potential
liability to that Fund arising out of its 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 U.S.
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,
and there is generally less government regulation and supervision of foreign
stock exchanges, brokers and issuers, each of 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.
Risks
of Developing/Emerging Market Countries. Each Fund may
invest in securities of companies located in developing and emerging
market
countries, subject to any
limits included in the Fund's prospectus. Unless a Fund’s
prospectus includes a different definition, the Fund considers developing and
emerging market countries to be those countries that are (i) generally
recognized to be an emerging market country by the international financial
community, including the World Bank, (ii) determined by the Adviser to be an
emerging market country or (iii) its “country of risk” is an emerging market
country as determined by a third party service provider such as Bloomberg. As of
the date of this SAI, the Adviser considers “emerging market countries” to
generally include every country in the world except those countries included in
the MSCI World Index. The Adviser has broad discretion to identify countries
that it considers to be emerging market countries and may consider various
factors in determining whether to classify a country as an emerging market
country, including a country’s relative interest rates, inflation rates,
exchange rates, monetary and fiscal policies, trade and current account
balances, legal and political developments and any other specific factors the
Adviser believes to be relevant. Because emerging market equity and emerging
market debt are distinct asset classes, a country may be deemed an emerging
market country with respect to its equity only, its debt only, both its equity
and debt, or neither.
11
Investments
in developing and emerging market 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 the value of foreign investments due to changes in currency
exchange rates, currency control regulations or currency devaluation. In
addition, there may be higher rates of inflation and more rapid and extreme
fluctuations in inflation rates and greater sensitivity to interest rate
changes;
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 market 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;
vi. There is a risk
in developing and emerging market 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;
vii. Investments in
such securities markets may be subject to unexpected market
closures;
viii. The taxation
systems at the federal, regional and local levels in developing or emerging
market countries may be less transparent and inconsistently enforced, and
subject to sudden change. Developing or emerging market countries may also have
a higher degree of corruption and fraud than developed market countries, as well
as counterparties and financial institutions with less financial sophistication,
creditworthiness and/or resources;
ix. Less developed
legal systems allowing for enforcement of private property rights and/or redress
for injuries to private property, such as bankruptcy. The ability to bring and
enforce actions in developing or emerging market countries, or to obtain
information needed to pursue or enforce such actions, may be limited and
shareholder claims may be difficult or impossible to pursue; and
x. Less stringent
regulatory, disclosure, financial reporting, accounting, auditing and
recordkeeping standards than companies in more developed countries and, as a
result, the nature and quality of such information may vary. Information about
such companies may be less available and reliable and, therefore, the ability to
conduct adequate due diligence in developing or emerging markets may be limited
which can impede the Fund's ability to evaluate such companies. In addition,
certain developing or emerging market countries may impose material limitations
on Public Company Accounting Oversight Board (“PCAOB”) inspection, investigation
and enforcement capabilities which can hinder the PCAOB’s ability to engage in
independent oversight or inspection of accounting firms located in or operating
in certain developing or emerging markets. There is no guarantee that the
quality of financial reporting or the audits conducted by audit firms of
developing or emerging market issuers meet PCAOB standards.
Frontier
Markets. The risks
associated with investments in frontier market countries include all the risks
associated with investments in developing and emerging markets. These risks are
magnified for frontier market countries because frontier markets countries
generally have smaller economies, even less developed capital markets, and are
traditionally less accessible than traditional emerging and developing markets.
As a result, investments in companies in frontier markets countries are
generally subject to a higher risk of loss than investments in companies in
traditional emerging and developing market countries due to less developed
securities markets, different settlement procedures, greater price volatility,
less developed governments and economies, more government restrictions, and the
limited ability of foreign entities to participate in certain privatization
programs. Investments in companies operating in frontier market countries are
highly speculative in nature.
12
Investing
in Greater China Risk. Investments in
companies located or operating in Greater China involve risks not associated
with investments in Western nations, such as nationalization, expropriation, or
confiscation of property; lack of willingness
or ability of the Chinese government to support the economies and markets of the
Greater China region; difficulty in
obtaining and/or enforcing judgments; lack of publicly
available information; alteration or
discontinuation of economic reforms; military conflicts and the risk of
war,
either internal or with other countries; public health
emergencies resulting in market closures, travel restrictions, quarantines or
other interventions; inflation,
currency fluctuations and fluctuations in inflation and interest rates that may
have negative effects on the economy and securities markets of Greater China;
and Greater China’s dependency on the economies of other Asian countries, many
of which are developing countries. Events in any one country within Greater
China may impact the other countries in the region or Greater China as a whole.
For example, changes to their political and economic relationships with the
mainland China could adversely impact the Fund’s investments in Taiwan and Hong
Kong.
Certain
securities issued by companies located or operating in Greater China, such as
China A-shares, are subject to
trading restrictions, quota limitations, and clearing and settlement risks.
Significant portions of the Chinese securities markets may become rapidly
illiquid, as Chinese issuers have the ability to suspend the trading of their
equity securities, and have shown a willingness to exercise that option in
response to market volatility and other events. The liquidity of Chinese
securities may shrink or disappear suddenly and without warning as a result of
adverse economic, market or political events, or adverse investor perceptions,
whether or not accurate.
Export
growth continues to be a major driver of China’s rapid economic growth. As a
result, a reduction in spending on Chinese
products and services, the institution of tariffs,
sanctions, capital
controls, embargoes, trade wars, or other trade
barriers, or a downturn in any of the economies of China’s key trading partners
may have an adverse impact on the Chinese economy. The current political climate
has intensified concerns about a potential trade war between China and the
United States, as each country has recently imposed tariffs on the other
country’s products. These actions may trigger a significant reduction in
international trade, the oversupply of certain manufactured goods, substantial
price reductions of goods and possible failure of individual companies and/or
large segments of China’s export industry, which could have a negative impact on
the Fund’s performance. Events such as these and their consequences are
difficult to predict and it is unclear whether further tariffs may be imposed or
other escalating actions may be taken in the future. In addition,
actions by the U.S. government, such as delisting of certain Chinese companies
from U.S. securities exchanges or otherwise restricting their operations in the
U.S., may negatively impact the value of such securities held by the Fund.
Further, from time to time, certain companies in which the Fund invests may
operate in, or have dealings with, countries subject to sanctions or embargoes
imposed by the U.S. government and the United Nations and/or in countries the
U.S. government identified as state sponsors of terrorism. One or more of these
companies may be subject to constraints under U.S. law or regulations that could
negatively affect the company’s performance.
Additionally,
developing countries, such as those in Greater China, may subject the Fund’s
investments to a number of tax
rules, and the application of many of those rules may be uncertain. Moreover,
China has implemented a number of tax reforms in recent years, and may amend or
revise its existing tax laws and/or procedures in the future, possibly with
retroactive effect. Changes in applicable Chinese tax law could reduce the
after-tax profits of the Fund, directly or indirectly, including by reducing the
after-tax profits of companies in China in which the Fund invests. Chinese taxes
that may apply to the Fund’s investments include income tax or withholding tax
on dividends, interest or gains earned by the Fund, business tax and stamp duty.
Uncertainties in Chinese tax rules could result in unexpected tax liabilities
for the Fund. Additionally, any difficulties of the PCAOB to inspect audit work
papers and practices of PCAOB-registered accounting firms in China with respect
to their audit work of U.S. reporting companies may impose significant
additional risks associated with investments in China.
Risks
of Investing in Chinese Variable Interest Entities. Many Chinese
companies have created a special structure, which is based in China, known as a
variable interest entity (“VIE”) as a means to circumvent limits on direct
foreign ownership of equity in Chinese operating companies in certain sectors,
such as internet, media, education and telecommunications, imposed by the
Chinese government. Typically in such an
13
arrangement,
a China-based operating company establishes an offshore “holding” company in
another jurisdiction that
likely does not have the same disclosure, reporting, and governance requirements
as the United States. The holding company issues shares, i.e., is “listed”, on a
foreign exchange such as the New York Stock Exchange or the Hong Kong Stock
Exchange. The listed holding company enters into service and other contracts
with the China-based operating company, typically through the China-based VIE.
The VIE must be owned by Chinese nationals (and/or other Chinese companies),
which often are the VIE’s founders, in order to obtain the licenses and/or
assets required to operate in the restricted or prohibited sector in China. The
operations and financial position of the VIE are included in consolidated
financial statements of the listed holding company. Foreign investors, including
mutual funds and ETFs (such as the Fund), hold stock in the listed holding
company rather than directly in the China-based operating company.
The
VIE structure allows foreign shareholders to exert a degree of control and
obtain economic benefits arising from the
operating company but without formal legal ownership because the listed holding
company’s control over the operating company is predicated entirely on contracts
with the VIE. The listed holding company is distinct from the underlying
operating company, and an investment in the listed holding company represents
exposure to a company that maintains service contracts with the operating
company, not equity ownership.
Investments
in companies that use VIEs may pose additional risks because the investment is
made through the listed
holding company’s service and other contractual arrangements with the underlying
Chinese operating company. As a result, such investment may limit the rights of
an investor with respect to the underlying Chinese operating company. The
contractual arrangements between the VIE and the operating company may not be as
effective in providing operational control as direct equity ownership. The
Chinese government could determine at any time and without notice that the
underlying contractual arrangements on which control of the VIE is based violate
Chinese law. While VIEs are a longstanding industry practice, well known to
Chinese officials and regulators, VIEs historically have not been formally
recognized under Chinese law. The owners of the VIE could decide to breach the
contractual arrangements with the listed holding company and it is uncertain
whether the contractual arrangements, which may be subject to conflicts of
interest between the legal owners of the VIE and foreign investors, would be
enforced by Chinese courts or arbitration bodies. Prohibitions of these
structures by the Chinese government, or the inability to enforce such
contracts, from which the shell company derives its value, would likely cause
the VIE-structured holding(s) to suffer significant, detrimental, and possibly
permanent loss, and in turn, adversely affect the Fund’s returns and net asset
value.
The
Chinese government previously placed restrictions on China-based companies
raising capital offshore in certain
sectors, including through VIEs, and investors face uncertainty about future
actions by the Chinese government that could significantly affect the operating
company’s financial performance and the enforceability of the contractual
arrangements underlying the VIE structure. It is uncertain whether Chinese
officials or regulators will withdraw their acceptance of the VIE structure,
generally, or with respect to
certain industries, or whether any new
laws, rules or regulations relating to VIE structures will be adopted and what
impact such laws may have on foreign investors. There is a risk that China might
prohibit the existence of VIEs or sever their ability to transmit economic and
governance rights to foreign individuals and entities; if so, the market value
of any associated portfolio holdings would likely suffer substantial,
detrimental, and possibly permanent loss.
Chinese
companies, including those listed on U.S. exchanges, are generally not subject
to the same degree of
regulatory requirements, accounting standards or auditor oversight as companies
in more developed countries. As a result, information about VIEs may be less
reliable or complete. Foreign companies with securities listed on U.S.
exchanges, including those that utilize VIEs, may be delisted if they do not
meet the requirements of the listing exchange, the Public Company Accounting
Oversight Board (“PCAOB”) and the U.S. government, which could significantly
decrease the liquidity and value of such securities. Actions by the U.S.
government, such as delisting of certain Chinese companies from U.S. securities
exchanges or otherwise restricting their operations in the U.S., may negatively
impact the liquidity and value of such securities.
14
Risks
of Investments in China A-shares through the Stock Connect Program. The Shanghai-Hong
Kong Stock Connect program and the Shenzhen-Hong Kong Stock Connect program
(both programs collectively referred to as the Stock Connect Program)
are securities trading and clearing programs through which the Funds can trade
eligible listed China A-shares. The Stock Connect Program is
subject to quota limitations, which may restrict or preclude a
fund's
ability to invest in Stock Connect
securities.
Foreign
investors,
individually and in
the aggregate,
are
subject to ownership
limitations from
Shanghai or Shenzhen listed companies,
including those
purchased through the Stock Connect
Program.
Once
the daily quota is reached, orders to purchase
additional China A-shares
through the Stock
Connect Program will be rejected. Only certain
China A-shares are eligible to be accessed through the Stock Connect Program.
Such securities may lose their eligibility at any time, in which case they could
be sold but could no longer be purchased through the Stock Connect Program.
Because the Stock Connect Program is
still relatively in its early stages, the actual effect on the market for
trading China A-shares with the introduction of large numbers of foreign
investors is currently unknown. The Stock Connect Program is
subject to regulations promulgated by regulatory authorities for the Shanghai
Stock Exchange, the Stock Exchange of Hong Kong Limited, and the Shenzhen Stock
Exchange, and further regulations or restrictions, such as limitations on
redemptions or suspension of trading, may adversely impact the Stock Connect Program, if
the authorities believe it necessary to assure orderly markets or for other
reasons. There is no guarantee that all three exchanges will continue to support
the Stock Connect Program in
the future and no assurance that further regulations will not adversely affect
the availability of securities under Stock Connect or other operational
arrangements.
Investments
in China A-shares may not be covered by the securities investor protection
programs of the exchanges and,
without the protection of such programs, will be subject to the risk of default
by the broker. In the event that the depository of the Shanghai Stock Exchange
and the Shenzhen Stock Exchange defaulted, a Fund may not be able to recover
fully its losses from the depository or may be delayed in receiving proceeds as
part of any recovery process. In addition, because all trades on the
Stock
Connect Program in
respect of eligible China A-shares must be settled in Renminbi (RMB), the
Chinese currency, the Funds investing through the Stock Connect Program
must have timely access to a reliable supply of offshore RMB, which cannot be
guaranteed. The existence of a liquid trading market for China A-shares may
depend on whether there is supply of, and demand for, such China A-shares.
Market volatility and settlement difficulties in the China A-shares markets may
also result in significant fluctuations in the prices of the securities traded
on such markets.
China
A-shares purchased through the Stock Connect Program are
held in nominee name and not the Fund’s name as the beneficial owner. It is
possible, therefore, that a Fund’s ability to exercise its rights as a
shareholder and to pursue claims against the issuer of China A-shares may be
limited because the nominee structure has not been tested in Chinese courts, as
Chinese courts generally have limited experience in applying the concept of
beneficial ownership and the law in that area continues to evolve. In addition,
a Fund may not be able to participate in corporate actions affecting China
A-shares held through the Stock Connect Program due
to time constraints or for other operational reasons.
Trades
on the Stock Connect Program are
subject to certain requirements prior to trading. If these requirements are not
completed prior to the market opening, a Fund cannot sell the shares on that
trading day. In addition, these requirements may limit the number of brokers
that a Fund may use to execute trades. Additionally, there are foreign
ownership limitations that may result in limitations on investment
or the
return of profits if a fund purchases and sells shares of an issuer in which it
owns above a certain threshold determined by China's securities
rules.
As a
result, a Fund may not be
able to execute
trading freely in
accordance with its investment strategy and the profits that the Fund derives
from such
investments
may be
limited.
Risks
of Investments in the China Interbank Bond Market through the Bond Connect
Program.
Certain Funds may
invest in China onshore bonds traded on the China Interbank Bond Market (CIBM)
through the China – Hong Kong Bond Connect Program (Bond Connect). In
China, the Hong Kong Monetary Authority Central Moneymarkets Unit holds Bond
Connect securities on behalf of ultimate investors (such as the Funds) in
accounts maintained with a China-based custodian (either the China Central
Depository & Clearing Co. or the Shanghai Clearing House). This
recordkeeping system subjects a Fund to various risks, including the risks of
settlement delays and counterparty default of the China custodian and Hong Kong
15
custody
agent. In addition, the Fund may have a limited ability to enforce rights as a
bondholder because enforcing the
ownership rights of a beneficial holder of Bond Connect securities is untested
and courts in China have limited experience in applying the concept of
beneficial ownership.
Bond
Connect uses the trading infrastructure of both Hong Kong and China and is not
available on trading holidays in
Hong Kong. As a result, prices of securities purchased through Bond Connect may
fluctuate at times when the Fund is unable to add to or exit its position.
Securities offered through Bond Connect may lose their eligibility for trading
through Bond Connect at any time. If Bond Connect securities lose their
eligibility for trading through Bond Connect, they may be sold but can no longer
be purchased through Bond Connect.
Because
Bond Connect trades are settled in RMB, the Funds investing through Bond Connect
must have timely access to a
reliable supply of offshore RMB, which cannot be guaranteed.
Market
volatility and potential lack of liquidity due to low trading volume of certain
bonds on the CIBM may result in prices of
such bonds fluctuating significantly, exposing a Fund to liquidity and
volatility risks. The bid-ask spreads of the prices of such securities may be
large, and a Fund may therefore incur significant costs and may suffer losses
when selling such investments. Bonds traded on the CIBM may be difficult or
impossible to sell, which may impact a Fund’s ability to acquire or dispose of
such securities at their expected prices.
Bond
Connect is relatively new and its effects on the Chinese interbank bond market
are uncertain. Trading through
Bond Connect is performed through newly developed trading platforms and
operational systems, and in the event of systems malfunctions or extreme market
conditions, trading via Bond Connect could be disrupted. There can be no
assurance as to Bond Connect’s continued existence or whether future
developments regarding Bond Connect (including further interpretation and
guidance provided by regulators in Hong Kong and China) may restrict or
adversely affect the Fund’s investments or returns. Finally, uncertainties in
China tax rules governing taxation of income and gains from investments via Bond
Connect could result in unexpected tax liabilities for a
Fund.
Passive
Foreign Investment Companies. Under U.S. tax
laws, passive foreign investment companies (PFICs) are those foreign
corporations which generate primarily “passive” income. Passive income is
defined as any income that is considered foreign personal holding company income
under the Internal Revenue Code of 1986, as amended (Code). For federal tax
purposes, a foreign corporation is deemed to be a PFIC if 75% or more of its
gross income during a taxable year is passive income or if 50% or more of its
assets during a taxable year are assets that produce, or are held to produce,
passive income.
Foreign
mutual funds are generally deemed to be PFICs, since nearly all of the income of
a mutual fund is passive income.
Foreign mutual funds investments may be used to gain exposure to the securities
of companies in countries that limit or prohibit direct foreign investment;
however, investments in foreign mutual funds by a Fund are subject to limits
under the Investment Company Act.
Other
types of foreign corporations may also be considered PFICs if their percentage
of passive income or passive assets
exceeds the limits described above. A determination as to whether a foreign
corporation is considered a PFIC is based on an interpretation of complex
provisions of the tax law. Accordingly, there can be no assurance that a
conclusion regarding a corporation's status as a PFIC will not be challenged by
the Internal Revenue Service (IRS) and conclusions as to a corporation's PFIC
status may vary depending on who is doing the analysis. Unless a Fund makes an
election with respect to its investment in a PFIC, which election may not always
be possible, income from the disposition of a PFIC investment and from certain
PFIC distributions may be subject to adverse tax treatment. The application of
the PFIC rules may affect, among other things, the character of gains, the
amount of gain or loss and the timing of the recognition of income with respect
to PFIC shares, and may subject a Fund to tax on certain income from PFIC
shares. Federal tax laws impose severe tax penalties for failure to properly
report investment income from PFICs. Although every effort is made to ensure
compliance with federal tax reporting requirements for these investments,
foreign corporations that are PFICs for federal tax purposes may not always be
recognized as such or may not provide a Fund with all information required to
report, or make an election with respect to, such investment.
16
A
foreign issuer will not be treated as a PFIC with respect to a shareholder if
such issuer is a controlled foreign corporation
for U.S. federal income tax purposes (CFC) and the shareholder holds (directly,
indirectly, or constructively) 10% or more of the voting interests in or total
value of such issuer. In such a case, the shareholder generally would be
required to include in gross income each year, as ordinary income, its share of
certain amounts of a CFC’s income, whether or not the CFC distributes such
shareholder’s share of such amounts to it. Under proposed regulations, such
income will be considered “qualifying income” for purposes of a shareholder’s
qualification as a regulated investment company only to the extent such income
is timely distributed to that shareholder.
Additional
risks of investing in other investment companies are described under “Other
Investment Companies.”
Foreign
Government Obligations. 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 may
invest in foreign currency-denominated securities and has the authority to
purchase and sell put and call options on foreign currencies (foreign currency
options), foreign currency futures contracts and related options, and
currency-related swaps, and 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”). The use
of these instruments may result in a loss to a Fund if the counterparty to the
transaction (particularly with respect to OTC derivatives, as discussed further
below) does not perform as promised, including because of such counterparty’s
bankruptcy or insolvency.
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 these foreign exchange transactions in order to
complete a purchase or sale of foreign
currency denominated securities. The Funds may also use foreign currency
options, forward foreign currency contracts, foreign currency futures 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.
A
Fund may purchase and sell foreign currency futures contracts and purchase and
write foreign currency options to increase
or decrease its exposure to different foreign currencies. A Fund may also
purchase and write foreign currency options in connection with foreign currency
futures contracts or forward foreign currency contracts. Foreign currency
futures contracts are traded on exchanges and have standard contract sizes and
delivery dates. Most foreign currency futures contracts call for payment or
delivery in U.S. dollars. The uses and risks of foreign currency futures
contracts are similar to those of futures contracts 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.
17
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 forward foreign currency 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.
A
Fund 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.”
Under
definitions adopted by the Commodity Futures Trading Commission (CFTC) and the
U.S. Securities and
Exchange Commission (SEC), non-deliverable foreign exchange forwards and OTC
foreign exchange options are considered “swaps.” These instruments are therefore
included in the definition of “commodity interests” for purposes of determining
whether fund service providers qualify for certain exemptions and exclusions
from regulation by the CFTC. Although non-deliverable forward foreign currency
contracts have historically been traded in the OTC market, as swaps they may in
the future be regulated to be centrally cleared and traded on public execution
facilities. For more information, see “Forward Foreign Currency Contracts” and
“Swaps.”
Floating
Rate Corporate Loans and Corporate Debt Securities of Non-U.S.
Borrowers. Floating rate
loans and debt securities made to and issued by non-U.S. borrowers in which the
Funds invest will be U.S. dollar-denominated or otherwise provide for payment in
U.S. dollars, and the borrower will meet the credit quality standards
established by Invesco and the Sub-Advisers for U.S. borrowers. The Funds
similarly may invest in floating rate loans and floating rate debt securities
made to and issued by U.S. borrowers with significant non-U.S.
dollar-denominated revenues; provided that the loans are U.S. dollar-denominated
or otherwise provide for payment to the Funds in U.S. dollars. In all cases
where the floating rate loans or floating rate debt securities are not
denominated in U.S. dollars, provisions will be made for payments to the
lenders, including the Funds, in U.S. dollars pursuant to foreign currency
swaps.
Foreign
Bank Obligations. Foreign bank
obligations include certificates of deposit, banker’s acceptances and fixed time
deposits and other obligations (a) denominated in U.S. dollars and issued by a
foreign branch of a domestic bank (Eurodollar Obligations), (b) denominated in
U.S. dollars and issued by a domestic branch of a foreign bank (Yankee Dollar
Obligations), or (c) issued by foreign branches of foreign banks. Foreign banks
are not generally subject to examination by any U.S. government agency or
instrumentality.
Risks
Related to Armed Conflict. As a result of
increasingly interconnected global economies and financial markets, armed
conflict between countries or in a geographic region, for example the current
conflicts between Russia and Ukraine in Europe and Hamas and Israel in the
Middle East, has the potential to adversely impact Fund investments. Such
conflicts, and other corresponding events, have had, and could continue to have,
severe negative effects on regional and global economic and financial markets,
including increased volatility, reduced liquidity, and overall uncertainty. The
negative impacts may be particularly acute in certain sectors The timing and
duration of such conflicts, resulting sanctions, related events and other
implications cannot be predicted. The foregoing may result in a negative impact
on Fund performance and the value of an investment in the Fund, even beyond any
direct investment exposure the Fund may have to issuers located in or with
significant exposure to an impacted country or geographic region.
Risks
Related to Russian Invasion of Ukraine. In late February
2022, Russian military forces invaded Ukraine, significantly amplifying already
existing geopolitical tensions among Russia, Ukraine, Europe, the North Atlantic
Treaty Organization (NATO), and the West. Russia’s invasion, the responses
18
of countries and
political bodies to Russia’s actions, and the potential for wider conflict may
increase financial market volatility and could have severe adverse effects on
regional and global economic markets, including the markets for certain
securities and commodities such as oil and natural gas.
Following
Russia’s actions, various countries, including the U.S., Canada, the United
Kingdom, Germany, and
France, among others, as well as the European Union, issued broad-ranging
economic sanctions against Russia. The sanctions freeze certain Russian assets
and prohibit trading by individuals and entities in certain Russian securities,
engaging in certain private transactions, and doing business with certain
Russian corporate entities, large financial institutions, officials and
oligarchs. The sanctions include a commitment by certain countries and the
European Union to remove selected Russian banks from the Society for Worldwide
Interbank Financial Telecommunications, commonly called “SWIFT,” the electronic
network that connects banks globally, and imposed restrictive measures to
prevent the Russian Central Bank from undermining the impact of the sanctions. A
number of large corporations have since withdrawn from Russia or suspended or
curtailed their Russia-based operations.
The
imposition of these current sanctions (and the potential for further sanctions
in response to Russia’s continued
military activity) and other actions undertaken by countries and businesses may
adversely impact various sectors of the Russian economy, including, but not
limited to, the financials, energy, metals and mining, engineering, and defense
and defense-related materials sectors. Such actions also may result in the
decline of the value and liquidity of Russian securities, a weakening of the
ruble, and could impair the ability of a Fund to buy, sell, receive, or deliver
those securities. Moreover, the measures could adversely affect global financial
and energy markets and thereby negatively affect the value of a Fund’s
investments beyond any direct exposure to Russian issuers or those of adjoining
geographic regions.
In
response to sanctions, the Russian Central Bank raised its interest rates and
banned sales of local securities by
foreigners. Russia also prevented the export of certain goods and payments to
foreign shareholders of Russian securities. Russia may take additional
countermeasures or retaliatory actions, which may further impair the value and
liquidity of Russian securities and Fund investments. Such actions could, for
example, include restricting gas exports to other countries, the seizure of U.S.
and European residents’ assets, or undertaking or provoking other military
conflict elsewhere in Europe, any of which could exacerbate negative
consequences on global financial markets and the economy. The actions discussed
above could have a negative effect on the performance of Funds that have
exposure to Russia. While diplomatic efforts have been ongoing, the conflict
between Russia and Ukraine is unpredictable and has the potential to result in
broader military actions. The duration of the ongoing conflict and corresponding
sanctions and related events cannot be predicted and may result in a negative
impact on Fund performance and the value of Fund investments, particularly as it
relates to Russian exposure.
Exchange-Traded
Funds
Exchange-Traded
Funds (ETFs). Each Fund may
purchase shares of ETFs. Most ETFs are registered under the 1940 Act as
investment companies, although others may not be registered as investment
companies and are registered as commodity pools. 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 Fund may invest in ETFs advised
by unaffiliated advisers as well as ETFs advised by Invesco Capital Management
LLC (Invesco Capital). Invesco, the Sub-Advisers and Invesco Capital are
affiliates of each other as they are all indirect wholly-owned subsidiaries of
Invesco Ltd.
Generally,
ETFs hold portfolios of securities, commodities and/or currencies that are
designed to replicate, as
closely as possible before expenses, the performance of a specified market
index. The performance results of ETFs will not replicate exactly the
performance of the pertinent index due to transaction and other expenses,
including fees to service providers, borne by ETFs. Furthermore, there can
19
be
no assurance that the portfolio of securities, commodities and/or currencies
purchased by an ETF will replicate a
particular index. Some ETFs are actively managed and instead of replicating a
particular index they seek to outperform it, or outperform a basket of
securities or price of a commodity or currency.
Only
Authorized Participants (APs) may engage in creation or redemption transactions
directly with ETFs. ETF shares are sold
to and redeemed by APs at net asset value only in large blocks called creation
units and redemption units, respectively. Such market makers have no obligation
to submit creation or redemption orders; consequently, there is no assurance
that market makers will establish or maintain an active trading market for ETF
shares. In addition, to the extent that APs exit the business or are unable to
proceed with creation and/or redemption orders with respect to an ETF and no
other AP is able to step forward to create or redeem units of an ETF, an ETF’s
shares may be more likely to trade at a premium or discount to net asset value
and possibly face trading halts and/or delisting. ETF shares may be purchased
and sold by all other investors 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 types of
securities, commodities and/or currencies included in the indices 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.
Exchange-Traded
Notes
Exchange-Traded
Notes (ETNs). ETNs are senior,
unsecured, unsubordinated debt securities whose returns are linked to the
performance of a particular market benchmark or strategy, minus applicable fees.
ETNs are traded on an exchange (e.g., the New York Stock Exchange) during normal
trading hours; however, investors can also hold the ETN until maturity. At
maturity, the issuer pays to the investor a cash amount equal to the principal
amount, subject to the day’s market benchmark or strategy factor. ETNs do not
make periodic coupon payments or provide principal protection. ETNs are subject
to credit risk, including the credit risk of the issuer, and the value of the
ETN may drop due to a downgrade in the issuer’s credit rating, despite the
underlying market benchmark or strategy remaining unchanged. The value of an ETN
may also be influenced by time to maturity, level of supply and demand for the
ETN, volatility and lack of liquidity in underlying assets, changes in the
applicable interest rates, changes in the issuer’s credit rating, and economic,
legal, political, or geographic events that affect the referenced underlying
asset. When a Fund invests in ETNs it will bear its proportionate share of any
fees and expenses borne by the ETN. A decision to sell ETN holdings may be
limited by the availability of a secondary market. In addition, although an ETN
may be listed on an exchange, the issuer may not be required to maintain the
listing, and there can be no assurance that a secondary market will exist for an
ETN.
ETNs
are also subject to tax risk. No assurance can be given that the Internal
Revenue Service (IRS) will accept, or a court
will uphold, how ETNs are characterized or treated for tax purposes. Further,
the IRS and Congress are considering proposals that would change the timing and
character of income and gains from ETNs.
An
ETN that is tied to a specific market benchmark or strategy may not be able to
replicate and maintain exactly the
composition and relative weighting of securities, commodities or other
components in the applicable market benchmark or strategy. Some ETNs that use
leverage can, at times, be relatively illiquid, and thus they may be difficult
to purchase or sell at a fair price. Leveraged ETNs are subject to the same risk
as other instruments that use leverage in any form.
The
market value of ETNs may differ from their market benchmark or strategy. This
difference in price may be due to the
fact that the supply and demand in the market for ETNs at any point in time is
not always identical to the supply and demand in the market for the securities,
commodities or other components
20
underlying
the market benchmark or strategy that the ETN seeks to track. As a result, there
may be times when an ETN trades
at a premium or discount to its market benchmark or strategy.
Debt
Investments
U.S.
Government Obligations. U.S. government
obligations are 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 or instrumentalities if it is not legally
obligated to do so. In that case, if the issuer were to default, a Fund holding
securities of such issuer might not be able to recover its investment from the
U.S. government. For example, while the U.S. government has provided financial
support to Federal National Mortgage Association (FNMA) and Federal Home Loan
Mortgage Corporation (FHLMC), 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 FNMA, FHLMC 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 issued by the U.S. government
may result in a downgrade of securities issued by its agencies or
instrumentalities, including government-sponsored entities. Additionally, from
time to time uncertainty regarding the status of negotiations in the U.S.
government to increase the statutory debt limit, commonly called the “debt
ceiling,” could increase the risk that the U.S. government may default on
payments on certain U.S. government securities, cause the credit rating of the
U.S. government to be downgraded, increase volatility in the stock and bond
markets, result in higher interest rates, reduce prices of U.S. Treasury
securities, and/or increase the costs of various kinds of debt. If a U.S.
government-sponsored entity is negatively impacted by legislative or regulatory
action, is unable to meet its obligations, or its creditworthiness declines, the
performance of a Fund that holds securities of that entity will be adversely
impacted.
Inflation-Indexed
Bonds.
Inflation-indexed bonds are fixed income securities whose principal value is
periodically adjusted according to the rate of inflation. Two structures are
common. The U.S. Treasury and some other issuers use a structure that accrues
inflation into the principal value of the bond. Most other issuers pay out the
Consumer Price Index (CPI) accruals as part of a semiannual coupon.
Inflation-indexed
securities issued by the U.S. Treasury have maturities of five, ten or thirty
years, although it is
possible that securities with other maturities will be issued in the future. The
U.S. Treasury securities pay interest on a semi-annual basis, equal to a fixed
percentage of the inflation-adjusted principal amount. For example, if a fund
purchased an inflation-indexed bond with a par value of $1,000 and a 3% real
rate of return coupon (payable 1.5% semi-annually), and inflation over the first
six months was 1%, the mid-year par value of the bond would be $1,010 and the
first semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If
inflation during the second half of the year resulted in the whole years’
inflation equaling 3%, the end-of-year par value of the bond would be $1,030 and
the second semiannual interest payment would be $15.45 ($1,030 times
1.5%).
If
the periodic adjustment rate measuring inflation falls, the principal value of
inflation-indexed bonds will be adjusted
downward, and consequently the interest payable on these securities (calculated
with respect to a smaller principal amount) will be reduced. Repayment of the
original bond principal upon maturity (as adjusted for inflation) is guaranteed
in the case of U.S. Treasury inflation-indexed bonds, even during a period of
deflation. However, the current market value of the bonds is not guaranteed, and
will fluctuate. The Fund may also invest in other inflation related bonds which
may or may not provide a similar guarantee. If a guarantee of principal is not
provided, the adjusted principal value of the bond repaid at maturity may be
less than the original principal.
21
The
value of inflation-indexed bonds is expected to change in response to changes in
real interest rates. Real interest rates
in turn are tied to the relationship between nominal interest rates and the rate
of inflation. Therefore, if inflation were to rise at a faster rate than nominal
interest rates, real interest rates might decline, leading to an increase in
value of inflation-indexed bonds. In contrast, if nominal interest rates
increased at a faster rate than inflation, real interest rates might rise,
leading to a decrease in value of inflation-indexed bonds.
While
these securities are expected to be protected from long-term inflationary
trends, short-term increases in
inflation may lead to a decline in value. If interest rates rise due to reasons
other than inflation (for example, due to changes in currency exchange rates),
investors in these securities may not be protected to the extent that the
increase is not reflected in the bond’s inflation measure.
The
periodic adjustment of U.S. inflation-indexed bonds is tied to the Consumer
Price Index for Urban Consumers (CPI-U),
which is calculated monthly by the U.S. Bureau of Labor Statistics. The CPI-U is
a measurement of changes in the cost of living, made up of components such as
housing, food, transportation and energy. Inflation-indexed bonds issued by a
foreign government are generally adjusted to reflect a comparable inflation
index, calculated by that government. There can be no assurance that the CPI-U
or any foreign inflation index will accurately measure the real rate of
inflation in the prices of goods and services. Moreover, there can be no
assurance that the rate of inflation in a foreign country will be correlated to
the rate of inflation in the United States.
Any
increase in the principal amount of an inflation-indexed bond will be considered
taxable ordinary income, even though
investors do not receive their principal until maturity.
Temporary
Investments. Each Fund may
invest a portion of its assets in affiliated money market funds or in other
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, a Fund may not achieve its investment
objective.
Changing
Interest Rates. In a low or
negative interest rate environment, debt securities may trade at, or be issued
with, negative yields, which means the purchaser of the security may receive at
maturity less than the total amount invested. In addition, in a negative
interest rate environment, if a bank charges negative interest, instead of
receiving interest on deposits, a depositor must pay the bank fees to keep money
with the bank. To the extent a Fund holds a negatively-yielding debt security or
has a bank deposit with a negative interest rate, the Fund would generate a
negative return on that investment. Cash positions may also subject a Fund to
increased counterparty risk to the Fund's bank. Debt market conditions are
highly unpredictable and some parts of the market are subject to dislocations.
In the past, the U.S. government and certain foreign central banks have taken
steps to stabilize markets by, among other things, reducing interest rates. To
the extent such actions are pursued, they present heightened risks to debt
securities, and such risks could be even further heightened if these actions are
unexpectedly or suddenly reversed or are ineffective in achieving their desired
outcomes. In recent years, the U.S. government began implementing increases to
the federal funds interest rate and there may be further rate increases. As
interest rates rise, there is risk that rates across the financial system also
may rise. To the extent rates increase substantially and/or rapidly, the Funds
may be subject to significant losses.
In
a low or negative interest rate environment, some investors may seek to
reallocate assets to other income-producing
assets. This may cause the price of such higher yielding instruments to rise,
could further reduce the value of instruments with a negative yield, and may
limit a Fund's ability to locate fixed income instruments containing the desired
risk/return profile. Changing interest rates, including, rates that fall below
zero, could have unpredictable effects on the markets and may expose fixed
income markets to heightened volatility, increased redemptions, and potential
illiquidity.
22
With
respect to a money market fund, which seeks to maintain a stable $1.00 price per
share, a low or negative interest
rate environment could impact the money market fund’s ability to maintain a
stable $1.00 share price. During a negative interest rate
environment causing a money
market fund to have a negative gross yield, the money market fund
may reduce the number of shares outstanding on a pro rata basis through reverse
distribution
mechanisms
or
other mechanisms to seek to maintain a stable $1.00 price per share,
subject
to
approval of the
Board and to the extent permissible
by applicable law and its organizational documents. A money market fund
that implements share cancellation would continue to maintain a stable $1.00
share price by use of the amortized cost method of valuation and/or penny
rounding method but the value of an investor’s investment would decline if the
fund reduces the number of shares held by the investor.
Alternatively, the
money market fund may discontinue using the amortized cost method of valuation
to maintain a stable $1.00 price per share and establish a fluctuating NAV per
share rounded to four decimal places by using available market quotations or
equivalents. A money market
fund that floats its NAV would no longer maintain a stable $1.00 share price and
instead have a share price that fluctuates. An investor in a money market fund
that floats its NAV would lose money if the investor sells their shares when
they are worth less than what the investor originally paid for
them.
Mortgage-Backed
and Asset-Backed Securities.
Mortgage-backed and
asset-backed securities include
commercial
mortgage-backed securities (CMBS) and residential mortgage-backed securities
(RMBS).
Mortgage-backed
securities are mortgage-related securities issued or guaranteed by the U.S.
government, its agencies and instrumentalities, or issued by non-government
entities, such as commercial banks and other private lenders. Mortgage-related
securities represent ownership in pools of mortgage loans assembled for sale to
investors by various government agencies such as the Government National
Mortgage Association (GNMA) and government-related organizations such as the
FNMA and the FHLMC, as well as by non-government issuers such as commercial
banks, savings and loan institutions, mortgage bankers and private mortgage
insurance companies. Although certain mortgage-related securities are guaranteed
by a third party or otherwise similarly secured, the market value of the
security, which may fluctuate, is not so secured. These securities differ from
conventional bonds in that the principal is paid back to the investor as
payments are made on the underlying mortgages in the pool. Accordingly, a Fund
receives monthly scheduled payments of principal and interest along with any
unscheduled principal prepayments on the underlying mortgages. Because these
scheduled and unscheduled principal payments must be reinvested at prevailing
interest rates, mortgage-backed securities do not provide an effective means of
locking in long-term interest rates for the investor.
Mortgage-backed
securities are mortgage-related securities issued or guaranteed by the U.S.
government, its agencies and instrumentalities, or issued by non-government
entities, such as commercial banks and other private lenders. Mortgage-related
securities represent ownership in pools of mortgage loans assembled for sale to
investors by various government agencies such as the Government National
Mortgage Association (GNMA) and government-related organizations such as the
FNMA and the FHLMC, as well as by non-government issuers such as commercial
banks, savings and loan institutions, mortgage bankers and private mortgage
insurance companies. Although certain mortgage-related securities are guaranteed
by a third party or otherwise similarly secured, the market value of the
security, which may fluctuate, is not so secured. These securities differ from
conventional bonds in that the principal is paid back to the investor as
payments are made on the underlying mortgages in the pool. Accordingly, a Fund
receives monthly scheduled payments of principal and interest along with any
unscheduled principal prepayments on the underlying mortgages. Because these
scheduled and unscheduled principal payments must be reinvested at prevailing
interest rates, mortgage-backed securities do not provide an effective means of
locking in long-term interest rates for the investor.
In
addition, there are a number of important differences among the agencies and
instrumentalities of the U.S. government
that issue mortgage-related securities and among the securities they issue.
Mortgage-related securities issued by GNMA include GNMA Mortgage Pass-Through
Certificates (also known as Ginnie Maes) which are guaranteed as to the timely
payment of principal and interest. That guarantee is backed by the full faith
and credit of the U.S. Treasury. GNMA is a corporation wholly-owned by the U.S.
government within the Department of Housing and Urban Development.
Mortgage-related securities issued by FNMA include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as Fannie Maes) and are guaranteed as to
payment of principal and interest by FNMA itself and backed by a line of credit
with the U.S. Treasury. FNMA is a government-sponsored entity (GSE) wholly-owned
by public stockholders. Mortgage-related securities issued by FHLMC include
FHLMC Mortgage Participation Certificates (also known as Freddie Macs) and are
guaranteed as to payment of principal and interest by FHLMC itself and backed by
a line of credit with the U.S. Treasury. FHLMC is a GSE wholly-owned by public
stockholders.
Another
type of mortgage-related security issued by GSEs, such as FNMA and FHLMC, is
credit risk transfer
securities. GSE credit risk transfer securities are unguaranteed and unsecured
fixed or floating rate general obligations issued by GSEs, which are typically
issued at par and have stated final maturities. In addition, GSE credit risk
transfer securities are structured so that: (i) interest is paid directly by the
issuing GSE; and (ii) principal is paid by the issuing GSE in accordance with
the principal payments and default performance of a pool of residential mortgage
loans acquired by the GSE. The issuing GSE selects the pool of mortgage loans
based on that GSE’s eligibility criteria, and the performance of the credit risk
transfer securities will be directly affected by the selection of such
underlying mortgage loans.
23
GSE
credit risk transfer securities are not directly linked to or backed by the
underlying mortgage loans. Thus, although the
payment of principal and interest on such securities is tied to the performance
of the pool of underlying mortgage loans, in no circumstances will the actual
cash flow from the underlying mortgage loans be paid or otherwise made available
to the holders of the securities and the holders of the securities will have no
interest in the underlying mortgage loans. As a result, in the event that a GSE
fails to pay principal or interest on its credit risk transfer securities or
goes through a bankruptcy, insolvency or similar proceeding, holders of such
credit risk transfer securities will have no direct recourse to the underlying
mortgage loans. Such holders will receive recovery on par with other unsecured
note holders (agency debentures) in such a scenario.
GSE
credit risk transfer securities are issued in multiple tranches, which are
allocated certain principal repayments and
credit losses corresponding to the seniority of the particular tranche. Each
tranche will have credit exposure to the underlying mortgage loans and the yield
to maturity will be directly related to the amount and timing of certain defined
credit events on the underlying mortgage loans, any prepayments by borrowers and
any removals of a mortgage loan from the pool. Because credit risk exposure is
allocated in accordance with the seniority of the particular tranche, principal
losses will be first allocated to the most junior or subordinate tranches, thus
making the most subordinate tranches subject to increased sensitivity to
dramatic housing downturns. In addition, many credit risk transfer securities
have collateral performance triggers (such as those based on credit enhancement,
delinquencies or defaults) that could shut off principal payments to subordinate
tranches.
The
risks associated with an investment in GSE credit risk transfer securities will
be different than the risks associated
with an investment in mortgage-backed securities issued by GSEs, because some or
all of the mortgage default or credit risk associated with the underlying
mortgage loans in credit risk transfer securities is transferred to investors,
such as the Fund. As a result, investors in GSE credit risk transfer securities
could lose some or all of their investment in these securities if the underlying
mortgage loans default.
The
Funds may also invest in credit risk transfer securities issued by private
entities, such as banks or other financial
institutions. Credit risk transfer securities issued by private entities are
structured similarly to those issued by GSEs, and are generally subject to the
same types of risks, including credit, prepayment, extension, interest rate and
market risks.
On
September 7, 2008, FNMA and FHLMC were placed under the conservatorship of the
Federal Housing Finance
Agency (FHFA) to provide stability in the financial markets, mortgage
availability and taxpayer protection by preserving FNMA and FHLMC’s assets and
property and putting FNMA and FHLMC in a sound and solvent position. Under the
conservatorship, the management of FNMA and FHLMC was replaced.
Since
2009, both FNMA and FHLMC have received significant capital support through U.S.
Treasury preferred stock
purchases and Federal Reserve purchases of the entities’ mortgage-backed
securities.
In
February 2011, the Obama Administration produced a report to Congress outlining
proposals to wind down FNMA and FHLMC
and reduce the government’s role in the mortgage market. In December 2011,
Congress enacted the Temporary Payroll Tax Cut Continuation Act of 2011 which,
among other provisions, requires that FNMA and FHLMC increase their
single-family guaranty fees by at least 10 basis points and remit this increase
to Treasury with respect to all loans acquired by FNMA or FHLMC on or after
April 1, 2012 and before January 1, 2022. Discussions among policymakers
continue, however, as to whether FNMA and FHLMC should be nationalized,
privatized, restructured, or eliminated altogether. FNMA reported in the third
quarter of 2016 that it expected "continued significant uncertainty" regarding
its future and the housing finance system, including how long FNMA will continue
to exist in its current form, the extent of its role in the market, how long it
will be in conservatorship, what form it will have and what ownership interest,
if any, current common and preferred stockholders will hold after the
conservatorship is terminated, and whether FNMA will continue to exist following
conservatorship. FHLMC faces similar uncertainty about its future role. If FNMA
and FHLMC are taken out of conservatorship, it is unclear how the capital
structure of FNMA and FHLMC would be constructed and what effects, if any, there
may be on FNMA’s and FHLMC’s creditworthiness and
24
guarantees
of certain mortgage-backed securities. It is also unclear whether the U.S.
Treasury would continue to enforce its
rights or perform its obligations related to senior preferred stock. Should
FNMA’s and FHLMC’s conservatorship end, there could be an adverse impact on the
value of their securities, which could cause Fund losses. FNMA and FHLMC also
are the subject of several continuing legal actions and investigations over
certain accounting, disclosure or corporate governance matters, which (along
with any resulting financial restatements) may continue to have an adverse
effect on the guaranteeing entities. Importantly, the future of the entities is
in question as the U.S. government considers multiple options regarding the
future of FNMA and FHLMC.
Under
the direction of the FHFA, FNMA and FHLMC have entered into a joint initiative
to develop a common
securitization platform for the issuance of a uniform mortgage-backed security
(the “Single Security Initiative”) that aligns the characteristics of FNMA and
FHLMC certificates. The Single Security Initiative seeks to support the overall
liquidity of the TBA market. FNMA and FHLMC began issuing uniform
mortgage-backed security in June 2019, and while the initial effects of the
issuance of uniform mortgage-backed securities on the market for
mortgage-related securities have been relatively minimal, the long-term effects
are still uncertain.
Asset-backed
securities are structured like mortgage-backed securities, but instead of
mortgage loans or interests in
mortgage loans, the underlying assets may include such items as motor vehicle
installment sales contracts or installment loan contracts, leases of various
types of real and personal property, and receivables from credit card agreements
and from sales of personal property. Regular payments received on
asset-backed securities include both interest and principal. Asset-backed
securities typically have no U.S. Government backing. Additionally, the
ability of an issuer of asset-backed securities to enforce its security interest
in the underlying assets may be limited.
If
a Fund purchases a mortgage-backed or other asset-backed security at a premium,
the premium may be lost if there is
a decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying collateral. As with other
interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. Although the value of a mortgage-backed
or other asset-backed security may decline when interest rates rise, the
converse is not necessarily true, since in periods of declining interest rates
the mortgages and loans underlying the securities are prone to prepayment,
thereby shortening the average life of the security and shortening the period of
time over which income at the higher rate is received. When interest rates are
rising, the rate of prepayment tends to decrease, thereby lengthening the period
of time over which income at the lower rate is received. For these and other
reasons, a mortgage-backed or other asset-backed security’s average maturity may
be shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security’s return. In
addition, while the trading market for short-term mortgages and asset-backed
securities is ordinarily quite liquid, in times of financial stress the trading
market for these securities may become restricted.
CMBS
and RMBS generally offer a higher rate of interest than government and
government-related mortgage-backed
securities because there are no direct or indirect government or government
agency guarantees of payment. The risk of loss due to default on CMBS and RMBS
is historically higher because neither the U.S. government nor an agency or
instrumentality have guaranteed them. CMBS and RMBS whose underlying assets are
neither U.S. government securities nor U.S. government insured mortgages, to the
extent that real properties securing such assets may be located in the same
geographical region, may also be subject to a greater risk of default than other
comparable securities in the event of adverse economic, political or business
developments that may affect such region and, ultimately, the ability of
property owners to make payments of principal and interest on the underlying
mortgages. Non-government mortgage-backed securities are generally subject to
greater price volatility than those issued, guaranteed or sponsored by
government entities because of the greater risk of default in adverse market
conditions. Where a guarantee is provided by a private guarantor, the Fund is
subject to the credit risk of such guarantor, especially when the guarantor
doubles as the originator.
Collateralized
Mortgage Obligations (CMOs). A CMO is a hybrid
between a mortgage-backed bond and a mortgage pass-through security. A CMO is a
type of mortgage-backed security that creates separate
25
classes
with varying maturities and interest rates, called tranches. Similar to a bond,
interest and prepaid principal is paid,
in most cases, semiannually. CMOs may be collateralized by whole mortgage loans,
but are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC, or FNMA, and their income
streams.
CMOs
are structured into multiple classes, each bearing a different fixed or floating
interest rate and stated maturity.
Actual maturity and average life will depend upon the prepayment experience of
the collateral. CMOs provide for a modified form of call protection through a de
facto breakdown of the underlying pool of mortgages according to how quickly the
loans are repaid. Monthly payment of principal received from the pool of
underlying mortgages, including prepayments, is first returned to investors
holding the shortest maturity class. Investors holding the longer maturity
classes receive principal only after the first class has been retired. An
investor is partially guarded against a sooner than desired return of principal
because of the sequential payments.
In
a typical CMO transaction, a corporation (issuer) issues multiple series (i.e.,
Series A, B, C and Z) of CMO bonds (Bonds).
Proceeds of the Bond offering are used to purchase mortgages or mortgage
pass-through certificates (Collateral). The Collateral is pledged to a third
party trustee as security for the Bonds. Principal and interest payments from
the Collateral are used to pay principal on the Bonds in the following order:
Series A, B, C and Z. The Series A, B, and C Bonds all bear current interest.
Interest on a Series Z Bond is accrued and added to principal and a like amount
is paid as principal on the Series A, B, or C Bond is currently being paid off.
Only after the Series A, B, and C Bonds are paid in full does the Series Z Bond
begin to receive payment. With some CMOs, the issuer serves as a conduit to
allow loan originators (primarily builders or savings and loan associations) to
borrow against their loan portfolios.
CMOs
that are issued or guaranteed by the U.S. government or by any of its agencies
or instrumentalities will be considered
U.S. government securities by the Funds, while other CMOs, even if
collateralized by U.S. government securities, will have the same status as other
privately issued securities for purposes of applying the Funds' diversification
tests.
FHLMC
CMOs are debt obligations of FHLMC issued in multiple classes having different
maturity dates which are secured
by the pledge of a pool of conventional mortgage loans purchased by FHLMC.
Payments of principal and interest on the FHLMC CMOs are made semiannually. The
amount of principal payable on each semiannual payment date is determined in
accordance with FHLMC’s mandatory sinking fund schedule, which, in turn, is
equal to approximately 100% of FHA prepayment experience applied to the mortgage
collateral pool. All sinking fund payments in the FHLMC CMOs are allocated to
the retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC’s minimum sinking fund obligation for any payment
date are paid to the holders of the FHLMC CMOs as additional sinking fund
payments. Because of the “pass-through” nature of all principal payments
received on the collateral pool in excess of FHLMC’s minimum sinking fund
requirement, the rate at which principal of the FHLMC CMOs is actually repaid is
likely to be such that each class of bonds will be retired in advance of its
scheduled maturity date. If collection of principal (including prepayments) on
the mortgage loans during any semiannual payment period is not sufficient to
meet the FHLMC CMO’s minimum sinking fund obligation on the next sinking fund
payment date, FHLMC agrees to make up the deficiency from its general
funds.
Classes
of CMOs may also include interest only securities (IOs) and principal only
securities (POs). IOs and POs are
stripped mortgage-backed securities representing interests in a pool of
mortgages the cash flow from which has been separated into interest and
principal components. IOs receive the interest portion of the cash flow while
POs receive the principal portion. IOs and POs can be extremely volatile in
response to changes in interest rates. As interest rates rise and fall, the
value of IOs tends to move in the same direction as interest rates. POs perform
best when prepayments on the underlying mortgages rise since this increases the
rate at which the investment is returned and the yield to maturity on the PO.
When payments on mortgages underlying a PO are slow, the life of the PO is
lengthened and the yield to maturity is reduced.
CMOs
are generally subject to the same risks as mortgage-backed securities. In
addition, CMOs may be subject to credit
risk because the issuer or credit enhancer has defaulted on its obligations and
a Fund may
26
not
receive all or part of its principal. Obligations issued by U.S.
government-related entities are guaranteed as to the payment
of principal and interest, but are not backed by the full faith and credit of
the U.S. government. The performance of private label mortgage-backed
securities, issued by private institutions, is based on the financial health of
those institutions. Although GNMA guarantees timely payment of GNMA certificates
even if homeowners delay or default, tracking the “pass-through” payments may,
at times, be difficult.
Collateralized
Debt Obligations (CDOs). A CDO is a
security backed by a pool of bonds, loans and other debt obligations. CDOs are
not limited to investing in one type of debt and accordingly, a CDO may own
corporate bonds, commercial loans, asset-backed securities, residential
mortgage-backed securities, commercial mortgage-backed securities, and emerging
market debt. The CDO’s securities are typically divided into several classes, or
bond tranches, that have differing levels of investment grade or credit
tolerances. Most CDO issues are structured in a way that enables the senior bond
classes and mezzanine classes to receive investment-grade credit ratings. Credit
risk is shifted to the most junior class of securities. If any defaults occur in
the assets backing a CDO, the senior bond classes are first in line to receive
principal and interest payments, followed by the mezzanine classes and finally
by the lowest rated (or non-rated) class, which is known as the equity tranche.
Similar in structure to a collateralized mortgage obligation (described above)
CDOs are unique in that they represent different types of debt and credit
risk.
Collateralized
Loan Obligations (CLOs). CLOs are debt
instruments backed solely by a pool of other debt securities. The risks of an
investment in a CLO depend largely on the type of the collateral securities and
the class of the CLO in which a Fund invests. Some CLOs have credit ratings, but
are typically issued in various classes with various priorities. Normally, CLOs
are privately offered and sold (that is, they are not registered under the
securities laws) and may be characterized by a Fund as illiquid investments;
however, an active dealer market may exist for CLOs that qualify for Rule 144A
transactions. In addition to the normal interest rate, default and other risks
of fixed income securities, CLOs carry additional risks, including the
possibility that distributions from collateral securities will not be adequate
to make interest or other payments, the quality of the collateral may decline in
value or default a Fund may invest in CLOs that are subordinate to other
classes, values may be volatile, and disputes with the issuer may produce
unexpected investment results.
Credit
Linked Notes (CLNs). A CLN is a
security structured and issued by an issuer, which may be a bank, broker or
special purpose vehicle. If a CLN is issued by a special purpose vehicle, the
special purpose vehicle will typically be collateralized by AAA-rated
securities, but some CLNs are not collateralized. The performance and payment of
principal and interest is tied to that of a reference obligation which may be a
particular security, basket of securities, credit default swap, basket of credit
default swaps, or index. The reference obligation may be denominated in foreign
currencies. Risks of CLNs include those risks associated with the underlying
reference obligation including, but not limited to, market risk, interest rate
risk, credit risk, default risk and foreign currency risk. In the case of a CLN
created with credit default swaps, the structure will be “funded” such that the
par amount of the security will represent the maximum loss that could be
incurred on the investment and no leverage is introduced. An investor in a CLN
also bears counterparty risk or the risk that the issuer of the CLN will default
or become bankrupt and not make timely payments of principal and interest on the
structured security. Should the issuer default or declare bankruptcy, the CLN
holder may not receive any compensation. In return for these risks, the CLN
holder receives a higher yield. As with most derivative instruments, valuation
of a CLN may be difficult due to the complexity of the
security.
Bank
Instruments. Bank instruments
are unsecured interest bearing bank deposits. Bank instruments include, but are
not limited to, certificates of deposit, time deposits, and banker’s acceptances
from U.S. or foreign banks, as well as Eurodollar certificates of deposit
(Eurodollar CDs) and Eurodollar time deposits of foreign branches of domestic
banks. Some certificates of deposit are negotiable interest-bearing instruments
with a specific maturity issued by banks and savings and loan institutions in
exchange for the deposit of funds, and can typically be traded in the secondary
market prior to maturity. Other certificates of deposit, like time deposits, are
non-negotiable receipts issued by a bank in exchange for the deposit of funds
which earns
27
a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. A banker’s
acceptance is a bill of exchange or time draft drawn on and accepted by a
commercial bank.
An
investment in Eurodollar CDs or Eurodollar time deposits may involve some of the
same risks that are described for
Foreign Securities.
Commercial
Instruments. Commercial
instruments include commercial paper, master notes and other short-term
corporate instruments, that are denominated in U.S. dollars or foreign
currencies.
Commercial
instruments are a type of instrument issued by large banks and corporations to
raise money to meet their
short-term debt obligations, and are only backed by the issuing bank or
corporation’s promise to pay the face amount on the maturity date specified on
the note. Commercial paper consists of short-term promissory notes issued by
corporations. Commercial paper may be traded in the secondary market after its
issuance. Master notes are demand notes that permit the investment of
fluctuating amounts of money at varying rates of interest pursuant to
arrangements with issuers who meet certain credit quality criteria. The interest
rate on a master note may fluctuate based on changes in specified interest rates
or may be reset periodically according to a prescribed formula or may be a set
rate. Although there is no secondary market in master demand notes, if
such notes have a demand feature, the payee may demand payment of the principal
amount of the note upon relatively short notice. Master notes are generally
illiquid and therefore typically subject to the Funds' percentage limitations
for investments in illiquid investments. Commercial instruments may not be
registered with the SEC.
Synthetic
Municipal Instruments. Synthetic
municipal instruments are instruments, the value of and return on which are
derived from underlying securities. Synthetic municipal instruments in
which the Funds may invest include tender option bonds, and fixed or variable
rate trust certificates. These types of instruments involve the deposit into a
trust or custodial account of one or more long-term tax-exempt bonds or notes
(Underlying Bonds), and the sale of certificates evidencing interests in the
trust or custodial account to investors such as the Funds. The trustee or
custodian receives the long-term fixed rate interest payments on the Underlying
Bonds, and pays certificate holders fixed rates or short-term floating or
variable interest rates which are reset periodically. A “tender option bond”
provides a certificate holder with the conditional right to sell its certificate
to the sponsor or some designated third party at specified intervals and receive
the par value of the certificate plus accrued interest (a demand feature). A
"fixed rate trust certificate" evidences an interest in a trust entitling a
certificate holder to fixed future interest and/or principal payments on the
Underlying Bonds. A “variable rate trust certificate” evidences an interest in a
trust entitling the certificate holder to receive variable rate interest based
on prevailing short-term interest rates and also typically provides the
certificate holder with the conditional demand feature (the right to tender its
certificate at par value plus accrued interest under certain
conditions).
All
synthetic municipal instruments must meet the minimum quality standards for the
Funds' investments and must present
minimal credit risks. In selecting synthetic municipal instruments for the
Funds, Invesco considers the creditworthiness of the issuer of the Underlying
Bond, the sponsor and the party providing certificate holders with a conditional
right to sell their certificates at stated times and prices (a demand
feature).
Typically,
a certificate holder cannot exercise the demand feature until the occurrence of
certain conditions, such as
where the issuer of the Underlying Bond defaults on interest payments. Moreover,
because synthetic municipal instruments involve a trust or custodial account and
a third party conditional demand feature, they involve complexities and
potential risks that may not be present where a municipal security is owned
directly.
The
tax-exempt character of the interest paid to certificate holders is based on the
assumption that the holders have an
ownership interest in the Underlying Bonds; however, the IRS has not issued a
ruling addressing this issue. In the event the IRS issues an adverse ruling or
successfully litigates this issue, it is possible that the interest paid to the
Funds on certain synthetic municipal instruments would be deemed to be
28
taxable.
The Funds rely on opinions of special tax counsel on this ownership question and
opinions of bond counsel regarding
the tax-exempt character of interest paid on the Underlying Bonds.
Municipal
Securities. Municipal
Securities are typically debt obligations of states, territories or possessions
of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, the interest on which, in the
opinion of bond counsel or other counsel to the issuers of such securities, is,
at the time of issuance, exempt from federal income tax. The issuers of
municipal securities obtain funds for various public purposes, including the
construction of a wide range of public facilities such as airports, highways,
bridges, schools, hospitals, housing, mass transportation, streets and water and
sewer works. Other public purposes for which municipal securities may be issued
include refunding outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to lend to other public institutions and
facilities.
Certain
types of municipal securities are issued to obtain funding for privately
operated facilities. The credit and quality
of private activity debt securities are dependent on the private facility or
user, who is responsible for the interest payment and principal
repayment.
The
two major classifications of Municipal Securities are bonds and notes. Municipal
bonds are municipal debt obligations in
which the issuer is obligated to repay the original (or “principal”) payment
amount on a certain maturity date along with interest. A municipal bond’s
maturity date (the date when the issuer of the bond repays the principal) may be
years in the future. Short-term bonds mature in one to three years, while
long-term bonds usually do not mature for more than a decade. Notes are
short-term instruments which usually mature in less than two years. Most notes
are general obligations of the issuing municipalities or agencies and are sold
in anticipation of a bond sale, collection of taxes or receipt of other
revenues. Municipal notes also include tax, revenue notes and revenue and bond
anticipation notes (discussed more fully below) of short maturity, generally
less than three years, which are issued to obtain temporary funds for various
public purposes.
Municipal
debt securities may also be classified as general obligation or revenue
obligations (or "special delegation
securities"). General obligation securities are secured by the issuer's pledge
of its faith, credit and taxing power for the payment of principal and
interest.
Revenue
debt obligations, such as revenue bonds and revenue notes, are usually payable
only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source but not from
the general taxing power. The principal and interest payments for industrial
development bonds or pollution control bonds are often the sole responsibility
of the industrial user and therefore may not be backed by the taxing power of
the issuing municipality. The interest paid on such bonds may be exempt from
federal income tax, although current federal tax laws place substantial
limitations on the purposes and size of such issues. Such obligations are
considered to be Municipal Securities provided that the interest paid thereon,
in the opinion of bond counsel, qualifies as exempt from federal income tax.
However, interest on municipal securities may give rise to a federal alternative
minimum tax (AMT) liability for noncorporate taxpayers and may have other
collateral federal income tax consequences. There is a risk that some or all of
the interest received by the Fund from tax-exempt municipal securities might
become taxable as a result of tax law changes or determinations of the
IRS.
Another
type of revenue obligations is pre-refunded bonds, which are typically issued to
refinance debt. In other words,
pre-refunded bonds result from the advance refunding of bonds that are not
currently redeemable. The proceeds from the issue of the lower yield and/or
longer maturing pre-refunding bond will usually be used to purchase U.S.
government obligations, such as U.S. Treasury securities, which are held in an
escrow account and used to pay interest and principal payments until the
scheduled call date of the original bond issue occurs. Like other fixed income
securities, pre-refunded bonds are subject to interest rate, market, credit, and
reinvestment risks. However, because pre-refunded bonds are generally
collateralized with U.S. government obligations, such pre-refunded bonds have
essentially the same risks of default as a AAA-rated security. The Fund will
treat such pre-refunded securities as investment-grade securities,
29
notwithstanding
the fact that the issuer of such securities may have a lower rating (such as a
below-investment-grade rating) from one
or more rating agencies.
Within
these principal classifications of municipal securities, there are a variety of
types of municipal securities,
including but not limited to, fixed and variable rate securities, variable rate
demand notes, municipal leases, custodial receipts, participation certificates,
inverse floating rate securities, and derivative municipal
securities.
After
purchase by a Fund, an issue of Municipal Securities may cease to be rated by
Moody's Investors Service, Inc.
(Moody's) or S&P Global Ratings Services (S&P), or another nationally
recognized statistical rating organization (NRSRO), or the rating of such a
security may be reduced below the minimum credit quality rating required for
purchase by the Fund. Neither event would require a Fund to dispose of the
security. To the extent that the ratings applied by Moody’s, S&P or another
NRSRO to Municipal Securities may change as a result of changes in these rating
systems, a Fund will attempt to use comparable credit quality ratings as
standards for its investments in Municipal Securities.
The
yields on Municipal Securities are dependent on a variety of factors, including
general economic and monetary
conditions, money market factors, conditions of the Municipal Securities market,
size of a particular offering, and maturity and rating of the obligation.
Because many Municipal Securities are issued to finance similar projects,
especially those related to education, health care, transportation and various
utilities, conditions in those sectors and the financial condition of an
individual municipal issuer can affect the overall municipal market. The market
values of the Municipal Securities held by a Fund will be affected by changes in
the yields available on similar securities. If yields increase following the
purchase of a Municipal Security, the market value of such Municipal Security
will generally decrease. Conversely, if yields decrease, the market value of a
Municipal Security will generally increase. The ratings of S&P and Moody’s
represent their opinions of the quality of the municipal securities they
undertake to rate. It should be emphasized, however, that ratings are general
and are not absolute standards of quality. Consequently, municipal securities
with the same maturity, coupon and rating may have different yields while
municipal securities of the same maturity and coupon with different ratings may
have the same yield.
Certain
of the municipal securities in which the Funds may invest represent relatively
recent innovations in the municipal
securities markets and the markets for such securities may be less developed
than the market for conventional fixed rate municipal securities.
Under
normal market conditions, longer-term municipal securities generally provide a
higher yield than shorter-term
municipal securities. The Funds have no limitation as to the maturity of
municipal securities in which they may invest. The Adviser may adjust the
average maturity of a Fund’s portfolio from time to time depending on its
assessment of the relative yields available on securities of different
maturities and its expectations of future changes in interest rates.
The
net asset value of a Fund will change with changes in the value of its portfolio
securities. With fixed income municipal
securities, the net asset value of a Fund can be expected to change as general
levels of interest rates fluctuate. When interest rates decline, the value of a
portfolio invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. The prices of longer
term municipal securities generally are more volatile with respect to changes in
interest rates than the prices of shorter term municipal securities. Volatility
may be greater during periods of general economic uncertainty.
Municipal
Securities, like other debt obligations, are subject to the credit risk of
nonpayment. The ability of issuers of
municipal securities to make timely payments of interest and principal may be
adversely impacted in general economic downturns and as relative governmental
cost burdens are allocated and reallocated among federal, state and local
governmental units. Such nonpayment would result in a reduction of income to a
Fund, and could result in a reduction in the value of the municipal securities
experiencing nonpayment and a potential decrease in the net asset value of the
Fund. In addition, a Fund may incur expenses to work out or restructure a
distressed or defaulted security.
30
The
Funds may invest in Municipal Securities with credit enhancements such as
letters of credit and municipal bond
insurance. The Funds may invest in Municipal Securities that are insured by
financial insurance companies. Since a limited number of entities provide such
insurance, a Fund may invest more than 25% of its assets in securities insured
by the same insurance company. If a Fund invests in Municipal Securities backed
by insurance companies and other financial institutions, changes in the
financial condition of these institutions could cause losses to the Fund and
affect share price. Letters of credit are issued by a third party, usually a
bank, to enhance liquidity and ensure repayment of principal and any accrued
interest if the underlying Municipal Bond should default. These credit
enhancements do not guarantee payments or repayments on the Municipal Securities
and a downgrade in the credit enhancer could affect the value of the Municipal
Security.
If
the IRS determines that an issuer of a Municipal Security has not complied with
applicable tax requirements,
interest from the security could be treated as taxable, which could result in a
decline in the security’s value. In addition, there could be changes in
applicable tax laws or tax treatments that reduce or eliminate the current
federal income tax exemption on Municipal Securities or otherwise adversely
affect the current federal or state tax status of Municipal Securities. For
example, 2017 legislation commonly known as the Tax Cuts and Jobs Act repeals
the exclusion from gross income for interest on pre-refunded municipal
securities effective for such bonds issued after December 31, 2017.
Taxable
municipal securities are debt securities issued by or on behalf of states and
their political subdivisions, the
District of Columbia, and possessions of the United States, the interest on
which is not exempt from federal income tax. Taxable investments include, for
example, hedging instruments, repurchase agreements, and many of the types of
securities the Fund would buy for temporary defensive purposes.
At
times, in connection with the restructuring of a municipal bond issuer either
outside of bankruptcy court in a negotiated
workout or in the context of bankruptcy proceedings, the Fund may determine or
be required to accept equity or taxable debt securities, or the underlying
collateral (which may include real estate or loans) from the issuer in exchange
for all or a portion of the Fund’s holdings in the municipal security. Although
the Adviser will attempt to sell those assets as soon as reasonably practicable
in most cases, depending upon, among other things, the Adviser’s valuation of
the potential value of such assets in relation to the price that could be
obtained by the Fund at any given time upon sale thereof, the Fund may determine
to hold such securities or assets in its portfolio for limited period of time in
order to liquidate the assets in a manner that maximizes their value to the
Fund.
Municipal
Securities also include,
but
are not limited to, the following
securities:
•
Bond Anticipation
Notes usually are general obligations of state and local governmental issuers
which are sold to obtain interim financing for projects that will eventually be
funded through the sale of long-term debt obligations or bonds.
•
Revenue
Anticipation Debt Securities, including bonds, notes, and certificates, are
issued by governments or governmental bodies with the expectation that future
revenues from a designated source will be used to repay the securities. In
general, they also constitute general obligations of the issuer.
•
Tax Anticipation
Notes are issued by state and local governments to finance the current
operations of such governments. Repayment is generally to be derived from
specific future tax revenues.
•
Tax-Exempt
Commercial Paper (Municipal Paper) is similar to taxable commercial paper,
except that tax-exempt commercial paper is issued by states, municipalities and
their agencies.
•
Tax-Exempt
Mandatory Paydown Securities (TEMPS) are fixed rate term bonds carrying a
short-term maturity, usually three to four years beyond the expected redemption.
TEMPS are structured as bullet repayments, with required optional redemptions as
entrance fees are collected.
•
Zero Coupon and
Pay-in-Kind Securities do not immediately produce cash income. These securities
are issued at an original issue discount, with the full value, including accrued
interest, paid at maturity. Interest income may be reportable annually, even
though no annual payments are made.
31
Market prices of
zero coupon bonds tend to be more volatile than bonds that pay interest
regularly. Pay-in-kind securities are securities that have interest payable by
delivery of additional securities. Upon maturity, the holder is entitled to
receive the aggregate par value of the securities. Zero coupon and pay-in-kind
securities may be subject to greater fluctuation in value and less liquidity in
the event of adverse market conditions than comparably rated securities paying
cash interest at regular interest payment periods. Prices on non-cash-paying
instruments may be more sensitive to changes in the issuer’s financial
condition, fluctuation in interest rates and market demand/supply imbalances
than cash-paying securities with similar credit ratings, and thus may be more
speculative. Special tax considerations are associated with investing in certain
lower-grade securities, such as zero coupon or pay-in-kind
securities.
•
Capital
Appreciation Bonds are municipal securities in which the investment return on
the initial principal payment is reinvested at a compounded rate until the bond
matures. The principal and interest are due on maturity. Thus, like zero coupon
securities, investors must wait until maturity to receive interest and
principal, which increases the interest rate and credit risks.
•
Payments in lieu of
taxes (also known as PILOTs) are voluntary payments by, for instance the U.S.
government or nonprofits, to local governments that help offset losses in or
otherwise serve as a substitute for property taxes.
•
Converted Auction
Rate Securities (CARS) are a structure that combines the debt service deferral
feature of Capital Appreciation Bonds (CABS) with Auction Rate Securities. The
CARS pay no debt service until a specific date, then they incrementally convert
to conventional Auction Rate Securities. At each conversion date the issuer has
the ability to call and pay down any amount of the CARS.
Some
bonds may be “callable,” allowing the issuer to redeem them before their
maturity date. To protect bondholders,
callable bonds may be issued with provisions that prevent them from being called
for a period of time. Typically, that is 5 to 10 years from the issuance date.
When interest rates decline, if the call protection on a bond has expired, it is
more likely that the issuer may call the bond. If that occurs, the Fund might
have to reinvest the proceeds of the called bond in investments that pay a lower
rate of return, which could reduce the Fund’s yield.
Inverse
Floating Rate Interests. Inverse floating
rate interests
(Inverse
Floaters)
are
issued in connection with municipal tender option
bond (TOB) financing
transactions to generate leverage for the Fund. Such instruments
are created by a special purpose trust (a TOB Trust) that
holds long-term fixed rate bonds
sold
to it by the Fund (the underlying
security), and issues two classes of
beneficial interests: short-term floating rate interests
(Floaters),
which
are sold to other investors, and Inverse
Floaters, which are
purchased by the Fund. The Floaters have
first priority on the cash flow from the underlying security held by the TOB
Trust, have a tender option feature that allows holders to tender the Floaters
back to the TOB Trust for their par amount and accrued
interest at specified
intervals and bear interest at prevailing short-term interest rates.
Tendered Floaters
are remarketed for sale to other investors for their par amount and accrued
interest by a remarketing agent to the TOB Trust and are ultimately supported by
a liquidity facility provided by a bank, upon which the TOB Trust can draw funds
to pay such amount to holders of Tendered Floaters that cannot be remarketed.
The Fund,
as
holder of the Inverse
Floaters, is paid the
residual cash flow from the underlying
security. Accordingly, the Inverse
Floaters provide the Fund
with leveraged exposure to the underlying security. When short-term
interest rates rise or fall, the interest payable
on
the
Floaters issued by a TOB Trust will, respectively, rise or
fall,
leaving less or
more, respectively,
residual interest
cash flow from the underlying security available for payment on the Inverse
Floaters. Thus,
as
short-term interest rates
rise,
Inverse Floaters
produce less income for the Fund,
and as
short-term interest rates
decline,
Inverse Floaters
produce more income for the Fund.
The
price of Inverse
Floaters is
expected to decline when interest rates rise and increase when interest rates
decline,
in
either case generally more so than the price of a bond with a similar maturity,
because of the effect of leverage. As a result, the price of Inverse Floaters is
typically more volatile than the price of bonds with similar maturities,
especially if the relevant TOB Trust is structured to provide the holder of the
Inverse Floaters relatively greater leveraged exposure to the underlying
security (e.g., if the par amount of the Floaters, as a percentage of the par
amount of the underlying security, is relatively greater).
32
Upon
the occurrence of certain adverse events (including a credit
ratings downgrade of the underlying security or a substantial decrease in the
market value of the underlying security), a TOB Trust may be collapsed by the
remarketing agent or liquidity provider and the underlying security liquidated,
and the Fund could lose the entire amount of its investment in the Inverse
Floater and may, in some cases, be contractually required to pay the shortfall,
if any, between the liquidation value of the underlying security and the
principal amount of the Floaters. Consequently, in a rising
interest rate environment, the Fund’s
investments in Inverse Floaters could negatively impact the Fund’s performance
and yield, especially when those Inverse Floaters provide the Fund with
relatively greater
leveraged exposure
to the underlying securities held by the relevant TOB Trusts.
Final
rules implementing section 619 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Volcker Rule)
prohibit banking entities and their affiliates
from sponsoring and/or providing certain services to TOB Trusts, which
constitute “covered
funds” under the Volcker
Rule. As a result of the
Volcker Rule, the Fund, as holder of
Inverse
Floaters, is required
to
perform certain duties in connection with
TOB financing transactions previously
performed by banking entities. These duties may alternatively be performed by a
non-bank third-party service provider. A Fund’s expanded role in TOB financing
transactions as a result of the Volcker Rule may increase its
operational and regulatory risk.
Further,
the SEC and various banking agencies have adopted rules implementing credit risk
retention requirements for
asset-backed securities (the Risk Retention Rules), which apply to TOB
financing
transactions and TOB Trusts. The Risk
Retention Rules require the sponsor of a TOB Trust, which is deemed to be the
Fund (as holder of the
related Inverse Floaters), to retain at
least 5% of the credit risk of the underlying security held by the TOB Trust. As
applicable, the Fund
has
adopted policies and procedures
intended to comply
with the Risk Retention Rules. The Risk Retention Rules may adversely affect the
Fund’s
ability to engage
in TOB financing transactions or
increase the costs of such transactions in certain circumstances.
There
can be no assurances that TOB financing
transactions will continue to
be a viable or cost-effective
form
of leverage. The
unavailability of
TOB financing transactions or an increase in the cost of financing
provided by TOB
transactions may adversely affect
the Fund’s net asset value, distribution rate and ability to achieve its
investment objective.
Municipal
Lease Obligations. Municipal lease
obligations are issued by state and local governments or authorities to finance
the acquisition of land, equipment and facilities, such as state and municipal
vehicles, telecommunications and computer equipment, and other capital assets.
Municipal lease obligations, another type of Municipal Security, may take the
form of a lease, an installment purchase contract or a conditional sales
contract. Interest payments on qualifying municipal lease obligations are
generally exempt from federal income taxes.
Municipal
lease obligations are generally subject to greater risks than general obligation
or revenue bonds. State laws
set forth requirements that states or municipalities must meet in order to issue
municipal obligations, and such obligations may contain a covenant by the issuer
to budget for, appropriate, and make payments due under the obligation. However,
certain municipal lease obligations may contain "non-appropriation" clauses
which provide that the issuer is not obligated to make payments on the
obligation in future years unless funds have been appropriated for this purpose
each year. If not enough money is appropriated to make the lease payments, the
leased property may be repossessed as security for holders of the municipal
lease obligation. In such an event, there is no assurance that the property's
private sector or re-leasing value will be enough to make all outstanding
payments on the municipal lease obligation or that the payments will continue to
be tax-free. Additionally, it may be difficult to dispose of the underlying
capital asset in the event of non-appropriation or other default. Direct
investments by the Fund in municipal lease obligations may be deemed illiquid
and therefore subject to the Funds' percentage limitations for illiquid
investments and the risks of holding illiquid investments.
Municipal
Forward Contracts. A municipal
forward contract is an agreement by a Fund to purchase a Municipal Security on a
when-issued basis with a longer-than-standard settlement period, in some cases
with the settlement date taking place up to five years from the date of
purchase. Municipal forward contracts
33
typically
carry a substantial yield premium to compensate the buyer for the risks
associated with a long when-issued period, including
shifts in market interest rates that could materially impact the principal value
of the bond, deterioration in the credit quality of the issuer, loss of
alternative investment options during the when-issued period and failure of the
issuer to complete various steps required to issue the bonds.
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 or 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 S&P or Baa3 or higher
by Moody’s or an equivalent rating by another NRSRO, (ii) short-term securities
with comparable NRSRO ratings, or (iii) unrated securities determined by the
Adviser to be of comparable quality, each at the time of purchase. The
Adviser may rely to
some extent on credit ratings by NRSROs in evaluating the credit risk of
securities selected for the Fund’s portfolio. Credit ratings evaluate the
expectation that scheduled interest and principal payments will be made in a
timely manner. They do not reflect any judgment of market risk. Ratings and
market value may change from time to time, positively or negatively, to reflect
new developments regarding the issuer. Rating organizations might not change
their credit rating of an issuer in a timely manner to reflect events that could
affect the issuer’s ability to make timely payments on its obligations. The
Fund’s Adviser internally assigns ratings to unrated securities, after assessing
their credit quality and other factors, in investment-grade or
below-investment-grade categories similar to those of NRSROs. There can be no
assurance, nor is it intended, that the Fund’s Adviser’s credit analysis process
is consistent or comparable with the credit analysis process used by a NRSRO.
The descriptions of
debt securities ratings are 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). Bonds rated below
or determined to be 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 a Fund’s 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 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
34
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.
The
Main Street Fund can invest up to 25% of its total assets in debt securities
that are rated below investment-grade.
The Fund cannot invest more than 10% of its assets in below-investment-grade
non-convertible debt securities and currently does not intend to invest more
than 10% of its assets in below-investment-grade debt securities of any
type.
Floating
Rate Corporate Loans and Corporate Debt Securities. Floating rate
loans consist generally of obligations of companies and other entities
(collectively, borrowers) incurred for the purpose of reorganizing the assets
and liabilities of a borrower; acquiring another company; taking over control of
a company (leveraged buyout); temporary refinancing; or financing internal
growth or other general business purposes. Floating rate loans are often
obligations of borrowers who have incurred a significant percentage of debt
compared to equity issued and thus are highly leveraged.
Floating
rate loans may include both term loans, which are generally fully funded at the
time of a Fund’s investment, and
revolving loans, which may require a Fund to make additional investments in the
loans as required under the terms of the loan agreement. A revolving credit loan
agreement may require a Fund to increase its investment in a loan at a time when
a Fund might not otherwise have done so, even if the borrower’s condition makes
it unlikely that the loan will be repaid.
A
floating rate loan is generally offered as part of a lending syndicate to banks
and other financial institutions and is
administered in accordance with the terms of the loan agreement by an agent bank
who is responsible for collection of principal and interest and fee payments
from the borrower and apportioning those payments to all lenders who are parties
to the agreement. Typically, the agent is given broad discretion to enforce the
loan agreement and is compensated by the borrower for its services.
Floating
rate loans may be acquired by direct investment as a lender at the inception of
the loan or by assignment of a
portion of a floating rate loan previously made to a different lender or by
purchase of a participation interest. If a Fund makes a direct investment in a
loan as one of the lenders, it generally acquires the loan at par. This means a
Fund receives a return at the full interest rate for the loan. If a Fund
acquires its interest in loans in the secondary market or acquires a
participation interest, the loans may be purchased or sold above, at, or below
par, which can result in a yield that is below, equal to, or above the stated
interest rate of the loan. At times, a Fund may be able to invest in floating
rate loans only through assignments or participations.
A
participation interest represents a fractional interest in a floating rate loan
held by the lender selling a Fund the
participation interest. In the case of participations, a Fund will not have any
direct contractual relationship with the borrower, a Fund’s rights to consent to
modifications of the loan are limited and it is dependent upon the participating
lender to enforce each Fund’s rights upon a default.
A
Fund may be subject to the credit of both the agent and the lender from whom the
Fund acquires a participation
interest. These credit risks may include delay in receiving payments of
principal and interest paid by the borrower to the agent or, in the case of a
participation, offsets by the lender's regulator against payments received from
the borrower. In the event of the borrower's bankruptcy, the borrower's
obligation to repay the floating rate loan may be subject to defenses that the
borrower can assert as a result of improper conduct by the agent.
Historically,
floating rate loans have not been registered with the SEC or any state
securities commission or listed on any
securities exchange. As a result, the amount of public information available
about a specific floating rate loan has been historically less extensive than if
the floating rate loan were registered or exchange
traded.
35
Floating
rate debt securities are typically in the form of notes or bonds issued in
public or private placements in the
securities markets. Floating rate debt securities will typically have
substantially similar terms to floating rate loans, but will not be in the form
of participations or assignments.
The
floating rate loans and debt securities in which a Fund invests will, in most
instances, be secured and senior to other
indebtedness of the borrower. Each floating rate loan and debt security will
generally be secured by collateral such as accounts receivable, inventory,
equipment, real estate, intangible assets such as trademarks, copyrights and
patents, and securities of subsidiaries or affiliates. The value of the
collateral generally will be determined by reference to financial statements of
the borrower, by an independent appraisal, by obtaining the market value of such
collateral, in the case of cash or securities if readily ascertainable, or by
other customary valuation techniques considered appropriate by Invesco and/or
the Sub-Advisers. The value of collateral may decline after a Fund’s investment,
and collateral may be difficult to sell in the event of default. Consequently,
the Fund may not receive all the payments to which it is entitled. A Fund’s
assets may be invested in unsecured floating rate loans and debt securities or
subordinated floating rate loans and debt securities, which may or may not be
secured. If the borrower defaults on an unsecured loan or security, there is no
specific collateral on which the lender can foreclose. If the borrower defaults
on a subordinated loan or security, the collateral may not be sufficient to
cover both the senior and subordinated loans and securities.
Most
borrowers pay their debts from cash flow generated by their businesses. If a
borrower’s cash flow is insufficient to pay
its debts, it may attempt to restructure its debts rather than sell collateral.
Borrowers may try to restructure their debts by filing for protection under the
federal bankruptcy laws or negotiating a work-out. If a borrower becomes
involved in a bankruptcy proceeding, access to collateral may be limited by
bankruptcy and other laws. If a court decides that access to collateral is
limited or voidable, a Fund may not recover the full amount of principal and
interest that is due.
A
borrower must comply with certain restrictive covenants contained in the loan
agreement or indenture (in the case of
floating rate debt securities). In addition to requiring the scheduled payment
of principal and interest, these covenants may include restrictions on the
payment of dividends and other distributions to the borrower’s shareholders,
provisions requiring compliance with specific financial ratios, and limits on
total indebtedness. The agreement may also require the prepayment of the
floating rate loans or debt securities from excess cash flow. A breach of a
covenant that is not waived by the agent (or lenders directly) is normally an
event of default, which provides the agent and lenders the right to call for
repayment of the outstanding floating rate loan or debt security.
Over
time, the customary terms of loans have evolved such that they are no longer
accompanied by the various restrictive
covenants that historically accompanied most loans and that were in favor of the
investor. Newly originated loans (including reissuances and restructured loans)
in which a Fund may invest have varied terms and conditions, but generally
contain few or no financial maintenance covenants. Financial maintenance
covenants are those that require a borrower to maintain certain financial
metrics during the life of the loan, such as maintaining certain levels of cash
flow or limiting leverage. In the event of financial deterioration on the part
of the borrower, these covenants are included to permit the lenders to
renegotiate the terms of the loan, such as increasing the borrowing costs to the
borrower, or to take other actions which would improve the position of the
lender. Accordingly, the Fund may experience difficulty or delays in enforcing
its rights on its holdings of loans, which may result in losses to the Fund,
especially during a downturn in the credit cycle. Although loans may contain few
or no financial maintenance covenants, information necessary to monitor a
borrower’s financial performance may be available without covenants to lenders
and the public alike and can be used to detect such early warning signs as
deterioration of a borrower’s financial condition or results. When such
information is available, the Adviser or Sub-Adviser will seek to take
appropriate action without the help of covenants in the loans.
Purchasers
of floating rate loans may receive and/or pay certain fees. These fees are in
addition to interest payments
and may include commitment fees, facility fees, and prepayment penalty fees.
When a Fund buys a floating rate loan, it may receive a facility fee, and when
it sells a floating rate loan, it may pay an assignment fee.
36
In
general,
floating rate loans
and debt securities typically have stated
maturities of three to ten years. However, because floating rate loans and debt
securities are frequently prepaid, it is generally
expected that the
average maturity will be less. The degree to
which borrowers prepay floating rate loans and debt securities, whether as a
contractual requirement or at the borrower’s election, may be affected by
general business conditions, the borrower’s financial condition and competitive
conditions among lenders. Prepayments cannot be predicted with accuracy.
Prepayments may result in a Fund’s investing in floating rate loans and debt
securities with lower yields.
Companies
involved in significant restructuring tend to be subject to increased litigation
risk, including for investors in these
companies, such as the Funds. Expenses of asserting, or defending against,
claims in connection with such restructurings are generally directly or
indirectly borne by the Funds. See also “Litigation Risk.” herein.
Investments
in loans, loan participations and assignments present the possibility that a
Fund could be held liable as a
co-lender under emerging legal theories of lender liability. Each Fund
anticipates that loans, loan participations and assignments could be sold only
to a limited number of institutional investors. If there is no active secondary
market for a loan, it may be more difficult to sell the interests in such a loan
at a price that is acceptable or to even obtain pricing information. In
addition, some loans, loan participations and assignments may not be rated by
major rating agencies. Loans held by the Funds might not be considered
securities for the purposes of the Securities Act of 1933, as amended (the 1933
Act) or the Securities Exchange Act of 1934, as amended (the Exchange Act), and
therefore a risk exists that purchasers, such as the Funds may not be entitled
to rely on the anti-fraud provisions of those Acts.
Loans,
Loan Participations and Assignments. Loans and loan
participations are interests in amounts owed by a corporate, governmental or
other borrowers to another party. They may represent amounts owed to lenders or
lending syndicates, to suppliers of goods or services, or to other parties. A
Fund will have the right to receive payments of principal, interest and any fees
to which it is entitled only from the lender selling the participation and only
upon receipt by the lender of the payments from the borrower. In connection with
purchasing participations, a Fund generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
loan, nor any rights of set-off against the borrower, and a Fund may not
directly benefit from any collateral supporting the loan in which it has
purchased the participation. In addition, a Fund's rights to consent to
modifications of the loan are limited and it is dependent upon the participating
lender to enforce a Fund's rights upon a default. As a result, a Fund will
be subject to the credit risk of the borrower, the lender, and the agent who is
responsible for collection of principal and interest and fee payments from the
borrower and apportioning those payments to all lenders who are parties to the
loan agreement. In the event of the insolvency of the lender selling a
participation, the Fund may be treated as a general creditor of the lender and
may not benefit from any set-off between the lender and the borrower. Credit
risks relating to the agent may include delay in receiving payments of principal
and interest paid by the borrower to the agent. In the event of the borrower's
bankruptcy, the borrower's obligation to repay the loan may be subject to
defenses that the borrower can assert as a result of improper conduct by the
agent.
When
a Fund purchases assignments from lenders, it acquires direct rights against the
borrower on the loan. However,
because assignments are arranged through private negotiations between potential
assignees and potential assignors, the rights and obligations acquired by a Fund
as the purchaser of an assignment may differ from, and be more limited than,
those held by the assigning lender. In addition, if the loan is foreclosed, a
Fund could be part owner of any collateral and could bear the costs and
liabilities of owning and disposing of the collateral.
Investments
in loans, loan participations and assignments present the possibility that a
Fund could be held liable as a
co-lender under emerging legal theories of lender liability. The Fund
anticipates that loans, loan participations and assignments could be sold only
to a limited number of institutional investors. If there is no active secondary
market for a loan, it may be more difficult to sell the interests in such a loan
at a price that is acceptable or to even obtain pricing information. In
addition, some loans, loan participations and assignments may not be rated by
major rating agencies. Loans held by a Fund might not be considered securities
for purposes of the Securities Act of 1933, as amended (the 1933 Act), or the
Securities
Exchange
37
Act
of
1934, as amended (the Exchange Act), and therefore a
risk exists that purchasers, such as the Fund, may not be entitled to rely on
the anti-fraud provisions of those Acts.
The
secondary market for certain floating rate loans may be subject to irregular
trading activity, wide bid/ask spreads and
extended trade settlement periods (in some cases, longer than seven
days).
The
Loan Syndications and Trading Association (the “LSTA”) has promulgated a “delay
compensation” provision in its
standard loan documentation that mitigates the direct risk of permanently losing
interest payments as a result of delayed settlement by causing interest to begin
to accrue for the buyer’s account after the seventh business day following the
trade date (for distressed trades, the twentieth business day). However, this
does not mitigate the other risks of delayed settlement. In addition, the
mechanism itself can result in opportunistic behavior: A seller, having locked
in its trade, might delay closing for seven business days in order to maximize
its interest collections, even if it could have closed earlier, while a buyer
may no longer feel any pressure to close at all, since interest is accruing for
its benefit, and may choose to use its cash elsewhere. The LSTA has further
attempted to put an outer limit on long, unjustified settlement delays by
promulgating “buy-in/sell-out” provisions that allow a party to enter into a
“cover” trade if the other party refuses to close. However, these provisions are
complicated, time-consuming, and little-used, and are in any event not triggered
until the fifteenth business day after the trade date (for distressed trades,
the fiftieth business day). To the extent the extended loan settlement process
gives rise to short-term liquidity needs, such as the need to satisfy redemption
requests, a Fund may hold cash, sell investments or temporarily borrow from
banks or other lenders.
Public
Bank Loans. Public bank loans
are privately negotiated loans for which information about the issuer has been
made publicly available. Public loans are made by banks or other financial
institutions, and may be rated investment grade (as defined above in “Investment
Grade Debt Obligations”) or below investment grade. However, public bank loans
are not registered under the 1933 Act and are not publicly traded. They usually
are second lien loans normally lower in priority of payment to senior loans, but
have seniority in a company’s capital structure to other claims, such as
subordinated corporate bonds or publicly-issued equity so that in the event of
bankruptcy or liquidation, the company is required to pay down these second lien
loans prior to such other lower-ranked claims on their assets. Bank loans
normally pay floating rates that reset frequently, and as a result, protect
investors from increases in interest rates.
Bank
loans generally are negotiated between a borrower and several financial
institutional lenders represented by one
or more lenders acting as agent of all the lenders. The agent is responsible for
negotiating the loan agreement that establishes the terms and conditions of the
loan and the rights of the borrower and the lenders, monitoring any collateral,
and collecting principal and interest on the loan. By investing in a loan, a
Fund becomes a member of a syndicate of lenders. Certain bank loans are
illiquid, meaning the Fund may not be able to sell them quickly at a fair price.
Illiquid investments are also difficult to value. To the extent a bank loan has
been deemed illiquid, it will be subject to a Fund’s restrictions on illiquid
investments. The secondary market for bank loans may be subject to irregular
trading activity, wide bid/ask spreads and extended trade settlement
periods.
Bank
loans are subject to the risk of default. Default in the payment of interest or
principal on a loan will result in a
reduction of income to a Fund, a reduction in the value of the loan, and a
potential decrease in the Fund’s net asset value. The risk of default will
increase in the event of an economic downturn or a substantial increase in
interest rates. Bank loans are subject to the risk that the cash flow of the
borrower and property securing the loan or debt, if any, may be insufficient to
meet scheduled payments. As discussed above, however, because bank loans reside
higher in the capital structure than high yield bonds, default losses have been
historically lower in the bank loan market. Bank loans that are rated below
investment grade share the same risks of other below investment grade
securities.
Structured
Notes and Indexed Securities. Each Fund may
invest in structured notes or other indexed securities. Structured notes
are derivative debt instruments, the interest rate or principal of which is
linked to currencies, interest rates, commodities, indices or other financial
indicators (reference instruments). Indexed securities may include structured
notes and other securities wherein the interest rate or principal is determined
by a reference instrument.
38
Most
structured notes and indexed securities are fixed income securities that have
maturities of three years or less. The
interest rate or the principal amount payable at maturity of an indexed security
may vary based on changes in one or more specified reference instruments, such
as a floating interest rate compared with a fixed interest rate. The reference
instrument need not be related to the terms of the indexed security. Structured
notes and indexed securities may be positively or negatively indexed (i.e.,
their principal value or interest rates may increase or decrease if the
underlying reference instrument appreciates), and may have return
characteristics similar to direct investments in the underlying reference
instrument or to one or more options on the underlying reference
instrument.
Structured
notes and indexed securities may entail a greater degree of market risk than
other types of debt securities
because the investor bears the risk of the reference instrument. Structured
notes or indexed securities also may be more volatile, less liquid, and more
difficult to accurately price than less complex securities and instruments or
more traditional debt securities. In addition to the credit risk of the
structured note or indexed security’s issuer and the normal risks of price
changes in response to changes in interest rates, the principal amount of
structured notes or indexed securities may decrease as a result of changes in
the value of the underlying reference instruments. Further, in the case of
certain structured notes or indexed securities in which the interest rate, or
exchange rate in the case of currency, is linked to a reference instrument, the
rate may be increased or decreased or the terms may provide that, under certain
circumstances, the principal amount payable on maturity may be reduced to zero
resulting in a loss to the Fund.
U.S.
Corporate Debt Obligations. Corporate debt
obligations are debt obligations issued or guaranteed by corporations that are
denominated in U.S. dollars. Such investments may include, among others,
commercial paper, bonds, notes, debentures, variable rate demand notes, master
notes, funding agreements and other short-term corporate instruments. Commercial
paper consists of short-term promissory notes issued by corporations. Commercial
paper may be traded in the secondary market after its issuance. Variable rate
demand notes are securities with a variable interest which is readjusted on
pre-established dates. Variable rate demand notes are subject to payment of
principal and accrued interest (usually within seven days) on a Fund’s demand.
Master notes are negotiated notes that permit the investment of fluctuating
amounts of money at varying rates of interest pursuant to arrangements with
issuers who meet the credit quality criteria of the Fund. The interest rate on a
master note may fluctuate based upon changes in specified interest rates or be
reset periodically according to a prescribed formula or may be a set rate.
Although there is no secondary market in master notes, if such notes have a
demand feature, the payee may demand payment of the principal amount of the note
upon relatively short notice. Funding agreements are agreements between an
insurance company and a Fund covering underlying demand notes. Although there is
no secondary market in funding agreements, if the underlying notes have a demand
feature, the payee may demand payment of the principal amount of the note upon
relatively short notice. Master notes and funding agreements are generally
illiquid and therefore subject to the Funds' percentage limitation for illiquid
investments.
Qualifying
Hybrid Instruments. “Qualifying hybrid
instruments” are commodity-linked notes that are excluded from regulation under
the Commodity Exchange Act and the rules thereunder.
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 interest therein. A REIT may focus on particular
projects, such as apartment complexes, or geographic regions, such as the
southeastern United States or both. 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
39
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 acquire 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.
Furthermore,
for tax reasons, a REIT may impose limits on how much of its securities any one
investor may own. These
ownership limitations (also called “excess share provisions”) may be based on
ownership of securities by multiple funds and accounts managed by the same
investment adviser and typically result in adverse consequences (such as
automatic divesture of voting and dividend rights for shares that exceed the
excess share provision) to investors who exceed the limit. A REIT’s excess share
provision may result in a Fund being unable to purchase (or otherwise obtain
economic exposure to) the desired amounts of certain REITs. In some
circumstances, a Fund may seek and obtain a waiver from a REIT to exceed the
REIT’s ownership limitations without being subject to the adverse consequences
of exceeding such limit were a waiver not obtained, provided that the Fund
complies with the provisions of the waiver.
Private
Equity and Debt Investments. Privately issued
securities, which include private investments in public equity (PIPEs), and
private debt investments, involve an extraordinarily high degree of business and
financial risk and can result in substantial or complete losses. Some portfolio
companies in which the Fund may invest may be operating at a loss or with
substantial variations in operating results from period to period and may need
substantial additional capital to support expansion or to achieve or maintain
competitive positions. Such companies may face intense competition, including
competition from companies with much greater financial resources, much more
extensive development, production, marketing and service capabilities and a much
larger number of qualified managerial and technical personnel. The Fund can
offer no assurance that the marketing efforts of any particular portfolio
company will be successful or that its business will succeed. Additionally,
privately held companies are not subject to SEC reporting requirements or the
reporting requirements of publicly traded companies in applicable jurisdictions,
are not required to maintain their accounting records in accordance with
generally accepted accounting principles, and are not required to maintain
effective internal controls over financial reporting. As a result, the Adviser
may not have timely or accurate information about the business, financial
conditions and results of operations of the privately held companies in which
the Fund invests. The more limited financial information and lack of publicly
available prices require a Fund to determine a fair value for such investments
in accordance with the valuation policy approved by the Board and related
procedures. Difficulty in valuing such investments may make it difficult to
accurately determine a Fund's exposure to privately issued securities. The
Fund’s NAV could be adversely affected if the Fund’s determinations regarding
the fair value of the Fund’s investments were materially higher than the values
that the Fund ultimately realizes upon the disposal of such investments. In
addition, input from the Adviser’s investment professionals as part of the
Fund’s valuation process could result in a conflict of interest as the Adviser’s
management fee is based, in part, on the value of the Fund’s assets.
Investments
in private companies may be considered to be illiquid and may be difficult to
sell at a desirable time or
at the prices at which the Fund has valued the investments. Additional risks
include that the Fund could be subject to contingent liabilities in the event a
private issuer is acquired by another company during the period it is held by
the Fund; and that the company may be using excessive leverage. Privately issued
debt securities can often be below investment grade quality and frequently are
unrated.
40
Private
Investments in Public Equity. Private
investments in public equity (PIPES) are equity securities in a private
placement that are issued by issuers who have outstanding, publicly-traded
equity securities of the same class. Shares in PIPES generally are not
registered with the SEC until after a certain time period from the date the
private sale is completed. This restricted period can last many months. Until
the public registration process is completed, PIPES are restricted as to resale
and the Fund cannot freely trade the securities. Generally, such restrictions
cause the PIPES to be illiquid during this time. PIPES may contain provisions
that the issuer will pay specified financial penalties to the holder if the
issuer does not publicly register the restricted equity securities within a
specified period of time, but there is no assurance that the restricted equity
securities will be publicly registered, or that the registration will remain in
effect.
Other
Investment Companies. Unless otherwise
indicated in this SAI or in a Fund’s prospectus, a Fund may purchase shares of
other investment companies, including ETFs, non-exchange traded U.S. registered
open-end investment companies (mutual funds), closed-end investment companies,
or non-U.S. investment companies traded on foreign exchanges. When a Fund
purchases shares of another investment company, 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.
A
Fund’s investment in the securities of other investment companies is subject to
the applicable provisions of the
1940 Act and the rules thereunder. Specifically, Section 12(d)(1) of the 1940
Act contains various limitations on the ability of a registered investment
company (an “acquiring fund”) to acquire shares of another registered investment
company (an “acquired fund”). Under these limits, an acquiring fund generally
cannot (i) purchase more than 3% of the total outstanding voting stock of an
acquired fund; (ii) invest more than 5% of its total assets in securities issued
by an acquired company; and (iii) invest more than 10% of its total assets in
securities issued by other investment companies. Likewise, an acquired fund, as
well as its principal underwriter or any broker or dealer registered under the
Exchange Act, cannot knowingly sell more than 3% of the total outstanding voting
stock of the acquired fund to an acquiring fund, or more than 10% of the total
outstanding voting stock of the acquired fund to acquiring funds
generally.
Rule
12d1-4 under the 1940 Act
allows
a fund to acquire the securities of another investment company in excess of the
limitations imposed by Section 12 without obtaining an exemptive order from the
SEC, subject to certain limitations and conditions. Among those conditions is
the requirement that, prior to a fund relying on Rule 12d1-4 to acquire
securities of another fund in excess of the limits of Section 12(d)(1), the
acquiring fund must enter into a Fund of Funds Agreement with the acquired fund.
(This requirement does not apply when the acquiring fund’s investment adviser
acts as the acquired fund’s investment adviser and does not act as sub-adviser
to either fund.)
Rule
12d1-4 also is designed to limit the use of complex fund structures. Under Rule
12d1-4, an acquired fund is prohibited
from purchasing or otherwise acquiring the securities of another investment
company or private fund if, immediately after the purchase, the securities of
investment companies and private funds owned by the acquired fund have an
aggregate value in excess of 10% of the value of the acquired fund’s total
assets, subject to certain limited exceptions. Accordingly, to the extent a
Fund’s shares are sold to other investment companies in reliance on Rule 12d1-4,
the Fund will be limited in the amount it could invest in other investment
companies and private funds.
In
addition to Rule 12d1-4, the 1940 Act and related rules provide other exemptions
from these restrictions. For
example, these limitations do not apply to investments by a Fund in investment
companies that are money market funds, including money market funds that have
the Adviser or an affiliate of the Adviser as an investment
adviser.
Limited
Partnerships. A limited
partnership interest entitles the Fund to participate in the investment return
of the partnership’s assets as defined by the agreement among the partners. As a
limited partner, the Fund generally is not permitted to participate in the
management of the partnership. However, unlike a general partner whose liability
is not limited, a limited partner’s liability generally is limited to the amount
of its commitment to the partnership.
41
Master
Limited Partnerships (MLPs). MLPs generally are
limited partnerships (or limited liability companies), the common units of which
are listed and traded on a national securities exchange or over-the-counter.
MLPs generally have two classes of partners, the general partner and the limited
partners. The general partner normally controls the MLP through an equity
interest plus units that are subordinated to the common (publicly traded) units
for an initial period and then only converting to common if certain financial
tests are met. The general partner also generally receives a larger portion of
the net income as incentive. As cash flow grows, the general partner receives a
greater interest in the incremental income compared to the interest of limited
partners.
MLP
common units represent an equity ownership interest in a partnership, providing
limited voting rights and entitling the
holder to a share of the company’s success through distributions and/or capital
appreciation. Unlike shareholders of a corporation, common unit holders do not
elect directors annually and generally have the right to vote only on certain
significant events, such as mergers, a sale of substantially all of the assets,
removal of the general partner or material amendments to the partnership
agreement. MLPs are required by their partnership agreements to distribute a
large percentage of their current operating earnings. Common unit holders
generally have first right to a minimum quarterly distribution (MQD) prior to
distributions to the convertible subordinated unit holders or the general
partner (including incentive distributions). Common unit holders typically have
arrearage rights if the MQD is not met. In the event of liquidation, MLP common
unit holders have first right to the partnership’s remaining assets after
bondholders, other debt holders, and preferred unit holders have been paid in
full.
The
general partner or managing member interest in an MLP is typically retained by
the original sponsors of an MLP, such as
its founders, corporate partners and entities that sell assets to the MLP. The
holder of the general partner or managing member interest can be liable in
certain circumstances for amounts greater than the amount of the holder’s
investment in the general partner or managing member. General partner or
managing member interests often confer direct board participation rights in, and
in many cases control over the operations of, the MLP. General partner or
managing member interests can be privately held or owned by publicly traded
entities. General partner or managing member interests receive cash
distributions, typically in an amount of up to 2% of available cash, which is
contractually defined in the partnership or limited liability company agreement.
In addition, holders of general partner or managing member interests typically
receive incentive distribution rights (IDRs), which provide them with an
increasing share of the entity’s aggregate cash distributions upon the payment
of per common unit distributions that exceed specified threshold levels above
the MQD. Incentive distributions to a general partner are designed to encourage
the general partner, who controls and operates the partnership, to maximize the
partnership’s cash flow and increase distributions to the limited partners. Due
to the IDRs, general partners of MLPs have higher distribution growth prospects
than their underlying MLPs, but quarterly incentive distribution payments would
also decline at a greater rate than the decline rate in quarterly distributions
to common and subordinated unit holders in the event of a reduction in the MLP’s
quarterly distribution. The ability of the limited partners or members to remove
the general partner or managing member without cause is typically very limited.
In addition, some MLPs permit the holder of IDRs to reset, under specified
circumstances, the incentive distribution levels and receive compensation in
exchange for the distribution rights given up in the reset.
Some
companies in which a Fund may invest have been organized as limited liability
companies (MLP LLCs). Such MLP
LLCs generally are treated in the same manner as MLPs for federal income tax
purposes (i.e., generally taxed as partnerships). MLP LLC common units trade on
a national securities exchange or OTC. In contrast to MLPs, MLP LLCs have no
general partner and there are generally no incentives that entitle management or
other unitholders to increased percentages of cash distributions as
distributions reach higher target levels. In addition, MLP LLC common
unitholders typically have voting rights with respect to the MLP LLC, whereas
MLP common units have limited voting rights.
Investments
in securities of an MLP involve risks that differ from investments in common
stock, including risks related to
limited control and limited rights to vote on matters affecting the MLP, risks
related to potential conflicts of interest between the MLP and the MLP’s general
partner, cash flow risks, dilution risks and risks related to the general
partner’s right to require unit-holders to sell their common units at an
undesirable time or price. Certain MLP securities may trade in lower volumes due
to their smaller capitalizations, and may be
42
subject
to more abrupt or erratic price movements and lower market liquidity. MLPs are
generally considered interest-rate
sensitive investments. During periods of interest rate volatility, these
investments may not provide attractive returns.
There
are also certain tax risks undertaken by the Fund when it invests in MLPs. MLPs
are generally treated as
partnerships for U.S. federal income tax purposes. Partnerships do not pay U.S.
federal income tax at the partnership level, subject to the application of
certain partnership audit rules. Rather, each partner is allocated a share of
the partnership’s income, gains, losses, deductions and expenses. A change in
current tax law or a change in the underlying business mix of a given MLP could
result in an MLP being treated as a corporation for U.S. federal income tax
purposes, which would result in the MLP being required to pay U.S. federal
income tax (as well as state and local income taxes) on its taxable income. This
would have the effect of reducing the amount of cash available for distribution
by the MLP and could result in a reduction in the value of the Fund’s investment
in the MLP and lower income to the Fund. Also, to the extent a distribution
received by a Fund from an MLP is treated as a return of capital, the Fund’s
adjusted tax basis in the interests of the MLP will be reduced, which may
increase the Fund’s tax liability upon the sale of the interests in the MLP or
upon subsequent distributions in respect of such interests.
Defaulted
Securities. Defaulted
securities are debt securities on which the issuer is not currently making
interest payments. In order to enforce its rights in defaulted securities, a
Fund may be required to participate in legal proceedings or take possession of
and manage assets securing the issuer’s obligations on the defaulted securities.
This could increase operating expenses and adversely affect net asset value.
Risks of defaulted securities may be considerably higher as they are generally
unsecured and subordinated to other creditors of the issuer. Investments in
defaulted securities generally will also be considered illiquid investments
subject to the limitations described herein, except as otherwise may be
determined under the Trust’s applicable policies and
procedures.
Variable
or Floating Rate Instruments. Variable or
floating rate instruments are securities that provide for a periodic adjustment
in the interest rate paid on the obligation. The interest rates for securities
with variable interest rates are readjusted on set dates (such as the last day
of the month or calendar quarter) and the interest rates for securities with
floating rates are reset whenever a specified interest rate change occurs.
Variable or floating interest rates generally reduce changes in the market price
of securities from their original purchase price because, upon readjustment,
such rates approximate market rates. Accordingly, as market interest rates
decrease or increase, the potential for capital appreciation or depreciation is
less for variable or floating rate securities than for fixed rate obligations.
Many securities with variable or floating interest rates have a demand feature
allowing the Fund to demand payment of principal and accrued interest prior to
its maturity. The terms of such demand instruments require payment of principal
and accrued interest by the issuer, a guarantor, and/or a liquidity provider.
All variable or floating rate instruments will meet the applicable rating
standards of the Funds. A Fund’s Adviser, or Sub-Adviser, as applicable, may
determine that an unrated floating rate or variable rate demand obligation meets
the Fund’s rating standards by reason of being backed by a letter of credit or
guarantee issued by a bank that meets those rating standards.
The
secondary market for certain floating rate loans may be subject to irregular
trading activity, wide bid/ask spreads and
extended trade settlement periods (in some cases, longer than seven days).
Certain floating rate loans held by a Fund might not be considered securities
for purposes of the Exchange Act and therefore a risk exists that purchasers,
such as the Funds, may not be entitled to rely on the antifraud provisions of
those Acts.
Premium
Securities. Premium securities
are securities bearing coupon rates higher than the then prevailing market
rates.
Premium
securities are typically purchased at a “premium,” in other words, at a price
greater than the principal amount
payable on maturity. The Fund will not amortize the premium paid for such
securities in calculating its net investment income. As a result, in such cases
the purchase of premium securities provides the Fund a higher level of
investment income distributable to shareholders on a current basis than if the
Fund purchased securities bearing current market rates of interest. However, the
yield on these securities would remain at the current market rate. If securities
purchased by the Fund at a premium are called or sold prior to
43
maturity,
the Fund will realize a loss to the extent the call or sale price is less than
the purchase price. Additionally, the
Fund will realize a loss of principal if it holds such securities to
maturity.
Stripped
Income Securities. Stripped Income
Securities are obligations representing an interest in all or a portion of the
income or principal components of an underlying or related security, a pool of
securities, or other assets. Stripped income securities may be partially
stripped so that each class receives some interest and some principal. However,
they may be completely stripped, where one class will receive all of the
interest (the interest-only class or the IO class), while the other class will
receive all of the principal (the principal-only class or the PO
class).
The
market values of stripped income securities tend to be more volatile in response
to changes in interest rates than
are conventional income securities. In the case of mortgage-backed stripped
income securities, the yields to maturity of IOs and POs may be very sensitive
to principal repayments (including prepayments) on the underlying mortgages
resulting in a Fund being unable to recoup its initial investment or resulting
in a less than anticipated yield. The market for stripped income securities may
be limited, making it difficult for the Fund to dispose of its holdings at an
acceptable price.
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 the 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.
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 the Fund 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 as euro
denominated participation notes, and (b) the currency of the country in which
the 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 other
than Invesco Summit Fund may purchase and sell securities on a forward
commitment, when-issued and delayed delivery basis whereby the Fund buys or
sells a security with payment and delivery taking place in the future.
Securities purchased or sold on a forward commitment, when-issued or
delayed delivery basis
44
involve
delivery and payment that take place in the future after the trade date or 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 include “to be announced” (TBA)
transactions, which are contracts for the purchase and sale of mortgage-backed
securities issued or guaranteed by certain U.S. agencies or government sponsored
enterprises for delivery at a future settlement date agreed upon by the two
parties to the transaction, which is typically a month or more after the trade
date of the transaction. On the trade date of a TBA transaction, the
counterparties agree upon certain criteria for the securities that are to be
delivered, including the issuer, maturity, coupon, face value and price, but the
precise securities to be delivered are not specified. Instead, the actual
securities to be delivered, which must satisfy the specified criteria, are
communicated by the seller to the buyer shortly before the agreed upon
settlement 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 instead sell these securities or its commitment before the settlement
date if deemed advisable. This will frequently be the case for TBA transactions
and other forward-settling mortgage-backed securities transactions.
When
purchasing a security on a forward commitment, when-issued or delayed delivery
basis, a Fund assumes the risks
of ownership of the security, including the risk of price and yield
fluctuations, 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.
Many
forward commitments, when-issued and delayed delivery transactions, including
TBAs, are also subject to the risk
that a counterparty may become bankrupt or otherwise fail to perform its
obligations due to financial difficulties, including making payments or
fulfilling delivery obligations to a Fund. A Fund may obtain no or only limited
recovery in a bankruptcy or other reorganizational proceedings, and any recovery
may be significantly delayed. With respect to TBA transactions and other
forward-settling mortgage-backed securities transactions, the counterparty risk
may be mitigated by the exchange of variation margin between the counterparties
on a regular basis as the market value of the deliverable security
fluctuates.
Investment
in these types of securities may increase the possibility that the 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. In the case of a purchase
transaction, 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.
TBA transactions and other forward-settling mortgage-backed securities
transactions may be effected pursuant to a collateral agreement with the
counterparty under which the parties exchange collateral consisting of cash or
liquid securities in an amount as specified by the agreement that is based on
the change in the market value of the TBA transactions governed by the
agreement. A Fund or the counterparty will make payments throughout the term of
the transaction as collateral values fluctuate to maintain full
collateralization for the term of the transaction. Collateral will be
marked-to-market every business day. If the counterparty defaults on the
transaction or declares bankruptcy or insolvency, a Fund might incur expenses in
enforcing its rights, or the Fund might experience delay and costs in recovering
collateral or may suffer a loss if the value of the collateral
declines.
Short
Sales.
Each Fund may engage in short sales. A Fund will not sell a security short
if, as a result of such short sale, the aggregate market value of all securities
sold short exceeds 10% of the Fund's total assets. This limitation does
not apply to 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, the Fund must borrow
the
45
security
from a broker. A 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 effected when the Fund’s 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 and
repay the securities borrowed, a Fund will be
required to deposit cash or liquid securities with the broker as collateral. In
addition, a Fund may have to pay a fee or rate of interest 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. The collateral pledged by the Fund to the broker in connection with
short sales will be marked to market daily. The collateral pledged does not have
the effect of limiting the amount of money that a Fund may lose on a short
sale.
Short
positions create a risk that the 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. A Fund may not always be able to borrow a security a 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 and losses.
Because a 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.
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 fees or 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 Treatment of Portfolio Transactions — Options,
futures, forward contracts, swap agreements and hedging
transactions.”
Margin
Transactions. The Fund will not
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 options transactions and the use of a reverse
repurchase agreement to finance the purchase of a security will not be
considered the purchase of a security on margin.
Interfund
Loans.
The 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.
46
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 1940 Act Laws, Interpretations
and Exemptions (defined below) and 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.
The
prospectus may specify other reasons for which such borrowings may be
utilized. 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 another 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.
Lending
Portfolio Securities. Each Fund may
lend its portfolio securities (principally to brokers, dealers or other
financial institutions) 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 potential income earned would
justify the risks.
Although
voting rights may pass with the lending of portfolio securities, a Fund will be
entitled to call loaned securities,
or otherwise obtain rights to vote or consent, when deemed necessary by Invesco
with respect to a material event affecting securities on loan. 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, affiliated unregistered
investment companies that are compliant with Rule 2a-7 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.”
47
Repurchase
Agreements. Invesco Charter
Fund, Invesco Diversified Dividend Fund and Invesco Summit Fund may solely
engage in repurchase agreement transactions involving the types of securities in
which those funds are already permitted to invest. Repurchase agreements are
agreements under which a Fund purchases a security from a broker-dealer or bank
that agrees to repurchase that security at a mutually agreed upon time and price
(which is higher than the purchase price), thereby resulting in a yield to the
Fund 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. Invesco Main Street
Fund, Invesco Main Street All Cap Fund and Invesco Rising Dividends Fund will
not enter into a repurchase agreement that causes more than 10% of its net
assets to be subject to repurchase agreements having a maturity beyond seven
days.
In
any repurchase agreement, the securities that are subject to the transaction may
be obligations issued by the U.S.
government or its agencies or instrumentalities. The Funds may also engage in
repurchase agreements collateralized by non-government securities that are rated
investment grade or below investment grade by the requisite NRSROs or unrated
securities of comparable quality, loan participations, and equities.
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 security subject to the repurchase agreement to the extent that the
sale proceeds including accrued interest are less than the resale price provided
in the repurchase 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 or the
Fund may be deemed to be an unsecured creditor and be required to return the
securities to the seller.
The
Funds may enter into repurchase agreements that involve securities that may be
subject to a court- ordered or other
“stay” in the event of the seller’s bankruptcy or insolvency. A “stay” will
prevent a Fund from selling the securities it holds under a repurchase agreement
until permitted by a court or other authority. In these situations a Fund may be
subject to greater risk that the value of the securities may decline before they
are sold, and that a Fund may experience a loss.
The
securities underlying a repurchase agreement will be marked-to-market every
business day, and if the value of the
securities falls below a specified percentage of the repurchase price (typically
102%), the counterparty will be required to deliver additional collateral to a
Fund in the form of cash or additional securities. Custody of the securities
will be maintained by a Fund’s custodian or sub-custodian for the duration of
the agreement.
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 may be considered loans by a Fund under the 1940
Act.
Invesco
Charter Fund may enter into repurchase agreements (at any time up to 50% of its
total net assets), using only
U.S. government securities, for the sole purpose of increasing its yield on idle
cash.
Restricted
and Illiquid Investments. Each Fund may not
acquire any illiquid investment if, immediately after the acquisition, the Fund
would have invested more than 15% of its net assets in illiquid
investments.
For
purposes of the above 15% limitation, an illiquid investment means any
investment that the Fund reasonably expects
cannot be sold or disposed of in current market conditions in seven calendar
days or less without the sale or disposition significantly changing the market
value of the investment, as determined pursuant to the 1940 Act and applicable
rules and regulations thereunder. Illiquid investments may include a wide
variety of investments, such as, for example: (1) repurchase agreements maturing
in more than seven days (unless the agreements have demand/redemption features);
(2) OTC options contracts and certain other
48
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 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, including private placement securities sold pursuant to
Regulation S.
Limitations
on the resale of restricted investments 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 restricted securities or illiquid investments may result in a loss
or be costly to the Fund.
If
a substantial market develops for a restricted security or illiquid investment
held by a Fund, it may be treated as a liquid
investment, in accordance with procedures and guidelines adopted by the Board on
behalf of the Funds.
Rule
144A Securities. Rule 144A
securities are securities which, while initially
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 the securities even
though such securities are not registered under the 1933 Act. Pursuant to Rule
22e-4 under the 1940 Act, a Fund will consider whether securities purchased
under Rule 144A are illiquid and thus subject to the Fund’s restriction on
illiquid investments. The determination of whether a Rule 144A security is
liquid or illiquid will take into account relevant market trading, and
investment-specific considerations consistent with applicable SEC guidance.
Additional factors that may be considered include 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). Investing in Rule
144A securities could increase the amount of a Fund’s illiquid investments if
qualified institutional buyers are unwilling to purchase such
securities.
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 or upon
demand. During the reverse repurchase agreement period, the Fund continues to
receive interest and principal payments on the securities sold, but pays
interest to the other party on the proceeds received. A Fund may 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 are a form of leverage and involve the risk that the
market value of securities to be
repurchased by the Fund may decline below the price at which the Fund is
obligated to repurchase the securities, resulting in a requirement for the Fund
to deliver margin to the other party in the amount of the related shortfall, or
that the other party may default on its obligation, so that the Fund is delayed
or prevented from completing the transaction. Leverage may make the Fund’s
returns more volatile and increase the risk of loss. 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.
Standby
Commitments. Certain Funds may
acquire securities that are subject to standby commitments from banks or other
municipal securities dealers. Under a standby commitment a bank or dealer would
agree to purchase, at the Fund’s option, specified securities at a specified
price. Standby commitments generally increase the cost of the acquisition of the
underlying security, thereby reducing the yield. Standby
49
commitments
depend upon the issuer’s ability to fulfill its obligation upon demand. Although
no definitive creditworthiness
criteria are used for this purpose, Invesco reviews the creditworthiness of the
banks and other municipal securities dealers from which the Funds obtain standby
commitments in order to evaluate those risks.
Mortgage
Dollar Rolls. A mortgage dollar
roll (a dollar roll) is a type of transaction that involves the sale by a Fund
of a mortgage-backed security to a financial institution such as a bank or
broker dealer, with an agreement that the Fund will repurchase a substantially
similar (i.e., same type, coupon and maturity) security at an agreed upon price
and date. The mortgage securities that are purchased will bear the same interest
rate as those sold, but will generally be collateralized by different pools of
mortgages with different prepayment histories. During the period between the
sale and repurchase, a Fund will not be entitled to receive interest or
principal payments on the securities sold but is compensated for the difference
between the current sales price and the forward price for the future purchase. A
Fund typically enters into a dollar roll transaction to enhance the Fund’s
return either on an income or total return basis or to manage pre-payment
risk.
Dollar
roll transactions involve the risk that the market value of the securities
retained by a Fund may decline below the
price of the securities that the Fund has sold but is obligated to repurchase
under the agreement. In the event the buyer of securities under a dollar roll
transaction 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.
Unless
the benefits of the sale exceed the income, capital appreciation or gains on the
securities sold as part of the dollar
roll, the investment performance of a Fund will be less than what the
performance would have been without the use of dollar rolls. The benefits of
dollar rolls may depend upon the Adviser or Sub-Adviser’s ability to predict
mortgage repayments and interest rates. There is no assurance that dollar rolls
can be successfully employed.
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, among others commodities, stocks, bonds, interest rates, currency
exchange rates or related indices. Derivatives include, among others, swaps,
options, futures and forward foreign currency contracts. Some derivatives, such
as futures and certain options, are traded on U.S. commodity and securities
exchanges, while other derivatives, such as many types of swap agreements, are
privately negotiated and entered into in the OTC market. In addition, the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the
Dodd-Frank Act) and implementing rules require certain types of swaps to be
traded on public execution facilities and centrally cleared.
Derivatives
may be used for “hedging,” which means that they may be used when the portfolio
managers seek 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 managers seek 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 managers’ ability to predict and understand relevant market
movements.
Certain
derivatives involve leverage, that is, the amount invested may be smaller than
the full economic exposure of the
derivative instrument and the Fund could lose more than it invested. The
leverage involved in these derivative transactions may result in the Fund’s net
asset value being more sensitive to changes in the value of its
investments.
Commodity
Exchange Act (CEA) Regulation and Exclusions:
50
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.
The
terms of the CPO exclusion require the Funds, among other things, to adhere to
certain limits on their 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 their investment objectives, to
limit their investments in these types of instruments. The Funds are not
intended as vehicles 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, their prospectuses
or this SAI.
Generally,
the exclusion from CPO regulation on which Invesco relies requires the Funds to
meet one of the following tests
for their 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 Fund’s positions
in commodity interests may not exceed 5% of the liquidation value of the Fund’s
portfolio (after taking into account unrealized profits and unrealized losses on
any such positions); or (2) the aggregate net notional value of each Fund’s
commodity interest positions, determined at the time the most recent such
position was established, may not exceed 100% of the liquidation value of the
Fund’s portfolio (after taking into account unrealized profits and unrealized
losses on any such positions). In addition to meeting one of these trading
limitations, each Fund may not market itself as a commodity pool or otherwise as
a vehicle 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 accordance with the CFTC rules that allow for
substituted compliance with CFTC disclosure and shareholder reporting
requirements based on Invesco’s compliance with comparable SEC requirements.
However, as a result of CFTC regulation with respect to the Fund, a Fund may
incur additional compliance and other 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 a 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, the Fund might
need to rely solely on contractual remedies to satisfy the counterparty’s full
obligation. As with any contractual remedy, there is no guarantee that the Fund
will be successful in pursuing such remedies, particularly in the event of the
counterparty’s bankruptcy or insolvency. Many derivative trading agreements,
such as an ISDA Master Agreement governing OTC swaps, provide for netting of
derivatives transactions governed by the agreement in the event of a default by
either counterparty, pursuant to which the Fund’s and the counterparty’s
obligations under the relevant transactions can be netted and set-off against
each other, in which case a Fund’s obligation or right will be the net amount
owed to or by the counterparty. Netting agreements are intended to function as a
counterparty credit risk mitigant, but in the case of a bankruptcy or insolvency
of the relevant counterparty, are subject to the risk that the insolvency regime
applicable to the counterparty might not recognize the enforceability of the
contractual netting provisions. 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 and the counterparty. If a counterparty’s
creditworthiness declines, the value of the derivative would also likely
decline, potentially resulting in losses to the Fund.
51
Leverage
Risk:
Leverage exists when the 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. Leverage may cause the Fund to be more volatile because it may
exaggerate the effect of any increase or decrease in the value of the Fund’s
portfolio securities. The use of some derivatives may result in economic
leverage, which does not result in the possibility of the 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.
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 the 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.
Special
Regulatory Risks 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 Fund engages in derivative
transactions, may limit or prevent the Fund from using or limit the Fund’s use
of these instruments effectively as a part of its investment strategy, and could
adversely affect the Fund’s ability to achieve its investment objective. Invesco
will continue to monitor developments in the area, particularly to the extent
regulatory changes affect the Fund’s ability to enter into desired swap
agreements. New requirements, even if not directly applicable to the Fund, may
increase the cost of the 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 a Fund is not 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.
Types
of derivatives:
52
Swaps. Each Fund may
engage in certain strategies involving swaps to attempt to manage the risk
of its investments, or in certain circumstances, for investment purposes (e.g.,
as a substitute for investing in securities). The 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 uncleared swap) or, in some instances, must be transacted through a
futures commission merchant (FCM) and cleared through a clearinghouse 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) and/or cash flows earned or realized on a particular
asset such as an equity or debt security, commodity, currency, interest rate or
index, 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.
A
Fund will typically only enter into swap agreements with counterparties who use
standard International Swap and Dealers
Association, Inc. (“ISDA”) contract documentation. ISDA establishes industry
standards for the documentation of swap agreements. Virtually all principal swap
participants use ISDA documentation because it has an established set of
definitions, contract terms and counterparty obligations, including provisions
for master netting agreements. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect the
Fund’s ability to terminate existing swap agreements or to realize amounts to be
received under such agreements. Additionally, ISDA master agreements include
credit related contingent features which allow Counterparties to OTC derivatives
to terminate derivative contracts prior to maturity in the event that, for
example, the Fund’s net assets decline by a stated percentage or the Fund fails
to meet the terms of its ISDA master agreements, which would cause the Fund to
accelerate payment of any net liability owed to the
counterparty.
Comprehensive
swaps regulation. The Dodd-Frank Act
and analogous international laws enacted after the financial crisis imposed
comprehensive regulatory requirements on swaps and swap market participants. The
U.S. regulatory framework includes: (1) registration and regulation of swap
dealers and major swap participants; (2) requiring central clearing and
electronic execution of standardized swaps on swap execution facilities; (3)
imposing margin requirements on uncleared 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. The SEC has jurisdiction over a
small segment of the market referred to as “security-based swaps,” which
includes swaps on single securities or narrow-based indices of securities and
single name credit default swaps.
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 and the transaction is terminated prior to its scheduled
termination date, one of the parties may be required to make an early
termination payment to the other. An early termination payment may be payable by
either the defaulting party or the non-defaulting party, under certain
circumstances, depending upon which of them is “in-the-money” with respect to
the swap at the time of its termination. Early termination payments may be
calculated in various ways, but generally represent the amount that the
“in-the-money” party would have to pay to replace the swap as of the date of its
termination.
During
the term of an uncleared swap, a Fund will be 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 all outstanding swaps
between the parties were terminated on the
53
date
in question, including any early termination payments (variation margin).
Periodically, changes in the amount pledged are
made to recognize changes in value of the swap contract resulting from, among
other things market value changes in the underlying investment referenced in the
swap. Likewise, the counterparty will be required to pledge cash or other assets
to cover its obligations to a Fund. However, the amount pledged will 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.
Regulations
requiring initial margin to be posted by certain market participants for
uncleared swaps have been adopted and
are being phased in over time. When these rules take effect with respect to the
Funds, if a Fund is deemed to have material swaps exposure (generally, an
average gross notional amount of uncleared swaps and foreign currency forward
contracts at certain measurement dates exceeding $8 billion), it will under
these regulations be required to post initial margin in addition to variation
margin.
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. As a result,
a Fund is subject to the risk that a counterparty will be unable or will refuse
to perform under such agreement, including because of the counterparty’s
bankruptcy or insolvency. The Fund risks the loss of the accrued but unpaid
amounts under a swap agreement, which could be substantial, in the event of a
default, insolvency or bankruptcy by a swap counterparty. In such an event, the
Fund will have contractual remedies pursuant to the swap agreement, but
bankruptcy and insolvency laws could affect the Fund’s rights as a creditor. If
the counterparty’s creditworthiness declines, the value of a swap agreement
would likely decline, potentially resulting in losses.
Cleared
Swaps.
Certain standardized swaps are subject to mandatory central clearing and trading
on execution facilities. The Dodd-Frank Act and analogous international laws
will ultimately require the clearing and trading on execution facilities of many
swaps. To date, the CFTC has designated only certain of the most common credit
default index swaps and certain interest rate swaps as subject to mandatory
clearing and certain public execution facilities have made these swaps available
to trade, but it is expected that additional categories of swaps will in the
future be designated as subject to mandatory clearing and trade execution
requirements.
In
a cleared swap, a Fund’s ultimate counterparty is a central clearinghouse rather
than a brokerage firm, bank or other
financial institution. Cleared swaps are submitted for clearing through each
party’s FCM, which must be a member of the clearinghouse that serves as the
central counterparty.
When
a Fund enters into a cleared swap, it must deliver to the clearinghouse (via the
FCM) an amount referred to as
“initial margin.” Initial margin requirements are determined by the
clearinghouse, and are typically calculated as an amount based on the volatility
in market value of the cleared swap over a fixed period, but an FCM may require
additional initial margin above the amount required by the clearinghouse. During
the term of the swap agreement, “variation margin” may also be required to be
paid by the Fund or may be received by the Fund. If the value of the Fund’s
cleared swap declines, the Fund will be required to make additional variation
margin payments to the FCM to settle the change in value. Conversely, if the
market value of the Fund’s position increases, the FCM will post additional
variation margin to the Fund’s account. 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 are paid to the Fund.
Central
clearing is designed to reduce counterparty credit risk and increase liquidity
compared to uncleared 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 or insolvency of the FCM through
which the Fund holds an open position, or the clearinghouse in a swap contract.
The assets of a Fund may not be fully protected in the event of the bankruptcy
or insolvency of the FCM or clearinghouse because the Fund might be limited to
recovering only a pro rata share of all available funds and margin segregated on
behalf of an
54
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 to satisfy its own financial obligations or the payment
obligations of another customer to the clearinghouse. Credit risk of cleared
swap participants is concentrated in a few clearinghouses, and the consequences
of insolvency of a clearinghouse are not clear.
With
cleared swaps, a Fund may not be able to obtain terms as favorable 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. Clearinghouses and FCMs can require termination of existing
cleared swap transactions upon the occurrence of certain events, and can also
require increases in margin above the margin that is required at the initiation
of the swap agreement.
Finally,
a Fund is subject to the risk that, after entering into a cleared swap with an
executing broker, no FCM or
clearinghouse 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.
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. A CDX allows 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. A
CDX index
55
tranche
provides access to customized risk, exposing each investor to losses at
different levels of subordination. The
lowest part of the capital structure is called the “equity tranche” as it has
exposure to the first losses experienced in the basket. The mezzanine and senior
tranches are higher in the capital structure but can also be exposed to loss in
value. Investments are subject to liquidity risks as well as other risks
associated with investments in credit default swaps.
Foreign
Exchange Swaps: A foreign exchange
swap involves an agreement between two parties to exchange two different
currencies on a specific date at a fixed rate, and an agreement for the reverse
exchange of those two currencies at a later date and at a fixed rate. 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 Regulations and Exclusions, 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 Swaps: 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 a notional amount and in return Party B agrees to pay Party A a
variable interest rate multiplied by the same notional amount.
Commodity
Swaps:
A commodity swap agreement is a contract in which one party agrees to make
periodic payments to another party based on the change in market value of a
commodity-based underlying instrument (such as a specific commodity or commodity
index) in return for periodic payments based on a fixed or variable interest
rate or the total return from another commodity-based underlying instrument. In
a total return commodity swap, a Fund receives the price appreciation of a
commodity index, a portion of a commodity index or a single commodity in
exchange for paying an agreed-upon fee.
Total
Return Swaps: 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.
Volatility
and Variance Swaps: A volatility swap
involves an exchange between a Fund and a counterparty of periodic payments
based on the measured volatility of an underlying security, currency, commodity,
interest rate, index or other reference asset over a specified time frame.
Depending on the structure of the swap, either the Fund’s or the counterparty’s
payment obligation will typically be based on the realized volatility of the
reference asset as measured by changes in its price or level over a specified
time period while the other party’s payment obligation will be based on a
specified rate representing expected volatility for the reference asset at the
time the swap is executed, or the measured volatility of a different reference
asset over a specified time period. The Fund will typically make or lose money
on a volatility swap depending on the magnitude of the reference asset’s
volatility, or size of the movements in its price, over a specified time
56
period,
rather than general increases or decreases in the price of the reference asset.
Volatility swaps are often used to
speculate on future volatility levels, to trade the spread between realized and
expected volatility, or to decrease the volatility exposure of other investments
held by the Fund. Variance swaps are similar to volatility swaps except payments
are based on the difference between the implied and measured volatility
mathematically squared.
Inflation
Swaps:
Inflation swap agreements are contracts in which one party agrees to pay the
cumulative percentage increase in a price index, such as the Consumer Price
Index, over the term of the swap (with some lag on the referenced inflation
index), and the other party pays a compounded fixed rate. Inflation swap
agreements may be used to protect the net asset value of a Fund against an
unexpected change in the rate of inflation measured by an inflation index. The
value of inflation swap agreements is expected to change in response to changes
in real interest rates. Real interest rates are tied to the relationship between
nominal interest rates and the rate of inflation.
Swaptions: An option on a
swap agreement, also called a “swaption,” is an option that gives the buyer the
right, but not the obligation, to enter into a swap on a future date in exchange
for paying a market-based premium. A receiver swaption gives the owner the right
to receive the total return of a specified asset, reference rate, or index. A
payer swaption gives the owner the right to pay the total return of a specified
asset, reference rate, or index. Swaptions also include options that allow an
existing swap to be terminated or extended by one of the
counterparties.
Swaptions
are considered to be swaps for purposes of CFTC regulation. Although they are
currently traded OTC, the
CFTC may in the future designate certain options on swaps as subject to
mandatory clearing and exchange trading.
Bundled
Securities. Certain Funds may
from time to time invest in Targeted Return Index Securities Trusts (TRAINS) or
similar instruments representing a fractional undivided interest in an
underlying pool of securities often referred to as "Bundled Securities".
Bundled Securities are typically represented by certificates and the Funds will
be permitted at any time to exchange such certificates for the underlying
securities evidenced by such certificates and thus the certificates are
generally subject to the same risks as the underlying securities held in the
trust. The Fund will examine the characteristics of the underlying securities
for compliance with investment criteria but will determine liquidity with
reference to the certificates itself. TRAINS and other trust certificates are
generally not registered under the 1933 Act or the 1940 Act and therefore must
be held by qualified purchasers and resold to qualified institutional buyers
pursuant to Rule 144A under the 1933 Act. Investments in certain TRAINS or other
trust certificates may have the effect of increasing the level of Fund
illiquidity to the extent the Fund, at a particular point in time, may be unable
to find qualified institutional buyers interested in purchasing such
securities.
Options. Each Fund may
engage in certain strategies involving options to attempt to manage the risk of
its 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 delivery of a cash
settlement price, in the case of certain options, such as an index option and
other cash-settled options). 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. 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.
57
Invesco
Rising Dividends 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. The 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 investments. 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.
A
call on a futures contract may be sold without owning the futures contract or
securities deliverable under contract. To do so,
at the time the call must be covered by identifying an equivalent dollar amount
of liquid assets. If the value of the segregated assets drops below 100% of the
current value of the future, additional liquid assets must be identified.
Because of this requirement, in no circumstances would an exercise notice as to
that future require delivery on a futures contact. It would simply create a
short futures position, which is permitted by applicable hedging
policies.
Index
Options. Index options (or
options on securities indices) give the option buyer the right to receive, upon
exercise, a cash settlement amount instead of the securities included in the
relevant index, if the closing
58
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 on the relevant option
expiration date 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,
especially if a Fund writes index call
options. 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 an index call option by holding a diversified portfolio of
securities similar to those included in the underlying index. However, the Fund
cannot, as a practical matter, acquire and hold a portfolio containing exactly
the same securities in 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
Options. A CDS option
transaction gives the buyer the right, but not the obligation, to enter into a
CDS at a specified future date 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. As the writer of an option, the Fund may
have no control over when the underlying reference asset must be sold (in the
case of a call option) or purchased (in the case of a put option), if the option
was structured as an American style option, because the option purchaser may
notify the Fund of exercise at any time prior to the expiration of the option.
In addition, if the option is cash-settled instead of deliverable, the Fund is
obligated to pay the option purchaser the difference between the exercise price
and the value of the underlying reference asset, instead of selling or
purchasing the underlying reference asset, if the option is exercised. 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 reference asset. In return for the
premium received for writing a put option, the Fund assumes the risk that the
price of the underlying reference asset will decline below the exercise price,
in which case the put option may be exercised and the Fund may suffer a
loss.
In
return for the premium received for writing a call option on a reference asset,
the Fund foregoes the opportunity for
profit from a price increase in the underlying reference asset above the
exercise price so long as the option remains open, but retains the risk of loss
should the price of the reference asset 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 reference
asset, 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 reference
asset, 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. However, once a Fund has received an exercise notice,
it cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver (for a call) or purchase (for a
put) the underlying reference asset at the exercise price (if deliverable) or
pay the difference between the exercise price and the value of the underlying
reference asset (if cash-settled).
Purchasing
Options. A Fund may
purchase a put option on an underlying reference asset owned by the Fund in
order to protect against an anticipated decline in the value of the underlying
reference asset held by the Fund; may purchase put options on underlying
reference assets against which it has written other put options; or may
speculate on the value of an underlying reference asset, index or quantitative
measure. The premium paid for the put option and any transaction costs would
reduce any profit realized when the
59
underlying
reference asset is delivered upon the exercise of the put option. Conversely, if
the underlying reference asset
does not decline in value, the option may expire worthless and the premium paid
for the protective put would be lost. A put option may also be purchased on an
investment the Fund does not own.
A
Fund may purchase a call option for the purpose of acquiring the underlying
reference asset for its portfolio, or on
underlying reference assets against which it has written other call options. The
Fund is not required to own the underlying reference asset 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 underlying reference asset at
the exercise price of the call option plus the premium paid. So long as it holds
a call option, rather than the underlying reference asset itself, the Fund is
partially protected from any unexpected increase in the market price of the
underlying reference asset. If the market price does not exceed the exercise
price, the Fund could purchase the underlying reference asset 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.
Municipal
Market Data Rate Locks. A Municipal Market
Data Rate Lock (MMD Rate Lock) permits a Fund to lock in a specified municipal
interest rate for a portion of its portfolio to preserve a return on a
particular investment or a portion of its portfolio as a duration management
technique or to protect against any increase in the price of securities to be
purchased at a later date. MMD Rate Locks may be used for hedging purposes. An
MMD Rate Lock is an agreement between two parties, a Fund and an MMD Rate Lock
provider, pursuant to which the parties agree to make payments to each other on
a notional amount, contingent upon whether the Municipal Market Data AAA General
Obligation Scale is above or below a specified level on the expiration date of
the contract.
MMD
Rate Locks involve the risk that municipal yields will move in the direction
opposite than the direction
anticipated by a Fund. The risk of loss with respect to MMD Rate Locks is
limited to the amount of payments a Fund is contractually obligated to make. If
the other party to an MMD Rate Lock defaults, a Fund's risk of loss consists of
the amount of payments that the Fund contractually is entitled to receive. If
there is a default by the counterparty, a Fund may have contractual remedies
pursuant to the agreements related to the transaction, but they could be
difficult to enforce.
Straddles/Spreads/Collars. Each Fund for
hedging purposes, or for speculative purposes, may enter into straddles, spreads
or collars to adjust the risk and return characteristics of the Fund’s overall
position.
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.
Rights
and Warrants. Each Fund may
purchase warrants. Invesco Main Street All Cap Fund® and Invesco Main Street
Fund® may not invest more than 10% of its total assets in rights and warrants,
not including rights and warrants the Fund acquires as part of securities units
or that are attached to other
60
securities
the Fund buys. 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.
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.
Futures
Contracts. Each Fund may
purchase futures contracts.
A
futures contract is a standardized agreement to buy or sell a specified amount
of a specified security, currency,
commodity, interest rate or index (or deliver a cash settlement price, in the
case of certain futures such as an index future, interest rate future or
volatility future) for a specified price at a designated future date, time and
place. 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. Futures contracts are generally bought and sold on futures
exchanges referred to as designated contract markets and are held through a
broker, known as a futures commission merchant (FCM), that is a member of the
designated contract market and its related clearinghouse. The designated
contract market sets the specifications of the relevant futures contract,
including the date, time and place of delivery or settlement of the contract and
the quantity of the underlying instrument or asset per contract.
The
Fund will only enter into futures contracts that are traded (either domestically
or internationally) on futures exchanges
or certain exempt markets including exempt boards of trade and electronic
trading facilities; and are standardized as to maturity date and underlying
instrument or asset. Futures exchanges and trading thereon in the United States
are regulated under the CEA by the CFTC. Foreign futures exchanges or exempt
markets and trading thereon are not regulated by the CFTC and may not be subject
to the same regulatory controls. In addition, futures contracts that are traded
on non-U.S. exchanges or exempt markets 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 contract is
the amount of funds that must be deposited by a Fund with the applicable FCM in
order to initiate trading in the futures contract and maintain its open
positions in futures contract. 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 initial 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 or the FCM during
the term of the futures contract.
Subsequent
payments, called “variation margin,” received from or paid to the FCM through
which a Fund holds the futures
contract will be made on a daily basis as the futures contract 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.
If the Fund has a gain, the full margin amount and the amount of the gain are
paid to the Fund and the FCM pays the Fund any excess gain over the margin
amount.
There
is a risk of loss by a Fund of the initial and variation margin deposits in the
event of bankruptcy or insolvency of the
FCM with which the Fund has an open position in a futures contract. The assets
of a Fund
61
may
not be fully protected in the event of the bankruptcy or insolvency of the FCM
or clearinghouse 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 clearinghouse.
Closing
out an open futures contract is effected by entering into an offsetting futures
contract for the same aggregate amount of
the identical underlying instrument or asset and the same delivery or settlement
date. There can be no assurance, however, that a Fund will be able to enter into
an offsetting contract with respect to a particular futures contract at a
particular time. If a Fund is not able to enter into an offsetting contract, 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.
Pursuant
to federal securities laws and regulations, a Fund's use of futures contacts may
require the Fund to set aside
assets to reduce the risks associated with using futures contracts. This process
is described in more detail above in the section
"Derivatives."
Types
of Futures Contracts:
Commodity
Futures: A commodity
futures contract is an exchange-traded contract to buy or sell a particular
commodity at a specified price at some time in the future. Commodity futures
contracts are highly volatile; therefore, the prices of a Fund’s shares may be
subject to greater volatility to the extent it invests in commodity
futures.
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 the Fund.
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: An 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 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 securities comprising the index is
made. Index futures can be based on stock, bond or other indices. Such
indices cannot be purchased or sold directly.
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. Once
example of common interest
rate futures contracts are U.S. Treasury futures. The specified security for
U.S. Treasury futures is a U.S. Treasury security.
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.
62
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.
Forward
Foreign Currency Contracts. Each Fund may
enter into forward foreign currency contracts to hedge against adverse movements
in the foreign currencies in which portfolio securities are denominated. Certain
Funds may also enter into forward foreign currency transactions for speculative
purposes, including to seek additional income or increased returns for the
Fund.
A
forward foreign currency contract is an obligation to buy or sell a particular
currency in exchange for another currency,
which may be U.S. dollars, at a specified exchange rate on 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.
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, a Fund may enter into a closing
transaction involving the purchase or sale of an offsetting contract. Closing
transactions with respect to forward foreign currency contracts may or may not
be 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 exchange of the two currencies on the settlement date but instead
provide for settlement 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).
Invesco
Rising Dividends Fund will not enter into forward contracts or maintain a net
exposure to such contracts if the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund’s portfolio securities or
other assets denominated in that currency (or another currency that is the
subject of the hedge). However, the Fund can maintain a net exposure to forward
contracts in excess of the value of the Fund’s portfolio securities or other
assets denominated in foreign currencies if the excess amount is “covered” by
liquid securities denominated in any currency.
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 execution
facilities. For more information on central clearing and trading of cleared
swaps, see “Swaps” and “Special Regulatory Risks of 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, differences in prevailing interest
rates in the jurisdictions associated with the two currencies 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 for hedging 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
63
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.
LIBOR
Transition Risk
A
Fund may have investments in financial instruments that are exposed
to the
London Interbank Offered Rate (LIBOR) as the reference or benchmark rate for
variable interest rate calculations (including variable or floating rate debt
securities or loans and derivatives such as interest rate futures or swaps).
LIBOR was
intended to measure
the rate generally at which banks can lend and borrow from one another in the
relevant currency on an unsecured basis. LIBOR was a common benchmark interest
rate index used to make adjustments to variable-rate debt instruments, to
determine interest rates for a variety of financial instruments and borrowing
arrangements and as a reference rate in
derivative contracts.
In
the years following the 2008 financial crisis, the integrity of LIBOR was
increasingly questioned because several
banks contributing to its calculation were accused of rate manipulation and
because of a general contraction in the unsecured interbank lending market. As a
result, regulators and financial industry working groups in several
jurisdictions have worked over the past several years to identify alternative
reference rates (ARRs) to replace LIBOR and to assist with the transition to the
new ARRs. The industry working group in the United States, the Alternative
Reference Rate Committee, has recommended adoption of the Secured Overnight
Financing Rate (SOFR) as a replacement for USD LIBOR. SOFR is a broad measure of
the cost of overnight borrowing of cash through repurchase agreements
collateralized by U.S. Treasury securities.
In
connection with the LIBOR transition, on March 5, 2021 the UK Financial Conduct
Authority (FCA), the regulator that
oversees LIBOR, announced that the majority of LIBOR rates would cease to be
published or would no longer be representative on January 1, 2022. Specifically,
the publication of all settings of British Pound Sterling, Swiss Franc, Euro and
Japanese Yen LIBOR, as well as the 1-week and 2-month settings of U.S. Dollar
(USD) LIBOR were phased out at the end of 2021. The remaining settings of USD
LIBOR, which are the most widely used in financial markets, ceased to be published
after June 30,
2023. Key
regulators had
previously instructed banking
institutions to cease entering into new contracts that reference these remaining
USD LIBOR settings after December 31, 2021, subject to certain limited
exceptions. The FCA will
permit the use of synthetic U.S. dollar LIBOR rates for non-U.S. contracts for a
limited period of time after June 30, 2023, but any such rates would be
considered non-representative of the underlying market.
While
the transition process away from LIBOR has become increasingly well-defined,
there remains uncertainty
and risks relating to converting certain
longer-term securities and transactions to a new ARR. For example,
there can be no assurance that the composition or characteristics of any ARRs or
financial instruments in which a Fund invests that utilize ARRs will be similar
to or produce the same value or economic equivalence as LIBOR or that these
instruments will have the same volume or liquidity. Additionally, although
regulators have generally prohibited banking institutions from entering into new
contracts that reference those USD LIBOR settings that continue to exist, there
remains uncertainty and risks relating to certain “legacy” USD LIBOR instruments
that were issued or entered into before December 31, 2021 and the process by
which a replacement interest rate will be identified and implemented into these
instruments when USD LIBOR is ultimately discontinued. While some “legacy” USD
LIBOR instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative or “fallback” rate-setting methodology, there
may be significant uncertainty regarding the effectiveness of such alternative
or “fallback” methodologies to replicate USD LIBOR; other “legacy” USD LIBOR
instruments may not include such “fallback” rate-setting provisions at all.
While
it is expected that the market participants will amend legacy financial
instruments referencing LIBOR to include such fallback provisions to ARRs, there
remains uncertainty regarding the willingness and ability of parties to add or
amend such fallback provisions in legacy
instruments.
On
December
16,
2022,
the
Federal Reserve Board adopted regulations implementing the Adjustable Interest
Rate Act. The regulations provide a statutory fallback mechanism to replace
LIBOR,
by
identifying benchmark rates based on SOFR that will replace LIBOR in certain
financial contracts after June 30, 2023. These
regulations apply only to contracts governed by U.S.
law,
among other limitations. The regulations include provisions that (i) provide a
safe harbor for selection or use of a
replacement
benchmark
64
rate selected by
the Federal Reserve Board;
(ii)
clarify who
may
choose
the replacement
benchmark rate
selected by the Federal Reserve Board;
and
(iii)
ensure
that contracts
adopting a
replacement benchmark rate selected by
the
Federal Reserve Board will not
be
interrupted or terminated following the replacement of LIBOR;
however
there
remains significant uncertainty regarding the effectiveness of such
legislation.
The
Funds may have instruments linked to other interbank offered rates that may also
cease to be published in the future. All of the
foregoing may adversely affect a Fund’s performance or NAV.
Environmental,
Social and Governance (ESG) Considerations
The
ESG considerations described herein may not be used by a Fund and will vary
depending on a Fund's particular
investment strategy and in accordance with what a Fund’s investment team deems
relevant when making investment decisions. The ESG considerations described
herein may not be applied or evaluated with respect to each issuer or Fund
investment. Further, a Fund’s prospectus may describe additional ESG strategies
and risks.
ESG
considerations, either quantitative or qualitative, may be utilized as a
component of a Fund's investment process
to implement its investment strategy in pursuit of its investment
objective. ESG factors may be incorporated to evaluate an issuer, as part
of risk analysis, credit analysis or in other manners. ESG factors may vary
across types of investments and issuers, and not every ESG factor may be
identified or evaluated. The incorporation of ESG factors may affect a Fund’s
exposure to certain issuers or industries and may not work as intended. A Fund
may underperform other funds that do not assess an issuer’s ESG factors as part
of the investment process or that use a different methodology to identify and/or
incorporate ESG factors. Because ESG considerations may be used as one part of
an overall investment process, a Fund may still invest in securities of issuers
that are not considered ESG-focused or that may be viewed as having a high ESG
risk profile. As investors can differ in their views regarding ESG factors, a
Fund may invest in issuers that do not reflect the views with respect to ESG of
any particular investor. Information used by a Fund to evaluate such factors,
including information from reliance on third-party research and/or proprietary
research, may not be readily available, complete or accurate, and may vary
across providers and issuers as ESG is not a uniformly defined characteristic,
which could negatively impact a Fund’s ability to accurately assess an issuer,
which could negatively impact a Fund’s performance. There is no guarantee that
the evaluation of ESG considerations will be additive to a Fund’s
performance.
Receipt
of Issuer’s Nonpublic Information
The
Adviser or Sub-Advisers (through their portfolio managers, analysts, or other
representatives) may receive material
nonpublic information about an issuer that may restrict the ability of the
Adviser or Sub-Advisers to cause the Funds to buy or sell securities of the
issuer on behalf of the Funds for substantial periods of time. This may impact
the Funds' ability to realize profit or avoid loss with respect to the issuer
and may adversely affect the Funds' flexibility with respect to buying or
selling securities, potentially impacting Fund performance. For example,
activist investors of certain issuers in which the Adviser or Sub-Advisers hold
large positions may contact representatives of the Adviser or Sub-Advisers and
may disclose material nonpublic information in such communication. The Adviser
or Sub-Advisers would be restricted from trading on the basis of such material
nonpublic information, limiting their flexibility in managing the Funds and
possibly impacting Fund performance.
Business
Continuity and Operational Risk
The
Adviser, the Funds and the Funds’ service providers may experience disruptions
or operating errors, such as processing
errors or human errors, inadequate or failed internal or external processes,
systems or technology failures, or other disruptive events, that could
negatively impact and cause disruptions in normal business operations of the
Adviser, the Funds or the Funds’ service providers. The Adviser has developed a
Business Continuity Program (the “Program”) designed to minimize the disruption
of normal business operations in the event of an adverse incident affecting the
Funds, the Adviser and/or its affiliates. The Program is also designed to enable
the Adviser to reestablish normal business operations in a timely manner during
such an adverse incident; however, there are inherent limitations in such
programs (including the possibility that contingencies have not been anticipated
and procedures do not work as intended) and, under
65
some
circumstances (e.g. natural disasters, terrorism, public health crises, power or
utility shortages and failures, system
failures or malfunctions), the Adviser, its affiliates, and any service
providers or vendors used by the Adviser, its affiliates, or the Fund could be
prevented or hindered from providing services to the Funds for extended periods
of time. These circumstances could cause disruptions and negatively impact the
Funds’ service providers and the Funds’ business operations, potentially
including an inability to process Fund shareholder transactions, an inability to
calculate a Fund’s net asset value and price the Fund’s investments, and
impediments to trading portfolio securities.
Cybersecurity
Risk
With
the increased use of technologies such as the Internet to conduct business, the
Funds, like all companies, may be
susceptible to operational, information security and related risks.
Cybersecurity incidents involving the Funds and their service providers
(including, without limitation, a Fund’s investment adviser, sub-adviser, fund
accountant, custodian, transfer agent and financial intermediaries) have the
ability to cause disruptions and impact business operations, potentially
resulting in financial losses, impediments to trading, the inability of Fund
shareholders to transact business, violations of applicable privacy and other
laws, regulatory fines, penalties, reputational damage, reimbursement or other
compensation costs, and/or additional compliance costs.
Cybersecurity
incidents can result from deliberate cyberattacks or unintentional events and
may arise from external or
internal sources. Cyberattacks may include infection by malicious software or
gaining unauthorized access to digital systems, networks or devices that are
used to service the Funds' operations (e.g., by “hacking” or “phishing”).
Cyberattacks may also be carried out in a manner that does not require gaining
unauthorized access, such as causing denial-of-service attacks on websites
(i.e., efforts to make network services unavailable to intended users). These
cyberattacks could cause the misappropriation of assets or personal information,
corruption of data or operational disruptions. Geopolitical tensions may, from
time to time, increase the scale and sophistication of deliberate
cyberattacks.
Similar
adverse consequences could result from cybersecurity incidents affecting issuers
of securities in which the Funds
invest, counterparties with which the Funds engage, governmental and other
regulatory authorities, exchange and other financial market operators, banks,
brokers, dealers, insurance companies, other financial institutions and other
parties. In addition, substantial costs may be incurred in order to prevent any
cybersecurity incidents in the future. Although the Funds’ service providers may
have established business continuity plans and risk management systems to
mitigate cybersecurity risks, there can be no guarantee or assurance that such
plans or systems will be effective, or that all risks that exist, or may develop
in the future, have been completely anticipated and identified or can be
protected against. The Funds and their shareholders could be negatively impacted
as a result.
Natural
Disaster/Epidemic Risk
Natural
or environmental disasters such as
earthquakes, wildfires, floods,
hurricanes, tsunamis,
other
severe weather-related phenomena, and widespread disease including pandemics and
epidemics, can be highly disruptive to economies and markets, sometimes severely
so, and can adversely impact individual
companies, sectors, industries, markets, currencies, interest and inflation
rates, credit ratings, investor sentiment, and other factors affecting the value
of the Funds’ investments. Given the increasing interdependence among global
economies and markets, conditions in one country, market, or region are
increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. These disruptions could
prevent the Funds from executing advantageous investment decisions in a timely
manner and negatively impact the Funds’ ability to achieve their investment
objectives. Any such event(s) could have a significant adverse impact on the
value and risk profile of the Funds.
The
recent spread of the human coronavirus disease 2019 (COVID-19) is an
example. In the first
quarter of 2020, the World Health Organization (WHO) recognized COVID-19 as a
global pandemic and both the WHO and the U.S. declared the outbreak a public
health emergency. The subsequent spread
of COVID-19
resulted
in,
among
other significant adverse economic impacts, instances of
market closures and dislocations, extreme volatility, liquidity constraints and
increased trading costs. Efforts to contain the spread of COVID-19
66
resulted in travel
restrictions, closed international borders, disruptions of healthcare systems,
business operations (including business closures) and supply chains,
employee layoffs
and general lack of employee availability, lower consumer
demand, and defaults and credit
downgrades, all of which contributed to
disruption of global economic
activity across many industries and exacerbated other pre-existing
political, social and economic risks
domestically
and
globally.
Although the WHO
and the U.S.
ended
their declarations
of
COVID-19 as a global health
emergency in
May
2023, the full economic impact at the macro-level
and on individual businesses,
as
well as the potential for a future reoccurrence of COVID or the occurrence of a
similar epidemic or pandemic, are unpredictable
and could result in
significant and prolonged adverse impact on
economies and
financial markets
in specific countries and worldwide and thereby negatively affect a Fund’s
performance.
Custody
and Banking Risks
The
Fund’s assets may be maintained with one or more banks or other depository
institutions (“banking institutions”),
including both US and non-US banking institutions. In addition, the Fund’s
assets may be maintained at regional (or mid-size) banking institutions or large
banking institutions. Regional banking institutions are generally subject to
fewer regulatory safeguards than large banking institutions, causing regional
banking institutions to be perceived as having greater credit risk than large
banking institutions. The Fund may enter into credit facilities or have other
financial relationships with banking institutions. The distress, impairment or
failure of one or more banking institutions, whether or not holding the Fund’s
assets, may inhibit the ability of the Fund to access depository accounts or
lines of credit at all or in a timely manner. Such events can be caused by
various factors including negative market sentiment, significant withdrawals,
fraud, or poor management. In such cases, the Fund may need to delay or forgo
making new investments, or the Fund may need to sell another investment to raise
cash when it is not desirable to do so, which could result in lower performance.
In the event of such a failure of a banking institution, access to such accounts
could be restricted and U.S. Federal Deposit Insurance Corporation (FDIC)
protection may not be available for balances in excess of the amounts insured by
the FDIC (and similar considerations may apply to banking institutions in other
jurisdictions not subject to FDIC protection). In such instances, the Fund may
not recover such excess uninsured amounts and instead would only have an
unsecured claim against the banking institution and may be able to recover only
the residual value of the banking institution’s assets, if any value is
recovered at all. The loss of any assets maintained with a banking institution
or the inability to access such assets for a period of time, even if ultimately
recovered, could be materially adverse to the Fund. In addition, the Fund’s
Adviser may not be able to identify all potential solvency or stress concerns
with respect to a banking institution or transfer assets from one bank to
another in a timely manner in the event a banking institution comes under stress
or fails. It is also possible that a Fund will incur additional expenses or
delays in putting in place alternative arrangements or that such alternative
arrangements will be less favorable than those formerly in place (with respect
to access to capital, economic terms, or otherwise).
Litigation
Risk
From
time to time, a Fund may pursue
or be involved as a named party in litigation arising in connection with its
role or status as a shareholder, bondholder, lender or holder of portfolio
investments, its own activities, or other circumstances. Litigation that affects
a Fund’s portfolio investments may result in the reduced value of such
investments or higher portfolio turnover if the Fund determines to sell such
investments. Litigation could result in significant expenses, reputational
damage, increased insurance premiums, adverse judgment liabilities, settlement
liabilities, injunctions, diversions of Fund resources, disruptions to Fund
operations and/or other similar adverse consequences, any of which may increase
the expenses incurred by a Fund or adversely affect the value of the Fund’s
shares.
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
67
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.
(1) The Fund
(except for Invesco Summit 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, (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
(except for Invesco Main Street All Cap Fund®, Invesco Main Street Fund® and
Invesco Rising Dividends Fund) may not purchase 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.
Invesco Main Street
All Cap Fund®, Invesco Main Street Fund® and Invesco Rising Dividends Fund may
not purchase or sell physical commodities except to the extent permitted by the
1940 Act and any other governing statute, and by the rules thereunder, and by
the SEC or other regulatory agency with authority over the Funds.
(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 the 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
(except for Invesco Summit 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
68
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.
Explanatory
Note
For
purposes of the Fund’s fundamental restriction related to industry concentration
above, investments in tax-exempt
municipal securities where the payment of principal and interest for such
securities is derived solely from a specific project associated with an issuer
that is not a governmental entity or a political subdivision of a government are
subject to a Fund’s industry concentration policy.
For
purposes of the Fund’s fundamental restriction related to physical commodities
above, the Fund is currently permitted
to invest in futures, swaps and other instruments on physical commodities and
the 1940 Act does not prohibit a fund from owning commodities or contracts
related to commodities. The extent to which the Fund can invest in futures,
swaps and other instruments on physical commodities, and/or commodities or
contracts related to commodities is set out in the Fund’s prospectus, this SAI,
and as permitted by the Fund’s fundamental restriction.
For
purposes of the Fund’s fundamental restriction related to real estate above, the
1940 Act does not prohibit a fund
from owning real estate. The extent to which a Fund can invest in real estate is
set out in the investment strategies described in the Fund’s prospectus or this
SAI.
For
purposes of the Fund’s fundamental restriction related to senior securities
above, the 1940 Act prohibits a fund
from issuing a “senior security,” which is generally defined as any bond,
debenture, note, or similar obligation or instrument constituting a security and
evidencing indebtedness, or any stock of a class having priority over any other
class of the fund’s shares with respect to the payment of dividends or the
distribution of fund assets, except that the fund may borrow money as described
above.
For
purposes of the Fund’s fundamental restriction related to loans above made by a
Fund, current SEC staff
interpretations under the 1940 Act prohibit a fund from lending more than
one-third of its total assets, except through the purchase of debt obligations
or the use of repurchase agreements.
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.
(1) In complying
with the fundamental restriction regarding issuer diversification, the Funds
(except for Invesco Summit 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
69
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 (except for Invesco Main Street All
Cap Fund, Invesco Main Street Fund, and Invesco Rising Dividends 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, forward foreign
currency 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 will interpret their 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.
(6) Notwithstanding
the fundamental restriction with regard to investing all assets in an open-end
fund, the Fund (except for Invesco Summit Fund) may not invest all of its assets
in the securities of a single open-end management investment company with the
same fundamental investment objective, policies, and restrictions as the
Fund.
(7) The Fund 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 Rising Dividends Fund invests, under normal conditions, at least 80% of
its assets in securities of
companies that the portfolio managers expect to experience dividend growth,
including companies that currently pay dividends and are expected to increase
them and companies that do not currently pay dividends but are expected to begin
paying them in the near future.
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 described above for the Invesco Rising Dividends Fund
may also be counted towards the 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.
70
It
is the intention of each Fund, unless otherwise indicated, that with respect to
the Fund's policies that are a result of
application of law, the Fund will take advantage of the flexibility provided by
rules or interpretations of the SEC currently in existence or promulgated in the
future, or changes to such laws.
Portfolio
Turnover
Each
Fund calculates its portfolio turnover rate by dividing the value of the lesser
of purchases or sales of portfolio
securities for the fiscal period by the monthly average of the value of
portfolio securities owned by the Fund during the fiscal period. A 100%
portfolio turnover rate would occur, for example, if all of the portfolio
securities (other than short-term securities) were replaced once during the
fiscal period. Portfolio turnover rates will vary from year to year, depending
on market conditions. The following fund experienced significant variation in
portfolio turnover during the two most recently completed fiscal years ended
October 31.
|
Fund |
2023 |
2022 |
|
Invesco
Charter
Fund1 |
84% |
52% |
|
|
|
|
|
1 |
The
variation in portfolio turnover rate
was
due to a
change in the portfolio management team that led to a repositioning of the
portfolio. |
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. As used in the Holdings Disclosure Policy and
throughout the SAI, the term “portfolio holdings information” includes
information with respect to the portfolio holdings of a Fund, including holdings
that are derivatives and holdings held as short positions. Information generally
excluded from “portfolio holdings information” includes, without limitation, (i)
descriptions of allocations among asset classes, regions, countries, industries
or sectors; (ii) aggregated data such as average or median ratios, market
capitalization, credit quality or duration; (iii) performance attributions by
asset class, country, industry or sector; (iv) aggregated risk statistics,
analysis and simulations, such as stress testing; (v) the characteristics of the
stock and bond components of a Fund’s portfolio holdings and other investment
positions; (vi) the volatility characteristics of a Fund; (vii) information on
how various weightings and factors contributed to Fund performance; (viii)
various financial characteristics of a Fund or its underlying portfolio
investments; and (ix) other information where, in the reasonable belief of the
Funds' Chief Compliance Officer (or a designee), the release of such information
would not present risks of dilution, arbitrage, market timing, insider trading
or other inappropriate trading for the applicable Fund.
Public
release of portfolio holdings. The Funds disclose
the following portfolio holdings information at www.invesco.com/us. 1
|
Information |
Approximate
Date of Website Posting |
Information
Remains Posted
on
Website |
|
Select
portfolio holdings information,
such
as top ten holdings as of the
month-end |
7
business
days after month-end |
Until
replaced with the
following
month’s top ten
holdings |
|
|
|
|
|
Select
portfolio holdings information
(e.g.,
buys/sells,
contributors/detractors
and/or
relevant
to market environment) |
7
business
days after month-end |
Until
replaced with the
following
month’s select
portfolio
holding
information |
|
|
|
|
|
Complete
portfolio holdings
information
as of calendar month-
end |
10
business
days after month-end |
For 12
months from the
date of
posting |
|
|
|
|
71
|
Information |
Approximate
Date of Website Posting |
Information
Remains Posted
on
Website |
|
Complete
portfolio holdings
information
as of fiscal quarter-end |
60-70
calendar days after fiscal quarter-end |
For 12
months from the
date of
posting |
1
To locate each
Fund’s portfolio holdings information go to www.invesco.com/us, select
“Financial Professional” or “Individual Investor,” if applicable. Hover over the
“Products” tab and then click on “Mutual Funds.” On the “Mutual Funds” page
click on “Fund Materials.” Links to each Fund’s portfolio holdings are located
under the “Holdings” column.
You
may also obtain the publicly available portfolio holdings information described
above by contacting us at
1-800-959-4246.
Notwithstanding
the other provisions of the Holdings Disclosure Policy, Invesco and its
affiliates may disclose portfolio
holdings information on its website earlier than dictated by the Holdings
Disclosure Policy in the case of market, geopolitical or company-specific (or
other) events that cause Invesco to conclude that posting such information on
its website is consistent with its fiduciary duties to the
Funds.
Selective
disclosure of portfolio holdings information pursuant to Non-Disclosure
Agreement.
Employees of
Invesco and its affiliates may disclose non-public full portfolio holdings
information on a selective basis only if Invesco approves the parties to whom
disclosure of non-public full portfolio holdings information will be made.
Invesco must determine that the proposed selective disclosure will be made for
business purposes of the applicable Fund and is in the best interest of the
applicable Fund’s shareholders. In making such determination, Invesco 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 information 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 (the Advisers Act)) that may arise in
connection with the Holdings Disclosure Policy. Pursuant to the Holdings
Disclosure Policy, the Board receives reports on the specific types of
situations in which Invesco proposes to provide such selective disclosure and
the situations where providing selective disclosure raises perceived conflicts
of interest between shareholders of the applicable Fund and Invesco or its
affiliates. In any specific situation where Invesco addresses a perceived
conflict, Invesco will report to the Board on the persons to whom such
disclosures are to be made and the treatment of any such conflicts before
agreeing to provide selective disclosure.
Invesco
discloses non-public full portfolio holdings information to the following
persons in connection with the day-to-day
operations and management of the funds advised by Invesco (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 fund accounting software providers (to determine the
price of investments held by an Invesco Fund);
•
Brokers identified
by the Invesco Funds’ portfolio management team who provide execution and
research services to the team;
72
•
Analysts hired to
perform research and analysis for the Invesco Funds’ portfolio management team;
and
•
Insurance companies
which may receive portfolio
holdings information before Invesco posts portfolio holdings information to
Invesco's website (to allow such insurance companies to post portfolio holdings
information to their websites at approximately the same time that Invesco posts
portfolio holdings information to Invesco's website).
In
many cases, Invesco will disclose current portfolio holdings information 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 information will maintain the
confidentiality of such portfolio holdings information 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 information 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 Invesco Funds, and where there is no other way
to transact the Funds' business without disclosure of such portfolio holdings
information.
The
Holdings Disclosure Policy provides that the Funds, Invesco or any other party
in connection with the disclosure of
portfolio holdings information 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 information without Non-Disclosure
Agreement. Invesco and its
affiliates that provide services to the Funds, the Sub-Advisers and each of
their employees may receive or have access to portfolio holdings information as
part of the day to day operations of the Funds.
Employees
of Invesco and its affiliates may express their views orally or in writing on
one or more of the Funds' portfolio
investments or may state that a Fund has recently purchased or sold, or
continues to own, one or more investments. The investments subject to these
views and statements may be ones that were purchased or sold since the date on
which portfolio holdings was made available on the Fund’s website and therefore
may not be reflected on the portfolio holdings information disclosed on the
website. Such views and statements may be made to various persons, including
members of the press, 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 and their advisers.
The nature and content of the views and statements provided to each of these
persons may differ.
Disclosure
of portfolio holdings information to traders. Additionally,
employees of Invesco and its affiliates may disclose one or more of the
investments held by a Fund when purchasing and selling investments through
broker-dealers, futures commissions merchants, clearing agencies and other
counterparties requesting bids on investments, obtaining price quotations on
investments, or in connection with litigation involving the Funds' portfolio
investments. 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.
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.
73
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 experience of each of the
Trustees.
Interested
Trustees
Jeffrey
H.
Kupor,
Trustee
Jeffrey
Kupor
has
been a member of the Board of Trustees of the Invesco Funds since 2024. Mr. Kupor is Senior
Managing Director and General Counsel at Invesco
Ltd.
Mr.
Kupor joined Invesco Ltd. in 2002 and has held a number of legal roles,
including, most recently, Head of Legal,
Americas, in which role he was responsible for legal support for Invesco's
Americas business. Prior to joining the firm, he practiced law at Fulbright
& Jaworski LLP (now known as Norton Rose Fulbright), specializing in complex
commercial and securities litigation. He also served as the general counsel of a
publicly traded communication services company.
Mr.
Kupor
earned a
BS
degree
in economics from the Wharton
School
at the
University of Pennsylvania and a JD from the Boalt Hall School of
Law
(now
known as Berkeley Law) at the University of California
at
Berkeley.
The
Board believes that Mr. Kupor’s current and past positions with the Invesco
complex along with his legal background
and experience as an executive in the investment management area benefits the
Funds.
Douglas
Sharp, Trustee
Douglas
Sharp has been a member of the Board of Trustees of the Invesco Funds since
2024. Mr. Sharp is Senior Managing
Director, Head of Americas & EMEA (Europe, the Middle East, and Africa) at
Invesco Ltd. He also served as Director and Chairman of the Board of Invesco UK
Limited (Invesco’s European subsidiary board).
Mr.
Sharp
joined Invesco Ltd. in 2008 and has served in multiple leadership roles across
the company, including his
previous role as Head of EMEA. Prior to that, he
ran
Invesco
Ltd.’s
EMEA retail business and served as head of strategy and business planning and as
chief administrative officer for Invesco Ltd.’s US institutional
business. Before joining
the
firm,
he was
with the strategy consulting firm McKinsey &
Co.,
where he served clients in the financial services, energy, and logistics
sectors.
The
Board believes that Mr. Sharp’s current and past
positions within the Invesco complex along with his experience in the investment
management business benefits the
Funds.
Independent
Trustees
Beth
Ann Brown, Trustee and Chair
Beth
Ann Brown has been a member of the Board of Trustees of the Invesco Funds since
2019 and Chair since 2022. From
2016 to 2019, Ms. Brown served on the boards of certain investment companies in
the Oppenheimer Funds complex.
Ms.
Brown has served as Director of Caron Engineering, Inc. since 2018 and as an
Independent Consultant since
2012.
Previously,
Ms. Brown served in various capacities at Columbia Management Investment
Advisers LLC, including Head of
Intermediary Distribution, Managing Director, Strategic Relations and Managing
Director, Head of National Accounts. She also served as Senior Vice President,
National Account Manager from 2002-2004 and Senior Vice President, Key Account
Manager from 1999 to 2002 of Liberty Funds Distributor, Inc.
74
From
2013 through 2022, she served as Director, Vice President (through 2019) and
President (2019-2022) of Grahamtastic
Connection, a non-profit organization.
From
2014 to 2017, Ms. Brown served on the Board of Advisors of Caron Engineering
Inc. and also served as President
and Director of Acton Shapleigh Youth Conservation Corps, a non–profit
organization, from 2012 to 2015.
The
Board believes that Ms. Brown’s experience in financial services and investment
management and as a director of other
investment companies benefits the Funds.
Carol
Deckbar, Trustee
Carol
Deckbar has been a member of the Board of Trustees of the Invesco Funds since
2024. Ms. Deckbar previously
served as Executive Vice President and Chief Product Officer at Teachers
Insurance and Annuity Association (TIAA) Financial Services from 2019 to 2021.
She also served as Executive Vice President and Principal of College Retirement
Equities Fund at TIAA from 2014 to 2021. Ms. Deckbar served in various other
capacities at TIAA since joining in 2007, including Executive Vice President and
Head of Institutional Investments and Endowment Services from 2016 to
2019.
Prior
to joining TIAA, Ms. Deckbar was a Senior Vice President of AMSOUTH Bank from
2002 to 2006, and before that she
served as Senior Vice President, Managing Director, for Bank of America Capital
Management from 1999 to 2002. She began her asset management career with the
Evergreen Funds where she served as Senior Vice President, Managing Director
from 1991 to 1998.
From
2019 to 2020, Ms. Deckbar served as Chairman of the TIAA Retirement Plan
Investments Committee and as an
Executive Sponsor at Advance, a council for the advancement of women. She has
also held various memberships, including at Investment Company Institute, from
2017 to 2019, Fortune 400 Most Powerful Women Network, from 2012 to 2015, and
Mutual Fund Education Alliance, from 2010 to 2015.
The
Board believes that Ms. Deckbar’s experience in financial services and
investment management benefits the
Funds.
Cynthia
Hostetler, Trustee
Cynthia
Hostetler has been a member of the Board of Trustees of the Invesco Funds since
2017.
Ms.
Hostetler is currently a member of the board of directors of the Vulcan
Materials Company, a public company engaged in
the production and distribution of construction materials, Trilinc Global Impact
Fund LLC, a publicly registered non-traded limited liability company that
invests in a diversified portfolio of private debt instruments, Resideo
Technologies, Inc., a public company that manufactures and distributes smart
home security products and solutions worldwide, and Textainer Group Holdings, a
public company that is the world’s second largest shipping container leasing
company. Ms. Hostetler also serves on the board of governors of the Investment
Company Institute and is a member of the governing council of the Independent
Directors Council, both of which are professional organizations in the
investment management industry.
Previously,
Ms. Hostetler served as a member of the board of directors/trustees of Aberdeen
Investment Funds, a mutual
fund complex, Edgen Group Inc., a public company that provides products and
services to energy and construction companies, from 2012 to 2013, prior to its
sale to Sumitomo, and Genesee & Wyoming, Inc., a public company that owns
and operates railroads worldwide, from 2018 to 2019, prior to its sale to
Brookfield Asset Management. Ms. Hostetler was also a member of the board of
directors of the Eisenhower Foundation, a non-profit organization.
From
2001 to 2009, Ms. Hostetler served as Head of Investment Funds and Private
Equity at Overseas Private Investment
Corporation (“OPIC”), a government agency that supports US investment in the
emerging markets. Ms. Hostetler oversaw a multi-billion dollar investment
portfolio in private equity funds. Prior to joining OPIC, Ms. Hostetler served
as President and member of the board of directors of First Manhattan
Bancorporation, a bank holding company, from 1991 to 2007, and its largest
subsidiary, First Savings Bank, from 1991 to 2006 (Board Member) and from 1996
to 2001 (President).
75
The
Board believes that Ms. Hostetler’s knowledge of financial services and
investment management, her experience as a
director of other companies, including a mutual fund complex, her legal
background, and other professional experience gained through her prior
employment benefit the Funds.
Dr.
Eli Jones, Trustee
Dr.
Eli Jones has been a member of the Board of Trustees of the Invesco Funds since
2016.
Dr.
Jones has served as Board Member of the regional board, First Financial Bank
Texas since 2021 and Board Member, First
Financial Bankshares, Inc. Texas since 2022. Since 2020, Dr. Jones has served as
a director on the board of directors of Insperity, Inc. (“Insperity”). From 2004
to 2016, Dr. Jones was chair of the Compensation Committee, a member of the
Nominating and Corporate Governance Committee and a director on the board of
directors of Insperity.
Dr.
Jones is a Professor of Marketing, Lowry and Peggy Mays Eminent Scholar, and
Dean Emeritus of Mays Business
School at Texas A&M University. From 2015 to 2021, Dr. Jones served as Dean
of Mays Business School at Texas A&M University. From 2012 to 2015, Dr.
Jones was the dean of the Sam M. Walton College of Business at the University of
Arkansas and holder of the Sam M. Walton Leadership Chair in Business. Prior to
joining the faculty at the University of Arkansas, he was dean of the E. J.
Ourso College of Business and Ourso Distinguished Professor of Business at
Louisiana State University from 2008 to 2012; professor of marketing and
associate dean at the C.T. Bauer College of Business at the University of
Houston from 2007 to 2008; an associate professor of marketing from 2002 to
2007; and an assistant professor from 1997 until 2002. He taught at Texas
A&M University for several years before joining the faculty of the
University of Houston.
Dr.
Jones served as the executive director of the Program for Excellence in Selling
and the Sales Excellence
Institute at the University of Houston from 1997 to 2007. Before becoming a
professor, he worked in sales and sales management for three Fortune 100
companies: Quaker Oats, Nabisco, and Frito-Lay. Dr. Jones is a past director of
Arvest Bank. He received his Bachelor of Science degree in journalism in 1982,
his MBA in 1986 and his Ph.D. in 1997, all from Texas A&M
University.
The
Board believes that Dr. Jones’ experience in academia and his experience in
marketing benefits the Funds.
Elizabeth
Krentzman, Trustee
Elizabeth
Krentzman has been a member of the Board of Trustees of the Invesco Funds since
2019. From 2014 to 2019,
Ms. Krentzman served on the boards of certain investment companies in the
Oppenheimer Funds complex.
Ms.
Krentzman served from 2017 to 2022, as a member of the Cartica Funds Board of
Directors (private investment funds).
Ms. Krentzman previously served as a member of the Board of Trustees of the
University of Florida National Board Foundation from 2016 to 2021. She also
served as a member of the Board of Trustees of the University of Florida Law
Center Association, Inc. from 2016 to 2021, as a member of its Audit Committee
from 2016 to 2020, and as a member of its Membership Committee from 2020 to
2021.
Ms.
Krentzman served from 1997 to 2004 and from 2007 and 2014 in various capacities
at Deloitte & Touche LLP,
including Principal and Chief Regulatory Advisor for Asset Management Services,
U.S. Mutual Fund Leader and National Director of the Investment Management
Regulatory Consulting Practice. She served as General Counsel of the Investment
Company Institute from 2004 to 2007.
From
1996 to 1997, Ms. Krentzman served as an Assistant Director of the Division of
Investment Management - Office
of Disclosure and Investment Adviser Regulation of the U.S. Securities and
Exchange Commission. She also served from 1991 to 1996 in various positions with
the Division of Investment Management – Office of Regulatory Policy of the U.S.
Securities and Exchange Commission and from 1987 to 1991 as an Associate at
Ropes & Gray LLP.
76
The
Board believes that Ms. Krentzman’s legal background, experience in financial
services and accounting and as a
director of other investment companies benefits the Funds.
Anthony
J. LaCava, Jr., Trustee
Anthony
J. LaCava, Jr. has been a member of the Board of Trustees of the Invesco Funds
since 2019.
Previously,
Mr. LaCava served as a member of the board of directors and as a member of the
audit committee of Blue
Hills Bank, a publicly traded financial institution.
Mr.
LaCava retired after a 37-year career with KPMG LLP (“KPMG”) where he served as
senior partner for a wide range of
firm clients across the retail, financial services, consumer markets, real
estate, manufacturing, health care and technology industries. From 2005 to 2013,
Mr. LaCava served as a member of the board of directors of KPMG and chair of the
board’s audit and finance committee and nominating committee. He also previously
served as Regional Managing Partner from 2009 through 2012 and Managing Partner
of KPMG’s New England practice.
Mr.
LaCava currently serves as Member and Chairman of the Business School Advisory
Council of Bentley University
and as a member of American College of Corporate Directors and Board Leaders,
Inc.
The
Board believes that Mr. LaCava’s experience in audit and financial services
benefits the Funds.
James
“Jim” Liddy, Trustee
James
“Jim” Liddy has been a member of the Board of Trustees of the Invesco Funds
since 2024. Mr. Liddy previously
served as Chairman of KPMG LLP (KPMG)’s Global Financial Services practice from
2017 through 2021. He also led KPMG’s U.S. Financial Services practice from 2015
through 2021.
Prior
to assuming his most recent role in 2017, Mr. Liddy served as Vice Chair of
Audit and on various other committees at
KPMG. He also previously served as National Managing Partner of Audit and was a
member of the firm’s Global Audit Steering Group.
The
Board believes that Mr. Liddy’s audit experience and knowledge of financial
services and investment management 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.
Since
2021, Dr. Mathai-Davis has served as a member of the Board of Positive Planet
US, a non-profit organization and
Healthcare Chaplaincy Network, a non-profit organization.
Previously,
Dr. Mathai-Davis served as co-founder and partner of Quantalytics Research, LLC,
(a FinTech Investment Research
Platform) from 2017 to 2019, when the firm was acquired by Forbes Media
Holdings, LLC.
Dr.
Mathai-Davis previously served as Chief Executive Officer of the YWCA of the USA
from 1994 until her retirement in
2000. 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 and Board
Member of the Metropolitan Transportation Authority of New York, the largest
regional transportation network in the U.S. Dr. Mathai-Davis also served 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. She
was a member of the Board of Visitors of the University of Maryland School of
Public Policy, and on the visiting Committee of The Harvard University Graduate
School of Education.
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.
77
Joel
W. Motley, Trustee
Joel
W. Motley has been a member of the Board of Trustees of the Invesco Funds since
2019. From 2002 to 2019, Mr. Motley
served on the boards of certain investment companies in the Oppenheimer Funds
complex.
In
May 2022, Mr. Motley rejoined the Vestry and the Investment Committee of Trinity
Church Wall Street. Since 2021, Mr.
Motley has served as a Board member of the Trust for Mutual Understanding, which
makes grants to arts and environmental organizations in Eastern Europe. Since
2021, Mr. Motley has served as a member of the board of Blue Ocean Acquisition
Corp. Since 2016, Mr. Motley has served as an independent director of the Office
of Finance of the Federal Home Loan Bank System. He has served as Managing
Director of Carmona Motley, Inc., a privately-held financial advisory firm,
since 2002.
Mr.
Motley also serves as a member of the Council on Foreign Relations and its
Finance and Budget Committee. He is a
member of the Investment Committee and is Chairman Emeritus of the Board of
Human Rights Watch and a member of the Investment Committee and the Board of
Historic Hudson Valley, a non-profit cultural organization.
Since
2011, he has served as a Board Member and Investment Committee Member of the
Pulitzer Center for Crisis
Reporting, a non-profit journalism organization. Mr. Motley also serves as
Director and member of the Board and Investment Committee of The Greenwall
Foundation, a bioethics research foundation, and as a Director of Friends of the
LRC, a South Africa legal services foundation.
Previously,
Mr. Motley served as Managing Director of Public Capital Advisors, LLC, a
privately held financial advisory
firm, from 2006 to 2017. He also served as Managing Director of Carmona Motley
Hoffman Inc. a privately-held financial advisor, and served as a Director of
Columbia Equity Financial Corp., a privately-held financial advisor, from 2002
to 2007.
The
Board believes that Mr. Motley’s experience in financial services and as a
director of other investment companies benefits
the Funds.
Teresa
M. Ressel, Trustee
Teresa
Ressel has been a member of the Board of Trustees of the Invesco Funds since
2017.
Ms.
Ressel has previously served within the private sector and the U.S. government
as well as consulting. Formerly, Ms.
Ressel served at UBS AG in various capacities, including as Chief Executive
Officer of UBS Securities LLC, a broker-dealer division of UBS Investment Bank,
and as Group Chief Operating Officer of the Americas.
Between
2001 and 2004, Ms. Ressel served at the U.S. Treasury, initially as Deputy
Assistant Secretary for Management
& Budget and then as Assistant Secretary for Management and Chief Financial
Officer. Ms. Ressel was confirmed by the U.S. Senate and anchored financial
duties at the Department, including finance, accounting, risk, audit and
performance measurement.
Ms.
Ressel also volunteers within her community across a number of functions and
serves on the board of GAVI, the Global
Vaccine Alliance (non-profit) supporting children’s health.
The
Board believes that Ms. Ressel’s risk management and financial experience in
both the private and public sectors
benefits the Funds.
Robert
C. Troccoli, Trustee
Robert
C. Troccoli has been a member of the Board of Trustees of the Invesco Funds
since 2016.
Mr.
Troccoli retired after a 39-year career with KPMG LLP (“KPMG”), where he served
as a senior Partner. From 2013
to 2017, he was an adjunct professor at the University of Denver’s Daniels
College of Business.
78
Mr.
Troccoli’s leadership roles during his career with KPMG included managing
partner and partner in charge of the
Denver office’s Financial Services Practice. He served regulated investment
companies, investment advisors, private partnerships, private equity funds,
sovereign wealth funds, and financial services companies. Toward the end of his
career, Mr. Troccoli was a founding member of KPMG’s Private Equity Group in New
York City, where he served private equity firms and sovereign wealth funds. Mr.
Troccoli also served mutual fund clients along with several large private equity
firms as Global Lead Partner of KPMG’s Private Equity Group.
The
Board believes that Mr. Troccoli’s experience as a partner in a large accounting
firm and his knowledge of
investment companies, investment advisors, and private equity firms benefits the
Funds.
Daniel
S. Vandivort, Trustee
Daniel
S. Vandivort has been a member of the Board of Trustees of the Invesco Funds
since 2019. From 2014 to 2019, Mr.
Vandivort served on the boards of certain investment companies in the
Oppenheimer Funds complex, as a Trustee and as the Governance Committee
Chair.
Mr.
Vandivort also served as Chairman, Lead Independent Director, and Chairman of
the Audit Committee of the Board of
Directors of the Value Line Funds from 2008 through 2014.
Previously,
Mr. Vandivort also served as a Trustee and Chairman of the Weiss Peck and Greer
Mutual Funds Board from
2004 to 2005.
Previously,
Mr. Vandivort served at Weiss Peck and Greer/Robeco Investment Management from
1994 to 2007, as President
and Chief Investment Officer and prior to that as Managing Director and Head of
Fixed Income. Mr. Vandivort also served in various capacities at CS First Boston
from 1984 to 1994, including as Head of Fixed Income at CS First Boston
Investment Management.
Mr.
Vandivort was also a Trustee on the Board of Huntington Disease Foundation of
America from 2007 to 2013 and from 2015
to 2019. He also served as Treasurer and Chairman of the Audit and Finance
Committee of Huntington Disease Foundation of America from 2016 to
2019.
Mr.
Vandivort currently serves as President of Flyway Advisory Services LLC, a
consulting and property management
company. He is also a
Member of the Investment Committee for the Historic Charleston
Foundation.
The
Board believes that Mr. Vandivort’s experience in financial services and
investment management and as a director of
other investment companies benefits the Funds.
Management
Information
The
Trustees have the authority to take all actions that they consider necessary or
appropriate in connection with
oversight of the Trust, including, among other things, approving the investment
objectives, investment policies and fundamental investment restrictions for the
Funds. The Trust has entered into agreements with various service providers,
including the Funds’ investment advisers, administrator, transfer agent,
distributor and custodians, to conduct the day-to-day operations of the Funds.
The Trustees are responsible for selecting these service providers, approving
the terms of their contracts with the Funds, and exercising general oversight of
these arrangements 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 Trusts.
Leadership
Structure and the Board of Trustees. The Board is
currently composed of fourteen Trustees,
including twelve Trustees who are
not “interested persons” of the Funds, 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
79
established
four standing committees – the Audit Committee, the Compliance Committee, the
Governance Committee and the
Investments Committee (the Committees), to assist the Board in performing its
oversight responsibilities.
The
Board has appointed an Independent Trustee to serve in the role of Chair. The
Chair’s primary role is to preside at
meetings of the Board and act as a liaison with the Adviser and other service
providers, officers, attorneys, and other Trustees between meetings. The Chair
also participates in the preparation of the agenda for the meetings of the
Board, is active with mutual fund industry organizations, and may perform such
other functions as may be requested by the Board from time to time. Except for
any duties specified pursuant to the Trust’s Declaration of Trust or By-laws,
the designation of Chair 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
Board believes that its leadership structure, including having an Independent
Trustee as Chair, allows for effective
communication between the Trustees and management, among the Trustees and among
the Independent Trustees. The existing Board structure, including its Committee
structure, provides the Independent Trustees with effective control over Board
governance while also allowing them to receive and benefit from insight from the
interested Trustee who is an active officer of the Funds’ investment adviser.
The Board’s leadership structure promotes dialogue and debate, which the Board
believes allows for the proper consideration of matters deemed important to the
Funds and their shareholders and results in effective
decision-making.
Risk
Oversight. The Board
considers risk management issues as part of its general oversight
responsibilities throughout the year at its regular meetings and at regular
meetings of its Committees. Invesco prepares regular reports that address
certain investment, valuation and compliance matters, and the Board as a whole
or the Committees 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.
The
Board also considers liquidity risk management issues as part of its general
oversight responsibilities and oversees the
Trust's liquidity risk through, among other things, receiving periodic reporting
and presentations by Invesco personnel that address liquidity matters. As
required by Rule 22e-4 under the 1940 Act, the Board, including a majority of
the Independent Trustees, has approved the Trust’s Liquidity Risk
Management ("LRM") Program, which is reasonably designed to assess and manage
the Trust’s liquidity risk,
and has appointed the LRM Program Administrator that is responsible for
administering the LRM Program. The Board also reviews, no less frequently than
annually, a written report prepared by the LRM Program Administrator that
addresses, among other items, the operation of the program and assesses its
adequacy and effectiveness of implementation. The Board also
oversees risks related to certain Funds’ use of derivatives as part of its
general oversight responsibilities. The Board has approved a derivatives risk
manager, which is responsible for administering the derivatives risk management
program (“DRM Program”) for the Funds that are required to implement a DRM
Program. The Board meets with the derivatives risk manager on a periodic basis,
including receiving quarterly and annual reports from the derivatives risk
manager, to review the implementation of the DRM Program.
The
Audit Committee assists the
Board
with
its
oversight of the Funds'
accounting and
auditing process. The Audit Committee
is responsible for selecting the Funds'
independent
registered public accounting firm
(auditors),
including
evaluating their independence and meeting with such auditors to consider and
review matters relating to the Funds' financial
reports and
internal controls. In addition, the
Audit Committee meets regularly with representatives of Invesco Ltd.’s internal
audit group to review reports on their examinations of functions and processes
within Invesco that affect the Funds. The Audit Committee also oversees the
Adviser’s process for valuing the Funds’ portfolio investments and receives
reports from management regarding its process and the valuation of the Funds’
portfolio investments as consistent with the valuation policy approved by the
Board and related procedures.
The
Compliance Committee receives regular compliance reports prepared by Invesco’s
compliance group and meets regularly
with the Fund’s Chief Compliance Officer (CCO) to discuss compliance issues,
including compliance risks. The Compliance Committee has recommended and the
Board has adopted compliance
80
policies
and procedures for the Funds and for the Funds’ service providers. The
compliance policies and procedures are
designed to detect, prevent and correct violations of the federal securities
laws.
The
Governance Committee monitors the composition of the Board and each of its
Committees and monitors the
qualifications of the Trustees to ensure adherence to certain governance
undertakings applicable to the Funds. In addition, the Governance Committee
oversees an annual self-assessment of the Board and its committees and
addresses
governance risks, including insurance and fidelity bond matters, for the
Trust.
The
Investments Committee and its sub-committees receive regular written reports
describing and analyzing the
investment performance of the Invesco Funds. In addition, Invesco’s Chief
Investment Officers and the portfolio managers of the Funds meet regularly with
the Investments Committee or its sub-committees to discuss portfolio
performance, including investment risk, such as the impact on the Funds of
investments in particular types of 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.
Committee
Structure
The
members of the Audit Committee are Messrs. LaCava (Chair),
Liddy
and
Troccoli, Dr. Jones, and Mss. Hostetler and Ressel. The Audit Committee performs
a number of functions with respect to the oversight of the Funds’ accounting and
financial reporting, including: (i) assisting the Board with its oversight of
the qualifications, independence and performance of the independent registered
public accountants; (ii) selecting independent registered public accountants for
the Funds; (iii) to the extent required, pre-approving certain audit and
permissible non-audit services; (iv) overseeing the financial reporting process
for the Funds; (v) assisting the Board with its oversight of the integrity of
the Funds’ financial statements and compliance with legal and regulatory
requirements that relate to the Funds’ accounting and financial reporting,
internal control over financial reporting and independent audits; (vi)
pre-approving engagements for non-audit services to be provided by the Funds’
independent auditors to the Funds’ investment adviser or to any of its
affiliates; and (vii) overseeing the performance of the fair valuation
determinations by the Adviser. During the fiscal year ended October 31,
2023, the Audit
Committee held four meetings.
The
members of the Compliance Committee are Messrs. Motley and Vandivort, and Mss.
Brown,
Deckbar
and
Krentzman (Chair) and Dr. Mathai-Davis. The Compliance Committee performs a
number of functions with respect to compliance matters, including: (i) reviewing
and making recommendations concerning the qualifications, performance and
compensation of the Funds’ Chief Compliance Officer; (ii) reviewing
recommendations and reports made by the Chief Compliance Officer of the Funds
regarding compliance matters; (iii) overseeing compliance policies and
procedures of the Funds and their service providers; (iv) overseeing potential
conflicts of interest that are reported to the Compliance Committee by Invesco,
the Chief Compliance Officer or other
independent advisors; (v) reviewing
reports prepared by a third party’s compliance review of Invesco; (vi) if
requested by the Board, overseeing risk management with respect to the Funds
(other
than risks overseen by the other Committees), including
receiving and overseeing risk management reports from Invesco that are
applicable to the Funds and their service providers; and (vii) reviewing reports
by Invesco on correspondence with regulators or governmental agencies with
respect to the Funds and recommending to the Board what action, if any, should
be taken by the Funds in light of such reports. During the fiscal year ended
October 31, 2023, the Compliance
Committee held four meetings.
The
members of the Governance Committee are Messrs. Motley and Vandivort (Chair) and
Mss. Brown and Hostetler and
Dr. Mathai-Davis. The Governance Committee performs a number of functions with
respect to governance, including: (i) nominating persons to serve as Independent
Trustees and as members of each Committee, and nominating the Chair of the
Board, the Chair of each Committee and the Chair of each Sub-Committee of the
Investments committee; (ii) reviewing and making recommendations to the full
Board regarding the size and composition of the Board and the compensation
payable to the Independent Trustees;(iii) overseeing the annual evaluation of
the performance of the Board and its Committees; (iv) considering and overseeing
the selection of independent legal counsel to the Independent Trustees; (v)
considering and overseeing the selection and engagement of a Senior Officer if
and as they deem
81
appropriate,
including compensation and scope of services, and recommending all such matters
to the Board or the independent
trustees as appropriate; (vi) reviewing administrative and/or logistical matters
pertaining to the operations of the Board; and (vii) reviewing annually
recommendations from Invesco regarding amounts and coverage of primary and
excess directors and officers/errors and omissions liability insurance and
allocation of premiums. During the fiscal year ended October 31, 2023, the Governance
Committee held ten meetings.
The
Governance Committee will consider nominees recommended by a shareholder to
serve as trustees, provided: (i) that
such submitting shareholder provides the
information required by, and otherwise complies with the applicable provisions
of, the Fund’s governing instruments,
(ii)
that such submitting shareholder 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 (iii) 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
candidate for election at a shareholder meeting must provide certain information
about itself and the candidate, and 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, nor earlier than the close of business on the 120th day, prior to the
first anniversary of the preceding year’s annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more than
30 days or delayed by more than 60 days from such anniversary date or if the
Trust has not previously held an annual meeting, notice by the Shareholder to be
timely must be so delivered not earlier than the close of business on the 120th
day prior to such annual meeting and not later than the close of business on the
later of the 90th day prior to such annual meeting or the tenth day following
the day on which public announcement of the date of such meeting is first made
by the Trust.
The
members of the Investments Committee are Messrs. LaCava, Liddy, Motley
(Sub-Committee
Chair), Troccoli
(Sub-Committee Chair) and Vandivort, Mss. Brown, Deckbar, Hostetler (Chair),
Krentzman and Ressel and Drs. Jones and Mathai-Davis (Sub-Committee Chair). The
Investments Committee’s primary purposes are to assist the Board in its
oversight of the investment management services provided by Invesco and the
Sub-Advisers and to periodically review Fund performance information,
and information
regarding the investment personnel and other resources devoted to the management
of the Funds and make recommendations to the Board, when applicable. During the
fiscal year ended October 31, 2023, the Investments
Committee held five meetings.
The
Investments Committee has established three Sub-Committees and delegated to the
Sub-Committees responsibility
for, among other matters: (i) reviewing the performance of the Invesco Funds
that have been assigned to a particular Sub-Committee (for each Sub-Committee,
the Designated Funds), except to the extent the Investments Committee takes such
action directly; (ii) reviewing with the applicable portfolio managers from time
to time the investment objective(s), policies, strategies, performance and risks
and other investment-related matters of the Designated Funds; and (iii) being
generally familiar with the investment objectives and principal investment
strategies of the Designated Funds.
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 of each
Committee and Sub-Committee receive additional compensation for their
services.
82
Information
regarding compensation paid or accrued for each Trustee of the Trust who was not
affiliated with Invesco during
the year ended December 31, 2023 is found in
Appendix D.
Retirement
Policy
The
Trustees have adopted a retirement policy that permits each Trustee to serve
until December 31 of the year in which
the Trustee turns 75.
Pre-Amendment
Retirement Plan For Trustees
The
Trustees have adopted a Retirement Plan for the Trustees who are not affiliated
with the Adviser. A description of the
pre-amendment Retirement Plan follows. 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.
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
83
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.
Deferred
Compensation Agreements
Certain former
Trustees
and
current
Independent
Trustees
(for
purposes of this paragraph only, the Deferring Trustees) have 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. Amounts deferred
by Deferring Trustees pursuant to a Compensation Agreement during the most
recent fiscal year are shown in Appendix D – Trustee Compensation
Table.
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 certain 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,
Exchange
and
Pricing of Shares — Purchase and Redemption of Shares — Class A Shares Sold
Without an Initial Sales Charge.”
84
Purchases
of Class Y Shares of the Funds
The
Trustees and certain other affiliated persons of the Trust may purchase Class Y
shares of the Invesco Funds. For a
description please see “Appendix L — Purchase, Redemption,
Exchange
and
Pricing of Shares — Purchase and Redemption of Shares — Purchases of Class Y
Shares.”
Code
of Ethics
Invesco,
the Trust, Invesco Distributors and certain of 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. Certain Sub-Advisers have adopted their
own Code of Ethics. Each Code of Ethics is designed to detect and prevent
improper personal trading by portfolio managers and certain other employees that
could compete with or take advantage of the Fund’s portfolio transactions.
Unless specifically noted, to the extent a Sub-Adviser has adopted its own Code
of Ethics, each Sub-Adviser’s Code of Ethics does not materially differ from
Invesco’s 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 in 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.
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
Name |
Adviser/Sub-Adviser |
|
Invesco
Charter Fund |
Invesco
Advisers, Inc. |
|
Invesco
Diversified Dividend Fund |
Invesco
Advisers, Inc. |
|
Invesco
Main Street All Cap Fund® |
Invesco
Advisers, Inc. |
|
Invesco
Main Street Fund® |
Invesco
Advisers, Inc. |
|
Invesco
Rising Dividends Fund |
Invesco
Advisers, Inc. |
|
Invesco
Summit Fund |
Invesco
Advisers, Inc. |
Invesco
(the Proxy Voting Entity) will vote such proxies in accordance with its proxy
voting 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 voting 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 twelve months ended June 30, 2023, is available
without charge at our website, http://www.invesco.com/us. This information will
also be available at the SEC website, http://www.sec.gov.
CONTROL
PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information
about the ownership of each class of each Fund’s shares by beneficial or record
owners of such Fund and
ownership of Fund shares 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
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
85
successor
in interest to multiple investment advisers, has been an investment adviser
since 1976. Invesco Advisers, Inc. 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.
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 business 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 Per Advisory Agreement |
Annual
Rate |
|
Invesco
Charter Fund |
First
$250 million |
0.695% |
|
|
Next
$4.05 billion |
0.615% |
|
|
Next
$3.9 billion |
0.57% |
|
|
Next
$1.8 billion |
0.545% |
|
|
Over
$10 billion |
0.52% |
|
|
|
|
|
Invesco
Diversified Dividend Fund |
First
$350 million |
0.60% |
|
|
Next
$350 million |
0.55% |
|
|
Next
$1.3 billion |
0.50% |
|
|
Next
$2 billion |
0.45% |
|
|
Next
$2 billion |
0.40% |
|
|
Next
$2 billion |
0.375% |
|
|
Over
$8 billion |
0.35% |
|
|
|
|
|
Invesco
Main Street All Cap Fund®* |
First
$200 million |
0.75% |
|
|
Next
$200 million |
0.72% |
|
|
Next
$200 million |
0.69% |
86
|
Fund
Name |
Net
Assets Per Advisory Agreement |
Annual
Rate |
|
|
Next
$200 million |
0.66% |
|
|
Next
$4.2 billion |
0.60% |
|
|
Over
$5 billion |
0.58% |
|
|
|
|
|
Invesco
Main Street Fund®* |
First
$200 million |
0.65% |
|
|
Next
$150 million |
0.60% |
|
|
Next
$150 million |
0.55% |
|
|
Next
$9.5 billion |
0.45% |
|
|
Over
$10 billion |
0.43% |
|
|
|
|
|
Invesco
Rising Dividends Fund* |
First
$800 million |
0.65% |
|
|
Next
$700 million |
0.60% |
|
|
Next
$1 billion |
0.58% |
|
|
Next
$2.5 billion |
0.56% |
|
|
Next
$5 billion |
0.54% |
|
|
Over
$10 billion |
0.52% |
|
|
|
|
|
Invesco
Summit Fund |
First
$10 million |
1.00% |
|
|
Over
$140 million |
0.75% |
|
|
Over
$150 million |
0.625% |
|
|
|
|
*The advisory fee
payable by the Fund shall be reduced by any amounts paid by the Fund under the
administrative services agreement with Invesco.
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.
Invesco
has contractually agreed through at least June 30, 2025, to waive
advisory fees payable by each Fund in an amount equal to 100% of the net
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.” 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 as indicated above. During their
terms, the fee waiver agreements cannot be terminated or amended to reduce the
advisory fee waivers without approval of the Board. The management fees payable
by the Funds, the amounts waived by Invesco and the net fees paid by the Funds
are found in Appendix G.
For
Funds that have expense limitations (“Expense Limitations”) or the boundary
limits ("Boundary Limits"), as
applicable, Invesco has agreed for until at least the expiration
date
(the
“Expiration Date”) for the Expense Limitations,
or for
an indefinite period until further notice to the Board of Trustees for the
Boundary Limits, that Invesco will waive its fees or reimburse expenses to the
extent that expenses of the applicable class of the applicable Fund (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, if applicable) exceed the Expense Limitation or
Boundary Limit rate, on an average of the daily net assets allocable to such
class on an annualized basis. (It should be noted that Acquired Fund Fees and
Expenses are not operating expenses of the Funds directly, but are fees and
expenses, including management fees of the investment companies in which the
Funds invest. As a result, the Total Annual Fund Operating Expenses After Fee
Waiver and/or Expense Reimbursement may exceed a Fund’s expense
limit.)
87
Boundary
Limits.
From
time to time,
Invesco may
establish amend and/or terminate Boundary Limits at any time in its sole
discretion. Invesco will
inform
the Board of Trustees of any such changes.
These
Boundary Limits are set forth in the Boundary Limits table below.
Boundary
Limits
|
Fund |
Limit
Applicable to each Fund/Class |
|
Invesco
Charter Fund |
Class
A: 2.00% |
|
Invesco
Diversified Dividend Fund |
Class
C: 2.75% |
|
Invesco
Main Street All Cap Fund |
Class
R: 2.25% |
|
Invesco
Main Street Fund |
Class
R5: 1.75% |
|
Invesco
Rising Dividends Fund |
Class
R6: 1.75% |
|
Invesco
Summit Fund |
Class
P: 1.85% |
|
|
Class
S: 1.90% |
|
|
Class
Y: 1.75% |
|
|
Investor:
2.00% |
Investment
Sub-Advisers
Invesco
has entered into a Sub-Advisory Agreement with certain affiliates to serve as
sub-advisers to each Fund (each, a
Sub-Adviser), 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 Advisers Act are:
•
Invesco Asset
Management (Japan) Limited (Invesco Japan)
•
Invesco Asset
Management Deutschland GmbH (Invesco Deutschland)
•
Invesco Asset
Management Limited (Invesco Asset Management)
•
Invesco Canada Ltd.
(Invesco Canada)
•
Invesco Hong Kong
Limited (Invesco Hong Kong)
•
Invesco Senior
Secured Management, Inc. (Invesco Senior Secured)
Invesco
has also entered into a Sub-Advisory Agreement with another affiliate, Invesco
Capital, also a registered
investment adviser under the Advisers Act, to provide discretionary investment
management services, investment advice, and/or order execution services to
Invesco Main Street Fund®, Invesco Main
Street All Cap Fund® and Invesco Rising
Dividends Fund.
Invesco
has also entered into a Sub-Advisory Agreement with another affiliate, Invesco
Asset Management (India)
Private Limited (Invesco India), also a registered investment adviser under the
Advisers Act, to provide discretionary investment management services,
investment advice, and/or order execution services to Invesco Main Street
Fund®, Invesco Main
Street All Cap Fund® and Invesco Rising
Dividends Fund.
The
only fees payable to the Sub-Advisers described above under the Sub-Advisory
Agreements 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
88
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 fee waivers or expense limitations
by Invesco, if any.
Invesco
has also entered into a Sub-Advisory Agreement with another affiliate,
OppenheimerFunds, Inc. also a registered
investment adviser under the Advisers Act, to provide discretionary investment
management services, investment advice, and/or order execution services to
Invesco Main Street Fund®, Invesco Main
Street All Cap Fund® and Invesco Rising
Dividends Fund. Under the sub-advisory agreement, the Adviser pays the
Sub-Adviser a percentage of the net investment advisory fee (after all
applicable waivers) that it receives from the Fund as compensation for the
provision of investment advisory services. The fee paid to the Sub-Adviser under
the Sub-Advisory Agreement is paid by the Adviser, not by the Fund.
Invesco
and each Sub-Adviser are indirect wholly-owned subsidiaries of Invesco
Ltd.
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 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. Under the Administrative Services Agreement, Invesco is entitled to
receive from the Funds reimbursement of its costs or such reasonable
compensation. The advisory fee payable by Invesco Main Street Fund®, Invesco Main
Street All Cap Fund® and Invesco Rising
Dividends Fund shall be reduced by any amounts paid by the Fund under the
Administrative Services Agreement. Currently, Invesco is reimbursed for the
services of the Trust’s principal financial officer and the principal financial
officer's staff and any expenses related to fund accounting
services.
Administrative
services fees paid to Invesco by each Fund for the last three fiscal years or
periods, as applicable, ended
October 31 are found in Appendix I.
Other
Service Providers
Transfer
Agent.
Invesco Investment Services, Inc., (Invesco Investment Services), 11 Greenway
Plaza, Houston, Texas 77046-1173, a wholly-owned subsidiary of Invesco, Ltd. is
the Trust’s transfer agent.
The
Amended and Restated 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, 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. 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 Class R6
shares, as applicable, the TA Agreement provides that the Trust, on behalf of
the Funds, will pay Invesco Investment Services an asset-based fee. The TA
Agreement also provides that Invesco Investment Services is responsible for out
of pocket expenses relating to the procurement of goods and services as they
relate to its obligations under the TA Agreement. 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 as reflected in Board-approved
policies. 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” found in Appendix
L.
89
Sub-Transfer
Agent.
Invesco Canada, 120 Bloor Street East, Suite 700, Toronto, Ontario, Canada M4W
1B7, 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.
In
addition, Invesco (India) Private Limited, Divyasree Orion, B6 15TH FLOOR,
Raidurgam, Serilingampalli,
Hyderabad, India K7 500032, a wholly-owned, indirect subsidiary of Invesco Ltd.,
provides services to the Trust as a sub-transfer agent, pursuant to an agreement
between Invesco (India) Private Limited and Invesco Investment Services. The
Trust does not pay a fee to Invesco (India) Private Limited and Invesco
Investment Services. Rather Invesco (India) Private Limited 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 (unless otherwise stated below). The
Bank of New York Mellon, 2 Hanson Place, Brooklyn, New York 11217-1431, also
serves as sub-custodian to facilitate cash management.
The
Custodian and sub-custodian 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.
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
selected, and the Board has ratified and approved PricewaterhouseCoopers LLP,
1000 Louisiana Street, Suite 5800, Houston, Texas 77002-5021, as the independent
registered public accounting firm to audit the financial statements of the
Funds. In connection with the audit of the Funds' financial statements, the
Funds entered into an engagement letter with PricewaterhouseCoopers LLP. The
terms of the engagement letter required by PricewaterhouseCoopers LLP, and
agreed to by the Funds' Audit Committee, include a provision mandating the use
of mediation and arbitration to resolve any controversy or claim between the
parties arising out of or relating to the engagement letter or the services
provided thereunder. Financial statements for the predecessor fund for periods
ending on or prior to May 24, 2019 were audited by the predecessor fund’s
auditor, KPMG LLP, an independent registered public accounting firm, which is
different than the Funds’ auditor.
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.
Securities
Lending Arrangements
As
discussed under “Lending Portfolio Securities” the Funds may lend their
portfolio securities to generate additional income.
Certain Funds may participate in a securities lending program pursuant to a
securities lending agreement that establishes the terms of the loan, including
collateral requirements. The Funds participating in the securities lending
program may lend securities to securities brokers and other
borrowers.
90
Under
the securities lending program, Bank of New York Mellon (BNY Mellon) served as a
securities lending agent for
certain of the Funds’ most recently completed fiscal year. The Board also
appointed Invesco to serve as an affiliated securities lending agent for the
Funds under the securities lending program. Invesco served as an affiliated
securities lending agent for the Funds' most recently completed fiscal year, as
listed in the table below (as applicable).
To
the extent a Fund utilizes Invesco as an affiliated securities lending agent,
the Fund conducts its securities lending
in accordance with and in reliance upon no-action letters issued by the SEC
staff that provide guidance on how an affiliate may act as a direct agent lender
and receive compensation for those services without obtaining exemptive relief.
The Board has approved policies and procedures that govern a Fund's securities
lending activities when utilizing an affiliated securities lending agent, such
as Invesco, consistent with the guidance set forth in the no-action
letters.
Invesco
serves as a securities lending agent to other clients in addition to the Funds.
There are potential conflicts of
interests involved in the Funds’ use of Invesco as an affiliated securities
lending agent, including but not limited to: (i) Invesco as securities lending
agent may have an incentive to increase or decrease the amount of securities on
loan, lend particular securities, delay or forgo calling securities on loans, or
lend securities to less creditworthy borrowers, in order to generate additional
fees for Invesco and its affiliates; and (ii) Invesco as securities lending
agent may have an incentive to allocate loans to clients that would provide more
fees to Invesco. Invesco seeks to mitigate these potential conflicts of interest
by utilizing a methodology designed to provide its securities lending clients
with equal lending opportunities over time.
For
the fiscal year ended October 31, 2023, the income
earned by the Funds, as well as the fees and/or compensation paid by the Funds
(in dollars) pursuant to a securities lending agency/authorization agreement
between the Trust, with respect to the Funds, and BNY Mellon, were as
follows:
|
|
Gross
income
from
securities
lending
activities |
Fees
paid
to
Securities
Lending
Agent
from
a
revenue
split |
Fees
paid for
any
cash
collateral
management
service
(including
fees
deducted
from
a
pooled
cash
collateral
reinvestment
vehicle)
not
included
in
the
revenue
split |
Administrative
fees
not
included
in
the
revenue
split |
Indemnification
fees
not
included
in
the
revenue
split |
Rebate
(paid
to
borrower) |
Other
fees
not
included
in
the
revenue
split |
Aggregate
fees/
compensation
for
securities
lending
activities |
Net
income
from
securities
lending
activities |
|
Invesco
Charter Fund |
$823,383.06 |
$2,595.08 |
$78,098.00 |
$0.00 |
$0.00 |
$719,326.93 |
$0.00 |
$800,020.01 |
$23,363.05 |
|
Invesco
Diversified
Dividend
Fund |
2,323,741.72 |
41,955.61 |
260,983.00 |
0.00 |
0.00 |
1,643,176.42 |
0.00 |
1,946,115.03 |
377,626.69 |
|
Invesco
Main Street All
Cap
Fund |
415,127.96 |
1,763.03 |
22,111.00 |
0.00 |
0.00 |
375,380.27 |
0.00 |
399,254.30 |
15,873.66 |
|
Invesco
Main Street
Fund |
4,226,430.57 |
87,219.96 |
189,116.00 |
0.00 |
0.00 |
3,165,072.48 |
0.00 |
3,441,408.44 |
785,022.13 |
|
Invesco
Rising
Dividends
Fund |
421,412.32 |
1,802.34 |
84,950.00 |
0.00 |
0.00 |
318,436.55 |
0.00 |
405,188.89 |
16,223.43 |
|
Invesco
Summit Fund |
1,953,142.92 |
10,748.51 |
93,842.00 |
0.00 |
0.00 |
1,751,784.55 |
0.00 |
1,856,375.06 |
96,767.86 |
For
the fiscal year ended October 31, 2023, BNY Mellon
provided the following services for the Funds in connection with securities
lending activities: (i) entering into loans with approved entities subject to
guidelines or restrictions provided by the Funds; (ii) negotiating loan terms;
(iii) receiving collateral from borrowers; (iv) collecting distributions from
borrowers and crediting such distributions to the custodial account; (v)
collecting securities loan fees and crediting them to the collateral account;
(vi) terminating loans in its reasonable discretion or as directed by the Funds;
(vii) effecting currency conversion transactions; (viii) investing and
reinvesting cash collateral; (ix) maintaining books and records; and (x) acting
as the Funds’ agent in connection with all aspects of (including establishment,
maintenance, perfection, administration, performance of and realization upon)
the security interest in, and lien and charge upon, the
collateral.
91
For
the fiscal year ended October 31, 2023, the income
earned by the Funds, as well as the fees and/or compensation paid by the Funds
(in dollars) to Invesco pursuant to the affiliated securities lending agreement
were as follows:
|
|
Gross
income
from
securities
lending
activities |
Fees
paid
to
Securities
Lending
Agent
from
a
revenue
split*
|
Fees
paid for
any
cash
collateral
management
service
(including
fees
deducted
from
a
pooled
cash
collateral
reinvestment
vehicle)
not
included
in
the
revenue
split |
Administrative
fees
not
included
in
the
revenue
split |
Indemnification
fees
not
included
in
the
revenue
split |
Rebate
(paid
to
borrower) |
Other
fees
not
included
in
the
revenue
split |
Aggregate
fees/
compensation
for
securities
lending
activities |
Net
income
from
securities
lending
activities |
|
Invesco
Charter Fund |
$3,107,123.24 |
$2,347.45 |
$0.00 |
$9,392.46 |
$0.00 |
$2,940,684.12 |
$0.00 |
$2,952,424.03 |
$154,699.21 |
|
Invesco
Diversified
Dividend
Fund |
10,985,269.70 |
8,433.63 |
0.00 |
33,739.30 |
0.00 |
10,413,647.30 |
0.00 |
10,455,820.23 |
529,449.47 |
|
Invesco
Main Street All
Cap
Fund |
679,444.34 |
799.86 |
0.00 |
3,203.930 |
0.00 |
635,171.62 |
0.00 |
639,175.41 |
40,268.93 |
|
Invesco
Main Street
Fund |
5,346,341.45 |
30,726.98 |
0.00 |
122,915.24 |
0.00 |
3,499,929.44 |
0.00 |
3,653,571.66 |
1,692,769.79 |
|
Invesco
Rising
Dividends
Fund |
3,852,098.58 |
3,149.16 |
0.00 |
12,599.49 |
0.00 |
3,612,564.51 |
0.00 |
3,628,313.16 |
223,785.42 |
|
Invesco
Summit Fund |
2,777,277.61 |
3,158.41 |
0.00 |
12,652.49 |
0.00 |
2,617,992.27 |
0.00 |
2,633,803.17 |
143,474.44 |
*Paid to BNY
Mellon.
Further,
for the fiscal year ended October 31, 2023, Invesco
provided the following services for the Funds in connection with affiliated
securities lending activities: (i) identify available loan opportunities, (ii)
negotiate loan terms; (iii) enter into loans with prime brokers subject to
guidelines or restrictions provided by the Funds; (iv) input loan details into
the securities lending platform; (v) monitor daily reports and data files of
loan details to ensure compliance with applicable policies and requirements or
restrictions of the securities lending program; (vi) monitor re-rate
surveillance reports; (vii) re-negotiate loan rates and re-allocate or recall
securities where necessary; and (viii) provide quarterly reports to the
Securities Lending Governance Committee and to the Board on information required
by Invesco’s policies and procedures for affiliated securities
lending.
In
addition, the Advisory Agreement describes administrative services to be
rendered by Invesco under such Advisory
Agreement 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, where applicable: (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 in determining which specific securities are available for loan; (c)
monitoring the securities lending 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 securities lending agent inquiries; and (f)
performing such other duties as may be necessary. Invesco also monitors the
creditworthiness of the securities lending agent and borrowers to ensure that
securities loans are effected in accordance with Invesco’s risk policies. The
Advisory Agreement authorizes Invesco to receive a separate fee equal to 25% of
the net monthly interest or fee income retained or paid to the Funds for the
administrative services that Invesco renders in connection with securities
lending. Invesco has contractually agreed, however, not to charge this fee under
the Advisory Agreement and to obtain Board approval prior to charging such a fee
in the future.
Portfolio
Managers
Appendix
H contains the following information regarding the portfolio managers identified
in each Fund’s Prospectus:
92
•
The dollar range of
the managers’ investments in each Fund.
•
A description of
the managers’ compensation structure.
•
Information
regarding other accounts managed and potential conflicts of interest that might
arise from the management of multiple accounts.
BROKERAGE
ALLOCATION AND OTHER PRACTICES
Invesco
and 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-dealer 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’s procedures.
As
discussed below, Invesco and the Sub-Advisers, unless prohibited by applicable
law, may cause a Fund to pay a
broker-dealer a commission for effecting a transaction that exceeds the amount
another broker-dealer would have charged for effecting the same transaction in
recognition of the value of brokerage and research services provided by that
broker-dealer. Since January 3, 2018, under the European Union’s Markets in
Financial Instruments Directive (MiFID II) and as implemented in the United
Kingdom, European Union and United Kingdom investment advisers, including
Invesco Deutschland and Invesco Asset Management, which may act as sub-adviser
to certain Funds as described in such Funds' prospectuses, pay for research from
broker-dealers directly out of their own resources, rather than through client
commissions.
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 primary trading centers around the world to place equity securities trades in
their regions. Invesco’s
Americas desk, with
locations in the United States and Canada (the Americas Desk), generally places
trades of equity securities trading in North America, Canada and Latin America;
the Asia Pacific desk,
with
locations in Hong Kong,
Japan,
Australia and China (the Asia Pacific Desk), generally places trades of equity
securities trading in the Asia-Pacific markets; and the EMEA trading
desk,
with
locations in the United Kingdom (the EMEA Desk), generally places trades of
equity securities trading in European, Middle Eastern and African
countries.
Additionally,
various Invesco Ltd.
subsidiaries
have
created an
alternatives trading desk that generally places trades in derivatives, options
and foreign currency. Invesco, Invesco Canada, Invesco Japan, Invesco
Deutschland, Invesco Hong Kong, Invesco Capital and Invesco Asset Management use
the global equity trading desk and the alternatives desk to place trades. Other
Sub-Advisers may use the global equity trading desk and the alternatives 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 or a Sub-Adviser making
determinations or taking actions
related to equity trading include these entities’ delegation of these
determinations/actions to the Americas Desk, the Asia Pacific Desk, and the EMEA
Desk. Even when trading is delegated by Invesco or the Sub-Advisers to the
various arms of the global equity trading desk or to the alternatives desk,
Invesco or the Sub-Adviser that delegates trading is responsible for oversight
of this trading activity.
Commissions
Invesco
or the Sub-Advisers make decisions to buy and sell securities for each Fund,
select broker-dealers (each, a Broker),
effect the Funds’ investment portfolio transactions, allocate brokerage fees in
such transactions and, where applicable, negotiate commissions and spreads on
transactions. Invesco’s and the Sub-Advisers’ primary consideration in effecting
a security transaction is to obtain best execution
for a
Fund such that the Fund’s total cost or proceeds in each transaction is the most
favorable under the circumstances, including commissions, mark-ups or mark-downs
which are reasonable in relation to the value of the research
93
and
brokerage services
provided by the Broker. While Invesco and the Sub-Advisers seek reasonably
competitive commission rates, the Funds may not pay the lowest commission or
spread available. See “Broker Selection” below.
Some
of the securities in which the Funds invest,
such
as fixed income securities, 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. 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.
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 a 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 client accounts managed by Invesco or a Sub-Adviser (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 generally do not generate brokerage commissions but may result in
custodial fees or taxes or other related expenses.
Brokerage
commissions paid by each of the Funds during the last three fiscal years
ended
October 31 are found in Appendix J.
Broker
Selection
Invesco’s
or the Sub-Advisers’ 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 or fixed income securities for a Fund, Invesco or the Sub-Advisers
consider the full range and quality of a Broker’s services,
including,
but
not limited to, the value of research and/or brokerage services provided (if
permitted by applicable law or regulation), execution capability, commission
rate, spread or mark-up
or
mark-down
(as
applicable), willingness to commit capital, anonymity and responsiveness. In
each case, the determinative factor is not the lowest commission,
spread
or mark-up or mark-down available but whether the transaction represents the
best qualitative execution for the Fund under the circumstances. Invesco and the
Sub-Advisers will not select Brokers based upon their promotion or sale of Fund
shares.
Unless
prohibited by applicable law, such as MiFID II (described herein), in choosing
Brokers to execute portfolio
transactions for the Funds, Invesco or a Sub-Adviser may select Brokers that
provide brokerage and/or research services (Soft Dollar Products) to
Invesco
or
such Sub-Adviser. For the avoidance of doubt, European Union and United Kingdom
investment advisers, including Invesco Deutschland and Invesco Asset Management,
which may act as sub-adviser to certain Invesco Funds as described in such
Funds’ prospectuses, must pay for research from Brokers directly out of their
own resources, rather than through client commissions. Therefore, the use of the
defined term “Sub-Advisers” throughout this section shall not be deemed to apply
to those Sub-Advisers subject to the MiFID II prohibitions. Section 28(e) of the
Exchange Act, provides that Invesco or a Sub-Adviser, under certain
circumstances, lawfully may cause a client account to pay a higher commission
than the lowest available. Under Section 28(e)(1), Invesco or the
Sub-Adviser
must
make a 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 Soft Dollar Products 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 that are higher than those charged by
another Broker in recognition of the Broker’s provision of Soft Dollar Products
to Invesco or the Sub-Advisers.
Invesco
and the Sub-Advisers face a potential conflict of interest when they use client
trades to obtain Soft Dollar
Products. This conflict exists because Invesco and the Sub-Advisers are able to
use the Soft Dollar Products to manage client accounts without paying cash for
the Soft Dollar Products, which reduces
94
Invesco’s
or a Sub-Adviser’s expenses to the extent that Invesco or such Sub-Adviser would
have purchased such products had
they not been provided by Brokers. Additionally, Section 28(e) permits Invesco
or a Sub-Adviser to use Soft Dollar Products for the benefit of any account it
manages. Certain Invesco-managed client accounts (or client accounts managed by
the Sub-Advisers) may generate soft dollar commissions used to purchase Soft
Dollar Products that ultimately benefit other Invesco-managed client accounts
(or the other Sub-Adviser managed accounts), effectively cross-subsidizing the
other Invesco-managed client accounts (or the other Sub-Adviser-managed client
accounts) that benefit directly from the product. Invesco or a 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 dollar commissions used to purchase such
products.
Fixed
income trading normally
does 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 or other fixed-income
client accounts are generated entirely by equity-focused
Invesco Funds and
other equity-focused 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
for which they do not pay. Similarly, other client accounts managed by Invesco
or certain of its affiliates may benefit from Soft Dollar Products for which
they do not pay.
Invesco
and the Sub-Advisers 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 dollar commissions to purchase two types of Soft Dollar
Products:
•
proprietary
research created by the Broker executing the trade, and
•
other research and
brokerage products and services created by third party vendors that are supplied
to Invesco or the Sub-Advisers 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
targeted share of Invesco clients’ commission dollars and attempts to direct
trades to these firms to meet these estimates.
Soft
Dollar Products are paid for by Invesco and Sub-Advisers using
soft dollar commissions through one of two methods: full-service trading or
commission sharing agreements (“CSAs”). In a full-service trading arrangement,
the Broker itself provides proprietary research products and brokerage services
to Invesco or the Sub-Adviser,
and
commissions paid to the Broker are retained by it
to pay
for both trade execution and the proprietary research products and brokerage
services provided by it. In a CSA arrangement with a Broker,
a
portion of the commission paid to the Broker
is
made available by the Broker to Invesco or the Sub-Adviser to
pay a
third party for third party research and brokerage products and
services.
Soft
Dollar Products received from Brokers supplement Invesco’s and the Sub-Advisers’
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).
95
•
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 macroeconomic 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
Company/Industry Analysis – company or 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 or custom built
investment-analysis software.
Occasionally, Invesco or a
Sub-Adviser will receive certain “mixed-use”
research
and
brokerage services, a portion of the cost of which is eligible under Section
28(e) for payment with soft dollar commissions and a portion of which is not. In
these instances, Invesco or the Sub-Adviser will make a reasonable
allocation
of the
cost of the product or service according to its use and pay for only that
portion of the cost that is eligible under Section 28(e)
with
soft dollar commission (and will pay for the remaining portion with its own
resources).
Outside
research assistance is useful to Invesco and the
Sub-Advisers because the Brokers used by Invesco and the Sub-Advisers and the
providers of other Soft Dollar Products tend to provide more in-depth analysis
of a broader universe of securities and other matters than Invesco’s or the
Sub-Advisers’ staff follow. In addition, such services provide Invesco or the
Sub-Advisers with a diverse perspective on financial markets. In some cases,
Soft Dollar Products are available only from the Broker providing them. In other
cases, Soft Dollar Products may be obtainable from alternative sources in return
for cash payments. Invesco and the Sub-Advisers believe that because Broker
research supplements rather than replaces Invesco’s or the Sub-Advisers’
research, the receipt of such research tends to improve the quality of Invesco’s
or the Sub-Advisers’ investment advice. The advisory fee paid by the Funds is
not reduced because Invesco or the Sub-Advisers receive such services. To the
extent the Funds' portfolio transactions are used to obtain Soft Dollar
Products, the brokerage commissions charged to the Funds might exceed those that
might otherwise have been paid.
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-Advisers believe 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-Advisers will not enter into a binding commitment with
Brokers to place trades with such Brokers involving brokerage commissions in
precise amounts.
As
noted above, under MiFID II, European Union and United Kingdom
investment advisers, including Invesco Deutschland and Invesco Asset Management,
are not permitted to use soft dollar commissions to pay for research from
brokers but rather must pay for research out of their own profit and loss or
have research costs paid by clients through research payment accounts that are
funded by a specific client research charge or the research component of trade
orders. Such payments for research must be unbundled from the payments for
execution. As a result, Invesco Deutschland and Invesco Asset Management are
restricted from using Soft Dollar Products in managing the Invesco Funds that
they sub-advise.
The
amount of brokerage
commissions paid by the Funds to brokers for providing Section 28(e)
research/brokerage services under Section 28(e) of the Exchange Act and the
approximate dollar amount of the transactions involved for the last fiscal year
or period, as applicable, ended October 31 are found in Appendix
K.
96
Affiliated
Transactions
Invesco
or a
Sub-Adviser may place trades for equity securities with Invesco Capital Markets,
Inc. (ICMI), a broker-dealer with whom it is affiliated, provided that Invesco
or the Sub-Adviser determines that ICMI’s trade execution costs are at least
comparable to those of non-affiliated brokerage firms with which Invesco or the
Sub-Adviser could otherwise place similar trades for similar securities. ICMI
receives brokerage commissions in connection with effecting trades for the Funds
and, therefore, use of ICMI presents a conflict of interest for Invesco or a
Sub-Adviser. Trades placed through ICMI, including the brokerage commissions
paid to ICMI, are subject to procedures adopted by the Board that are designed
to mitigate this conflict of interest.
Information
regarding any brokerage commissions on affiliated transactions that the Funds
may have paid for the last three
fiscal years or periods, as applicable, ended October 31 may be found in
Appendix J.
Regular
Brokers
Information
concerning the Funds' acquisition of securities of their brokers during the last
fiscal year or period, as
applicable, ended October 31 is found in Appendix K.
Allocation
of Portfolio Transactions
Invesco
and the Sub-Advisers manage numerous Invesco Funds and other client accounts.
Some of these client accounts may have investment objectives similar to the
Funds. Frequently, identical securities will be appropriate for investment by
multiple Invesco Funds or other client accounts. However, the position of each
client account in the same security and the length of time that each client
account may hold its investment in the same security may vary. Invesco or a
Sub-Adviser will also determine the timing and amount of purchases for a client
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
client 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 client accounts on a pro rata basis based on order size or in such other
manner believed by Invesco or the Sub-Adviser to be fair and equitable. In
determining what is fair and equitable, Invesco or the Sub-Adviser can consider
various factors, including how closely the investment opportunity matches the
investment objective and strategy of a Fund or client account, the capital
available to a Fund or client account, and which portfolio management team
sourced the opportunity. Invesco or the Sub-Adviser may combine orders for the
purchase or sale of securities and other investments for multiple client
accounts, including the Funds, in accordance with applicable laws and
regulations to obtain the most favorable execution. Aggregated 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.
Allocation
of Initial Public Offering (IPO) Transactions
Certain
of the Invesco Funds or other client accounts
managed by Invesco or a Sub-Adviser may become interested in participating in
IPOs. Purchases of IPOs by one Invesco Fund or other client account may also be
considered for purchase by one or more other Invesco Funds or client accounts.
Invesco combines indications of interest for IPOs for all Invesco Funds and
client accounts desiring to purchase the securities to be issued in that IPO.
When the full amount of all IPO orders for such Invesco Funds and client
accounts cannot be filled completely, Invesco or the Sub-Adviser shall allocate
such transactions in accordance with the following procedures.
Invesco
or the Sub-Adviser may determine the eligibility of each Invesco Fund and
client
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 client account’s
investment objective, policies, strategies and current holdings as well as the
Invesco Fund’s portfolio manager’s commitment to or level of interest in the
particular issuer. Invesco or the Sub-Adviser will allocate securities issued in
IPOs to eligible Invesco Funds and client accounts on a pro rata basis based on
order size.
97
PURCHASE,
REDEMPTION, EXCHANGE AND PRICING OF SHARES
Please
refer to Appendix L for information on Purchase, Redemption, Exchange 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 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.
This
“Tax Matters” section is based on the 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,
98
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 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.
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 the corporate income tax rate
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
99
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. If the Fund has a “net capital loss” (that
is, capital losses in excess of capital gains), 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. 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 result in capital loss carryovers being used at a slower
rate 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 incurred after October 31 of the current taxable year, or,
if there is no such loss, any net
long-term capital loss or any net short-term capital loss incurred after October
31 of the current taxable year (post-October capital losses); and
(ii)
the sum of (1) the excess, if any, of (a) specified losses incurred after
October 31 of the current taxable year, over
(b) specified gains incurred after October 31 of the current taxable year and
(2) the excess, if any, of (a) ordinary losses incurred after December 31 of the
current taxable year, over (b) the ordinary income 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 income” mean other ordinary losses and income 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 corporate income tax
rate. 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
100
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 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. These and other
factors may make it difficult for the Fund to determine in advance the effective
rate of tax on its investments in certain countries. Under certain
circumstances, the Fund may elect to pass-through certain eligible foreign
income taxes paid by the Fund to shareholders, although it reserves the right
not to do so. If the Fund makes such an election and obtains a refund of foreign
taxes paid by the
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Fund
in a prior year, the Fund may be eligible to reduce the amount of foreign taxes
reported by the Fund to its shareholders,
generally by the amount of the foreign taxes refunded, for the year in which the
refund is received. Certain foreign taxes imposed on the Fund's investments,
such as a foreign financial transaction tax, may not be creditable against U.S.
income tax liability or eligible for pass through by the Fund to its
shareholders.
As
a result of several court cases, in certain countries across the European Union,
the Fund may have filed additional
tax reclaims for previously withheld taxes on dividends earned in those
countries ("EU reclaims"). For U.S. income tax purposes, EU reclaims plus
interest received by the Fund, if any, reduce the amount of foreign taxes Fund
shareholders can use as tax deductions or credits on their income tax returns,
if any. Any interest received that offsets such foreign taxes is required to be
reported to the shareholder as additional dividend income from the Fund and
included in the shareholder's gross income. In the event that EU reclaims
received by the Fund during a fiscal year exceed foreign withholding taxes paid
by the Fund, and the Fund previously passed through to its shareholders foreign
taxes incurred by the Fund to be used as a credit or deduction on a
shareholder's income tax return, the Fund will enter into a closing agreement
with the IRS in order to pay the associated tax liability on behalf of the
Fund's shareholders.
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 below 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.
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 0%, 15%
or 20%
depending on the nature of the capital gain and the individual’s taxable
income. 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
REIT dividends. Under the Tax Cuts
and Jobs Act “qualified REIT dividends” (i.e., ordinary REIT dividends other
than capital gain dividends and portions of REIT dividends designated as
qualified dividend income) are treated as eligible for a 20% deduction by
noncorporate taxpayers. This deduction, if allowed in full, equates to a maximum
effective tax rate of 29.6% (37% top rate applied to income after 20%
deduction). A Fund may choose to report the special character of “qualified REIT
dividends” to a shareholder, provided both the Fund and a shareholder meet
certain holding period requirements with respect to their shares. A noncorporate
shareholder receiving such dividends would treat them as eligible for the 20%
deduction, provided the RIC shares were held by the shareholder for more than 45
days during the 91-day period beginning on the date that is 45 days before the
date on which the shares become ex-dividend with respect to such dividend. The
amount of a RIC’s dividends eligible for the 20% deduction for a taxable year is
limited to the excess of the RIC’s qualified REIT dividends for the taxable year
over allocable expenses.
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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, 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 50% 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-advantaged 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.
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
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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. (Under
the Tax Cuts and Jobs Act, build America bonds, clean renewable energy bonds and
certain other qualified bonds may no longer be issued after December 31, 2017.)
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., GNMA or 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.
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,
104
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.
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
105
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 Account Access & Forms 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. Any loss disallowed under these rules will be added to
your tax basis in the new Shares.
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.
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.
106
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 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.
107
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.
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
108
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 a 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 a 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
the corporate income tax rate 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 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 tax on 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 corporate income tax rate. The
Notice imposes certain reporting requirements upon regulated investment
companies that have excess inclusion income. Code Section 860E(f) further
provides that, except as provided in regulations (which have not been issued),
with respect to any variable contract (as defined in section 817), there shall
be no adjustment in the reserve to the extent of any excess inclusion. 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
109
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 being subject to state, local or
foreign income, franchise or withholding tax liabilities.
If
an MLP is treated as a partnership for U.S. federal income tax purposes (whether
or not a QPTP), all or portion of the
dividends received by a fund from the MLP likely will be treated as a return of
capital for U.S. federal income tax purposes because of accelerated deductions
available with respect to the activities of such MLPs. Further, because of these
accelerated deductions, on the disposition of interests in such an MLP, a fund
likely will realize taxable income in excess of economic gain with respect to
those MLP interests (or if the fund does not dispose of the MLP, the fund could
realize taxable income in excess of cash flow with respect to the MLP in a later
period), and the fund must take such income into account in determining whether
the fund has satisfied its Distribution Requirement. A fund may have to borrow
or liquidate securities to satisfy its Distribution Requirement and to meet its
redemption requests, even though investment considerations might otherwise make
it undesirable for the fund to sell securities or borrow money at such time. In
addition, any gain recognized, either upon the sale of a fund’s MLP interest or
sale by the MLP of property held by it, including in excess of economic gain
thereon, treated as so-called “recapture income,” will be treated as ordinary
income. Therefore, to the extent a fund invests in MLPs, fund shareholders might
receive greater amounts of distributions from the fund taxable as ordinary
income than they otherwise would in the absence of such MLP
investments.
Although
MLPs are generally expected to be treated as partnerships for U.S. federal
income tax purposes, some MLPs
may be treated as PFICs or “regular” corporations for U.S. federal income tax
purposes. The treatment of particular MLPs for U.S. federal income tax purposes
will affect the extent to which a fund can invest in MLPs and will impact the
amount, character, and timing of income recognized by the
Fund.
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-linked or
structured notes or a corporate subsidiary that invests in commodities, may be
considered qualifying income under the Code.
However,
the portion of such rulings relating to the treatment of a corporation as a
regulated investment company that
require a determination of whether a financial instrument or position is a
security under section 2(a)(36) of the 1940 Act was revoked because of changes
in the IRS’s position. (A financial instrument or position that constitutes a
security under section 2(a)(36) of the 1940 Act generates qualifying income for
a
110
corporation
taxed as a regulated investment company.) Accordingly, a fund may invest in
certain commodity-linked notes relying on
an opinion of counsel confirming that income from such investments should be
qualifying income because such commodity-linked notes constitute securities
under section 2(a)(36) of the 1940 Act. In addition, a RIC may gain exposure to
commodities through investment in a QPTP, such as an exchange-traded fund or ETF
that is classified as a partnership and which invests in commodities, or through
investment in a wholly-owned foreign subsidiary that is treated as a controlled
foreign corporation for federal income tax purposes. Treasury regulations treat
“Subpart F” income (defined in Section 951 of the Code to include passive income
such as income from commodity-linked derivatives) as qualifying income, even if
a foreign corporation, such as a wholly-owned foreign subsidiary, does not make
a distribution of such income. If a distribution is made, such income will be
treated as a dividend by the Funds to the extent that, under applicable
provisions of the Code, there is a distribution out of the earnings and profits
of the foreign corporation attributable to the distribution. Accordingly, the
extent to which a fund directly 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 50%
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 may be 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 principles. A
change in the conversion ratio or conversion price of a convertible security on
account of a dividend paid to the issuer’s other shareholders may result in a
deemed distribution of stock to the holders of the convertible security equal to
the value of their increased interest in the equity of the issuer. Thus, an
increase in the conversion ratio of a convertible security can be treated as a
taxable distribution of stock to a holder of the convertible security (without a
corresponding receipt of cash by the holder) before the holder has converted the
security.
111
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 24% 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.
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
•
interest-related
dividends paid by the Fund from its qualified net interest income from U.S.
sources and short-term capital gain dividends.
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 24% 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 the sale of shares in a QIE
other than one that is domestically controlled), will not be exempt from
112
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 the corporate income
tax rate, 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
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.”
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 24%) 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, the
Fund will be required to withhold a 30% tax on income dividends made by the Fund
to certain foreign entities, referred to as foreign financial institutions (FFI)
or non-financial foreign entities (NFFE). After December 31, 2018, FATCA
withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Fund
shares; however, based on proposed regulations issued by the IRS, which can be
relied upon currently, such withholding is no longer required unless final
regulations provide otherwise (which is not expected). 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 if it is deemed compliant or 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 meet certain other specified
requirements. The FFI will either report the specified information about the
U.S. accounts to the IRS, or, to the government of the FFI’s country of
residence (pursuant to the terms and conditions of applicable law and an
applicable IGA entered into between the U.S. and the FFI’s country of
residence), which will, in turn, report the specified information to the IRS. An
FFI that is resident in a country
113
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 the 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.
Such
foreign shareholders also may fall into certain exempt, excepted or deemed
compliant categories as established by U.S.
Treasury regulations, IGAs, and other guidance regarding FATCA. An FFI or NFFE
that invests in the 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 the 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 a master distribution agreement, as amended, relating to
the Funds (the Distribution
Agreement) with Invesco Distributors, Inc. (Invesco Distributors), 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, Houston, TX 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 Agreement provides 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 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 generally 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 up to
114
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 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 up to 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%. Invesco Distributors will make 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 Invesco 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 its
assignment.
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 three different forms of distribution plans pursuant to Rule
12b-1 under the 1940 Act for the Funds
Class A shares, Class C shares, Class R shares and Investor Class shares, as
applicable (each, a Plan, and together, the Plans).
The
following Funds, pursuant to their Compensation Plan, pay 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
C |
Class
P |
Class
R |
Class
S |
Investor
Class |
|
Invesco
Charter Fund |
0.25% |
1.00% |
N/A |
0.50% |
0.15% |
N/A |
|
Invesco
Diversified Dividend Fund |
0.25% |
1.00% |
N/A |
0.50% |
N/A |
See
Below |
|
Invesco
Main Street Fund® |
See
below |
1.00% |
N/A |
0.50% |
N/A |
N/A |
|
Invesco
Main Street All Cap Fund® |
See
below |
1.00% |
N/A |
0.50% |
N/A |
N/A |
|
Invesco
Rising Dividends Fund |
0.25% |
1.00% |
N/A |
0.50% |
N/A |
N/A |
|
Invesco
Summit Fund |
0.25% |
1.00% |
0.10% |
N/A |
0.15% |
N/A |
|
|
|
|
|
|
|
|
The
following Fund, pursuant to its Reimbursement Plan (Distribution and Service),
reimburses Invesco Distributors in an
amount up to the annual rate, shown immediately below, of the Fund’s average
daily net assets of the applicable class.
|
Fund |
Class
A |
Class
C |
Class
R |
Investor
Class |
|
Invesco
Diversified Dividend Fund |
See
above |
See
above |
See
above |
0.25% |
The
following Funds, pursuant to their Reimbursement Plan (Service Only), reimburse
Invesco Distributors in an
amount up to the annual rate, shown immediately below, of the Fund’s average
daily net assets of Class A shares.
|
Fund |
Class
A |
Class
C |
Class
R |
|
Invesco
Main Street Fund® |
0.25% |
See
above |
See
above |
|
Invesco
Main Street All Cap Fund® |
0.25% |
See
above |
See
above |
The
Compensation Plan compensates and the Reimbursement Plan (Distribution and
Service) reimburses Invesco
Distributors for expenses incurred 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 and
distributing prospectuses and reports used for sales purposes, preparing and
115
distributing
sales literature (and any related services), advertisements, payment of dealer
commissions and wholesaler
compensation in connection with sales of certain Fund's Class A shares exceeding
a certain amount set forth in the prospectus for such Fund (for which the Fund
imposes no sales charge) and other distribution-related services permitted by
Rule 12b-1. The Reimbursement Plan (Service Only) reimburses Invesco
Distributors for expenses incurred for shareholder services provided for
existing shareholders of a Fund.
Payments
pursuant to the Plans are subject to any applicable limitations imposed by FINRA
rules.
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 ended October 31, 2023, 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 ended October 31, 2023.
As
required by Rule 12b-1, the Plans were approved by a majority of 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: (i) an increase in
assets which may result in a diversified shareholder base, thereby reducing the
outflow risk to other shareholders in the Funds; (ii) an increase in assets
which may reduce expenses as fixed dollar costs are allocated across a larger
asset base and/or allow a Fund to reach advisory fee breakpoints; and (iii)
increased scale could increase the likelihood of name recognition and the
profile of a Fund in its asset space, thereby improving the momentum for asset
generation.
Unless
terminated earlier in accordance with their terms, the Plans continue from year
to year as long as such continuance is
specifically approved at least annually by the Board, including a majority of
the Rule 12b-1 Trustees. A Plan may be terminated at any time in whole or with
respect to a Fund or class by the vote of a majority of the Rule 12b-1 Trustees
or by the vote of a majority of the outstanding voting securities of that
class.
Any
amendment to 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 at a
meeting called for the purpose of voting upon such amendment. As long as the
Plans are in effect, the Board shall satisfy the fund governance standards as
defined in Rule 0-1(a)(7) under the 1940 Act.
The
Compensation Plans obligate the Funds to pay Invesco Distributors the full
amount of the distribution and service fees
reflected on the schedules to those plans. Thus, even if Invesco Distributors’
actual allocated share of expenses exceeds the fee payable to Invesco
Distributors at any given time, under the Compensation Plan, 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 the
Compensation Plan, Invesco Distributors will retain the full amount of the
fee.
The
Reimbursement Plans obligate the Funds to pay Invesco Distributors up to the
lesser of (i) the amount of the
distribution and/or service fees reflected on the schedules to those plans and
(ii) the actual costs of the distribution and/or shareholder servicing services
provided by or through Invesco Distributors. Reimbursement will be made through
payments made periodically on such basis as reflected in the Reimbursement Plans
by the Funds to Invesco Distributors. If Invesco Distributors’ actual allocated
share of expenses incurred pursuant to the Reimbursement Plans for the period
exceeds the annual cap reflected on the schedule to the Plan, a Fund will not be
obligated to pay more than the annual cap. If Invesco Distributors’
116
actual
allocated share of expenses incurred pursuant to the Reimbursement Plans for the
period is less than the annual cap,
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.
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 the
respective fiscal year in which the voluntary fee waiver or reduction was
made.
Payments
made pursuant to the Rule 12b-1 Plans discussed above may continue for Funds or
share classes that are in
limited offering or closed to new investors.
The
Funds may pay a service fee of up to the cap disclosed in each Fund’s Plan and
in any case no greater than 0.25%
of the average daily net assets of the Class A, Class C, Class R and Investor
Class shares, 0.15% of the average daily net assets of Class S shares, and 0.10%
of the average daily net assets of Class P shares, attributable to the
customers’ selected dealers and financial institutions to such dealers and
financial institutions, including Invesco Distributors, acting as principal, who
furnish continuing personal shareholder services and/or maintenance of accounts
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 and/or maintenance of accounts may include, but are not
limited to, assisting in establishing and maintaining customer accounts and
records, assisting with purchase and redemption requests, arranging for bank
wires, monitoring dividend payments from a Fund on behalf of customers,
forwarding certain shareholder communications from a Fund to customers,
receiving and answering correspondence, aiding in maintaining the investment of
their respective customers in a Fund and providing such other information and
services as reasonably requested. Any amounts not paid as a service fee under
each Plan would constitute an asset-based sales charge.
The
Funds may agree to pay fees to selected dealers and other institutions who
render the foregoing services to their
customers subject to an agreement. 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, may receive payments from the Funds pursuant
to the Plans in an amount not to exceed the maximum annual rate to be paid to
Invesco Distributors under the Plans. These payments are an obligation of the
Funds and not of Invesco Distributors.
Because
of fluctuations in net asset value, the Plans’ fees with respect to a particular
Class C share may be greater or less
than the amount of the initial commission (including carrying cost) paid by
Invesco Distributors with respect to such share. In such circumstances, a
shareholder of a share may be deemed to incur expenses attributable to other
shareholders of such class.
FINANCIAL
STATEMENTS
The
audited financial statements for the Funds’ most recent fiscal year ended
October
31, 2023, including the
notes thereto and the reports of PricewaterhouseCoopers LLP thereon, are
incorporated by reference to the annual report to shareholders contained in the
Funds’ Form N-CSR filed on January 3, 2024.
The
portions of such annual reports that are not specifically listed above are not
incorporated by reference into this
SAI and are not a part of this Registration Statement.
117
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, subject to the lowest level of
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 judged to be upper-medium grade and are subject to low credit
risk.
Baa: Obligations rated
'Baa' are judged to be medium-grade and subject to moderate credit risk and as
such may possess certain speculative characteristics.
Ba: Obligations rated
'Ba' are judged to be speculative 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 speculative 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 and are typically in default, with little prospect for
recovery of principal or interest.
Note: Moody's
appends numerical modifiers 1, 2, and 3 to 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. Additionally, a “(hyb)” indicator is appended to all ratings of
hybrid securities issued by banks, insurers, finance companies, and securities
firms*.
*
By their terms, hybrid securities allow for the omission of scheduled dividends,
interest, or principal payments, which can potentially result in impairment if
such an omission occurs. Hybrid securities may also be subject to contractually
allowable write-downs of principal that could result in impairment. Together
with the hybrid indicator, the long-term obligation rating assigned to a hybrid
security is an expression of the relative credit risk associated with that
security.
Moody's
Short-Term Prime Rating System
P-1: Ratings of
Prime-1 reflect a superior ability to repay short-term obligations.
P-2: Ratings of
Prime-2 reflect a strong ability to repay short-term obligations.
P-3: Ratings of
Prime-3 reflect 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.
Moody's
MIG/VMIG US Short-Term Ratings
Short-Term
Obligation Ratings
We
use the global short-term Prime rating scale for commercial paper issued by US
municipalities and nonprofits. These
commercial paper programs may be backed by external letters of credit or
liquidity facilities, or by an issuer’s self-liquidity.
For
other short-term municipal obligations, we use one of two other short-term
rating scales, the Municipal Investment Grade
(MIG) and Variable Municipal Investment Grade (VMIG) scales discussed
below.
A-1
We
use the MIG scale for US municipal cash flow notes, bond anticipation notes and
certain other short-term obligations, which
typically mature in three years or less. Under certain circumstances, we use the
MIG scale for bond anticipation notes with maturities of up to five
years.
MIG
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:
This designation denotes strong credit quality. Margins of protection are ample,
although not as large as in the preceding group.
MIG
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.
VMIG
Ratings
For
variable rate demand obligations (VRDOs), Moody’s assigns both a long-term
rating and a short-term payment obligation
rating. The long-term rating addresses the issuer’s ability to meet scheduled
principal and interest payments. The short-term payment obligation rating
addresses the ability of the issuer or the liquidity provider to meet any
purchase price payment obligation resulting from optional tenders (“on demand”)
and/or mandatory tenders of the VRDO. The short-term payment obligation rating
uses the VMIG scale. Transitions of VMIG ratings with conditional liquidity
support differ from transitions of Prime ratings reflecting the risk that
external liquidity support will terminate if the issuer’s long-term rating drops
below investment grade. Please see our methodology that discusses obligations
with conditional liquidity support.
For
VRDOs, we typically assign a VMIG rating if the frequency of the payment
obligation is less than every three years.
If the frequency of the payment obligation is less than three years, but the
obligation is payable only with remarketing proceeds, the VMIG short-term rating
is not assigned and it is denoted as “NR”.
Industrial
development bonds in the US where the obligor is a corporate may carry a VMIG
rating that reflects Moody’s
view of the relative likelihood of default and loss. In these cases, liquidity
assessment is based on the liquidity of the corporate obligor.
VMIG
Scale
VMIG
1:
This designation denotes superior credit quality. Excellent protection is
afforded by the superior short-term credit strength of the liquidity provider
and structural and legal protections.
VMIG
2:
This designation denotes strong credit quality. Good protection is afforded by
the strong short-term credit strength of the liquidity provider and structural
and legal protections.
VMIG
3:
This designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections.
SG: This designation
denotes speculative-grade credit quality. Demand features rated in this category
may be supported by a liquidity provider that does not have a sufficiently
strong short-term rating or may lack the structural or legal
protections.
Standard
& Poor's Long-Term Issue Credit Ratings
Issue
credit ratings are based, in varying degrees, on S&P Global Ratings’
analysis of the following considerations:
•
The likelihood of
payment--the capacity and willingness of the obligor to meet its financial
commitment on an obligation in accordance with the terms of the
obligation;
•
The nature and
provisions of the financial obligation, and the promise we impute;
and
A-2
•
The protection
afforded by, and relative position of, the financial obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
An
issue rating is 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.)
AAA: An obligation
rated 'AAA' has the highest rating assigned by S&P Global Ratings. The
obligor's capacity to meet its financial commitments 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 commitments 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 commitments 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 weaken the obligor’s
capacity to meet its financial commitments 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
exposure 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 commitments 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 commitments on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitments
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 commitments 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 commitments on the obligation.
CC: An obligation
rated 'CC' is currently highly vulnerable to nonpayment. The 'CC' rating is used
when a default has not yet occurred but S&P Global Ratings expects default
to be a virtual certainty, regardless of the anticipated time to
default.
C: An obligation
rated 'C' is currently highly vulnerable to nonpayment, and the obligation is
expected to have lower relative seniority or lower ultimate recovery compared
with obligations that are rated higher.
D: An obligation
rated 'D' is in default or in breach of an imputed promise. For non-hybrid
capital instruments, the 'D' rating category is used when payments on an
obligation are not made on the date due, unless S&P Global Ratings believes
that such payments will be made within five business days in the absence of a
stated grace period or within the earlier of the stated grace period or 30
calendar days. The 'D' rating also will be used upon the filing of a bankruptcy
petition or the taking of similar action and where default on an obligation is a
virtual certainty, for example due to automatic stay provisions. An obligation's
rating is lowered to 'D' if it is subject to a distressed exchange
offer.
A-3
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, or that there is insufficient information on
which to base a rating, or that S&P Global Ratings 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 S&P Global
Ratings. The obligor's capacity to meet its financial commitments 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 commitments 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
commitments 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 weaken an
obligor's capacity to meet its financial commitments on the
obligation.
B: A short-term
obligation rated 'B' is regarded as vulnerable and has significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitments; however, it faces major ongoing uncertainties that could lead to
the obligor's inadequate capacity to meet its financial commitments.
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 commitments on the obligation.
D: A short-term
obligation rated 'D' is in default or in breach of an imputed promise. For
non-hybrid capital instruments, the 'D' rating category is used when payments on
an obligation are not made on the date due, unless S&P Global Ratings
believes that such payments will be made within any stated grace period.
However, any stated grace period longer than five business days will be treated
as five business days. The 'D' rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action and where default on an
obligation is a virtual certainty, for example due to automatic stay provisions.
A rating on an obligation is lowered to 'D' if it is subject to a distressed
debt restructuring.
Standard
& Poor's Municipal Short-Term Note Ratings Definitions
An
S&P Global Ratings U.S. municipal note rating reflects S&P Global
Ratings’ 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, S&P Global Ratings’ 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.
A-4
SP-3: Speculative
capacity to pay principal and interest.
D: ‘D’ is assigned
upon failure to pay the note when due, completion of a distressed exchange
offer, or the filing of a bankruptcy petition or the taking of similar action
and where default on an obligation is a virtual certainty, for example due to
automatic stay provisions.
Standard
& Poor's Dual Ratings
Dual
ratings may be assigned to debt issues that have a put option or demand feature.
The first component of the
rating addresses the likelihood of repayment of principal and interest as due,
and the second component of the rating addresses only the demand feature. The
first component of the rating can relate to either a short-term or long-term
transaction and accordingly use either short-term or long-term rating symbols.
The second component of the rating relates to the put option and is assigned a
short-term rating symbol (for example, 'AAA/A-1+' or 'A-1+/A-1'). With U.S.
municipal short-term demand debt, the U.S. municipal short-term note rating
symbols are used for the first component of the rating (for example,
'SP-1+/A-1+').
Fitch
Credit Rating Scales
Fitch
Ratings publishes credit ratings that are forward-looking opinions on the
relative ability of an entity or obligation to
meet financial commitments. Issuer default ratings (IDRs) are assigned to
corporations, sovereign entities, financial institutions such as banks, leasing
companies and insurers, and public finance entities (local and regional
governments). Issue level ratings are also assigned, often include an
expectation of recovery and may be notched above or below the issuer level
rating. Issue ratings are assigned to secured and unsecured debt securities,
loans, preferred stock and other instruments, Structured finance ratings are
issue ratings to securities backed by receivables or other financial assets that
consider the obligations’ relative vulnerability to default. Credit ratings are
indications of the likelihood of repayment in accordance with the terms of the
issuance. In limited cases, Fitch may include additional considerations (i.e.,
rate to a higher or lower standard than that implied in the obligation’s
documentation). Please see the section Specific Limitations Relating to Credit
Rating Scales for details. Fitch Ratings also publishes other ratings, scores
and opinions. For example, Fitch provides specialized ratings of servicers of
residential and commercial mortgages, asset managers and funds. In each case,
users should refer to the definitions of each individual scale for guidance on
the dimensions of risk covered in each assessment.
Fitch’s
credit rating scale for issuers and issues is expressed using the categories
‘AAA’ to ‘BBB’ (investment grade)
and ‘BB’ to ‘D’ (speculative grade) with an additional +/-for AA through CCC
levels indicating relative differences of probability of default or recovery for
issues.
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 signal either a higher level of credit risk or that a
default has already occurred.
Fitch
may also disclose issues relating to a rated issuer that are not and have not
been rated. Such issues are also
denoted as ‘NR’ on its web page.
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. For information about the
historical performance of ratings, please refer to Fitch’s Ratings Transition
and Default studies, which detail the historical default rates. The European
Securities and Markets Authority also maintains a central repository of
historical default rates.
Fitch’s
credit ratings do not directly address any risk other than credit risk. Credit
ratings do not deal with the risk of market
value loss due to changes in interest rates, liquidity and/or other market
considerations. However, market risk may be considered to the extent that it
influences the ability of an issuer to pay or refinance a financial commitment.
Ratings nonetheless do not reflect market risk to the extent that they
A-5
influence
the size or other conditionality of the obligation to pay upon a commitment (for
example, in the case of payments linked
to performance of an equity index).
Fitch
will use credit rating scales to provide ratings to privately issued obligations
or certain note issuance programs, or for
private ratings using the same public scale and criteria. Private ratings are
not published, and are only provided to the issuer or its agents in the form of
a rating letter. The primary credit rating scales may also be used to provide
ratings for a narrower scope, including interest strips and return of principal
or in other forms of opinions such as Credit Opinions or Rating Assessment
Services.
Credit
Opinions are either a notch- or category-specific view using the primary rating
scale and omit one or more
characteristics of a full rating or meet them to a different standard. Credit
Opinions will be indicated using a lower-case letter symbol combined with either
an ‘*’ (e.g. ‘bbb+*’) or (cat) suffix to denote the opinion status. Credit
Opinions will be typically point-in-time but may be monitored if the analytical
group believes information will be sufficiently available.
Rating
Assessment Services are a notch-specific view using the primary rating scale of
how an existing or potential rating
may be changed by a given set of hypothetical circumstances. While Credit
Opinions and Rating Assessment Services are point-in-time and are not monitored,
they may have a directional Watch or Outlook assigned, which can signify the
trajectory of the credit profile.
Ratings
assigned by Fitch are opinions based on established, approved and published
criteria. A variation to criteria may be
applied but will be explicitly cited in our rating action commentaries (RACs),
which are used to publish credit ratings when established and upon annual or
periodic reviews.
Ratings
are the collective work product of Fitch, and no individual, or group of
individuals, is solely responsible for a
rating. Ratings are not facts and, therefore, cannot be described as being
"accurate" or "inaccurate." Users should refer to the definition of each
individual rating for guidance on the dimensions of risk covered by the
rating.
Fitch
Long-Term Rating Scales
Issuer
Default Ratings
Rated
entities in a number of sectors, including financial and non-financial
corporations, sovereigns, insurance companies
and certain sectors within public finance, are generally assigned Issuer Default
Ratings (IDRs). IDRs are also assigned to certain entities in global
infrastructure and project finance. 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.
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.
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-6
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
that 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.
Very low margin of
safety. Default is a real possibility.
CC:
Very high levels of credit risk.
Default of some
kind appears probable.
C:
Near default
A
default or default-like process has begun, or the issuer is in standstill, or
for a closed funding vehicle, payment capacity is
irrevocably impaired. 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. the formal
announcement by the issuer or their agent of a distressed debt
exchange;
d. a closed
financing vehicle where payment capacity is irrevocably impaired such that it is
not expected to pay interest and/or principal in full during the life of the
transaction, but where no payment default is imminent
RD:
Restricted default.
‘RD’ ratings
indicate an issuer that in Fitch’s opinion has experienced:
a. an uncured
payment default or distressed debt exchange on a bond, loan or other material
financial obligation, but
b. has not entered
into bankruptcy filings, administration, receivership, liquidation, or other
formal winding-up procedure, and
c. has not
otherwise ceased operating.
This would
include:
A-7
i. the selective
payment default on a specific class or currency of debt;
ii. 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;
iii. 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; ordinary
execution of a distressed 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 distressed debt exchange.
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.
Notes
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'.
Fitch
Short-Term Ratings Assigned to Issuers and Obligations
A
short-term issuer or obligation rating is based in all cases on the short-term
vulnerability to default of the rated entity and
relates to the capacity to meet financial obligations in accordance with the
documentation governing the relevant obligation. Short-term deposit ratings may
be adjusted for loss severity. 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 capacity for timely payment of financial commitments relative to other
issuers or obligations in the same country. Under the agency’s National Rating
scale, this rating is assigned to the lowest default risk relative to other in
the same country or monetary union. Where the liquidity profile is particularly
strong, a “+” is added to the assigned rating.
F2:
Good Short-Term Credit Quality. Indicates a good
capacity for timely payment of financial commitments relative to other issuers
or obligations in the same country or monetary union. However, the margin of
safety is not as great as in the case of the higher ratings.
F3:
Fair Short-Term Credit Quality. Indicates an
uncertain capacity for timely payment of financial commitments relative to other
issuers or obligations in the same country or monetary union.
B:
Speculative Short-Term Credit Quality. Indicates an
uncertain capacity for timely payment of financial commitments relative to other
issuers or obligations in the same country or monetary union.
C:
High Short-Term Default Risk. Indicates a highly
uncertain capacity for timely payment of financial commitments relative to other
issuers or obligations in the same country or monetary union.
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-8
APPENDIX
B - PERSONS TO WHOM INVESCO PROVIDES NON-PUBLIC PORTFOLIO HOLDINGS ON
AN
ONGOING BASIS
(as
of January 31, 2024)
|
Service
Provider |
Disclosure
Category |
|
ABN
AMRO Financial Services, Inc. |
Broker
(for certain Invesco Funds) |
|
Absolute
Color |
Financial
Printer |
|
Anglemyer
& Co. |
Analyst
(for certain Invesco Funds) |
|
AXA |
Other |
|
Ballard
Spahr Andrews & Ingersoll,
LLP |
Special
Insurance Counsel |
|
Barclays
Capital, Inc. |
Broker
(for certain Invesco Funds) |
|
Blaylock
Robert Van LLC |
Broker
(for certain Invesco Funds) |
|
BB&T
Capital Markets |
Broker
(for certain Invesco Funds) |
|
Bear
Stearns Pricing Direct, Inc. |
Pricing
Vendor (for certain Invesco Funds) |
|
BLNS
Securities Ltd. |
Broker
(for certain Invesco Funds) |
|
BOSC,
Inc. |
Broker
(for certain Invesco Funds) |
|
Brown
Brothers Harriman & Co. |
Custodian
and Securities Lender (each, respectively, for certain Invesco
Funds) |
|
Cabrera
Capital Markets |
Broker
(for certain Invesco Funds) |
|
Charles
River Systems, Inc. |
System
Provider |
|
Chas.
P. Young Co. |
Financial
Printer |
|
Cirrus
Research, LLC |
Trading
System |
|
Citibank,
N.A. |
Custodian
and Securities Lender (each, respectively, for certain Invesco
Funds) |
|
Citigroup
Global Markets, Inc. |
Broker
(for certain Invesco Funds) |
|
Commerce
Capital Markets |
Broker
(for certain Invesco Funds) |
|
Crane
Data, LLC |
Analyst
(for certain Invesco Funds) |
|
Credit
Suisse International / Credit
Suisse
Securities (Europe) Ltd. |
Service
Provider |
|
Crews
& Associates |
Broker
(for certain Invesco Funds) |
|
D.A.
Davidson & Co. |
Broker
(for certain Invesco Funds) |
|
Dechert
LLP |
Legal
Counsel |
|
DEPFA
First Albany |
Broker
(for certain Invesco Funds) |
|
Deutsche
Bank Trust Company
Americas |
Custodian
and Securities Lender (each, respectively, for certain Invesco
Funds) |
|
E.K.
Riley Investments LLC |
Broker
(for certain Invesco Funds) |
|
Empirical
Research Partners |
Analyst
(for certain Invesco Funds) |
|
Finacorp
Securities |
Broker
(for certain Invesco Funds) |
|
First
Miami Securities |
Broker
(for certain Invesco Funds) |
|
First
Southwest Co. |
Broker
(for certain Invesco Funds) |
|
First
Tryon Securities |
Broker
(for certain Invesco Funds) |
|
Fitch,
Inc. |
Rating
& Ranking Agency (for certain Invesco Funds) |
|
FT
Interactive Data Corporation |
Pricing
Vendor |
|
FTN
Financial Group |
Broker
(for certain Invesco Funds) |
|
GainsKeeper |
Software
Provider (for certain Invesco Funds) |
|
GCom2
Solutions |
Software
Provider (for certain Invesco Funds) |
|
George
K. Baum & Company |
Broker
(for certain Invesco Funds) |
|
Glass,
Lewis & Co. |
System
Provider (for certain Invesco Funds) |
|
Global
Trading Analytics, LLC |
Software
Provider |
|
Global
Trend Alert |
Analyst
(for certain Invesco Funds) |
|
Hattier,
Sanford & Reynoir |
Broker
(for certain Invesco Funds) |
|
Hutchinson,
Shockey, Erley & Co. |
Broker
(for certain Invesco Funds) |
|
ICI
(Investment Company Institute) |
Analyst
(for certain Invesco Funds) |
|
ICRA
Online Ltd. |
Rating
& Ranking Agency (for certain Invesco
Funds) |
B-1
|
Service
Provider |
Disclosure
Category |
|
Lincoln
Investment Advisors
Corporation |
Other |
|
iMoneyNet,
Inc. |
Rating
& Ranking Agency (for certain Invesco Funds) |
|
Initram
Data, Inc. |
Pricing
Vendor |
|
Institutional
Shareholder Services,
Inc. |
Proxy
Voting Service (for certain Invesco Funds) |
|
Invesco
Investment Services, Inc. |
Transfer
Agent |
|
Invesco
Senior Secured
Management,
Inc. |
System
Provider (for certain Invesco Funds) |
|
Investment
Company Institute |
Analyst
(for certain Invesco Funds) |
|
Investortools,
Inc. |
Broker
(for certain Invesco Funds) |
|
ITG,
Inc. |
Pricing
Vendor (for certain Invesco Funds) |
|
J.P.
Morgan Chase Bank |
Custodian
and Securities Lender (each, respectively, for certain Invesco
Funds) |
|
J.P.
Morgan Securities, Inc. |
Analyst
(for certain Invesco Funds) |
|
J.P.
Morgan Securities Inc./Citigroup
Global
Markets Inc./JPMorgan
Chase
Bank, N.A. |
Lender
(for certain Invesco Funds) |
|
J.P.
Morgan Securities |
Broker
(for certain Invesco Funds) |
|
Janney
Montgomery Scott LLC |
Broker
(for certain Invesco Funds) |
|
John
Hancock Investment
Management
Services, LLC |
Sub-advisor
(for certain sub-advised accounts) |
|
Jorden
Burt LLP |
Special
Insurance Counsel |
|
KeyBanc
Capital Markets, Inc. |
Broker
(for certain Invesco Funds) |
|
Kramer
Levin Naftalis & Frankel LLP |
Legal
Counsel |
|
Lebenthal
& Co. LLC |
Broker
(for certain Invesco Funds) |
|
Lipper,
Inc. |
Rating
& Ranking Agency (for certain Invesco Funds) |
|
Loan
Pricing Corporation |
Pricing
Service (for certain Invesco Funds) |
|
Loop
Capital Markets |
Broker
(for certain Invesco Funds) |
|
M.R.
Beal |
Broker
(for certain Invesco Funds) |
|
MarkIt
Group Limited |
Pricing
Vendor (for certain Invesco Funds) |
|
Merrill
Communications LLC |
Financial
Printer |
|
Mesirow
Financial, Inc. |
Broker
(for certain Invesco Funds) |
|
Middle
Office Solutions |
Software
Provider |
|
Moody's
Investors Service |
Rating
& Ranking Agency (for certain Invesco Funds) |
|
Morgan
Keegan & Company, Inc. |
Broker
(for certain Invesco Funds) |
|
Morrison
Foerster LLP |
Legal
Counsel |
|
MS
Securities Services, Inc. and
Morgan
Stanley & Co. Incorporated |
Securities
Lender (for certain Invesco Funds) |
|
Muzea
Insider Consulting Services,
LLC |
Analyst
(for certain Invesco Funds) |
|
Ness
USA Inc. |
System
provider |
|
Noah
Financial, LLC |
Analyst
(for certain Invesco Funds) |
|
Omgeo
LLC |
Trading
System |
|
Piper
Jaffray |
Analyst
(for certain Invesco Funds) |
|
Prager,
Sealy & Co. |
Broker
(for certain Invesco Funds) |
|
PricewaterhouseCoopers
LLP |
Independent
Registered Public Accounting Firm (for all Invesco
Funds) |
|
Protective
Securities |
Broker
(for certain Invesco Funds) |
|
Ramirez
& Co., Inc. |
Broker
(for certain Invesco Funds) |
|
Raymond
James & Associates, Inc. |
Broker
(for certain Invesco Funds) |
|
RBC
Capital Markets |
Analyst
(for certain Invesco Funds) |
|
RBC
Dain Rauscher Incorporated |
Broker
(for certain Invesco Funds) |
|
Reuters
America LLC |
Pricing
Service (for certain Invesco Funds) |
|
Rice
Financial Products |
Broker
(for certain Invesco Funds) |
|
Robert
W. Baird & Co. Incorporated |
Broker
(for certain Invesco
Funds) |
B-2
|
Service
Provider |
Disclosure
Category |
|
RR
Donnelley Financial |
Financial
Printer |
|
Ryan
Beck & Co. |
Broker
(for certain Invesco Funds) |
|
SAMCO
Capital Markets, Inc. |
Broker
(for certain Invesco Funds) |
|
Seattle-Northwest
Securities
Corporation |
Broker
(for certain Invesco Funds) |
|
Siebert
Brandford Shank & Co.,
L.L.C. |
Broker
(for certain Invesco Funds) |
|
Simon
Printing Company |
Financial
Printer |
|
Southwest
Precision Printers, Inc. |
Financial
Printer |
|
Southwest
Securities |
Broker
(for certain Invesco Funds) |
|
Standard
and Poor's/Standard and
Poor's
Securities Evaluations, Inc. |
Pricing
Service and Rating and Ranking Agency (each, respectively, for certain
Invesco Funds) |
|
StarCompliance,
Inc. |
System
Provider |
|
State
Street Bank and Trust
Company |
Custodian,
Lender, Securities Lender, and System Provider (each, respectively, for
certain
Invesco
Funds) |
|
Sterne,
Agee & Leach, Inc. |
Broker
(for certain Invesco Funds) |
|
Stifel,
Nicolaus & Company,
Incorporated |
Broker
(for certain Invesco Funds) |
|
Stradley
Ronon Stevens & Young,
LLP |
Legal
Counsel |
|
The
Bank of New York |
Custodian
and Securities Lender (each, respectively, for certain Invesco
Funds) |
|
The
MacGregor Group, Inc. |
Software
Provider |
|
The
Savader Group LLC |
Broker
(for certain Invesco Funds) |
|
Thomson
Information Services
Incorporated |
Software
Provider |
|
TradingHub
Group Ltd. |
Analyst
(for certain Invesco Funds) |
|
UBS
Financial Services, Inc. |
Broker
(for certain Invesco Funds) |
|
UMB
Bank, N.A. |
Custodian
and Securities Lender (each, respectively, for certain Invesco
Funds) |
|
VCI
Group Inc. |
Financial
Printer |
|
Vining
Sparks IBG |
Broker
(for Certain Invesco Funds) |
|
W.H
Mell Associates, Inc. |
Broker
(for certain Invesco Funds) |
|
Wachovia
National Bank, N.A. |
Broker
(for certain Invesco Funds) |
|
Western
Lithograph |
Financial
Printer |
|
Wiley
Bros. Aintree Capital L.L.C. |
Broker
(for certain Invesco Funds) |
|
William
Blair & Co. |
Broker
(for certain Invesco Funds) |
|
XSP,
LLC/Solutions Plus, Inc. |
Software
Provider |
B-3
APPENDIX
C - TRUSTEES AND OFFICERS
As
of January 31, 2024
The
address of each trustee and officer is 11 Greenway Plaza, Houston, Texas
77046-1173. The trustees serve for the life of the Trust, subject to their
earlier death, incapacitation, resignation, retirement or removal as more
specifically provided in the Trust's organizational documents. Each officer
serves for a one year term or until their successors are elected and qualified.
Column two below includes length of time served with predecessor entities, if
any.
Interested
Trustees
|
Name,
Year of Birth |
Position(s)
Held
with
the Trust |
Trustee
and/or
Officer
Since |
Principal
Occupation(s)
During
Past 5 Years |
Number
of
Funds
in
Fund
Complex
Overseen
by
Trustee |
Other
Trusteeship(s)/
Directorship
Held by
Trustee/Director
During
Past
5 Years |
|
Jeffrey
H.
Kupor1
- 1968 |
Trustee |
2024 |
Senior
Managing
Director
and
General Counsel,
Invesco
Ltd.;
Trustee,
Invesco
Foundation,
Inc.;
Director,
Invesco Advisers,
Inc.;
Executive
Vice
President,
Invesco
Asset
Management
(Bermuda),
Ltd.
and
Invesco
Investments
(Bermuda)
Ltd.
Formerly:
Head
of Legal
of
the Americas,
Invesco
Ltd.;
Senior Vice President
and
Secretary, Invesco
Advisers,
Inc. (formerly
known
as Invesco
Institutional
(N.A.), Inc.)
(registered
investment
adviser);
Secretary,
Invesco
Distributors,
Inc.
(formerly
known as
Invesco
AIM Distributors,
Inc.);
Vice
President
and
Secretary,
Invesco
Investment
Services,
Inc.
(formerly
known
as
Invesco
AIM Investment
Services,
Inc.);
Senior
Vice
President, Chief
Legal
Officer and
Secretary,
The Invesco
Funds;
Secretary and
General
Counsel, Invesco
Investment
Advisers LLC
(formerly
known as Van
Kampen
Asset
Management);
Secretary
and
General Counsel,
Invesco
Capital
Markets,
Inc.
(formerly
known as
Van
Kampen Funds Inc.)
and
Chief Legal Officer,
Invesco
Exchange-Traded
Fund
Trust, Invesco |
165 |
None |
C-1
|
Name,
Year of Birth |
Position(s)
Held
with
the Trust |
Trustee
and/or
Officer
Since |
Principal
Occupation(s)
During
Past 5 Years |
Number
of
Funds
in
Fund
Complex
Overseen
by
Trustee |
Other
Trusteeship(s)/
Directorship
Held by
Trustee/Director
During
Past
5 Years |
|
|
|
|
Exchange-Traded
Fund
Trust
II, Invesco India
Exchange-Traded
Fund
Trust,
Invesco Actively
Managed
Exchange-
Traded
Fund Trust,
Invesco
Actively Managed
Exchange-Traded
Commodity
Fund Trust
and
Invesco Exchange-
Traded
Self-Indexed Fund
Trust;
Secretary and Vice
President,
Harbourview
Asset
Management
Corporation;
Secretary
and
Vice President,
Oppenheimer
Funds, Inc.
and
Invesco Managed
Accounts,
LLC; Secretary
and
Senior Vice President,
OFI
Global Institutional,
Inc.;
Secretary and Vice
President,
OFI SteelPath,
Inc.;
Secretary and Vice
President,
Oppenheimer
Acquisition
Corp.;
Secretary
and Vice
President,
Shareholder
Services,
Inc.;
Secretary
and
Vice
President, Trinity
Investment
Management
Corporation,
Senior Vice
President,
Invesco
Distributors,
Inc.;
Secretary
and
Vice
President,
Jemstep,
Inc.;
Head
of
Legal,
Worldwide
Institutional,
Invesco Ltd.;
Secretary
and General
Counsel,
INVESCO
Private
Capital
Investments,
Inc.;
Senior
Vice
President,
Secretary
and
General Counsel,
Invesco
Management
Group,
Inc.
(formerly
known
as Invesco AIM
Management
Group,
Inc.);
Assistant
Secretary,
INVESCO
Asset
Management
(Bermuda)
Ltd.;
Secretary and
General
Counsel,
Invesco
Private
Capital,
Inc.;
Assistant
Secretary and
General
Counsel,
INVESCO
Realty, Inc.; |
|
|
C-2
|
Name,
Year of Birth |
Position(s)
Held
with
the Trust |
Trustee
and/or
Officer
Since |
Principal
Occupation(s)
During
Past 5 Years |
Number
of
Funds
in
Fund
Complex
Overseen
by
Trustee |
Other
Trusteeship(s)/
Directorship
Held by
Trustee/Director
During
Past
5 Years |
|
|
|
|
Secretary
and General
Counsel,
Invesco Senior
Secured
Management,
Inc.;
Secretary, Sovereign
G./P.
Holdings Inc.;
Secretary,
Invesco
Indexing
LLC; and
Secretary,
W.L. Ross &
Co.,
LLC |
|
|
|
Douglas
Sharp1–
1974 |
Trustee |
2024 |
Senior
Managing Director
and
Head of Americas &
EMEA,
Invesco Ltd;
Director,
Chairman and
Chief
Executive, Invesco
Fund
Managers Limited
Formerly:
Director and
Chairman,
Invesco UK
Limited |
165 |
None |
1.
Mr. Kupor and Mr.
Sharp are considered
interested persons (within the
meaning of the Section 2(a)(19)
of the 1940 Act) of the Funds because they
are officers of the Adviser,
and officers of Invesco Ltd.,
the
ultimate parent of
the Adviser.
Independent
Trustees
|
Name,
Year of Birth |
Position(s)
Held
with
the Trust |
Trustee
and/or
Officer
Since |
Principal
Occupation(s)
During
Past 5 Years |
Number
of
Funds
in
Fund
Complex
Overseen
by
Trustee |
Other
Trusteeship(s)/
Directorship
Held by
Trustee/Director
During
Past
5 Years |
|
|
|
|
|
|
|
|
Beth
Ann Brown – 1968 |
Trustee
(2019)
and
Chair
(2022) |
2019 |
Independent
Consultant
Formerly:
Head of
Intermediary
Distribution,
Managing
Director,
Strategic
Relations,
Managing
Director, Head
of
National Accounts,
Senior
Vice President,
National
Account Manager
and
Senior Vice President,
Key
Account Manager,
Columbia
Management
Investment
Advisers LLC;
Vice
President, Key
Account
Manager, Liberty
Funds
Distributor, Inc.;
and
Trustee of certain
Oppenheimer
Funds |
165 |
Director,
Board of
Directors
of Caron
Engineering
Inc.
Formerly:
Advisor,
Board
of Advisors of
Caron
Engineering
Inc.;
President and
Director,
Acton
Shapleigh
Youth
Conservation
Corps
(non-profit);
and
President
and Director
of
Grahamtastic
Connection
(non-profit) |
|
Carol
Deckbar – 1962 |
Trustee |
2024 |
Formerly:
Executive Vice
President
and Chief
Product
Officer, TIAA
Financial
Services;
Executive
Vice President
and
Principal, College |
165 |
Formerly:
Board
Member,
TIAA Asset
Management,
Inc.; and
Board
Member, TH
Real
Estate Group
Holdings
Company |
C-3
|
Name,
Year of Birth |
Position(s)
Held
with
the Trust |
Trustee
and/or
Officer
Since |
Principal
Occupation(s)
During
Past 5 Years |
Number
of
Funds
in
Fund
Complex
Overseen
by
Trustee |
Other
Trusteeship(s)/
Directorship
Held by
Trustee/Director
During
Past
5 Years |
|
|
|
|
Retirement
Equities Fund
at
TIAA; Executive Vice
President
and Head of
Institutional
Investments
and
Endowment Services,
TIAA |
|
|
|
Cynthia
Hostetler —1962 |
Trustee |
2017 |
Non-Executive
Director
and
Trustee of a number
of
public and private
business
corporations
Formerly:
Director,
Aberdeen
Investment
Funds
(4 portfolios);
Director,
Artio Global
Investment
LLC (mutual
fund
complex); Director,
Edgen
Group, Inc.
(specialized
energy and
infrastructure
products
distributor);
Director,
Genesee
& Wyoming, Inc.
(railroads);
Head of
Investment
Funds and
Private
Equity, Overseas
Private
Investment
Corporation;
President,
First
Manhattan
Bancorporation,
Inc.; and
Attorney,
Simpson
Thacher
& Bartlett LLP |
165 |
Resideo
Technologies
(smart
home
technology);
Vulcan
Materials
Company
(construction
materials
company);
Trilinc
Global
Impact Fund;
Textainer
Group
Holdings,
(shipping
container
leasing
company);
Investment
Company
Institute
(professional
organization);
and
Independent
Directors
Council
(professional
organization) |
|
Eli
Jones – 1961 |
Trustee |
2016 |
Professor
and Dean
Emeritus,
Mays Business
School
at Texas A&M
University
Formerly:
Dean of Mays
Business
School at Texas
A&M
University; Professor
and
Dean, Walton College
of
Business, University of
Arkansas
and E.J. Ourso
College
of Business,
Louisiana
State University;
and
Director, Arvest Bank |
165 |
Insperity,
Inc. (formerly
known
as Administaff)
(human
resources
provider);
Board
Member
of the regional
board,
First Financial
Bank
Texas; and Board
Member,
First Financial
Bankshares,
Inc. Texas |
|
Elizabeth
Krentzman – 1959 |
Trustee |
2019 |
Formerly:
Principal and
Chief
Regulatory Advisor
for
Asset Management
Services
and U.S. Mutual
Fund
Leader of Deloitte &
Touche
LLP; General
Counsel
of the Investment
Company
Institute (trade
association);
National
Director
of the Investment |
165 |
Formerly:
Member of
the
Cartica Funds
Board
of Directors
(private
investment
funds);
Trustee of the
University
of Florida
National
Board
Foundation;
and
Member
of the
University
of Florida |
C-4
|
Name,
Year of Birth |
Position(s)
Held
with
the Trust |
Trustee
and/or
Officer
Since |
Principal
Occupation(s)
During
Past 5 Years |
Number
of
Funds
in
Fund
Complex
Overseen
by
Trustee |
Other
Trusteeship(s)/
Directorship
Held by
Trustee/Director
During
Past
5 Years |
|
|
|
|
Management
Regulatory
Consulting
Practice,
Principal,
Director and
Senior
Manager of
Deloitte
& Touche LLP;
Assistant
Director of the
Division
of Investment
Management
- Office of
Disclosure
and Investment
Adviser
Regulation of the
U.S.
Securities and
Exchange
Commission
and
various positions with
the
Division of Investment
Management
– Office of
Regulatory
Policy of the
U.S.
Securities and
Exchange
Commission;
Associate
at Ropes &
Gray
LLP; and Trustee of
certain
Oppenheimer
Funds |
|
Law
Center
Association,
Inc. Board
of
Trustees, Audit
Committee
and
Membership
Committee |
|
Anthony
J. LaCava, Jr.–
1956 |
Trustee |
2019 |
Formerly:
Director and
Member
of the Audit
Committee,
Blue Hills
Bank
(publicly traded
financial
institution) and
Managing
Partner, KPMG
LLP |
165 |
Member
and Chairman
of
the Bentley
University
Business
School
Advisory
Council;
and Board
Member
and Chair of
the
Audit and Finance
Committee
and
Nominating
Committee,
KPMG
LLP |
|
James
“Jim” Liddy – 1959 |
Trustee |
2024 |
Formerly:
Chairman,
Global
Financial Services,
Americas
and Retired
Partner,
KPMG LLP |
165 |
Director
and Treasurer,
Gulfside
Place
Condominium
Association,
Inc. and
Non-Executive
Director,
Kellenberg
Memorial
High School |
|
Prema
Mathai-Davis – 1950 |
Trustee |
1998 |
Formerly:
Co-Founder &
Partner
of Quantalytics
Research,
LLC, (a
FinTech
Investment
Research
Platform for the
Self-Directed
Investor);
Trustee
of YWCA
Retirement
Fund; CEO of
YWCA
of the USA; Board
member
of the NY
Metropolitan
Transportation
Authority;
Commissioner
of the NYC
Department
of Aging; and
Board
member of Johns
Hopkins
Bioethics Institute |
165 |
Member
of Board of
Positive
Planet US
(non-profit)
and
HealthCare
Chaplaincy
Network
(non-profit) |
C-5
|
Name,
Year of Birth |
Position(s)
Held
with
the Trust |
Trustee
and/or
Officer
Since |
Principal
Occupation(s)
During
Past 5 Years |
Number
of
Funds
in
Fund
Complex
Overseen
by
Trustee |
Other
Trusteeship(s)/
Directorship
Held by
Trustee/Director
During
Past
5 Years |
|
Joel
W. Motley – 1952 |
Trustee |
2019 |
Director
of Office of
Finance,
Federal Home
Loan
Bank System;
Managing
Director of
Carmona
Motley Inc.
(privately
held financial
advisor);
Member of the
Council
on Foreign
Relations
and its Finance
and
Budget Committee;
Chairman
Emeritus of
Board
of Human Rights
Watch
and Member of its
Investment
Committee;
Member
of Investment
Committee
and Board of
Historic
Hudson Valley
(non-profit
cultural
organization);
Member of
Board
of Blue Ocean
Acquisition
Corp.; and
Member
of the Vestry and
Investment
Committee of
Trinity
Church Wall Street
Formerly:
Managing
Director
of Public Capital
Advisors,
LLC (privately
held
financial advisor);
Managing
Director of
Carmona
Motley Hoffman,
Inc.
(privately held
financial
advisor); Trustee
of
certain Oppenheimer
Funds;
and Director of
Columbia
Equity Financial
Corp.
(privately held
financial
advisor) |
165 |
Member
of Board of
Trust
for Mutual
Understanding
(non-
profit
promoting the
arts
and environment);
Member
of Board of
Greenwall
Foundation
(bioethics
research
foundation)
and its
Investment
Committee;
Member
of Board of
Friends
of the LRC
(non-profit
legal
advocacy);
and Board
Member
and
Investment
Committee
Member
of Pulitzer
Center
for Crisis
Reporting
(non-profit
journalism) |
|
Teresa
M. Ressel — 1962 |
Trustee |
2017 |
Non-executive
director
and
trustee of a number of
public
and private
business
corporations
Formerly:
Chief Executive
Officer,
UBS Securities
LLC
(investment banking);
Chief
Operating Officer,
UBS
AG Americas
(investment
banking); Sr.
Management
Team
Olayan
America, The
Olayan
Group
(international
investor/commercial/industrial);
and
Assistant
Secretary
for
Management & Budget
and
Designated Chief |
165 |
None |
C-6
|
Name,
Year of Birth |
Position(s)
Held
with
the Trust |
Trustee
and/or
Officer
Since |
Principal
Occupation(s)
During
Past 5 Years |
Number
of
Funds
in
Fund
Complex
Overseen
by
Trustee |
Other
Trusteeship(s)/
Directorship
Held by
Trustee/Director
During
Past
5 Years |
|
|
|
|
Financial
Officer, U.S.
Department
of Treasury |
|
|
|
Robert
C. Troccoli – 1949 |
Trustee |
2016 |
Formerly:
Adjunct
Professor,
University of
Denver
– Daniels College
of
Business; and
Managing
Partner, KPMG
LLP |
165 |
None |
|
Daniel
S. Vandivort –1954 |
Trustee |
2019 |
President,
Flyway
Advisory
Services LLC
(consulting
and property
management)
and
Member,
Investment
Committee
Historic
Charleston
Foundation
Formerly:
President and
Chief
Investment Officer,
previously
Head of Fixed
Income,
Weiss Peck and
Greer/Robeco
Investment
Management;
Trustee and
Chair,
Weiss Peck and
Greer
Funds Board; and
various
capacities at CS
First
Boston including
Head
of Fixed Income at
First
Boston Asset
Management |
165 |
Formerly:
Trustee and
Governance
Chair,
Oppenheimer
Funds;
Treasurer,
Chairman of
the
Audit and Finance
Committee,
Huntington
Disease
Foundation of
America. |
Officers
|
Name,
Year of Birth |
Position(s)
Held
with
the Trust |
Trustee
and/or
Officer
Since |
Principal
Occupation(s) During Past 5 Years |
|
Glenn
Brightman
– 1972 |
President
and
Principal
Executive
Officer |
2023 |
Chief
Operating Officer,
Americas,
Invesco Ltd.;
Senior
Vice
President,
Invesco Advisers,
Inc.;
President and Principal
Executive
Officer, The Invesco Funds.
Formerly:
Global
Head of Finance,
Invesco Ltd;
Executive
Vice
President
and Chief
Financial Officer,
Nuveen |
|
Melanie
Ringold – 1975 |
Senior
Vice
President,
Chief
Legal
Officer
and
Secretary |
2023 |
Head
of Legal of the Americas, Invesco Ltd.; Senior Vice
President
and Secretary, Invesco Advisers, Inc. (formerly known
as
Invesco Institutional (N.A.), Inc.) (registered investment
adviser);
Secretary, Invesco Distributors, Inc. (formerly known as
Invesco
AIM Distributors, Inc.); Secretary, Invesco Investment
Services,
Inc. (formerly known as Invesco AIM Investment
Services,
Inc.); Senior Vice President, Chief Legal Officer and
Secretary,
The Invesco Funds; Secretary, Invesco Investment
Advisers
LLC and Invesco Capital Markets, Inc.; Chief Legal
Officer,
Invesco Exchange-Traded Fund Trust, Invesco Exchange-
Traded
Fund Trust II, Invesco India Exchange-Traded Fund Trust,
Invesco
Actively Managed Exchange-Traded Fund Trust, Invesco
Actively
Managed Exchange-Traded Commodity Fund Trust and
Invesco
Exchange-Traded Self-Indexed Fund Trust; Secretary and
Vice
President, Harbourview Asset Management Corporation;
Secretary
and Senior Vice President, OppenheimerFunds, Inc.
and
Invesco Managed Accounts, LLC; Secretary and Senior Vice
|
C-7
|
Name,
Year of Birth |
Position(s)
Held
with
the Trust |
Trustee
and/or
Officer
Since |
Principal
Occupation(s) During Past 5 Years |
|
|
|
|
President,
Oppenheimer Acquisition Corp.; Secretary, SteelPath
Funds
Remediation LLC; and Secretary and Senior Vice
President,
Trinity Investment Management Corporation
Formerly:
Secretary
and Senior Vice President, OFI SteelPath,
Inc.;
Assistant Secretary, Invesco Distributors, Inc., Invesco
Advisers,
Inc., Invesco Investment Services, Inc., Invesco Capital
Markets,
Inc., Invesco Capital Management LLC, and Invesco
Investment
Advisers LLC; and Assistant Secretary and Assistant
Vice
President, Invesco Funds |
|
Andrew
R. Schlossberg –
1974 |
Senior
Vice
President |
2019 |
Chief
Executive Officer, President and Executive Director, Invesco
Ltd.;
Senior Vice President, The
Invesco Funds and Trustee,
Invesco
Foundation,
Inc.
Formerly:
Senior
Vice President,
Invesco Group
Services, Inc.;
Director
and Senior Vice President, Invesco Advisers, Inc.
(formerly
known as Invesco Institutional (N.A.), Inc.) (registered
investment
adviser); Director and Chairman, Invesco Investment
Services,
Inc. (formerly known as Invesco AIM Investment
Services,
Inc.) (registered transfer agent); Head
of the Americas
and
Senior Managing Director,
Invesco Ltd.;
Director, Invesco
Investment
Advisers LLC (formerly known as Van Kampen Asset
Management);
Director, President and Chairman, Invesco
Insurance
Agency, Inc.; Director, Invesco UK Limited; Director and
Chief
Executive, Invesco Asset Management Limited and Invesco
Fund
Managers Limited; Assistant Vice President, The Invesco
Funds;
Senior Vice President, Invesco Advisers, Inc. (formerly
known
as Invesco Institutional (N.A.), Inc.) (registered investment
adviser);
Director and Chief Executive, Invesco Administration
Services
Limited and Invesco Global Investment Funds Limited;
Director,
Invesco Distributors, Inc.; Head of EMEA, Invesco Ltd.;
President,
Invesco Actively Managed Exchange-Traded
Commodity
Fund Trust, Invesco Actively Managed Exchange-
Traded
Fund Trust, Invesco Exchange-Traded Fund Trust,
Invesco
Exchange-Traded Fund Trust II and Invesco India
Exchange-Traded
Fund Trust; and Managing Director and
Principal
Executive Officer, Invesco Capital Management LLC |
|
John
M. Zerr – 1962 |
Senior
Vice
President |
2006 |
Chief
Operating Officer of the Americas; Senior Vice President,
Invesco
Advisers, Inc. (formerly known as Invesco Institutional
(N.A.),
Inc.) (registered investment adviser); Senior Vice
President,
Invesco Distributors, Inc. (formerly known as Invesco
AIM
Distributors, Inc.); Director and Vice President, Invesco
Investment
Services, Inc. (formerly known as Invesco AIM
Investment
Services, Inc.); Senior Vice President, The Invesco
Funds;
Managing Director, Invesco Capital Management LLC;
Senior
Vice President, Invesco Capital Markets, Inc. (formerly
known
as Van Kampen Funds Inc.); Manager, Invesco
Specialized
Products, LLC; Member, Invesco Canada Funds
Advisory
Board; Director, President and Chief Executive Officer,
Invesco
Corporate Class Inc. (corporate mutual fund company);
Director,
Chairman, President and Chief Executive Officer,
Invesco
Canada Ltd. (formerly known as Invesco Trimark
Ltd./Invesco
Trimark Ltèe) (registered investment adviser and
registered
transfer agent); President, Invesco, Inc.; President,
Invesco
Global Direct Real Estate Feeder GP Ltd.; President,
Invesco
IP Holdings (Canada) Ltd; President, Invesco Global
Direct
Real Estate GP Ltd.; President, Invesco Financial Services
Ltd/Services
Financiers Invesco Ltée; and Director and Chairman,
Invesco
Trust Company |
C-8
|
Name,
Year of Birth |
Position(s)
Held
with
the Trust |
Trustee
and/or
Officer
Since |
Principal
Occupation(s) During Past 5 Years |
|
|
|
|
Formerly:
Manager,
Invesco Indexing LLC; Director, Invesco
Investment
Advisers LLC (formerly known as Van Kampen Asset
Management);
President, Trimark Investments Ltd/Services
Financiers
Invesco Ltee; Director and Senior Vice President,
Invesco
Insurance Agency, Inc.; Director and Senior Vice
President,
Invesco Management Group, Inc. (formerly known as
Invesco
AIM Management Group, Inc.); Secretary and General
Counsel,
Invesco Management Group, Inc. (formerly known as
Invesco
AIM Management Group, Inc.); Secretary, Invesco
Investment
Services, Inc. (formerly known as Invesco AIM
Investment
Services, Inc.); Chief Legal Officer and Secretary, The
Invesco
Funds; Secretary and General Counsel, Invesco
Investment
Advisers LLC (formerly known as Van Kampen Asset
Management);
Secretary and General Counsel, Invesco Capital
Markets,
Inc. (formerly known as Van Kampen Funds Inc.); Chief
Legal
Officer, Invesco Exchange-Traded Fund Trust, Invesco
Exchange-Traded
Fund Trust II, Invesco India Exchange-Traded
Fund
Trust, Invesco Actively Managed Exchange-Traded Fund
Trust,
Invesco Actively Managed Exchange-Traded Commodity
Fund
Trust and Invesco Exchange-Traded Self-Indexed Fund
Trust;
Secretary, Invesco Indexing LLC; Director, Secretary,
General
Counsel and Senior Vice President, Van Kampen
Exchange
Corp.; Director, Vice President and Secretary, IVZ
Distributors,
Inc. (formerly known as INVESCO Distributors, Inc.);
Director
and Vice President, INVESCO Funds Group, Inc.;
Director
and Vice President, Van Kampen Advisors Inc.; Director,
Vice
President, Secretary and General Counsel, Van Kampen
Investor
Services Inc.; Director and Secretary, Invesco
Distributors,
Inc. (formerly known as Invesco AIM Distributors,
Inc.);
Director, Senior Vice President, General Counsel and
Secretary,
Invesco AIM Advisers, Inc. and Van Kampen
Investments
Inc.; Director, Vice President and Secretary, Fund
Management
Company; Director, Senior Vice President,
Secretary,
General Counsel and Vice President, Invesco AIM
Capital
Management, Inc.; and Chief Operating Officer and
General
Counsel, Liberty Ridge Capital, Inc. (an investment
adviser) |
|
Tony
Wong
– 1973 |
Senior
Vice
President |
2023 |
Senior
Managing Director, Invesco Ltd.; Director, Chairman, Chief
Executive
Officer
and President,
Invesco Advisers, Inc.; Director
and
Chairman, Invesco Private Capital, Inc., INVESCO Private
Capital
Investments, Inc. and INVESCO Realty, Inc.; Director,
Invesco
Senior
Secured Management,
Inc.;
President, Invesco
Managed
Accounts, LLC and SNW Asset Management
Corporation;
and Senior Vice President, The Invesco Funds
Formerly:
Assistant
Vice President, The
Invesco
Funds;
and
Vice
President,
Invesco Advisers, Inc. |
|
Stephanie
C. Butcher -
1971 |
Senior
Vice
President |
2023 |
Senior
Managing Director, Invesco Ltd.; Senior Vice President,
The
Invesco Funds; Director and Chief Executive Officer, Invesco
Asset
Management Limited |
|
Adrien
Deberghes – 1967 |
Principal
Financial
Officer,
Treasurer
and
Senior
Vice
President |
2020 |
Head
of the Fund Office of the CFO and Fund Administration;
Vice
President, Invesco Advisers, Inc.; Director,
Invesco Trust
Company;
Principal Financial Officer, Treasurer and Senior
Vice
President,
The Invesco Funds; and Vice President, Invesco
Exchange-Traded
Fund Trust, Invesco Exchange-Traded Fund
Trust
II, Invesco India Exchange-Traded Fund Trust, Invesco
Actively
Managed Exchange-Traded Fund Trust, Invesco Actively
|
C-9
|
Name,
Year of Birth |
Position(s)
Held
with
the Trust |
Trustee
and/or
Officer
Since |
Principal
Occupation(s) During Past 5 Years |
|
|
|
|
Managed
Exchange-Traded Commodity Fund Trust and Invesco
Exchange-Traded
Self-Indexed Fund Trust
Formerly:
Vice
President, The Invesco Funds;
Senior Vice
President
and Treasurer, Fidelity Investments |
|
Crissie
M. Wisdom – 1969 |
Anti-Money
Laundering
Compliance
Officer |
2013 |
Anti-Money
Laundering and OFAC Compliance Officer for Invesco
U.S.
entities including: Invesco Advisers, Inc. and its affiliates,
Invesco
Capital Markets, Inc., Invesco Distributors, Inc., Invesco
Investment
Services, Inc., The Invesco Funds, Invesco Capital
Management,
LLC, Invesco Trust Company; and Fraud
Prevention
Manager for Invesco Investment Services, Inc. |
|
Todd
F. Kuehl – 1969 |
Chief
Compliance
Officer
and
Senior
Vice
President |
2020 |
Chief
Compliance Officer, Invesco Advisers, Inc. (registered
investment
adviser); and Chief Compliance Officer and Senior
Vice
President, The Invesco Funds
Formerly:
Managing Director and Chief Compliance Officer, Legg
Mason
(Mutual Funds); Chief Compliance Officer, Legg Mason
Private
Portfolio Group (registered investment adviser) |
|
James
Bordewick, Jr. –
1959 |
Senior
Vice
President
and
Senior
Officer |
2022 |
Senior
Vice President and Senior Officer, The Invesco Funds
Formerly,
Chief Legal Officer, KingsCrowd, Inc. (research and
analytical
platform for investment in private capital markets);
Chief
Operating
Officer and Head of Legal and Regulatory, Netcapital
(private
capital investment platform); Managing Director, General
Counsel
of asset management and Chief Compliance Officer for
asset
management and private banking, Bank of America
Corporation;
Chief Legal Officer, Columbia Funds and BofA
Funds;
Senior Vice President and Associate General Counsel,
MFS
Investment Management; Chief Legal Officer, MFS Funds;
Associate,
Ropes & Gray; Associate, Gaston Snow & Ely
Bartlett. |
C-10
Trustee
Ownership of Fund Shares as of December 31, 2023
|
Name
of Trustee |
Dollar
Range of Equity Securities Per Fund |
Aggregate
Dollar Range of
Equity
Securities in All
Registered
Investment
Companies
Overseen by
Trustee
in Invesco Funds |
|
Interested
Persons |
|
|
|
Jeffrey
H.
Kupor2 |
None |
Over
$100,000 |
|
Douglas
Sharp2
|
None |
None |
|
Independent
Trustees |
|
|
|
Beth
A. Brown |
None |
Over
$100,000 |
|
Carol
Deckbar2
|
N/A |
N/A |
|
Cynthia
Hostetler |
None |
Over
$100,0003 |
|
Eli
Jones |
None |
Over
$100,0003 |
|
Elizabeth
Krentzman |
Invesco
Rising Dividends Fund (Over $100,000) |
Over
$100,000 |
|
Anthony
J. LaCava, Jr. |
None |
Over
$100,0003 |
|
James
“Jim” Liddy2
|
N/A |
N/A |
|
Prema
Mathai-Davis |
None |
Over
$100,0003 |
|
Joel
W. Motley |
None |
Over
$100,0003 |
|
Teresa
M. Ressel |
Invesco
Diversified Dividend Fund ($1 - $10,000)Invesco
Main
Street Fund® ($1 - $10,000) |
Over
$100,000 |
|
Robert
C. Troccoli |
None |
Over
$100,000 |
|
Daniel
S. Vandivort |
None |
Over
$100,0003 |
2.
The information in
the table is provided as of December 31, 2023. Messrs. Kupor, Sharp and Liddy
and Ms. Deckbar were elected as trustees of the Trust effective January 16,
2024.
3.
Includes total
amount of compensation deferred by the trustee at his or her election pursuant
to a deferred compensation plan. Such deferred compensation is placed in a
deferral account and deemed to be invested in one or more of the Invesco
Funds.
C-11
APPENDIX
D - TRUSTEE COMPENSATION TABLE
Set
forth below is information regarding compensation paid or accrued for each
trustee of the Trust who was not affiliated
with Invesco during the year ended December 31, 2023, unless otherwise
noted.
|
Trustee |
Aggregate
Compensation
From
the Trust(1)
|
Retirement
Benefits
Accrued
by
All Invesco
Funds |
Estimated
Annual
Benefits
Upon
Retirement(2)
|
Total
Compensation
From
All Invesco Funds Paid to
the
Trustees(3)
|
|
Independent
Trustees(4) |
|
|
|
|
|
Beth
Ann Brown |
$33,144 |
$- |
$- |
$630,000 |
|
Cynthia
Hostetler |
24,317 |
- |
- |
465,000 |
|
Eli
Jones |
22,120 |
- |
- |
422,500 |
|
Elizabeth
Krentzman |
24,449 |
- |
- |
470,000 |
|
Anthony
J. LaCava, Jr. |
24,966 |
- |
- |
477,500 |
|
Prema
Mathai-Davis |
23,155 |
- |
205,000 |
442,500 |
|
Joel
W. Motley |
22,118 |
- |
- |
430,000 |
|
Teresa
M. Ressel |
23,150 |
- |
- |
440,000 |
|
Robert
C. Troccoli |
23,026 |
- |
- |
445,000 |
|
Daniel
S. Vandivort |
24,209 |
- |
- |
462,500 |
|
|
|
|
|
|
|
(1)
Amounts shown are based on the fiscal year ended October 31, 2023.
The total amount of compensation deferred by all trustees of
the
Trust during the fiscal year ended October 31, 2023,
including earnings, was $57,928,
representing deferrals from Ms. Hostetler, Messrs. LaCava, Motley,
Troccoli and Vandivort and Drs. Jones and Mathai-Davis.
On
November 10, 2021, Russell Burk resigned from his role as Senior Vice
President and Senior Officer of the Invesco Funds. During
the
fiscal year ended October 31, 2023, aggregate compensation from the Trust
for Mr. Burk was $99,735 | ||||
|
| ||||
|
(2)
These amounts represent the estimated annual benefits payable by the
Invesco Funds upon the trustees’ retirement and assumes
each
trustee serves until his or her normal retirement date. These amounts are
not adjusted to reflect deemed investment appreciation
or
depreciation. | ||||
|
| ||||
|
(3)
These amounts represent the compensation paid from all Invesco Funds to
the individuals who serve as trustees. All trustees
currently
serve as trustee of 32 registered investment companies advised by Invesco,
unless otherwise noted. | ||||
|
| ||||
|
(4)
On August 28, 2022, Christopher Wilson retired. During the fiscal year
ended October 31, 2023,
compensation from the Trust for
Mr.
Wilson for
consultant services provided to the Trust subsequent to his retirement
was
$61,344.
Pursuant to a consulting agreement
with
the Trust, Mr. Wilson may receive payments for consulting services
provided to the Trust for up to three years following his
retirement. | ||||
D-1
APPENDIX
E - PROXY POLICY AND PROCEDURES
The
Adviser and each sub-adviser rely on this policy. In addition, Invesco Asset
Management (Japan)
Limited and Invesco Asset Management (India) Pvt. Ltd. have also adopted
operating guidelines and procedures for proxy voting particular to each regional
investment center. Such guidelines and procedures are attached
hereto.
E-1
Invesco’s
Policy Statement on Global
Corporate Governance
and Proxy Voting
Corporate Governance
and Proxy Voting
Effective
January 2024
E-2
Table
of Contents
|
|
|
|
|
I. |
Introduction |
E-4 |
|
|
A.
Our Approach to Proxy Voting |
E-4 |
|
|
B.
Applicability of Policy |
E-4 |
|
|
|
|
|
II. |
Global
Proxy Voting Operational Procedures |
E-5 |
|
|
A.
Oversight and Governance |
E-5 |
|
|
B.
The Proxy Voting Process |
E-5 |
|
|
C.
Retention and Oversight of Proxy Service Providers |
E-6 |
|
|
D.
Disclosures and Recordkeeping |
E-6 |
|
|
E.
Market and Operational Limitations |
E-7 |
|
|
F.
Securities Lending |
E-8 |
|
|
G.
Conflicts of Interest |
E-8 |
|
|
H.
Review of Policy |
E-9 |
|
|
|
|
|
III. |
Our
Good Governance Principles |
E-10 |
|
|
A.
Transparency |
E-10 |
|
|
B.
Accountability |
E-11 |
|
|
C.
Board Composition and Effectiveness |
E-13 |
|
|
D.
Long-Term Stewardship of Capital |
E-14 |
|
|
E.
Environmental, Social and Governance Risk Oversight |
E-15 |
|
|
F.
Executive Compensation and Alignment |
E-16 |
|
|
|
|
|
|
Exhibit
A |
E-18 |
E-3
I.
Introduction
Invesco Ltd. and
its wholly owned investment adviser subsidiaries (collectively, “Invesco”, the
“Company”, “our” or “we”) have adopted and
implemented this Policy Statement on Global Corporate Governance and Proxy
Voting (“Global Proxy Voting Policy” or “Policy”), which we believe
describe policies and
procedures reasonably designed to ensure proxy voting
matters are conducted in the best
interests of our
clients.
A.
Our
Approach
to Proxy Voting
Invesco understands
proxy voting
is an
integral aspect of the investment management services it provides to
clients. As an investment
adviser,
Invesco has a
fiduciary duty to act in the best interests of our clients.
Where
Invesco has been delegated the authority to
vote
proxies with respect to securities held in client portfolios, we exercise such
authority in the manner we believe best serves the interests of our clients
and
their
investment objectives.
We
recognize that proxy voting is
an
important tool that enables us to drive shareholder
value.
A summary of our
global operational procedures and governance structure is included in Part II of
this Policy. Invesco’s
good
governance principles, which are included
in Part III of this Policy, and our internal proxy
voting guidelines are both principles and rules-based and cover topics that
typically appear on voting ballots. Invesco’s portfolio management teams retain
ultimate authority to vote proxies.
Given
the complexity of proxy issues across our clients’
holdings globally,
our investment teams consider many factors when determining how to cast
votes. We seek to
evaluate and make voting decisions that favor proxy proposals and governance
practices that, in our view, promote long-term shareholder
value.
B.
Applicability
of Policy
Invesco’s
portfolio
management teams vote proxies
on behalf of Invesco-sponsored funds and both fund and non-fund advisory clients
that have explicitly granted Invesco authority in writing to vote proxies on
their behalf. In the case of institutional or sub-advised clients, Invesco will
vote the proxies in accordance with this Policy unless the client agreement
specifies that the client retains the right to vote or has designated a named
fiduciary to direct voting.
This Policy
is
implemented by all entities
listed
in
Exhibit A, except as noted
below.
Due to regional or asset
class-specific
considerations, certain entities may have local proxy voting guidelines or
policies and procedures that differ from this Policy. In the event local
policies and this Policy differ, the
local policy will apply. These entities subject to local
policies are listed in Exhibit
A and include: Invesco Asset Management (Japan) Limited, Invesco Asset
Management (India) Pvt. Ltd, Invesco Taiwan Ltd,
Invesco Real Estate
Management S.a.r.l and Invesco Capital
Markets, Inc. for Invesco Unit Investment Trusts.
Where our passively
managed strategies and certain other client accounts managed in accordance with
fixed income,
money
market and index strategies (including
exchange-traded funds)
(referred to as
“passively managed
accounts”) hold the same
investments as our actively managed equity funds, voting decisions with respect
to those accounts generally follow the voting decisions made by the largest
active holder of the equity shares. Invesco
refers
to
this approach as
“Majority
Voting.”
This
process of Majority
Voting
seeks to ensure that our passively managed accounts benefit from the engagement
and deep dialogue of our active investment
teams,
which
Invesco believes benefits shareholders in passively managed
accounts.
Invesco will generally
apply the majority holder’s vote instruction to
these passively managed accounts.
Where
securities are held only in passively managed accounts and not owned in our
actively managed accounts, the proxy will be generally voted in line with this
Policy and internal proxy voting guidelines. Notwithstanding the
above,
portfolio
management teams of our passively managed accounts retain full discretion over
proxy voting decisions and may determine it appropriate to individually evaluate
a specific proxy proposal or override Majority Voting and vote the shares as
they determine to be in the best interest of those accounts, absent certain
types of conflicts of interest, which are discussed
elsewhere in the Policy. To the extent our portfolio management teams believe a
specific proxy proposal requires enhanced analysis or if it is not covered by
the Policy or internal guidelines, our portfolio
management teams will evaluate such proposal and execute the voting
decision.
E-4
II.
Global
Proxy Voting Operational Procedures
Invesco’s global proxy
voting operational procedures
(the
“Procedures”) are in place to implement the provisions of this Policy. Invesco
aims
to vote all proxies where we have been granted voting authority in accordance
with this Policy, as implemented by the Procedures outlined in this
Section II. It is the
responsibility of Invesco’s Proxy Voting and
Governance team to maintain and facilitate the review
of the
Procedures annually.
A.
Oversight
and Governance
Oversight of the
proxy voting process is provided by the Proxy Voting and Governance team and the
Global Invesco Proxy Advisory Committee (“Global IPAC”). For some clients, third
parties (e.g., U.S. fund boards) and internal sub-committees also provide
oversight of the proxy voting process.
Guided by its
philosophy that investment teams should manage proxy voting, Invesco has created
the Global IPAC. The Global IPAC is an investments-driven committee comprised of
representatives from various investment management teams globally and Invesco’s
Global Head of ESG and is chaired by its Director of Proxy Voting and
Governance. Representatives from Invesco’s Legal and Compliance, Risk and
Government Affairs departments may also participate in Global IPAC meetings. The
Global IPAC provides a forum for investment teams, in accordance with this
Policy, to:
•
monitor, understand
and discuss key proxy issues and voting trends within the Invesco
complex;
•
assist Invesco in
meeting regulatory obligations;
•
review votes not
aligned with our good governance principles; and
•
consider conflicts
of interest in the proxy voting process.
In fulfilling its
responsibilities, the Global IPAC meets as necessary, but no less than
semi-annually, and has the following responsibilities and functions:
(i)
acts as a key liaison between the Proxy Voting and Governance team and portfolio
management teams to ensure compliance with this Policy;
(ii)
provides insight on market trends as it relates to stewardship
practices;
(iii)
monitors proxy votes that present potential conflicts of interest; and (iv)
reviews and provides input, at least annually, on this Policy and related
internal procedures and recommends any changes to the Policy based on, but not
limited to, Invesco’s experience, evolving industry practices, or developments
in applicable laws or regulations. In
addition,
when
necessary, the Global IPAC Conflict of Interest Sub-committee makes voting
decisions on proxies that require an override of the Policy due to an actual or
perceived conflict of interest; the Global IPAC reviews any such voting
decisions.
B.
The
Proxy Voting Process
At Invesco, investment teams
execute voting decisions through our proprietary voting platform and are
supported by the Proxy Voting and Governance team and a dedicated
technology team.
Invesco’s
proprietary voting platform
streamlines the
proxy voting process by providing our global investment teams
with direct access to proxy meeting
materials including ballots, Invesco’s internal
proxy voting guidelines and recommendations, as well as
proxy
research
and
vote recommendations issued by Proxy Service Providers
(as such term is
defined below). Votes executed on
Invesco’s proprietary voting platform are transmitted to our proxy voting
agent
electronically and
are then delivered to the respective designee for tabulation.
Invesco’s Proxy
Voting and Governance team monitors whether we have received proxy ballots for
shareholder meetings in which we are entitled to vote. This involves
coordination among various parties in the proxy
voting
ecosystem,
such
as our proxy voting agent, custodians and ballot distributors. If necessary, we
may choose to escalate a matter to facilitate our ability to exercise our right
to vote.
Our proprietary
systems facilitate internal control and oversight of the voting process.
To
facilitate the casting of votes in an efficient manner, Invesco may choose
to pre-populate and
leverage the capabilities of these proprietary systems to automatically submit
votes
based on its internal
proxy
voting
E-5
guidelines and in
circumstances where Majority Voting,
share
blocking (as defined below) or proportional voting applies. If necessary,
votes may be cast by Invesco or via the Proxy Service Providers Web platform at
our direction.
C.
Retention
and
Oversight of Proxy
Service Providers
Invesco has retained two
independent third party proxy voting service providers to provide proxy support
globally: Institutional
Shareholder Services Inc. (“ISS”) and Glass
Lewis
(“GL”).
In
addition to ISS and GL, Invesco may retain
certain local proxy service providers to access regionally specific research
(collectively
with
ISS and GL,
“Proxy
Service Providers”).
The
services may include
one
or
more of the following:
providing a
comprehensive
analysis
of
each voting item
and
interpretations of each based on Invesco’s internally developed proxy
voting
guidelines; and providing
assistance with the
administration of the proxy process and certain proxy voting-related
functions,
including,
but
not limited to,
operational,
reporting and
recordkeeping services.
While Invesco may
take into consideration the information and recommendations provided by the
Proxy Service Providers, including based upon Invesco’s internal proxy voting
guidelines and recommendations provided to such Proxy Service Providers,
Invesco’s portfolio management teams retain full and independent discretion with
respect to proxy voting decisions.
Updates to
previously issued proxy research reports
and
recommendations may be provided to
incorporate
newly
available
information or additional disclosure provided by the issuer regarding a matter
to be voted on, or to correct
factual errors that
may
result in the issuance of revised
proxy vote recommendations. Invesco’s
Proxy
Voting and Governance team periodically monitors for
these
research alerts issued
by
Proxy Service Providers that are shared with our portfolio management
teams.
Invesco performs
extensive initial and ongoing due diligence on the Proxy Service Providers it
engages globally. Invesco conducts annual due diligence meetings as part of its
ongoing oversight of Proxy Service Providers. The topics included in these
annual due diligence reviews include material changes in service levels,
leadership and control, conflicts of interest, methodologies for formulating
vote recommendations, operations, and research personnel, among other things. In
addition, Invesco monitors and communicates with these firms throughout the year
and monitors their compliance with Invesco’s performance and policy
standards.
As part of our
annual policy development process, Invesco may engage with other external proxy
and governance experts to understand market trends and developments. These
meetings provide Invesco with an opportunity to assess the Proxy Service
Providers’ capabilities, conflicts of interest and service levels, as well as
provide investment professionals with direct insight into the Proxy Service
Providers’ stances on key corporate governance and proxy topics and their policy
framework/methodologies.
Invesco completes a
review of the System and Organizational Controls (“SOC”) Reports for Proxy
Service Providers to confirm the related controls operated effectively to
provide reasonable assurance.
D.
Disclosures
and Recordkeeping
Unless otherwise
required by local or regional requirements, Invesco maintains voting records for
at least seven
(7) years. Invesco
makes its proxy voting records publicly available
in
compliance with regulatory requirements and industry best practices in the
regions below:
•
In accordance with
the U.S. Securities and
Exchange Commission regulations, Invesco will file a record of all proxy voting
activity for the prior 12 months ending June 30th for each U.S. registered fund.
In
addition,
Invesco,
as an
institutional manager that is required to file Form 13F, will file a record of
its votes on certain executive compensation (“say on pay”) matters. These fund
proxy voting filings and institutional manager say on pay voting filings will
generally be made on or before
August 31st of each year. Each year, the proxy voting records for each U.S.
registered fund are made available
on Invesco’s website here. Moreover, and to the extent applicable, the U.S.
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including
Department of Labor regulations and guidance thereunder, provide that the named
E-6
fiduciary generally
should be able to review not only the investment adviser’s voting procedure with
respect to plan-owned stock, but also to review the actions taken in individual
proxy voting situations. In the case of institutional and sub-advised clients,
clients may contact their client service representative to request information
about how Invesco voted proxies on their behalf. Absent specific contractual
guidelines, such requests may be made on a semi-annual basis.
•
In the UK and
Europe, Invesco publicly discloses our proxy votes monthly in compliance with
the UK Stewardship Code and for the European Shareholder Rights Directive
annually here.
•
In Canada, Invesco
publicly discloses our annual proxy votes each year here by August 31st,
covering the 12-month period ending June 30th in compliance with the National
Instrument 81-106 Investment Fund Continuous Disclosure.
•
In Japan, Invesco
publicly discloses our proxy votes annually in compliance with the Japan
Stewardship Code here.
•
In India, Invesco
publicly discloses our proxy votes quarterly here in compliance with The
Securities and Exchange Board of India (“SEBI”) Circular on stewardship code for
all Mutual Funds and all categories of Alternative Investment Funds in relation
to their investment in listed equities. SEBI has implemented principles on
voting for Mutual Funds through circulars dated March 15, 2010,
March
24, 2014 and March 5, 2021, which prescribed detailed mandatory requirements for
Mutual Funds in India to disclose their voting policies and actual voting by
Mutual Funds on different resolutions of investee companies.
•
In Hong Kong,
Invesco Hong Kong Limited will provide proxy voting records upon request in
compliance with the Securities and Futures Commission (“SFC”) Principles of
Responsible Ownership.
•
In Taiwan, Invesco
publicly discloses our proxy voting policy and proxy votes annually in
compliance with Taiwan’s Stewardship Principles for Institutional Investors
here.
•
In Australia,
Invesco publicly discloses a summary of its proxy voting record annually
here.
•
In Singapore,
Invesco Asset Management Singapore Ltd. will provide proxy voting records upon
request in compliance with the Singapore Stewardship Principles for Responsible
Investors.
Invesco may engage
Proxy
Service Providers
to make available or
maintain certain
required proxy voting records in accordance with the above
stated
applicable regulations. Separately managed account clients that have authorized
Invesco to vote proxies on their behalf will receive proxy voting information
with respect to those accounts
upon
request.
Certain other
clients may obtain information about
how we
voted proxies on their behalf by contacting their client service representative
or advisor.
Invesco does not
publicly pre-disclose voting intentions in advance of shareholder
meetings.
E.
Market
and Operational Limitations
In the great
majority of instances, Invesco will vote proxies. However, in certain
circumstances, Invesco may refrain from voting where the economic or other
opportunity costs of voting exceed any benefit to clients. Moreover, ERISA
fiduciaries, in voting proxies or exercising other shareholder rights, must not
subordinate the economic interests of plan participants and beneficiaries to
unrelated objectives. These matters are left to the discretion of the relevant
portfolio manager. Such circumstances could include, for example:
•
Certain countries
impose temporary trading restrictions,
a
practice known as
“share
blocking.”
This
means that once the shares have been voted, the shareholder does not have the
ability to sell the shares for a certain period of time, usually until the day
after the conclusion of the shareholder meeting. Invesco generally refrains from
voting proxies at companies where share blocking applies.
In
some instances, Invesco may determine that the benefit to the client(s) of
voting a specific proxy outweighs the client’s temporary inability to sell the
shares.
E-7
•
Some companies
require a representative to attend meetings in person to vote a proxy, or submit
additional documentation or the disclosure of beneficial owner details to vote.
Invesco may determine that the costs of sending a representative
or
submitting additional documentation or disclosures outweigh the benefit of
voting a particular proxy.
•
Invesco may not
receive proxy materials from the relevant fund or client custodian with
sufficient time and information to make an informed independent voting
decision.
•
Invesco held shares
on the record date but has sold them prior to the meeting date.
In some non-U.S.
jurisdictions, although Invesco uses reasonable efforts to vote a proxy, proxies
may not be accepted or may be rejected due to changes in the agenda for a
shareholder meeting for which Invesco does not have sufficient notice, due to a
proxy voting service not being offered by the custodian in the local market or
due to operational issues experienced by third parties involved in the process
or by the issuer or sub-custodian. In addition, despite the best efforts of
Invesco and its proxy voting agent, there may be instances where our votes may
not be received or properly tabulated by an issuer or the issuer’s agent.
Invesco will generally endeavor to vote and maintain any paper ballots received
provided they are delivered in a timely manner ahead of the vote
deadline.
F.
Securities
Lending
Invesco’s funds may
participate in a securities lending program. In circumstances where funds’
shares are on loan, the voting rights of those shares are transferred to the
borrower. If the security in question is on loan as part of a securities lending
program, Invesco may determine that the vote is material to the investment and
therefore, the benefit to the client of voting a particular proxy outweighs the
economic benefits of securities lending. In those instances, Invesco may
determine to recall securities that are on loan prior to the meeting record
date, so that we will be entitled to vote those shares. For example, for certain
actively managed funds, the lending agent has standing instructions to
systematically recall all securities on loan for Invesco to vote the proxies on
those previously loaned shares. There may be instances where Invesco may be
unable to recall shares or may choose not to recall shares. Such circumstances
may include instances when Invesco does not receive timely notice of the
meeting, or when Invesco deems the opportunity for a fund to generate securities
lending revenue to outweigh the benefits of voting at a specific meeting. The
relevant portfolio manager will make these determinations.
G.
Conflicts
of Interest
There may be
occasions where voting proxies may present a perceived or actual conflict of
interest between Invesco, as investment adviser, and one or more of Invesco’s
clients or vendors.
Firm-Level
Conflicts of Interest
A conflict of
interest may exist if Invesco has a material business relationship with either
the company soliciting a proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a particular
outcome of a proxy vote. Such relationships may include, among others, a client
relationship, serving as a vendor whose products / services are material or
significant to Invesco, serving as a distributor of Invesco’s products, or
serving as a significant research provider or broker to Invesco.
Invesco identifies
potential conflicts of interest based on a variety of factors, including but not
limited to the materiality of the relationship between the issuer or its
affiliates to Invesco.
Material firm-level
conflicts of interests are identified by individuals and groups within Invesco
globally based on criteria established by the Proxy Voting and Governance team.
These criteria are monitored and updated periodically by the Proxy Voting and
Governance team so up-to-date information is available when conducting conflicts
checks. Operating procedures and associated governance are designed to seek to
ensure conflicts of interest are appropriately considered ahead of voting
proxies. The Global IPAC Conflict of Interest Sub-committee maintains oversight
of the process. Companies identified as conflicted will be voted in line with
the principles below as implemented by Invesco’s
E-8
internal proxy
voting guidelines. To the extent a portfolio manager disagrees with the Policy,
our processes and procedures seek to ensure that justifications and rationales
are fully documented and presented to the Global IPAC Conflict of Interest
Sub-committee for approval by a majority vote.
As an additional
safeguard, persons from Invesco’s marketing, distribution and other
customer-facing functions may not serve on the Global IPAC. For the avoidance of
doubt, Invesco may not consider Invesco Ltd.’s pecuniary interest when voting
proxies on behalf of clients. To avoid any appearance of a conflict of interest,
Invesco will not vote proxies issued by Invesco Ltd. that are held in client
accounts.
Personal
Conflicts of Interest
A conflict also may
exist where an Invesco employee has a known personal or business relationship
with other proponents of proxy proposals, participants in proxy contests,
corporate directors, or candidates for directorships. Under Invesco’s Global
Code of Conduct, Invesco entities and individuals must act in the best interests
of clients and must avoid any situation that gives rise to an actual or
perceived conflict of interest.
All Invesco
personnel with proxy voting responsibilities are required to report any known
personal or business conflicts of interest regarding proxy issues with which
they are involved. In such instances, the individual(s) with the conflict will
be excluded from the decision-making process relating to such
issues.
Voting
Funds
of Funds
There may be
conflicts that arise from Invesco voting on matters when shares of
Invesco-sponsored funds are held by other Invesco funds or entities. The
scenarios below set out examples of how Invesco votes in these
instances:
•
When required by
law or regulation, shares of an Invesco fund held by other Invesco funds will be
voted in the same proportion as the votes of external shareholders of the
underlying fund. If such proportional voting is not operationally possible,
Invesco will not vote the shares.
•
When required by
law or regulation, shares of an unaffiliated registered fund held by one or more
Invesco funds will be voted in the same proportion as the votes of external
shareholders of the underlying fund. If such proportional voting is not
operationally possible, Invesco will not vote the shares.
•
For
U.S.
funds
of funds where proportional voting is not required by law or regulation, shares
of Invesco funds will be voted in the same proportion as the votes of external
shareholders of the underlying fund. If such proportional voting is not
operationally possible, Invesco will vote in line with our internally developed
voting guidelines.
•
Non-U.S.
funds
of funds will not be voted proportionally.
The
applicable Invesco entity will vote in line with its local policies, as
indicated in Exhibit A. If no local policies exist, Invesco will vote non-U.S.
funds of funds in line with the firm level conflicts of interest process
described above.
•
Where client
accounts are invested directly in shares issued by Invesco affiliates and
Invesco has proxy voting authority, shares will be voted proportionally in line
with non-affiliated holders. If proportional voting is not possible, the shares
will be voted in line with a Proxy Service Provider’s
recommendation.
H.
Review
of Policy
It is the
responsibility of the Global IPAC
to
review this Policy and the internal proxy voting guidelines annually to consider
whether any changes are warranted. This annual review seeks to ensure this
Policy and the internal proxy voting guidelines remain consistent with clients’
best interests, regulatory requirements, local market standards
and
best practices. Further, this Policy and our internal proxy
voting
guidelines are reviewed at least annually by various departments within Invesco
to seek to ensure that they remain consistent with Invesco’s views on best
practice in corporate governance and long-term investment
stewardship.
E-9
III.
Our
Good Governance Principles
Invesco’s good
governance principles outline our views on best practice in corporate governance
and long-term investment stewardship. These principles have been developed by
our global investment teams in collaboration with the Proxy Voting and
Governance team and various departments internally. The broad philosophy and
guiding principles in this section inform our approach to long-term investment
stewardship and proxy voting. The principles and positions reflected in this
Policy are designed to guide Invesco’s investment professionals in voting
proxies; they are not intended to be exhaustive or prescriptive.
Our portfolio
management teams retain full discretion on vote execution in the context of our
good governance principles and internal proxy voting guidelines, except where
otherwise specified in this Policy. The final voting decisions may consider the
unique circumstances affecting companies, regional best practices and any
dialogue we have had with company management. As a result, different portfolio
management teams may vote differently on particular proxy votes for the same
company. To the extent portfolio management teams choose to vote a proxy in a
way that is not aligned with the principles below, such manager’s rationales are
fully documented.
When evaluating
proxy issues and determining how to cast our votes, Invesco’s portfolio
management teams may engage with companies in advance of shareholder meetings,
and throughout the year. These meetings can be joint efforts between our global
investment professionals.
The following
guiding principles apply to proxy voting with respect to operating companies. We
apply a separate approach to open-end and closed-end investment companies and
unit investment trusts. Where appropriate, these guidelines may be supplemented
by additional internal guidance that considers regional variations in best
practices, company disclosure and region-specific voting items. Invesco may vote
on proposals not specifically addressed by these principles based on an
evaluation of a proposal’s likelihood to enhance long-term shareholder
value.
Our good governance
principles are divided into six key themes that Invesco endorses:
A.
Transparency
We expect companies
to provide accurate, timely and complete information that enables investors to
make informed investment decisions and effectively carry out their stewardship
activities. Invesco supports the highest standards in corporate transparency and
believes that these disclosures should be made available ahead of the voting
deadlines for the Annual General Meeting or Extraordinary General Meeting to
allow for timely review and decision-making.
Financial
reporting: Company accounts
and reporting must accurately reflect the underlying economic position of a
company. Arrangements that may constitute an actual or perceived conflict with
this objective should be avoided.
•
We will generally
support proposals to accept the annual financial statements, statutory accounts
and similar proposals unless these reports are not presented in a timely manner
or significant issues are identified regarding the integrity of these
disclosures.
•
We will generally
vote against the incumbent audit committee chair, or nearest equivalent, where
the non-audit fees paid to the independent auditor exceed audit fees for two
consecutive years or other problematic accounting practices are identified such
as fraud, misapplication of audit standards or persistent material
weaknesses/deficiencies in internal controls over financial
reporting.
•
We will generally
not support the ratification of the independent auditor and/or ratification of
their fees payable if non-audit fees exceed audit and audit related fees or if
there are significant auditing controversies or questions regarding the
independence of the external auditor. We will consider an auditor’s length of
service as a company’s independent auditor in applying this policy.
E-10
B.
Accountability
Robust shareholder
rights and strong board oversight help ensure that management adhere to the
highest standards of ethical conduct, are held to account for poor performance
and responsibly deliver value creation for stakeholders over the long-term. We
therefore encourage companies to adopt governance features that ensure board and
management accountability. In particular, we consider the following as key
mechanisms for enhancing accountability to investors:
One
share one vote: Voting rights are
an important tool for investors to hold boards and management teams accountable.
Unequal voting rights may limit the ability of investors to exercise their
stewardship obligations.
•
We generally do not
support proposals that establish or perpetuate dual classes of voting shares,
double voting rights or other means of differentiated voting or disproportionate
board nomination rights.
•
We generally
support proposals to decommission differentiated voting rights.
•
Where unequal
voting rights are established, we expect these to be accompanied by reasonable
safeguards to protect minority shareholders’ interests.
Anti-takeover
devices: Mechanisms
designed to prevent or unduly delay takeover attempts may unduly limit the
accountability of boards and management teams to shareholders.
•
We generally will
not support proposals to adopt antitakeover devices such as poison pills.
Exceptions may be warranted at entities without significant operations and to
preserve the value of net operating losses carried forward or where the
applicability of the pill is limited in scope and duration.
•
In addition, we
will generally not support capital authorizations or amendments to corporate
articles or bylaws at operating companies that may be utilized for antitakeover
purposes, for example, the authorization of classes of shares of preferred stock
with unspecified voting, dividend, conversion or other rights (“blank check”
authorizations).
Shareholder
rights: We support the
rights of shareholders to hold boards and management teams accountable for
company performance. We generally support best practice aligned proposals to
enhance shareholder rights, including but not limited to the
following:
•
Adoption of proxy
access rights
•
Rights to call
special meetings
•
Rights to act by
written consent
•
Reduce
supermajority vote requirements
•
Remove antitakeover
provisions
•
Requirement that
directors are elected by a majority vote
In addition, we
oppose practices that limit shareholders’ ability to express their views at a
general meeting such as bundling unrelated proposals or several significant
article or bylaw amendments into a single voting item. We will generally vote
against these proposals unless we are satisfied that all the underlying
components are aligned with our views on best practice. We may make exceptions
to this policy for non-operating companies (e.g., open-end and closed-end
investment companies).
Director
Indemnification: Invesco recognizes
that individuals may be reluctant to serve as corporate directors if they are
personally liable for all related lawsuits and legal costs. As a result,
reasonable limitations on directors’ liability can benefit a company and its
shareholders by helping to attract and retain qualified directors while
preserving recourse for shareholders in the event of misconduct by directors.
Accordingly, unless there is insufficient information to make a decision about
the nature of the
E-11
proposal, Invesco
will generally support proposals to limit directors’ liability and provide
indemnification and/or exculpation, provided that the arrangements are
reasonably limited in scope to directors acting in good faith and, in relation
to criminal matters, limited in scope to directors having reasonable grounds for
believing the conduct was lawful.
Responsiveness: Boards should
respond to investor concerns in a timely fashion, including reasonable requests
to engage with company representatives regarding such concerns, and address
matters that receive significant voting dissent at general meetings of
shareholders.
•
We will generally
vote against the incumbent chair of the governance committee, or nearest
equivalent, in cases where the board has not adequately responded to items
receiving significant voting opposition from shareholders at an annual or
extraordinary general meeting.
•
We will generally
vote against the incumbent chair of the governance committee, or nearest
equivalent, where the board has not adequately responded to a shareholder
proposal which has received significant support from shareholders.
•
We will generally
vote against the incumbent chair of the compensation committee,
or
nearest equivalent, if there are significant ongoing concerns with a company’s
compensation practices that have not been addressed by the committee or
egregious concerns with the company’s compensation practices for two years
consecutively.
•
We will generally
vote against the incumbent compensation committee chair,
or
nearest equivalent, where there are ongoing concerns with a company’s
compensation practices and there is no opportunity to express dissatisfaction by
voting against an advisory vote on executive compensation, remuneration report
(or policy) or nearest equivalent.
•
Where a company has
not adequately responded to engagement requests from Invesco or satisfactorily
addressed issues of concern, we may oppose director nominations, including, but
not limited to, nominations for the lead independent director and/or committee
chairs.
Virtual
shareholder meetings: Companies should
hold their annual or special shareholder meetings in a manner that best serves
the needs of its shareholders and the company. Shareholders should have an
opportunity to participate in such meetings. Shareholder meetings provide an
important mechanism by which shareholders provide feedback or raise concerns
without undue censorship and hear from the board and management.
•
We will generally
support management proposals seeking to allow for the convening of hybrid
shareholder meetings (allowing shareholders the option to attend and participate
either in person or through a virtual platform).
•
Management or
shareholder proposals that seek to authorize the company to hold virtual-only
meetings (held entirely through virtual platform with no corresponding in-person
physical meeting) will be assessed on a case-by-case basis. Companies have a
responsibility to provide strong justification and establish safeguards to
preserve comparable rights and opportunities for shareholders to participate
virtually as they would have during an in-person meeting. Invesco will consider,
among other things, a company’s practices, jurisdiction and disclosure,
including the items set forth below:
i.
meeting procedures
and requirements are disclosed in advance of a meeting detailing the rationale
for eliminating the in-person meeting;
ii.
clear and
comprehensive description of which shareholders are qualified to participate,
how shareholders can join the virtual-only meeting, how and when shareholders
submit and ask questions either in advance of or during the meeting;
iii.
disclosure
regarding procedures for questions received during the meeting, but not answered
due to time or other restrictions; and
E-12
iv.
description of how
shareholder rights will be protected in a virtual-only meeting format including
the ability to vote shares during the time the polls are open.
C.
Board
Composition and Effectiveness
Director
election process: Board members
should generally stand for election annually and individually.
•
We will generally
support proposals requesting that directors stand for election
annually.
•
We will generally
vote against the incumbent governance committee chair or nearest
equivalent,
if a
company has a classified board structure that is not being phased out. We may
make exceptions to this policy for non-operating companies (e.g., open-end and
closed-end investment companies) or in regions where market practice is for
directors to stand for election on a staggered basis.
•
When a board is
presented for election as a slate (e.g., shareholders are unable to vote against
individual nominees and must vote for or against the entire nominated slate of
directors) and this approach is not aligned with local market practice, we will
generally vote against the slate in cases where we otherwise would vote against
an individual nominee.
•
Where market
practice is to elect directors as a slate we will generally support the
nominated slate unless there are governance concerns with several of the
individuals included on the slate or we have broad concerns with the composition
of the board such as a lack independence.
Board
size: We will generally
defer to the board with respect to determining the optimal number of board
members given the size of the company and complexity of the business, provided
that the proposed board size is sufficiently large to represent shareholder
interests and sufficiently limited to remain effective.
Board
assessment and succession planning: When evaluating
board effectiveness, Invesco considers whether periodic performance reviews and
skills assessments are conducted to ensure the board represents the interests of
shareholders. In addition, boards should have a robust succession plan in place
for key management and board personnel.
Definition
of independence:
Invesco considers
local market definitions of director independence but applies a proprietary
standard for assessing director independence considering a director’s status as
a current or former employee of the business, any commercial or consulting
relationships with the company, the level of shares beneficially owned or
represented and familial relationships, among others.
Board
and committee independence: The board of
directors, board committees and regional equivalents should be sufficiently
independent from management, substantial shareholders and conflicts of interest.
We consider local market practices in this regard and in general we look for a
balance across the board of directors. Above all, we like to see signs of robust
challenge and discussion in the boardroom.
•
We will generally
vote against one or more non-independent directors when a board is less than
majority independent, but we will take into account local market practice with
regards to board independence in limited circumstances where this standard is
not appropriate.
•
We will generally
vote against non-independent directors serving on the audit
committee.
•
We will generally
vote against non-independent directors serving on the compensation
committee.
•
We will generally
vote against non-independent directors serving on the nominating
committee.
•
In relation to the
board, compensation committee and nominating committee we will consider the
appropriateness of significant shareholder representation in applying this
policy. This exception will generally not apply to the audit
committee.
E-13
Separation
of Chair and CEO roles: We believe that
independent board leadership generally enhances management accountability to
investors. Companies deviating from this best practice should provide a strong
justification and establish safeguards to ensure that there is independent
oversight of a board’s activities (e.g., by appointing a lead or senior
independent director with clearly defined powers and
responsibilities).
•
We will generally
vote against the incumbent nominating committee chair,
or
nearest equivalent,
where
the board chair is not independent unless a lead independent or senior director
is appointed.
•
We will generally
support shareholder proposals requesting that the board chair be an independent
director.
•
We will generally
not vote against a CEO or executive serving as board chair solely on the basis
of this issue, however, we may do so in instances where we have significant
concerns regarding a company’s corporate governance, capital allocation
decisions and/or compensation practices.
Attendance
and over boarding: Director
attendance at board and committee meetings is a fundamental part of their
responsibilities and provides efficient oversight for the company and its
investors. In addition, directors should not have excessive external board or
managerial commitments that may interfere with their ability to execute the
duties of a director.
•
We will generally
vote against or withhold votes from directors who attend less than 75% of board
and committee meetings for two consecutive years.
We
expect companies to disclose any extenuating circumstances, such as health
matters or family emergencies, that would justify a director’s low attendance,
in line with good practices.
•
We will generally
vote against directors who have more than four total mandates at public
operating companies. We apply a lower threshold for directors with significant
commitments such as executive positions and chairmanships.
Diversity: We believe an
effective board should be comprised of directors with a mix of
skills,
experience,
tenure, and
industry expertise together with a diverse profile of individuals of different
genders, ethnicities, race, culture, age,
perspectives and
backgrounds.
The
board should reflect the diversity of the workforce, customers, and the
communities in which the business operates. In our view,
greater diversity
in the boardroom contributes to robust challenge and debate, avoids groupthink,
fosters innovation, and provides competitive advantage to companies. We consider
diversity at the board level, within the executive management team and in the
succession pipeline.
•
In markets where
there are regulatory expectations, listing standards or minimum quotas for board
diversity, Invesco will generally apply the same expectations. In all other
markets, we will generally vote against the incumbent nominating committee chair
of a board,
or
nearest equivalent,
where
a company failed to demonstrate improvements
are
being made
to
diversity practices for three or more consecutive years, recognizing that
building a qualified and diverse board takes time. We may make exceptions to
this policy for non-operating companies (e.g., open-end and closed-end
investment companies).
•
We generally
believe that an individual board’s nominating committee is best positioned to
determine whether director term limits would be an appropriate measure to help
achieve these goals and, if so, the nature of such limits. Invesco generally
opposes proposals to limit the tenure of outside directors through mandatory
retirement ages.
D.
Long-Term
Stewardship of Capital
Capital
allocation: Invesco expects
companies to responsibly raise and deploy capital toward the long-term,
sustainable success of the business. In addition, we expect capital allocation
authorizations and decisions to be made with due regard to shareholder dilution,
rights of shareholders to ratify significant corporate actions and pre-emptive
rights, where applicable.
E-14
Share
issuance and repurchase authorizations: We generally
support authorizations to issue shares up to 20% of a company’s issued share
capital for general corporate purposes. Shares should not be issued at a
substantial discount to the market price or be repurchased at a substantial
premium to the market price.
Stock
splits: We generally
support management proposals to implement a forward or reverse stock split,
provided that a reverse stock split is not being used to take a company private.
In addition, we will generally support requests to increase a company’s common
stock authorization if requested to facilitate a stock split.
Increases
in authorized share capital: We will generally
support proposals to increase a company’s number of authorized common and/or
preferred shares, provided we have not identified concerns regarding a company’s
historical share issuance activity or the potential to use these authorizations
for antitakeover purposes. We will consider the amount of the request in
relation to the company’s current authorized share capital, any proposed
corporate transactions contingent on approval of these requests and the
cumulative impact on a company’s authorized share capital, for example, if a
reverse stock split is concurrently submitted for shareholder
consideration.
Mergers,
acquisitions, proxy contests, disposals and other corporate
transactions: Invesco’s
investment teams will review proposed corporate transactions including mergers,
acquisitions, reorganizations, proxy contests, private placements, dissolutions
and divestitures based on a proposal’s individual investment merits. In
addition, we broadly approach voting on other corporate transactions as
follows:
•
We will generally
support proposals to approve different types of restructurings that provide the
necessary financing to save the company from involuntary bankruptcy.
•
We will generally
support proposals to enact corporate name changes and other proposals related to
corporate transactions that we believe are in shareholders’ best
interests.
•
We will generally
support reincorporation proposals, provided that management have provided a
compelling rationale for the change in legal jurisdiction and provided further
that the proposal will not significantly adversely impact shareholders’
rights.
•
With respect to
contested director elections, we consider the following factors, among others,
when evaluating the merits of each list of nominees: the long-term performance
of the company relative to its industry, management’s track record, any relevant
background information related to the contest, the qualifications of the
respective lists of director nominees, the strategic merits of the approaches
proposed by both sides, including the likelihood that the proposed goals can be
met, and positions of stock ownership in the company.
E.
Environmental,
Social and Governance Risk Oversight
Director
responsibility for risk oversight: The board of
directors are ultimately responsible for overseeing management and ensuring that
proper governance, oversight and control mechanisms are in place at the
companies they oversee. Invesco may take voting action against director nominees
in response to material governance or risk oversight failures that adversely
affect shareholder value.
Invesco considers
the adequacy of a company's response to material oversight failures when
determining whether any voting action is warranted. In addition, Invesco will
consider the responsibilities delegated to board sub-committees when determining
if it is appropriate to hold the incumbent chair of the relevant committee, or
nearest equivalent, accountable for these material failures.
Material governance
or risk oversight failures at a company may include, without
limitation:
i.
significant
bribery, corruption or ethics violations;
ii.
events causing
significant climate-related risks;
E-15
iii.
significant health
and safety incidents; or
iv.
failure to ensure
the protection of human rights.
Reporting
of financially material ESG information: Companies should
report on their environmental, social and governance opportunities and risks
where material to their business operations.
•
Climate risk
management: We encourage companies to report on material climate-related risks
and opportunities and how these are considered within the company’s strategy,
financial planning, governance structures and risk management frameworks aligned
with applicable regional regulatory requirements. For companies in industries
that materially contribute to climate change, we encourage comprehensive
disclosure of greenhouse gas emissions and Paris-aligned emissions reduction
targets, where appropriate. Invesco may take voting action at companies that
fail to adequately address climate-related risks, including opposing director
nominations in cases where we view the lack of effective climate transition risk
management as potentially detrimental to long-term shareholder
value.
Shareholder
proposals addressing environmental and social issues: We recognize
environmental and social (E&S) shareholder proposals are nuanced and
therefore, Invesco will analyze such proposals on a case-by-case
basis.
Invesco may support
shareholder resolutions requesting that specific actions be taken to address
E&S
issues
or mitigate exposure to material E&S risks, including reputational risk,
related to these issues. When considering such proposals, we will consider the
following but not limited to: a company's track record on E&S issues, the
efficacy of the proposal's request, whether the requested action is unduly
burdensome, and whether we consider the adoption of such a proposal would
promote long-term shareholder value. We will also consider company
responsiveness to the proposal and any engagement on the issue when casting
votes.
We generally do not
support resolutions where insufficient information has been provided in advance
of the vote or a lack of disclosure inhibits our ability to make fully informed
voting decisions.
Ratification
of board and/or management acts: We will generally
support proposals to ratify the actions of the board of directors, supervisory
board and/or executive decision-making bodies, provided there are no material
oversight failures as described above. When such oversight concerns are
identified, we will consider a company’s response to any issues raised and may
vote against ratification proposals instead of, or in addition to, director
nominees.
F.
Executive
Compensation and Alignment
Invesco supports
compensation polices and equity incentive plans that promote alignment between
management incentives and shareholders’ long-term interests. We pay close
attention to local market practice and may apply stricter or modified criteria
where appropriate.
Advisory
votes on executive compensation, remuneration policy and remuneration
reports: We will generally
not support compensation-related proposals where more than one of the following
is present:
i.
there is an
unmitigated misalignment between executive pay and company performance for at
least two consecutive years;
ii.
there are
problematic compensation practices which may include, among others,
incentivizing excessive risk taking or circumventing alignment between
management and shareholders’ interests via repricing of underwater
options;
iii.
vesting periods for
long-term incentive awards are less than three years;
iv.
the company “front
loads” equity awards;
v.
there are
inadequate risk mitigating features in the program such as clawback
provisions;
E-16
vi.
excessive,
discretionary one-time equity grants are awarded to executives;
vii.
less than half of
variable pay is linked to performance targets, except where prohibited by
law.
Invesco will
consider company reporting on pay ratios as part of our evaluation of
compensation proposals, where relevant.
Equity
plans:
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 which may include provisions to
reprice options without shareholder approval, plans that include evergreen
provisions or plans that provide for automatic accelerated vesting upon a change
in control.
Employee
stock purchase plans: We generally
support 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 represents a reasonable discount from the market
price.
Severance
Arrangements: Invesco considers
proposed severance arrangements (sometimes known as “golden parachute”
arrangements) on a case-by-case basis due to the wide variety among their terms.
Invesco acknowledges that in some cases such arrangements, if reasonable, may be
in shareholders’ best interests as a method of attracting and retaining
high-quality executive talent. We generally vote in favor of proposals requiring
shareholder ratification of senior executives’ severance agreements where the
proposed terms and disclosure align with good market practice.
E-17
Exhibit
A
Harbourview Asset
Management Corporation
Invesco Advisers,
Inc.
Invesco Asset
Management (India) Pvt. Ltd*1
Invesco Asset
Management (Japan) Limited*1
Invesco Asset
Management (Schweiz) AG
Invesco Asset
Management Deutschland GmbH
Invesco Asset
Management Limited1
Invesco Asset
Management Singapore Ltd
Invesco Australia
Ltd
Invesco European RR
L.P.
Invesco Canada
Ltd.1
Invesco Capital
Management LLC
Invesco Capital
Markets, Inc.*1
Invesco Fund
Managers Limited
Invesco Hong Kong
Limited
Invesco Investment
Advisers LLC
Invesco Investment
Management (Shanghai) Limited
Invesco Investment
Management Limited
Invesco Loan
Manager, LLC
Invesco Managed
Accounts, LLC
Invesco Management
S.A.
Invesco Overseas
Investment Fund Management (Shanghai) Limited
Invesco Pensions
Limited
Invesco Private
Capital, Inc.
Invesco Real Estate
Management S.a.r.l1
Invesco RR Fund
L.P.
Invesco Senior
Secured Management, Inc.
Invesco Taiwan
Ltd*1
Invesco Trust
Company
Oppenheimer Funds,
Inc.
WL Ross & Co.
LLC
*
Invesco entities
with specific proxy voting guidelines
1 Invesco entities
with specific conflicts of interest policies
E-18
Invesco
Japan Proxy Voting Guideline
Invesco Japan
(hereinafter “we” or “our) votes proxies to maximize the interests of our
clients (investors) and beneficiaries in the long term, acknowledging the
importance of corporate governance based on fiduciary duties to our clients
(investors) and beneficiaries. We do not vote proxies for the interests of
ourselves and any third party other than clients (investors) and beneficiaries.
The interests of clients (investors) and beneficiaries are to expand the
corporate value or the shareholders’ economic interests or prevent damage
thereto. Proxy voting is an integral part of our stewardship activities, and we
make voting decisions considering whether the proposal would contribute to
corporate value expansion and sustainable growth.
To vote proxies
adequately, we have established the Responsible Investment Committee and
developed the Proxy Voting Guideline to govern the decision-making process of
proxy voting. While we may seek advice from an external service provider based
on our own guidelines, our investment professionals make voting decisions in
principle, based on the proxy voting guideline, taking into account whether they
contribute to increasing the subject company’s shareholder value.
Responsible proxy
voting and constructive dialogue with investee companies are important
components of stewardship activities. While the Proxy Voting Guideline are
principles for our voting decisions, depending on the proposals, we may make an
exception if we conclude that such a decision is in the best interests of
clients (investors) and beneficiaries after having constructive dialogue with
the investee companies. In such a case, approval of the Responsible Investment
Committee shall be obtained.
The Responsible
Investment Committee consists of members including Chief Investment Officer, as
the chair, Head of Compliance, Head of ESG, investment professionals nominated
by the chair and the other members, including persons in charge at the Client
Reporting department.
We have established
the Conflict of Interest Management Policy. In the situation that may give rise
to a conflict of interest, we aim to control it in the best interests of clients
(investors) and beneficiaries. The Compliance department is responsible for
governing company-wide control of a conflict of interest. The Compliance
department is independent of Investment and Sales departments and shall not
receive any command or order for the matters compliant with the laws and
regulations, including a conflict of interest, from them.
Proxy
Voting Guidelines
1.
Appropriations
of Retained Earnings and Dividends
We decide how to
vote on proposals seeking approval for appropriations of retained earnings and
dividends, taking into account the subject company’s financial conditions and
business performance, shareholders’ economic interests and so on.
•
Taking into account
the company’s capital adequacy, business strategies, and so on if the total
payout ratio, including dividends and share repurchases, is significantly low,
we consider voting against the proposals unless reasonable explanations are
given by the company.
•
With respect to the
company where the Board of Directors determines appropriations of retained
earnings, taking into account the subject company’s capital adequacy, business
strategies, and so on if the total payout ratio, including dividends and share
repurchases, is significantly low, we consider voting against the reappointment
of board directors unless reasonable explanations are given by the
company.
•
Taking into account
the subject company’s capital adequacy, business strategies, and so on if the
total payout ratio, including dividends and share repurchases, is significantly
low, we consider voting for shareholder proposals increasing shareholder
returns.
E-20
2.
Appointment
of Board Directors
We decide how to
vote on proposals concerning the appointment of board directors, taking into
account their independence, competence, anti-social activity records (if any),
and so on. Furthermore, we decide how to vote on the reappointment of board
directors, taking into account their corporate governance practices,
accountability during their tenures, the company’s business performance and
anti-social records (if any), and so on in addition to the above
factors.
Board directors
should make best efforts to continuously gain knowledge and skills to fulfill
the critical role and responsibilities in the company’s governance. A company
should also provide sufficient training opportunities.
Independent outside
directors are expected to play a significant role, such as safeguarding minority
shareholders’ interests through action based on their insights to increase the
company’s corporate value. It is desirable to enhance the board’s governance
function with independent outside directors accounting for the board majority.
However, given the challenge to secure competent candidates, we also recognize
that it is difficult for all the companies, irrespective of their size, to
deploy the independent outside directors’ majority on the Board.
Sufficient
disclosure is a prerequisite for reflecting the assessment of independence and
suitability of director candidates and board composition in voting decisions.
Currently, there are cases where sufficient information cannot be obtained due
to insufficient disclosure on a board chair, each committee’s function and
committee chairs in Notice of Annual General Meeting (AGM) and a corporate
governance report, as well as untimeliness of these issuances. We generally make
decisions based on Notice of AGM, a corporate governance report and an annual
securities report disclosed by the time of voting. However, this shall not apply
if we obtain such information from direct engagement with the company or find
relevant disclosure elsewhere.
(1)
Independence
We generally vote
for the appointment of outside directors. However, we generally vote against if
a candidate is not regarded as independent of the subject company. It is
desirable that the company discloses information, such as numerical data, which
supports our decision on board independence.
•
We view the
following outside director candidates are not independent enough.
•
Candidates who have
been working for the following companies for the last ten years or are those
people’s relatives.
•
The subject
company
•
Its
subsidiary
•
Its parent
company
•
Candidates who have
been working for the following companies for the last five years or are those
people’s relatives.
•
Shareholders who
own more than 10% of the subject company
•
Principal loan
lenders
•
Principal
securities brokers
•
Major business
partners
•
Auditors
•
Audit companies,
consulting companies or any related service providers which have any consulting
contracts with the subject company
•
Any other
counterparts which have any interests in the subject company
E-21
In cases other than
above, we separately scrutinize the independence of candidates who are regarded
as not independent enough.
•
We take extra care
when we assess the independence of candidates from a company which is regarded
as a policy shareholder under cross shareholding, mutually sends outside
directors to each other, and so on, as such cases potentially raise doubts about
their independence. The company should give reasonable explanations. It is also
desirable that the company contrives the timing and method of disclosure to
allow investors to understand those relationships enough.
•
We judge board
independence according to the stock exchange’s independence criteria with
emphasizing independence ensured practically. We consider each company’s
business environment and make the best effort to engage with the subject company
to determine the independence of the candidates.
•
We regard an
outside director with a significantly long tenure as non-independent and
consider voting against the reappointment of such an outside director. We
generally consider voting against the reappointment of outside directors whose
tenures are longer than ten years.
•
If the subject
company is a company with Audit Committee, we judge the independence of outside
director candidates who become audit committee board members using the same
independence criteria for the appointment of statutory auditors in
principle.
•
We generally
consider voting against the appointment of top executives and a nominating
committee chair at a company with three Committees if independent outside
directors of the subject company account for less than 1/3 of the Board after
the AGM. However, this shall not apply if we confirm sufficient planning or
special circumstances on increasing the number of independent outside directors
in engagements.
•
In case the subject
company has a parent company, we generally consider voting against the
appointment of top executives and a nominating committee chair at a company with
three Committees if independent outside directors account for less than half of
the Board after the AGM. However, this shall not apply if we confirm sufficient
planning or special circumstances on increasing the number of independent
outside directors in engagements.
(2)
Attendance
rate and concurrent duties
•
All members are
expected to attend board and respective committee meetings in principle. A
Company is generally obligated to facilitate all members to attend these
meetings. We generally vote against the reappointment of board directors who
attended less than 75% of board or respective committee meetings.
•
We take into
account not only the number of attendance but nomination reasons and candidates’
real contributions if disclosed.
•
We take extra care
when we assess the capability of board directors who have many concurrent duties
as an outside director or outside statutory auditor of listed companies, as such
cases potentially arise doubts about their capacity given the importance of
outside directors’ role and responsibilities. Accordingly, we consider voting
against the appointment of board directors who perform five or more duties as a
director or statutory auditor of a listed company or equivalent
company.
•
If a company
nominates a board director with many concurrent duties, it should provide
reasonable explanations. It is also desirable that the company contrives
disclosure timing and methods to allow investors to understand the situation
enough.
(3)
Company’s
business performance
•
We consider voting
against the reappointment of board directors if the subject company made a loss
for the three consecutive years during their tenures.
E-22
•
We consider voting
against the reappointment of board directors if we judge that the subject
company’s business performance significantly lags the peers in the same industry
during their tenures.
•
We consider voting
against top executives if, concerning capital efficiency including return on
capital, business strategies achieving corporate value expansion and sustainable
growth are not demonstrated, and constructive dialogues are not
conducted.
(4)
Company’s
anti-social activities
•
If we judge that a
corporate scandal damages or is likely to damage shareholder value with having a
significant effect on society during a board tenure, we conduct adequate
dialogues with the subject company on the background and subsequent resolutions
of the scandal. Based on the dialogues, we decide how to vote on the
reappointment of top executives, board directors in charge of those cases and
audit committee board members at a company with Audit Committee or three
Committees, considering the impact on shareholder value.
•
With respect to
domestic corporate scandals, at the time a company receives administrative
dispositions to cartel, bid-rigging, and so on from authorities, such as the
Fair Trade Commission, we consider voting against the reappointment of top
executives, directors in charge and audit committee board members at a company
with Audit Committee or three Committees. However, in case final dispositions
are subsequently determined based on appeal or complaints resolutions, we do not
vote against the reappointment again at that time. We vote on a case-by-case
basis concerning compensation orders in a civil case, dispositions from the
Consumer Affairs Agency or administrative dispositions from overseas
authorities.
•
With respect to
administrative dispositions to an unlisted subsidiary or affiliate, we consider
voting against the reappointment of top executives, directors in charge and
audit committee board members at a company with Audit Committee or three
Committees of the holding or parent company. If a subsidiary or affiliate is
listed, we consider voting against the reappointment of top executives,
directors in charge and audit committee board members at a company with Audit
Committee or three Committees of both the subsidiary or affiliate and the
holding or parent company. However, we may vote on a case-by-case basis,
depending on the importance of the disposition to the subsidiary or affiliate,
its impact on the holding or parent company’s financial performance, and so
on.
•
With respect to
employees’ scandals, if the scandal damages or is likely to damage shareholder
value, and we judge that the subject company owes management responsibility, we
consider voting against the reappointment of top executives, directors in charge
and audit committee board members at a company with Audit Committee or three
Committees.
•
We consider voting
against the reappointment of board directors if the subject company engages in
window dressing or inadequate accounting practices during their
tenures.
(5)
Activities
against shareholder interest
•
If a company raises
capital through an excessively dilutive third-party allotment without a
shareholders’ meeting’s approval, we consider voting against the reappointment
of board directors, particularly top executives.
•
If a company raises
capital through a large-scale public offering without reasonable explanations,
we consider voting against the reappointment of board directors, particularly
top executives.
•
If a company does
not execute a shareholder proposal regarded as favorable for minority
shareholders receiving the majority support from shareholders or does not make a
similar company proposal at an AGM in the following year, we consider voting
against the appointment of top executives.
(6)
Others
•
If a company
insufficiently discloses board director candidates’ information, we generally
vote against such candidates.
E-23
3.
Composition
of Board of Directors
While each
company’s board structure would differ depending on its size and so on, we
believe that a company with three Committees (Nomination, Audit and
Remuneration) is desirable to achieve better governance as a listed company. For
a company with Board of Statutory Auditors (Kansayaku) or Audit Committee, it is
also desirable to voluntarily deploy a Nomination Committee, a Remuneration
Committee and other necessary committees. Besides, it is desirable that Board
Chair is an independent outside director. We believe that a highly transparent
board composition ensures management accountability and contributes to sustained
enterprise value expansion. Finally, the disclosure of the third-party
assessment on the Board of Directors is desirable.
To strengthen the
Board of Directors’ monitoring function and increase its transparency and
effectiveness, we believe it is important to ensure gender, nationality, career,
and age diversity in principle. It is desirable that each company adopts a
skills matrix that defines the diversity and expertise required to fulfill the
Board’s responsibilities reflecting its situation and selects director
candidates accordingly.
We are concerned
about retired directors assuming consulting, advisory or other similar positions
which could negatively impact transparency and decision making of the Board. If
such positions exist, and retired directors assume them, it is desirable that
the company discloses their existence, their expected roles and contributions
and compensations for such posts.
(1)
Number
of board members and change in board composition
•
We decide how to
vote on proposals concerning the number of board members and change in board
composition, taking into account the impacts on the subject company and
shareholders’ economic interests compared to the current situations.
•
The number of board
members should be optimized to make the right management decision at the right
time. We may consider each company’s business situation and scale. However, we
generally consider voting against the appointment of top executives and a
nominating committee chair at a company three Committees if the number of board
members is expected to exceed 20 without decreasing from the previous AGM, and
reasonable explanations are not given.
•
We generally vote
against the appointment of top executives and a nomination committee chair at a
company three Committees if a decrease in outside directors or an increase in
internal directors reduces the percentage of outside directors to less than half
of the board members.
•
If there are no
females on the Board, we consider voting against the appointment of top
executives and a nomination committee chair at a company three Committees.
However, this shall not apply if we confirm sufficient planning or special
circumstances on increasing the number of female directors in
engagements.
•
We believe that
board diversity is important and may set a higher target for a female board
member ratio in the future. Similarly, we may set a racial and nationality
diversity target, especially for companies with global business
operations.
(2)
Procedures
of board director appointment, scope of their responsibilities and so
on
•
We decide how to
vote on proposals concerning change in board director appointment procedures,
taking into account the rationales, and so on, compared to the current
procedures.
•
We generally vote
against proposals reducing board directors’ responsibilities for financial
damages on fiduciary duty breach.
•
Board directors’
responsibilities include effective monitoring of top executives succession
planning. The Nomination Committee at a company with three Committees or the
arbitrary Nomination Committee created at a company with the other governance
structures should provide effective monitoring of successor development and
appointment with transparency. It is desirable that an independent outside
E-24
director serves as
Nomination Committee Chair. If we judge that the succession procedure
significantly lacks transparency and rationality, we consider voting against the
appointment of top executives.
4.
Appointment
of Statutory Auditors (Kansayaku)
We decide how to
vote on proposals concerning the appointment of statutory auditors, taking into
account their independence, competence and anti-social activities records (if
any), and so on. We decide how to vote on the reappointment of statutory
auditors, taking into account their corporate governance practices and
accountability during their tenures, the company’s anti-social activity records,
and so on in addition to the above factors.
Statutory auditors
and audit committee board directors at a company with Audit committee or three
Committees should have deep knowledge specialized in accounting, laws and
regulations and should make best efforts to continuously gain knowledge and
skills to fulfill the critical role and responsibilities in the company’s
governance. A company should also provide sufficient training
opportunities.
(1)
Independence
•
We generally vote
against the appointment of outside statutory auditors without
independency.
•
In general, a
person who has no relationship with the subject company other than a statutory
auditor appointment is regarded as independent.
•
We regard that an
outside statutory auditor with a significantly long tenure is not independent
and generally vote against the reappointment of such an outside statutory
auditor. We generally consider voting against the candidate whose tenure is
longer than ten years.
(2)
Attendance
rate and concurrent duties
•
All statutory
auditors are expected to attend board or board of statutory auditors meetings in
principle. A companies is generally obligated to facilitate all statutory
auditors to attend these meetings. We generally vote against the reappointment
of statutory auditors who attended less than 75% of board or board of statutory
auditors meetings.
•
We take into
account not only the number of attendance but nomination reasons and candidates’
real contributions if disclosed.
•
We take extra care
when we assess the capability of statutory auditors who have many concurrent
duties as an outside director or outside statutory auditor of listed companies,
as such cases potentially arise doubts about their capacity given the importance
of outside statutory auditors’ role and responsibilities. Accordingly, we
consider voting against the appointment of statutory auditors who perform five
or more duties as a board director or statutory auditor of a listed company or
equivalent company. If a company nominates a statutory auditor with many
concurrent duties, it should give reasonable explanations. It is also desirable
that the company contrives disclosure timing and methods to allow investors to
understand the situation enough.
(3)
Accountability
•
If there are
material concerns about a published audit report or audit procedures, or
insufficiencies of required disclosures, we vote against the reappointment of
statutory auditors.
(4)
Company’s
anti-social activities
•
If we judge that a
corporate scandal damages or is likely to damage shareholder value with having a
significant impact on society during a statutory auditor’s tenure, we conduct
adequate dialogues with the subject company on the background and subsequent
resolutions of the scandal. Based on the dialogues, we decide how to vote on the
reappointment of statutory auditors, considering the impact on shareholder
value.
•
With respect to
domestic corporate scandals, at the time a company receives administrative
E-25
dispositions to
cartel, bid-rigging, and so on from authorities, such as the Fair Trade
Commission, we consider voting against the reappointment of statutory auditors.
However, in case the final dispositions are subsequently determined based on
appeal or complaints resolutions, we do not vote against the reappointment again
at that time. We vote on a case-by-case basis concerning compensation orders in
a civil case, dispositions from the Consumer Affairs Agency or administrative
dispositions from overseas authorities.
•
With respect to
administrative dispositions to an unlisted subsidiary or affiliate, we consider
voting against the reappointment of statutory auditors of the holding or parent
company. If a subsidiary or affiliate is listed, we consider voting against the
reappointment of statutory auditors of both the subsidiary or affiliate and the
holding or parent company. However, we may decide on a case-by-case basis,
depending on the importance of the dispositions to the subsidiary or affiliate,
its impact on the holding or parent company’s financial performance, and so
on.
•
With respect to
employees’ scandals, if the scandal damages or is likely to damage shareholder
value, and we judge that the subject company owes management responsibility, we
consider voting against the reappointment of statutory auditors.
•
We consider voting
against the reappointment of statutory auditors if the subject company engages
in window-dressing or inadequate accounting practices during their
tenures.
5.
Composition
of Board of Statutory Auditors (Kansayaku)
We decide how to
vote on proposals concerning the number of members or change in composition of
the board of statutory auditors, taking into account the impact on the subject
company and shareholders’ economic interests compared to the current
situations.
•
We consider an
increase in statutory auditors favorably. However, in case of a decrease, we
consider voting against the reappointment of top executives unless clear and
reasonable explanations are given.
6.
Appointment
of Accounting Auditors
We decide how to
vote on proposals concerning the appointment and replacement of accounting
auditors, taking into account their competence, audit fee levels, and so
on.
•
We generally vote
against the reappointment of statutory auditors (Kansayaku) or audit committee
board members at a company with Audit Committee or three Committees if we judge
that a company reappoints an accounting auditor without replacing it despite the
following accounting audit problems.
•
It is determined
that an accounting auditor provides an unfair opinion on the company’s financial
conditions.
•
In case there are
concerns on financial statements, required disclosures are
insufficient.
•
In case an
accounting auditor has a service contract other than accounting audit services
with the subject company, it is regarded that such a contract creates a conflict
of interest between them.
•
Excessive audit
fees are paid.
•
It is regarded that
an accounting auditor makes fraud or negligence.
•
If it is regarded
that an accounting auditor has issues in other company’s audits, in case a
company appoints or reappoints the accounting auditor without replacing it, we
take the impact on the company’s corporate value full consideration into voting
decisions.
•
We generally vote
against proposals concerning accounting auditor replacement if it is regarded
that a company changes an incumbent accounting auditor due to a dispute about
accounting principles.
E-26
7.
Compensation
for Board Directors, Statutory Auditors (Kansayaku) and Employees
(1)
Board
directors’ salaries and bonuses
•
It is desirable to
increase the proportion of stock incentive plans in board directors’ salaries
and bonuses, on condition that a performance-based compensation structure is
established, transparency, such as disclosures of a benchmark or formula laying
the foundations for calculation, ensures accountability, and the impact on
shareholders, such as dilution, are taken into considerations. The Remuneration
Committee at a company with three Committees (Nomination, Audit and
Remuneration) or the arbitrary Remuneration Committee preferably deployed at a
company with the other governance structures should ensure the accountability of
compensation schemes. It is desirable that an independent outside director
serves as Remuneration Committee Chair.
•
We consider voting
against proposals seeking approval for salaries and bonuses in the following
cases.
•
Negative
correlation between company’s financial performance and directors’ salaries and
bonuses are observed.
•
Inappropriate
systems and practices are in place.
•
The total amount of
salaries and bonuses is not disclosed.
•
Management
failures, such as a significant share price decline or serious earnings
deterioration, are apparent.
•
The remuneration
proposal includes people determined to be responsible for activities against
shareholder interest.
•
We generally vote
for shareholder proposals requesting disclosure of individual directors’
salaries and bonuses.
•
If a company
implements any measures ensuring transparency other than disclosure, we take it
into consideration.
•
If there is no
proposal seeking approval for directors’ salaries and bonuses, and the
compensation structure lacks transparency, we consider voting against the
appointment of top executives.
•
We generally vote
against bonuses for statutory auditors at a company with Board of Statutory
Auditors and audit committee board members at a company with Audit
Committee.
•
We separately
consider voting to audit committee board members at a company with three
Committees.
(2)
Stock
incentive plans
•
We decide how to
vote on proposals concerning stock incentive plans, including stock options and
restricted stock units, taking into account the impact on shareholder value and
rights, compensation levels, the scope, the rationales, and so on.
•
We generally vote
against proposals seeking to lower the strike price of stock
options.
•
We generally vote
for proposals seeking to change the strike price on condition that shareholders’
approval is required every time.
•
We generally vote
against stock incentive plans if the terms and conditions for exercising
options, including equity dilution, lack transparency. We generally consider
voting against proposals potentially causing 10% or more equity
dilution.
•
It is desirable
that stock incentive plans is a long-term incentive aligned with sustainable
growth and corporate value expansion. As such, we generally vote against stock
incentive plans allowing recipients to exercise all the rights within two years
after vested for the subject fiscal year. However,
E-27
this shall not
apply to recipients who retire during the subject fiscal year. We assess the
validity if a vesting period is regarded as too long.
•
We generally vote
against stock incentive plans granted to statutory auditors and audit committee
board members at a company with Audit Committee.
•
We separately
consider stock incentive plans granted to audit committee board members,
including both inside and outside directors, at a company with three
Committees.
•
We generally vote
against stock incentive plans granted to any third parties other than
employees.
•
We generally vote
against stock incentive plans in case a company is likely to adopt the plans as
takeover defense.
(3)
Employee
stock purchase plan
•
We decide how to
vote on proposals concerning employee stock purchase plans, taking into account
the impact on shareholder value and rights, the scope and the rationales, and so
on.
(4)
Retirement
benefits for board directors
•
We decide how to
vote on proposals concerning grant of retirement benefits, taking into account
the scope and scandals (if any) of recipients and business performance and
scandals (if any) of the subject company, and so on.
•
We generally vote
for proposals granting retirement benefits if all the following criteria are
satisfied.
•
The granted amount
is disclosed.
•
Outside directors,
statutory auditors and audit committee board members at a company with Audit
Committees are excluded.
•
Recipients do not
cause any significant scandals during their tenures.
•
The subject company
does not make a loss for the three consecutive years, or its business
performance is not determined to significantly lag behind the peers in the same
industry.
•
The company does
not cause scandals that significantly impact society and damage, or are unlikely
to damage, shareholder value during their tenures.
•
The company does
not engage in window-dressing or inadequate accounting practices during their
tenures.
8.
Cross-shareholdings
If a company holds
shares for the sake of business relations (cross shareholdings), the company
should explain the medium- to long-term business and financial strategies,
including capital costs, and disclose proxy voting guidelines, voting results,
and so on. If the company does not give reasonable explanations and engage in
constructive dialogues, we consider voting against the appointment of top
executives. It is important that the company does not hinder the sales/reduction
of cross shareholdings when a policy shareholder intends.
•
If a company's
cross shareholdings account for 20% or more of its net assets, we generally
consider voting against the appointment of top executives. However, this shall
not apply if we confirm that the company makes a reduction, does sufficient
planning or has industry- specific circumstances that should be taken into
consideration in engagement.
9.
Capital
Policy
As a listed
companies’ capital policy is likely to significantly impact shareholder value
and interests, a company should implement a rational capital policy and explain
capital policy guidelines to shareholders. We consider voting against proposals
concerning capital policies that we judge damage shareholder value. If a
E-28
company has a
capital policy that is not part of proposals at an AGM but regarded to damage
shareholder value, we consider voting against the reappointment of board
directors.
•
It is undesirable
that a company intends to maintain or increase so-called “friendly” stable
shareholders and infringes minority shareholders’ rights by the third-party
allotment, treasury stocks transfer or company management holdings’ transfer to
foundations affiliated with the company.
(1)
Change
in authorized shares
•
We decide how to
vote on proposals seeking to increase authorized shares, taking into account the
impact on shareholder value and rights, the rationales, the impact on the
sustainability of stock market listing and a going concern, and so
on.
•
We generally vote
for proposals seeking to increase authorized shares if we judge that not
increasing authorized shares is likely to lead to delisting or have a
significant impact on a going concern.
•
We generally vote
against proposals seeking to increase authorized shares after an acquirer
emerges.
(2)
New
share issue
•
We decide how to
vote on new share issues, taking into account the rationales, the terms and
conditions of issues, the impact of dilution on shareholder value and rights and
the impact on the sustainability of stock market listing or a going concern, and
so on.
(3)
Share
repurchase and reissue
•
We decide how to
vote on proposals concerning share repurchase or reissue, taking into account
the rationales, and so on.
(4)
Stock
split
•
We generally vote
for proposals seeking a stock split.
(5)
Consolidation
of shares (reverse stock split)
•
We decide how to
vote on proposals seeking consolidation of shares, taking into account the
rationale, and so on.
(6)
Preferred
shares
•
We generally vote
against proposals seeking to issue blank-cheque preferred shares or increase
authorized shares without specifying voting rights, dividends, conversion and
other rights.
•
We generally vote
for proposals seeking to issue preferred shares or increase authorized shares if
voting rights, dividends, conversion and other rights are specified, and those
rights are regarded as reasonable.
•
We generally vote
for proposals requiring approvals for preferred shares issues from
shareholders.
(7)
Convertible
bonds
•
We decide how to
vote on proposals seeking to issue convertible bonds, taking into account the
number of new shares, the time to maturity, and so on.
(8)
Corporate bonds and credit facilities
•
We decide how to
vote on proposals concerning a corporate bond issue or a credit facility
expansion, taking into account the subject company’s financial conditions, and
so on.
(9)
Debt capitalization
•
We decide how to
vote on proposals seeking to change the number of authorized shares or issue
shares for debt restructuring, taking into account the terms and conditions of
the change or the issue, the impact
E-29
on shareholder
value and rights, the rationales, the impact on the sustainability of stock
market listing and a going concern, and so on.
(10)
Capital reduction
•
We decide how to
vote on proposals concerning capital reduction, taking into account the impact
on shareholder value and rights, the rationales and the impact on the
sustainability of stock market listing and a going concern, and so
on.
•
We generally vote
for proposals seeking capital reduction following standard accounting
procedures.
(11)
Financing plan
•
We decide how to
vote on proposals concerning a financing plan, taking into account the impact on
shareholder value and rights, the rationales and the impact on the
sustainability of stock market listing and a going concern, and so
on.
(12)
Capitalization of reserves
•
We decide how to
vote on proposals seeking capitalization of reserves, taking into account the
rationales, and so on.
10.
Amendment
to Articles of Incorporation and Other Legal Documents
(1)
Change in an accounting period
•
We generally vote
for proposals seeking to change an accounting period unless it is regarded as an
aim to delay an AGM.
(2)
Amendment to articles of incorporation
•
We decide how to
vote on proposals to amend an article of incorporation, taking into account the
impact on shareholder value and rights, the necessity, the rationales, and so
on.
•
We generally vote
for proposals seeking to amend an article of incorporation if it is required by
law.
•
We generally vote
against proposals seeking to amend an article of incorporation if we judge that
it is likely to infringe shareholder rights or damage shareholder
value.
•
We generally vote
for transition to a company with three Committees.
•
We decide how to
vote on proposals seeking to relax or eliminate special resolution requirements,
taking into account the rationale.
•
We are concerned
about retired directors assuming advisory, consulting, or other similar
positions which could negatively impact on transparency and decision making of
the Board of Directors. We generally vote against proposals seeking to create
such a position.
•
We generally vote
for proposals seeking to authorize a company to hold virtual-only meetings,
taking into account the impact on shareholder value and rights.
•
We will consider,
among other things, a company’s practices, jurisdiction and disclosure,
including the items set forth below:
•
meeting procedures
and requirements are disclosed in advance of a meeting detailing the rationale
for eliminating the in-person meeting,
•
safeguard and clear
and comprehensive description as to how and when shareholders submit and ask
questions either in advance of or during the meeting,
•
disclosure
regarding procedures for questions received during the meeting, but not answered
due to time or other restrictions, and
E-30
•
description of how
shareholder rights will be protected in a virtual-only meeting format including
the ability to vote on proposals during the time the polls are open.
(3)
Change in a quorum for an annual general meeting (AGM)
•
We decide how to
vote on proposals concerning change in quorum for an AGM, taking into account
the impact on shareholder value and rights, and so on.
11.
Company
Organization Change
(1)
Change in a registered company name and address
•
We decide how to
vote on proposals seeking to change a registered company name, taking into
account the impact on shareholder value, and so on.
•
We generally vote
for proposals seeking to change a registered address.
(2)
Company reorganization
•
We decide how to
vote on proposals concerning the following company reorganization, taking into
account their respective impacts on shareholder value and rights, the subject
company’s financial conditions and business performance, and the sustainability
of stock market listing or a going concern, and so on.
Mergers and
acquisitions
Business
transfers
Company split
(spin-off)
Asset
sale
Company
sale
Liquidation
12.
Proxy
Fight
(1)
Proxy
fight
•
We decide how to
vote on proposals concerning the appointment of directors with opposition
candidates, taking into account their independence, competence, anti-social
activity records (if any), corporate governance practices and accountability of
the candidates and business performance and anti-social activity records (if
any) of the subject company, the proxy fight background, and so on.
(2)
Proxy
context defense
•
Classified
board
•
We generally vote
against proposals seeking to introduce a classified board.
•
We generally vote
for proposals seeking to set a director's term of one year.
•
Shareholder
rights to remove a director
•
We generally vote
against proposals seeking to tighten requirements for shareholders to remove a
director.
•
Cumulative
voting
•
We decide how to
vote on proposals seeking to introduce cumulative voting for director
appointments, taking into account the background, and so on.
E-31
•
We decide how to
vote on proposals seeking to terminate cumulative voting for director
appointment, taking into account the background, and so on.
13.
Takeover
Defense
We believe that
management and shareholder interest is not always aligned. As such, we generally
vote against the creation, amendment and renewal of takeover defense measures
that we judge decrease shareholder value or infringes shareholder rights. We
generally vote against the reappointment of directors if takeover defense
measures are not part of proposals at an AGM but are regarded to decrease
shareholder value or infringes shareholder rights.
•
Relaxing
requirements to amend articles of incorporation and company policies
•
We decide how to
vote on proposals seeking to relax requirements to amend articles of
incorporation or company policies, taking into account the impact on shareholder
value and rights, and so on.
•
Relaxing
of requirements for merger approval
•
We decide how to
vote on proposals seeking to relaxing requirements for merger approval, taking
into account the impact on shareholder value and rights, and so on.
14.
Environment,
Social and Governance (ESG)
We support the
United Nations Principles for Responsible Investment (UN PRI) and acknowledge
that company’s ESG practices are an important factor in investment decision
making. Thus, we consider voting against the reappointment of top executives and
directors in charge if we judge that there is an issue that could significantly
damage corporate value. We consider voting for proposals related to ESG
materiality, including climate change or diversity, if we judge that such
proposals contribute to preventing from damaging or expanding corporate value.
If not, we consider voting against such proposals.
15.
Disclosure
Disclosure and
constructive dialogues based thereon are important in proxy voting and
investment decision making. Furthermore, proactive disclosure and effective
engagement are desirable as demand for ESG disclosure, including climate change,
has been increasing, and the disclosure frameworks have been rapidly
progressing.
•
We generally vote
against proposals that lack sufficient disclosure to make proxy voting
decisions.
•
We generally vote
for proposals seeking to enhance disclosures if such information is beneficial
to shareholders.
•
If a company’s
financial and non-financial disclosures is significantly poor, and if the level
of investor relations activities by management or people in charge is
significantly low, we consider voting against the reappointment of top
executives and directors in charge.
16.
Conflict
of Interest
We abstain from
voting proxies of the following companies that are likely to have a conflict of
interest. We also abstain from voting proxies with respect to the following
investment trusts that are managed by us or Invesco group companies, as a
conflict of interest may rise.
•
Companies and
investment trusts that we abstain from voting proxies:
•
Invesco
Ltd.
We
have established the Conflict of Interest Management Policy. In the situation
that may give rise to a conflict of
interest, we aim to control it in the best interests of clients (investors) and
beneficiaries. The Compliance department is responsible for governing
company-wide control of a conflict of interest. The Compliance department is
independent of the Investment and Sales departments and shall not receive any
E-32
command
or order for the matters compliant with the laws and regulations, including a
conflict of interest, from the Investment and
Sales departments.
Proxy
voting and stewardship activities are reported to the Responsible Investment
Committee. The Responsible
Investment Committee approves them. Besides, the Compliance department reviews
whether conflicts of interest are properly managed in proxy voting and then
reports the results to the Conflict of Interest Oversight Committee.
Furthermore, the results are reported to the Executive Committee in Tokyo and
the Invesco Proxy Advisory Committee.
17.
Shareholder
Proposals
We vote on a
case-by-case basis on shareholder proposals while we follow the Proxy Voting
Guidelines in principle.
DISCLAIMER:
The English version is a translation of the original in Japanese for information
purposes only. In case of a discrepancy, the Japanese original will prevail. You
can download the Japanese version from our website: http://www.invesco.co.jp/footer/proxy.html.
2092318-JP
E-33
Invesco
Asset Management (India) Pvt. Ltd.
Voting
Policy
A.
Preamble
SEBI vide its
circular reference no. SEBI/IMD/Cir No.18/198647/2010 dated March 15, 2010 has
stated that mutual fund should play an active role in ensuring better corporate
governance of listed companies. The said circular stated that the AMCs should
disclose their general policies and procedures for exercising the voting rights
in respect of shares held by them.
Subsequently, SEBI
vide its circular ref. no. CIR/IMD/DF/05/2014 dated March 24, 2014,
SEBI/HO/IMD/DF2/CIR/P/2016/68 dated August 10, 2016, SEBI vide its circular ref.
no. CIR/CFD/CMD1/ 168 /2019 dated December 24, 2019 and
SEBI/HO/IMD/DF4/CIR/P/2021/29 dated March 5, 2021 have amended certain
provisions of above mentioned circular specifying additional compliance /
disclosure requirements with respect to exercise of voting rights by mutual
funds so as to further improve transparency as well as encourage Mutual
Funds/AMCs to diligently exercise their voting rights in best interest of the
unitholders. In this respect, AMFI vide its best practices guidelines circular
no. 35P/ MEM-COR/ 51/ 2020-21 dated March 09, 2021 has communicated that it
would be mandatory for the Mutual Funds to cast their votes ‘For’ or ‘Against’
and Abstention will not be counted as having voted.
This policy is
drafted in pursuance of SEBI circular dated March 15, 2010 read with March 24,
2014, August 10, 2016, December 24, 2019 and circular dated March 5, 2021 and
provides general philosophy, broad guidelines, procedures and principles for
exercising voting rights.
Invesco Asset
Management (India) Private Limited (“IAMI”) is an Investment
Manager to the scheme(s) of Invesco Mutual Fund (“the
Fund”). As an
investment manager, IAMI has fiduciary responsibility to act in the best
interest of unit-holders of the Fund. This responsibility includes exercising
voting rights attached to the securities of the companies in which the schemes
of the Fund invest. It will be IAMI’s endeavor to participate in the voting
process (i.e. exercise voting rights) based on the philosophy enunciated in this
policy.
B.
Philosophy
of Voting Policy
Good corporate
governance ensures that a corporation is managed keeping in mind the long-term
interest of shareholders. Promoting good corporate governance standards forms an
integral part of corporate ownership responsibilities.
With this in the
forefront, IAMI expects all corporations, in which it invests in, to comply with
high corporate governance standards. Accordingly, as the decision to invest is
generally an endorsement of sound management practices, IAMI may generally vote
with the management of these corporations. However, when IAMI is of the view
that the unit holders will be prejudiced by any such proposal, then it may vote
against such proposal to protect the interest of unit holders. Also, in case of
resolutions moved by the shareholders of the company, IAMI will exercise its
voting rights in the best interest of its unit holders. Other than matters
mentioned under section D (I), in certain circumstances, IAMI may also decide to
refrain from voting where it has insufficient information or there is conflict
of interest or it does not have a clear stance on the proposal under
consideration.
IAMI, as an
investment manager, will generally vote in accordance with the Voting Policy.
However, it may deviate from the policy if there are particular facts and/or
circumstances that warrant for such deviation to protect the interests of
unit-holders of the Fund.
C.
Conflict
of Interest in Exercising Voting Rights
IAMI, under
schemes, may invest in the securities of associate/group companies (to the
extent permitted under SEBI (Mutual Funds) Regulations, 1996 as amended from
time to time). Further, IAMI is an Indian subsidiary of global organization
consisting of many affiliates. Moreover, schemes under IAMI may invest in
securities of companies which have invested in schemes of Invesco Mutual Fund.
Such scenarios may lead
E-36
to a situation
creating conflict of interest. Potential Conflict of interest may also arise if
IAMI and the investee company are associates or are part of the same group; or
the investee company holds a material ownership interest in IAMI; a nominee of
IAMI has been appointed as a director of the investee company or having
cross-directorships, the Investee Company is an entity participating in the
distribution of investment products advised or administered by the Investment
Manager and/or any of its affiliate; the Investee Company is a client of
Investment Manager and/or its affiliates.
IAMI will attempt
to avoid conflict of interest and will exercise its voting rights in the best
interest of the unit-holders. Voting decisions in such cases will be based on
merits without any bias and the same parameters will be applied for taking
voting decisions as are applied for other companies.
In cases where
there is a potential conflict of interest, IAMI will vote exactly as per
recommendations of the proxy voting advisory entity with no modifications
whatsoever. In case there is need for a clearer direction, the matter may be
referred to the Investment committee for its guidance. Rationale for decision
taken/ voting on the issue shall be recorded.
D.
Voting
Policy Guidelines
I. The matters
regarding, but not limited to, which the IAMI will exercise the voting rights in
the Annual General Meeting (AGMs) /Extra Ordinary General Meeting (EGMs)/
Through Postal Ballots/Electronic voting of the investee companies are as
follows:
•
Corporate
governance matters, including changes in the state of incorporation, merger and
other corporate restructuring and anti- takeover provisions.
•
Changes to capital
structure, including increase and decrease of capital and preferred stock
issuances.
•
Stock option plans
and other management compensation issues.
•
Social and
corporate responsibility issues.
•
Appointment and
Removal of Directors.
•
Any other issue
that may affect the interest of the shareholders in general and interest of the
unit- holders in particular.
•
Related party
transactions of the investee companies (excluding own group companies). For this
purpose, “Related Party Transactions” shall have same meaning as assigned to
them in clause (zc) of Sub-Regulation (1) of Regulation (2) of the SEBI (Listing
Obligation and Disclosure Requirements) Regulations, 2015.
Effective April 01,
2021, voting shall be mandatory for all resolutions mentioned above. Further,
for all remaining resolutions which are not covered in (I) above, IAMI will
compulsorily be required to cast votes with effect from April 01,
2022.
II. In case of the
Mutual Funds having no economic interest on the day of voting, it may be
exempted from compulsorily casting of votes.
III. The vote shall
be cast at Mutual Fund Level. However, in case Fund Manager/(s) of any specific
scheme has strong view against the views of Fund Manager/(s) of the other
schemes, the voting at scheme level shall be allowed subject to recording of
detailed rationale for the same.
IAMI will exercise
voting rights keeping in mind the need to improve economic value of the
companies and importance of protecting the interests of unit holders of its
schemes but subject to importance of the matter and cost/time implications. The
analysts in equity team will make recommendations on key voting issues and same
will be approved by the Head of Equity or Fund Manager. In case of conflicts or
need for a clearer direction, the matter may be referred to the Voting Committee
for its guidance.
E-37
E.
Voting
Committee
As a guiding
principle, IAMI shall exercise voting rights solely in the interest of unit
holders of the Fund. IAMI has constituted a Voting Committee (VC).The Committee
is empowered to provide guidance on the voting matters referred to it, establish
voting guidelines and procedures as it may consider necessary and is responsible
to ensure that these guidelines and procedures are adhered to and also make
changes in the Policy as may be required from time to time. The members of this
Committee are as follows:
•
CEO / COO/Head -
Operations (any one)
•
Head of Compliance
or Member of compliance team
•
Head of Equity or
Fund Manager (equity)
•
Head of Fixed
Income and/ or Fund Managers (fixed income)
•
Any other
representative as the Committee may co-opt from time to time
Broad Guidelines
for functioning of Voting Committee are:
1.
Voting Committee may record its decisions by circulation including
decisions/guidance on voting matters that have
been referred to it.
2. Voting Committee
may consult with outside experts and other investors on issues as it may deem
fit.
3. Decisions of
Voting Committee should be maintained by compliance.
4.
Details of voting decisions taken by the Fund Management team will be presented
to the Voting Committee/Investment
Committee.
5. Voting Committee
may review this policy from time to time.
F.
Steps
(Procedure) in Exercising Voting Rights
The following
points outline the key steps in exercising Voting rights:
1) Notification of
company AGMs / EGMs and relevant voting items to Fund Management
Team.
2)
IAMI
shall endeavor to vote for all holdings of the Fund aggregated for all its
schemes. The voting will cover all equity holding across all schemes of Invesco
Mutual Fund including passive investments like Index Funds, Exchange Traded Fund
etc.
3)
Custodian will send ballots and or other relevant papers (notice of meeting,
proxy form, attendance slips etc.) to IAMI
relating to AGM/EGM as soon as it receives.
4)
The fund management team is authorized to decide on voting decisions but may
refer decisions to the Voting Committee
for its guidance/direction.
5)
Based on internal discussion within the fund management team, a decision would
be arrived to vote on the proposed
resolution. Routine matters and ordinary resolutions like adoption of financials
(unless there are significant auditor qualifications), dividend declaration,
general updating/corrective amendments to the Articles of Association would also
be considered for voting purpose. However, IAMI may on a case to case basis, not
vote on such resolutions, if it deems fit to do so.
6)
IAMI will generally support and vote “for” proposals which are likely to result
in maximizing long-term investment returns
for unit holders. IAMI would not support and will vote “against” proposals that
appear to be detrimental to the company financials / interest of the minority
shareholders or which would adversely impact shareholders’ value.
7)
IAMI may exercise its voting rights by authorizing its own executives/authorized
representative to attend the AGM/EGM
or may instruct the Custodian to exercise voting rights in accordance with the
instructions of IAMI.
E-38
8)
IAMI may exercise its voting rights through Postal Ballot or may use Electronic
voting mechanism, wherever available,
either through its own executives or by authorizing the Custodian. The records
of voting exercised through Postal Ballot will be maintained by
IAMI.
9)
IAMI may utilize the services of third party professional agencies for getting
in-depth analyses of proposals and vote
recommendations. However, the recommendations of the third party agencies will
be non-binding in nature. IAMI will perform due diligence on proxy voting
advisory firms at the time of initial selection as well as at the time of
renewal of services of the proxy voting. The due diligence will be carried out
on parameters viz. resource strength, Companies under coverage, extent of
institutional ownership, depth of analysis, quality of advice / recommendations,
analyst access & support, timely availability of reports, composition of
board of directors, advisory board and top management, web-based interface
platform and clientele.
10)
The rationale supporting each voting decision (For, Against and Abstain) will be
recorded and such records will be
retained for number of years (currently 8 years) as may be required under the
SEBI (Mutual Funds) Regulations, 1996 from time to time.
G.
Details
of Service Provider
IIAS (Institutional
Investor advisory Services) has been appointed as our proxy voting advisor. The
scope of the agreement with IIAS includes: IIAS shall provide non-binding Voting
Recommendations for each Voting Event for Investee companies, access to their
research portal and analysts for any discussion, access to their online voting
management systems etc. The details of the service provider (currently IIAS) are
provided in the “Rationale for continuation of Proxy Voting advisory report”
which is prepared once in 2 years. IIAS has standardized voting policies and has
a committee-based voting decision making system. Their analysis to arrive at the
recommendations are detailed in nature and recommendations are fairly objective.
However, the recommendations of IIAS are non-binding in nature, and IAMI,
reserves the right to vote differently based on their own judgement on the
matter involved.
H.
Disclosures
The disclosures of
voting rights exercised are as follows:
•
Details of votes
cast by the schemes of the Fund will be uploaded on the website of IAMI
(www.invescomutualfund.com) (in machine readable spreadsheet form) on a
quarterly basis in the prescribed format within the stipulated timelines as
prescribed by SEBI from time to time.
•
Details of votes
cast by the schemes of the Fund will be uploaded on the website of IAMI
(www.invescomutualfund.com) on an annual basis in the prescribed format.
Further, AMCs shall provide the web link in the Annual Reports of the schemes of
the Fund regarding the disclosure of voting details.
•
Summary on actual
exercise of votes cast and its break-up in terms of total number of votes cast
in favor, against or abstained will also be uploaded on the website of IAMI
(www.invescomutualfund.com) on an annual basis.
I.
Certification/Confirmation
•
On an annual basis,
IAMI will obtain a certification from scrutinizer (in terms of Rule 20 (3) (ix)
of Companies (Management and Administration) Rules, 2014) on voting reports and
the same will be placed before the Boards of AMC and Trustee. The scrutinizer’s
certificate will form part of Annual Report and will also be uploaded on the
website of IAMI (www.invescomutualfund.com).
•
A confirmation
shall also be submitted by Trustees in its half yearly report to SEBI that IAMI
have voted on important decisions affecting interests of
unitholders.
E-39
J.
Review
The Board of
Directors of IAMI and Trustees shall review and ensure that IAMI have voted on
important decisions affecting interests of unitholders and the rationale
recorded for vote decision is prudent and adequate.
E-40
APPENDIX
F - CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To
the best knowledge of the Trust, the names and addresses of the record and
beneficial holders of 5% or more of the
outstanding shares of each class of the Funds' equity securities and the
percentage of the outstanding shares held by such holders are set forth below.
Unless otherwise indicated below, the Trust has no knowledge as to whether all
or any portion of the shares owned of record are also owned
beneficially.
A
shareholder who owns beneficially 25% or more of the outstanding securities of a
Fund is presumed to “control” that Fund
as defined in the 1940 Act. Such control may affect the voting rights of other
shareholders.
All information
listed below is as of February 1, 2024.
Invesco
Charter Fund
|
Name
and Address
of
Principal Holder |
Percentage
Owned of Record | ||||||
|
|
Class
A |
Class
C |
Class
R |
Class
S |
Class
Y |
Class
R5 |
Class
R6 |
|
ARVEST
BANK - TRUST DIVISION
PO
BOX 1156
BARTLESVILLE
OK 74005-1156 |
— |
— |
— |
— |
— |
5.02% |
— |
|
|
|
|
|
|
|
|
|
|
ASCENSUS
TRUST COMPANY FBO
KAPLAN
TELEPHONE COMPANY 401(K)
PO
BOX 10758
FARGO
ND 58106-0758 |
— |
— |
8.82% |
— |
— |
— |
— |
|
|
|
|
|
|
|
|
|
|
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
— |
— |
— |
— |
11.32% |
14.69% |
6.95% |
|
|
|
|
|
|
|
|
|
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER RD
SAINT
LOUIS MO 63131-3710 |
5.42% |
5.74% |
— |
— |
— |
— |
61.79% |
|
|
|
|
|
|
|
|
|
|
FIDELITY
INVESTMENTS INSTITUTIONAL
FBO
DERRICK CORPORATION PROFIT
100
MAGELLAN WAY (KW1C)
COVINGTON
KY 41015-1999 |
— |
— |
— |
— |
— |
— |
12.30% |
|
|
|
|
|
|
|
|
|
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
— |
— |
— |
— |
6.31% |
— |
— |
|
|
|
|
|
|
|
|
|
|
MORGAN
STANLEY SMITH BARNEY LLC
FOR
EXCLUSIVE BENEFIT OF CUSTOMERS
1
NEW YORK PLZ FL 12
NEW
YORK NY 10004-1965 |
5.02% |
— |
— |
— |
8.14% |
— |
— |
|
|
|
|
|
|
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
499
WASHINGTON BLVD FL 5
JERSEY
CITY NJ 07310-2010 |
7.01% |
— |
— |
— |
22.57% |
50.17% |
8.22% |
|
|
|
|
|
|
|
|
|
|
NATIONWIDE
TRUSTCO FSB
C/O
IPO PORTFOLIO ACCOUNTING
PO
BOX 182029
COLUMBUS
OH 43218-2029 |
— |
— |
— |
— |
— |
6.51% |
— |
|
|
|
|
|
|
|
|
|
F-1
|
Name
and Address
of
Principal Holder |
Percentage
Owned of Record | ||||||
|
|
Class
A |
Class
C |
Class
R |
Class
S |
Class
Y |
Class
R5 |
Class
R6 |
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
6.57% |
— |
— |
— |
8.34% |
— |
6.08% |
|
|
|
|
|
|
|
|
|
|
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
ATTN
COURTNEY WALLER
880
CARILLON PKWY
ST
PETERSBURG FL 33716-1102 |
— |
— |
— |
— |
8.61% |
— |
— |
|
|
|
|
|
|
|
|
|
|
STATE
STREET BANK AND TRUST AS
CUST
FBO ADP ACCESS PRODUCT
1
LINCOLN STOTECH CTR FL 6
BOSTON
MA 02111 |
— |
— |
8.78% |
— |
— |
— |
— |
|
|
|
|
|
|
|
|
|
|
UBS
WM USA
OMNI
ACCOUNT M/F
ATTN
DEPARTMENT MANAGER
SPEC
CDY A/C EXCL BEN CUST UBSFSI
1000
HARBOR BLVD
WEEHAWKEN
NJ 07086-6761 |
— |
— |
— |
— |
5.39% |
— |
— |
|
|
|
|
|
|
|
|
|
|
VOYA
RET INS & ANNUITY CO
ONE
ORANGE WAY B3N
WINDSOR
CT 06095-4773 |
— |
— |
5.31% |
— |
— |
— |
— |
|
|
|
|
|
|
|
|
|
|
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
5.75% |
— |
— |
— |
5.26% |
— |
— |
Invesco
Diversified Dividend Fund
|
Name
and Address
of
Principal Holder |
Percentage
Owned of Record | ||||||
|
|
Class
A |
Class
C |
Investor
Class |
Class
R |
Class
Y |
Class
R5 |
Class
R6 |
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
— |
6.12% |
— |
— |
7.87% |
— |
— |
|
|
|
|
|
|
|
|
|
|
BNY
MELLON INVESTMENT SERVICING INC
FBO
PRIMERICA FINANCIAL SERVICES
760
MOORE RD
KING
OF PRUSSIA PA 19406-1212 |
11.85% |
— |
— |
— |
— |
— |
— |
|
|
|
|
|
|
|
|
|
|
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
— |
— |
12.36% |
— |
18.01% |
— |
— |
|
|
|
|
|
|
|
|
|
|
DCGT
TRUSTEE & OR CUSTODIAN
FBO
PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN
NPIO TRADE DESK
711
HIGH ST
DES
MOINES IA 50392-0001 |
— |
— |
— |
6.61% |
— |
— |
— |
|
|
|
|
|
|
|
|
|
F-2
|
Name
and Address
of
Principal Holder |
Percentage
Owned of Record | ||||||
|
|
Class
A |
Class
C |
Investor
Class |
Class
R |
Class
Y |
Class
R5 |
Class
R6 |
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER RD
SAINT
LOUIS MO 63131-3710 |
27.87% |
15.74% |
— |
— |
— |
— |
59.41% |
|
|
|
|
|
|
|
|
|
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
— |
9.50% |
— |
— |
10.07% |
— |
— |
|
|
|
|
|
|
|
|
|
|
MAC
& CO
ACCT
MUTUAL
FUND OPERATIONS
525
WILLIAM PENN PLACE
PO
BOX 3198
PITTSBURGH
PA 15230-3198 |
— |
— |
— |
— |
— |
— |
5.61% |
|
|
|
|
|
|
|
|
|
|
MASSACHUSETTS
MUTUAL LIFE
INSURANCE
1295
STATE STREET
SPRINGFIELD
MA 01111-0001 |
— |
— |
— |
5.52% |
— |
— |
— |
|
|
|
|
|
|
|
|
|
|
MERRILL
LYNCH PIERCE FENNER & SMITH
FBO
THE SOLE BENEFIT OF CUSTOMERS
ATTN:
FUND ADMINISTRATION
4800
DEER LAKE DR EAST 2ND FLOOR
JACKSONVILLE
FL 32246-6484 |
— |
— |
— |
— |
— |
9.02% |
— |
|
|
|
|
|
|
|
|
|
|
MINNESOTA
LIFE INSURANCE CO
400
ROBERT ST N STE A
SAINT
PAUL MN 55101-2099 |
— |
— |
— |
— |
— |
8.18% |
— |
|
|
|
|
|
|
|
|
|
|
MORGAN
STANLEY SMITH BARNEY LLC
FOR
EXCLUSIVE BENEFIT OF CUSTOMERS
1
NEW YORK PLZ FL 12
NEW
YORK NY 10004-1965 |
16.51% |
— |
— |
— |
10.62% |
— |
— |
|
|
|
|
|
|
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
499
WASHINGTON BLVD FL 5
JERSEY
CITY NJ 07310 |
— |
6.37% |
11.57% |
— |
18.06% |
68.97% |
13.41% |
|
|
|
|
|
|
|
|
|
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
— |
8.75% |
— |
— |
10.83% |
— |
— |
|
|
|
|
|
|
|
|
|
|
STATE
STREET BANK AND TRUST AS
CUST
FBO ADP ACCESS PRODUCT
1
LINCOLN STOTECH CTR FL 6
BOSTON
MA 02111 |
— |
— |
— |
13.47% |
— |
— |
— |
|
|
|
|
|
|
|
|
|
|
TALCOTT
RESOLUTION LIFE INS CO
PO
BOX 5051
HARTFORD
CT 06102-5051 |
— |
— |
— |
21.55% |
— |
— |
— |
|
|
|
|
|
|
|
|
|
|
VOYA
RET INS & ANNUITY CO
ONE
ORANGE WAY B3N
WINDSOR
CT 06095-4773 |
— |
— |
— |
9.50% |
— |
— |
— |
|
|
|
|
|
|
|
|
|
F-3
|
Name
and Address
of
Principal Holder |
Percentage
Owned of Record | ||||||
|
|
Class
A |
Class
C |
Investor
Class |
Class
R |
Class
Y |
Class
R5 |
Class
R6 |
|
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
— |
17.35% |
— |
— |
— |
— |
— |
Invesco
Main Street All Cap Fund
|
Name
and Address
of
Principal Holder |
Percentage
Owned of Record | |||||
|
|
Class
A |
Class
C |
Class
R |
Class
Y |
Class
R5 |
Class
R6 |
|
AMERICAN
ENTERPRISE
INVESTMENT
SVC
707
2ND AVE SOUTH
MINNEAPOLIS
MN 55402-2405 |
— |
— |
— |
8.62% |
— |
— |
|
|
|
|
|
|
|
|
|
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
— |
— |
— |
5.66% |
— |
— |
|
|
|
|
|
|
|
|
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER RD
SAINT
LOUIS MO 63131-3710 |
— |
— |
— |
— |
— |
76.64% |
|
|
|
|
|
|
|
|
|
HARTFORD
LIFE INSURANCE CO
SEPARATE
ACCOUNT
ATTN
UIT OPERATIONS
PO
BOX 2999
HARTFORD
CT 06104-2999 |
— |
— |
11.25% |
— |
— |
— |
|
|
|
|
|
|
|
|
|
INVESCO
ADVISERS INC
ATTN:
CORPORATE CONTROLLER
1555
PEACHTREE ST NE STE 1800
ATLANTA
GA 30309-2499 |
— |
— |
— |
— |
100.00%* |
— |
|
|
|
|
|
|
|
|
|
LPL
FINANCIAL
--OMNIBUS
CUSTOMER ACCOUNT--
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
— |
— |
— |
8.97% |
— |
— |
|
|
|
|
|
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BEN OF CUSTOMERS
200
LIBERTY STREET
ONE
WORLD FINANCIAL CENTER
ATTN
MUTUAL FUNDS 5TH FLOOR
NEW
YORK NY 10281-1003 |
6.35% |
— |
— |
19.73% |
— |
— |
|
|
|
|
|
|
|
|
|
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0001 |
— |
— |
— |
17.85% |
— |
— |
|
|
|
|
|
|
|
|
|
STATE
STREET BANK AND TRUST AS CUST
FBO
ADP ACCESS PRODUCT
1
LINCOLN STOTECH CTR FL 6
BOSTON
MA 02111 |
— |
— |
— |
— |
— |
7.95% |
F-4
Invesco
Main Street Fund
|
Name
and Address
of
Principal Holder |
Percentage
Owned of Record | |||||
|
|
Class
A |
Class
C |
Class
R |
Class
Y |
Class
R5 |
Class
R6 |
|
CHARLES
SCHWAB & CO INC
SPECIAL
CUSTODY ACCT FBO CUSTOMERS
ATTN
MUTUAL FUNDS
211
MAIN ST
SAN
FRANCISCO CA 94105-1901 |
— |
— |
— |
6.80% |
— |
— |
|
|
|
|
|
|
|
|
|
EDWARD
D JONES & CO
FBO
CUSTOMERS
12555
MANCHESTER RD
ST
LOUIS MO 63131-3710 |
6.83% |
— |
— |
— |
— |
76.11% |
|
|
|
|
|
|
|
|
|
INVESCO
ADVISERS INC
ATTN:
CORPORATE CONTROLLER
1555
PEACHTREE ST NE STE 1800
ATLANTA
GA 30309-2499 |
— |
— |
— |
— |
100.00%* |
— |
|
|
|
|
|
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BEN OF CUSTOMERS
200
LIBERTY STREET
ONE
WORLD FINANCIAL CENTER
ATTN
MUTUAL FUNDS 5TH FLOOR
NEW
YORK NY 10281-1003 |
5.53% |
— |
— |
9.34% |
— |
— |
|
|
|
|
|
|
|
|
|
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0001 |
— |
— |
— |
9.90% |
— |
— |
|
|
|
|
|
|
|
|
|
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
A/C
ATTN
COURTNEY WALLER
880
CARILLON PARKWAY
ST
PETERSBURG FL 33716-1102 |
— |
— |
— |
5.49% |
— |
— |
|
|
|
|
|
|
|
|
|
VANTAGETRUST
- UNITIZED
CO
ICMA RET CORP
777
N CAPITOL ST NE
WASHINGTON
DC 20002-4239 |
— |
— |
— |
30.09% |
— |
— |
|
|
|
|
|
|
|
|
|
VOYA
INSTITUTIONAL TRUST CO
ATTN
FUND OPERATIONS
1
ORANGE WAY
WINDSOR
CT 06095-4773 |
— |
— |
6.40% |
— |
— |
— |
|
|
|
|
|
|
|
|
|
VOYA
RET INS & ANNUITY CO
ATTN
FUND OPERATIONS
1
ORANGE WAY
WINDSOR
CT 06095-4773 |
— |
— |
— |
— |
— |
7.87% |
|
|
|
|
|
|
|
|
|
WELLS
FARGO CLEARING SVCS LLC
SPECIAL
CUSTODY A/C FOR THE
EXCLUSIVE
FBO CUSTOMER
2801
MARKET STREET
ST
LOUIS MO 63103-2523 |
— |
— |
— |
5.04% |
— |
— |
F-5
Invesco
Rising Dividends Fund
|
Name
and Address
of
Principal Holder |
Percentage
Owned of Record | |||||
|
|
Class
A |
Class
C |
Class
R |
Class
Y |
Class
R5 |
Class
R6 |
|
EDWARD
D JONES & CO
FBO
CUSTOMERS
12555
MANCHESTER RD
ST
LOUIS MO 63131-3710 |
12.14% |
— |
— |
— |
— |
34.97% |
|
|
|
|
|
|
|
|
|
GREAT-WEST
TRUSTCO LLC FBO
EMPOWER
BENEFIT PLANS
8515
E ORCHARD RD 2T2
GREENWOOD
VILLAGE CO 80111-5002 |
— |
— |
— |
— |
— |
7.29% |
|
|
|
|
|
|
|
|
|
INVESCO
ADVISERS INC
ATTN:
CORPORATE CONTROLLER
1555
PEACHTREE ST NE STE 1800
ATLANTA
GA 30309-2499 |
— |
— |
— |
— |
100.00%* |
— |
|
|
|
|
|
|
|
|
|
LPL
FINANCIAL
--OMNIBUS
CUSTOMER ACCOUNT--
ATTN
LINDSAY OTOOLE
4707
EXECUTIVE DRIVE
SAN
DIEGO CA 92121-3091 |
— |
— |
— |
9.66% |
— |
— |
|
|
|
|
|
|
|
|
|
MLPF&S
FOR THE SOLE BENEFIT
OF
ITS CUSTOMERS
ATTN
FUND ADMN
4800
DEER LAKE DR E FL 3
JACKSONVILLE
FL 32246-6484 |
— |
— |
— |
23.31% |
— |
8.77% |
|
|
|
|
|
|
|
|
|
MORGAN
STANLEY SMITH BARNEY LLC
FOR
THE EXCLUSIVE FBO ITS
CUSTOMERS
1
NEW YORK PLAZA FL 12
NEW
YORK NY 10004-1965 |
— |
— |
— |
5.24% |
— |
— |
|
|
|
|
|
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BEN OF CUSTOMERS
200
LIBERTY STREET
ONE
WORLD FINANCIAL CENTER
ATTN
MUTUAL FUNDS 5TH FLOOR
NEW
YORK NY 10281-1003 |
7.01% |
— |
— |
20.15% |
— |
17.55% |
|
|
|
|
|
|
|
|
|
PERSHING
LLC
1
PERSHING PLAZA
JERSEY
CITY NJ 07399-0001 |
— |
— |
— |
8.26% |
— |
— |
Invesco
Summit Fund
|
Name
and Address
of
Principal Holder |
Percentage
Owned of Record | ||||||
|
|
Class
A |
Class
C |
Class
P |
Class
S |
Class
Y |
Class
R5 |
Class
R6 |
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
— |
— |
— |
— |
5.40% |
— |
— |
|
|
|
|
|
|
|
|
|
|
BNY
MELLON INVESTMENT SERVICING INC
FBO
PRIMERICA FINANCIAL SERVICES
760
MOORE RD
KING
OF PRUSSIA
PA 19406-1212 |
23.08% |
— |
— |
— |
— |
— |
— |
|
|
|
|
|
|
|
|
|
F-6
|
Name
and Address
of
Principal Holder |
Percentage
Owned of Record | ||||||
|
|
Class
A |
Class
C |
Class
P |
Class
S |
Class
Y |
Class
R5 |
Class
R6 |
|
EDWARD
D JONES & CO
FOR
THE BENEFIT OF CUSTOMERS
12555
MANCHESTER RD
SAINT
LOUIS MO 63131-3710 |
12.13% |
— |
— |
— |
— |
— |
96.83% |
|
|
|
|
|
|
|
|
|
|
INVESCO
ADVISERS INC
ATTN:
CORPORATE CONTROLLER
1555
PEACHTREE ST NE STE 1800
ATLANTA
GA 30309-2499 |
— |
— |
— |
— |
— |
99.99% |
— |
|
|
|
|
|
|
|
|
|
|
ITC
CUST ROTH IRA
FBO
ALBIRIO F MADRID
AURORA
CO |
— |
— |
— |
6.33% |
— |
— |
— |
|
|
|
|
|
|
|
|
|
|
ITC
CUST ROTH IRA
FBO
MICHAEL A PACHUTA
WILLIAMSBURG
VA |
— |
— |
— |
8.53% |
— |
— |
— |
|
|
|
|
|
|
|
|
|
|
LINCOLN
INVESTMENT PLANNING, LLC
FBO
LINCOLN CUSTOMERS
601
OFFICE CENTER DR STE 300
FT
WASHINGTON PA 19034-3275 |
— |
— |
— |
— |
37.77% |
— |
— |
|
|
|
|
|
|
|
|
|
|
LPL
FINANCIAL
OMNIBUS
CUSTOMER ACCOUNT
ATTN:
MUTUAL FUND TRADING
4707
EXECUTIVE DR
SAN
DIEGO CA 92121-3091 |
— |
— |
— |
— |
9.15% |
— |
— |
|
|
|
|
|
|
|
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FEBO
CUSTOMERS
MUTUAL
FUNDS
499
WASHINGTON BLVD FL 5
JERSEY
CITY NJ 07310-2010 |
— |
— |
— |
— |
7.74% |
— |
— |
|
|
|
|
|
|
|
|
|
|
NATIXIS
C/O
FUND SOLUTIONS DEPT
7
PROMENADE GERMAINE SABLON
PARIS
FRANCE 75013 |
— |
— |
— |
— |
8.55% |
— |
— |
|
|
|
|
|
|
|
|
|
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
— |
6.65% |
— |
— |
10.58% |
— |
— |
|
|
|
|
|
|
|
|
|
|
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
ATTN
COURTNEY WALLER
880
CARILLON PKWY
ST
PETERSBURG FL 33716-1102 |
— |
8.78% |
— |
— |
— |
— |
— |
|
|
|
|
|
|
|
|
|
|
WELLS
FARGO CLEARING SERVICES LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
SAINT
LOUIS MO 63103-2523 |
— |
5.31% |
— |
— |
— |
— |
— |
*Owned
beneficially and of record
F-7
Management
Ownership
As
of February 1, 2024, the trustees and
officers as a group owned less than 1% of the outstanding shares of each class
of each Fund.
F-8
APPENDIX
G - MANAGEMENT FEES
For
the last three fiscal years or periods, as applicable, ended October 31, the
management fees payable by each Fund, the
amounts waived by Invesco and the net fees paid by each Fund were as
follows:
|
|
2023 |
2022 |
2021 | ||||||
|
|
Management
Fee
Payable |
Management
Fee
Waivers |
Net
Management
Fee
Paid |
Management
Fee
Payable |
Management
Fee
Waivers |
Net
Management
Fee
Paid |
Management
Fee
Payable |
Management
Fee
Waivers |
Net
Management
Fee
Paid |
|
Invesco
Charter Fund |
$18,205,040 |
$(38,788) |
$18,166,252 |
$20,464,983 |
$(19,910) |
$20,445,073 |
$21,925,465 |
$(7,538) |
$21,917,927 |
|
Invesco
Diversified
Dividend
Fund |
46,847,374 |
(292,935) |
46,554,439 |
52,268,866 |
(243,603) |
52,025,263 |
63,000,521 |
(192,059) |
62,808,462 |
|
Invesco
Main Street All
Cap
Fund® |
7,482,642 |
(11,362) |
7,471,280 |
8,138,213 |
(12,077) |
8,126,136 |
8,590,659 |
(2,055) |
8,588,604 |
|
Invesco
Main Street
Fund® |
39,998,037 |
(136,023) |
39,862,014 |
44,306,816 |
(69,797) |
44,237,019 |
46,944,421 |
(25,308) |
46,919,113 |
|
Invesco
Rising
Dividends
Fund |
16,189,476 |
(42,094) |
16,147,382 |
17,014,869 |
(9,020) |
17,005,849 |
17,379,067 |
(10,329) |
17,368,738 |
|
Invesco
Summit Fund |
16,433,752 |
(19,193) |
16,414,559 |
19,376,439 |
(19,582) |
19,356,857 |
23,579,501 |
(2,500) |
23,577,001 |
|
|
|
|
|
|
|
|
|
|
|
G-1
APPENDIX
H - PORTFOLIO MANAGER(S)
Portfolio
Manager Fund Holdings and Information on Other Managed
Accounts
Invesco’s
portfolio managers develop investment models which are used in connection with
the management of
certain Invesco Funds as well as other mutual funds for which Invesco or an
affiliate acts as sub-adviser, other pooled investment vehicles that are not
registered mutual funds, and other accounts managed for organizations and
individuals. The ‘Investments’ chart reflects the portfolio managers'
investments in the Fund(s) that they manage and includes investments in the
Fund’s shares beneficially owned by a portfolio manager, as determined in
accordance with Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as
amended (beneficial ownership includes ownership by a portfolio manager’s
immediate family members sharing the same household). The ‘Assets Managed’ chart
reflects information regarding accounts other than the Funds for which each
portfolio manager has day-to-day management responsibilities. Accounts are
grouped into three categories: (i) other registered investment companies;
(ii) other pooled investment vehicles; and (iii) other accounts. To the
extent that any of these accounts pay advisory fees that are based on account
performance (performance-based fees), information on those accounts is
specifically noted. In addition, any assets denominated in foreign
currencies have been converted into U.S. dollars using the exchange rates as of
the applicable date.
Investments
The
following information is as of October 31, 2023 (unless otherwise
noted):
|
Fund |
Portfolio
Managers |
Dollar
Range of
Investments
in the Fund |
|
Invesco
Charter Fund | ||
|
|
Belinda
Cavazos |
$100,001–$500,000 |
|
|
Magnus
Krantz |
$100,001–$500,000 |
|
|
Benjamin
Ram |
None |
|
|
|
|
|
Invesco
Diversified Dividend Fund | ||
|
|
Caroline
Le Feuvre |
$100,001–$500,000 |
|
|
Craig
Leopold |
$100,001–$500,000 |
|
|
Chris
McMeans |
Over
$1,000,000 |
|
|
Peter
Santoro |
Over
$1,000,000 |
|
|
|
|
|
Invesco
Main Street All Cap Fund | ||
|
|
Joy
Budzinski |
$100,001–$500,000 |
|
|
Belinda
Cavazos |
None |
|
|
Magnus
Krantz |
$100,001–$500,000 |
|
|
|
|
|
Invesco
Main Street Fund | ||
|
|
Manind
Govil |
Over
$1,000,000 |
|
|
Benjamin
Ram |
$100,001–$500,000 |
|
|
|
|
|
Invesco
Rising Dividends Fund | ||
|
|
Belinda
Cavazos |
$100,001–$500,000 |
|
|
Peter
Santoro |
$500,001–$1,000,000 |
|
|
Raman
Vardharaj |
$100,001–$500,000 |
|
|
|
|
|
Invesco
Summit Fund | ||
|
|
Ido
Cohen |
$500,001–$1,000,000 |
H-1
|
Fund |
Portfolio
Managers |
Dollar
Range of
Investments
in the Fund |
|
|
Ronald
J. Zibelli, Jr. |
None |
Assets
Managed
The
following information is as of October 31, 2023 (unless otherwise
noted):
|
Portfolio
Manager(s) |
Other
Registered
Investment
Companies
Managed |
Other
Pooled
Investment
Vehicles
Managed |
Other
Accounts
Managed | |||
|
|
Number
of
Accounts |
Assets
(in
millions) |
Number
of
Accounts |
Assets
(in
millions) |
Number
of
Accounts |
Assets
(in
millions) |
|
Invesco
Charter Fund | ||||||
|
Belinda
Cavazos |
5 |
$6,681.9 |
None |
None |
471 |
$10.61 |
|
Magnus
Krantz |
9 |
$6,680.7 |
1 |
$76.9 |
471 |
$10.61 |
|
Benjamin
Ram |
4 |
$9,902.4 |
1 |
$236.3 |
81 |
$1.31 |
|
|
|
|
|
|
|
|
|
Invesco
Diversified Dividend Fund | ||||||
|
Caroline
Le Feuvre |
4 |
$4,751.5 |
1 |
$75.8 |
1,0691 |
$205.01 |
|
Craig
Leopold |
4 |
$4,751.5 |
1 |
$75.8 |
1,0691 |
$205.01 |
|
Chris
McMeans |
4 |
$4,751.5 |
1 |
$75.8 |
1,0691 |
$205.01 |
|
Peter
Santoro |
5 |
$7,395.9 |
1 |
$75.8 |
1,0691
|
$205.01
|
|
|
|
|
|
|
|
|
|
Invesco
Main Street All Cap Fund | ||||||
|
Joy
Budzinski |
6 |
$4,794.0 |
1 |
$76.9 |
471 |
$10.61 |
|
Belinda
Cavazos |
5 |
$8,376.1 |
None |
None |
471
|
$10.61
|
|
Magnus
Krantz |
9 |
$8,374.9 |
1 |
$76.9 |
471 |
$10.61 |
|
|
|
|
|
|
|
|
|
Invesco
Main Street Fund | ||||||
|
Manind
Govil |
3 |
$791.2 |
1 |
$236.3 |
81 |
$1.31 |
|
Benjamin
Ram |
4 |
$4,074.4 |
1 |
$236.3 |
81 |
$1.31 |
|
|
|
|
|
|
|
|
|
Invesco
Rising Dividends Fund | ||||||
|
Belinda
Cavazos |
5 |
$6,838.8 |
None |
None |
471 |
$10.61 |
|
Peter
Santoro |
5 |
$14,941.5 |
1 |
$75.8 |
1,0691 |
$205.01 |
|
Raman
Vardharaj |
6 |
$4,794.0 |
1 |
$76.9 |
471 |
$10.61 |
|
|
|
|
|
|
|
|
|
Invesco
Summit Fund | ||||||
|
Ido
Cohen |
2 |
$12,297.9 |
4 |
$2,994.8 |
1 |
$28.6 |
|
Ronald
J. Zibelli, Jr. |
10 |
$26,239.6 |
5 |
$902.0 |
141 |
$0.91 |
|
|
|
|
|
|
|
|
|
1
These are accounts of individual investors for which Invesco provides
investment advice. Invesco offers separately managed accounts that are
managed according
to
the investment models developed by its portfolio managers and used in
connection with the management of certain Invesco Funds. These accounts
may be
invested
in accordance with one or more of those investment models and investments
held in those accounts are traded in accordance with the applicable
models. | ||||||
Potential
Conflicts of Interest
Actual
or apparent conflicts of interest may arise when a portfolio manager has
day-to-day management responsibilities
with respect to more than one Fund or other account. More specifically,
portfolio managers who manage multiple Funds and/or other accounts may be
presented with one or more of the following potential conflicts:
•
The management of
multiple Funds and/or other accounts may result in a portfolio manager devoting
unequal time and attention to the management of each Fund and/or other account.
The Adviser and each Sub-Adviser seek to manage such competing interests for the
time and attention of portfolio managers by having portfolio managers focus on a
particular investment discipline. Most other accounts managed by a portfolio
manager are managed using the same investment models that are used in connection
with the management of the Funds.
H-2
•
If a portfolio
manager identifies a limited investment opportunity which may be suitable for
more than one Fund or other account, a Fund may not be able to take full
advantage of that opportunity due to an allocation of filled purchase or sale
orders across all eligible Funds and other accounts. To deal with these
situations, the Adviser, each Sub-Adviser and the Funds have adopted procedures
for allocating portfolio transactions across multiple accounts.
•
The Adviser and
each Sub-Adviser determine which broker to use to execute each order for
securities transactions for the Funds, consistent with its duty to seek best
execution of the transaction. However, for certain other accounts (such as
mutual funds for which Invesco or an affiliate acts as sub-adviser, other pooled
investment vehicles that are not registered mutual funds, and other accounts
managed for organizations and individuals), the Adviser and each Sub-Adviser may
be limited by the client with respect to the selection of brokers or may be
instructed to direct trades through a particular broker. In these cases, trades
for a Fund in a particular security may be placed separately from, rather than
aggregated with, such other accounts. Having separate transactions with respect
to a security may temporarily affect the market price of the security or the
execution of the transaction, or both, to the possible detriment of the Fund or
other account(s) involved.
•
The
appearance of a
conflict of interest may arise where the Adviser or Sub-Adviser has an
incentive, such as a performance-based management fee, which relates to the
management of one Fund or account but not all Funds and accounts for which a
portfolio manager has day-to-day management responsibilities. None of the
Invesco Fund accounts managed have a performance fee.
•
In the case of a
fund-of-funds arrangement, including where a portfolio manager manages both the
investing Fund and an affiliated underlying fund in which the investing Fund
invests or may invest, a conflict of interest may arise if the portfolio manager
of the investing Fund receives material nonpublic information about the
underlying fund. For example, such a conflict may restrict the ability of the
portfolio manager to buy or sell securities of the underlying Fund, potentially
for a prolonged period of time, which may adversely affect the Fund.
The
Adviser, each Sub-Adviser, and the Funds have adopted certain compliance
procedures which are designed to address
these types of conflicts. However, there is no guarantee that such procedures
will detect each and every situation in which a conflict
arises.
Description
of Compensation Structure
For
the Adviser and each Sub-Adviser
The
Adviser and each Sub-Adviser seek to maintain a compensation program that is
competitively positioned to
attract and retain high-caliber investment professionals. Portfolio managers
receive a base salary, an incentive cash bonus opportunity and a deferred
compensation opportunity. Portfolio manager compensation is reviewed and may be
modified each year as appropriate to reflect changes in the market, as well as
to adjust the factors used to determine bonuses to promote competitive Fund
performance. The Adviser and each Sub-Adviser evaluate competitive market
compensation by reviewing compensation survey results conducted by an
independent third party of investment industry compensation. Each portfolio
manager's compensation consists of the following three elements:
Base
Salary. Each portfolio
manager is paid a base salary. In setting the base salary, the Adviser and each
Sub-Adviser’s intention is to be competitive in light of the particular
portfolio manager's experience and responsibilities.
Annual
Bonus.
The portfolio managers are eligible, along with other employees of the Adviser
and each Sub-Adviser, to participate in a discretionary year-end bonus pool. The
Compensation Committee of Invesco Ltd. reviews and approves the firm-wide bonus
pool based upon progress against strategic objectives and annual operating plan,
including investment performance and financial results. In addition, while
having no direct impact on individual bonuses, assets under management are
considered when determining the starting bonus funding levels. Each portfolio
manager is eligible to receive an annual cash bonus which is based on
H-3
quantitative
(i.e. investment performance) and non-quantitative factors (which may include,
but are not limited to, individual
performance, risk management and teamwork).
Each
portfolio manager's compensation is linked to the pre-tax investment performance
of the Funds/accounts
managed by the portfolio manager as described in Table 1
below.
|
Sub-Adviser |
Performance
time period2
|
|
Invesco3
|
One-,
Three- and Five-year performance against Fund peer
group |
|
Invesco
Canada3
| |
|
Invesco
Deutschland3
| |
|
Invesco
Hong Kong3
| |
|
Invesco
Asset Management3
| |
|
Invesco
India3
| |
|
Invesco
Listed Real Assets Division3
| |
|
|
|
|
Invesco
Senior Secured3,
4
|
Not
applicable |
|
Invesco
Capital3,
5
| |
|
|
|
|
Invesco
Japan |
One-,
Three- and Five-year performance |
|
| |
|
2
Rolling time periods based on calendar year-end. | |
|
3
Portfolio Managers may be granted an annual deferral award that vests on a
pro-rata basis over a four-year period. | |
|
4
Invesco Senior Secured’s bonus is based on annual measures of equity
return and standard tests of collateralization
performance. | |
|
5
Portfolio Managers for Invesco Capital base their bonus on Invesco results
as well as overall performance of Invesco
Capital. | |
High
investment performance (against applicable peer group and/or benchmarks) would
deliver compensation
generally associated with top pay in the industry (determined by reference to
the third-party provided compensation survey information) and poor investment
performance (versus applicable peer group) would result in low bonus compared to
the applicable peer group or no bonus at all. These decisions are reviewed and
approved collectively by senior leadership which has responsibility for
executing the compensation approach across the organization.
With
respect to Invesco Capital, there is no policy regarding, or agreement with, the
Portfolio Managers or any other senior
executive of the Adviser to receive bonuses or any other compensation in
connection with the performance of any of the accounts managed by the Portfolio
Managers.
Deferred
/ Long Term Compensation. Portfolio
managers may be granted a deferred compensation award based on a firm-wide bonus
pool approved by the Compensation Committee of Invesco Ltd. Deferred
compensation awards may take the form of annual fund deferral awards or
long-term equity awards. Annual fund deferral
awards
are notionally invested in certain Invesco funds selected by the
Portfolio Manager and are settled in cash. Long-term equity awards are settled
in Invesco Ltd. common shares. Both fund deferral awards
and long-term equity awards have a four-year ratable vesting schedule. The
vesting period aligns the interests of the Portfolio Managers with the long-term
interests of clients and shareholders and encourages retention.
Retirement
and health and welfare arrangements. Portfolio
managers are eligible to participate in retirement and health and welfare plans
and programs that are available generally to all
employees.
H-4
APPENDIX
I - ADMINISTRATIVE SERVICES FEES
The
Funds paid Invesco the following amounts for administrative services for the
last three fiscal years or periods, as
applicable, ended October 31.
|
Fund
Name |
2023 |
2022 |
2021 |
|
Invesco
Charter Fund |
$415,165 |
$477,404 |
$504,562 |
|
Invesco
Diversified Dividend Fund |
1,609,045 |
1,822,544 |
2,281,678 |
|
Invesco
Main Street All Cap Fund® |
162,163 |
177,778 |
186,602 |
|
Invesco
Main Street Fund® |
1,287,087 |
1,425,371 |
1,497,613 |
|
Invesco
Rising Dividends Fund |
392,757 |
414,354 |
417,920 |
|
Invesco
Summit Fund |
367,274 |
443,052 |
537,951 |
|
|
|
|
|
I-1
APPENDIX
J - BROKERAGE COMMISSIONS AND COMMISSIONS ON AFFILIATED TRANSACTIONS
Set
forth below are brokerage commissions paid by the Funds during the last three
fiscal years or periods, as
applicable, ended October 31. Unless otherwise indicated, the amount of the
brokerage commissions paid by a Fund may change from year to year because of,
among other things, changing asset levels, shareholder activity, and/or
portfolio turnover.
|
|
Total
$ Amount
of
Brokerage
Commissions
Paid1
|
Total
$ Amount of Brokerage
Commissions
Paid to
Affiliated
Brokers |
%
of Total
Brokerage
Commissions
Paid
to the
Affiliated
Brokers |
%
of Total
Transaction
Dollars
Effected
Through
Affiliated
Brokers | ||||
|
|
2023 |
2022 |
2021 |
2023 |
2022 |
2021 |
2023 |
2023 |
|
Invesco
Charter Fund2,3 |
$1,415,889 |
$895,758 |
$902,312 |
$48,385 |
$10,247 |
$3,648 |
3.42% |
3.38% |
|
Invesco
Diversified Dividend Fund4 |
$2,702,446 |
$2,816,278 |
$4,578,173 |
$76,346 |
$7,851 |
$7,928 |
2.82% |
3.36% |
|
Invesco
Main Street All Cap Fund®2 |
$456,635 |
$366,616 |
$305,910* |
$48,172 |
$24,798 |
$18,738 |
10.55% |
13.18% |
|
Invesco
Main Street®3 |
$3,865,052 |
$2,710,351 |
$2,676,985* |
$4,993 |
$32,057 |
$10,616 |
0.13% |
0.26% |
|
Invesco
Rising Dividends Fund2 |
$550,792 |
$570,241 |
$521,150 |
$16,011 |
$31,507 |
$25,852 |
2.91% |
2.86% |
|
Invesco
Summit Fund |
$930,054 |
$1,071,321 |
$830,201 |
$95,680 |
$153,613 |
$65,431 |
10.29% |
12.43% |
|
|
|
|
|
|
|
|
|
|
|
1
Disclosure regarding brokerage commissions is limited to commissions paid
on agency trades and designated as such on the trade
confirm. | ||||||||
|
2The
difference
in brokerage commissions paid by the Funds
for the 2023 fiscal year compared to 2021 fiscal year
is attributable to changes
in
portfolio turnover. | ||||||||
|
3The
difference in brokerage commissions paid by the Funds for the 2023 fiscal
year compared to the prior fiscal year is attributable to changing asset
levels and
portfolio
turnover. | ||||||||
|
4
The
variation in brokerage commissions paid by the Fund is attributable to
changing
asset levels. | ||||||||
* Amounts do not
include spreads or commissions on principal transactions on a net trade
basis.
J-1
APPENDIX
K - RESEARCH
SERVICES AND PURCHASES OF SECURITIES OF REGULAR BROKERS OR DEALERS
RESEARCH
SERVICES
The following table
shows the dollar amount of brokerage commissions paid to brokers for providing
Section 28(e) research/brokerage services under Section 28(e) of the Exchange
Act,
and
the
approximate dollar
amount of the transactions involved for the fiscal year ended October 31,
2023.
The
provision of Section 28(e)
research/brokerage
services was not necessarily a factor in
the
placement of all brokerage business with such brokers.
|
Fund |
Transactions |
Related
Brokerage Commissions1
|
|
Invesco
Charter Fund |
$3,801,548,043 |
$1,282,994 |
|
Invesco
Diversified Dividend Fund |
$5,556,584,564 |
$2,212,612 |
|
Invesco
Main Street All Cap Fund® |
$1,264,834,469 |
$449,317 |
|
Invesco
Main Street Fund® |
$12,100,680,589 |
$3,807,109 |
|
Invesco
Rising Dividends Fund |
$1,773,884,747 |
$548,266 |
|
Invesco
Summit Fund |
$3,065,028,841 |
$886,304 |
|
|
|
|
|
1
Amounts reported are inclusive of commissions paid to, and brokerage
transactions placed with, certain brokers that provide execution, research
and other services. | ||
REGULAR
BROKER-DEALERS
During
the fiscal year or periods, as applicable, ended October 31, 2023, the Funds did not
allocate any transactions to broker-dealers that provided the Adviser with
certain research, statistics and other information.
K-1
APPENDIX
L - PURCHASE, REDEMPTION, EXCHANGE AND PRICING OF SHARES
All
references in the following "Purchase, Redemption and Pricing of Shares" section
of this SAI to Class A, C and R shares
shall include Class A2 and AX (except Invesco Government Money Market Fund) and
Class CX shares, respectively, unless otherwise noted. All references in the
following "Purchase, Redemption and Pricing of Shares" section of this SAI to
Invesco Cash Reserve Shares of Invesco Government Money Market Fund shall
include Class AX shares of Invesco Government Money Market Fund, unless
otherwise noted. The information contained in this section of the SAI does not
apply to Invesco SMA High Yield Bond Fund and Invesco SMA Municipal Bond Fund.
For more information regarding those funds, please see their SAIs.
Transactions
through Financial Intermediaries
If
you are investing indirectly in an Invesco Fund through a financial intermediary
such as a broker-dealer, a bank (including a
bank trust department), an insurance company separate account, an investment
adviser, an administrator or trustee of a Retirement and Benefit Plan or a
qualified tuition plan or a sponsor of a fee-based program that maintains a
master account (an omnibus account) with the Invesco Fund for trading on behalf
of its customers, different guidelines, conditions and restrictions may apply
than if you held your shares of the Invesco Fund directly. These differences may
include, but are not limited to: (i) different eligibility standards to purchase
and sell shares, different eligibility standards to invest in Funds with limited
offering status and different eligibility standards to exchange shares by
telephone; (ii) different minimum and maximum initial and subsequent purchase
amounts; (iii) system inability to provide Letter of Intent privileges; and (iv)
different annual amounts (less than 12%) subject to withdrawal under a
Systematic Redemption Plan without being subject to a contingent deferred sales
charge (CDSC). The financial intermediary through whom you are investing may
also choose to adopt different exchange and/or transfer limit guidelines and
restrictions, including different trading restrictions designed to discourage
excessive or short-term trading.
If
the financial intermediary is managing your account, you may also be charged a
transaction or other fee by such financial
intermediary, including service fees for handling redemption transactions.
Consult with your financial intermediary (or, in the case of a Retirement and
Benefit Plan, your plan sponsor) to determine what fees, guidelines, conditions
and restrictions, including any of the above, may be applicable to
you.
Unless otherwise
provided, the following are certain defined terms used throughout this
prospectus:
•
Employer Sponsored
Retirement and Benefit Plans include (i) employer sponsored pension or profit
sharing plans that qualify under Section 401(a) of the Internal Revenue Code of
1986, as amended (the Code), including 401(k), money purchase pension, profit
sharing and defined benefit plans; (ii) 403(b) and non-qualified deferred
compensation arrangements that operate similar to plans described under (i)
above, such as 457 plans and executive deferred compensation arrangements; (iii)
health savings accounts maintained pursuant to Section 223 of the Code; and (iv)
voluntary employees' beneficiary arrangements maintained pursuant to Section
501(c)(9) of the Code.
•
Individual
Retirement Accounts (IRAs) include Traditional and Roth IRAs.
•
Employer Sponsored
IRAs include Simplified Employee Pension (SEP), Salary Reduction Simplified
Employee Pension (SAR-SEP), and Savings Incentive Match Plan for Employees of
Small Employers (SIMPLE) IRAs.
•
Retirement and
Benefit Plans include Employer Sponsored Retirement and Benefit Plans, IRAs and
Employer Sponsored IRAs.
Purchase
and Redemption of Shares
Purchases
of Class A shares, Class A2 shares of Invesco Short Duration Inflation Protected
Fund and Invesco
Limited Term Municipal Income Fund, Class AX shares of Invesco Government Money
Market Fund and Invesco Cash Reserve Shares of Invesco Government Money Market
Fund and Invesco U.S. Government Money Portfolio
L-1
Initial
Sales Charges. Each Invesco Fund
(other than Invesco Conservative Income Fund and Invesco Short Term Municipal
Fund) is grouped into one of six categories to determine the applicable initial
sales charge for its Class A shares. The sales charge is used to compensate
Invesco Distributors, Inc. (Invesco Distributors) and participating dealers for
their expenses incurred in connection with the distribution of the Invesco
Funds' shares. You may also be charged a transaction or other fee by the
financial intermediary managing your account.
Class
A shares of Invesco Conservative Income Fund and Invesco Short Term Municipal
Fund; Invesco Cash Reserve Shares
of Invesco U.S. Government Money Portfolio; and Class A shares and Invesco Cash
Reserve Shares of Invesco Government Money Market Fund, are sold without an
initial sales charge.
Category
I Funds
Invesco Advantage
International Fund
Invesco American
Franchise Fund
Invesco
Balanced-Risk Allocation Fund
Invesco
Balanced-Risk Commodity Strategy Fund
Invesco Capital
Appreciation Fund
Invesco Charter
Fund
Invesco Comstock
Fund
Invesco Comstock
Select Fund
Invesco
Convertible Securities Fund
Invesco Developing
Markets Fund
Invesco Discovery
Fund
Invesco Discovery
Mid Cap Growth Fund
Invesco
Diversified Dividend Fund
Invesco Dividend
Income Fund
Invesco Energy
Fund
Invesco
Equally-Weighted S&P 500 Fund
Invesco Equity and
Income Fund
Invesco EQV Asia
Pacific Equity Fund
Invesco EQV
Emerging Markets All Cap Fund
Invesco EQV
European Equity Fund
Invesco EQV
European Small Company Fund
Invesco EQV
International Equity Fund
Invesco EQV
International Small Company Fund
Invesco
Fundamental Alternatives Fund
Invesco Global
Allocation Fund
Invesco Global
Core Equity Fund
Invesco Global
Focus Fund
Invesco Global
Fund
Invesco Global
Infrastructure Fund
Invesco Global
Opportunities Fund
Invesco Global
Real Estate Fund
Invesco Global
Real Estate Income Fund
Invesco Gold &
Special Minerals Fund
Invesco Greater
China Fund
Invesco Growth and
Income Fund
Invesco Health
Care Fund
Invesco Income
Advantage International Fund
Invesco Income
Advantage U.S. Fund
Invesco
International Diversified
Fund
Invesco
International Small-Mid Company Fund
Invesco Macro
Allocation Strategy Fund
Invesco Main
Street All Cap Fund
Invesco Main
Street Fund
Invesco Main
Street Mid-Cap Fund
Invesco Main
Street Small Cap Fund
Invesco MSCI World
SRI Index Fund
Invesco
Multi-Asset Income Fund
Invesco
Oppenheimer International Growth Fund
Invesco Real
Estate Fund
Invesco Rising
Dividends Fund
Invesco S&P
500 Index Fund
Invesco Small Cap
Equity Fund
Invesco Small Cap
Growth Fund
Invesco Small Cap
Value Fund
Invesco SteelPath
MLP Alpha Fund
Invesco Steelpath
MLP Alpha Plus Fund
Invesco SteelPath
MLP Income Fund
Invesco SteelPath
MLP Select 40 Fund
Invesco Summit
Fund
Invesco Technology
Fund
Invesco Value
Opportunities Fund
|
Amount
of Investment |
Investor’s
Sales Charge |
Dealer
Concession | |
|
|
As
a Percentage of the
Public
Offering Price |
As
a Percentage of the
Net
Amount Invested |
As
a Percentage of the
Net
Amount Invested |
|
Less
than $50,000 |
5.50% |
5.82% |
5.00% |
|
$50,000
but less than $100,000 |
4.50% |
4.71% |
4.00% |
|
$100,000
but less than $250,000 |
3.50% |
3.63% |
3.00% |
|
$250,000
but less than $500,000 |
2.75% |
2.83% |
2.25% |
|
$500,000
but less than $1,000,000 |
2.00% |
2.04% |
1.75% |
Category
II Funds
Invesco AMT-Free
Municipal Income Fund
Invesco California
Municipal Fund
Invesco Core Bond
Fund
Invesco Core Plus
Bond Fund
Invesco Corporate
Bond Fund
Invesco Emerging
Markets Local Debt Fund
Invesco
Environmental Focus Municipal Fund
Invesco Global
Strategic Income Fund
L-2
Invesco High Yield
Fund
Invesco High Yield
Municipal
Fund
Invesco Income
Fund
Invesco
Intermediate Bond Factor Fund
Invesco
International Bond Fund
Invesco Municipal
Income Fund
Invesco New Jersey
Municipal Fund
Invesco
Pennsylvania Municipal Fund
Invesco Quality
Income Fund
Invesco Rochester
AMT-Free New York Municipal Fund
Invesco Rochester
Municipal Opportunities Fund
Invesco Rochester
New York Municipals Fund
|
Amount
of Investment |
Investor’s
Sales Charge |
Dealer
Concession | |
|
|
As
a Percentage of the
Public
Offering Price |
As
a Percentage of the
Net
Amount Invested |
As
a Percentage of the
Net
Amount Invested |
|
Less
than $100,000 |
4.25% |
4.44% |
4.00% |
|
$100,000
but less than $250,000 |
3.50% |
3.63% |
3.25% |
|
$250,000
but less than $500,000 |
2.50% |
2.56% |
2.25% |
|
$500,000
but less than $1,000,000 |
2.00% |
2.04% |
1.75% |
Category
III Funds
Invesco Limited
Term Municipal Income Fund (Class A2 shares)
Invesco Short
Duration Inflation Protected Fund (Class A2 shares)
|
Amount
of Investment |
Investor’s
Sales Charge |
Dealer
Concession | |
|
|
As
a Percentage of the
Public
Offering Price |
As
a Percentage of the
Net
Amount Invested |
As
a Percentage of the
Net
Amount Invested |
|
Less
than $100,000 |
1.00% |
1.01% |
0.75% |
|
$100,000
but less than $250,000 |
0.75% |
0.76% |
0.50% |
|
$250,000
but less than $1,000,000 |
0.50% |
0.50% |
0.40% |
As
of the close of business on October 30, 2002, Class A2 shares of Invesco Short
Duration Inflation Protected Fund and
Invesco Limited Term Municipal Income Fund were closed to new investors. Current
investors must maintain a share balance in order to continue to make incremental
purchases.
Category
IV Funds
Invesco Floating
Rate ESG Fund
Invesco
Intermediate Term Municipal Income Fund
Invesco Limited
Term California Municipal Fund
Invesco Limited
Term Municipal Income Fund (Class A shares)
Invesco Rochester
Limited Term New York Municipal Fund
Invesco Short
Duration High Yield Municipal Fund
Invesco Short
Duration Inflation Protected Fund (Class A shares)
Invesco Short Term
Bond Fund
|
Amount
of Investment |
Investor’s
Sales Charge |
Dealer
Concession | |
|
|
As
a Percentage of the
Public
Offering Price |
As
a Percentage of the
Net
Amount Invested |
As
a Percentage of the
Net
Amount Invested |
|
Less
than $100,000 |
2.50% |
2.56% |
2.00% |
|
$100,000
but less than $250,000 |
1.75% |
1.78% |
1.50% |
L-3
Category
V Funds
Invesco Senior
Floating Rate Fund
|
Amount
of Investment |
Investor’s
Sales Charge |
Dealer
Concession | |
|
|
As
a Percentage of the
Public
Offering Price |
As
a Percentage of the
Net
Amount Invested |
As
a Percentage of the
Net
Amount Invested |
|
Less
than $100,000 |
3.25% |
3.36% |
3.00% |
|
$100,000
but less than $250,000 |
2.75% |
2.83% |
2.50% |
|
$250,000
but less than $500,000 |
1.75% |
1.78% |
1.50% |
|
$500,000
but less than $1,000,000 |
1.50% |
1.52% |
1.25% |
Category
VI Funds
Invesco Active
Allocation Fund
Invesco Income
Allocation Fund
Invesco Select
Risk: Conservative Investor Fund
Invesco Select
Risk: Growth Investor Fund
Invesco Select
Risk: High Growth Investor Fund
Invesco Select
Risk: Moderate Investor Fund
Invesco Select
Risk: Moderately Conservative Investor Fund
|
Amount
of Investment |
Investor’s
Sales Charge |
Dealer
Concession | |
|
|
As
a Percentage of the
Public
Offering Price |
As
a Percentage of the
Net
Amount Invested |
As
a Percentage of the
Net
Amount Invested |
|
Less
than $50,000 |
5.50% |
5.82% |
5.00% |
|
$50,000
but less than $100,000 |
4.50% |
4.71% |
4.00% |
|
$100,000
but less than $250,000 |
3.50% |
3.63% |
3.00% |
Large
Purchases of Class A Shares. Investors who
purchase $1,000,000 or more of Class A shares of Category I, II or V Funds do
not pay an initial sales charge. Investors who purchase $250,000 or more of
Class A shares of Category IV or VI Funds do not pay an initial sales charge. In
addition, investors who own Class A shares of Category I, II or V Funds and make
additional purchases that result in account balances of $1,000,000 or more and
investors who own Class A shares of Category IV or VI Funds and make additional
purchases that result in account balances of $250,000 or more do not pay an
initial sales charge on the additional purchases. The additional purchases, as
well as initial purchases of Class A shares of $1,000,000 or more (for Category
I, II and V) or $250,000 or more (for Category IV or VI Funds), are referred to
as Large Purchases. If an investor makes a Large Purchase of Class A shares of a
Category I, II, IV, V or VI Fund, each share will generally be subject to a
1.00% CDSC if the investor redeems those shares within 18 months after
purchase.
Invesco
Distributors may pay a dealer concession and/or advance a service fee on Large
Purchases of Class A shares, as
set forth below. Exchanges between the Invesco Funds may affect total
compensation paid.
Payments
for Purchases of Class A Shares by Investors Other than Employer Sponsored
Retirement
and Benefit Plans. Invesco
Distributors may make the following payments to dealers of record for Large
Purchases of Class A shares of Category I, II, IV, V or VI Funds by investors
other than Employer Sponsored Retirement and Benefit Plans:
Percent
of Purchases – Categories I, II, IV, V and VI
•
1% (0.50% for
Invesco Short Duration Inflation Protected Fund and 0.75% for Invesco Limited
Term Municipal Income Fund and Invesco Short Term Bond Fund) of the first $4
million
•
plus 0.50% of the
next $46 million
•
plus 0.25% of
amounts in excess of $50 million
If
(i) the amount of any single purchase order plus (ii) the public offering price
of all other shares owned by the same customer
submitting the purchase order on the day on which the purchase order is received
equals
L-4
or
exceeds $1,000,000, with respect to Categories I or II Funds, or $250,000 with
respect to Category IV or VI Funds, the purchase
will be considered a "jumbo accumulation purchase." With regard to any
individual jumbo accumulation purchase, Invesco Distributors may make payment to
the dealer of record based on the cumulative total of jumbo accumulation
purchases made by the same customer over the life of his or her
account(s).
If
an investor made a Large Purchase of Class A shares of Invesco Short Duration
Inflation Protected Fund or Invesco
Limited Term Municipal Income Fund on or after October 31, 2002, and prior to
February 1, 2010, and exchanges those shares for Class A shares of a Category I,
II, IV, V or VI Fund, Invesco Distributors will pay 1.00% of such purchase as
dealer compensation upon the exchange. The Class A shares of the Category I, II,
IV, V or VI Fund received in exchange generally will be subject to a 1.00% CDSC
if the investor redeems such shares within 18 months from the date of
exchange.
Payments
for Purchases of Class A Shares at NAV by Employer Sponsored Retirement and
Benefit
Plans.
Invesco Distributors may make the following payments to dealers of record for
purchases of Class A shares at net asset value (NAV) of Category I, II, IV, V or
VI Funds by Employer Sponsored Retirement and Benefit Plans provided that the
applicable dealer of record is able to establish that the plan's purchase of
such Class A shares is a new investment (as defined below):
Percent
of Purchases
•
0.50% of the first
$20 million
•
plus 0.25% of
amounts in excess of $20 million
A
"new investment" means a purchase paid for with money that does not represent
(i) the proceeds of one or more redemptions
of Invesco Fund shares, (ii) an exchange of Invesco Fund shares, (iii) the
repayment of one or more Employer Sponsored Retirement and Benefit Plan loans
that were funded through the redemption of Invesco Fund shares, or (iv) money
returned from another fund family. If Invesco Distributors pays a dealer
concession in connection with an Employer Sponsored Retirement and Benefit
Plan's or SIMPLE IRA Plan's purchase of Class A shares at NAV, such shares may
be subject to a CDSC of 1.00% of net assets for 12 months, commencing on the
date the Employer Sponsored Retirement and Benefit Plan or SIMPLE IRA Plan first
invests in Class A shares of an Invesco Fund. If the applicable dealer of record
is unable to establish that an Employer Sponsored Retirement and Benefit Plan's
or SIMPLE IRA Plan's purchase of Class A shares at NAV is a new investment,
Invesco Distributors will not pay a dealer concession in connection with such
purchase and such shares will not be subject to a CDSC.
With
regard to any individual jumbo accumulation purchase, Invesco Distributors may
make payment to the dealer of
record based on the cumulative total of jumbo accumulation purchases made by the
same plan over the life of the plan's account(s).
Fund
Reorganizations. Class A Shares
issued in connection with a Fund's merger, consolidation, or acquisition of the
assets of another Fund will not be charged an initial sales charge.
Purchasers
Qualifying For Reductions in Initial Sales Charges. As shown in the
tables above, the applicable initial sales charge for the new purchase may be
reduced and will be based on the total of your current purchase and the value of
other shares owned based on their current public offering price. These
reductions are available to purchasers that meet the qualifications listed in
the prospectus under "Qualifying for Reduced Sales Charges and Sales Charge
Exceptions."
How
to Qualify For Reductions in Initial Sales Charges under Rights of Accumulation
(ROAs) or Letters
of Intent (LOIs). The following
sections discuss different ways that a purchaser can qualify for a reduction in
the initial sales charges for purchases of Class A shares of the Invesco
Funds.
Letters
of Intent
A
purchaser may pay reduced initial sales charges by (i) indicating on the Account
Application that he, she or it intends to
provide a LOI; and (ii) subsequently fulfilling the conditions of that
LOI.
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Purchases
of Class A shares of Invesco Conservative Income Fund and Invesco Short Term
Municipal Fund; Invesco Cash
Reserve Shares of Invesco U.S. Government Money Portfolio; and Class A, Class AX
or Invesco Cash Reserve Shares of Invesco Government Money Market Fund, as
applicable, or Class IB, IC, Y and Investor Class shares of any Invesco Fund,
will not be taken into account in determining whether a purchase qualifies for a
reduction in initial sales charges since they cannot be tied to a
LOI.
The
LOI confirms the total investment in shares of the Invesco Funds that the
purchaser intends to make within the next 13
months. By marking the LOI section on the account application and by signing the
account application, the purchaser indicates that he, she or it understands and
agrees to the terms of the LOI and is bound by the provisions described
below:
Calculating
the Initial Sales Charge
•
Each purchase of
Fund shares normally subject to an initial sales charge made during the 13-month
period will be made at the public offering price applicable to a single
transaction of the total dollar amount indicated by the LOI (to determine what
the applicable public offering price is, look at the sales charge table in the
section on "Initial Sales Charges" above).
•
It is the
purchaser's responsibility at the time of purchase to specify the account
numbers that should be considered in determining the appropriate sales
charge.
•
The offering price
may be further reduced as described below under "Rights of Accumulation" if
Invesco Investment Services, Inc., the Invesco Funds' transfer agent (Transfer
Agent) is advised of all other accounts at the time of the
investment.
•
Reinvestment of
dividends and capital gains distributions acquired during the 13-month LOI
period will not be applied to the LOI.
Calculating
the Number of Shares to be Purchased
•
Purchases made and
shares acquired through reinvestment of dividends and capital gains
distributions prior to the LOI effective date will be applied toward the
completion of the LOI based on the value of the shares calculated at the public
offering price on the effective date of the LOI.
•
If a purchaser
wishes to revise the LOI investment amount upward, he, she or it may submit a
written and signed request at any time prior to the completion of the original
LOI. This revision will not change the original expiration date.
•
The Transfer Agent
will process necessary adjustments upon the expiration or completion date of the
LOI.
Fulfilling
the Intended Investment
•
By signing a LOI, a
purchaser is not making a binding commitment to purchase additional shares, but
if purchases made within the 13-month period do not total the amount specified,
the purchaser generally will have to pay the increased amount of sales
charge.
•
To assure
compliance with the provisions of the 1940 Act, the Transfer Agent will reserve,
in escrow or similar arrangement, in the form of shares, an appropriate dollar
amount computed to the nearest full share out of the initial purchase (or
subsequent purchases if necessary). All dividends and any capital gain
distributions on the escrowed shares will be credited to the purchaser. All
shares purchased, including those reserved, will be registered in the
purchaser's name. If the total investment specified under this LOI is completed
within the 13-month period, the reserved shares will be promptly released, and
additional purchases will be subject to the appropriate breakpoint sales charge
based on the account's current ROA value.
•
If the intended
investment is not completed, the purchaser generally will pay the Transfer Agent
the difference between the sales charge on the specified amount and the sales
charge on the total amount actually purchased. If the purchaser does not pay
such difference within 20 days of the
L-6
expiration date,
the Transfer Agent will surrender for redemption any or all shares, to make up
such difference within 60 days of the expiration date.
•
Accounts linked
under the LOI revert back to ROA once a LOI is met, regardless of expiration
date.
Canceling
the LOI
•
If at any time
before completing the LOI Program, the purchaser wishes to cancel the agreement,
he or she must give written notice to Invesco Distributors or its
designee.
•
If at any time
before completing the LOI Program the purchaser requests the Transfer Agent to
liquidate or transfer beneficial ownership of his or her total shares, the LOI
will be automatically canceled. If the total amount purchased is less than the
amount specified in the LOI, the Transfer Agent will redeem an appropriate
number of reserved shares equal to the difference between the sales charge
actually paid and the sales charge that would have been paid if the total
purchases had been made at a single time.
Other
Persons Eligible for the LOI Privilege
The
LOI privilege is also available to holders of the Connecticut General Guaranteed
Account, established for tax qualified
group annuities, for contracts purchased on or before June 30, 1992.
LOIs
and Contingent Deferred Sales Charges
All
LOIs to purchase $1,000,000 or more of Class A shares of Category I, II or V
Funds or $250,000 or more of Class A
shares of Category IV or VI Funds are subject to an 18-month, 1%
CDSC.
Rights
of Accumulation
A
purchaser may also qualify for reduced initial sales charges under Invesco’s ROA
policy. To determine whether or not a
reduced initial sales charge applies to a proposed purchase, Invesco
Distributors takes into account not only the money that is invested upon such
proposed purchase, but also the value of all shares of the Invesco Funds owned
by such purchaser, calculated at their then current public offering
price.
If
a purchaser qualifies for a reduced sales charge, the reduced sales charge
applies to the total amount of money being
invested, even if only a portion of that amount exceeds the breakpoint for the
reduced sales charge. For example, if a purchaser already owns qualifying shares
of any Invesco Fund with a value of $30,000 and wishes to invest an additional
$30,000 in a Fund with a maximum initial sales charge of 5.50%, the reduced
initial sales charge of 4.50% will apply to the full $30,000 purchase and not
just to the $10,000 in excess of the $50,000 breakpoint.
To
qualify for obtaining the discount applicable to a particular purchase, the
purchaser or his dealer must furnish the
Transfer Agent with a list of the account numbers and the names in which such
accounts of the purchaser are registered at the time the purchase is
made.
ROAs
are also available to holders of the Connecticut General Guaranteed Account,
established for tax-qualified group annuities,
for contracts purchased on or before June 30, 1992.
Certain
participants utilizing an Invesco 403(b)(7) Custodial Account who were granted
ROA at the plan level prior to
December 15, 2023, are also eligible to receive a reduced applicable initial
sales charge pursuant to that plan-level ROA arrangement.
If
an investor's new purchase of Class A shares of a Category I, II, IV, V or VI
Fund is at net asset value, the newly purchased
shares may be subject to a 1% CDSC if the investor redeems them prior to the end
of the 18 month holding period.
Other
Requirements For Reductions in Initial Sales Charges. As discussed
above, investors or dealers seeking to qualify orders for a reduced initial
sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. Invesco Distributors reserves the right to
determine whether
L-7
any
purchaser is entitled to a reduced sales charge based upon the qualifications
set forth in the prospectus under "Qualifying
for Reduced Sales Charges and Sales Charge Exceptions."
Class
A Shares Sold Without an Initial Sales Charge. Invesco
Distributors permits certain other investors to invest in Class A shares without
paying an initial sales charge, generally as a result of the investor's current
or former relationship with the Invesco Funds. It is possible that a financial
intermediary may not, in accordance with its policies and procedures, be able to
offer one or more of these waiver categories. If this situation occurs, it is
possible that the investor would need to invest directly through an account
without a designated intermediary in order to take advantage of the waiver. The
Funds may terminate or amend the terms of these sales charge waivers at any
time.
•
Any current, former
or retired trustee, director, officer or employee (or any immediate family
member of a current, former or retired trustee, director, officer or employee)
of any Invesco Fund or of Invesco Ltd. or any of its subsidiaries. This includes
any foundation, trust or employee benefit plan maintained by any such
persons;
•
Any current or
retired officer, director, or employee (and members of his or her immediate
family) of DST Systems, Inc.;
•
Shareholders who
received Class A shares of an Invesco Fund on June 1, 2010 in connection with
the reorganization of a predecessor fund in which such shareholder owned Class
H, Class L, Class P, and/or Class W shares, who purchase additional Class A
shares of the Invesco Fund;
•
Shareholders of
record holding shares of AIM Weingarten Fund or AIM Constellation Fund on
September 8, 1986, or of AIM Charter Fund on November 17, 1986, who have
continuously owned shares and who purchase additional shares of Invesco
Constellation Fund or Invesco Charter Fund, respectively;
•
Unitholders of
G/SET series unit investment trusts investing proceeds from such trusts in
shares of Invesco Constellation Fund in an account established without a
designated intermediary; provided, however, prior to the termination date of the
trusts, a unitholder may invest proceeds from the redemption or repurchase of
his units only when the investment in shares of Invesco Constellation Fund is
effected within 30 days of the redemption or repurchase;
•
Shareholders of the
former GT Global funds as of April 30, 1987 who since that date continually have
owned shares of one or more of these funds who purchase additional Class A
shares;
•
Certain former AMA
Investment Advisers' shareholders who became shareholders of the AIM Global
Health Care Fund in October 1989, and who have continuously held shares in the
GT Global funds since that time, who purchase additional Class A
shares;
•
Shareholders of
record of Advisor Class shares of an Invesco Fund on February 11, 2000 who have
continuously owned shares of that Invesco Fund, who purchase additional shares
of that Invesco Fund;
•
Shareholders of
record of Class K shares on October 21, 2005 whose Class K shares were converted
to Class A shares and who since that date have continuously held Class A shares,
who purchase additional Class A shares;
•
Shareholders of
record of Class B shares of Invesco Global Dividend Growth Securities Fund who
received Class A shares of the Invesco Global Core Equity Fund in connection
with a reorganization on May 20, 2011 and who since that date have continuously
owned Class A shares, who purchase additional Class A shares of Invesco Global
Core Equity Fund;
•
Shareholders of
record of Class B shares of Invesco Van Kampen Global Equity Allocation Fund who
received Class A shares of the Invesco Global Core Equity Fund in connection
with a reorganization on May 20, 2011 and who since that date have continuously
owned Class A shares, who purchase additional Class A shares of Invesco Global
Core Equity Fund; and
L-8
•
Unitholders of
Invesco unit investment trusts who enrolled prior to December 3, 2007 to
reinvest distributions from such trusts in Class A shares of the Invesco Funds,
who receive Class A shares of an Invesco Fund pursuant to such reinvestment
program in an account established without a designated intermediary. The Invesco
Funds reserve the right to modify or terminate this program at any
time.
•
Certain IRA
accounts and payroll deduct IRA programs held directly at Invesco for which
intermediaries offered Class A shares without an initial sales charge, pursuant
to an arrangement with OppenheimerFunds Distributor, Inc. prior to May 28,
2019.
•
Certain
participants in Employer-Sponsored IRA Plans utilizing Invesco Trust Company
custodial accounts who were offered Class A shares without an initial sales
charge prior to December 15, 2023, who purchase additional Class A
shares.
Payments
to Dealers. Invesco
Distributors may elect to re-allow the entire initial sales charge to dealers
for all sales with respect to which orders are placed with Invesco Distributors
or its designee during a particular period. Dealers to whom substantially the
entire sales charge is re-allowed may be deemed to be "underwriters" as that
term is defined under the 1933 Act.
The
financial intermediary through which you purchase your shares may receive all or
a portion of the sales charges and
Rule 12b-1 distribution fees discussed above. In this context, "financial
intermediaries" include any broker, dealer, bank (including bank trust
departments), insurance company separate account, transfer agent, registered
investment adviser, financial planner, retirement plan administrator and any
other financial intermediary having a selling, administration or similar
agreement with Invesco Distributors or one or more of its corporate affiliates
(collectively, the Invesco Distributors Affiliates). In addition to those
payments, Invesco Distributors Affiliates may make additional cash payments to
financial intermediaries in connection with the promotion and sale of shares of
the Invesco Funds. Invesco Distributors Affiliates make these payments from
their own resources, from Invesco Distributors' retention of underwriting
concessions and from payments to Invesco Distributors under Rule 12b-1 plans. In
the case of sub-accounting payments, discussed below, Invesco Distributors
Affiliates will be reimbursed directly by the Invesco Funds for such payments.
These additional cash payments are described below. The categories described
below are not mutually exclusive. The same financial intermediary, or one or
more of its affiliates, may receive payments under more than one or all
categories. Most financial intermediaries that sell shares of the Invesco Funds
receive one or more types of these cash payments. Financial intermediaries
negotiate the cash payments to be paid on an individual basis. Where services
are provided, the costs of providing the services and the overall package of
services provided may vary from one financial intermediary to another. Invesco
Distributors Affiliates do not make an independent assessment of the cost of
providing such services.
Certain
financial intermediaries listed below received one or more types of the
following payments during the prior calendar
year. This list is not necessarily current and will change over time. Certain
arrangements are still being negotiated, and there is a possibility that
payments will be made retroactively to financial intermediaries not listed
below. Accordingly, please contact your financial intermediary to determine
whether they currently may be receiving such payments and to obtain further
information regarding any such payments.
Financial
Support Payments. Invesco
Distributors Affiliates make financial support payments as incentives to certain
financial intermediaries to promote and sell shares of Invesco Funds. The
benefits Invesco Distributors Affiliates receive when they make these payments
include, among other things, placing Invesco Funds on the financial
intermediary's funds sales system, and access (in some cases on a preferential
basis over other competitors) to individual members of the financial
intermediary's sales force or to the financial intermediary's management.
Financial support payments are sometimes referred to as "shelf space" payments
because the payments compensate the financial intermediary for including Invesco
Funds in its Fund sales system (on its sales shelf). Invesco Distributors
Affiliates compensate financial intermediaries differently depending typically
on the level and/or type of considerations provided by the financial
intermediary. In addition, payments typically apply only to retail sales, and
may not apply to other types of
L-9
sales
or assets (such as sales to Retirement and Benefit Plans, qualified tuition
programs, or fee based adviser programs –
some of which may generate certain other payments described below).
The
financial support payments Invesco Distributors Affiliates make may be
calculated on sales of shares of Invesco Funds
(Sales-Based Payments), in which case the total amount of such payments shall
not exceed 0.25% of the public offering price of all such shares sold by the
financial intermediary during the particular period. Such payments also may be
calculated on the average daily net assets of the applicable Invesco Funds
attributable to that particular financial intermediary (Asset-Based Payments),
in which case the total amount of such cash payments shall not exceed 0.25% per
annum of those assets during a defined period. Sales-Based Payments primarily
create incentives to make new sales of shares of Invesco Funds and Asset-Based
Payments primarily create incentives to retain previously sold shares of Invesco
Funds in investor accounts. Invesco Distributors Affiliates may pay a financial
intermediary either or both Sales-Based Payments and Asset-Based
Payments.
Sub-Accounting
and Networking Support Payments. The Transfer
Agent, an Invesco Distributors Affiliate, acts as the transfer agent for the
Invesco Funds, registering the transfer, issuance and redemption of Invesco Fund
shares, and disbursing dividends and other distributions to Invesco Funds
shareholders. However, many Invesco Fund shares are owned or held by financial
intermediaries, as that term is defined above, for the benefit of their
customers. In those cases, the Invesco Funds often do not maintain an account
for the shareholder. Thus, some or all of the transfer agency functions for
these accounts are performed by the financial intermediary. In these situations,
Invesco Distributors Affiliates may make payments to financial intermediaries
that sell Invesco Fund shares for certain transfer agency services, including
record keeping and sub-accounting shareholder accounts. Payments for these
services typically do not exceed 0.25% (for non-Class R5 shares) or 0.10% (for
Class R5 shares) of average annual assets of such share classes or $19 per annum
per shareholder account (for non-Class R5 shares only). No Sub-Accounting or
Networking Support payments will be made with respect to Invesco Funds' Class R6
shares or Institutional Class shares. Invesco Distributors Affiliates also may
make payments to certain financial intermediaries that sell Invesco Fund shares
in connection with client account maintenance support, statement preparation and
transaction processing. The types of payments that Invesco Distributors
Affiliates may make under this category include, among others, payment of
networking fees of up to $10 per shareholder account maintained on certain
mutual fund trading systems.
All
fees payable by Invesco Distributors Affiliates pursuant to a sub-transfer
agency, omnibus account service or
sub-accounting agreement are charged back to the Invesco Funds, subject to
certain limitations approved by the Board of the Trust.
Other
Cash Payments. From time to
time, Invesco Distributors Affiliates, at their expense and out of their own
resources, may provide additional compensation to financial intermediaries which
sell or arrange for the sale of shares of a Fund. Such compensation provided by
Invesco Distributors Affiliates may include payment of ticket charges per
purchase or exchange order placed by a financial intermediary, one-time payments
for ancillary services such as setting up funds on a financial intermediary's
mutual fund trading systems, financial assistance to financial intermediaries
that enable Invesco Distributors Affiliates to participate in and/or present at
conferences or seminars, sales or training programs for invited registered
representatives and other employees, client entertainment, client and investor
events, and other financial intermediary-sponsored events, and travel expenses,
including lodging incurred by registered representatives and other employees in
connection with client prospecting, retention and due diligence trips. Other
compensation may be offered to the extent not prohibited by state laws or any
self-regulatory agency, such as the Financial Industry Regulatory Authority
(FINRA). Invesco Distributors Affiliates make payments for entertainment events
they deem appropriate, subject to Invesco Distributors Affiliates guidelines and
applicable law. These payments may vary depending upon the nature of the event
or the relationship.
Invesco
Distributors Affiliates are motivated to make the payments described above
because they promote the sale of
Invesco Fund shares and the retention of those investments by clients of
financial intermediaries. To the extent financial intermediaries sell more
shares of Invesco Funds or retain shares of
L-10
Invesco
Funds in their clients' accounts, Invesco Distributors Affiliates benefit from
the incremental management and
other fees paid to Invesco Distributors Affiliates by the Invesco Funds with
respect to those assets.
In
certain cases these payments could be significant to the financial intermediary.
Your financial intermediary may
charge you additional fees or commissions other than those disclosed in the
prospectus. You can ask your financial intermediary about any payments it
receives from Invesco Distributors Affiliates or the Invesco Funds, as well as
about fees and/or commissions it charges. You should consult disclosures made by
your financial intermediary at the time of purchase.
Certain
Financial Intermediaries That Received One or More Types of
Payments
Admin Partners
LLC
ADP Broker Dealer
Inc
Alight Financial
Solutions LLC
Allianz
Life
Allstate
Alta
Montclair
American
Enterprise Investment
American Fidelity
Assurance Company
American
General
American
Portfolios Financial
American United
Life Insurance Company
Ascensus
LLC
Avantax Investment
Services Inc
AXA Advisors
LLC
AXA
Equitable
AXOS Financial
Inc.
Bank of America
NA
Bank of New York
Mellon
Bank of Oklahoma –
Nabank & Co
Bay Bridge
Administrators LLC
Benefit Plans
Administrators
Benefit Trust
Company
BMO Harris Bank
NA
BOSC
Inc
Brighthouse Life
Insurance Co
Brown Brothers
Harriman & Co
Cadaret Grant and
Co Inc
Cambridge
Investment Research Inc
Cantella &
Company
Cavu Securities,
LLC
Cetera Financial
Group Inc
Cetera Investment
Services LLC
Charles Schwab and
Company Inc
Citibank
NA
Citigroup Global
Markets
CoBank
Comerica
Bank
Commonwealth
Annuity and Life Insurance Company
Commonwealth
Financial Network
CUSO Financial
Services LP
Delaware Life
Insurance Company
Digital Retirement
Solutions
Educators Benefit
Consultants LLC
Edward Jones &
Co
Ekon
Benefits
Empire Fidelity
Investments
Empower
Envestnet Asset
Management Inc
Envoy Plan
Services Inc
Equitable Advisors
LLC
Equitable
Life
Farmers Financial
Solutions LLC
Fidelity Brokerage
Services
Fidelity
Institutional
Fidelity
Investments
Fifth
Third
Financial Data
Services Inc
First
Command
First Financial
Administrators
FIS Capital
Markets US LLC
Frost Brokerage
Services Inc
Frost National
Bank
FSC Securities
Corporation
Genworth
Financial
Goldman Sachs
& Co
Guardian Insurance
& Annuity Co Inc
Hantz Financial
Services Inc
Hare and
Company
Hartford
Life
Hilltop Securities
Inc
Huntington
Securities Inc
Institutional Cash
Distributors LLC
Janney Montgomery
Scott LLC
Jefferson National
Life Insurance Company
Jefferson
National Life Insurance Company of New York
John
Hancock
JP Morgan Chase
Bank
JP Morgan Clearing
Corp
JP Morgan
Securities LLC
Kestra Investment
Services LLC
Key Bank National
Association
Legend Group
Adviserv
Lincoln Benefit
Life Company
Lincoln
Financial
Lincoln Financial
Securities Corp
Lincoln Investment
Planning
Lincoln National
Life Insurance
LPL Financial
LLC
M&T
Bank
Mass
Mutual
Merrill
Lynch
Merrill Lynch
Pierce Fenner and Smith Inc
Metropolitan Life
Insurance Company
Minnesota
Life
Mitsubishi UFJ
Trust and Banking
MML Investors
Services LLC
Moreton Asset
Management
Moreton Capital
Markets LLC
Morgan
Stanley
MSCS Financial
Services Inc
Mutual Securities
Inc
National Benefit
Services LLC
National Financial
Services LLC
National Plan
Administrators Inc
Nationwide
New York Life
Insurance and Annuity Corporation
Newport Retirement
Plan Services Inc
Next Financial
Group Inc
Northwestern
Mutual Investment Services
Osaic,
Inc
Oppenheimer &
Co Inc
Pacific Life Fund
Advisors LLC
Pacific Life
Insurance Company
Penserv Plan
Services Inc
Pershing
Pershing
LLC
Primerica
Financial
Services
Plains Capital
Bank
Plan
Administrators Inc
PNC Capital
Markets LLC
PNC Investments
LLC
Principal Life
Insurance Company
Protective
Life
Pruco Life
Insurance Company
Pruco Life
Insurance Company of New Jersey
Pruco Securities
LLC
Prudential
Raymond
James
RBC Capital
Markets LLC
RBC Wealth
Management
Reliance Trust
Company
Research
Affiliates LLC
Rhode
Island
Riversource Life
Insurance Company
Robert W Baird and
Co Inc
Sanctuary Wealth
Group
Sammons Financial
Network LLC
Santander Bank
NA
SB Business
Services LLC
Schools First Plan
Administration
Security Benefit
Life
Security
Distributors Inc
Security Financial
Resources
L-11
SEI Private Trust
Company
Sorrento Pacific
Financial LLC
Standard Insurance
Company
State Street
Corporation
Stifel Nicolaus
& Co Inc
Sungard
T Rowe Price
Associates Inc
Talcott Resolution
Life Insurance Company
TCG
Administrators
TD
Ameritrade
TDS Group
Inc
Texas Capital
Bank
The OMNI
Group
TIAA-CREF
Transamerica
Financial Life Insurance Company
Transamerica Life
Insurance Company
Treasury
Curve
Truist
Trust Management
Network LLC
UBS Financial
Services Inc
Ultimate Asset Services
LLC
UMB
Bank
Union
Bank
US Bancorp
Investments Inc
US
Bank
VALIC
Financial
Vanguard Brokerage
Services
Vanguard Group
Inc
Variable Annuity
Life Insurance Co
VOYA Financial
Advisors Inc
VOYA Insurance and
Annuity Company
VOYA Retirement
Insurance and Annuity Company
VOYA Services
Company
VRSCO-American
General Distributors
Wells
Fargo
Wells Fargo Bank
NA
Wells Fargo
Securities LLC
Western
International Securities Inc
Zions First
National Bank
Zurich American
Life Insurance Company
Purchases
of Class C Shares
Class
C shares are sold at net asset value, and are not subject to an initial sales
charge. Investors in Class C shares may
pay a CDSC if they redeem their shares within the first year after purchase. See
the prospectus for additional information regarding this CDSC. 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 with
respect to Invesco Funds other than Invesco Floating Rate ESG Fund and Invesco
Short Term Bond Fund will generally equal 1.00% of the purchase price and will
consist of a sales commission of 0.75% plus an advance of the first year service
fee of 0.25%. Payments with respect to Invesco Floating Rate ESG Fund will equal
0.75% of the purchase price and will consist of a sales commission of 0.50% plus
an advance of the first year service fee of 0.25%. Payments with respect to
Invesco Short Term Bond Fund will equal 0.65% of the purchase price and will
consist of a sales commission of 0.40% plus an advance of the first year service
fee of 0.25%. (Invesco Distributors has contractually agreed to waive 0.15% of
Rule 12b-1 distribution plan payments of Class C shares of Invesco Short Term
Bond Fund. Unless Invesco Distributors continues the fee waiver agreement, it
will terminate on June 30, 2023. While the fee waiver agreement is in place,
payments with respect to Invesco Short Term Bond will equal 0.50% of the
purchase price and will consist of a sales commission of 0.25% plus an advance
of the first year service fee of 0.25%.) These commissions are not paid on sales
to investors exempt from the CDSC, including shareholders of record of AIM
Advisor Funds, Inc. on April 30, 1995, who purchase additional shares in any of
the Invesco Funds on or after May 1, 1995, and in circumstances where Invesco
Distributors grants an exemption on particular transactions.
Payments
with Regard to Converted Class K Shares
For
Class A shares acquired by a former Class K shareholder (i) as a result of a
fund merger; or (ii) as a result of the
conversion of Class K shares into Class A shares on October 21, 2005, Invesco
Distributors will pay financial intermediaries 0.45% on such Class A shares as
follows: (i) 0.25% from the Class A shares' Rule 12b-1 plan fees; and (ii) 0.20%
from Invesco Distributors' own resources provided that, on an annualized basis
for 2005 as of October 21, 2005, the 0.20% exceeds $2,000 per year.
Purchase
and Redemption of Class P Shares
Certain
former investors in the AIM Summit Plans I and II may acquire Class P shares at
net asset value. Please see Invesco
Summit Fund's prospectus for details.
Purchases
of Class R Shares
Class
R shares are sold at net asset value and are not subject to an initial sales
charge. Invesco Distributors may
pay dealers of record an annual distribution and/or service fee of up to 0.50%
of average daily net assets and such payments will commence immediately. For any
Class R shares sold on or before January 17, 2020 that received an upfront
dealer concession, Invesco Distributors may pay dealers of record an annual
distribution and/or service fee of up to 0.50% of average daily net assets and
such payments will commence in the 13th month from the date of
purchase.
Purchases
of Class S Shares
L-12
Class
S shares are limited to investors who purchase shares with the proceeds received
from a systematic
contractual investment plan redemption within the 12-months prior to purchasing
Class S shares, and who purchase through an approved financial intermediary that
has an agreement with the distributor to sell Class S shares. Class S shares are
not otherwise sold to members of the general public. An investor purchasing
Class S shares will not pay an initial sales charge. The investor will no longer
be eligible to purchase additional Class S shares at that point where the value
of the contributions to the prior systematic contractual investment plan
combined with the subsequent Class S share contributions equals the face amount
of what would have been the investor's systematic contractual investment plan
under the 30-year investment option. The face amount of a systematic contractual
investment plan is the combined total of all scheduled monthly investments under
that plan. For a plan with a scheduled monthly investment of $100.00, the face
amount would have been $36,000.00 under the 30-year extended investment option.
Class S shares have a 12b-1 fee of 0.15%.
Purchases
of Class Y Shares
Class
Y shares are sold at net asset value, and are not subject to an initial sales
charge or to a CDSC. Please refer to the
prospectus for more information.
Purchases
of Investor Class Shares
Investor
Class shares are sold at net asset value, and are not subject to an initial
sales charge or to a CDSC. Invesco
Distributors may pay dealers and institutions an annual service fee of 0.25% of
average daily net assets and such payments will commence immediately. The
Investor Class is closed to new investors.
Purchases
of Class R5 and R6 Shares
Class
R5 and R6 shares are sold at net asset value, and are not subject to an initial
sales charge or to a CDSC. Please refer
to the Class R5 and R6 prospectus for more information.
Exchanges
Terms
and Conditions of Exchanges. Normally, shares
of an Invesco Fund to be acquired by exchange are purchased at their net asset
value or applicable offering price, as the case may be, determined on the date
that such request is received. If a shareholder is exchanging into a Fund paying
daily dividends, and the release of the exchange proceeds is delayed for the
foregoing five-day period, such shareholder will not begin to accrue dividends
until the sixth business day after the exchange.
Redemptions
General. Shares of the
Invesco Funds may be redeemed directly through the Transfer Agent or through any
dealer who has entered into an agreement with Invesco Distributors. A redemption
is effected at the net asset value per share of the applicable Fund next
determined after the redemption request is received in good order. To be in good
order, the investor, either directly or through his financial intermediary must
give the Funds’ transfer agent all required information and documentation.
Payments from a redemption generally constitute taxable events. Because such
payments are funded by the redemption shares, they may result in a return of
capital and in capital gains or losses, rather than in ordinary
income.
An
investor or a financial intermediary may submit a written request to the Funds’
transfer agent for correction of
transactions involving Fund shares. If the Funds’ transfer agent agrees to
correct a transaction, and the correction requires a dividend adjustment, the
investor or the intermediary must agree in writing to reimburse the Funds for
any resulting loss.
Payment
for redeemed institutional shares is normally made by Federal Reserve wire to
the bank account designated in the
investor’s account application, while payment for redeemed retail shares is
normally made by check, but may be sent electronically by either Federal Reserve
wire or ACH at the investor’s request. Any changes to bank instructions must be
submitted to the Funds’ transfer agent in writing. The Funds’ transfer agent may
request additional documentation. For funds that allow checkwriting, if you do
not have a sufficient number of shares in your account to cover the amount of
the check and any applicable deferred sales charge, the check will be returned
and no shares will be redeemed. Because it is not possible to determine your
L-13
account’s
value in advance, you should not write a check for the entire value of your
account or try to close your account by
writing a check. Effective August
28, 2023, the Funds’ transfer agent no longer accepts Check Writing
authorization forms. Effective December 31, 2023, the Fund’s transfer agent
ceased accepting checks as a valid form of redemption.
The
Funds’ transfer agent may request that an intermediary maintain separate master
accounts in the Funds for shares
held by the intermediary (a) for its own account, for the account of other
institutions and for accounts for which the intermediary acts as a fiduciary;
and (b) for accounts for which the intermediary acts in some other capacity. An
intermediary may aggregate its master accounts and sub-accounts to satisfy the
minimum investment requirement.
With
regard to Money Market Funds that do not qualify as Government Money Market
Funds, the Board, in its
discretion, may impose liquidity fees of up to 2% of the value of the shares
redeemed, if such fee is
determined to be in the best interest of the Fund.
The
Board may delegate liquidity fee determinations to the Adviser. For Funds that do
not qualify as Government Money Market Funds, when a fee is in place,
shareholders will not be permitted to exchange into or out of a
Fund.
The
Board may, in its discretion, terminate a liquidity fee at any time if it
believes such action to be in the best interest of the Fund and its
shareholders. When a fee is in place, the Fund may elect not to permit the
purchase of shares or to subject the purchase of shares to certain conditions,
which may include affirmation of the purchaser’s knowledge that a fee is in
effect.
The
Board may, in its discretion, permanently suspend redemptions and liquidate if,
among other things, a Money Market Fund,
at the end of a business day, has less than 10% of its total assets invested in
weekly liquid assets. The Board of the Retail and Government Money Market Funds
may suspend redemptions and liquidate if the Board determines that the deviation
between its amortized cost price per share and its market-based NAV per share
may result in material dilution or other unfair results to investors or existing
shareholders.
Systematic
Redemption Plan. A Systematic
Redemption Plan permits a shareholder of an Invesco Fund to withdraw on a
regular basis at least $50 per withdrawal. At the time the withdrawal plan is
established, the total account value must be $5,000 or more. Under a Systematic
Redemption Plan, all shares are to be held by the Transfer Agent. To provide
funds for payments made under the Systematic Redemption Plan, the Transfer Agent
redeems sufficient full and fractional shares at their net asset value in effect
at the time of each such redemption.
Payments
under a Systematic Redemption Plan generally constitute taxable events. Because
such payments are funded
by the redemption of shares, they may result in a return of capital and in
capital gains or losses, rather than in ordinary income. Also because sales
charges are imposed on additional purchases of Class A shares, it is
disadvantageous to effect such purchases while a Systematic Redemption Plan is
in effect.
Each Invesco Fund
bears its share of the cost of operating the Systematic Redemption
Plan.
Contingent
Deferred Sales Charges Imposed upon Redemption of Shares
A
CDSC may be imposed upon the redemption of Large Purchases of Class A shares of
Category I, II, IV, V and VI Funds,
upon the redemption of Class C shares. (No CDSC applies to Class A2 shares.) See
the prospectus for additional information regarding CDSCs.
Contingent
Deferred Sales Charge Exceptions for Large Purchases of Class A
Shares. An investor who
has made a Large Purchase of Class A shares of a Category I, II, IV, V or VI
Fund, will not be subject to a CDSC upon the redemption of those shares in the
following situations:
•
Redemptions of
shares held by an Employer Sponsored Retirement and Benefit Plan or SIMPLE IRA
Plan in cases where (i) the plan has remained invested in Class A shares of a
Fund for at least 12 months, or (ii) the redemption is not a complete redemption
of all Class A shares held by the plan;
•
Redemptions of
shares by the investor where the investor's financial intermediary has elected
to
L-14
waive the amounts
otherwise payable to it by Invesco Distributors and notifies Invesco
Distributors prior to the time of investment;
•
Minimum required
distributions made in connection with a Retirement and Benefit Plan following
attainment of age 70 1∕2 , or older, and
only with respect to that portion of such distribution that does not exceed 12%
annually of the participant's beneficiary account value in a particular
Fund;
•
Redemptions
following the death or post-purchase disability of a registered shareholder or
beneficial owner of an account. Subsequent purchases into such account are not
eligible for the CDSC waiver; and
•
Amounts from a
monthly, quarterly or annual Systematic Redemption Plan of up to an annual
amount of 12% of the account value on a per fund basis, provided; the investor
reinvests his dividends.
Contingent
Deferred Sales Charge Exceptions for Class C Shares. CDSCs will not
apply to the following redemptions of Class C shares, as applicable:
•
Redemptions
following the death or post-purchase disability of a registered shareholder or
beneficial owner of an account. Subsequent purchases into such account are not
eligible for the CDSC waiver;
•
Distributions from
Retirement and Benefit Plans where redemptions result from (i) required minimum
distributions to plan participants or beneficiaries who are age 70 1∕2 or older, and only
with respect to that portion of such distributions that does not exceed 12%
annually of the participant's or beneficiary's account value in a particular
Fund; (ii) in kind transfers of assets where the participant or beneficiary
notifies the distributor of the transfer no later than the time the transfer
occurs; (iii) tax-free rollovers or transfers of assets to another Retirement
and Benefit Plan invested in Class C shares of one or more of the Funds; (iv)
tax-free returns of excess contributions or returns of excess deferral amounts;
and (v) distributions on the death or disability (as defined in the Code) of the
participant or beneficiary;
•
Amounts from a
monthly or quarterly Systematic Redemption Plan of up to an annual amount of 12%
of the account value on a per fund basis provided the investor reinvests his
dividends;
•
Liquidation
initiated by the Fund when the account value falls below the minimum required
account size of $500; and
•
Investment
account(s) of Invesco and its affiliates.
In addition to the
foregoing, CDSCs will not apply to the following redemptions of Class C
shares:
•
Redemption of
shares held by Employer Sponsored Retirement and Benefit Plans or Employer
Sponsored IRAs in cases where (i) the plan has remained invested in Class C
shares of a Fund for at least 12 months, or (ii) the redemption is not a
complete redemption of all Class C shares held by the plan; or
•
A total or partial
redemption of shares where the investor's financial intermediary has elected to
waive amounts otherwise payable to it by Invesco Distributors and notifies
Invesco Distributors prior to the time of investment.
It
is possible that a financial intermediary may not be able to offer one or more
of the waiver categories described in this
section. If this situation occurs, it is possible that the investor would need
to invest directly through an account without a designated intermediary in order
to take advantage of these waivers. Investors should ask their financial
intermediary whether they offer the above CDSCs. The Funds may terminate or
amend the terms of these CDSCs at any time.
General
Information Regarding Purchases, Exchanges and Redemptions
Good
Order.
Purchase, exchange and redemption orders must be received in good order in
accordance with the Transfer Agent's policies and procedures and U.S.
regulations. The Transfer Agent reserves the right
L-15
to
refuse transactions. Transactions not in good order will not be processed and
once brought into good order, will receive the
current price. To be in good order, an investor or financial intermediary must
supply the Transfer Agent with all required information and documentation,
including signature guarantees and notary public stamps as required. In
addition, if a purchase of shares is made by check, the check must be received
in good order. This means that the check must be properly completed and signed,
and legible to the Transfer Agent in its sole discretion. If a check used to
purchase shares does not clear, or if any investment order must be canceled due
to nonpayment, the investor will be responsible for any resulting
loss.
Authorized
Agents. The Transfer Agent
and Invesco Distributors may authorize agents to accept purchase and redemption
orders that are in good order on behalf of the Invesco Funds. In certain cases,
these authorized agents are authorized to designate other intermediaries to
accept purchase and redemption orders on a Fund's behalf. The Fund will be
deemed to have received the purchase or redemption order when the Fund's
authorized agent or its designee accepts the order. The order will be priced at
the net asset value next determined after the order is accepted by the Fund's
authorized agent or its designee. Orders submitted through a financial
intermediary that has not received authorization to accept orders on a Fund’s
behalf are priced at the Fund’s net asset value next calculated by the Fund
after it receives the order from the financial intermediary and accepts it,
which may not occur on the day submitted to the financial
intermediary.
Signature
Guarantees. Acceptable
guarantors include banks, broker-dealers, credit unions, national securities
exchanges, savings associations and any other organization, provided that such
institution or organization qualifies as an "eligible guarantor institution" as
that term is defined in rules adopted by the SEC, and further provided that such
guarantor institution is listed in one of the reference guides contained in the
Transfer Agent's current Signature Guarantee Standards and Procedures, such as
certain domestic banks, credit unions, securities dealers, or securities
exchanges. While a notary public stamp may be accepted in certain limited
situations, it is not an acceptable replacement for a signature guarantee. The
Transfer Agent will also accept signatures with either: (1) a signature
guaranteed with a medallion stamp of the STAMP Program, or (2) a signature
guaranteed with a medallion stamp of the NYSE Medallion Signature Program,
provided that in either event, the amount of the total transaction involved does
not exceed the surety coverage amount indicated on the medallion. For
information regarding whether a particular institution or organization qualifies
as an "eligible guarantor institution" and to determine how to fulfill a
signature guarantee requirement, an investor should contact the Client Services
Department of the Transfer Agent.
Transactions
by Telephone. By signing an
account application form, an investor agrees that the Transfer Agent may
surrender for redemption any and all shares held by the Transfer Agent in the
designated account(s), or in any other account with any of the Invesco Funds,
present or future, which has the identical registration as the designated
account(s). The Transfer Agent is thereby authorized and directed to accept and
act upon any telephone redemptions of shares held in any of the account(s)
listed, from any person who requests the redemption proceeds to be applied to
purchase shares in any one or more of the Invesco Funds, provided that such Fund
is available for sale and provided that the registration and mailing address of
the shares to be purchased are identical to the registration of the shares being
redeemed. An investor acknowledges by signing the form that he understands and
agrees that the Transfer Agent may not be liable for any loss, expense or cost
arising out of any telephone exchange requests effected in accordance with the
authorization set forth in these instructions if they reasonably believe such
request to be genuine. Procedures for verification of telephone transactions may
include recordings of telephone transactions (maintained for six months),
requests for confirmation of the shareholder's Social Security Number and
current address, and mailings of confirmations promptly after the transactions.
The Transfer Agent reserves the right to modify or terminate the telephone
exchange privilege at any time without notice. An investor may elect not to have
this privilege by marking the appropriate box on the application. Then any
exchanges must be effected in writing by the investor.
Internet
Transactions. An investor may
effect transactions in his account through the Internet by establishing a
Personal Identification Number (PIN). By establishing a PIN the investor
acknowledges and agrees that neither the Transfer Agent nor Invesco Distributors
will be liable for any loss, expense or cost arising out of any Internet
transaction effected by them in accordance with any instructions submitted by a
user who transmits the PIN as authentication of his or her identity. Procedures
for verification of Internet
L-16
transactions
include requests for confirmation of the shareholder's PIN and mailing of
confirmations promptly after the
transactions. The investor also acknowledges that the ability to effect Internet
transactions may be terminated at any time by the Invesco Funds. Policies for
processing transactions via the Internet may differ from policies for
transactions via telephone due to system settings.
Inactive
or Unclaimed Accounts.
The
Fund may be required to close your account after a period of inactivity, as
determined by applicable U.S. state or territory abandoned or unclaimed property
laws and regulations, and transfer your shares to the appropriate U.S. state or
territory. Please be advised that abandoned or unclaimed property laws and
regulations for certain U.S. states or territories require financial
organizations to transfer (escheat) unclaimed property to the appropriate U.S.
state or territory if no activity occurs in an account for a period of time as
specified by applicable laws and regulations. These laws and regulations may
require the transfer of shares of the Fund, including shares held through a
traditional or Roth IRA account. For traditional IRA accounts escheated to a
U.S. state or territory under these abandoned or unclaimed property laws and
regulations, the escheatment will generally be treated as a taxable distribution
from your IRA to you; federal and any applicable state income tax may be
withheld. This may apply to Roth IRA accounts in addition to traditional IRA
accounts. It is the
responsibility of the investor to ensure that the Transfer Agent maintains a
correct address for his account(s). An incorrect address may cause an investor's
account statements and other mailings to be returned to the Transfer Agent. Upon
receiving returned mail, the Transfer Agent will attempt to locate the investor
or rightful owner of the account. If the Transfer Agent is unable to locate the
investor, then it will determine whether the investor's account has legally been
abandoned. The Transfer Agent is legally obligated to escheat abandoned property
to the appropriate state's unclaimed property administrator in accordance with
statutory requirements. The investor's last known address of record determines
which state has jurisdiction. For more
information on unclaimed property and how to maintain an active account, please
contact the Fund's transfer agent.
Retirement
and Benefit Plans Sponsored by Invesco Distributors. Invesco
Distributors acts as the prototype sponsor for certain types of Retirement and
Benefit Plan documents. These Retirement and Benefit Plan documents are
generally available to anyone wishing to invest Retirement and Benefit Plan
assets in the Funds. These documents are provided subject to terms, conditions
and fees that vary by plan type. Contact your financial intermediary for
details.
Miscellaneous
Fees.
In certain circumstances, the intermediary maintaining the shareholder account
through which your Fund shares are held may assess various fees related to the
maintenance of that account, such as:
•
an annual custodial
fee on accounts where Invesco Distributors acts as the prototype
sponsor;
•
expedited mailing
fees in response to overnight redemption requests; and
•
copying and mailing
charges in response to requests for duplicate statements.
Please consult with
your intermediary for further details concerning any applicable
fees.
Offering
Price
The
following formula may be used to determine the public offering price per Class A
share of an investor’s
investment:
Net
Asset Value / (1 – Sales Charge as % of Offering Price) = Offering Price. For
example, at the close of business on
November
30, 2023, a Fund – Class A
shares had a net asset value per share of $10.59. The offering
price, assuming an initial sales charge of 5.50%, therefore was $11.21.
Class R5 and R6
shares of the Invesco Funds are offered at net asset value.
The
offering price of each money market fund's shares is the Fund's net asset value
per share. The Invesco U.S.
Government Money Portfolio and Invesco Government Money Market Fund value their
portfolio securities on the basis of amortized cost, which approximates market
value. This method of valuation is
L-17
designed
to enable a Fund to price its shares at $1.00 per share. The Funds cannot
guarantee their net asset value will always
remain at $1.00 per share.
Calculation
of Net Asset Value
Each
Invesco Fund, except for Invesco Government Money Market Fund, generally
determines its net asset value per
share once daily on each day the NYSE is open for trading (a business day) as of
approximately 4:00 p.m. Eastern Time (the customary close of regular trading) or
earlier in the case of a scheduled early close. In the event of an unscheduled
early close of the NYSE, each Fund, except for Invesco Government Money Market
Fund, generally still will determine the net asset value of its shares as of
4:00 p.m. Eastern Time on that business day. Invesco Government Money
Market Fund will generally determine the net asset value of their shares at 5:30
p.m. Eastern Time on each business day. The Invesco Funds determine net asset
value per share by dividing the value of an Invesco Fund's securities, cash and
other assets (including interest accrued but not collected) attributable to a
particular class, less all its liabilities (including accrued expenses and
dividends payable) attributable to that class, by the total number of shares
outstanding of that class. Determination of an Invesco Fund's net asset value
per share is made in accordance with generally accepted accounting principles.
Generally, the portfolio securities for non-money market funds are recorded in
the NAV no later than trade date plus one, except on fiscal quarter ends, such
securities are recorded on trade date. For money market funds, portfolio
securities are recorded in the NAV on trade date, as described below. Under
normal circumstances, market valuation and fair valuation, as described below,
are not used to determine share price for money market funds that seek to
maintain a constant NAV because shares of money market funds are valued at
amortized cost, as described below.
With
respect to non-money market funds, the net asset value for shareholder
transactions may be different than the
net asset value reported in the Invesco Fund's financial statement due to
adjustments required by generally accepted accounting principles made to the net
asset value of the Invesco Fund at period end.
Futures
contracts may be valued at the final settlement price set by an exchange on
which they are principally traded.
Where
a
final settlement price exists, exchange traded
options are valued at the final settlement
price
from the exchange where the option
principally trades. When
a
final settlement price does not exist, exchange traded
options shall
be
valued at the mean of the last
bid/ask quotation generally from the exchange where the option principally
trades. Options not
listed on an exchange are valued by an independent source at the mean between
the last bid and ask prices. A security listed or traded on an exchange
(excluding convertible bonds) held by an Invesco Fund is valued at its last
sales price or official closing price on the exchange where the security is
principally traded or, lacking any trades or official closing price on a
particular day, the security may be valued at the closing bid price on that day.
Each equity security traded in the over-the-counter market is valued on the
basis of prices furnished by independent pricing services vendors or market
makers. Debt securities (including convertible bonds) and unlisted equities are
fair valued using an evaluated quote provided by an independent pricing vendor.
Evaluated quotes provided by the pricing vendor may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related
to special securities, dividend rate, yield, quality, coupon rate, maturity,
type of issue, individual trading characteristics and other market data.
Pricing services
generally value fixed income securities assuming orderly transactions of
institutional round lot size, but a Fund may hold or transact in the same
securities in smaller, odd lot sizes. Odd lots often trade at lower prices than
institutional round lots. Securities for
which market prices are not provided by any of the above methods may be valued
based upon quotes furnished by independent sources and are valued at the last
bid price in the case of equity securities and in the case of debt obligations
the mean between the last bid and ask prices. Senior secured floating rate
loans, corporate loans and senior secured floating rate debt securities are fair
valued using an evaluated quote provided by an independent pricing service.
Evaluated quotes provided by the pricing service may reflect appropriate factors
such as ratings, tranche type, industry, company performance, spread, individual
trading characteristics, institution-size trading in similar groups of
securities and other market data. Investments in open-end and closed-end
registered investment companies that do not trade on an exchange are valued at
the end of day NAV per share.
L-18
Generally,
trading in corporate bonds, U.S. government securities and money market
instruments is substantially
completed each day prior to the close of the customary trading session of the
NYSE. The values of such securities used in computing the NAV of an Invesco
Fund's shares are determined at such times. Occasionally, events affecting the
values of such securities may occur between the times at which such values are
determined and the close of the customary trading session of the NYSE. If the
Adviser believes a development/event has actually caused a closing price to no
longer reflect current market value, the closing price may be adjusted to
reflect the fair value of the affected security as of the close of the NYSE as
determined in good faith using the valuation policy approved by the Board and
related procedures.
Foreign
securities are converted into U.S. dollar amounts using exchange rates as of the
close of the NYSE. If market
quotations are available and reliable for foreign exchange traded equity
securities, the securities will be valued at the market quotations. Because
trading hours for certain foreign securities end before the close of the NYSE,
closing market quotations may become not representative of market value in the
Adviser’s judgment (“unreliable”). If between the time trading ends on a
particular security and the close of the customary trading session on the NYSE,
events occur that are significant and may make the closing price unreliable, the
Adviser may fair value the security. If an issuer specific event has occurred
that the Adviser determines, in its judgment, is likely to have affected the
closing price of a foreign security, it will price the security at fair value in
good faith using the valuation policy approved by the Board and related
procedures. Adjustments to closing prices to reflect fair value may also be
based on a screening process from a pricing vendor to indicate the degree of
certainty, based on historical data, that the closing price in the principal
market where a foreign security trades is not the current market value as of the
close of the NYSE. For foreign securities where the Adviser believes, at the
approved degree of certainty, that the price is not reflective of current market
value, the Adviser will use the indication of fair value from the pricing vendor
to determine the fair value of the security. The pricing vendor, pricing
methodology or degree of certainty may change from time to time. Multiple
factors may be considered by the pricing vendor in determining adjustments to
reflect fair value and may include information relating to sector indices,
American Depositary Receipts, domestic and foreign index futures, and
exchange-traded funds.
Invesco
Fund securities primarily traded in foreign markets may be traded in such
markets on days that are not business
days of the Invesco Fund. Because the NAV per share of each Invesco Fund is
determined only on business days of the Invesco Fund, the value of the portfolio
securities of an Invesco Fund that invests in foreign securities may change on
days when an investor cannot exchange or redeem shares of the Invesco
Fund.
Securities
for which market quotations are not available or are unreliable are valued at
fair value as determined in good
faith by the Adviser
in
accordance with the valuation policy approved by the Board and related
procedures. Issuer specific events, market trends, bid/ask quotes of brokers and
information providers and other market data may be reviewed in the course of
making a good faith determination of a security's fair value.
Calculation
of Net Asset Value (Certain Invesco Money Market Funds)
The
Board has established procedures, in accordance with Rule 2a-7 under the 1940
Act, designed to stabilize each
Fund’s net asset value per share at $1.00, to the extent reasonably possible.
Such procedures include daily calculation of the extent of the deviation, if
any, of the current net asset value per share using available market quotations
from the fund’s amortized cost price per share, and the periodic review by the
Trustees of the amount of such deviation. The reviews are used to determine
whether net asset value, calculated by using available market quotations,
deviates from $1.00 per share and, if so, whether such deviation may result in
material dilution or is otherwise unfair to investors or existing shareholders.
In the event the trustees determine that a material deviation exists, they
intend to take such corrective action as they deem necessary and appropriate.
Such actions may include selling portfolio securities prior to maturity in order
to realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends, redeeming shares in kind, or establishing a net asset
value per share by using available market quotations. When available market
quotations are used to establish the market-based net asset value, the net asset
value could possibly be more or less than $1.00 per share. The Funds intend to
comply with any amendments made
L-19
to
Rule 2a-7 promulgated under the 1940 Act which may require corresponding changes
in the Funds’ procedures which
are designed to stabilize each Fund’s price per share at $1.00.
Under
the amortized cost method, each investment is valued at its cost and thereafter
any discount or premium is
amortized on a constant basis to maturity. Although this method provides
certainty of valuation, it may result in periods in which the amortized cost
value of the Funds’ investments is high or lower than the price that would be
received if the investments were sold.
Redemptions
in Kind
Although
the Invesco Funds generally intend to pay redemption proceeds solely in cash,
the Invesco Funds reserve the
right to determine, in their sole discretion, whether to satisfy redemption
requests by making payment in securities or other property (known as a
redemption in kind). For instance, an Invesco Fund may make a redemption in kind
if a cash redemption would disrupt its operations or performance. Securities
that will be delivered as payment in redemptions in kind will be valued using
the same methodologies that the Invesco Fund typically utilizes in valuing such
securities. Shareholders receiving such securities are likely to incur
transaction and brokerage costs on their subsequent sales of such securities,
and the securities may increase or decrease in value until the shareholder sells
them. The Trust, on behalf of the Invesco Funds, made an election under Rule
18f-1 under the 1940 Act (a Rule 18f-1 Election) and therefore, the Trust, on
behalf of an Invesco Fund, is obligated to redeem for cash all shares presented
to such Invesco Fund for redemption by any one shareholder in an amount up to
the lesser of $250,000 or 1% of that Invesco Fund's net assets in any 90-day
period. The Rule 18f-1 Election is irrevocable while Rule 18f-1 under the 1940
Act is in effect unless the SEC by order permits withdrawal of such Rule 18f-1
Election.
Backup
Withholding
Accounts
submitted without a correct, certified taxpayer identification number (TIN) or,
alternatively, a correctly completed
and currently effective IRS Form W-8 (for non-resident aliens) or Form W-9 (for
U.S. persons including resident aliens) accompanying the registration
information, generally will be subject to backup withholding.
Each
Invesco Fund, and other payers, generally must withhold 24% of reportable
dividends (whether paid in cash or
reinvested in additional Invesco Fund shares), including exempt-interest
dividends, in the case of any shareholder who fails to provide the Invesco Funds
with a TIN and a certification that he is not subject to backup
withholding.
An investor is
subject to backup withholding if:
1. The investor
fails to furnish a correct TIN to the Invesco Fund;
2. the IRS notifies
the Invesco Fund that the investor furnished an incorrect TIN;
3. the investor or
the Invesco Fund is notified by the IRS that the investor is subject to backup
withholding because the investor failed to report all of the interest and
dividends on such investor’s tax return (for reportable interest and dividends
only);
4. the investor
fails to certify to the Invesco Fund that the investor is not subject to backup
withholding under (3) above (for reportable interest and dividend accounts
opened after 1983 only); or
5. the investor
does not certify his TIN. This applies only to non-exempt mutual fund accounts
opened after 1983.
Interest
and dividend payments are subject to backup withholding in all five situations
discussed above. Redemption proceeds
are subject to backup withholding only if (1), (2) or (5) above
applies.
Certain
payees and payments are exempt from backup withholding and information
reporting. Invesco or the Transfer Agent
will not provide Form 1099 to those payees.
Investors should
contact the IRS if they have any questions concerning withholding.
L-20
IRS
Penalties. Investors who do
not supply the Invesco Funds with a correct TIN will be subject to a $50 penalty
imposed by the IRS unless such failure is due to reasonable cause and not
willful neglect. If an investor falsifies information on this form or makes any
other false statement resulting in no backup withholding on an account which
should be subject to backup withholding, such investor may be subject to a $500
penalty imposed by the IRS and to certain criminal penalties including fines
and/or imprisonment.
Nonresident
Aliens. Nonresident alien
individuals and foreign entities with a valid Form W-8 are not subject to the
backup withholding previously discussed. The Form W-8 generally remains in
effect for a period starting on the date the Form is signed and ending on the
last day of the third succeeding calendar year. Such shareholders may, however,
be subject to federal income tax withholding at a 30% rate on ordinary income
dividends and other distributions. Under applicable treaty law, residents of
treaty countries may qualify for a reduced rate of withholding or a withholding
exemption. Nonresident alien individuals and some foreign entities failing to
provide a valid Form W-8 may be subject to backup withholding and Form 1099
reporting.
L-21
APPENDIX
M - TOTAL SALES CHARGES
The
following chart reflects the total sales charges paid in connection with the
sale of applicable classes of shares of the
Funds and the amount retained by Invesco Distributors for the last three fiscal
years or periods, as applicable, ended October 31.
|
|
2023 |
2022 |
2021 | |||
|
|
Sales
Charges |
Amount
Retained |
Sales
Charges |
Amount
Retained |
Sales
Charges |
Amount
Retained |
|
Invesco
Charter Fund |
$515,311 |
$91,374 |
$635,720 |
$109,048 |
$733,198 |
$129,618 |
|
Invesco
Diversified Dividend Fund |
2,731,770 |
338,863 |
3,499,085 |
439,393 |
3,657,484 |
453,934 |
|
Invesco
Main Street All Cap Fund® |
429,734 |
70,202 |
514,289 |
83,803 |
532,509 |
83,075 |
|
Invesco
Main Street Fund® |
2,960,844 |
524,298 |
3,552,314 |
648,028 |
4,217,062 |
761,782 |
|
Invesco
Rising Dividends Fund |
1,470,239 |
226,363 |
1,463,346 |
226,176 |
1,522,961 |
242,130 |
|
Invesco
Summit Fund |
965,230 |
120,886 |
1,314,157 |
164,358 |
1,954,899 |
243,996 |
|
|
|
|
|
|
|
|
The
contingent deferred sales charges paid by certain shareholders of the Funds and
retained by Invesco Distributors for
the last three fiscal years or periods, as applicable, ended October 31 is
reflected below:
|
|
2023 |
2023 |
2022 |
2022 |
2021 |
2021 |
|
Fund |
Class
A |
Class
C |
Class
A |
Class
C |
Class
A |
Class
C |
|
Invesco
Charter Fund |
$1,143 |
$461 |
$189 |
$1,239 |
$57 |
$1,067 |
|
Invesco
Diversified Dividend Fund |
17,567 |
7,099 |
27,069 |
3,842 |
16,821 |
8,819 |
|
Invesco
Main Street All Cap Fund® |
967 |
934 |
3,887 |
1,055 |
365 |
1,338 |
|
Invesco
Main Street Fund® |
7,386 |
3,104 |
12,020 |
6,483 |
16,541 |
8,329 |
|
Invesco
Rising Dividends Fund |
3,765 |
4,100 |
6,904 |
7,306 |
1,541 |
5,503 |
|
Invesco
Summit Fund |
1,675 |
375 |
5,585 |
2,581 |
2,683 |
1,338 |
M-1
APPENDIX
N - AMOUNTS PAID TO INVESCO DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION
PLANS
PLANS
A
list of amounts paid by each class of shares to Invesco Distributors pursuant to
the Plan for the fiscal year or periods, as
applicable, ended October 31, 2023
follows:
|
Fund |
Class
A |
Class
C Shares |
Class
P Shares |
Class
R Shares |
Class
S Shares |
Investor
Class Shares |
|
Invesco
Charter Fund |
$6,924,934 |
$179,025 |
N/A |
$79,412 |
$23,250 |
N/A |
|
Invesco
Diversified Dividend Fund |
9,586,322 |
1,970,891 |
N/A |
654,916 |
N/A |
$2,322,319 |
|
Invesco
Main Street All Cap Fund® |
2,372,332 |
433,876 |
N/A |
250,380 |
N/A |
N/A |
|
Invesco
Main Street Fund® |
17,610,786 |
2,085,980 |
N/A |
1,251,934 |
N/A |
N/A |
|
Invesco
Rising Dividends Fund |
5,459,689 |
1,351,060 |
N/A |
533,144 |
N/A |
N/A |
|
Invesco
Summit Fund |
791,974 |
183,532 |
$2,217,863 |
N/A |
5,732 |
N/A |
|
|
|
|
|
|
|
|
N-1
APPENDIX
O - ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS
An
estimate by category of the allocation of actual fees paid by Class
A
shares of the Funds during the fiscal year ended October 31, 2023,
follows:
|
|
Advertising |
Printing
&
Mailing |
Seminars |
Underwriters
Compensation |
Dealers
Compensation |
Personnel |
Travel
Relating
to
Marketing |
|
Invesco
Charter Fund |
$0 |
$0 |
$0 |
$0 |
$6,924,934 |
$0 |
$0 |
|
Invesco
Diversified Dividend Fund |
$0 |
$0 |
$0 |
$0 |
9,586,322 |
$0 |
$0 |
|
Invesco
Main Street All Cap Fund® |
$0 |
$0 |
$0 |
$0 |
2,372,332 |
$0 |
$0 |
|
Invesco
Main Street Fund® |
$0 |
$0 |
$0 |
$0 |
17,610,786 |
$0 |
$0 |
|
Invesco
Rising Dividends Fund |
$0 |
$0 |
$0 |
$0 |
5,459,689 |
$0 |
$0 |
|
Invesco
Summit Fund |
$0 |
$0 |
$0 |
$0 |
791,974 |
$0 |
$0 |
An
estimate by category of the allocation of actual fees paid by Class
C
shares of the Funds during the fiscal year ended October 31, 2023,
follows:
|
|
Advertising |
Printing
&
Mailing |
Seminars |
Underwriters
Compensation |
Dealers
Compensation |
Personnel |
Travel
Relating
to
Marketing |
|
Invesco
Charter Fund |
$260 |
$174 |
$166 |
$16,232 |
$160,425 |
$1,696 |
$72 |
|
Invesco
Diversified Dividend Fund |
1,242 |
825 |
796 |
77,158 |
1,882,420 |
8,107 |
343 |
|
Invesco
Main Street All Cap Fund® |
519 |
345 |
329 |
32,158 |
397,030 |
3,351 |
144 |
|
Invesco
Main Street Fund® |
2,347 |
1,544 |
1,488 |
144,907 |
1,919,914 |
15,132 |
648 |
|
Invesco
Rising Dividends Fund |
1,465 |
972 |
938 |
91,241 |
1,246,488 |
9,550 |
406 |
|
Invesco
Summit Fund |
271 |
174 |
166 |
16,445 |
164,716 |
1,685 |
75 |
An
estimate by category of the allocation of actual fees paid by Class
P
shares of the Funds for the fiscal year ended October 31, 2023,
follows:
|
|
Advertising |
Printing
&
Mailing |
Seminars |
Underwriters
Compensation |
Dealers
Compensation |
Personnel |
Travel
Relating
to
Marketing |
|
Invesco
Summit Fund |
$1,482 |
$996 |
$952 |
$0 |
$2,204,325 |
$9,697 |
$411 |
An
estimate by category of the allocation of actual fees paid by Class
R
shares of the Funds during the fiscal year ended October 31, 2023,
follows:
|
|
Advertising |
Printing
&
Mailing |
Seminars |
Underwriters
Compensation |
Dealers
Compensation |
Personnel |
Travel
Relating
to
Marketing |
|
Invesco
Charter Fund |
$35 |
$24 |
$22 |
$733 |
$78,359 |
$229 |
$10 |
|
Invesco
Diversified Dividend Fund |
20 |
13 |
13 |
412 |
654,324 |
129 |
5 |
|
Invesco
Main Street All Cap Fund® |
485 |
328 |
315 |
10,313 |
235,580 |
3,222 |
137 |
|
Invesco
Main Street Fund® |
1,552 |
1,030 |
993 |
32,333 |
1,205,475 |
10,119 |
432 |
|
Invesco
Rising Dividends Fund |
1,089 |
725 |
701 |
22,820 |
500,359 |
7,146 |
304 |
An
estimate by category of the allocation of actual fees paid by Class
S
shares of the Funds for the fiscal year ended October 31, 2023,
follows:
|
|
Advertising |
Printing
&
Mailing |
Seminars |
Underwriters
Compensation |
Dealers
Compensation |
Personnel |
Travel
Relating
to
Marketing |
|
Invesco
Charter
Fund |
$4 |
$3 |
$2 |
$0 |
$23,215 |
$25 |
$1 |
|
Invesco
Summit Fund |
1 |
0 |
0 |
0 |
5,727 |
4 |
0 |
An estimate by
category of the allocation of actual fees paid by Investor
Class
shares of the Funds for the fiscal year ended October 31, 2023,
follows:
|
|
Advertising |
Printing
&
Mailing |
Seminars |
Underwriters
Compensation |
Dealers
Compensation |
Personnel |
Travel
Relating
to
Marketing |
|
Invesco
Diversified
Dividend
Fund |
$34,151 |
$22,836 |
$21,926 |
$0 |
$2,010,581 |
$223,362 |
$9,463 |
O-1