(i) Forward foreign exchange contracts
The unrealised gain or loss on open forward foreign exchange contracts is calculated as the difference between the contracted rate and the rate to close out the contract and is disclosed in the Statement of Net Assets (see note 7 for details). Realised gains or losses include net results on contracts which have been settled or offset on other contracts and are recorded in the Statement of Operations and Changes in Net Assets (disclosed at year end only).
(j) Futures contracts
Derivative financial instruments are initially recognized at cost and subsequently are re-measured at market value. Market values are obtained from quoted market prices and exchange rates. All derivatives are carried in assets when amounts are receivable by the Fund and in liabilities when amounts are payable by the Fund. Changes in market values of future contracts are included in the Statement of Net Assets (see note 8 for details).
(k) Credit default swaps
A credit default swap is a credit derivative transaction in which two parties enter into an agreement, whereby one party pays the other a fixed periodic coupon for the specified life of the agreement. The other party makes no payments unless a credit event, relating to a predetermined reference asset occurs. If such an event occurs, the party will then make a payment to the first party and the swap will terminate.The credit default swaps are marked to market daily based upon quotations from market makers and recorded in the Statement of Net Assets (see note 9 for details).
(l) Interest rate swaps
An interest rate swap is a bilateral agreement in which each of the parties agrees to exchange a series of interest payments for another series of payments (usually fixed/floating) based on a notional amount that serves as a computation basis and that is usually not exchanged. The interest rate swaps are marked to market daily based upon quotations from market makers and recorded in the Statement of Net Assets (see note 12 for details).
(m) Equity swaps
An Equity Swap is a derivative transaction in which the Fund and the counterparty enter into an agreement whereby one party pays the returns generated by an equity or a basket of equities. The other party pays interest based on the agreed notional amount of the transaction. The value of equity swap transactions is the net present value of all cash flows, both inflows and outflows. Equity swaps are recorded in the Statement of Net Assets (see note 13 for details).
(n) Options
A purchaser of a put option has the right, but not the obligation, to sell the underlying instrument at an agreed upon price (“strike price”) to the option seller. A purchaser of a call option has the right, but not the obligation, to purchase the underlying instrument at the strike price from the option seller.
Purchased Options – Premiums paid by the Fund for purchased options are included in the Statement of Net Assets as an investment. The option is adjusted daily to reflect the current market value of the option and the change is recorded as unrealised appreciation or depreciation. If the option is allowed to expire the Fund will lose the entire premium it paid and record a realised loss for the premium amount. Premiums paid for purchased options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realised gain/loss or cost basis of the security.
Written Options - Premiums received by the Fund for written options are included in the Statement of Net Assets. The amount of the liability is adjusted daily to reflect the current market value of the written option and the change in market value is recorded as unrealised appreciation or depreciation. Premiums received from written options that expire are treated as realised gains. The Fund records a realised gain or loss on written options based on whether the cost of the closing transaction exceeds the premium received. If a call option is exercised by the option buyer, the premium received by the Fund is added to the proceeds from the sale of the underlying security to the option buyer and compared to the cost of the closing transaction to determine whether there has been a realised gain or loss. If a put option is exercised by an option buyer, the premium received by the option seller reduces the cost basis of the purchased security. Written uncovered call options subject the Fund to unlimited risk of loss. Written covered call options limit the upside potential of a security above the strike price. Written put options subject the Fund to risk of loss if the value of the security declines below the exercise price minus the put premium. Outstanding options traded on a regulated market are valued based on the closing price or the last available market price of the instruments. OTC options are marked to market based upon daily prices obtained from third party pricing agents and verified against the value from the counterparty. The unrealised gain/(loss) on options is included in the Statement of Net Assets (see note 14 for details).
(o) Equity variance swaps
An equity variance swap is a bilateral agreement in which each party agrees to exchange cash flows based on the measured variance of a specified underlying asset. One party agrees to exchange a “fixed rate” or strike price payment for the “floating rate” or realised price variance on the underlying asset with respect to the variance notional amount. At the maturity date, a net cash flow is exchanged, where the payoff amount is equivalent to the difference between the realised price variance of the underlying asset and the strike price multiplied by the variance notional amount. Equity variance swaps are marked to market at each NAV calculation date. The estimated market value is based on the valuation elements laid down in the contracts, and is obtained from third party pricing agents, market makers or internal models. The unrealised appreciation/(depreciation) is disclosed in the Statement of Net Assets under “Unrealised gain/(loss) on equity variance swaps”(see note 10 for details). Realised gains/(losses) and changes in unrealised appreciation/(depreciation) as a result thereof are included in the Statement of Operations and Changes in Net Assets respectively under “Net realised surplus/(deficit) on disposal of investments, derivatives and foreign currencies” and “Net change in unrealised appreciation/(depreciation) on equity variance swaps” (disclosed at year end only).
(p) Inflation linked swaps
An inflation linked swap is a swap used to transfer inflation risk from one party to another through an exchange of cash flows. In an inflation linked swap, one party pays a fixed rate on a notional principal amount, while the other party pays a floating rate linked to an inflation index. Inflation linked swaps are marked to market at each NAV calculation date. The estimated market value is based on the valuation elements laid down in the contracts, and is obtained from third party pricing agents, market makers or internal models. The unrealised appreciation/(depreciation) is disclosed in the Statement of Net Assets under “Unrealised gain/(loss) on inflation swaps”(see Note 11 for details). Realised gains/(losses) and changes in unrealised appreciation/(depreciation) as a result thereof are included in the Statement of Operations and Changes in Net Assets respectively under “Net realised surplus/(deficit) on disposal of investments, derivatives and foreign currencies” and “Net change in unrealised
Notes to the Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)(q) Margin Accounts
Margin accounts represent the cash collateral held at brokers for futures contracts.
(r) Cross Investments
Cross sub-fund investment holdings were not eliminated from the consolidated figures. At August 31, 2014, the total cross sub-fund investment holdings on Invesco Global Targeted Returns Fund amounted to EUR 28,735,728 (USD equivalent (using period end rate 1 USD = EUR 0.7582) is USD 37,899,931) and on Invesco Capital Shield 90 (EUR) Fund amounted to EUR 9,060,242 (USD equivalent (using period end rate 1 USD = EUR 0.7582) is USD 11,949,673). Therefore the Total Consolidated Net Assets at period end, if these cross investment holdings were eliminated would have amounted to USD 41,857,532,190.
3. Management and Investment Advisor Fees
The Directors of the Fund (the “Directors”) are responsible for the investment policy, management and administration of the Fund. The Directors delegate the day-to-day investment management of the securities portfolio of the Fund to Invesco Management S.A. (the “Management Company”).
In following the investment policy of the Directors, the Management Company seeks investment advice from, as appropriate, Invesco Advisers Inc. in the United States, Invesco Asset Management Deutschland GmbH in Germany, Invesco Asset Management Limited in the United Kingdom, Invesco Asset Management (Japan) Limited, Invesco Canada Ltd. and Invesco Hong Kong Limited.
For its services the Management Company is paid by the Fund a percentage of the Net Asset Value of each sub-fund as set out in the table below: Sub-fund Management Management Management Management Management Management Management Fee Fee Fee Fee Fee Fee Fee Class A Class B Class B1 Class C Class E Class R Class Z (includes a 1% (includes a 0.7%
Distribution fee) Distribution fee)
EQUITY FUNDS Global
Invesco Global Structured Equity Fund 1.00% - - 0.60% 1.50% - - Invesco Emerging Market
Quantitative Equity Fund 1.25% - - 0.75% 1.75% - 0.62% Invesco Global Smaller Companies
Equity Fund 1.60% - - 0.95% 2.25% 2.30% 0.80% Invesco Global Equity Income Fund 1.40% - - 0.75% 2.25% 2.10% 0.70%
America
Invesco Latin American Equity Fund 1.50% - - 1.00% 2.25% - 0.75% Invesco US Structured Equity Fund 1.00% 2.00% - 0.60% 1.50% - 0.50% Invesco US Value Equity Fund 1.40% - - 0.70% 2.25% 2.10% - Invesco US Equity Fund 1.50% - - 1.00% 2.25% 2.20% 0.75%
Europe
Invesco Pan European Structured
Equity Fund 1.30% 2.30% - 0.80% 2.25% 2.00% 0.65% Invesco Pan European Equity Fund 1.50% 2.50% - 1.00% 2.00% 2.20% 0.75% Invesco Pan European Small Cap
Equity Fund 1.50% 2.50% - 1.00% 2.25% - - Invesco European Growth
Equity Fund 1.50% - - 1.00% 2.25% - 0.75% Invesco Pan European Equity
Income Fund 1.50% - - 1.00% 2.00% - 0.75% Invesco Emerging Europe Equity Fund 1.50% 2.50% - 1.00% 2.25% - - Invesco Pan European Focus
Equity Fund 1.50% - - 1.00% 2.00% 2.20% -
Japan
Invesco Nippon Small/Mid Cap
Equity Fund 1.50% 2.50% - 1.00% 2.25% - 0.75% Invesco Japanese Equity
Advantage Fund 1.40% - - 0.75% 2.00% 2.10% 0.70% Invesco Japanese Value Equity Fund 1.40% - - 0.75% 2.00% 2.10% -
Asia
Invesco Asia Opportunities
Equity Fund 1.50% 2.50% - 1.00% 2.25% - - Invesco Greater China Equity Fund 1.50% 2.50% - 1.00% 2.25% 2.20% 0.75% Invesco Asia Infrastructure Fund 1.50% - - 1.00% 2.25% 2.20% 0.75%