Mutual Funds 101An Introduction and Overview to the Industry

TABLE OF CONTENTS

I Overview of Course

II Introduction to Mutual Funds

III Types of Mutual Funds

IV Prospectus

V Measuring Fund Performance

VI Comparison, Rating and Ranking

VII Share Class Pricing & Commissions

VIII Fund Expenses and Other Charges

VIIII Capital Gains and Distributions

X Appendix

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Course Overview

Introduction to Mutual FundsObjectives- by the end of this unit, participants will be able to:

Define a mutual fund Understand the history of mutual funds Name advantages and disadvantages of owning mutual funds Legal Structure of a mutual fund

Types of Mutual FundsObjectives- by the end of this unit, participants will be able to:

Identify types of mutual funds (ie: equity, fixed income, hybrid) Identify asset classes (ie: growth, value, etc) Explain common investment objectives of mutual funds

ProspectusObjectives- by the end of this unit, participants will be able to:

Define prospectus and describe contents Explain difference between summary and statutory prospectus Locate prospectus on Marketing Express and invesco.com

Measuring Fund PerformanceObjective- by the end of this unit, participants will be able to:

Explain where to find fund performance information Define yield, SEC yield and explain difference between the two

Comparison, Rating and RankingObjectives – by the end of this unit, participants will be able to:

Define an index Understand why indices are used and that information they provide Understand difference between rating and ranking services

Share Class Pricing & CommissionsObjectives – by the end of this unit, participants will be able to:

Understand Share Classes Define types of sales charges (ie: front end load, back end load, no load) Explain how various share classes are purchased Locate current NAV/offer pricing for Invesco funds (ie: cash sheet) Understand how to use the Invesco Adviser Guide to locate this information Understand fund expenses Explain how/when commissions are paid to broker/dealers

Fund Expenses and Other ChargesObjectives- by the end of this unit, participants will be able to:

Define expense ratio List what is included in a fund’s operating expense Explain difference between total expense and net expense Define 12b-1 fee Explain account maintenance fee Explain redemption fee

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Locate expenses and other charges in Invesco Adviser Guide and on invesco.com

Capital Gains & DistributionsObjectives – by the end of this unit, participants will be able to:

Define capital gains Explain how capital gains are generated and when they are typically distributed Define dividends Explain how dividends are generated and how they are distributed Locate historical data for both capital gains & dividends on the intranet

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Introduction to Mutual FundsWhat is a mutual fund? A mutual fund is an open-end management investment company that pools the money of many investors and hires an investment adviser to invest that money (into a portfolio) in an attempt to achieve one or more financial objectives. The people who buy shares of a mutual fund are its owners or shareholders.

History of Mutual Funds

First mutual funds arrived in U.S. in 1924. No legislation governed what mutual funds could do and many mutual funds were highly leveraged. When market crashed in 1929, many funds and share holders lost a great deal. In 1940 the Investment Company Act established ground rules and oversight of the fund industry by the SEC. From less than $50 million in assets in 68 funds in 1940, in the U.S. 7,691 funds manage over $11 trillion, with 271 million shareholder accounts. Worldwide mutual fund investments are over $22 trillion.

How do Investors Purchase Mutual Funds?

*Investors purchase mutual fund shares from the fund itself (or through a broker for the fund) instead of from other investors on a secondary market, such as the NYSE or NASDAQ.

*The price that investors pay for mutual fund shares is the fund’s per share net asset value (NAV) plus any shareholder fees that the fund imposes at the time of purchase (such as sales loads).

Advantages of owning mutual funds:

1. Professional Management2. Diversification3. Affordability4. Liquidity

Disadvantages of owning mutual funds:

1. Lack of control2. Price uncertainty3. Taxable distributions

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LEGAL STRUCTURE OF A MUTUAL FUND

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HOW A MUTUAL FUND WORKS

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TYPES OF FUNDSOpen-end vs Closed-end Funds:

There are two categories of mutual funds: open-end and closed-end. An open-end mutual fund continuously offers shares for sale while a closed-end mutual fund offers a set # of shares. When that set # of shares is met, the closed-end fund is no longer available for purchase. Open-end mutual funds are obligated to redeem shares to the shareholder upon request. Closed-end mutual funds are under no obligation to redeem. Selling of closed-end shares takes places on a secondary market.

Equity Funds:

Global Funds typically seek growth in the value of their investments and generally invest in stocks and/or bonds traded worldwide, including the U.S.

Growth Funds typically invest in stocks and seek capital growth through price appreciation of the securities held in their portfolios. Their primary aim is to produce an increase in the value of their investments rather than a flow of dividends. Growth funds with a more aggressive focus seek maximum capital gains as their investment objective. These funds may invest in stocks that are somewhat out of mainstream, such as smaller, lesser known companies that managers believe possess dynamic potential.

Growth & Income Funds invest primarily in the common stocks of companies with longer track records. These funds seek equities with a higher share value that also maintain a solid record of paying dividends.

International Funds seek growth in their investments and invest primarily in stocks of companies located outside the U.S. The funds must invest 65% of their portfolios in this way at all times to qualify for this category.

Sector or Theme Funds seek to capitalize on the return potential provided by investing primarily in a particular industry or sector of the economy. (Also called specialized).

Value Funds tend to seek safety rather than growth, and often invest in stocks of companies that may provide dividends as well as capital appreciation. They invest in companies that have low P/E ratios, and stocks that have fallen out of favor with mainstream investors for various reasons. Value funds produce current income (from the dividends) as well as long-term growth (from capital appreciation once the stocks become popular again). They tend to have more conservative and less volatile returns than growth funds.

Fixed Income Funds:

Floating Rate Funds seek a high level of current income by investing in senior secured floating rate loans. Income from these products is taxable.

High Yield Funds seek a very high yield, but carry a greater degree of risk than corporate bond funds. In turn, high-yield corporate bonds have the potential to produce

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greater income than government bonds. The majority of their portfolios are invested in lower-rated corporate bonds (Also known as Junk Bonds).

Taxable Fixed Income funds invest in bonds issued by domestic and international corporations and government securities. Income from these funds is taxable.

Tax-Free Fixed Income funds invest in bonds issued by local governments, such as cities and states, which use the money to build such public entities as schools, highways, public hospitals, bridges and other municipal works. Income earned from these securities is usually federally tax-exempt for most shareholders.

Money Market Funds participate in short-term investment instruments that are considered the safest, most stable types of securities available.

Hybrid Funds:

Asset Allocation Funds invest in both stocks and bonds. This type of fund invests in a variety of securities in different asset classes in an effort to provide investors with truly diversified holdings in one product. Some asset allocation funds have a specific breakdown of asset classes that they try to maintain over time, while others vary the composition as opportunities and circumstances change.

Balanced Funds invest in both stocks and bonds. They emphasize the growth potential of stocks as well as the relative stability of income from bonds. They generally have a three part investment objective: (1) to conserve investors’ initial principal, (2) to pay current income, and (3) to promote long-term growth of both principal and income.

Market Capitalization

Mutual funds not only fall under the categories of asset type, region or theme as listed above, but can also be listed by the size of the companies the fund holds in the portfolio. Market capitalization refers to the value of a company in the marketplace and is a measure of company size. Generally, the three market capitalizations in bold below are the most recognized:

Mega-cap: companies worth over $250 billionLarge-cap: companies worth $5 billion or higherMid-cap: companies worth $1 billion to $5 billionSmall-cap: companies worth less than $1 billionMicro-cap: companies worth less than $250 million

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PROSPECTUS

What is a prospectus?A legal document offering securities or mutual fund shares for sale, required by the Securities Act of 1933. It must explain the offer, including the terms, issuer, objectives (if mutual fund) or planned use of the money (if securities), historical financial statements, and other information.

There are two types of prospectus: summary and statutory. A Summary Prospectus is a shorter, more user-friendly version of the prospectus that provides a high level overview of the fund. The Statutory Prospectus is a longer document, containing in depth detail about the fund in addition to the high level overview.

What does a mutual fund prospectus contain?Mutual fund prospectuses contain information on such subjects as the fund’s investment objectives and policies, services, investment restrictions, officers and directors, how shares can be purchased and redeemed, fund expenses, and financial statements.

Both versions of the prospectus must contain, at minimum: The fund’s investment objective Information about fees and expenses Fund performance Principal investment strategies and risks of the fund Portfolio management Tax information Information about purchasing and selling shares

When does a prospectus have to be delivered to an investor? A prospectus must be provided to an investor at the time of or before purchase is made.

The prospectus is covered in detail during the “Journey Through a Prospectus” course.

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MEASURING FUND PERFORMANCE

How is a fund’s performance measured?Mutual fund performance is expressed as a % and is how well a fund performed in the market over a specified time period. Performance may be either positive or negative. Performance is typically measured on the following time frames: 1-month, 3-month, 1-year, 3-year, 5-year, 10-year.

Performance of a mutual fund is often compared to the fund’s benchmark indices performance or against funds in the same asset class. We will discuss these in more detail during the next unit.

If you are asked for a fund’s performance, you should always quote the return at NAV for the time period in question.

A component of performance is a fund’s yield.

What is a fund yield? The annual rate of return on an investment, as paid in dividends or interest. It is expressed as a percentage.

What is the SEC yield?Standardized method of computing returns on investments that the US Securities and Exchange Commission (SEC) requires mutual funds to use when advertising their yields.

Where can fund performance information be located?Fund performance information for Invesco funds can be located on:

Invesco.com Daily Index Comparison Report (US Product Management intranet site) Daily NAV/Cash Sheet (US Product Management intranet site) Goldlist report (US Product Management intranet site)

In addition, mutual fund performance, regardless of firm, can be found on any financial industry website. A few examples are: Morningstar, Google Finance, CNN Money, Yahoo Finance.

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COMPARISON, RATING AND RANKING Mutual fund performance is often compared to the benchmark index for the fund. What is an index?

An index is an average of stock prices, commodity prices, or other series of numbers related to a base. They provide a benchmark for stock and portfolio comparison. If you own a portfolio of stocks or mutual funds, you can compare how your holdings are doing to an index.

The following table contains a list of the most common comparative indices. Each of these indices is a capitalization-weighted index. The Dow Jones Industrial is a price-weighted index.

Index It measures the performance of…Russell 1000 Largest 1000 companies in the Russell 3000 Index;

represents 80-90% of the market cap of the Russell 3000 Index

Russell 2000 Smallest 2000 companies in the Russell 3000 Index; represents 11% of the market cap. of the Russell 3000 Index

Standard & Poor’s(S & P) 500

Broad domestic economy of 500 stocks; represents all major industries

S & P Midcap 400 mid-range sector of US stock market

S & P 40 Utilities Utility sector of the S & P 500

MSCI AC Asia Free Ex Japan 12 Developing and emerging markets in the Asia Region, but not Japan

MSCI EAFE European, Australasia and Far East markets

MSCI Europe Emphasizes country economic strength (GDP) rather then market cap.

MSCI World Covers 80% of world market cap (developing & emerging); in U.S. dollars

Lehman Brothers Muni Bond Fund

Broad, based total return index comprised of 8,000 bonds

Lipper High Current Yield Fund

Average of the performance of the 30 largest high-yield funds

Lipper US Intermediate Gov’t Funds Index

Average of the performance of the 30 largest intermediate government funds

Lipper Muni Bond Fund Principal only index of the 10 largest daily dividend declaring muni debt funds

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Lipper Government Bonds Short Gov’t

Average of the performance of 30 largest short governments funds

RATING AND RANKING SERVICES

Ranking Service: These types of services use a non-judgmental mathematical process in which like funds are listed on the basis or their performance.

Rating Service: These types of services use subjective methods to evaluate funds. While some ratings may employ a mathematical scoring system, the elements of the rating system are the result of subjective decisions.

Most commonly used services

SERVICE RATING OR RANKING?

RATING / RANK DESCRIPTION

Morningstar Rating Stars5 Star = Top 10%4 Star = Next 22.5%3 Star = Middle 35%2 Star = Next 22.5%1 Star = Bottom 10%

Value Line Rating Numbers1 = Highest / Safest = Top 10%2 = Above Average / Lower Risk = Next 20%3 = Average / Average Risk = Middle 40%4 = Below Average / Higher Risk = Next 20%5 = Lowest / Highest Risk = Bottom 10%

CDA / Weisenberger Rating Numbers 1-991 = Best99 = Worst

Wall Street Journal Rating LettersA = Top 20%B = Next 20%C = Middle 20%D = Next 20%E = Bottom 20%

Lipper Ranking RankEach fund is ranked within its category.

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SHARE CLASS PRICING & COMMISSIONS

Share Class Pricing, also known as the Multiple Distribution System or Multiple Pricing, allows an investor to select the fund class that is best suited to the investor’s needs and objectives.

The different sales charge and on-going expenses options available are identified by Share Class; that is, a share’s class determines the type of sales charge and on-going expenses paid.

Although each class of shares of a particular Multiple Class Fund represents an interest in the same portfolio of investments, each class is subject to a different sales charge structure, and as a result, differing expenses. Investors should, therefore, consider both the sales charges and the on-going expenses borne by each class of shares. Other factors, such as whether investment goals are long-term or short-term, should also be considered when selecting a fund and the fund class prior to investment.

The three most common share classes to be considered are: A Shares, B Shares, C Shares.

Sales Charges by Class: An Overview

CLASS NAME

TYPE OF SALES CHARGE

WHEN IS SALES CHARGE PAID

AMOUNT INVESTED INTO

FUND AT TIME OF PURCHASE

Class A Traditional front-end load

At purchase Purchase Price minus Sales Charge (this equals the fund’s NAV)

Class B Deferred load or back-end load

At redemption; declining sales charge (CDSC) for shares redeemed between purchase and 6 years

Contingent Deferred Sales Charge

Full amount

Class C Level load At redemption; flat 1% sales charge (CDSC) for shares redeemed within first 12 months after purchase

Full amount

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In addition to the common A, B & C Share classes, many fund companies, including Invesco, offer additional share classes:

R shares are targeted to qualified plans $10 million and under.I shares are targeted to qualified plans $100 million and up.

Y shares are available to investors who purchase shares through an approved fee-based advisory program.Investor shares were sold directly to an investor; did not assess a sales charge and was purchased at net asset value (NAV). Availability to new clients ended in 2002. S shares were made available on September 25, 2009, to investors who previously held shares of systematic contractual plans (First Command advisors and clients). Available on 5 Invesco funds only.

Purchasing:Class A Shares: offered at NAV plus any applicable sales charge. The sales charge will

vary according to the amount of the sale.

Class B Shares: offered at NAV, without an initial sales charge, and are subject to a maximum contingent deferred sales charge (CDSC) of 5% on certain redemptions made within six years following the date such shares were purchased. Maximum purchase amount is $99,999.99 for all Class B Shares.

Class C Shares: offered at NAV, without an initial sales charge, and are subject to a CDSC of 1% on certain redemptions made within one year from the date such shares were purchased.

Class R Shares, I Shares & Y Shares: All three of the share classes listed above has different sales charges and commissions than the A, B & C Share classes. See most current Adviser Guide for details.

Redeeming:Class A Shares: shareholders may redeem all or part of their shares at NAV on any

business day, generally without charge. A contingent deferred sales charge (CDSC) of 1% may apply to certain redemptions of Class A shares, where a purchase of $1 million or more was made at NAV.

Class B Shares: shareholders may redeem all or part of their shares at NAV on any business day, less a CDSC for redemptions made within six years of the dates such shares were purchased. Class B shares redeemed after six years from the date such shares were purchased will not be subject to and CDSC. CDSC is waived on redemptions of B shares when there is death, disability or systematic withdrawal plans less than 12% annually.

Class C Shares: shareholders may redeem all or part of their shares at NAV on any business day, less a 1% CDSC for redemptions made within one year from the dates such shares were purchased.

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Class R Shares, I Shares & Y Shares: All three of the share classes listed above has different guidelines for redemption than the A, B & C Share classes. See most current Adviser Guide for details.

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When Investing in Class A Shares

Front-end load: a front end load (sales charge) is one that investors pay when they purchase shares. It is usually expressed as a percentage of the amount being invested.

Reduced sales charges for Class A shares vary depending upon four factors: Breakpoint Rights of Accumulation Letter of Intent Million Dollar Purchases

Breakpoint: Dollar amount at which a sales charge is reduced due to the size of the purchase payment. Breakpoint rules vary across mutual fund families. Eligibility is based on current purchase amount.

Example:ABC Mutual Fund-Sales Charge Scale

Less than $25,000 5.50%$25,000 but less than $50,000 5.25%$50,000 but less than $100,000 4.75%$100,000 but less than $250,000 3.75%$250,000 but less than $500,000 3.00%$500,000 but less than $1,000,000 2.00%$1,000,000+ 0.00%

Rights of Accumulation: Allows new fund purchases to benefit from a breakpoint by adding the current purchase to all previous purchases.

Example: An investor has an account with a current value of $45,000. The investor is going to add $5,000 to the account. The sales charge would be 4.75% due to the accumulated money already in the account.

Letter of Intent: A document signed by an investor who intends to invest enough within a 13-month period to reach a breakpoint and receive a reduced sales charge. An LOI can be backdated 90 days. This letter is not binding. If the investor fails to meet the LOI, there is no penalty: however, the investor still pays the higher sales charge (does not benefit from the lower breakpoint sales charge).

Example:An investor purchases $20,000 of ABC Mutual Fund Class A. The investor believes that an additional $5,000 investment will be made in the next thirteen month. By signing a LOI, the sales charge on the entire amount will be reduced from 5.50% to 5.25% (which is the sales charge for $25,000).

Million Dollar Purchases: There are no initial sales charges for $1,000,000+ Class A purchases. A Contingent Deferred Sales Charge of 1% applies to purchases of $1,000,000+ that are redeemed within 18 months of the date of purchase.

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*Note – Class A Shares offer full exchange privileges with other Invesco fund A Shares.*

When Investing in Class B and C (Deferred Sales Charges)

Class B and Class C shares do not charge a fee when you initially purchase shares. Instead, they defer the sales charge until later when you redeem your shares. The amount of sales charge is contingent on (depends on) when you redeem your shares.

CDSC Redemption Charges: Class BYear Since Purchase Made % of Dollar Amount Subject to Charge*Year 1 5%Year 2 4%Year 3 3%Year 4 3%Year 5 2%Year 6 1%Year 7 0%Year 8 0%9 (beginning) Conversion to Class A Shares

CDSC Redemption Charges: Class CWithin the first year % of Dollar Amount Subject to Charge*

*The applicable sales charge will be applied against the lesser of the current market value of shares redeemed or their original cost.

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Commissions Paid to Broker/Dealers

Commissions are paid to broker/dealers in two ways: Up-front commissions (paid to broker/dealer at time of purchase) Trailing commissions or trails (paid to broker/dealer for on-going service to shareholders. Also known as 12b-1 fees.)

Wrap Fee Accounts:Allows the dealer to present a diversified portfolio of funds to their clients, with one set advisory fee for investing in any of these funds. The investor pays an advisory fee to the dealer when they purchase, so the fund company allows the investment to be made at NAV.

Example:A representative from Merrill Lynch may show his client a portfolio containing Invesco, Alliance and Templeton Funds. Instead of explaining that each fund family carries different sales charges, he can charge one sales charge on the total investment across any of the fund families. Generally, the advisory fee is 2-3% of the total investment. The representative will then give the fund company the money to invest. This purchase will be made at NAV because the representative has already received a commission from the investor.

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FUND EXPENSES & OTHER CHARGESWhat is an expense ratio?A fund’s operating expenses, expressed as a percentage of its average net assets. The Expense ratio does NOT include sales loads, CDSC, redemption fees or the cost to buy and sell securities.

How are expenses paid?A shareholder does not pay for these costs separately; that is, they do not receive a separate bill requesting payment for the fund’s operating expenses nor are these expenses deducted directly from the shareholder’s account. Operating expenses are charged indirectly and are reflected in the daily NAV.

What items are included as Operating Expenses?Fund operating expenses represent three distinct costs associated with running a fund: management fees, distribution fees, and other operational expenses. Management fees: paid to investment advisor for fund management and advisory services. Distribution fees (12b-1 fees): paid by the fund for marketing and distribution costs, such as advertising or shareholder serving fees paid to dealers. This fee includes the trailing commission that is paid to financial advisors for providing on-going services to shareholders. Other expenses: paid by the fund for expenses such as accounting fees, auditing fees, shareholder communication printing costs, legal fees, filings (state and federal), insurance, director fees, custodian and transfer.

Are a Fund’s expenses the same regardless of share class?Class A shares typically have lower expenses. Management Fees: an identical management fee is charged to each class. Distribution Plan Fees: while all share classes pay 12b-1 fees, Class B and Class C shares have an additional 12b-1 fee. Other Expenses: Class B and Class C shares generally have higher operating expenses.

What is the difference between Total Expenses and Net Expenses?

TOTAL are the total annual operating expenses per the fund’s current prospectus.

NET are the total annual operating expenses MINUS any expenses the advisor and/or distributor agreed to limit or waive per the fund’s current prospectus. In other words, this is the EXPECTED expense ratio.

What is an account maintenance fee?A fee that some fund companies separately impose on investors in connection with the maintenance of their accounts.

What is a redemption fee?Excluding the CDSC on the “B” Share class which some refer to as a redemption fee, Invesco imposes a redemption fee of 2% on several funds. This fee serves as a deterrent to market timing by withholding 2% of the redemption amount if the redemption is placed within 31 calendar days of purchase.

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This information with a full list of funds affected can be found on Client Services intranet site or in the latest Invesco Adviser Guide.

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Capital Gains and DistributionsCapital Gains

What are they? A capital gain is the profit that results when a mutual fund sells a security at a pricehigher than the purchase price. In contrast, a capital loss results when a mutual fund sells a security at a price lower than the purchase price. For tax purposes, capital gains are offset by any capital losses. If a fund’s capital gains exceed its capital losses, it will distribute the net capital gains to shareholders.

Why are capital gains paid out?Mutual funds are required under federal tax law to distribute realized capital gains to shareholders in the taxable year the gains are realized, or under specified circumstances, within 12 months after the close of the taxable year.

When are they paid out? Equity funds usually pay out these amounts once a year, typically in December, while bond funds often include capital gains in their monthly distributions. In general, capital gains distributions reduce the value of the fund- as a result, advisors will want to know when the gain is being paid so they can purchase after the payout date for their clients.

How does a fund distribution affect the fund’s net asset value?On the date of the distribution, the distribution is taken out of the fund’s per-share netasset value, so the per-share net asset value decreases by the amount of the distribution,net of any market fluctuations.

Can a fund pay a capital gain if the total return was negative? Yes. Even if a fund’s total return was negative, a fund may have realized net capital gains (its capital gains exceed its capital losses) as a result of selling securities. As a result, the fund will distribute the net capital gains to shareholders.

How do you know when Invesco capital gains will be paid out? Generally, capital gains are paid out in December. Communications regarding the estimate amounts of capital gains are distributed to the sales force beginning in October with an update provided in November. Actual capital gains amounts are published in December. The communications will list by fund the anticipated record and pay dates, estimated amount of short-term gain, long-term gain, total capital gain and Class A NAV as of publication date.

How are capital gains distributed?Distributions are either paid in cash or reinvested in the fund, depending on how a shareholder’s account is set up. If the reinvestment option is chosen, shares are purchased at the net asset value on the ex-dividend date - the date on which the fund starts trading at a price which excludes the distribution.

Is this a taxable event for the client? Yes, these distributions are taxable income for the recipient. Any questions regarding the taxation or effect of capital gains should be directed to a tax professional.

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Dividends

What are they?Dividends are income paid by investments. In this case, shareholders of dividend paying funds will receive payment from Invesco.

Where do dividends come from? For bond funds, the dividend comes from the interest paid by the bonds held within the portfolio. For equity funds, the dividend comes from underlying stocks in the portfolio.

How are dividends distributed?Like capital gains, dividend payments are either paid in cash or reinvested in the fund, depending on how a shareholder’s account is set up.

Which funds at Invesco pay a dividend? The general rule of thumb is that most, but not all, funds with an income component (ie: bond) can pay a dividend either monthly, quarterly or annually. Invesco equity funds with an income component include Invesco Basic Balanced Fund, Invesco Diversified Dividend Fund, Invesco Global Real Estate, Invesco Real Estate Fund, Invesco Select Real Estate and Invesco Utilities Fund.

Where do I find the distribution frequency for a specific fund?For a consolidated listing of all funds, refer to the Invesco Adviser Guide (sometimes called a dealer guide).

Where do I find current dividend yield?The NAV/Cash Sheet published every morning shows current yield as of previous date. The current dividend yield is located on the far right and is quoted at either “Offer” or “NAV”.

Where do I find historical dividends for a specific fund? Historical distribution can be found on the fund home page within invesco.com.

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Reporting of Distributions

**Note, Invesco does not comment on tax questions – the following information is for your knowledge only. If you receive a question about tax implications, refer the caller to his or her tax professional**

How are distributions reported? Distributions are reported annually on a Form 1099-DIV. This form reports income from mutual funds held outside of retirement accounts and is typically mailed out in January. Income from mutual funds is like regular income – you have to report it!

When does Invesco generate a Form 1099-DIV?If a shareowner receives $10 or more in taxable income per fund, AIM will mail a Form 1099-DIV to the shareowner.

Why are there different classifications of dividends on a Form 1099-DIV?The government taxes dividends from different securities at varying rates.

Sample of a Form 1099-Div:

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AppendixFinancial Terms

Beta: A quantitative measure of how volatile a stock, mutual fund or portfolio is relative to the overall market (usually the S&P 500). A beta greater than 1.0 indicates the investment is more volatile than the market or index, whereas a beta between 0 and 1.0 indicates the investment is less volatile than the market.

Sharpe Ratio: A risk-adjusted measure calculated using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe ratio, the better the fund’s historical risk-adjusted performance.

“What is the Sharpe Ratio of this fund? What do these two numbers mean together?”Example, if the beta is less than 1 and the Sharpe Ratio is greater than 1 we know the fund is getting excellent returns while incurring less risk than the market. A fund can outperform it’s peers but it is also important to look at how much risk you are taking on as well.

Alpha: A coefficient which measures risk-adjusted performance factoring in the risk due to the specific security, rather than the market overall. A high value of alpha implies the security has performed better than expected.

Upside/Downside Capture Ratio: A measure in percentage of how a security participated in the uprise of the market as well as the downfall. Investors want high returns when the market is strong, but protection when the market is in decline. The upside/downside capture ratio reflects both desires.

Defensive managers would typically have down-capture ratios of less than 100%.

For example:

Manager A

93% up

40% down

Manager B

117% up

160% down

MANAGER A was more defensive, while MANAGER B was more aggressive. For example if the market was up 30%, Manager A was able to capture 93% of that, while Manager B was able to capture the 30% plus some. If we are investors in an up market, we want Manager B on our team. On the flip side of that, if the market was down 30%, we want Manager A on our team. Manager A only participated in 40% of the decline, while Manager B participated in all 30% of plus another 60% on top of that.

For Internal Training Use OnlyMay not be faxed, mailed, or shown to advisors or members of the public

Retail -August 2010

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WHERE CAN I FIND MORE INFORMATION?

www.invesco.com – Invesco’s website provides information on our products, market trends, client accounts, and broker only information.

www.investopedia.com – A Forbe’s website offers financial content, from articles, terms and tutorials, to frequently asked questions and exam prep quizzes.

www.investorwords.com – Online financial dictionary.

www.money.cnn.com – This CNN website provides current market information and news stories. This site also gives an update on market indices and their current performance.

www.ici.org – The Investment Company Institute seeks to enhance public understanding of the investment company business, to serve the public interest by encouraging adherence to the highest ethical standards by all segments of the industry, and to promote the interests of fund shareholder.

www.invest-faq.com – This is a site where you can enter your own questions to search for answers about investments and personal finance.

www.morningstar.com – This site provides helpful ways to keep track of your holdings. It also has quick updates on the Dow, S&P 500 and NASDAQ.

For Internal Training Use OnlyMay not be faxed, mailed, or shown to advisors or members of the public

Retail -August 2010

25

For Internal Training Use OnlyMay not be faxed, mailed, or shown to advisors or members of the public

Retail -August 2010

26