e497
INVESCO
VAN KAMPEN CALIFORNIA VALUE MUNICIPAL INCOME TRUST
INVESCO CALIFORNIA MUNICIPAL INCOME TRUST
INVESCO CALIFORNIA QUALITY MUNICIPAL SECURITIES
INVESCO CALIFORNIA MUNICIPAL SECURITIES
1555 Peachtree Street, N.E.
Atlanta, GA 30309
(800) 341-2929
NOTICE OF JOINT ANNUAL MEETING OF SHAREHOLDERS
To Be Held on July 17, 2012
Notice is hereby given to holders of common shares of beneficial
interest (Common Shares) of Invesco California
Municipal Income Trust (IIC), Invesco California
Quality Municipal Securities (IQC), Invesco
California Municipal Securities (ICS, and together
with IIC and IQC, the Target Funds), and Invesco Van
Kampen California Value Municipal Income Trust (the
Acquiring Fund or VCV) that the Funds
will hold a joint annual meeting of shareholders (the
Meeting) on July 17, 2012, at 1555 Peachtree
Street, N.E., Atlanta, Georgia 30309. The Meeting will begin at
1:00 p.m. Eastern time for the Target Funds and at
2:00 p.m. Eastern time for the Acquiring Fund. The Target
Funds and the Acquiring Fund collectively are referred to as the
Funds and each is referred to individually as a
Fund. At the Meeting, holders of Common Shares
(Common Shareholders) will be asked to vote on the
following proposals:
1) For each Fund, approval of an Agreement and Plan of
Redomestication that provides for the reorganization of such
Fund as a Delaware statutory trust.
2) Approval of the merger of each Target Fund into the
Acquiring Fund, which shall require the following shareholder
actions:
(a) For each Target Fund, approval of an Agreement and Plan
of Merger that provides for such Target Fund to merge with and
into the Acquiring Fund.
(b) For the Acquiring Fund, approval of the following
sub-proposals:
(i) Approval of an Agreement and Plan of Merger that
provides for IIC to merge with and into the Acquiring Fund.
(ii) Approval of an Agreement and Plan of Merger that
provides for IQC to merge with and into the Acquiring Fund.
(iii) Approval of an Agreement and Plan of Merger that
provides for ICS to merge with and into the Acquiring Fund.
3) For each Target Fund, the election of six Trustees to
its Board of Trustees.
4) For the Acquiring Fund, the election of three Trustees
to its Board of Trustees.
Each Fund may also transact such other business as may properly
come before the Meeting or any adjournment or postponement
thereof.
Common Shareholders of record as of the close of business on
May 25, 2012, are entitled to notice of, and to vote at,
the Meeting or any adjournment or postponement thereof. Holders
of the Acquiring Funds, IICs and IQCs
preferred shares of beneficial interest, whose voting
instructions are being separately solicited, will also vote on
certain matters at the Meeting.
The Board of Trustees of each Fund requests that you vote your
shares by either (i) completing the enclosed proxy card and
returning it in the enclosed postage paid return envelope, or
(ii) voting by telephone or via the internet using the
instructions on the proxy card. Please vote your shares promptly
regardless of the number of shares you own.
Each Target Funds governing documents provide that
shareholders do not have dissenters appraisal rights, and
each Target Fund does not believe that its shareholders are
entitled to appraisal rights in connection with its merger.
Each Funds Board unanimously recommends that you cast
your vote FOR the above proposals and FOR
ALL the Trustee nominees as described in the Joint Proxy
Statement/Prospectus.
For the Target Funds:
Mr. Philip Taylor
President and Principal Executive Officer
June 8, 2012
For the Acquiring Fund,
by order of the Board of Trustees:
John M. Zerr
Senior Vice President, Secretary and
Chief Legal Officer
June 8, 2012
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
JOINT
ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD JULY 17, 2012:
The proxy
statement and annual report to shareholders are available at
www.invesco.com/us.
Invesco
Van Kampen California Value Municipal Income Trust
Invesco California Municipal Income Trust
Invesco California Quality Municipal Securities
Invesco California Municipal Securities
1555 Peachtree Street, N.E.
Atlanta, GA 30309
(800) 341-2929
JOINT
PROXY STATEMENT/PROSPECTUS
June 8, 2012
Introduction
This Joint Proxy Statement/Prospectus (the Proxy
Statement) contains information that holders of common
shares of beneficial interest (Common Shares) of
Invesco California Municipal Income Trust (IIC),
Invesco California Quality Municipal Securities
(IQC), Invesco California Municipal Securities
(ICS, and together with IIC and IQC, the
Target Funds), and Invesco Van Kampen California
Value Municipal Income Trust (the Acquiring Fund or
VCV) should know before voting on the proposals that
are described herein. The Target Funds and the Acquiring Fund
collectively are referred to as the Funds and each
is referred to individually as a Fund.
A joint annual meeting of the shareholders of the Funds (the
Meeting) will be held on July 17, 2012 at 1555
Peachtree Street, N.E., Atlanta, Georgia 30309. The Meeting will
begin at 1:00 p.m. Eastern time for the Target Funds and at
2:00 p.m. Eastern time for the Acquiring Fund. The
following describes the proposals to be voted on by holders of
Common Shares (Common Shareholders) at the Meeting:
1) For each Fund, approval of an Agreement and Plan of
Redomestication that provides for the reorganization of such
Fund as a Delaware statutory trust.
2) Approval of the merger of each Target Fund into the
Acquiring Fund, which shall require the following shareholder
actions:
(a) For each Target Fund, approval of an Agreement and Plan
of Merger that provides for such Target Fund to merge with and
into the Acquiring Fund.
(b) For the Acquiring Fund, approval of the following
sub-proposals:
(i) Approval of an Agreement and Plan of Merger that
provides for IIC to merge with and into the Acquiring Fund.
(ii) Approval of an Agreement and Plan of Merger that
provides for IQC to merge with and into the Acquiring Fund.
(iii) Approval of an Agreement and Plan of Merger that
provides for ICS to merge with and into the Acquiring Fund.
3) For each Target Fund, the election of six Trustees to
its Board of Trustees.
4) For the Acquiring Fund, the election of three Trustees
to its Board of Trustees.
Each Fund may also transact such other business as may properly
come before the Meeting or any adjournment or postponement
thereof.
The redomestications contemplated by Proposal 1 are
referred to herein each individually as a
Redomestication and together as the
Redomestications. The mergers contemplated by
Proposal 2 are referred to herein each individually as a
Merger and together as the Mergers.
The Boards of Trustees of the Funds (the Boards)
have fixed the close of business on May 25, 2012, as the
record date (Record Date) for the determination of
shareholders entitled to notice of and to vote at the Meeting
and at any adjournment or postponement thereof. Shareholders
will be entitled to one vote for each share held (and a
proportionate fractional vote for each fractional share).
Holders of the preferred shares of beneficial interest
(Preferred Shares) of the Acquiring Fund, IIC
and IQC, whose voting instructions are being separately
solicited, will also vote on certain matters at the Meeting.
This Proxy Statement, the enclosed Notice of Joint Annual
Meeting of Shareholders, and the enclosed proxy card will be
mailed on or about June 18, 2012, to all Common
Shareholders eligible to vote at the Meeting. Each Fund is a
closed-end management investment company registered under the
Investment Company Act of 1940, as amended (the 1940
Act). The Common Shares of each Fund are listed on the New
York Stock Exchange and the Common Shares of the Acquiring Fund
are also listed on the Chicago Stock Exchange (collectively with
the New York Stock Exchange, the Exchanges). This
document is both a proxy statement for Common Shares of each
Fund and also a prospectus for Common Shares of the Acquiring
Fund.
The Meeting is scheduled as a joint meeting of the shareholders
of the Funds and certain affiliated funds, whose votes on
proposals applicable to such funds are being solicited
separately, because the shareholders of the funds are expected
to consider and vote on similar matters.
A joint Proxy Statement is being used in order to reduce the
preparation, printing, handling and postage expenses that would
result from the use of separate proxy materials for each Fund.
You should retain this Proxy Statement for future reference, as
it sets forth concisely information about the Funds that you
should know before voting on the proposals and because it will
be the only prospectus you receive for your Acquiring
Fund Common Shares. Additional information about each Fund
is available in the annual and semi-annual reports to
shareholders of such Fund. Each Funds most recent annual
report to shareholders, which contains audited financial
statements for the Funds most recently completed fiscal
year, and each Funds most recent semi-annual report to
shareholders have been previously mailed to shareholders and are
available on the Funds website at www.invesco.com/us. The
statement of additional information to this Proxy Statement (the
SAI), dated the same date as this Proxy Statement,
includes additional information about the Funds that is
incorporated by reference and is deemed to be part of this Proxy
Statement. These documents are on file with the
U.S. Securities and Exchange Commission (the
SEC). Copies of all of these documents are also
available upon request without charge by writing to the Funds at
11 Greenway Plaza, Suite 1000, Houston, Texas 77046,
or by calling
(800) 341-2929.
You also may view or obtain these documents from the SECs
Public Reference Room, which is located at
100 F Street, N.E., Washington, D.C. 20549, or
from the SECs website at www.sec.gov. Information on the
operation of the SECs Public Reference Room may be
obtained by calling the SEC at
(202) 551-8090.
You can also request copies of these materials, upon payment at
the prescribed rates of the duplicating fee, by electronic
request to the SECs
e-mail
address (publicinfo@sec.gov) or by writing to the Public
Reference Branch, Office of Consumer Affairs and Information
Services, U.S. Securities and Exchange Commission,
Washington, D.C.
20549-1520.
You may also inspect reports, proxy material and other
information concerning each of the Funds at the Exchanges.
These securities have not been approved or disapproved by the
SEC nor has the SEC passed upon the accuracy or adequacy of this
Proxy Statement. Any representation to the contrary is a
criminal offense. An investment in the Funds is not a deposit
with a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation (FDIC) or any other
government agency. You may lose money by investing in the
Funds.
TABLE OF
CONTENTS
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Page
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PROPOSAL 1: APPROVAL OF REDOMESTICATION
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1
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On what am I being asked to vote?
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1
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Has my Funds Board of Trustees approved the
Redomestication?
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1
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What are the reasons for the proposed Redomestications?
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1
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What effect will a Redomestication have on me as a shareholder?
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1
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How do the laws governing each Fund pre- and
post-redomestication compare?
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2
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How do the governing documents of each Fund pre- and
post-redomestication compare?
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2
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Will there be any tax consequences resulting from a
Redomestication?
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3
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When are the Redomestications expected to occur?
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3
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What will happen if shareholders of a Fund do not approve
Proposal 1?
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3
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PROPOSAL 2: APPROVAL OF MERGERS
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3
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On what am I being asked to vote?
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3
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Has my Funds Board of Trustees approved the Merger(s)?
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4
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What are the reasons for the proposed Mergers?
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4
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What effect will a Merger have on me as a shareholder?
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4
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How do the Funds investment objectives and principal
investment strategies compare?
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5
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How do the Funds principal risks compare?
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5
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How do the Funds expenses compare?
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5
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How do the performance records of the Funds compare?
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7
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How do the management, investment adviser and other service
providers of the Funds compare?
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7
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Does the Acquiring Fund have the same portfolio managers as the
Target Funds?
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8
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How do the distribution policies of the Funds compare?
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8
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Will there be any tax consequences resulting from the Mergers?
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8
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When are the Mergers expected to occur?
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8
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What will happen if shareholders of a Fund do not approve a
Merger?
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9
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What if I do not wish to participate in the Merger?
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9
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Where can I find more information about the Funds and the
Mergers?
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9
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ADDITIONAL INFORMATION ABOUT THE FUNDS AND THE MERGERS
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9
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Principal Investment Strategies
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9
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Principal Risks of an Investment in the Funds
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13
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Portfolio Managers
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20
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Trading of Common Shares
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20
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Capital Structures of the Funds
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20
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Description of Securities to be Issued
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21
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Share Price Data
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22
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Portfolio Turnover
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24
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Portfolio Guidelines of Preferred Share Rating Agencies and
Certificates of Designation
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24
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Terms and Conditions of the Mergers
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24
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Additional Information About the Funds
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25
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Federal Income Tax Matters Associated with Investment in the
Funds
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25
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State Income Tax Matters Associated with Investment in the Funds
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27
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Board Considerations in Approving the Mergers
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28
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Federal Income Tax Considerations of the Mergers
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30
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Costs of the Mergers
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32
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Capitalization
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32
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Where to Find More Information
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32
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PROPOSAL 3: ELECTION OF TRUSTEES BY THE TARGET FUNDS
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32
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PROPOSAL 4: ELECTION OF TRUSTEES BY THE ACQUIRING FUND
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35
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VOTING INFORMATION
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37
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How to Vote Your Shares
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37
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Why are you sending me the Proxy Statement?
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37
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About the Proxy Statement and the Meeting
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38
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Quorum Requirement and Adjournment
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38
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Votes Necessary to Approve the Proposals
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39
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Proxy Solicitation
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39
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OTHER MATTERS
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39
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Share Ownership by Large Shareholders, Management and Trustees
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39
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Annual Meetings of the Funds
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40
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Shareholder Proposals
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40
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Shareholder Communications
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40
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Section 16(a) Beneficial Ownership Reporting Compliance
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40
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Other Meeting Matters
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40
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WHERE TO FIND ADDITIONAL INFORMATION
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40
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Page
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Exhibits
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EXHIBIT A Form of Agreement and Plan of Redomestication
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A-1
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EXHIBIT B Comparison of State Laws
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B-1
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EXHIBIT C Comparison of Governing Documents
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C-1
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EXHIBIT D Form of Agreement and Plan of Merger
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D-1
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EXHIBIT E Executive Officers of the Funds
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E-1
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EXHIBIT F Information Regarding the Trustees of the
Target Funds
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F-1
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EXHIBIT G Board Leadership Structure for the Target
Funds
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G-1
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EXHIBIT H Remuneration of Trustees for the Target Funds
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H-1
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EXHIBIT I Independent Auditor Information
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I-1
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EXHIBIT J Information Regarding the Trustees of the
Acquiring Fund
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J-1
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EXHIBIT K Acquiring Fund Board Leadership
Structure, Role in Risk Oversight and Committees and Meetings
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K-1
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EXHIBIT L Remuneration of Trustees for the Acquiring
Fund
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L-1
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EXHIBIT M Outstanding Shares of the Funds
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M-1
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EXHIBIT N Ownership of the Funds
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N-1
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No dealer, salesperson or any other person has been
authorized to give any information or to make any
representations other than those contained in this Proxy
Statement or related solicitation materials on file with the
Securities and Exchange Commission, and you should not rely on
such other information or representations.
ii
PROPOSAL 1:
APPROVAL OF REDOMESTICATION
On what
am I being asked to vote?
Each Funds shareholders are being asked to approve an
Agreement and Plan of Redomestication (a Plan of
Redomestication) providing for the reorganization of the
Fund as a Delaware statutory trust. Each Fund is currently a
Massachusetts business trust. Each Funds Plan of
Redomestication provides for the Fund to transfer all of its
assets and liabilities to a newly formed Delaware statutory
trust whose capital structure will be substantially the same as
the Funds current structure, after which Fund shareholders
will own shares of the Delaware statutory trust and the
Massachusetts business trust will be liquidated and terminated.
The Redomestication is only a change to your Funds legal
form of organization and there will be no change to the
Funds investments, management, fee levels, or federal
income tax status as a result of the Redomestication.
Each Funds Redomestication may proceed even if other
Redomestications are not approved by shareholders or are for any
other reason not completed. A form of the Plan of
Redomestication is available in Exhibit A.
By voting for this Proposal 1, you will be voting to become
a shareholder of a fund organized as a Delaware statutory trust
with portfolio characteristics, investment objective(s),
strategies, risks, trustees, advisory agreements, subadvisory
arrangements and other arrangements that are substantially the
same as those currently in place for your Fund.
Has my
Funds Board of Trustees approved the
Redomestication?
Yes. Each Funds Board has reviewed and unanimously
approved the Plan of Redomestication and this Proposal 1.
The Board of each Fund recommends that shareholders vote
FOR Proposal 1.
What are
the reasons for the proposed Redomestications?
The Redomestications will serve to standardize the governing
documents and certain agreements of the Funds with each other
and with other funds managed by Invesco Advisers, Inc. (the
Adviser). This standardization is expected to
streamline the administration of the Funds, which may result in
cost savings and more effective administration by eliminating
differences in governing documents or controlling law. In
addition, the legal requirements governing business trusts under
Massachusetts law are less certain and less developed than those
under Delaware law, which sometimes necessitates the Funds
bearing the cost to engage counsel to advise on the
interpretation of such law.
The Redomestications are also a necessary step for the
completion of the Mergers described in Proposal 2 because,
as Delaware statutory trusts, the Funds may merge with no delay
in transactions that are expected to qualify as tax-free
reorganizations. However, the Redomestications may proceed even
if the Mergers described in Proposal 2 are not approved.
What
effect will a Redomestication have on me as a
shareholder?
A Redomestication will have no direct economic effect on Fund
shareholders investments other than the cost savings
described herein. Each redomesticated Fund will have investment
advisory agreements, subadvisory arrangements, administration
agreements, custodian agreements, transfer agency agreements,
and other service provider arrangements that are identical in
all material respects to those in place immediately before the
Redomestication, with certain non-substantive revisions to
standardize such agreements across the Funds. For example, after
the Redomestications, the investment advisory agreements of the
Funds will contain standardized language describing how
investment advisory fees are calculated, but there will be no
change to the actual calculation methodology. Each Fund will
continue to be served by the same individuals as trustees and
officers, and each Fund will continue to retain the same
independent registered public accounting firm. The portfolio
characteristics, investment objective(s), strategies and risks
of each Fund will not change as a result of the
Redomestications. Each Funds new governing documents will
be similar to its current governing documents, but will contain
certain material differences. These changes are intended to
benefit shareholders by streamlining and promoting the efficient
administration and operation of the Funds. However, as a result
of these changes, shareholders will have fewer rights to vote on
certain matters affecting the Fund and, therefore, less control
over the operations of the Fund. These changes to shareholder
voting rights, and the benefits that management believes will
result from these changes, are described below.
In addition, each Funds capital structure will be
substantially the same as its current capital structure. The
Common Shares of each Fund will continue to have equal rights to
the payment of dividends and the distribution of assets upon
liquidation, and, for the Acquiring Fund, IIC and IQC, may
not declare distributions on Common Shares unless all accrued
dividends on such Funds Preferred Shares have been paid,
and unless asset coverage with respect to such Funds
Preferred Shares would be at least 200% after giving effect to
the distributions. In addition, under the terms of such
Funds Preferred Shares, the Fund will continue to be
required to maintain minimum asset coverage of 225%.
Shareholder approval of a Redomestication will be deemed to
constitute approval of the advisory and subadvisory agreements,
as well as a vote for the election of the trustees, of the
Delaware statutory trust. Accordingly, each Plan of
Redomestication provides that the sole initial shareholder of
each Delaware statutory trust will vote to approve the advisory
and subadvisory agreements (which, as noted above, will be
identical in all material respects to the Funds current
agreements) and to elect the trustees of the Delaware statutory
trust
1
(which, as noted above, will be the same as the Funds
current Trustees) after shareholder approval of the
Redomestication but prior to the closing of the Redomestication.
How do
the laws governing each Fund pre- and post-Redomestication
compare?
After the Redomestications, each Fund will be a Delaware
statutory trust governed by the Delaware Statutory
Trust Act (DE Statute). The DE Statute is
similar in many respects to the laws governing the Funds
current structure, a Massachusetts business trust, but they
differ in certain respects. Both the Massachusetts business
trust law (MA Statute) and the DE Statute permit a
trusts governing instrument to contain provisions relating
to shareholder rights and removal of trustees, and provide
trusts with the ability to amend or restate the trusts
governing instruments. However, the MA Statute is silent on many
of the salient features of a Massachusetts business trust
whereas the DE Statute provides guidance and offers a
significant amount of operational flexibility to Delaware
statutory trusts. The DE Statute provides explicitly that the
shareholders and trustees of a Delaware statutory trust are not
liable for obligations of the trust to the same extent as under
corporate law. While the governing documents of each Fund
contain an express disclaimer of liability of shareholders,
certain Massachusetts judicial decisions have determined that
shareholders of a Massachusetts business trust may, in certain
circumstances, be assessed or held personally liable as partners
for the obligations of a Massachusetts business trust.
Therefore, the Funds believe that shareholders will benefit from
the express statutory protections of the DE Statute. The DE
Statute authorizes the trustees to take various actions without
requiring shareholder approval if permitted by a Funds
governing instruments. For example, trustees of a Delaware
statutory trust may have the power to amend the trusts
governing instrument, merge or consolidate a Fund with another
entity, and to change the Delaware statutory trusts
domicile, in each case without a shareholder vote. The Funds
believe that the guidance and flexibility afforded by the DE
Statute and the explicit limitation on liability contained in
the DE Statute will benefit the Funds and shareholders. A more
detailed comparison of certain provisions of the DE Statute and
the MA Statute is included in Exhibit B.
How do
the governing documents of each Fund pre- and
post-Redomestication compare?
The governing documents of each Fund before and after its
Redomestication will be similar, but will contain certain
material differences. In general, these changes to each
Funds new governing documents are intended to benefit
shareholders by streamlining the administration and operation of
each Fund to save shareholders money and by making it more
difficult for short-term speculative investors to engage in
practices that benefit such short-term investors at the expense
of the Fund and to the detriment of its long-term investors. For
example, the new governing documents permit termination of the
Fund without shareholder approval, provided that at least 75% of
the Trustees have approved such termination, thereby avoiding
the expense of a shareholder meeting in connection with a
termination of the Fund, which expense would reduce the amount
of assets available for distribution to shareholders. The
current governing documents require shareholder approval to
terminate the Fund regardless of whether the Trustees have
approved such termination. Also, each Funds new bylaws may
be altered, amended, or repealed by the Trustees, without the
vote or approval of shareholders. Each Funds current
bylaws may be altered, amended, or repealed by the Trustees,
provided that bylaws adopted by the shareholders may only be
altered, amended, or repealed by the shareholders. None of the
Funds currently have any bylaws that were adopted by
shareholders. As a result of these changes, shareholders will
generally have fewer rights to vote on certain matters affecting
the Fund and, therefore, less control over the operations of the
Fund.
The new governing documents include new procedures intended to
provide the Board the opportunity to better evaluate proposals
submitted by shareholders and provide additional information to
shareholders for their consideration in connection with such
proposals. For example, the new governing documents require
shareholders to provide additional information with respect to
shareholder proposals, including nominations, brought before a
meeting of shareholders. These additional procedures include,
among others, deadlines for providing advance notice of
shareholder proposals, certain required information that must be
included with such advance notice and a requirement that the
proposing shareholder appear before the annual or special
meeting of shareholders to present about the nomination or
proposed business. Trustees of the Funds will be elected by a
majority vote (i.e., nominees must receive the vote of a
majority of the outstanding shares present and entitled to vote
at a shareholder meeting at which a quorum is present). Under
the current governing documents, Trustees of the Acquiring Fund
are generally elected by a plurality vote (i.e., the nominees
receiving the greatest number of votes are elected), while
Trustees of the Target Funds are elected by a majority vote. The
new governing documents will not provide shareholders the
ability to remove Trustees or to call special meetings of
shareholders, which powers are provided under the current
governing documents.
The new governing documents contain provisions the Trustees
believe will benefit shareholders by deterring frivolous
lawsuits and actions by short-term, speculative investors that
are contrary to the long-term best interests of the Fund and
long-term shareholders and limiting the extent to which Fund
assets will be expended defending against such lawsuits. These
provisions include a different shareholder voting standard with
respect to the Acquiring Funds merger, consolidation, or
conversion to an open-end company that, in certain
circumstances, may be a lower voting standard than under the
current governing documents. The new governing documents also
impose certain obligations on shareholders seeking to initiate a
derivative action on behalf of the Acquiring Fund that are not
imposed under the current governing documents, which may make it
more difficult for shareholders to initiate derivative actions
and are intended to save the Fund money by requiring
reimbursement of the Fund for frivolous lawsuits brought by
shareholders. To further protect the Fund and its shareholders
from frivolous lawsuits, the new governing documents also
provide that shareholders will indemnify the Acquiring Fund for
all costs, expenses, penalties, fines or other amounts arising
from any action against the Acquiring Fund to the extent
2
that the shareholder is not the prevailing party and that the
Acquiring Fund is permitted to redeem shares of
and/or set
off against any distributions due to the shareholder for such
amounts.
A comparison of the current and proposed governing documents of
the Funds is available in Exhibit C.
Will
there be any tax consequences resulting from a
Redomestication?
The following is a general summary of the material
U.S. federal income tax considerations of the
Redomestications and is based upon the current provisions of the
Internal Revenue Code of 1986, as amended (the
Code), the existing U.S. Treasury Regulations
thereunder, current administrative rulings of the Internal
Revenue Service (IRS) and published judicial
decisions, all of which are subject to change. These
considerations are general in nature and individual shareholders
should consult their own tax advisors as to the federal, state,
local, and foreign tax considerations applicable to them and
their individual circumstances. These same considerations
generally do not apply to shareholders who hold their shares in
a tax-deferred account.
Each Redomestication is intended to be a tax-free reorganization
pursuant to Section 368(a) of the Code. Each Fund is
currently a Massachusetts business trust. Each Redomestication
will be completed pursuant to a Plan of Redomestication that
provides for the applicable Fund to transfer all of its assets
and liabilities to a newly formed Delaware statutory trust
(DE-Fund), after which Fund shareholders will own
shares of the Delaware statutory trust and the Massachusetts
business trust will be liquidated. Even though the
Redomestication of a Fund is part of an overall plan to effect
the Merger of each Target Fund with the Acquiring Fund, the
Redomestications will be treated as separate transactions for
U.S. federal income tax purposes. The principal federal
income tax considerations that are expected to result from the
Redomestication of an applicable Fund are as follows:
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no gain or loss will be recognized by the Fund or the
shareholders of the Fund as a result of the Redomestication;
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no gain or loss will be recognized by the DE-Fund as a result of
the Redomestication;
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the aggregate tax basis of the shares of the DE-Fund to be
received by a shareholder of the Fund will be the same as the
shareholders aggregate tax basis of the shares of the
Fund; and
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the holding period of the shares of the DE-Fund received by a
shareholder of the Fund will include the period that a
shareholder held the shares of the Fund (provided that such
shares of the Fund are capital assets in the hands of such
shareholder as of the Closing (as defined herein)).
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Neither the Funds nor the DE-Funds have requested or will
request an advance ruling from the IRS as to the federal tax
consequences of the Redomestications. As a condition to Closing,
Stradley Ronon Stevens & Young, LLP will render a
favorable opinion to each Fund and DE-Fund as to the foregoing
federal income tax consequences of each Redomestication, which
opinion will be conditioned upon, among other things, the
accuracy, as of the Closing Date (as defined herein), of certain
representations of each Fund and DE-Fund upon which Stradley
Ronon Stevens & Young, LLP will rely in rendering its
opinion. A copy of the opinion will be filed with the SEC and
will be available for public inspection. See Where to Find
Additional Information. Opinions of counsel are not
binding upon the IRS or the courts. If a Redomestication is
consummated but the IRS or the courts determine that the
Redomestication does not qualify as a tax-free reorganization
under the Code, and thus is taxable, each Fund would recognize
gain or loss on the transfer of its assets to its corresponding
DE-Fund and each shareholder of the Fund would recognize a
taxable gain or loss equal to the difference between its tax
basis in its Fund shares and the fair market value of the shares
of the DE-Fund it receives. The failure of one Redomestication
to qualify as a tax-free reorganization would not adversely
affect any other Redomestication.
When are
the Redomestications expected to occur?
If shareholders of a Fund approve Proposal 1, it is
anticipated that such Funds Redomestication will occur in
the third quarter of 2012.
What will
happen if shareholders of a Fund do not approve
Proposal 1?
If Proposal 1 is not approved by a Funds shareholders
or if a Redomestication is for other reasons not able to be
completed, that Fund would not be redomesticated. In addition,
that Fund would not participate in a Merger, even if that
Funds shareholders approve the Merger under
Proposal 2. If Acquiring Fund Shareholders do not
approve Proposal 1 or if the Acquiring Funds
Redomestication is for any other reason not completed, no
Mergers would be completed. If Proposal 1 is not approved
by shareholders, the applicable Funds Board will consider
other possible courses of action for that Fund.
THE
BOARDS UNANIMOUSLY RECOMMEND THAT YOU VOTE
FOR THE APPROVAL OF
PROPOSAL 1.
PROPOSAL 2:
APPROVAL OF MERGERS
On what
am I being asked to vote?
Shareholders of each Target Fund are being asked to consider and
approve a Merger of their Target Fund with and into the
Acquiring Fund, as summarized below. Shareholders of the
Acquiring Fund are also being asked to consider and approve each
such Merger, which involves the issuance of new Common Shares
and Preferred Shares by the Acquiring Fund. If a Merger is
approved, Common Shares of
3
the Target Fund will be exchanged for newly issued Acquiring
Fund Common Shares of equal aggregate net asset value; and
Preferred Shares of IIC and IQC will be exchanged for newly
issued Acquiring Fund Preferred Shares with substantially
identical terms, including equal aggregate liquidation
preferences.
Each Merger will be completed pursuant to an Agreement and Plan
of Merger (Merger Agreement) that provides for the
applicable Target Fund to merge with and into the Acquiring Fund
pursuant to the Delaware Statutory Trust Act. A form of the
Merger Agreement is attached hereto as Exhibit D. Each
Merger Agreement is substantially the same. The merger of one
Target Fund and the Acquiring Fund may proceed even if the
merger of one or both of the other Target Funds is not approved
by shareholders or is for any other reason not completed. A
Merger can proceed only if both the Target Fund and the
Acquiring Fund have also approved their respective
Redomestications.
SUMMARY
OF KEY INFORMATION REGARDING THE MERGERS
The following is a summary of certain information contained
elsewhere in this Proxy Statement and in the Merger Agreement.
Shareholders should read the entire Proxy Statement carefully
for more complete information.
Has my
Funds Board of Trustees approved the Merger(s)?
Yes. Each Funds Board has reviewed and unanimously
approved the Merger Agreement and this Proposal 2. Each
Funds Board determined that the Mergers are in the best
interest of each Fund and will not dilute the interests of the
existing shareholders of any Fund. Each Funds Board
recommends that shareholders vote FOR
Proposal 2.
What are
the reasons for the proposed Mergers?
The Mergers proposed in this Proxy Statement are part of a
larger group of transactions across the Advisers fund
platform that began in early 2011. The Mergers are being
proposed to reduce the number of closed-end funds with similar
investment processes and investment philosophies managed by the
Adviser. The Mergers seek to combine Funds with investment
objectives, strategies and related risks that are substantially
the same and that are managed by the same portfolio management
team.
In considering the Mergers and the Merger Agreements, the Board
of each Fund considered that the shareholders of each Fund may
benefit from the Mergers by becoming shareholders of a larger
fund that may have a more diversified investment portfolio,
greater market liquidity, more analyst coverage, smaller spreads
and trading discounts, improved purchasing power and lower
transaction costs.
The Board of the Acquiring Fund also considered that, in
addition to the benefits mentioned above, the combined fund is
anticipated to have a lower total expense ratio than is
currently the case for the Acquiring Fund.
The Board of each Target Fund also considered that, in addition
to the benefits mentioned above:
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the combined fund on a pro forma basis had a more than 0.50%
higher distribution yield (as a percentage of net asset value)
than each Target Fund, even after giving effect to the higher
management fees and total expense ratio that will apply to the
combined fund before and after the expiration of fee waivers;
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as of July 31, 2011, the Acquiring Fund had traded at an
average premium of 3.0% to its net asset value over the
preceding 52 week period and, over the same period, the
Target Funds had traded at average discounts of -6.6% (IIC),
-7.15% (IQC) and -8.48% (ICS);
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as of July 31, 2011, the Acquiring Fund traded at an
average discount of -2.2% to its net asset value for the
preceding month and, over the same period, the Target Funds had
traded at average discounts of -10.20% (IIC), -8.9% (IQC) and
-10.10% (ICS);
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the average daily trading volume for the Acquiring Fund was
approximately twice the highest average daily trading volumes of
the Target Funds; and
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as of July 31, 2011, the Acquiring Fund owned 192 different
municipal bonds and the Target Funds owned 122 (IIC), 109 (IQC)
and 97 (ICS), which means that the combined fund would provide
shareholders with a more diverse investment portfolio.
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In addition, each Board considered the Advisers agreement
to limit the Acquiring Funds total expenses if a Merger is
completed through at least two years from the closing date of
the Mergers and the allocation of expenses of the Mergers,
including the Adviser paying all of the Merger costs.
The Board of each Fund considered these and other factors in
concluding that the Mergers would be in the best interest of the
Funds and would not dilute the interests of the existing
shareholders of any Fund. The Boards considerations are
described in more detail below in the section entitled
Additional Information About the Funds and the
Mergers Board Considerations in Approving the
Mergers.
What
effect will a Merger have on me as a shareholder?
If you own Target Fund Common Shares, you will, after the
Merger, own Common Shares of the Acquiring Fund with an
aggregate net asset value equal to the net asset value of the
Target Fund Common Shares you held immediately before the
Merger. It is likely, however, that the market value of such
Common Shares will differ because market value reflects trading
activity on the Exchanges and tends to vary from net asset value.
4
If you are a Common Shareholder of the Acquiring Fund, your
Common Shares of the Acquiring Fund will not be changed by a
Merger, but will represent a smaller percentage interest in a
larger fund.
The principal differences between the Target Funds and the
Acquiring Fund are described in the following sections.
How do
the Funds investment objectives and principal investment
strategies compare?
The investment objective of the Acquiring Fund is substantially
the same as the investment objectives of the Target Funds. For
each Fund, the investment objective may be changed only with
shareholder approval.
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Acquiring Fund (VCV)
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Target Funds
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To seek to provide a high level of current income exempt from
federal and California income taxes, consistent with
preservation of capital.
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To provide current income which is exempt from federal and
California income taxes.
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The principal investment strategies of the Acquiring Fund are
substantially the same as the principal investment strategies of
the Target Funds. However, the principal investment strategies
of the Acquiring Fund and the Target Funds are not identical,
and certain of their investment policies and limitations are
different. The material differences in the Funds principal
investment strategies are that the Acquiring Fund, IIC, and
ICS but not IQC may invest in swaps; and that each Target Fund
but not the Acquiring Fund may use futures and, for IIC and ICS,
swaps to earn income. In addition, each of the Acquiring
Fund, IIC, and IQC employs leverage by investing the
proceeds of its issuance of Preferred Shares. ICS does not
employ this type of leverage and has no outstanding Preferred
Shares.
The section below entitled Additional Information About
the Funds and the Mergers Principal Investment
Strategies provides more information on the principal
investment strategies of the Target Funds and the Acquiring Fund
and highlights certain key differences.
How do
the Funds principal risks compare?
The principal risks that may affect each Funds investment
portfolio are substantially the same. The material differences
in the principal risks of the Funds are that Preferred
Shares Risk does not apply to ICS and Swaps Risk does not
apply to IQC.
Investment in any of the Funds involves risks, including the
risk that shareholders may receive little or no return on their
investment, and the risk that shareholders may lose part or all
of the money they invest. There can be no guarantee against
losses resulting from an investment in a Fund, nor can there be
any assurance that a Fund will achieve its investment
objective(s). Whether a Fund achieves its investment
objective(s) depends on market conditions generally and on the
Advisers analytical and portfolio management skills. As
with any managed fund, the Adviser may not be successful in
selecting the best-performing securities or investment
techniques, and a Funds performance may lag behind that of
similar funds. The risks associated with an investment in a Fund
can increase during times of significant market volatility. An
investment in a Fund is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Before investing in
a Fund, potential shareholders should carefully evaluate the
risks.
The Acquiring Fund employs leverage by issuing, and investing
the proceeds of its issuance of, Preferred Shares. The use of
leverage imposes additional risks on the Acquiring Fund that do
not apply to ICS because it has no outstanding Preferred
Shares. Use of leverage creates an opportunity for increased
income and return for holders of Common Shares, but also may
magnify loss on an investment, creating special risks (including
the likelihood of greater volatility of net asset value and
market price of, and distributions on, the Common Shares). There
can be no assurance that a leveraging strategy will be
successful. The investment advisory fees paid by the Acquiring
Fund are calculated on the basis of the Acquiring Funds
managed assets, which means the Acquiring Funds net
assets, plus assets attributable to outstanding Preferred Shares
and the amount of any borrowings incurred for the purpose of
leverage, so the fee will be higher when leverage is utilized.
This may create a conflict of interest between the Adviser and
holders of Common Shares, because holders of Preferred Shares do
not bear the investment advisory fee; rather, holders of Common
Shares bear the investment advisory fee attributable to the
assets purchased with the proceeds. This means that holders of
Common Shares effectively bear the entire investment advisory
fee.
Additional information on the principal risks of each Fund is
included below under Additional Information About the
Funds and the Mergers Principal Risks of an Investment in
the Funds and in the SAI.
How do
the Funds expenses compare?
The table below provides a summary comparison of the expenses of
the Funds. The table also shows estimated expenses on a pro
forma basis giving effect to the proposed Merger with ICS
and giving effect to all of the Mergers. The pro forma
expense ratios show projected estimated expenses, but actual
expenses may be greater or less than those shown. Note that pro
forma total expenses of the Acquiring Fund are expected to be
higher than the current total expenses of each
Target Fund. The Board of each Target Fund concluded that the
higher management and total expenses that will apply to the
combined fund were justified in light of the anticipated
benefits of the Mergers noted above, including that the combined
fund would have a more than 0.50% higher distribution yield (as
a percentage of net asset value) on a pro forma basis than each
Target Fund.
5
It is anticipated that the lowest expense ratio will be achieved
for the Acquiring Fund if all of the Mergers are completed and
that the highest expense ratio will result if ICS is the only
Target Fund that participates in a Merger with the Acquiring
Fund. The range of impact to Acquiring Fund expenses after the
Mergers is reflected in the following table.
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Current(a)
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Pro
Forma(b)
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Pro
Forma(b)
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Invesco
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Invesco Van
Kampen
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ICS
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IIC, IQC, ICS
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Invesco
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California
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Invesco
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California
Value
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+
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+
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California
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Quality
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California
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Municipal
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Acquiring Fund
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Acquiring Fund
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Municipal
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Municipal
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Municipal
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Income Trust
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(assumes only
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(assumes all of
the
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Income Trust
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Securities
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Securities
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(Acquiring
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Merger with
ICS
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Mergers are
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(IIC)
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(IQC)
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(ICS)
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Fund)
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is
completed)
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completed)
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Shareholder Fees (Fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering
price)(c)
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None
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None
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None
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None
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None
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None
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Dividend Reinvestment
Plan(d)
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None
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None
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None
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None
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None
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None
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Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of
your investment)
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Management Fees
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0.38
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%
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0.40
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%
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0.27
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%
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0.97
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%
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0.97
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%
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0.97
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%
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Interest and Related
Expenses(e)
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0.56
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%
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0.59
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%
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0.08
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%
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0.88
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%
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0.83
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%
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0.82
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%
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Other Expenses
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0.14
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%
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0.17
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%
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0.37
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%
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0.14
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%
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0.15
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%
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0.13
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%
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Total Annual Fund Operating Expenses
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1.08
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%
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1.16
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%
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0.72
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%
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1.99
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%
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1.95
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%
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1.92
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%
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Fee Waiver and/or Expense Reimbursement
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0.00
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%
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0.00
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%
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0.00
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%
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0.00
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%
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0.48
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%(f)
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0.58
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%(g)
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Total Annual Fund Operating Expenses after Fee Waiver
and/or Expense Reimbursement
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1.08
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%
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1.16
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%
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0.72
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%
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1.99
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%
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1.47
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%
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1.34
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%
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(a) |
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Expense
ratios reflect estimated amounts for the current fiscal year.
Preferred Shares do not bear any transaction or operating
expenses of the Funds.
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(b) |
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Pro
forma
numbers
are estimated as if the Merger had been completed as of
March 1, 2011 and do not include estimated Merger costs.
The Funds are not bearing any Merger costs.
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(c) |
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Common
Shares of each Fund purchased on the secondary market are not
subject to sales charges, but may be subject to brokerage
commissions or other charges.
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(d) |
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Each
participant in a Funds dividend reinvestment plan pays a
proportionate share of the brokerage commissions incurred with
respect to open market purchases in connection with such plan.
For each Funds last fiscal year, participants in the plan
incurred brokerage commissions representing $0.03 per Common
Share.
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(e) |
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Interest
and Related Expenses includes interest and other costs of
providing leverage to the Funds, such as the costs to maintain
lines of credit, issue and administer preferred shares, and
establish and administer floating rate note obligations.
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(f) |
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If
the Merger with ICS is the only Merger to close, the Adviser has
contractually agreed, for two years following the closing of the
Merger, to waive advisory fees and/or reimburse expenses to the
extent necessary to limit the Acquiring Funds Total Annual
Fund Operating Expenses After Fee Waiver and/or Expense
Reimbursement (which excludes certain items discussed below) to
0.64% of average daily net assets. In determining the
Advisers obligation to waive advisory fees and/or
reimburse expenses, the following expenses are not taken into
account, and could cause Total Annual Fund Operating
Expenses After Fee Waiver and/or Expense Reimbursement to exceed
the limit reflected above: (i) interest; (ii) taxes;
(iii) dividend expense on short sales;
(iv) extraordinary or non-routine items, such as
litigation, reorganizations and mergers; and (v) expenses
that the Fund has incurred but did not actually pay because of
an expense offset arrangement. Unless the Board and the Adviser
mutually agree to amend or continue the fee waiver agreement, it
will terminate two years from the closing date of the Merger.
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(g) |
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If
the Merger with IIC (alone or in combination with any other
Mergers) is completed, the Adviser has contractually agreed, for
at least two years from the closing date of the Mergers, to
waive advisory fees and/or reimburse expenses to the extent
necessary to limit the Acquiring Funds Total Annual
Fund Operating Expenses After Fee Waiver and/or Expense
Reimbursement (which excludes certain items discussed below) to
0.52% of average daily net assets. In determining the
Advisers obligation to waive advisory fees and/or
reimburse expenses, the following expenses are not taken into
account, and could cause Total Annual Fund Operating
Expenses After Fee Waiver and/or Expense Reimbursement to exceed
the limit reflected above: (i) interest; (ii) taxes;
(iii) dividend expense on short sales;
(iv) extraordinary or non-routine items, including
litigation expenses; and (v) expenses that the Fund has
incurred but did not actually pay because of an expense offset
arrangement. Unless the Board and the Adviser mutually agree to
amend or continue the fee waiver agreement, it will terminate
two years from the closing date of the Mergers.
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Expense
Example
This example compares the cost of investing in Acquiring
Fund Common Shares with the cost of investing in Target
Fund Common Shares based on the expense table set out
above. The example also provides information on a pro forma
basis giving effect to the proposed Merger with ICS and
giving effect to all of the Mergers. It also assumes an
investment at net asset value (NAV) of $1,000 for
the periods shown; a 5% investment return each year; the
Funds operating expenses remain the same each year; that
any contractual fee limits or waivers are terminated after their
current terms expire; and that all dividends and distributions
are reinvested at NAV. Based on these assumptions the costs
would be:
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1 Year
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3 Years
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5 Years
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10 Years
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IIC
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$
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11
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$34
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$
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60
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$
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132
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IQC
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$
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12
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$37
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$
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64
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$
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141
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ICS
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$
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7
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$23
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$
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40
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$
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89
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Acquiring Fund (VCV)
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$
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20
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$62
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$
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107
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$
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232
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Pro Forma (ICS + Acquiring Fund, assuming only Merger with ICS
is completed)
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$
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15
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$52
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$
|
96
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$
|
219
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Pro Forma (IIC, IQC, ICS + Acquiring Fund, assuming all of the
Mergers are completed)
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$
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14
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$49
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$
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93
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$
|
215
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The Example is not a representation of past or future expenses.
Each Funds actual expenses, and an investors direct
and indirect expenses, may be more or less than those shown. The
table and the assumption in the Example of a 5% annual return
are required by regulations of the SEC applicable to all
registered funds. The 5% annual return is not a prediction of
and does not represent the Funds projected or actual
performance.
6
For further discussion regarding the Boards consideration
of the fees and expenses of the Funds in approving the Mergers,
see the section entitled Additional Information About the
Funds and the Mergers Board Considerations in
Approving the Mergers in this Proxy Statement.
How do
the performance records of the Funds compare?
Annualized total return figures based on NAV and based on market
price for each Funds Common Shares as of February 29,
2012 are shown below. The returns shown below reflect
reinvestment of all distributions, do not reflect the effect of
any applicable taxes, and are not indicative of a Funds
future performance.
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1 Year
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3 Years
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5 Years
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10 Years
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IIC (at NAV)
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|
|
23.37
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%
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|
11.76%
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|
|
6.81
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%
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|
|
6.71
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%
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IIC (market price)
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|
|
31.78
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%
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|
18.79%
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|
|
7.62
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%
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|
|
6.62
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%
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IQC (at NAV)
|
|
|
25.36
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%
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|
14.07%
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|
|
4.97
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%
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|
|
6.29
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%
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IQC (market price)
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|
34.04
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%
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|
19.36%
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|
|
5.61
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%
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|
6.88
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%
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ICS (at NAV)
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|
19.40
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%
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|
9.38%
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|
|
6.05
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%
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|
5.95
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%
|
ICS (market price)
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|
|
26.61
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%
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|
12.97%
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|
|
6.29
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%
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|
|
6.02
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%
|
Acquiring Fund (VCV) (at NAV)
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|
30.15
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%
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|
18.04%
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|
|
2.59
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%
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|
|
4.91
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%
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Acquiring Fund (VCV) (market price)
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|
|
34.87
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%
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|
19.38%
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|
4.38
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%
|
|
|
5.87
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%
|
Barclays Capital California Municipal Index
|
|
|
14.25
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%
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|
8.56%
|
|
|
5.38
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%
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|
|
5.34
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%
|
Based on each Funds February 2012 distribution and the
closing market price of each Funds shares on
February 29, 2012, IIC had an annualized monthly
distribution yield of 5.16% per share, IQC had an annualized
monthly distribution yield of 5.79% per share, ICS had an
annualized monthly distribution yield of 4.37% per share, and
the Acquiring Fund had an annualized monthly distribution yield
of 6.51% per share.
Additional performance and yield information is included in each
Funds most recent report to shareholders.
How do
the management, investment adviser and other service providers
of the Funds compare?
Each Fund is overseen by a Board that includes many of the same
individuals (described in Proposals 3 and 4) and each
Funds affairs are managed by the same officers with minor
exceptions, as described in Exhibit E. The Adviser, a
registered investment adviser, serves as investment adviser for
each Fund pursuant to an investment advisory agreement that
contains substantially identical terms (except for fees) for
each Fund. The Adviser oversees the management of each
Funds portfolio, manages each Funds business affairs
and provides certain clerical, bookkeeping and other
administrative services. The Adviser has acted as an investment
adviser since its organization in 1976. As of March 31,
2012, the Adviser had $309.2 billion in assets under
management. The Adviser is located at 1555 Peachtree Street,
N.E., Atlanta, Georgia 30309.
The Adviser is an indirect, wholly-owned subsidiary of Invesco
Ltd. (Invesco). Invesco is a leading independent
global investment management company, dedicated to helping
people worldwide build their financial security. Invesco
provides a comprehensive array of enduring solutions for retail,
institutional and
high-net-worth
clients around the world. Invesco had $672.8 billion in
assets under management as of March 31, 2012. Invesco is
organized under the laws of Bermuda, and its common shares are
listed and traded on the New York Stock Exchange under the
symbol IVZ. Invesco is located at 1555 Peachtree
Street, N.E., Atlanta, Georgia 30309.
All of the ordinary business expenses incurred in the operations
of a Fund are borne by the Fund unless specifically provided
otherwise in the advisory agreement. Expenses borne by the Funds
include but are not limited to brokerage commissions, taxes,
legal, accounting, auditing, or governmental fees, the cost of
preparing share certificates, custodian, transfer and
shareholder service agent costs, 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, and the fees and other
expenses incurred by the Funds in connection with membership in
investment company organizations.
A discussion of the basis for each Boards 2011 approval of
each Funds investment advisory agreements is included in
the Funds semiannual report for the six months ended
August 31, 2011. A discussion of the basis for each
Boards most recent approval of each Funds investment
advisory agreements will be included in the Funds
semiannual report for the six months ending August 31,
2012, if any.
The contractual advisory fee rate of the Acquiring Fund is
higher than the contractual advisory fee rate of each of the
Target Funds. The following table compares the advisory fee
rates of the Funds.
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IIC
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IQC
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ICS
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Acquiring Fund
(VCV)
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|
Contractual Fee Rate
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0.27% of managed assets
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|
0.27% of managed assets
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|
0.27% of net assets
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|
0.55% of managed assets
|
Net Effective Fee Rate*
|
|
0.38%
|
|
0.40%
|
|
0.27%
|
|
0.97%
|
|
|
|
*
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|
Varies
based on the amount of financial leverage used by the Fund.
|
Contractual fee rates and net effective fee rates differ because
of differences in how the contractual rate is applied. ICS,
which has no outstanding preferred shares, calculates its
advisory fee as a percentage of the Funds net
assets, which generally means the Funds assets minus
its liabilities. Each of IIC, IQC and the Acquiring Fund
calculates its advisory fee as a percentage of its managed
assets,
7
which for this purpose means the Funds net assets, plus
assets attributable to outstanding preferred shares and the
amount of any borrowings incurred for the purpose of leverage
(whether or not such borrowed amounts are reflected in the
Funds financial statements for purposes of generally
accepted accounting principles). Because managed
assets exceed net assets for a Fund that has
outstanding preferred shares, even if the Funds
contractual advisory fee rates were the same, the advisory fees
paid by the Acquiring Fund as a percentage of NAV will exceed
the advisory fees as a percentage of NAV paid by ICS, and the
actual amount paid by IIC, IQC, and the Acquiring Fund, as a
percentage of NAV, will typically exceed the contractual rate.
For more information, see the table above under How do the
Funds expenses compare?
If the Merger with IIC (alone or in combination with any other
Mergers) is completed, the Adviser has contractually agreed for
at least two years from the closing date of the Mergers to waive
advisory fees
and/or
reimburse expenses to the extent necessary to limit total annual
operating expenses of the Acquiring Fund to 0.52%, subject to
certain exclusions.
Each Funds advisory agreement provides that the Adviser
may delegate any and all of its rights, duties, and obligations
to one or more wholly-owned affiliates of Invesco as
sub-advisers
(the Invesco
Sub-Advisers).
Pursuant to each Funds Master Intergroup
Sub-Advisory
Contract, the Invesco
Sub-Advisers
may be appointed by the Adviser from time to time to provide
discretionary investment management services, investment advice,
and/or order
execution services. Each Invesco
Sub-Adviser
is registered with the SEC as an investment adviser.
Other key service providers to the Target Funds, including the
administrator, transfer agent, custodian, and auditor, provide
substantially the same services to the Acquiring Fund. Each Fund
has entered into a master administrative services agreement with
the Adviser, pursuant to which the Adviser performs or arranges
for the provision of accounting and other administrative
services to the Funds that are not required to be performed by
the Adviser under its investment advisory agreements with the
Funds. The custodian for the Funds is State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts
02110-2801.
The transfer agent and dividend paying agent for the Funds is
Computershare Trust Company, N.A.,
P.O. Box 43078, Providence, Rhode Island
02940-3078.
Does the
Acquiring Fund have the same portfolio managers as the Target
Funds?
Yes. The portfolio management team for the Target Funds is the
same as the portfolio management team for the Acquiring Fund.
Information on the portfolio managers of the Funds is included
below under Additional Information About the Funds and the
Mergers Portfolio Managers and in the SAI.
How do
the distribution policies of the Funds compare?
Each Fund declares and pays monthly dividends from net
investment income to Common Shareholders. The Acquiring
Fund, IIC and IQC declare and pay monthly dividends from
net investment income to the holders of Preferred Shares
(Preferred Shareholders). Distributions from net
realized capital gain, if any, are generally paid annually and
are distributed on a pro rata basis to Common Shareholders and,
for the Acquiring Fund, IIC and IQC, to Preferred
Shareholders. Each Fund may also declare and pay capital gains
distributions more frequently, if necessary, in order to reduce
or eliminate federal excise or income taxes on the Fund. Each
Fund offers a dividend reinvestment plan for Common
Shareholders, which is more fully described in the Funds
shareholder reports.
Will
there be any tax consequences resulting from the
Mergers?
Each Merger is designed to qualify as a tax-free reorganization
for federal income tax purposes and each Fund anticipates
receiving a legal opinion to that effect (although there can be
no assurance that the Internal Revenue Service will adopt a
similar position). This means that the shareholders of each
Target Fund will recognize no gain or loss for federal income
tax purposes upon the exchange of all of their shares in such
Target Fund for shares in the Acquiring Fund. Shareholders
should consult their tax advisor about state and local tax
consequences of the Mergers, if any, because the information
about tax consequences in this Proxy Statement relates only to
the federal income tax consequences of the Mergers.
Prior to the closing of each Merger, each Target Fund will
declare one or more dividends, and the Acquiring Fund may, but
is not required to, declare a dividend, payable at or near the
time of closing to their respective shareholders to the extent
necessary to avoid entity level tax or as otherwise deemed
desirable. Such distributions, if made, are anticipated to be
made in the 2012 calendar year and, to the extent a distribution
is not an exempt-interest dividend (as defined in
the Code), the distribution may be taxable to shareholders in
such year for federal income tax purposes. It is anticipated
that Fund distributions will be primarily dividends that are
exempt from regular federal income tax, although a portion of
such dividends may be taxable to shareholders as ordinary income
or capital gains. Any such final distribution paid to Common
Shareholders by a Target Fund will be made in cash and not
reinvested in additional Common Shares of the Target Fund. See
Additional Information About the Funds and the Mergers
Description of Securities to be Issued Dividend
Reinvestment Plan and Additional Information About
the Funds and the Mergers Federal Income Tax
Considerations of the Mergers.
When are
the Mergers expected to occur?
If shareholders of a Target Fund and the Acquiring Fund approve
the Merger and the Redomestication (Proposal 1), it is
anticipated that the Merger will occur in the third quarter of
2012.
8
What will
happen if shareholders of a Fund do not approve a
Merger?
If a Merger is not approved by shareholders or is for other
reasons unable to be completed, the applicable Fund will
continue to operate and the Funds Board will consider
other possible courses of action for the Fund.
What if I
do not wish to participate in the Merger?
If the Mergers are approved, if you are a Target
Fund Common Shareholder and you do not wish to have your
Target Fund Common Shares exchanged for Common Shares of
the Acquiring Fund, you may sell your Target Fund Common
Shares on an Exchange prior to the consummation of the Merger.
Acquiring Fund Common Shareholders may also sell their
Common Shares if they do not want to continue to own Common
Shares in the combined fund following a Merger. If you sell your
Common Shares, you will incur any applicable brokerage charges,
and if you hold Common Shares in a taxable account, you will
recognize a taxable gain or loss based on the difference between
your tax basis in the Common Shares and the amount you receive
for them. After the Merger, you may sell your Common Shares of
the Acquiring Fund on an Exchange.
Each Target Funds governing documents provide that
shareholders do not have the right to dissent and obtain payment
of the fair value of their shares, and each Target Fund believes
that its Common Shareholders will not have such rights.
Where can
I find more information about the Funds and the
Mergers?
The remainder of this Proxy Statement contains additional
information about the Funds and the Mergers, as well as
information on the other proposals to be voted on at the
Meeting. You are encouraged to read the entire document.
Additional information about each Fund can be found in the SAI
and in the Funds shareholder reports. If you need any
assistance, or have any questions regarding the Mergers or how
to vote, please call Invesco Client Services at
(800) 341-2929.
ADDITIONAL
INFORMATION ABOUT THE FUNDS AND THE MERGERS
Principal
Investment Strategies
The following section compares the principal investment
strategies of the Target Funds with the principal investment
strategies of the Acquiring Fund and highlights any key
differences. In addition to the principal investment strategies
described below, each Fund may use other investment strategies
and is also subject to certain additional investment policies
and limitations, which are described in the SAI and in each
Funds shareholder reports. The cover page of this Proxy
Statement describes how you can obtain copies of these documents.
Investment Strategies. Except during temporary
defensive periods, at least 80% of the Acquiring Funds net
assets will be invested in municipal securities. Similarly,
except during temporary defensive periods, at least 80% of each
Target Funds net assets will be invested in municipal
obligations, the interest on which, in the opinion of bond
counsel to the issuer, is exempt from federal and California
income taxes (California municipal securities). Each
policy stated in the foregoing sentences with respect to the
Acquiring Fund, IIC and ICS is a fundamental policy of each
Fund, respectively, and may not be changed without approval of a
majority of such Funds outstanding voting securities as
defined in the 1940 Act. Under normal market conditions, the
Adviser seeks to achieve each Funds investment objective
by investing at least 80% of the Funds net assets in
investment grade California municipal securities. Investment
grade securities are: (i) securities rated BBB- or higher
by Standard & Poors Financial Services LLC, a
subsidiary of The McGraw-Hill Companies, Inc.
(S&P) or Baa3 or higher by Moodys
Investors Service, Inc. (Moodys) or an
equivalent rating by another nationally recognized statistical
rating organization (NRSRO), (ii) comparably
rated short term securities, or (iii) unrated municipal
securities determined by the Adviser to be of comparable quality
at the time of purchase.
Under normal market conditions, the Acquiring Fund may invest up
to 20% of its net assets in municipal securities that are rated
below investment grade or that are unrated but determined by the
Adviser to be of comparable quality at the time of purchase.
Similarly, under normal market conditions, each Target Fund may
invest up to 20% of its net assets in taxable or tax-exempt
fixed income securities rated, at the time of investment, at
least B- or higher by S&P or B3 or higher by Moodys
or an equivalent rating by another NRSRO, or if not rated,
determined by the Adviser to be of comparable quality, including
municipal obligations the interest on which, in the opinion of
bond counsel to the issuer, is exempt from federal but not
California income taxes, obligations of the
U.S. government, its respective agencies or
instrumentalities, and other fixed income obligations.
Lower-grade securities are commonly referred to as junk bonds,
and involve greater risks than investments in higher-grade
securities.
The Acquiring Fund does not purchase securities that are in
default or rated in categories lower than B- by S&P or B3
by Moodys or unrated securities of comparable quality.
During periods in which the Adviser believes that changes in
economic, financial or political conditions make it advisable to
do so, each Target Fund, for temporary defensive purposes, may
invest to an unlimited extent in taxable or tax-exempt fixed
income securities rated at least investment grade by a NRSRO or
if not rated, determined by the Adviser to be of comparable
quality.
The foregoing percentage and rating limitations apply at the
time of acquisition of a security based on the last previous
determination of each Funds net asset value. Any
subsequent change in any rating by a rating service or change in
percentages resulting from market fluctuations or other changes
in a Funds total assets will not require elimination of
any security from the Funds portfolio.
9
Each Fund may invest all or a substantial portion of its net
assets in California municipal securities that may subject
certain investors to the federal alternative minimum tax and,
therefore, a substantial portion of the income produced by each
Fund may be taxable for such investors under the federal
alternative minimum tax. Accordingly, a Fund may not be a
suitable investment for investors who are already subject to the
federal alternative minimum tax or could become subject to the
federal alternative minimum tax as a result of an investment in
the Fund.
The Adviser buys and sells securities for each Fund with a view
towards seeking a high level of current income exempt from
federal and California income taxes, subject to reasonable
credit risk. As a result, each Fund will not necessarily invest
in the highest yielding municipal securities permitted by its
investment policies if the Adviser determines that market risks
or credit risks associated with such investments would subject a
Funds portfolio to undue risk. The potential realization
of capital gains or losses resulting from possible changes in
interest rates will not be a major consideration and frequency
of portfolio turnover generally will not be a limiting factor if
the Adviser considers it advantageous to purchase or sell
securities.
Although each Funds policy is to emphasize investments in
municipal obligations with longer-term maturities because
generally longer-term obligations, while more susceptible to
market fluctuations resulting from changes in interest rates,
produce higher yields than short-term obligations, each Fund
does not maintain a specific average weighted maturity of its
portfolio, and a Funds average portfolio maturity will
vary depending upon market conditions and other factors.
The Adviser employs a
bottom-up,
research-driven approach to identify securities that have
attractive risk/reward characteristics for the sectors in which
each Fund invests. The Adviser also integrates macroeconomic
analysis and forecasting into its evaluation and ranking of
various sectors and individual securities. Finally, each Fund
employs leverage in an effort to enhance each Funds income
and total return. Sell decisions are based on: (i) a
deterioration or likely deterioration of an individual
issuers capacity to meet its debt obligations on a timely
basis; (ii) a deterioration or likely deterioration of the
broader fundamentals of a particular industry or sector; and
(iii) opportunities in the secondary or primary market to
purchase a security with better relative value.
Municipal Securities. Municipal securities are
obligations issued by or on behalf of states, territories or
possessions of the United States, the District of Columbia and
their cities, counties, 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.
California municipal securities are municipal obligations, the
interest on which, in the opinion of bond counsel to the issuer,
is exempt from federal and California income taxes. The Adviser
does not conduct its own analysis of the tax status of the
interest paid by municipal securities held by each Fund, but
will rely on the opinion of counsel to the issuer of each such
instrument.
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 yields of municipal securities depend on, among other
things, general money market conditions, general conditions of
the municipal securities market, size of a particular offering,
the maturity of the obligation and rating of the issue. There is
no limitation as to the maturity of the municipal securities in
which a Fund may invest. The ratings of S&P and
Moodys represent their opinions of the quality of the
municipal securities they undertake to rate. These 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.
The two principal classifications of municipal securities are
general obligation and revenue or special delegation securities.
General obligation securities are secured by the issuers
pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue securities 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. Industrial
development bonds are usually revenue securities, the credit
quality of which is normally directly related to the credit
standing of the industrial user involved.
Within these principal classifications of municipal securities,
there are a variety of types of municipal securities, including:
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|
|
Variable rate securities, which bear rates of interest that are
adjusted periodically according to formulae intended to reflect
market rates of interest.
|
|
|
|
Municipal notes, including tax, revenue and bond anticipation
notes of short maturity, generally less than three years, which
are issued to obtain temporary funds for various public purposes.
|
|
|
|
Variable rate demand notes, which are obligations that contain a
floating or variable interest rate adjustment formula and which
are subject to a right of demand for payment of the principal
balance plus accrued interest either at any time or at specified
intervals. The interest rate on a variable rate demand note may
be based on a known lending rate, such as a banks prime
rate, and may be adjusted when such rate changes, or the
interest rate may be a market rate that is adjusted at specified
intervals. The adjustment formula maintains the value of the
variable rate demand note at approximately the par value of such
note at the adjustment date.
|
10
|
|
|
|
|
Municipal leases, which are obligations issued by state and
local governments or authorities to finance the acquisition of
equipment and facilities. Certain municipal lease obligations
may include non-appropriation clauses which provide that the
municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated
for such purpose on a yearly basis.
|
|
|
|
Private activity bonds, which are issued by, or on behalf of,
public authorities to finance privately operated facilities.
|
|
|
|
Participation certificates, which are obligations issued by
state or local governments or authorities to finance the
acquisition of equipment and facilities. They may represent
participations in a lease, an installment purchase contract or a
conditional sales contract.
|
|
|
|
Municipal securities that may not be backed by the faith, credit
and taxing power of the issuer.
|
|
|
|
Municipal securities that are privately placed and that may have
restrictions on a Funds ability to resell, such as timing
restrictions or requirements that the securities only be sold to
qualified institutional investors.
|
|
|
|
Municipal securities that are insured by financial insurance
companies.
|
Derivatives. Each Fund principally may use
derivative instruments for a variety of purposes, including
hedging, risk management, portfolio management or to earn income
(except that the Acquiring Fund may not use futures and swaps to
earn income). Derivatives are financial instruments whose value
is based on the value of another underlying asset, interest
rate, index or financial instrument. Derivative instruments and
techniques that each Fund principally uses include:
Futures. A futures contract is a
standardized agreement between two parties to buy or sell a
specific quantity of an underlying instrument at a specific
price at a specific future time. The value of a futures contract
tends to increase and decrease in tandem with the value of the
underlying instrument. Futures contracts are bilateral
agreements, with both the purchaser and the seller equally
obligated to complete the transaction. Depending on the terms of
the particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement amount on the
settlement date. Each Target Fund, but not the Acquiring Fund,
may use futures to earn income.
Swaps. A swap contract is an agreement
between two parties pursuant to which the parties exchange
payments at specified dates on the basis of a specified notional
amount, with the payments calculated by reference to specified
securities, indexes, reference rates, currencies or other
instruments. Most swap agreements provide that when the period
payment dates for both parties are the same, the payments are
made on a net basis (i.e., the two payment streams are netted
out, with only the net amount paid by one party to the other).
Each Funds obligations or rights under a swap contract
entered into on a net basis will generally be equal only to the
net amount to be paid or received under the agreement, based on
the relative values of the positions held by each counterparty.
IQC may not invest in swaps. IIC and ICS, but not the Acquiring
Fund, may use swaps to earn income.
Inverse Floating Rate Obligations. Each Fund
may invest in inverse floating rate obligations. Inverse
floating rate obligations are variable debt instruments that pay
interest at rates that move in the opposite direction of
prevailing interest rates. Because the interest rate paid to
holders of such obligations is generally determined by
subtracting a variable or floating rate from a predetermined
amount, the interest rate paid to holders of such obligations
will decrease as such variable or floating rate increases and
increase as such variable or floating rate decreases. The
inverse floating rate obligations in which each Fund may invest
include derivative instruments such as residual interest bonds
(RIBs) or tender option bonds (TOBs).
Such instruments are typically created by a special purpose
trust that holds long-term fixed rate bonds and sells two
classes of beneficial interests: short-term floating rate
interests, which are sold to third party investors, and inverse
floating residual interests, which are purchased by each Fund.
The short-term floating rate interests have first priority on
the cash flow from the bond held by the special purpose trust
and each Fund (as holder of the inverse floating residual
interests) is paid the residual cash flow from the bond held by
the special purpose trust.
When-Issued and Delayed Delivery
Transactions. Each Fund may purchase and sell
securities on a when-issued and delayed delivery basis, which
means that a Fund buys or sells a security with payment and
delivery taking place in the future. The payment obligation and
the interest rate are fixed at the time a Fund enters into the
commitment. No income accrues on such securities until the date
a Fund actually takes delivery of the securities.
Preferred Shares. The Acquiring
Fund, IIC, and IQC but not ICS use leverage in the form of
Preferred Shares. Dividends on the Preferred Shares will
typically be comparable to the yields on investment grade
short-term municipal securities, although the assets
attributable to the Preferred Shares will generally be invested
in longer-term municipal securities, which typically have higher
yields than short-term municipal securities. Assuming such a
yield differential, this leveraged capital structure enables a
Fund to pay a potentially higher yield on the Common Shares than
similar investment companies that do not use leverage.
As required by the 1940 Act, the Acquiring Fund, IIC and
IQC and will generally maintain an asset coverage of the value
of the respective Funds total assets, less all liabilities
and indebtedness of the Fund not represented by the Preferred
Shares, of 200% of the aggregate liquidation value of the
Preferred Shares. In addition, under the terms of each
Funds outstanding Preferred Shares, the Fund is required
to maintain minimum asset coverage of 225%. The liquidation
value of the Preferred Shares is their aggregate original
purchase price, plus any accrued and unpaid dividends.
11
Portfolio Turnover. The Acquiring Fund
generally will not engage in the trading of securities for the
purpose of realizing short-term profits, but it will adjust its
portfolio as it deems advisable in view of prevailing or
anticipated market conditions to accomplish the Acquiring
Funds investment objective. For example, the Acquiring
Fund may sell portfolio securities in anticipation of a movement
in interest rates. Other than for tax purposes, frequency of
portfolio turnover will not be a limiting factor if the
Acquiring Fund considers it advantageous to purchase or sell
securities. The Acquiring Fund does not anticipate that the
annual portfolio turnover rate of the Acquiring Fund will be in
excess of 100%. A high rate of portfolio turnover involves
correspondingly greater brokerage commission and transaction
expenses than a lower rate, which expenses must be borne by the
Acquiring Fund and its Common Shareholders. High portfolio
turnover may also result in the realization of substantial net
short-term capital gains, and any distributions resulting from
such gains will be taxable at ordinary income rates for federal
income tax purposes.
The Target Funds may sell securities without regard to the
length of time they have been held to take advantage of new
investment opportunities, yield differentials, or for other
reasons. Each Target Funds portfolio turnover rate may
vary from year to year. A high portfolio turnover rate (100% or
more) would increase a Target Funds transaction costs
(including brokerage commissions and dealer costs), which would
adversely impact a Target Funds performance. Higher
portfolio turnover may result in the realization of more
short-term capital gains than if a Target Fund had lower
portfolio turnover. Additionally, in a declining market,
portfolio turnover may create realized capital losses. The
turnover rate will not be a limiting factor, however, if the
Adviser considers portfolio changes appropriate.
Temporary Defensive Strategy. When market
conditions dictate a more defensive investment strategy, the
Acquiring Fund may, on a temporary basis, hold cash or invest a
portion or all of its assets in high-quality, short-term
municipal securities. If such municipal securities are not
available or, in the judgment of the Adviser, do not afford
sufficient protection against adverse market conditions, the
Acquiring Fund may invest in taxable instruments. Such taxable
securities may include securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, other
investment grade quality fixed income securities, prime
commercial paper, certificates of deposit, bankers
acceptances and other obligations of domestic banks, repurchase
agreements and money market funds (including money market funds
affiliated with Invesco). Similarly, when market conditions
dictate a more defensive investment strategy, the Target Funds
may, on a temporary basis, hold cash or invest to an unlimited
extent in taxable or tax-exempt fixed income securities rated at
least investment grade by a NRSRO or if not rated, determined by
the Adviser to be of comparable quality, including municipal
obligations the interest on which in the opinion of bond counsel
to the issuer is exempt from federal but not California income
taxes, obligations of the U.S. government, its respective
agencies or instrumentalities, other investment grade quality
fixed income securities, prime commercial paper, certificates of
deposit, bankers acceptances and other obligations of
domestic banks, repurchase agreements, and money market funds
(including money market funds affiliated with Invesco). In
taking a defensive position, each Fund would temporarily not be
pursuing its principal investment strategies and may not achieve
its investment objective.
Zero Coupon / PIK Bonds. Each Fund
may invest in securities not producing immediate cash income,
including zero coupon securities or
pay-in-kind
(PIK) securities, when their effective yield over
comparable instruments producing cash income makes these
investments attractive. PIK securities are debt securities that
pay interest through the issuance of additional securities. Zero
coupon securities are debt securities that do not entitle the
holder to any periodic payment of interest prior to maturity or
a specified date when the securities begin paying current
interest. They are issued and traded at a discount from their
face amounts or par value, which discount varies depending on
the time remaining until cash payments begin, prevailing
interest rates, liquidity of the security and the perceived
credit quality of the issuer. The securities do not entitle the
holder to any periodic payments of interest prior to maturity,
which prevents any reinvestment of interest payments at
prevailing interest rates if prevailing interest rates rise. On
the other hand, because there are no periodic interest payments
to be reinvested prior to maturity, zero coupon securities
eliminate the reinvestment risk and may lock in a favorable rate
of return to maturity if interest rates drop. In addition, each
Fund would be required to distribute the income on these
instruments as it accrues, even though the Fund will not receive
all of the income on a current basis or in cash. Thus, the Fund
may have to sell other investments, including when it may not be
advisable to do so, to make income distributions to the Common
Shareholders.
As required by
Rule 35d-1
under the 1940 Act, in addition to the investment strategies and
policies discussed above, each Fund has a fundamental policy to
invest, under normal circumstances, at least 80% of its total
assets in investments the income from which is exempt from
federal and California income tax.
More information on these and other investment strategies of the
Funds is available in the SAI.
12
Principal
Risks of an Investment in the Funds
A comparison of the principal risks associated with the
Funds investment strategies is included above under
How do the Funds principal risks compare? The
following table provides further information on the principal
risks of an investment in the Funds.
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Principal Risk
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Funds Subject to Risk
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Municipal Securities Risk. Under normal market
conditions, longer-term municipal securities generally provide a
higher yield than shorter-term municipal securities. The Adviser
may adjust the average maturity of each Funds 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 yields of
municipal securities may move differently and adversely compared
to the yields of the overall debt securities markets. Certain
kinds of municipal securities are subject to specific risks that
could cause a decline in the value of those securities:
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All Funds
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Lease Obligations. Certain lease obligations
contain non-appropriation clauses that provide that the
governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for
that purpose by the appropriate legislative body on an annual or
other periodic basis. Consequently, continued lease payments on
those lease obligations containing non-appropriation clauses are
dependent on future legislative actions. If these legislative
actions do not occur, the holders of the lease obligation may
experience difficulty in exercising their rights, including
disposition of the property.
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Private Activity Bonds. The issuers of private
activity bonds in which each Fund may invest may be negatively
impacted by conditions affecting either the general credit of
the user of the private activity project or the project itself.
Conditions such as regulatory and environmental restrictions and
economic downturns may lower the need for these facilities and
the ability of users of the project to pay for the facilities.
Private activity bonds may also pay interest subject to the
alternative minimum tax.
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In 2011, S&P lowered its long-term sovereign credit rating
on the U.S. to AA+ from AAA with a
negative outlook. Following S&Ps downgrade of the
long-term sovereign credit rating on the U.S., the major rating
agencies have also placed many municipalities on review for
potential downgrades, which could impact the market price,
liquidity and volatility of the municipal securities held by
each Fund in its portfolio. If the universe of municipal
securities meeting a Funds ratings and credit quality
requirements shrinks, it may be more difficult for the Fund to
meet its investment objective and the Funds investments
may become more concentrated in fewer issues. Future downgrades
by other rating agencies could have significant adverse effects
on the economy generally and could result in significant adverse
impacts on municipal issuers and each Fund.
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Many state and municipal governments that issue securities are
under significant economic and financial stress and may not be
able to satisfy their obligations. In response to the national
economic downturn, governmental cost burdens have been and may
continue to be reallocated among federal, state and local
governments. The ability of municipal issuers to make timely
payments of interest and principal may be diminished during
general economic downturns and as governmental cost burdens are
reallocated among federal, state and local governments. Also, as
a result of the downturn and related unemployment, declining
income and loss of property values, many state and local
governments have experienced significant reductions in revenues
and consequently difficulties meeting ongoing expenses. As a
result, certain of these state and local governments may have
difficulty paying or default in the payment of principal or
interest on their outstanding debt, may experience ratings
downgrades of their debt. The taxing power of any governmental
entity may be limited by provisions of state constitutions or
laws and an entitys credit will depend on many factors,
including the entitys tax base, the extent to which the
entity relies on federal or state aid, and other factors which
are beyond the entitys control. In addition, laws enacted
in the future by Congress or state legislatures or referenda
could extend the time for payment of principal and/or interest,
or impose other constraints on enforcement of such obligations
or on the ability of municipalities to levy taxes.
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13
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Principal Risk
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Funds Subject to Risk
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In addition, municipalities might seek protection under the
bankruptcy laws, thereby affecting the repayment of their
outstanding debt. Issuers of municipal securities might seek
protection under the bankruptcy laws. In the event of bankruptcy
of such an issuer, holders of municipal securities could
experience delays in collecting principal and interest and such
holders may not be able to collect all principal and interest to
which they are entitled. Certain provisions of the U.S.
Bankruptcy Code governing such bankruptcies are unclear.
Further, the application of state law to municipal securities
issuers could produce varying results among the states or among
municipal securities issuers within a state. These uncertainties
could have a significant impact on the prices of the municipal
securities in which each Fund invests. The value of municipal
securities generally may be affected by uncertainties in the
municipal markets as a result of legislation or litigation,
including legislation or litigation that changes the taxation of
municipal securities or the rights of municipal securities
holders in the event of a bankruptcy. To enforce its rights in
the event of a default in the payment of interest or repayment
of principal, or both, each Fund may take possession of and
manage the assets securing the issuers obligations on such
securities, which may increase the Funds operating
expenses. Any income derived from a Funds ownership or
operation of such assets may not be tax-exempt and could
jeopardize the Funds status as a regulated investment
company under the Code.
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The U.S. economy may be in the process of
deleveraging, with individuals, companies and
municipalities reducing expenditures and paying down borrowings.
In such event, the number of municipal borrowers and the amount
of outstanding municipal securities may contract, potentially
without corresponding reductions in investor demand for
municipal securities. As a result, each Fund may have fewer
investment alternatives, may invest in securities that it
previously would have declined and may concentrate its
investments in a smaller number of issuers.
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Insurance Risk. Financial insurance guarantees
that interest payments on a bond will be made on time and that
principal will be repaid when the bond matures. Insured
municipal obligations would generally be assigned a lower rating
if the rating were based primarily on the credit quality of the
issuer without regard to the insurance feature. If the
claims-paying ability of the insurer were downgraded, the
ratings on the municipal obligations it insures may also be
downgraded. Insurance does not protect each Fund against losses
caused by declines in a bonds value due to a change in
market conditions.
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All Funds
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Market Risk. Market risk is the possibility
that the market values of securities owned by each Fund will
decline. The net asset value of a Fund will change with changes
in the value of its portfolio securities, and the value of the
Funds investments can be expected to fluctuate over time.
The financial markets in general are subject to volatility and
may at times experience extreme volatility and uncertainty,
which may affect all investment securities, including debt
securities and derivative instruments. Volatility may be greater
during periods of general economic uncertainty.
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All Funds
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Interest Rate Risk. Because each Fund invests
primarily in 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. These risks may be greater in the current
market environment because certain interest rates are near
historically low levels.
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All Funds
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Credit Risk. Credit risk refers to an
issuers ability to make timely payments of interest and
principal when due. 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 affected by
general economic downturns and as relative governmental cost
burdens are allocated and reallocated among federal, state and
local governmental units. Private activity bonds used to finance
projects, such as industrial development and pollution control,
may also be negatively impacted by the general credit of the
user of the project. Nonpayment would result in a reduction of
income to a Fund, and a potential decrease in the net asset
value of the Fund. The Adviser continuously monitors the issuers
of securities held in each Fund.
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All Funds
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14
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Principal Risk
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Funds Subject to Risk
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Each Fund will rely on the Advisers judgment, analysis and
experience in evaluating the creditworthiness of an issuer. In
its analysis, the Adviser may consider the credit ratings of
NRSROs in evaluating securities, although the Adviser does not
rely primarily on these ratings. Credit ratings of NRSROs
evaluate only the safety of principal and interest payments, not
the market risk. In addition, ratings are general and not
absolute standards of quality, and the creditworthiness of an
issuer may decline significantly before an NRSRO lowers the
issuers rating. A rating downgrade does not require a Fund
to dispose of a security.
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Medium-grade obligations (for example, bonds rated BBB by
S&P) possess speculative characteristics so that changes in
economic conditions or other circumstances are more likely to
lead to a weakened capacity of the issuer to make principal and
interest payments than in the case of higher-rated securities.
Securities rated below investment grade are considered
speculative by NRSROs with respect to the issuers
continuing ability to pay interest and principal.
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Income Risk. The income received from each
Fund is based primarily on prevailing interest rates, which can
vary widely over the short and long term. If interest rates
decrease, income from a Fund may decrease as well.
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All Funds
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Call Risk. If interest rates fall, it is
possible that issuers of securities with high interest rates
will prepay or call their securities before their maturity
dates. In this event, the proceeds from the called securities
would likely be reinvested by each Fund in securities bearing
the new, lower interest rates, resulting in a possible decline
in a Funds income and distributions to shareholders.
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All Funds
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Market Segment Risk. Each Fund generally
considers investments in municipal securities issued by
governments or political subdivisions not to be subject to
industry concentration policies (because such issuers are not in
any industry). Each Fund may, however, invest in municipal
securities issued by entities having similar characteristics.
For example, the issuers may be located in the same geographic
area or may pay their interest obligations from revenue of
similar projects, such as hospitals, airports, utility systems
and housing finance agencies. This may make a Funds
investments more susceptible to similar economic, political or
regulatory occurrences, which could increase the volatility of
the Funds net asset value. Each Fund may invest more than
25% of its total assets in a segment of the municipal securities
market with similar characteristics if the Adviser determines
that the yields available from obligations in a particular
segment justify the additional risks of a larger investment in
that segment. Each Fund may not, however, invest more than 25%
of its total assets in municipal securities, such as many
private activity bonds or industrial development revenue bonds,
issued for non-governmental entities that are in the same
industry.
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All Funds
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Tax Risk. To qualify for the favorable U.S.
federal income tax treatment generally accorded to regulated
investment companies, among other things, each Fund must derive
in each taxable year at least 90% of its gross income from
certain prescribed sources. If for any taxable year a Fund does
not qualify as a regulated investment company, all of its
taxable income (including its net capital gain) would be subject
to federal income tax at regular corporate rates without any
deduction for distributions to shareholders, and all
distributions from the Fund (including underlying distributions
attributable to tax-exempt interest income) would be taxable to
shareholders as ordinary dividends to the extent of the
Funds current and accumulated earnings and profits.
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All Funds
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The value of each Funds investments and its net asset
value may be adversely affected by changes in tax rates and
policies. Because interest income from municipal securities is
normally not subject to regular federal income taxation, the
attractiveness of municipal securities in relation to other
investment alternatives is affected by changes in federal income
tax rates or changes in the tax-exempt status of interest income
from municipal securities. Any proposed or actual changes in
such rates or exempt status, therefore, can significantly affect
the demand for and supply, liquidity and marketability of
municipal securities. This could, in turn, affect a Funds
net asset value and ability to acquire and dispose of municipal
securities at desirable yield and price levels. Additionally,
each Fund may not be a suitable investment for individual
retirement accounts, for other tax-exempt or tax-deferred
accounts or for investors who are not sensitive to the federal
income tax consequences of their investments.
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15
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Principal Risk
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Funds Subject to Risk
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Each Fund may invest all or a substantial portion of its total
assets in municipal securities subject to the federal
alternative minimum tax. Accordingly, an investment in a Fund
could cause shareholders to be subject to (or result in an
increased liability under) the federal alternative minimum tax.
As a result, each Fund may not be a suitable investment for
investors who are already subject to the federal alternative
minimum tax or who could become subject to the federal
alternative minimum tax as a result of an investment in a Fund.
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Subsequent to a Funds acquisition of a municipal security,
the security may be determined to pay, or to have paid, taxable
income. As a result, the treatment of dividends previously paid
or to be paid by a Fund as exempt-interest dividends
could be adversely affected, subjecting the Funds
shareholders to increased federal income tax liabilities.
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For federal income tax purposes, distributions of ordinary
taxable income (including any net short-term capital gain) will
be taxable to shareholders as ordinary income (and not eligible
for favorable taxation as qualified dividend
income), and capital gain dividends will be taxed at
long-term capital gain rates. In certain circumstances, each
Fund will make payments to holders of Preferred Shares, if
applicable, to offset the tax effects of a taxable distribution.
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Generally, to the extent each Funds distributions are
derived from interest on municipal securities of a particular
state (and, in some cases qualifying obligations of U.S.
territories and possessions), its distributions are exempt from
the personal income tax of that state. In some cases, each
Funds shares may (to the extent applicable) also be exempt
from personal property taxes of such state. However, some states
require that a Fund meet certain thresholds with respect to the
portion of its portfolio consisting of municipal securities of
such state in order for such exemption to apply.
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Risks of Using Derivative Instruments. A
derivative instrument often has risks similar to its underlying
instrument and may have additional risks, including imperfect
correlation between the value of the derivative and the
underlying instrument or instrument being hedged, risks of
default by the other party to certain transactions,
magnification of losses incurred due to changes in the market
value of the securities, instruments, indices or interest rates
to which they relate, and risks that the derivatives may not be
liquid. The use of derivatives involves risks that are different
from, and potentially greater than, the risks associated with
other portfolio investments. Derivatives may involve the use of
highly specialized instruments that require investment
techniques and risk analyses different from those associated
with other portfolio investments. Certain derivative
transactions may give rise to a form of leverage. Leverage
associated with derivative transactions may cause a Fund to
liquidate portfolio positions when it may not be advantageous to
do so to satisfy its obligations or to meet earmarking or
segregation requirements, pursuant to applicable SEC rules and
regulations, or may cause the Fund to be more volatile than if
the Fund had not been leveraged. Each Fund could suffer losses
related to its derivative positions as a result of unanticipated
market movements, which losses may potentially be unlimited.
Although the Adviser may seek to use derivatives to further a
Funds investment objective, the Fund is not required to do
so and there is no assurance that the use of derivatives will
achieve this result.
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All Funds (except that
Swaps Risk does not
apply to IQC)
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Counterparty Risk. Each Fund will be subject
to credit risk with respect to the counterparties to the
derivative transactions entered into by the Fund. If a
counterparty becomes bankrupt or otherwise fails to perform its
obligations under a derivative contract due to financial
difficulties, a Fund may experience significant delays in
obtaining any recovery under the derivative contract in
bankruptcy or other reorganization proceeding. A Fund may obtain
only a limited recovery or may obtain no recovery in such
circumstances.
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Futures Risk. A decision as to whether, when
and how to use futures involves the exercise of skill and
judgment and even a well-conceived futures transaction may be
unsuccessful because of market behavior or unexpected events. In
addition to the derivatives risks discussed above, the prices of
futures can be highly volatile, using futures can lower total
return, and the potential loss from futures can exceed a
Funds initial investment in such contracts.
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Swaps Risk. Swap agreements are not entered
into or traded on exchanges and there is no central clearing or
guaranty function for swaps. Therefore, swaps are subject to
credit risk or the risk of default or non-performance by the
counterparty. Swaps could result in losses if interest rate or
credit quality changes are not correctly anticipated by a Fund
or if the reference index, security or investments do not
perform as expected.
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16
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Principal Risk
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Funds Subject to Risk
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Tax Risk. The use of derivatives may generate
taxable income. In addition, each Funds use of derivatives
may be limited by the requirements for taxation as a regulated
investment company or a Funds intention to pay dividends
that are exempt from federal and California income taxes. The
tax treatment of derivatives may be adversely affected by
changes in legislation, regulations or other legal authority,
subjecting a Funds shareholders to increased federal
income tax liabilities.
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Inverse Floating Rate Obligations Risk. Like
most other fixed-income securities, the value of inverse
floating rate obligations will decrease as interest rates
increase. They are more volatile, however, than most other
fixed-income securities because the coupon rate on an inverse
floating rate obligation typically changes at a multiple of the
change in the relevant index rate. Thus, any rise in the index
rate (as a consequence of an increase in interest rates) causes
a correspondingly greater drop in the coupon rate of an inverse
floating rate obligation while a drop in the index rate causes a
correspondingly greater increase in the coupon of an inverse
floating rate obligation. Some inverse floating rate obligations
may also increase or decrease substantially because of changes
in the rate of prepayments. Inverse floating rate obligations
tend to underperform the market for fixed rate bonds in a rising
interest rate environment, but tend to outperform the market for
fixed rate bonds when interest rates decline or remain
relatively stable. Inverse floating rate obligations have
varying degrees of liquidity.
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All Funds
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Each Fund generally invests in inverse floating rate obligations
that include embedded leverage, thus exposing the Fund to
greater risks and increased costs. The market value of a
leveraged inverse floating rate obligation generally
will fluctuate in response to changes in market rates of
interest to a greater extent than the value of an unleveraged
investment. The extent of increases and decreases in the value
of inverse floating rate obligations generally will be larger
than changes in an equal principal amount of a fixed rate
security having similar credit quality, redemption provisions
and maturity, which may cause the Funds net asset value to
be more volatile than if it had not invested in inverse floating
rate obligations.
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In certain instances, the short-term floating rate interests
created by a special purpose trust may not be able to be sold to
third parties or, in the case of holders tendering (or putting)
such interests for repayment of principal, may not be able to be
remarketed to third parties. In such cases, the special purpose
trust holding the long-term fixed rate bonds may be collapsed.
In the case of inverse floating rate obligations created by the
Fund, the Fund would then be required to repay the principal
amount of the tendered securities. During times of market
volatility, illiquidity or uncertainty, the Fund could be
required to sell other portfolio holdings at a disadvantageous
time to raise cash to meet that obligation.
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The use of short-term floating rate obligations may require a
Fund to segregate or earmark cash or liquid assets to cover its
obligations. Securities so segregated or earmarked will be
unavailable for sale by a Fund (unless replaced by other
securities qualifying for segregation requirements), which may
limit the Funds flexibility and may require that the Fund
sell other portfolio investments at a time when it may be
disadvantageous to sell such assets.
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Risks of Investing in Lower-Grade
Securities. Securities that are in the
lower-grade categories generally offer higher yields than are
offered by higher-grade securities of similar maturities, but
they also generally involve greater risks, such as greater
credit risk, market risk, volatility and liquidity risk. In
addition, the amount of available information about the
financial condition of certain lower-grade issuers may be less
extensive than other issuers, making each Fund more dependent on
the Advisers credit analysis than a fund investing only in
higher-grade securities. To minimize the risks involved in
investing in lower-grade securities, each Fund does not purchase
securities that are in default or rated in categories lower than
B- by S&P or B3 by Moodys or unrated securities of
comparable quality.
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All Funds
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Secondary market prices of lower-grade securities generally are
less sensitive than higher-grade securities to changes in
interest rates and are more sensitive to general adverse
economic changes or specific developments with respect to the
particular issuers. A significant increase in interest rates or
a general economic downturn may significantly affect the ability
of municipal issuers of lower-grade securities to pay interest
and to repay principal, or to obtain additional financing, any
of which could severely disrupt the market for lower-grade
municipal securities and adversely affect the market value of
such securities. Such events also could lead to a higher
incidence of default by issuers of lower-grade securities. In
addition, changes in credit risks, interest rates, the credit
markets or periods of general economic uncertainty can be
expected to result in increased volatility in the price of the
lower-grade securities and the net asset value of a Fund.
Adverse publicity and investor perceptions, whether or not based
on rational analysis, may affect the value, volatility and
liquidity of lower-grade securities.
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17
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Principal Risk
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Funds Subject to Risk
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In the event that an issuer of securities held by a Fund
experiences difficulties in the timely payment of principal and
interest and such issuer seeks to restructure the terms of its
borrowings, the Fund may incur additional expenses and may
determine to invest additional assets with respect to such
issuer or the project or projects to which the Funds
securities relate. Further, each Fund may incur additional
expenses to the extent that it is required to seek recovery upon
a default in the payment of interest or the repayment of
principal on its portfolio holdings and the Fund may be unable
to obtain full recovery on such amounts.
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Investments in debt obligations that are at risk of or in
default present special tax issues for each Fund. Federal income
tax rules are not entirely clear about issues such as when a
Fund may cease to accrue interest, original issue discount or
market discount, when and to what extent deductions may be taken
for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and
interest and whether certain exchanges of debt obligations in a
workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in or holds such
securities, in order to seek to ensure that it distributes
sufficient income to preserve its status as a regulated
investment company.
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Liquidity Risk. Liquidity relates to the
ability of each Fund to sell a security in a timely manner at a
price which reflects the value of that security. The amount of
available information about the financial condition of municipal
securities issuers is generally less extensive than that for
corporate issuers with publicly traded securities, and the
market for municipal securities is generally considered to be
less liquid than the market for corporate debt obligations.
Certain municipal securities in which a Fund may invest, such as
special obligation bonds, lease obligations, participation
certificates and variable rate instruments, may be particularly
less liquid. To the extent a Fund owns or may acquire illiquid
or restricted securities, these securities may involve special
registration requirements, liabilities and costs, and liquidity
and valuation difficulties.
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All Funds
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The effects of adverse publicity and investor perceptions may be
more pronounced for securities for which no established retail
market exists as compared with the effects on securities for
which such a market does exist. An economic downturn or an
increase in interest rates could severely disrupt the market for
such securities and adversely affect the value of outstanding
securities or the ability of the issuers to repay principal and
interest. Further, a Fund may have more difficulty selling such
securities in a timely manner and at their stated value than
would be the case for securities for which an established retail
market does exist.
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The markets for lower-grade securities may be less liquid than
the markets for higher-grade securities. To the extent that
there is no established retail market for some of the
lower-grade securities in which a Fund may invest, trading in
such securities may be relatively inactive. Prices of
lower-grade securities may decline rapidly in the event a
significant number of holders decide to sell. Changes in
expectations regarding an individual issuer of lower-grade
securities generally could reduce market liquidity for such
securities and make their sale by a Fund at their current
valuation more difficult.
|
|
|
From time to time, each Funds investments may include
securities as to which the Fund, by itself or together with
other funds or accounts managed by the Adviser, holds a major
portion or all of an issue of municipal securities. Because
there may be relatively few potential purchasers for such
investments and, in some cases, there may be contractual
restrictions on resales, the Fund may find it more difficult to
sell such securities at a time when the Adviser believes it is
advisable to do so.
|
|
|
Preferred Shares Risk. A Funds use of
leverage through Preferred Shares may result in higher
volatility of the net asset value of the Common Shares, and
fluctuations in the dividend rates on the Preferred Shares
(which are expected to reflect yields on short-term municipal
securities) may affect the yield to the Common Shareholders. So
long as a Fund is able to realize a higher net return on its
investment portfolio than the then current dividend rate of the
Preferred Shares, the effect of the leverage provided by the
Preferred Shares will be to cause the Common Shareholders to
realize a higher current rate of return than if the Fund were
not so leveraged. On the other hand, to the extent that the then
current dividend rate on the Preferred Shares approaches the net
return on a Funds investment portfolio, the benefit of
leverage to the Common Shareholders will be reduced, and if the
then current dividend rate on the Preferred Shares were to
exceed the net return on the Funds portfolio, the
Funds leveraged capital structure would result in a lower
rate of return to the Common Shareholders than if the Fund were
not so structured.
|
|
Acquiring Fund, IIC and IQC
|
18
|
|
|
Principal Risk
|
|
Funds Subject to Risk
|
|
Similarly, because any decline in the net asset value of a
Funds investments will be borne entirely by the Common
Shareholders, the effect of leverage in a declining market would
result in a greater decrease in net asset value to the Common
Shareholders than if the Fund were not so leveraged. Any such
decrease would likely be reflected in a decline in the market
price for Common Shares. If a Funds current investment
income were not sufficient to meet dividend requirements on the
Preferred Shares, the Fund might have to liquidate certain of
its investments in order to meet required dividend payments,
thereby reducing the net asset value attributable to the
Funds Common Shares.
|
|
|
The amount of Preferred Shares outstanding from time to time may
vary, depending on the Advisers analysis of conditions in
the municipal securities market and interest rate movements.
Management of the amount of outstanding Preferred Shares places
greater reliance on the ability of the Adviser to predict trends
in interest rates than if a Fund did not use leverage. In the
event the Adviser later determines that all or a portion of such
Preferred Shares should be reissued so as to increase the amount
of leverage, no assurance can be given that a Fund will
subsequently be able to reissue Preferred Shares on terms and/or
with dividend rates that are beneficial to the Common
Shareholders. Further, redemption and reissuance of the
Preferred Shares, and any related trading of a Funds
portfolio securities, results in increased transaction costs to
the Fund and its Common Shareholders. Because the Common
Shareholders bear these expenses, changes to the Funds
outstanding leverage and any losses resulting from related
portfolio trading will have a proportionately larger impact on
the Common Shares net asset value and market price.
|
|
|
In addition, a Fund is not permitted to declare any cash
dividend or other distribution on its Common Shares unless, at
the time of such declaration, the Fund has an asset coverage of
at least 200%, as required by the 1940 Act (determined after
deducting the amount of such dividend or distribution). In
addition, under the terms of each Funds outstanding
Preferred Shares, the Fund is required to maintain minimum asset
coverage of 225%. This prohibition on the payment of dividends
or other distributions might impair the ability of a Fund to
maintain its qualification as a regulated investment company for
federal income tax purposes. Each Fund intends, however, to the
extent possible, to purchase or redeem Preferred Shares from
time to time to maintain an asset coverage of the Preferred
Shares of at least 225%.
|
|
|
If a determination were made by the IRS to treat the Preferred
Shares as debt rather than equity for U.S. federal income tax
purposes, the Common Shareholders might be subject to increased
federal income tax liabilities.
|
|
|
Unrated Securities Risk. Many lower-grade
securities are not listed for trading on any national securities
exchange, and many issuers of lower-grade securities choose not
to have a rating assigned to their obligations by any NRSRO. As
a result, each Funds portfolio may consist of a higher
portion of unlisted or unrated securities as compared with an
investment company that invests solely in higher-grade, listed
securities. Unrated securities are usually not as attractive to
as many buyers as are rated securities, a factor which may make
unrated securities less marketable. These factors may limit the
ability of a Fund to sell such securities at their fair value.
Each Fund may be more reliant on the Advisers judgment and
analysis in evaluating the creditworthiness of an issuer of
unrated securities.
|
|
All Funds
|
When-Issued and Delayed Delivery
Risks. When-issued and delayed delivery
transactions are subject to market risk as the value or yield of
a security at delivery may be more or less than the purchase
price or the yield generally available on securities when
delivery occurs. In addition, each Fund is subject to
counterparty risk because it relies on the buyer or seller, as
the case may be, to consummate the transaction, and failure by
the other party to complete the transaction may result in a Fund
missing the opportunity of obtaining a price or yield considered
to be advantageous.
|
|
All Funds
|
Zero Coupon / PIK Bond Risk. Prices on
non-cash-paying instruments may be more sensitive to changes in
the issuers financial condition, fluctuations in interest
rates and market demand/supply imbalances than cash-paying
securities with similar credit ratings, and thus may be more
speculative than are securities that pay interest periodically
in cash. These securities are also subject to the risk of
default. These securities may subject the Fund to greater market
risk than a fund that does not own these types of securities.
Special tax considerations are associated with investing in
non-cash-paying instruments, such as zero coupon or PIK
securities. The Adviser will weigh these concerns against the
expected total returns from such instruments.
|
|
All Funds
|
19
|
|
|
Principal Risk
|
|
Funds Subject to Risk
|
|
Special Risk Considerations Regarding California Municipal
Securities. Each Fund invests substantially all
of its assets in a portfolio of California municipal securities.
Because the Fund invests substantially all of its assets in a
portfolio of California municipal securities, the Fund is more
susceptible to political, economic, regulatory or other factors
affecting issuers of California municipal securities than a fund
which does not limit its investments to such issuers. These
risks include possible legislative, state constitutional or
regulatory amendments that may affect the ability of state and
local governments or regional governmental authorities to raise
money to pay principal and interest on their municipal
securities. Economic, fiscal and budgetary conditions throughout
the state may also influence the Funds performance.
|
|
All Funds
|
Additional information on these and other risks is available in
the SAI.
Portfolio
Managers
Thomas Byron, Robert Stryker, Julius Williams and Robert Wimmel
are the portfolio managers for the Funds.
Mr. Byron, Portfolio Manager, has been associated with
Invesco and/or its affiliates since 2010. Mr. Byron was
associated with the Funds previous investment adviser or
its investment advisory affiliates in an investment management
capacity from 1981 to 2010 and began managing the Funds in 2009.
Mr. Byron earned a B.S. in finance from Marquette
University and an M.B.A. in finance from DePaul University.
Mr. Stryker, Portfolio Manager, has been associated with
Invesco and/or its affiliates since 2010. Mr. Stryker was
associated with the Funds previous investment adviser or
its investment advisory affiliates in an investment management
capacity from 1994 to 2010 and began managing the Funds in 2009.
Mr. Stryker earned a B.S. in finance from the University of
Illinois, Chicago.
Mr. Williams, Portfolio Manager, has been associated with
Invesco and/or its affiliates since 2010. Mr. Williams was
associated with the Funds previous investment adviser or
its investment advisory affiliates in an investment management
capacity from 2000 to 2010 and began managing the Funds in 2011.
Mr. Williams earned a B.A. in economics and sociology, and
a Master of Education degree in educational psychology from the
University of Virginia.
Mr. Wimmel, Portfolio Manager, has been associated with
Invesco and/or its affiliates since 2010. Mr. Wimmel was
associated with the Funds previous investment adviser or
its investment advisory affiliates in an investment management
capacity from 1996 to 2010 and began managing the Acquiring Fund
in 2001 and the Target Funds in 2009. Mr. Wimmel earned a
B.A. in anthropology from the University of Cincinnati and an
M.A. in economics from the University of Illinois, Chicago.
The SAI provides additional information about the portfolio
managers compensation, other accounts managed by the
portfolio managers, and the portfolio managers ownership
of securities in each Fund.
Trading
of Common Shares
Each Funds Common Shares trade on the Exchanges.
Generally, an investor purchasing a Funds Common Shares
enters into a purchase transaction on an Exchange through a
broker-dealer and, thus, indirectly purchases the Common Shares
from a selling Fund shareholder. A shareholder who sells a
Funds Common Shares generally sells them on an Exchange
through a broker-dealer, and indirectly to another investor.
Unlike a mutual fund (also called an open-end fund),
holders of Common Shares of a Fund generally do not purchase and
sell such Common Shares from and to the Fund, either directly or
through an intermediary such as a broker-dealer. No brokerage
charges will be imposed on any Funds shareholders in
connection with the Mergers.
Capital
Structures of the Funds
Each Fund is currently organized as a Massachusetts business
trust. The Acquiring Fund was organized on December 21,
1992, IIC was organized on October 30, 1992, IQC was
organized on March 3, 1993 and ICS was organized on
October 14, 1993. As discussed under Proposal 1,
before the closing of the Mergers, the Funds will be reorganized
as Delaware statutory trusts, which will all have identical
governing documents and capital structures, except that ICS has
no outstanding Preferred Shares. (Proposal 1 discusses the
material differences between each Funds current
Massachusetts business trust structure and its proposed Delaware
statutory trust structure.) The Funds governing documents
will therefore be substantially identical immediately prior to
the Mergers with the exception of any provisions governing
outstanding Preferred Shares, which will be substantially
identical among the Acquiring Fund, IIC and IQC but will
not apply to ICS. Each such Delaware statutory trust will have
the same structure, except that ICS has no outstanding Preferred
Shares while the Acquiring Fund, IIC and IQC have
outstanding Preferred Shares. With respect to IIC and IQC,
Common Shareholders will not be affected by the Merger except
that after the Merger each Funds shareholders will hold
shares of a single larger fund. After the Merger, Common
shareholders of ICS will own shares of a single, larger Fund
with a leveraged capital structure, which grants Preferred
Shareholders certain rights, including the right to elect at
least two Trustees, and additional rights in the event that the
Acquiring Fund fails to make payments to the Preferred
Shareholders.
20
Description
of Securities to be Issued
Before any Merger can be completed, each merging Fund must have
completed a redomestication to a Delaware statutory trust, as
discussed in Proposal 1. Accordingly, the following
discussion reflects that each Fund would be a Delaware statutory
trust as of the time of its Merger. A discussion of the changes
a Fund would undergo as part of a Redomestication is included
under Proposal 1.
Common Shares. Each Common Share represents an
equal proportionate interest with each other Common Share of the
Fund, with each such share entitled to equal dividend,
liquidation, redemption and voting rights. The Acquiring
Fund, IIC and IQC also have outstanding Preferred Shares
that vote separately from Common Shares in some circumstances.
Each Funds Common Shares have no preemptive, conversion or
exchange rights, nor any right to cumulative voting.
As of the closing of a Merger, the Acquiring Fund will be
authorized by its Amended and Restated Agreement and Declaration
of Trust to issue an unlimited number of Acquiring
Fund Common Shares, with no par value.
Dividends and Distributions from the Acquiring Fund, IIC
and IQC. The dividend and distribution policies
of IIC and IQC are identical to those of the Acquiring Fund. The
Acquiring Fund intends to make regular monthly distributions of
all or a portion of its net investment income after payment of
dividends on the Acquiring Funds Preferred Shares
outstanding to holders of the Acquiring Funds Common
Shares. The Acquiring Funds net investment income consists
of all interest income accrued on portfolio assets less all
expenses of the Acquiring Fund. The Acquiring Fund is required
to allocate net capital gains and other taxable income, if any,
received by the Fund among its shareholders on a pro rata basis
in the year for which such capital gains and other income is
realized. In certain circumstances, the Acquiring Fund will make
additional payments to Preferred Shareholders to offset the tax
effects of such taxable distributions.
While there are any Preferred Shares of the Acquiring Fund
outstanding, the Acquiring Fund may not declare any cash
dividend or other distribution on its Common Shares, unless at
the time of such declaration, (i) all accrued Preferred
Shares dividends have been paid, (ii) to the extent
necessary, the Fund has redeemed all of the Preferred Shares
subject to mandatory redemption under the terms of the Preferred
Shares, and (iii) the value of the Acquiring Funds
total assets (determined after deducting the amount of such
dividend or other distribution), less all liabilities and
indebtedness of the Fund, is at least 200% of the liquidation
preference of the outstanding Preferred Shares (expected to
equal the aggregate original purchase price of the outstanding
Preferred Shares plus any accrued and unpaid dividends thereon,
whether or not earned or declared on a cumulative basis), as
required by the 1940 Act. This limitation on the Acquiring
Funds ability to make distributions on its Common Shares
could in certain circumstances impair the ability of the
Acquiring Fund to maintain its qualification for taxation as a
regulated investment company under the Code. The Acquiring Fund
intends, however, to the extent possible, to purchase or redeem
Preferred Shares from time to time to maintain compliance with
such asset coverage requirements and may pay special dividends
to the holders of the Preferred Shares in certain circumstances
in connection with any such impairment of the Acquiring
Funds status as a regulated investment company under the
Code.
The tax treatment and characterization of the Acquiring
Funds distributions may vary significantly from time to
time because of the varied nature of its investments. The
Acquiring Fund will indicate the proportion of its capital gains
distributions that constitute long-term and short-term gains
annually. The ultimate tax characterization of the Acquiring
Funds distributions made in a calendar or fiscal year
cannot finally be determined until after the end of that fiscal
year. As a result, there is a possibility that the Acquiring
Fund may make total distributions during a calendar or fiscal
year in an amount that exceeds the Acquiring Funds net
investment income and net capital gains for the relevant fiscal
year and its previously undistributed earnings and profits from
prior years. In such situations, the amount by which the
Acquiring Funds total distributions exceed its net
investment income and net capital gains generally will be
treated as a tax-free return of capital reducing the amount of a
shareholders tax basis in such shareholders shares,
with any amounts exceeding such basis treated as gain from the
sale of shares.
Various factors will affect the level of the Acquiring
Funds net investment income, such as the rate at which
dividends are payable on outstanding Preferred Shares, the
Acquiring Funds asset mix, its level of retained earnings,
the amount of leverage utilized by it and the effects thereof
and the movement of interest rates for municipal bonds. These
factors, among others, may result in the Acquiring Funds
level of net investment income being different from the level of
net investment income for IIC and IQC if the Mergers were not
completed. To permit the Acquiring Fund to maintain more stable
monthly distributions, it may from time to time distribute less
than the entire amount earned in a particular period. The income
would be available to supplement future distributions. As a
result, the distributions paid by the Acquiring Fund for any
particular month may be more or less than the amount actually
earned by the Fund during that month. Undistributed earnings
will add to the Acquiring Funds net asset value and,
correspondingly, distributions from undistributed earnings and
from capital, if any, will deduct from the Funds net asset
value. Although it does not now intend to do so, the Board may
change the Acquiring Funds dividend policy and the amount
or timing of the distributions based on a number of factors,
including the amount of the Funds undistributed net
investment income and historical and projected investment income
and the amount of the expenses and dividend rates on the
outstanding Preferred Shares.
Holders of the Acquiring Funds Common Shares will
automatically have all dividends and distributions reinvested in
Common Shares issued by the Fund or Common Shares of the Fund
purchased in the open market in accordance with the Funds
Automatic Dividend Reinvestment Plan, unless an election is made
to receive cash.
For information concerning the manner in which dividends and
distributions to holders of a Funds common shares may be
reinvested automatically in such Funds Common Shares, see
Dividend Reinvestment Plan below.
21
IIC and IQC Common Shareholders who own certificated shares will
not receive their Acquiring Fund Common Shares or any
dividend payments from the Acquiring Fund until their
certificates are tendered. IIC and IQC Common Shareholders will,
shortly after the closing of their Funds Merger, receive
instructions on how to tender any outstanding share certificates.
Dividends and Distributions from ICS. ICS
declares and pays dividends of net investment income, if any,
monthly, and capital gains distributions, if any, at least
annually. ICS may also declare and pay capital gains
distributions more than once per year as permitted by law. ICS
Common Shareholders who own certificated shares will not receive
their Acquiring Fund Common Shares or any dividend payments
from the Acquiring Fund until their certificates are tendered.
ICS Common Shareholders will, shortly after the closing of their
Funds Merger, receive instructions on how to tender any
outstanding share certificates.
Dividend Reinvestment Plan. Each Fund offers a
similar dividend reinvestment plan for Common Shareholders.
However, the dividend reinvestment plan for the Acquiring Fund
imposes a fee of $2.50 to process a shareholders
withdrawal from, and sale of shares held via, the dividend
reinvestment plan, while the Target Funds do not. Target
Fund Common Shareholders that are enrolled in a dividend
reinvestment plan will be automatically enrolled in the
Acquiring Funds dividend reinvestment plan upon the
closing of a Merger. Each Funds dividend reinvestment plan
is more fully described in the Funds shareholder reports.
Any final distribution preceding the Mergers made by a Target
Fund or the Acquiring Fund will be made in cash, notwithstanding
any shareholders enrollment in the Funds dividend
reinvestment plan. Each Fund expects to amend its dividend
reinvestment plan to provide for distributions to be made in
cash in the event of transactions such as a Merger.
Provisions for Delaying or Preventing Changes in
Control. Each Funds governing documents
contain provisions designed to prevent or delay changes in
control of that Fund. As of the time of the Mergers, each
Funds governing documents will provide that such
Funds Board of Trustees may cause the Fund to merge or
consolidate with or into other entities; cause the Fund to sell,
convey and transfer all or substantially all of the assets of
the Fund; cause the Fund to convert to a different type of
entity; or cause the Fund to convert from a closed-end fund to
an open-end fund, each only so long as such action has
previously received the approval of either (i) the Board,
followed by the affirmative vote of the holders of not less than
75% of the outstanding shares entitled to vote; or (ii) the
affirmative vote of at least two thirds
(662/3%)
of the Board and an affirmative Majority Shareholder Vote (which
generally means the vote of a majority of the outstanding
voting securities as defined in the 1940 Act of the Fund,
with each class and series of shares voting together as a single
class, except to the extent otherwise required by the 1940 Act).
Under each Funds governing documents that will be
applicable as of the time of the Merger, shareholders will have
no right to call special meetings of shareholders or to remove
Trustees. In addition, each Funds Board is divided into
three classes, each of which stands for election only once in
three years. As a result of this system, only those Trustees in
one class may be changed in any one year, and it would require
two years or more to change a majority of the Trustees.
Preferred Shares. Each of the Acquiring
Fund, IIC and IQC have outstanding a class of preferred
shares, designated as Variable Rate Muni Term Preferred Shares
(VMTP Shares). The VMTP Shares of the Acquiring
Fund, IIC and IQC have substantially identical liquidation
preferences, rights, and privileges. In connection with the
Mergers, the Acquiring Fund will issue additional VMTP Shares
equal in number and aggregate liquidation preference to the VMTP
Shares of IIC and IQC, in exchange for such Target
Fund VMTP Shares. ICS has no outstanding preferred shares.
As of the closing of a Merger, the Acquiring Fund will be
authorized by its Amended and Restated Agreement and Declaration
of Trust to issue an unlimited number of Acquiring
Fund Preferred Shares, with no par value.
Share
Price Data
The New York Stock Exchange is the principal trading market for
each Funds Common Shares. The following tables set forth
the high and low sales prices and maximum premium/discount for
each Funds Common Shares for the periods indicated. Common
Shares of each Fund have historically traded at both a premium
and discount to net asset value.
IIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
Net Asset
Value
|
|
|
Premium/Discount
|
|
Quarterly Period
Ending
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
02/29/2012
|
|
$
|
16.16
|
|
|
$
|
14.38
|
|
|
$
|
16.00
|
|
|
$
|
14.92
|
|
|
|
1.13
|
%
|
|
|
-3.62
|
%
|
11/30/2011
|
|
|
14.32
|
|
|
|
13.56
|
|
|
|
15.13
|
|
|
|
14.75
|
|
|
|
-4.16
|
|
|
|
-8.25
|
|
08/31/2011
|
|
|
13.53
|
|
|
|
12.79
|
|
|
|
14.84
|
|
|
|
14.21
|
|
|
|
-6.18
|
|
|
|
-13.58
|
|
05/31/2011
|
|
|
13.40
|
|
|
|
12.36
|
|
|
|
14.19
|
|
|
|
13.39
|
|
|
|
-5.50
|
|
|
|
-9.14
|
|
02/28/2011(1)
|
|
|
13.43
|
|
|
|
12.08
|
|
|
|
14.39
|
|
|
|
13.10
|
|
|
|
-5.53
|
|
|
|
-11.02
|
|
11/30/2010
|
|
|
14.55
|
|
|
|
13.00
|
|
|
|
15.08
|
|
|
|
14.02
|
|
|
|
-3.39
|
|
|
|
-10.41
|
|
10/31/2010
|
|
|
14.90
|
|
|
|
13.67
|
|
|
|
15.36
|
|
|
|
14.83
|
|
|
|
-2.25
|
|
|
|
-7.82
|
|
07/31/2010
|
|
|
13.94
|
|
|
|
13.08
|
|
|
|
14.83
|
|
|
|
14.57
|
|
|
|
-5.94
|
|
|
|
-11.32
|
|
04/30/2010
|
|
|
13.12
|
|
|
|
12.61
|
|
|
|
14.66
|
|
|
|
14.33
|
|
|
|
-10.50
|
|
|
|
-12.10
|
|
01/31/2010
|
|
|
12.65
|
|
|
|
12.56
|
|
|
|
14.32
|
|
|
|
14.21
|
|
|
|
-11.60
|
|
|
|
-12.29
|
|
|
|
|
(1) |
|
The
fiscal year end for IIC changed from October 31 to the last day
of February effective February 28, 2011.
|
22
IQC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
Net Asset
Value
|
|
|
Premium/Discount
|
|
Quarterly Period
Ending
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
02/29/2012
|
|
$
|
14.50
|
|
|
$
|
13.12
|
|
|
$
|
14.72
|
|
|
$
|
13.74
|
|
|
|
-0.90
|
%
|
|
|
-4.52
|
%
|
11/30/2011
|
|
|
13.07
|
|
|
|
12.52
|
|
|
|
13.96
|
|
|
|
13.57
|
|
|
|
-5.15
|
|
|
|
-8.46
|
|
08/31/2011
|
|
|
13.25
|
|
|
|
12.08
|
|
|
|
13.69
|
|
|
|
13.11
|
|
|
|
0.00
|
|
|
|
-11.42
|
|
05/31/2011
|
|
|
12.18
|
|
|
|
11.20
|
|
|
|
13.07
|
|
|
|
12.26
|
|
|
|
-6.42
|
|
|
|
-10.03
|
|
02/28/2011(1)
|
|
|
12.28
|
|
|
|
10.94
|
|
|
|
13.23
|
|
|
|
11.90
|
|
|
|
-4.84
|
|
|
|
-10.53
|
|
11/30/2010
|
|
|
13.08
|
|
|
|
11.86
|
|
|
|
13.96
|
|
|
|
12.88
|
|
|
|
-5.89
|
|
|
|
-11.95
|
|
10/31/2010
|
|
|
14.04
|
|
|
|
12.76
|
|
|
|
14.12
|
|
|
|
13.64
|
|
|
|
0.00
|
|
|
|
-6.66
|
|
07/31/2010
|
|
|
12.90
|
|
|
|
12.14
|
|
|
|
13.64
|
|
|
|
13.41
|
|
|
|
-5.29
|
|
|
|
-10.46
|
|
04/30/2010
|
|
|
12.14
|
|
|
|
11.76
|
|
|
|
13.53
|
|
|
|
13.22
|
|
|
|
-10.27
|
|
|
|
-11.04
|
|
01/31/2010
|
|
|
11.88
|
|
|
|
11.44
|
|
|
|
13.21
|
|
|
|
13.02
|
|
|
|
-9.66
|
|
|
|
-12.14
|
|
|
|
|
(1) |
|
The
fiscal year end for IQC changed from October 31 to the last day
of February effective February 28, 2011.
|
ICS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
Net Asset
Value
|
|
|
Premium/Discount
|
|
Quarterly Period
Ending
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
02/29/2012
|
|
$
|
15.31
|
|
|
$
|
13.82
|
|
|
$
|
15.61
|
|
|
$
|
14.57
|
|
|
|
-1.10
|
%
|
|
|
-5.34
|
%
|
11/30/2011
|
|
|
13.51
|
|
|
|
13.12
|
|
|
|
14.82
|
|
|
|
14.47
|
|
|
|
-7.02
|
|
|
|
-10.34
|
|
08/31/2011
|
|
|
13.16
|
|
|
|
12.52
|
|
|
|
14.54
|
|
|
|
14.03
|
|
|
|
-8.01
|
|
|
|
-13.66
|
|
05/31/2011
|
|
|
12.77
|
|
|
|
12.22
|
|
|
|
14.04
|
|
|
|
13.38
|
|
|
|
-7.51
|
|
|
|
-10.19
|
|
02/28/2011(1)
|
|
|
12.98
|
|
|
|
12.10
|
|
|
|
14.15
|
|
|
|
13.13
|
|
|
|
-6.22
|
|
|
|
-11.13
|
|
11/30/2010
|
|
|
13.62
|
|
|
|
12.65
|
|
|
|
14.83
|
|
|
|
13.85
|
|
|
|
-6.93
|
|
|
|
-11.37
|
|
10/31/2010
|
|
|
13.97
|
|
|
|
13.27
|
|
|
|
15.08
|
|
|
|
14.58
|
|
|
|
-6.41
|
|
|
|
-8.98
|
|
07/31/2010
|
|
|
13.33
|
|
|
|
12.91
|
|
|
|
14.58
|
|
|
|
14.35
|
|
|
|
-8.51
|
|
|
|
-10.80
|
|
04/30/2010
|
|
|
13.17
|
|
|
|
12.88
|
|
|
|
14.47
|
|
|
|
14.17
|
|
|
|
-7.06
|
|
|
|
-9.95
|
|
01/31/2010
|
|
|
13.17
|
|
|
|
12.82
|
|
|
|
14.64
|
|
|
|
14.17
|
|
|
|
-7.76
|
|
|
|
-11.77
|
|
|
|
|
(1) |
|
The
fiscal year end for ICS changed from October 31 to the last day
of February effective February 28, 2011.
|
Acquiring
Fund (VCV)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
Net Asset
Value
|
|
|
Premium/Discount
|
|
Quarterly Period
Ending
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
02/29/2012
|
|
$
|
14.22
|
|
|
$
|
12.59
|
|
|
$
|
13.28
|
|
|
$
|
12.15
|
|
|
|
8.14
|
%
|
|
|
0.92
|
%
|
11/30/2011
|
|
|
12.78
|
|
|
|
12.00
|
|
|
|
12.41
|
|
|
|
11.95
|
|
|
|
5.02
|
|
|
|
-2.10
|
|
08/31/2011
|
|
|
12.31
|
|
|
|
11.43
|
|
|
|
12.08
|
|
|
|
11.45
|
|
|
|
5.03
|
|
|
|
-4.15
|
|
05/31/2011
|
|
|
11.78
|
|
|
|
11.01
|
|
|
|
11.40
|
|
|
|
10.60
|
|
|
|
5.08
|
|
|
|
-0.89
|
|
02/28/2011(1)
|
|
|
12.24
|
|
|
|
10.96
|
|
|
|
11.84
|
|
|
|
10.46
|
|
|
|
6.71
|
|
|
|
-1.70
|
|
11/30/2010
|
|
|
13.12
|
|
|
|
11.74
|
|
|
|
12.72
|
|
|
|
11.43
|
|
|
|
5.60
|
|
|
|
-2.65
|
|
10/31/2010
|
|
|
13.82
|
|
|
|
12.94
|
|
|
|
12.87
|
|
|
|
12.29
|
|
|
|
8.14
|
|
|
|
1.81
|
|
07/31/2010
|
|
|
13.13
|
|
|
|
12.38
|
|
|
|
12.29
|
|
|
|
12.05
|
|
|
|
7.98
|
|
|
|
2.74
|
|
04/30/2010
|
|
|
12.59
|
|
|
|
12.13
|
|
|
|
12.14
|
|
|
|
11.84
|
|
|
|
3.71
|
|
|
|
2.10
|
|
01/31/2010
|
|
|
12.21
|
|
|
|
11.94
|
|
|
|
11.83
|
|
|
|
11.68
|
|
|
|
4.54
|
|
|
|
1.10
|
|
|
|
|
(1) |
|
The
fiscal year end for the Acquiring Fund changed from October 31
to the last day of February effective February 28, 2011.
|
The following table shows, as of February 29, 2012, the NAV
per share, market price, and premium or discount for Common
Shares of each Fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Premium
|
|
|
|
NAV
|
|
|
Price
|
|
|
(Discount)
|
|
|
IIC
|
|
$
|
15.99
|
|
|
$
|
15.70
|
|
|
|
-1.75
|
%
|
IQC
|
|
$
|
14.69
|
|
|
$
|
14.50
|
|
|
|
-1.29
|
%
|
ICS
|
|
$
|
15.49
|
|
|
$
|
15.11
|
|
|
|
-2.45
|
%
|
Acquiring Fund (VCV)
|
|
$
|
13.23
|
|
|
$
|
14.01
|
|
|
|
5.90
|
%
|
Common Shares of each Fund trade at a market price that is
determined by current supply and demand conditions. The market
price of a Funds Common Shares may or may not be the same
as the Funds NAV per share that is, the value
of the portfolio securities owned by the Fund less its
liabilities. When the market price of a Funds Common
Shares exceeds its NAV per share, they are said to be
trading at a premium. When the market price of a
Funds Common Shares is lower than its NAV per share, they
are said to be trading at a discount. It is very
difficult to identify all of the factors that may cause a
closed-end funds common shares to trade at a discount. It
is often difficult to reduce or eliminate a closed-end
funds discount over the long term. Some short-term
measures, such as share repurchases and tender offers, tend to
reduce a closed-end funds assets (and thereby potentially
increase expense ratios), but do not
23
typically have a long-term effect on the discount. Other
measures, such as managed dividend programs, may not have a
consistent long-term effect on discounts.
While the Board of each Fund has determined that the Merger is
in the best interests of each Fund, there is no guarantee that
the Mergers will have any long-term effect or influence on
whether the Acquiring Fund Common Shares trade at a
discount or a premium after the Mergers. Whether Common Shares
had been trading at a premium or discount was not a significant
factor in each Boards approval of the Merger Agreement and
recommendation for approval to Fund shareholders. The Acquiring
Funds Board will continue to monitor any discount or
premium at which the Acquiring Fund Common Shares trade
after the Mergers and will evaluate what (if any) further action
is appropriate at that time to address any discount or premium.
Portfolio
Turnover
The Funds historical portfolio turnover rates are similar.
Because the Funds have similar investment policies, management
does not expect to dispose of a material amount of portfolio
securities of any Fund in connection with the Mergers. No
securities of the Target Funds need be sold in order for the
Acquiring Fund to comply with its investment restrictions or
policies. The Funds will continue to buy and sell securities in
the normal course of their operations.
Portfolio
Guidelines of Preferred Share Rating Agencies and Certificates
of Designation
The Acquiring Fund, IIC and IQC have issued and outstanding
Preferred Shares that are rated by one or more rating agencies.
In order to maintain attractive credit quality ratings for
Preferred Shares, a Fund must meet certain investment quality,
diversification, industry concentration, asset coverage,
liquidity, and other criteria established by such ratings
agencies. These guidelines may vary between rating agencies and
may be modified by a rating agency at any time. In addition, the
Acquiring Fund, IIC and IQCs Preferred Shares were
issued pursuant to a certificate of designation that imposes
certain additional restrictions on the Funds, including a
requirement that each Fund maintain minimum asset coverage of
225% with respect to its Preferred Shares. These rating agency
guidelines and certificates of designation could affect
portfolio decisions and may have requirements more stringent
than those imposed by the 1940 Act or otherwise by a Funds
investment policies.
Terms and
Conditions of the Mergers
The terms and conditions under which a Merger may be consummated
are set forth in the Merger Agreement. Significant provisions of
the Merger Agreement are summarized below; however, this summary
is qualified in its entirety by reference to the Merger
Agreement, a form of which is attached as Exhibit D.
In each Merger, a Target Fund will merge with and into the
Acquiring Fund pursuant to the Merger Agreement and in
accordance with the Delaware Statutory Trust Act. As a
result of each Merger, all of the assets and liabilities of the
merging Target Fund will become assets and liabilities of the
Acquiring Fund, and the Target Funds shareholders will
become shareholders of the Acquiring Fund.
Under the terms of the Merger Agreement, the Acquiring Fund will
issue new Acquiring Fund Common Shares in exchange for
Target Fund Common Shares. The number of Acquiring
Fund Common Shares issued will be based on the relative
NAVs and shares outstanding of the Acquiring Fund and the
applicable Target Fund as of the business day immediately
preceding the Mergers closing date. All Acquiring
Fund Common Shares issued pursuant to the Merger Agreement
will be fully paid and non-assessable, and will be listed for
trading on the Exchanges. The terms of the Acquiring
Fund Common Shares to be issued in each Merger will be
identical to the terms of the Acquiring Fund Common Shares
already outstanding.
Under the terms of the Merger Agreement, the Acquiring Fund will
also issue new Acquiring Fund Preferred Shares in exchange
for Preferred Shares of IIC and IQC. The number of additional
Acquiring Fund Preferred Shares issued for the Mergers with
IIC and IQC will equal the number of outstanding Preferred
Shares of IIC and IQC, and such Acquiring Fund Preferred
Shares will have liquidation preferences, rights, and privileges
substantially identical to those of the then outstanding
Preferred Shares for the merging Target Fund.
Prior to the closing of each Merger, each Target Fund will
declare one or more dividends, and the Acquiring Fund may, but
is not required to, declare a dividend, payable at or near the
time of closing to their respective shareholders to the extent
necessary to avoid entity level tax or as otherwise deemed
desirable. Such distributions, if made, are anticipated to be
made in the 2012 calendar year and, to the extent a distribution
is not an exempt-interest dividend (as defined in
the Code), the distribution may be taxable to shareholders in
such year for federal income tax purposes. It is anticipated
that Fund distributions will be primarily dividends that are
exempt from regular federal income tax, although a portion of
such dividends may be taxable to shareholders as ordinary income
or capital gains. Any such final distribution paid to Common
Shareholders by a Target Fund will be made in cash and not
reinvested in additional Common Shares of the Target Fund. See
the discussion under Description of Securities to be
Issued Dividend Reinvestment Plan for further
information.
If shareholders approve the Mergers and if all of the closing
conditions set forth in the Merger Agreement are satisfied or
waived, including the condition that each Fund complete its
Redomestication (Proposal 1), consummation of the Mergers
(the Closing) is expected to occur in the third
quarter of 2012 on a date mutually agreed upon by the Funds (the
Closing Date).
At the Closing, Acquiring Fund Common Shares will be
credited to Target Fund Common Shareholders on a book-entry
basis only. The Acquiring Fund will not issue certificates
representing Common Shares in connection with the Mergers,
irrespective of whether
24
Target Fund shareholders currently hold such shares in
certificated form. At the Closing, all outstanding certificates
representing Common Shares of the merging Target Fund will be
cancelled. Target Fund shareholders who own certificated Common
Shares will not receive their Acquiring Fund Common Shares
or dividend payments from the Acquiring Fund until their
certificates are tendered to the Acquiring Fund. Target
Fund Common Shareholders will, shortly after the closing of
their Funds Merger, receive instructions on how to tender
any outstanding share certificates.
Each Fund will be required to make representations and
warranties in the Merger Agreement that are customary in matters
such as the Mergers.
If shareholders of a Fund do not approve a Merger or if a Merger
does not otherwise close, the Board will consider what
additional action to take, including allowing the Fund to
continue operating as it currently does. The Merger Agreement
may be terminated and the Merger may be abandoned at any time by
mutual agreement of the parties. The Merger Agreement may be
amended or modified in a writing signed by the parties.
Additional
Information About the Funds
As of the time of the Mergers, each Fund will be a newly
organized Delaware statutory trust, as discussed in
Proposal 1. Each Fund is registered under the 1940 Act as a
diversified, closed-end management investment company.
Diversified means that the Fund is limited in the
amount it can invest in a single issuer. A closed-end fund
(unlike an open-end or mutual fund) does
not continuously sell and redeem its shares; in the case of the
Funds, Common Shares are bought and sold on the Exchanges. A
management investment company is managed by an
investment adviser the Adviser in the case of the
Funds that buys and sells portfolio securities on
behalf of the investment company.
Federal
Income Tax Matters Associated with Investment in the
Funds
The following information is meant as a general summary of
certain federal income tax matters for U.S. shareholders.
Please see the SAI for additional information. Investors should
rely on their own tax advisor for advice about the particular
federal, state and local tax consequences to them of investing
in the Funds (for purposes of this section, the
Fund).
The Fund has elected to be treated and intends to qualify each
year (including the taxable year in which the Merger occurs) as
a regulated investment company (RIC) under
Subchapter M of the Code. In order to qualify as a RIC, the Fund
must satisfy certain requirements regarding the sources of its
income, the diversification of its assets and the distribution
of its income. As a RIC, the Fund is not expected to be subject
to federal income tax on the income and gains it distributes to
its shareholders. If, for any taxable year, the Fund does not
qualify for taxation as a RIC, it will be treated as a
U.S. corporation subject to U.S. federal income tax,
thereby subjecting any income earned by the Fund to tax at the
corporate level and to a further tax at the shareholder level
when such income is distributed. In lieu of losing its status as
a RIC, 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, for taxable years of the Fund with
respect to which the extended due date of the return is after
December 22, 2010.
The Code imposes a 4% nondeductible excise tax on the Fund to
the extent it does not distribute by the end of any calendar
year at least the sum of (i) 98% of its taxable ordinary
income for that year, and (ii) 98.2% of its capital gain
net income (both long-term and short-term) for the one-year
period ending, as a general rule, on October 31 of that year.
For this purpose, however, any ordinary income or capital gain
net income retained by the Fund that is subject to corporate
income tax will be considered to have been distributed by
year-end. In addition, the minimum amounts that must be
distributed in any year to avoid the excise tax will be
increased or decreased to reflect any underdistribution or
overdistribution, as the case may be, from the previous year.
The Fund anticipates that it will pay such dividends and will
make such distributions as are necessary in order to avoid or
minimize the application of this excise tax.
The Fund primarily invests in municipal securities. Thus,
substantially all of the Funds dividends paid to you from
net investment income should qualify as exempt-interest
dividends. A shareholder treats an exempt-interest
dividend as interest on state and local bonds exempt from
regular federal income tax. Exempt-interest dividends from
interest earned on municipal securities of a state, or its
political subdivisions, generally are exempt from that
states personal income tax. Most states, however, do not
grant tax-free treatment to interest from municipal securities
of other states.
Federal income tax law imposes an alternative minimum tax with
respect to corporations, individuals, trusts and estates.
Interest on certain municipal obligations, such as certain
private activity bonds, is included as an item of tax preference
in determining the amount of a taxpayers alternative
minimum taxable income. To the extent that the Fund receives
income from such municipal obligations, a portion of the
dividends paid by the Fund, although exempt from regular federal
income tax, will be taxable to shareholders to the extent that
their tax liability is determined under the federal alternative
minimum tax. The Fund will annually provide a report indicating
the percentage of the Funds income attributable to
municipal obligations subject to the federal alternative minimum
tax. Corporations are subject to special rules in calculating
their federal alternative minimum taxable income with respect to
interest from such municipal obligations.
In addition to exempt-interest dividends, the Fund may also
distribute to its shareholders amounts that are treated as
long-term capital gain or ordinary income (which may include
short-term capital gains). These distributions may be subject to
federal, state and local taxation, depending on a
shareholders situation. If so, they are taxable whether or
not such distributions are reinvested. Net capital gain
distributions (the excess of net long-term capital gain over net
short-term capital loss) are generally taxable at rates
applicable to
25
long-term capital gains regardless of how long a shareholder has
held its shares. Long-term capital gains are currently taxable
to noncorporate shareholders at a maximum federal income tax
rate of 15%. Absent further legislation, the maximum 15% rate on
long-term capital gains will cease to apply to taxable years
beginning after December 31, 2012. The Fund does not expect
that any part of its distributions to shareholders from its
investments will qualify for the dividends-received deduction
available to corporate shareholders or as qualified
dividend income available to noncorporate shareholders.
Distributions by the Fund in excess of the Funds current
and accumulated earnings and profits will be treated as a return
of capital to the extent of the shareholders tax basis in
its shares and will reduce such basis. Any such amount in excess
of that basis will be treated as gain from the sale of shares,
as discussed below.
As a RIC, the Fund will not be subject to federal income tax in
any taxable year on the income and gains it distributes to
shareholders provided that it meets certain distribution
requirements. The Fund may retain for investment some (or all)
of its net capital gain. If the Fund retains any net capital
gain or investment company taxable income, it will be subject to
tax at regular corporate rates on the amount retained. If the
Fund retains any net capital gain, it may designate the retained
amount as undistributed capital gains in a notice to its
shareholders who, if subject to federal income tax on long-term
capital gains, (i) will be required to include in income
for federal income tax purposes, as long-term capital gain,
their share of such undistributed amount; (ii) will be
entitled to credit their proportionate shares of the federal
income tax paid by the Fund on such undistributed amount against
their federal income tax liabilities, if any; and (iii) may
claim refunds to the extent the credit exceeds such liabilities.
For federal income tax purposes, the basis of shares owned by a
shareholder of the Fund will be increased by an amount equal to
the difference between the amount of undistributed capital gains
included in the shareholders gross income and the tax
deemed paid by the shareholder under clause (ii) of the
preceding sentence.
The IRS currently requires that a RIC that has two or more
classes of stock allocate to each such class proportionate
amounts of each type of its income (such as exempt interest,
ordinary income and capital gains). Accordingly, the Fund
designates dividends made with respect to the Common Shares and,
if applicable, the Preferred Shares as consisting of particular
types of income (e.g., exempt interest, net capital gain and
ordinary income) in accordance with each class
proportionate share of the total dividends paid by the Fund
during the year. A classs proportionate share of a
particular type of income is determined according to the
percentage of total dividends paid by the regulated investment
company to such class.
Dividends declared by the Fund to shareholders of record in
October, November or December and paid during the following
January may be treated as having been received by shareholders
in the year the distributions were declared.
At the time of an investors purchase of Fund shares, a
portion of the purchase price may be attributable to realized or
unrealized appreciation in the Funds portfolio or to
undistributed ordinary income or capital gains of the Fund.
Consequently, subsequent distributions by the Fund with respect
to these shares from such appreciation, income or gains may be
taxable to such investor even if the net asset value of the
investors shares is, as a result of the distributions,
reduced below the investors cost for such shares and the
distributions economically represent a return of a portion of
the investment.
Each shareholder will receive an annual statement summarizing
the shareholders dividend and capital gains distributions.
The redemption, sale or exchange of shares normally will result
in capital gain or loss to shareholders who hold their shares as
capital assets. Generally, a shareholders gain or loss
will be long-term capital gain or loss if the shares have been
held for more than one year. The gain or loss on shares held for
one year or less will generally be treated as short-term capital
gain or loss. Present law taxes both long-term and short-term
capital gains of corporations at the same rates applicable to
ordinary income. Long-term capital gains are currently taxable
to noncorporate shareholders at a maximum federal income tax
rate of 15%. As noted above, absent further legislation, the
maximum 15% rate on long-term capital gains will cease to apply
to taxable years beginning after December 31, 2012. Any
loss on the sale of shares that have been held for six months or
less will be disallowed to the extent of any distribution of
exempt-interest dividends received with respect to such shares
and any remaining loss will be treated as a long-term capital
loss to the extent of any long-term capital gain distributed to
you by the Fund on those shares. Any loss realized on a sale or
exchange of shares of a Fund will be disallowed to the extent
those shares of the Fund are replaced by other substantially
identical shares of the Fund or other substantially identical
stock or securities (including through reinvestment of
dividends) within a period of 61 days beginning
30 days before and ending 30 days after the date of
disposition of the original shares. In that event, the basis of
the replacement shares of the Fund will be adjusted to reflect
the disallowed loss.
Under Treasury regulations, if a shareholder recognizes a loss
with respect to Fund shares of $2 million or more for an
individual shareholder, or $10 million or more for a
corporate shareholder, in any single taxable year (or of certain
greater amounts over a combination of years), generally the
shareholder must file with the IRS a disclosure statement on
Form 8886.
Shareholders that are exempt from U.S. federal income tax,
such as retirement plans that are qualified under
Section 401 of the Code, generally are not subject to
U.S. federal income tax on otherwise-taxable Fund dividends
or distributions, or on sales or exchanges of Fund shares unless
the Fund shares are debt-financed property within
the meaning of the Code.
Any interest on indebtedness incurred or continued to purchase
or carry the Funds shares to which exempt-interest
dividends are allocated is not deductible. Under certain
applicable rules, the purchase or ownership of shares may be
considered to have been made with borrowed funds even though
such funds are not directly used for the purchase or ownership
of the shares. In addition, if you receive Social
26
Security or certain railroad retirement benefits, you may be
subject to U.S. federal income tax on a portion of such
benefits as a result of receiving investment income, including
exempt-interest dividends and other distributions paid by the
Fund.
Investments in debt obligations that are at risk of or in
default present special tax issues for the Fund. Federal income
tax rules are not entirely clear about issues such as when the
Fund may cease to accrue interest, original issue discount or
market discount, when and to what extent deductions may be taken
for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and
interest and whether certain exchanges of debt obligations in a
workout context are taxable. These and other issues will be
addressed by the Fund, in the event it invests in or holds such
securities, in order to seek to ensure that it distributes
sufficient income to preserve its status as a RIC.
If the Fund invests in certain
pay-in-kind
securities, zero coupon securities, deferred interest securities
or, in general, any other securities with original issue
discount (or with market discount if the Fund elects to include
market discount in income currently), the Fund must accrue
income on such investments for each taxable year, which
generally will be prior to the receipt of the corresponding cash
payments. However, the Fund must distribute to shareholders, at
least annually, all or substantially all of its investment
company taxable income (determined without regard to the
deduction for dividends paid), including such accrued income, to
qualify as a RIC and to avoid federal income and excise taxes.
Therefore, the Fund may have to dispose of its portfolio
securities under disadvantageous circumstances to generate cash,
or may have to leverage itself by borrowing the cash, to satisfy
these distribution requirements.
The Fund may hold or acquire municipal obligations that are
market discount bonds. A market discount bond is a security
acquired in the secondary market at a price below its redemption
value (or its adjusted issue price if it is also an original
issue discount bond). If the Fund invests in a market discount
bond, it will be required to treat any gain recognized on the
disposition of such market discount bond as ordinary taxable
income to the extent of the accrued market discount.
By law, if you do not provide the Fund with your proper taxpayer
identification number and certain required certifications, you
may be subject to backup withholding on any distributions of
income, capital gains, or proceeds from the sale of your shares.
The Fund also must withhold if the IRS instructs it to do so.
When withholding is required, the amount will be 28% of any
distributions or proceeds paid, including exempt interest
dividends (for distributions and proceeds paid after
December 31, 2012, the rate is scheduled to rise to 31%
unless the 28% rate is extended or made permanent).
For taxable years beginning after December 31, 2012, an
additional 3.8% Medicare tax will be imposed on certain net
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) of US
individuals, estates and trusts to the extent that such
persons modified adjusted gross income (in the
case of an individual) or adjusted gross income (in
the case of an estate or trust) exceeds a threshold amount.
The description of certain federal tax provisions above relates
only to U.S. federal income tax consequences for
shareholders who are U.S. persons, i.e., generally,
U.S. citizens or residents or U.S. corporations,
partnerships, trusts or estates, and who are subject to
U.S. federal income tax and hold their shares as capital
assets. Except as otherwise provided, this description does not
address the special tax rules that may be applicable to
particular types of investors, such as financial institutions,
insurance companies, securities dealers, other regulated
investment companies, or tax-exempt or tax-deferred plans,
accounts or entities. Investors other than U.S. persons may
be subject to different U.S. federal income tax treatment,
including a non-resident alien U.S. withholding tax at the
rate of 30% or any lower applicable treaty rate on amounts
treated as ordinary dividends from the Fund, special
certification requirements to avoid U.S. backup withholding
and claim any treaty benefits and U.S. estate tax.
Shareholders should consult their own tax advisors on these
matters and on state, local, foreign and other applicable tax
laws.
Under recently enacted legislation and administrative guidance,
the relevant withholding agent may be required to withhold 30%
of any (a) income dividends paid after December 31,
2013 and (b) certain capital gains distributions and the
proceeds of a sale of shares paid after December 31, 2014
to (i) a foreign financial institution unless such foreign
financial institution agrees to verify, report and disclose
certain of its U.S. accountholders and meets certain other
specified requirements or (ii) a non-financial foreign
entity that is the beneficial owner of the payment unless such
entity certifies that it does not have any substantial
U.S. owners or provides the name, address and taxpayer
identification number of each substantial U.S. owner and
such entity meets certain other specified requirements.
State
Income Tax Matters Associated with Investment in the
Funds
Shareholders of the Fund may exclude any exempt interest
dividends paid to you by the Fund from your California taxable
income for purposes of the California personal income tax if:
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the Fund qualifies as a regulated investment company under the
Code and at the close of each quarter of its taxable year, at
least 50 percent of the value of its total assets consists
of obligations the interest on which is exempt from taxation by
the State of California when held by an individual;
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the dividends are derived from interest on obligations of the
State of California and its political subdivisions or qualifying
obligations of U.S. territories and possessions that are
exempt from state taxation under federal law;
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the dividends paid do not exceed the amount of interest (minus
certain non-deductible expenses) the Fund receives, during its
taxable year, on obligations that, when held by an individual,
pay interest exempt from taxation by California; and
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27
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the Fund properly identifies the dividends as California exempt
interest dividends in a written notice mailed to the investor.
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Any distributions of net short-term and long-term capital gain
earned by the Fund and any gain from the sale of shares of the
Fund by a shareholder are included in a shareholders
taxable income for purposes of the California personal income
tax. Residents of California may be subject to backup
withholding at 7% on the proceeds from the sale of Fund shares.
Distributions from the Fund, including exempt-interest
dividends, may be taxable to shareholders that are subject to
certain provisions of the California Corporation Tax Law.
Board
Considerations in Approving the Mergers
On June 1, 2010, Invesco acquired the retail fund
management business of Morgan Stanley, which included 32 Morgan
Stanley and Van Kampen branded closed-end funds. This
transaction filled gaps in Invescos product line and has
enabled Invesco to expand its investment offerings to retail
customers. The transaction also resulted in product overlap. The
Mergers proposed in this Proxy Statement are part of a larger
group of mergers across Invescos fund platform that began
in early 2011. The larger group of mergers is designed to put
forth Invescos most compelling investment processes and
strategies, reduce product overlap and create scale in the
resulting funds.
Considerations
of the Board of the Acquiring Fund
The Board of the Acquiring Fund (the Acquiring
Fund Board) considered the Mergers over a series of
meetings. The Nominating Committee of the Acquiring
Fund Board, which consists solely of trustees who are not
interested persons, as that term is defined in the
1940 Act, of the Acquiring Fund (the Independent
Trustees), met on November 1, 2011 to consider the
Mergers and to assist the Acquiring Fund Board in its
consideration of the Mergers. The Nominating Committee
considered presentations from the Adviser on the proposed
Mergers and identified to the Adviser certain supplemental
information to be prepared in connection with the presentation
of the proposed Mergers to the full Acquiring Fund Board.
Prior to the November 15, 2011 meeting of the full
Acquiring Fund Board, the Acquiring Fund Board met in
executive session with the Nominating Committee to discuss the
Committees consideration and review of the proposed
Mergers. The full Acquiring Fund Board met twice, on
November 15, 2011 and November 28, 2011, to review and
consider the Mergers. The Acquiring Fund Board requested
and received from the Adviser written materials containing
relevant information about the Funds and the proposed Mergers,
including fee and expense information on an actual and pro forma
estimated basis, and comparative portfolio composition and
performance data.
The Acquiring Fund Board reviewed, among other information
they deemed relevant, information comparing the following for
each Fund on a current and pro forma basis: (1) investment
objective, policies and restrictions; (2) portfolio
management; (3) portfolio composition; (4) comparative
short-term and long-term investment performance and distribution
yields; (5) expense ratios and expense structures,
including contractual investment advisory fees and fee waiver
agreements; (6) expected federal income tax consequences to
the Funds, including any impact on capital loss carry forwards;
(7) relative asset size; (8) trading information such
as trading premiums/discounts for the Funds Common Shares;
and (9) use of leverage and outstanding Preferred Shares.
The Acquiring Fund Board discussed with the Adviser the
Advisers process for selecting and analyzing the Funds
that had been proposed to participate in the Mergers and
possible alternatives to the Mergers, including liquidation and
maintaining stand alone funds, among other alternatives. The
Acquiring Fund Board also discussed with the Adviser the
Mergers in the context of the larger group of completed and
proposed reorganizations of funds in the fund complex, which
were designed to rationalize the Invesco funds to seek to
enhance visibility in the market place.
The potential benefits to the Acquiring Fund of the Mergers
considered by the Acquiring Fund Board, included
(1) potential benefits resulting from the larger size of
the combined fund, including the potential for
(i) increased attention from the investment community,
(ii) increased trading volume and tighter spreads and
improved premium/discount levels for the combined funds
Common Shares, (iii) improved purchasing power and more
efficient transaction costs, and (iv) increased
diversification of portfolio investments; (2) maintaining
consistent portfolio management teams, processes and investment
objectives and (3) reducing market confusion caused by
similar product offerings.
The Acquiring Fund Board also considered the anticipated
economic effects of the Mergers on the combined funds fees
and expenses, earnings, distribution rates, undistributed net
investment company income and market price of Common Shares. The
Board considered that (1) the Acquiring Funds
management fee schedule will apply to the combined fund and, due
to the larger size of the combined fund, the Mergers are
anticipated to result in the combined fund having a lower total
expense ratio than the Acquiring Fund; (2) the investment
objective, strategies and related risks of the Target Fund and
the Acquiring Fund are substantially the same; (3) the
Funds have the same portfolio management teams;
(4) shareholders would become shareholders of the larger
combined fund; and (5) the allocation of expenses of the
Mergers, including the Advisers paying all of the Merger
costs. The Acquiring Fund Board also considered the
expected tax free nature of the Mergers for each Fund and its
shareholders for federal income tax purposes.
Based upon the information and considerations summarized above,
the Acquiring Fund Board concluded that each Merger is in
the best interests of the Acquiring Fund and the shareholders of
the Acquiring Fund and that no dilution of net asset value would
result to the shareholders of the Acquiring Fund from each
Merger. Consequently, on November 28, 2011, the Acquiring
Fund Board, including the Independent Trustees voting
separately, unanimously approved the Merger Agreement and each
Merger and unanimously recommended that the shareholders of
Acquiring Fund vote in favor of each Merger.
28
Considerations
of the Board of each of the Target Funds
Each Target Funds Board created an ad hoc committee (the
Ad Hoc Merger Committee) to consider each Merger and
to assist each Target Fund Board in its consideration of
such Merger. The Ad Hoc Merger Committee met separately two
times, on October 17, 2011 and November 18, 2011 to
discuss each proposed Merger. Two separate meetings of each
Target Funds Board were also held to review and consider
each Merger, including presentations by the Ad Hoc Merger
Committee on its deliberations and, ultimately, recommendations.
The trustees who are not interested persons, as that
term is defined in the 1940 Act, of the Target Funds (the
Independent Trustees) held a separate meeting in
conjunction with the November
29-30, 2011
meeting of the full Target Fund Boards to consider these
matters. The Independent Trustees have been advised on this
matter by independent legal counsel to the Independent Trustees.
The Target Fund Boards requested and received from the
Adviser written materials containing relevant information about
the Target Funds and the proposed Mergers, including fee and
expense information on an actual and pro forma estimated basis,
and comparative portfolio composition and performance data.
The Target Fund Boards reviewed, among other information
they deemed relevant, information comparing the following for
each Target Fund: (1) investment objective, policies and
restrictions; (2) portfolio management; (3) portfolio
composition; (4) comparative short-term and long-term
investment performance and distribution yields; (5) current
expense ratios and expense structures, including contractual
investment advisory fees on a net asset basis and on a managed
assets basis; (6) expected federal income tax consequences
to the Funds, including any impact on capital loss carry
forwards; (7) relative asset size; and (8) trading
information such as trading premiums/discounts and bid/ask
spreads.
The Target Fund Boards considered the benefits to each
Target Fund of (i) combining with a similar fund to create
a larger fund, (ii) the Advisers paying all of the
Merger costs, and (iii) the expected tax free nature of the
Merger for each Target Fund and its shareholders for federal
income tax purposes. The Target Fund Boards also considered
that the potential benefits to the Target Funds of the Mergers
might include (1) benefits resulting from the larger size
of the combined fund, including the potential for
(i) increased attention from the investment community,
(ii) increased trading volume and tighter spreads and
improved premium/discount levels for the combined funds
Common Shares, (iii) improved purchasing power and more
efficient transaction costs, and (iv) increased
diversification of portfolio investments; (2) maintaining
consistent portfolio management teams, processes and investment
objectives; and (3) reducing market confusion caused by
similar product offerings. In addition, each Target Funds
Board considered the Acquiring Funds higher contractual
advisory fee rate in light of the benefits of retaining the
Adviser as the Acquiring Funds investment adviser, the
feasibility of the Advisers continued service to the
Target Funds at current fee levels, the services provided, and
those expected to be provided, to the Acquiring Fund by the
Adviser, and the terms and conditions of the Acquiring
Funds advisory agreement.
After considering the foregoing, the Board of each Target Fund
noted that:
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the combined fund on a pro forma basis had a more than 0.50%
higher distribution yield (as a percentage of net asset value)
than each Target Fund, even after giving effect to the higher
management fees and total expense ratio that will apply to the
combined fund before and after the expiration of fee waivers;
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as of July 31, 2011, the Acquiring Fund had traded at an
average premium of 3.0% to its net asset value over the
preceding 52 week period and, over the same period, the
Target Funds had traded at average discounts of -6.6% (IIC),
-7.15% (IQC) and -8.48% (ICS);
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as of July 31, 2011, the Acquiring Fund had traded at an
average discount of -2.2% to its net asset value for the
preceding month and, over the same period, the Target Funds had
traded at average discounts of -10.20% (IIC), -8.9% (IQC) and
-10.10% (ICS);
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the average daily trading volume for the Acquiring Fund was
approximately twice the highest average daily trading volumes of
the Target Funds; and
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as of July 31, 2011, the Acquiring Fund owned 192 different
municipal bonds and the Target Funds owned 122 (IIC), 109 (IQC)
and 97 (ICS), which means that the combined fund would provide
shareholders with a more diverse investment portfolio.
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The Target Fund Boards also considered the Mergers in the
context of the larger group of mergers, which were designed to
rationalize the Invesco funds in a way that can enhance
visibility in the market place. The Target Fund Boards
discussed with the Adviser the possible alternatives to the
Mergers, including liquidation and maintaining the status quo,
among other alternatives.
The Target Fund Boards further considered that (i) the
investment objective, strategies and related risks of each
Target Fund and the Acquiring Fund are substantially the same;
(ii) the Funds have the same portfolio management team;
(iii) shareholders would become shareholders of a single
larger Fund; and (iv) the Advisers representation
that, because of the similarity between the Funds
investment objectives and strategies, the costs associated with
repositioning each Target Funds investment portfolio in
connection with a Merger would be minimal. The Target
Fund Boards also considered that the impact to Target Fund
shareholders of the Acquiring Funds significantly higher
advisory fee rate would be mitigated by the Advisers
agreement to limit the Acquiring Funds total expenses if a
Merger is completed, as disclosed above on a pro forma basis,
through at least two years from the closing date of the Mergers.
Based upon the information and considerations described above,
the Target Fund Boards unanimously concluded that the
Mergers are in the best interests of the Target Funds and that
no dilution of net asset value would result to the shareholders
of the Target Funds from
29
the Mergers. Consequently, the Target Fund Boards
unanimously approved the Merger Agreement and each Merger on
November 29, 2011.
The discussion above summarizes certain information regarding
the Funds considered by the Boards of the Acquiring Fund and the
Target Funds, respectively, which was accurate as of the time of
the Boards consideration of the Mergers. There can be no
assurance that the information considered by the Boards,
including with respect to the Funds trading at a premium
or discount, remains accurate as of the date hereof or at the
closing of the Mergers.
Federal
Income Tax Considerations of the Mergers
The following is a general summary of the material
U.S. federal income tax considerations of the Mergers and
is based upon the current provisions of the Code, the existing
U.S. Treasury Regulations thereunder, current
administrative rulings of the IRS and published judicial
decisions, all of which are subject to change. These
considerations are general in nature and individual shareholders
should consult their own tax advisors as to the federal, state,
local, and foreign tax considerations applicable to them and
their individual circumstances. These same considerations
generally do not apply to shareholders who hold their shares in
a tax-deferred account.
Each Merger is intended to be a tax-free reorganization pursuant
to Section 368(a) of the Code. As described above, the
Mergers will occur following the Redomestication of each Target
Fund and the Acquiring Fund. The principal federal income tax
considerations that are expected to result from the Merger of
each Target Fund into the Acquiring Fund are as follows:
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no gain or loss will be recognized by the Target Fund or the
shareholders of the Target Fund as a result of the Merger;
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no gain or loss will be recognized by the Acquiring Fund as a
result of the Merger;
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the aggregate tax basis of the shares of the Acquiring Fund to
be received by a shareholder of the Target Fund will be the same
as the shareholders aggregate tax basis of the shares of
the Target Fund; and
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the holding period of the shares of the Acquiring Fund received
by a shareholder of the Target Fund will include the period that
a shareholder held the shares of the Target Fund (provided that
such shares of the Target Fund are capital assets in the hands
of such shareholder as of the Closing).
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Neither the Target Funds nor the Acquiring Fund have requested
or will request an advance ruling from the IRS as to the federal
tax consequences of the Mergers. As a condition to Closing,
Stradley Ronon Stevens & Young, LLP will render a
favorable opinion to each Target Fund and the Acquiring Fund as
to the foregoing federal income tax consequences of each Merger,
which opinion will be conditioned upon, among other things, the
accuracy, as of the Closing Date, of certain representations of
each Target Fund and the Acquiring Fund upon which Stradley
Ronon Stevens & Young, LLP will rely in rendering its
opinion. Such opinion of counsel may state that no opinion is
expressed as to the effect of the Mergers on the Target Funds,
the Acquiring Fund, or any Target Fund shareholder with respect
to any transferred asset as to which any unrealized gain or loss
is required to be recognized for federal income tax purposes at
the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting. A copy of
the opinion will be filed with the SEC and will be available for
public inspection. See Where to Find Additional
Information.
Opinions of counsel are not binding upon the IRS or the courts.
If a Merger is consummated but the IRS or the courts determine
that the Merger does not qualify as a tax-free reorganization
under the Code, and thus is taxable, the Target Fund would
recognize gain or loss on the transfer of its assets to the
Acquiring Fund and each shareholder of the Target Fund would
recognize a taxable gain or loss equal to the difference between
its tax basis in its Target Fund shares and the fair market
value of the shares of the Acquiring Fund it receives. The
failure of one Merger to qualify as a tax-free reorganization
would not adversely affect any other Merger.
Prior to the closing of each Merger, each Target Fund will
declare one or more dividends, and the Acquiring Fund may, but
is not required to, declare a dividend, payable at or near the
time of closing to their respective shareholders to the extent
necessary to avoid entity level tax or as otherwise deemed
desirable. Such distributions, if made, are anticipated to be
made in the 2012 calendar year and, to the extent a distribution
is not an exempt-interest dividend (as defined in
the Code), the distribution may be taxable to shareholders in
such year for federal income tax purposes. It is anticipated
that Fund distributions will be primarily dividends that are
exempt from regular federal income tax, although a portion of
such dividends may be taxable to shareholders as ordinary income
or capital gains. Any such final distribution paid to Common
Shareholders by a Target Fund will be made in cash and not
reinvested in additional Common Shares of the Target Fund. See
the discussion under Description of Securities to be
Issued Dividend Reinvestment Plan for further
information.
Each Fund may invest all or a substantial portion of its total
assets in municipal securities that may subject certain
investors to the federal alternative minimum tax (AMT
bonds) and, therefore, a substantial portion of the income
produced by each Fund may be taxable for such investors under
the federal alternative minimum tax. If the Acquiring Fund
following the Mergers has a greater portion of its portfolio
investments in AMT bonds than a Target Fund, a greater portion
of the dividends paid by the Acquiring Fund to shareholders of
the Target Fund, post-Closing, may be taxable under the federal
alternative minimum tax. However, the portion of a Funds
total assets invested in AMT Bonds on the Closing Date or in the
future and the portion of income subject to federal alternative
minimum tax cannot be known in advance. See the Schedule of
Investments available in each Funds Annual Report for the
portion of a Funds total assets that are invested in AMT
Bonds at February 29, 2012.
30
The tax attributes, including capital loss carryovers, of the
Target Funds move to the Acquiring Fund in the Mergers. The
capital loss carryovers of the Target Funds and the Acquiring
Fund are available to offset future gains recognized by the
combined Fund, subject to limitations under the Code. Where
these limitations apply, all or a portion of a Funds
capital loss carryovers may become unavailable, the effect of
which may be to accelerate the recognition of taxable gain to
the combined Fund and its shareholders post-Closing. First, the
capital loss carryovers of each Fund that experiences a more
than 50% ownership change in a Merger (e.g., in a reorganization
of two Funds, the smaller Fund), increased by any current year
loss or decreased by any current year gain, together with any
net unrealized depreciation in the value of its portfolio
investments (collectively, its aggregate capital loss
carryovers), are expected to become subject to an annual
limitation. Losses in excess of that limitation may be carried
forward to succeeding tax years, subject, in the case of net
capital losses that arise in taxable years beginning on or
before December 22, 2010 as discussed below, to an overall
eight-year carryover period. The annual limitation will
generally equal the net asset value of a Fund on the Closing
Date multiplied by the long-term tax-exempt rate
published by the IRS. In the case of a Fund with net unrealized
built-in gains at the time of Closing of a Merger (i.e.,
unrealized appreciation in value of the Funds
investments), the annual limitation for a taxable year will be
increased by the amount of such built-in gains that are
recognized in the taxable year. Second, if a Fund has built-in
gains at the time of Closing that are realized by the combined
Fund in the five-year period following a Merger, such built-in
gains, when realized, may not be offset by the losses (including
any capital loss carryovers and built in losses) of
another Fund. Third, the capital losses of a Target Fund that
may be used by the Acquiring Fund (including to offset any
built-in gains of a Target Fund itself) for the
first taxable year ending after the Closing Date will be limited
to an amount equal to the capital gain net income of the
Acquiring Fund for such taxable year (excluding capital loss
carryovers) treated as realized post-Closing based on the number
of days remaining in such year. Fourth, a Merger may result in
an earlier expiration of a Funds capital loss carryovers
because a Merger may cause a Target Funds tax year to
close early in the year of the Merger.
The Regulated Investment Company Modernization Act of 2010
eliminated the eight-year carryover period for capital losses
that arise in taxable years beginning after its enactment date
(December 22, 2010) for regulated investment companies
regardless of whether such regulated investment company is a
party to a reorganization. Consequently, these capital losses
can be carried forward indefinitely. However, capital losses
incurred in pre-enactment taxable years may not be used to
offset capital gains until all net capital losses arising in
post-enactment taxable years have been utilized. As a result,
some net capital loss carryovers incurred in pre-enactment
taxable years which otherwise would have been utilized under
prior law may expire.
The aggregate capital loss carryovers of the Funds and the
approximate annual limitation on the use by the Acquiring Fund,
post-Closing, of each Funds aggregate capital loss
carryovers following the Mergers are as follows:
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IIC
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IQC
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ICS
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VCV
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(Target Fund)
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(Target Fund)
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(Target Fund)
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(Acquiring
Fund)
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(000,000s)
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(000,000s)
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(000,000s)
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(000,000s)
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at
2/29/2012
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at
2/29/2012
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at
2/29/2012
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at
2/29/2012
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Aggregate Capital Loss Carryovers on a Tax Basis
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$
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(2.3
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)
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$
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(12.9
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)
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$
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(0.5
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)
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$
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(71.8
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)
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Unrealized Net Appreciation (Depreciation) in Investments on a
Tax Basis
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$
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16.2
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$
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12.8
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|
$
|
4.3
|
|
|
$
|
29.3
|
|
Aggregate Net Asset Value
|
|
$
|
167.3
|
|
|
$
|
129.1
|
|
|
$
|
52.7
|
|
|
$
|
293.0
|
|
Approximate Annual
Limitation(1)
|
|
$
|
5.5
|
|
|
$
|
4.2
|
|
|
$
|
1.7
|
|
|
$
|
9.6
|
|
|
|
|
(1) |
|
Based
on the long-term tax-exempt rate for ownership changes during
May 2012 of 3.26%.
|
Based upon each Target Funds capital loss position at
February 29, 2012, the annual limitations on the use of
each Target Funds aggregate capital loss carryovers may
not prevent the combined Fund from utilizing such losses, albeit
over a period of time. Based upon the Acquiring Funds
capital loss position at February 29, 2012, the annual
limitation on the use of the Acquiring Funds aggregate
capital loss carryovers will likely limit the use of such losses
by the Acquiring Fund, post-Closing, to offset capital gains, if
any, it realizes. The effect of these annual limitations may be
to cause the combined Fund, post-Closing, to distribute more
capital gains in a taxable year than might otherwise have been
the case if no such limitation had applied. The ability of the
Acquiring Fund to absorb its own aggregate capital loss
carryovers and those of the Target Funds post-Closing depends
upon a variety of factors that cannot be known in advance. For
more information with respect to each Funds capital loss
carryovers, please refer to the Funds shareholder report.
Shareholders of a Target Fund will receive a proportionate share
of any taxable income and gains realized by the Acquiring Fund
and not distributed to its shareholders prior to the Merger when
such income and gains are eventually distributed by the
Acquiring Fund. As a result, shareholders of a Target Fund may
receive a greater amount of taxable distributions than they
would have had the Merger not occurred. In addition, if the
Acquiring Fund following the Mergers has proportionately greater
unrealized appreciation in its portfolio investments as a
percentage of its net asset value than a Target Fund,
shareholders of the Target Fund, post-Closing, may receive
greater amounts of taxable gain as such portfolio investments
are sold than they otherwise might have if the Mergers had not
occurred. At February 29, 2012, the unrealized appreciation
(depreciation) in value of the portfolio investments of each
Target Fund on a tax basis as a percentage of its net asset
value is 10% for IIC, 10% for IQC, and 8% for ICS, compared to
that of the Acquiring Fund of 10%, and 10% on a combined basis.
After the Mergers, shareholders will continue to be responsible
for tracking the adjusted tax basis and holding period of their
shares for federal income tax purposes.
31
Costs of
the Mergers
The estimated total costs of the Merger for each Fund, as well
as the estimated proxy solicitation costs for each Fund (which
are part of the total Merger costs), are set forth in the table
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Merger
|
|
|
Portion of
Merger
|
|
|
|
Estimated
Proxy
|
|
|
Costs
(includes
|
|
|
Costs to be
Paid
|
|
|
|
Solicitation
Costs
|
|
|
Proxy
Solicitation)
|
|
|
by the
Funds
|
|
|
IIC
|
|
$
|
10,000
|
|
|
$
|
140,000
|
|
|
$
|
0
|
|
IQC
|
|
$
|
10,000
|
|
|
$
|
140,000
|
|
|
$
|
0
|
|
ICS
|
|
$
|
10,000
|
|
|
$
|
130,000
|
|
|
$
|
0
|
|
Acquiring Fund (VCV)
|
|
$
|
20,000
|
|
|
$
|
110,000
|
|
|
$
|
0
|
|
The Adviser will bear all Merger costs. The costs of the Mergers
include legal counsel fees, independent accountant fees,
expenses related to the printing and mailing of this Proxy
Statement, listing fees for additional shares on the Exchanges,
and fees associated with the proxy solicitation. Each Fund bears
the cost of its annual meeting, including proxy solicitation
costs of approximately $3,000.
Capitalization
The following table sets forth as of February 29, 2012 each
Funds total net assets, number of shares outstanding of
each class, and net asset value per Common Share, and the number
of shares outstanding of the Preferred Shares of each Fund. This
information is generally referred to as the
capitalization of a Fund. The term pro
forma capitalization means the expected capitalization
of the Acquiring Fund after the Mergers. The table shows pro
forma capitalization giving effect to the proposed Mergers.
The capitalizations of the Funds are likely to be different on
the Closing Date as a result of daily market activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquiring Fund
Pro
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquiring
|
|
|
Pro Forma
|
|
|
Forma
(Assumes
all of the
|
|
|
|
IIC
|
|
|
IQC
|
|
|
ICS
|
|
|
Fund
(VCV)
|
|
|
Adjustments
|
|
|
Mergers are
Completed)
|
|
|
Net assets
|
|
$
|
167,342,758
|
|
|
$
|
129,094,753
|
|
|
$
|
52,673,929
|
|
|
$
|
293,012,026
|
|
|
$
|
01
|
|
|
$
|
642,123,466
|
|
Common Shares Outstanding
|
|
|
10,467,280
|
|
|
|
8,787,478
|
|
|
|
3,399,956
|
|
|
|
22,142,812
|
|
|
|
3,734,1881
|
|
|
|
48,531,714
|
|
Common Share NAV Per Share
|
|
$
|
15.99
|
|
|
$
|
14.69
|
|
|
$
|
15.49
|
|
|
$
|
13.23
|
|
|
|
|
|
|
$
|
13.23
|
|
Preferred Shares Outstanding
|
|
|
828
|
|
|
|
618
|
|
|
|
|
|
|
|
4,640
|
|
|
|
|
|
|
|
6,086
|
|
|
|
|
1 |
|
Pro
forma
shares
outstanding have been adjusted for the accumulated change in the
number of shares of each Target Funds shareholder accounts
based on the relative net asset value per Common Share of each
Target Fund and the Acquiring Fund.
|
As of the time of the Mergers (by which time each Fund will have
been reorganized as a Delaware statutory trust, as discussed in
Proposal 1), each Fund will be authorized to issue an
unlimited number of preferred shares of beneficial interest
(Acquiring Fund, IIC, and IQC only) and an unlimited number
of common shares of beneficial interest, and no Fund will hold
any of its shares for its own account.
Where to
Find More Information
The SAI contains further information on the Funds, including
their investment policies, strategies and risks. Additional
information is available in each Funds shareholder reports.
THE
BOARDS UNANIMOUSLY RECOMMEND THAT YOU VOTE
FOR THE APPROVAL OF
PROPOSAL 2.
PROPOSAL 3:
ELECTION OF TRUSTEES BY THE TARGET FUNDS
At the Meeting, Common Shareholders and Preferred Shareholders
of the Target Funds, voting together as a single class, will
vote on the election of the following six nominees for election
as Trustees: James T. Bunch, Bruce L. Crockett, Rodney F.
Dammeyer, Jack M. Fields, Martin L. Flanagan and Carl
Frischling. All nominees have consented to being named in this
Proxy Statement and have agreed to serve if elected.
The group of Trustees standing for election in any given year is
the same for each Target Fund. The following table indicates the
Trustees in each such group and the period for which each group
currently serves:
|
|
|
|
|
Group I*
|
|
Group II**
|
|
Group III***
|
|
Albert R. Dowden
|
|
David C. Arch
|
|
James T. Bunch
|
Prema Mathai-Davis
|
|
Frank S. Bayley
|
|
Bruce L. Crockett
|
Hugo F. Sonnenschein
|
|
Larry Soll
|
|
Rodney F. Dammeyer
|
Raymond Stickel, Jr.
|
|
Philip A. Taylor
|
|
Jack M. Fields
|
|
|
Wayne W. Whalen
|
|
Martin L. Flanagan
|
|
|
|
|
Carl Frischling
|
|
|
|
* |
|
Currently serving until the year 2013 Annual Meeting or until
their successors have been duly elected and qualified. |
|
** |
|
Currently serving until the year 2014 Annual Meeting or until
their successors have been duly elected and qualified. |
32
|
|
|
*** |
|
If elected, to serve until the year 2015 Annual Meeting or until
their successors have been duly elected and qualified. |
If elected, each nominee will serve until the later of the
Target Funds annual meeting of shareholders in 2015 or
until his or her successor has been duly elected and qualified,
or his or her earlier retirement, resignation or removal. As in
the past, only one class of Trustees is being submitted to
shareholders of each Target Fund for election at the Meeting.
The Declaration of Trust of each Target Fund provides that the
Board shall be divided into three classes, which must be as
nearly equal in number as possible. For each Target Fund, the
Trustees of only one class are elected at each annual meeting,
so that the regular term of only one class of Trustees will
expire annually and any particular Trustee stands for election
only once in each three-year period. This type of classification
may prevent replacement of a majority of Trustees of a Target
Fund for up to a two-year period. The foregoing is subject to
the provisions of the 1940 Act, applicable state law, each
Target Funds Declaration of Trust, and each Target
Funds bylaws.
Prema Mathai-Davis and Frank S. Bayley, who are not part of the
group of Trustees standing for election at the Meeting, have
been designated to be elected solely by the holders of the
Preferred Shares of the applicable Fund.
The business and affairs of the Target Funds are managed under
the direction of their Boards of Trustees. Below is information
on the Trustees qualifications and experience.
Interested
Trustees.
Martin L. Flanagan. Mr. Flanagan is
president and chief executive officer of Invesco Ltd., a
position he has held since August 2005. He is also a member of
the Board of Directors of Invesco Ltd. Mr. Flanagan joined
Invesco Ltd. from Franklin Resources, Inc., where he was
president and co-chief executive officer from January 2004 to
July 2005. Previously he had been Franklins co-president
from May 2003 to January 2004, chief operating officer and chief
financial officer from November 1999 to May 2003, and senior
vice president and chief financial officer from 1993 until
November 1999. Mr. Flanagan served as director, executive
vice president and chief operating officer of Templeton,
Galbraith & Hansberger, Ltd. before its acquisition by
Franklin in 1992. Before joining Templeton in 1983, he worked
with Arthur Anderson & Co. Mr. Flanagan is a
chartered financial analyst and a certified public accountant.
He serves as vice chairman of the Investment Company Institute
and is a member of the executive board at the SMU Cox School of
Business. The Board believes that Mr. Flanagans long
experience as an executive in the investment management area
benefits the Target Funds.
Philip A. Taylor. Mr. Taylor has been the
head of Invescos North American retail business as Senior
Managing Director since April 2006. He previously served as
chief executive officer of Invesco Trimark Investments since
January 2002. Mr. Taylor joined Invesco in 1999 as senior
vice president of operations and client services and later
became executive vice president and chief operating officer.
Mr. Taylor was president of Canadian retail broker
Investors Group Securities from 1994 to 1997 and managing
partner of Meridian Securities, an execution and clearing
broker, from 1989 to 1994. He held various management positions
with Royal Trust, now part of Royal Bank of Canada, from 1982 to
1989. He began his career in consumer brand management in the
U.S. and Canada with Richardson-Vicks, now part of
Procter & Gamble. The Board believes that
Mr. Taylors long experience in the investment
management business benefits the Target Funds.
Wayne W. Whalen. Mr. Whalen is Of Counsel
and, prior to 2010, was a partner in the law firm of Skadden,
Arps, Slate, Meagher & Flom LLP. Mr. Whalen is a
Director of the Mutual Fund Directors Forum, a nonprofit
membership organization for investment company directors,
Chairman and Director of the Abraham Lincoln Presidential
Library Foundation and Director of the Stevenson Center for
Democracy. From 1995 to 2010, Mr. Whalen served as Director
and Trustee of investment companies in the Van Kampen Funds
complex. The Board believes that Mr. Whalens
experience as a law firm partner and his experience as a
director of investment companies benefits the Target Funds.
Independent
Trustees.
David C. Arch. Formerly, Mr. Arch was the
Chairman and Chief Executive Officer of Blistex, Inc., a
consumer health care products manufacturer. Mr. Arch is a
member of the Heartland Alliance Advisory Board, a nonprofit
organization serving human needs based in Chicago and member of
the Board of the Illinois Manufacturers Association.
Mr. Arch is also a member of the Board of Visitors,
Institute for the Humanities, University of Michigan. From 1984
to 2010, Mr. Arch served as Director or Trustee of
investment companies in the Van Kampen Funds complex. The Board
believes that Mr. Archs experience as the CEO of a
public company and his experience with investment companies
benefits the Target Funds.
Frank S. Bayley. Mr. Bayley is a business
consultant in San Francisco. He is Chairman and a Director
of the C. D. Stimson Company, a private investment company in
Seattle. Mr. Bayley serves as a Trustee of the Seattle Art
Museum, a Trustee of San Francisco Performances, and a
Trustee and Overseer of The Curtis Institute of Music in
Philadelphia. He also serves on the East Asian Art Committee of
the Philadelphia Museum of Art and the Visiting Committee for
Art of Asia, Oceana and Africa of the Museum of Fine Arts,
Boston. Mr. Bayley is a retired partner of the
international law firm of Baker & McKenzie LLP, where
his practice focused on business acquisitions and venture
capital transactions. Prior to joining Baker &
McKenzie LLP in 1986, he was a partner of the San Francisco
law firm of Chickering & Gregory. He received his A.B.
from Harvard College in 1961, his LL.B. from Harvard Law School
in 1964, and his LL.M. from Boalt Hall at the University of
California, Berkeley, in 1965. Mr. Bayley served as a
Trustee of the Badgley Funds from inception in 1998 until
dissolution in 2007. The Board believes that
Mr. Bayleys experience as a business consultant and a
lawyer benefits the Target Funds.
33
James T. Bunch. From 1988 to 2010,
Mr. Bunch was Founding Partner of Green Manning &
Bunch, Ltd., a leading investment banking firm located in
Denver, Colorado. Green Manning & Bunch is a
FINRA-registered investment bank specializing in mergers and
acquisitions, private financing of middle-market companies and
corporate finance advisory services. Immediately prior to
forming Green Manning & Bunch, Mr. Bunch was
Executive Vice President, General Counsel, and a Director of
Boettcher & Company, then the leading investment
banking firm in the Rocky Mountain region. Mr. Bunch began
his professional career as a practicing attorney. He joined the
prominent Denver-based law firm of Davis Graham &
Stubbs in 1970 and later rose to the position of Chairman and
Managing Partner of the firm. At various other times during his
career, Mr. Bunch has served as Chair of the NASD Business
District Conduct Committee, and Chair of the Colorado Bar
Association Ethics Committee. In June 2010, Mr. Bunch
became the Managing Member of Grumman Hill Group LLC, a family
office private equity investment manager. The Board believes
that Mr. Bunchs experience as an investment banker
and investment management lawyer benefits the Target Funds.
Bruce L. Crockett. Mr. Crockett has more
than 30 years of experience in finance and general
management in the banking, aerospace and telecommunications
industries. From 1992 to 1996, he served as president, chief
executive officer and a director of COMSAT Corporation, an
international satellite and wireless telecommunications company.
Mr. Crockett has also served, since 1996, as chairman of
Crockett Technologies Associates, a strategic consulting firm
that provides services to the information technology and
communications industries. Mr. Crockett also serves on the
Board of Directors of ACE Limited, a Zurich-based insurance
company. He is a life trustee of the University of Rochester
Board of Directors. The Board elected Mr. Crockett to serve
as its Independent Chair because of his extensive experience in
managing public companies and familiarity with investment
companies.
Rodney F. Dammeyer. Since 2001,
Mr. Dammeyer has been Chairman of CAC, LLC, a private
company offering capital investment and management advisory
services. Previously, Mr. Dammeyer served as Managing
Partner at Equity Group Corporate Investments; Chief Executive
Officer of Anixter International; Senior Vice President and
Chief Financial Officer of Household International, Inc.; and
Executive Vice President and Chief Financial Officer of
Northwest Industries, Inc. Mr. Dammeyer was a Partner of
Arthur Andersen & Co., an international accounting
firm. Mr. Dammeyer currently serves as a Director of Quidel
Corporation and Stericycle, Inc. Previously, Mr. Dammeyer
served as a Trustee of The Scripps Research Institute; and a
Director of Ventana Medical Systems, Inc.; GATX Corporation;
TheraSense, Inc.; TeleTech Holdings Inc.; and Arris Group, Inc.
From 1987 to 2010, Mr. Dammeyer served as Director or
Trustee of investment companies in the Van Kampen Funds complex.
The Board believes that Mr. Dammeyers experience in
executive positions at a number of public companies, his
accounting experience and his experience serving as a director
of investment companies benefits the Target Funds.
Albert R. Dowden. Mr. Dowden retired at
the end of 1998 after a
24-year
career with Volvo Group North America, Inc. and Volvo Cars of
North America, Inc. Mr. Dowden joined Volvo as general
counsel in 1974 and was promoted to increasingly senior
positions until 1991 when he was appointed president, chief
executive officer and director of Volvo Group North America and
senior vice president of Swedish parent company AB Volvo. Since
retiring, Mr. Dowden continues to serve on the board of the
Reich & Tang Funds and also serves on the boards of
Homeowners of America Insurance Company and its parent company,
as well as Natures Sunshine Products, Inc. and The Boss
Group. Mr. Dowdens charitable endeavors currently
focus on Boys & Girls Clubs where he has been active
for many years, as well as several other
not-for-profit
organizations. Mr. Dowden began his career as an attorney
with a major international law firm, Rogers & Wells
(1967-1976),
which is now Clifford Chance. The Board believes that
Mr. Dowdens extensive experience as a corporate
executive benefits the Target Funds.
Jack M. Fields. Mr. Fields served as a
member of Congress, representing the 8th Congressional
District of Texas from 1980 to 1997. As a member of Congress,
Mr. Fields served as Chairman of the House
Telecommunications and Finance Subcommittee, which has
jurisdiction and oversight of the Federal Communications
Commission and the Securities and Exchange Commission.
Mr. Fields co-sponsored the National Securities Markets
Improvements Act of 1996, and played a leadership role in
enactment of the Private Securities Litigation Reform Act of
1995. Mr. Fields currently serves as Chief Executive
Officer of the Twenty-First Century Group in
Washington, D.C., a bipartisan Washington consulting firm
specializing in Federal government affairs. Mr. Fields also
serves as a Director of Insperity (formerly known as
Administaff) (NYSE: ASF), a premier professional employer
organization with clients nationwide. In addition,
Mr. Fields sits on the Board of the Discovery Channel
Global Education Fund, a nonprofit organization dedicated to
providing educational resources to people in need around the
world through the use of technology. The Board believes that
Mr. Fields experience in the House of
Representatives, especially concerning regulation of the
securities markets, benefits the Target Funds.
Carl Frischling. Mr. Frischling is senior
partner of the Financial Services Group of Kramer Levin. He is a
pioneer in the field of bank-related mutual funds and has
counseled clients in developing and structuring comprehensive
mutual fund complexes. Mr. Frischling also advises mutual
funds and their independent trustees/directors on their
fiduciary obligations under federal securities laws. Prior to
his practicing law, he was chief administrative officer and
general counsel of a large mutual fund complex that included a
retail and institutional sales force, investment counseling and
an internal transfer agent. During his ten years with the
organization, he developed business expertise in a number of
areas within the financial services complex. He served on the
Investment Company Institute board and was involved in ongoing
matters with all of the regulatory areas overseeing this
industry. Mr. Frischling is a board member of the Mutual
Fund Directors Forum. He also serves as a Trustee of
the Reich & Tang Funds, a registered investment
company. Mr. Frischling serves as a Trustee of the
Yorkville Youth Athletic Association and is a member of the
Advisory Board of Columbia University Medical Center. The Board
believes that Mr. Frischlings experience as an
investment management lawyer and his long involvement with
investment companies benefits the Target Funds.
34
Dr. Prema Mathai-Davis. Prior to her
retirement in 2000, Dr. Mathai-Davis served as Chief
Executive Officer of the YWCA of the USA. Prior to joining the
YWCA, Dr. Mathai-Davis served as the Commissioner of the
New York City Department for the Aging. She was a Commissioner
of the New York Metropolitan Transportation Authority of New
York, the largest regional transportation network in the
U.S. Dr. Mathai-Davis also serves as a Trustee of the
YWCA Retirement Fund, the first and oldest pension fund for
women, and on the advisory board of the Johns Hopkins Bioethics
Institute. Dr. Mathai-Davis was the president and chief
executive officer of the Community Agency for Senior Citizens, a
non-profit social service agency that she established in 1981.
She also directed the Mt. Sinai School of Medicine-Hunter
College Long-Term Care Gerontology Center, one of the first of
its kind. The Board believes that Dr. Mathai-Davis
extensive experience in running public and charitable
institutions benefits the Target Funds.
Dr. Larry Soll. Formerly, Dr. Soll
was chairman of the board (1987 to 1994), chief executive
officer (1982 to 1989; 1993 to 1994), and president (1982 to
1989) of Synergen Corp., a biotechnology company, in
Boulder, Colorado. He was also a faculty member at the
University of Colorado
(1974-1980).
The Board believes that Dr. Solls experience as a
chairman of a public company and in academia benefits the Target
Funds.
Hugo F. Sonnenschein. Mr. Sonnenschein is
the Distinguished Service Professor and President Emeritus of
the University of Chicago and the Adam Smith Distinguished
Service Professor in the Department of Economics at the
University of Chicago. Until July 2000, Mr. Sonnenschein
served as President of the University of Chicago.
Mr. Sonnenschein is a Trustee of the University of
Rochester and a member of its investment committee. He is also a
member of the National Academy of Sciences and the American
Philosophical Society, and a Fellow of the American Academy of
Arts and Sciences. From 1994 to 2010, Mr. Sonnenschein
served as Director or Trustee of investment companies in the Van
Kampen Funds complex. The Board believes that
Mr. Sonnenscheins experiences in academia and in
running a university, and his experience as a director of
investment companies benefits the Target Funds.
Raymond Stickel, Jr. Mr. Stickel
retired after a
35-year
career with Deloitte & Touche. For the last five years
of his career, he was the managing partner of the investment
management practice for the New York, New Jersey and
Connecticut region. In addition to his management role, he
directed audit and tax services to several mutual fund clients.
Mr. Stickel began his career with Touche Ross &
Co. in Dayton, Ohio, became a partner in 1976 and managing
partner of the office in 1985. He also started and developed an
investment management practice in the Dayton office that grew to
become a significant source of investment management talent for
Touche Ross & Co. In Ohio, he served as the audit
partner on numerous mutual funds and on public and privately
held companies in other industries. Mr. Stickel has also
served on Touche Ross & Co.s Accounting and
Auditing Executive Committee. The Board believes that
Mr. Stickels experience as a partner in a large
accounting firm working with investment managers and investment
companies, and his status as an Audit Committee Financial
Expert, benefits the Target Funds.
Additional biographical information regarding the Trustees of
the Target Funds can be found in Exhibit F. Information on
the Boards leadership structure, role in risk oversight,
and committees and meetings can be found in Exhibit G.
Information on the remuneration of Trustees can be found in
Exhibit H. Information on the executive officers of the
Funds is available in Exhibit E. Information on the
Funds independent registered public accounting firm is
available in Exhibit I.
THE
BOARDS OF THE TARGET FUNDS UNANIMOUSLY RECOMMEND A VOTE
FOR ALL OF THE NOMINEES.
PROPOSAL 4:
ELECTION OF TRUSTEES BY THE ACQUIRING FUND
At the Meeting, Common Shareholders and Preferred Shareholders
of the Acquiring Fund, voting together as a single class, will
vote to elect three Class I Trustees (David C. Arch, Jerry
D. Choate and Suzanne H. Woolsey are the nominees).
If elected, each nominee will serve until the later of the
Acquiring Funds annual meeting of shareholders in 2015 or
until his or her successor has been duly elected and qualified,
or his or her earlier retirement, resignation or removal. As in
the past, only one class of Trustees is being submitted to
shareholders of the Acquiring Fund for election at the Meeting.
The Declaration of Trust of the Acquiring Fund provides that the
Board shall be divided into three classes, which must be as
nearly equal in number as possible. For the Acquiring Fund, the
Trustees of only one class are elected at each annual meeting,
so that the regular term of only one class of Trustees will
expire annually and any particular Trustee stands for election
only once in each three-year period. This type of classification
may prevent replacement of a majority of Trustees of the
Acquiring Fund for up to a two-year period. The foregoing is
subject to the provisions of the 1940 Act, applicable state law,
the Acquiring Funds Declaration of Trust, and the
Acquiring Funds bylaws.
The Trustees who make up the various classes of the Board of the
Acquiring Fund are shown in the chart below:
|
|
|
|
|
Class I
|
|
Class II
|
|
Class III
|
|
David C. Arch
|
|
Wayne W. Whalen
|
|
Colin D. Meadows
|
Jerry D. Choate
|
|
Rodney
Dammeyer(2)
|
|
R. Craig Kennedy
|
Howard J
Kerr(2)
|
|
Linda Hutton
Heagy(1)
|
|
Jack E.
Nelson(2)
|
Suzanne H. Woolsey, Ph.D.
|
|
|
|
Hugo F.
Sonnenschein(1)
|
|
|
|
(1) |
|
Linda Hutton Heagy and Hugo F. Sonnenschein are designated to be
elected solely by the Preferred Shareholders voting as a
separate class. |
35
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(2) |
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Pursuant to the Acquiring Funds Trustee retirement policy,
Howard J Kerr and Jack E. Nelson are retiring from the Board
effective as of the Meeting. Rodney Dammeyer is not standing for
reelection with respect to certain funds overseen by a Board
comprised of the same individuals as the Acquiring Funds
Board for which his term of office expires in 2012. Therefore,
Mr. Dammeyer is also stepping down from the Board of the
Acquiring Fund effective as of the Meeting. The Acquiring
Funds Board has reduced the size of the Board to eight
Trustees effective as of the Meeting. |
The business and affairs of the Acquiring Fund are managed under
the direction of its Board of Trustees. The Board overseeing the
Acquiring Fund seeks to provide shareholders with a highly
qualified, highly capable and diverse group of Board members
reflecting the diversity of investor interests underlying the
Acquiring Fund and with a diversity of backgrounds, experience
and skills that the Board considers desirable and necessary to
its primary goal protecting and promoting
shareholders interests. While the Board does not require
that its members meet specific qualifications, the Board has
historically sought to recruit and continues to value individual
Board members that add to the overall diversity of the
Board the objective is to bring varied backgrounds,
experience and skills reflective of the wide range of the
shareholder base and provide both contrasting and complementary
skills relative to the other Board members to best protect and
promote shareholders interests. Board diversity means
bringing together different viewpoints, professional experience,
investment experience, education, and other skills. As can be
seen in the individual biographies below, the Board brings
together a wide variety of business experience (including
chairman/chief executive officer-level and director-level
experience, including board committee experience, of several
different types of organizations); varied public and private
investment-related experience;
not-for-profit
experience; customer service and other back office operations
experience; a wide variety of accounting, finance, legal, and
marketing experience; academic experience; consulting
experience; and government, political and military service
experience. All of this experience together results in important
leadership and management knowledge, skills and perspective that
provide the Board understanding and insight into the operations
of the Acquiring Fund and add range and depth to the Board. As
part of its governance oversight, the Board conducts an annual
self-effectiveness survey which includes, among other things,
evaluating the Boards (and each committees) agendas,
meetings and materials, conduct of the meetings, committee
structures, interaction with management, strategic planning,
etc., and also includes evaluating the Boards (and each
committees) size, composition, qualifications (including
diversity of characteristics, experience and subject matter
expertise) and overall performance.
The Board evaluates all of the foregoing and does not believe
any single factor or group of factors controls or dominates the
qualifications of any individual trustee or the qualifications
of the trustees as a group. After considering all factors
together, the Board believes that each Trustee is qualified to
serve as a Trustee.
Independent
Trustees.
David C. Arch. Formerly, Mr. Arch was the
Chairman and Chief Executive Officer of Blistex, Inc., a
consumer health care products manufacturer. Mr. Arch is a
member of the Heartland Alliance Advisory Board, a nonprofit
organization serving human needs based in Chicago and member of
the Board of the Illinois Manufacturers Association.
Mr. Arch is also a member of the Board of Visitors,
Institute for the Humanities, University of Michigan. From 1984
to 2010, Mr. Arch served as Director or Trustee of
investment companies in the Van Kampen Funds complex. The Board
believes that Mr. Archs experience as the CEO of a
public company and his experience with investment companies
benefits the Acquiring Fund.
Jerry D. Choate. Mr. Choate has been a
member of the Board of one or more funds in the Invesco fund
complex since 2003. The Board believes that
Mr. Choates experience as the chairman and chief
executive officer of a public company and a director of several
public companies, his service as a Trustee of funds in the
Invesco fund complex and his experience as a director of other
investment companies benefits the Acquiring Fund.
Rodney F. Dammeyer. Since 2001,
Mr. Dammeyer has been Chairman of CAC, LLC, a private
company offering capital investment and management advisory
services. Previously, Mr. Dammeyer served as Managing
Partner at Equity Group Corporate Investments; Chief Executive
Officer of Anixter International; Senior Vice President and
Chief Financial Officer of Household International, Inc.; and
Executive Vice President and Chief Financial Officer of
Northwest Industries, Inc. Mr. Dammeyer was a Partner of
Arthur Andersen & Co., an international accounting
firm. Mr. Dammeyer currently serves as a Director of Quidel
Corporation and Stericycle, Inc. Previously, Mr. Dammeyer
served as a Trustee of The Scripps Research Institute; and a
Director of Ventana Medical Systems, Inc.; GATX Corporation;
TheraSense, Inc.; TeleTech Holdings Inc.; and Arris Group, Inc.
From 1987 to 2010, Mr. Dammeyer served as Director or
Trustee of investment companies in the Van Kampen Funds complex.
The Board believes that Mr. Dammeyers experience in
executive positions at a number of public companies, his
accounting experience and his experience serving as a director
of investment companies benefits the Acquiring Fund.
Mr. Dammeyer is not standing for reelection with respect to
certain funds overseen by the Invesco Van Kampen Board for which
his term of office expires in 2012. Therefore, Mr. Dammeyer
is also stepping down from the Board of the Acquiring Fund
effective as of the Meeting.
Linda Hutton Heagy. Ms. Heagy has been a
member of the Board of one or more funds in the Invesco fund
complex since 2003. The Board believes that
Ms. Heagys experience in executive positions at a
number of bank and trust companies and as a member of the board
of several organizations, her service as a Trustee of funds in
the Invesco fund complex and her experience serving as a
director of other investment companies benefits the Acquiring
Fund.
36
R. Craig Kennedy. Mr. Kennedy has
been a member of the Board of one or more funds in the Invesco
fund complex since 2003. The Board believes that
Mr. Kennedys experience in executive positions at a
number of foundations, his investment experience, his service as
a Trustee of funds in the Invesco fund complex and his
experience serving as a director of other investment companies
benefits the Acquiring Fund.
Howard J Kerr. Mr. Kerr has been a member
of the Board of one or more funds in the Invesco fund complex
since 1992. The Board believes that Mr. Kerrs
experience in executive positions at a number of companies, his
experience in public service, his service as a Trustee of funds
in the Invesco fund complex and his experience serving as a
director of other investment companies benefits the Acquiring
Fund. Pursuant to the Boards Trustee retirement policy,
Mr. Kerr is retiring from the Board effective as of the
Meeting.
Jack E. Nelson. Mr. Nelson has been a
member of the Board of one or more funds in the Invesco fund
complex 2003. The Board believes that Mr. Nelsons
experience in executive positions at a number of companies and
as a member of several financial and investment industry
organizations, his service as a Trustee of funds in the Invesco
fund complex and his experience serving as a director of other
investment companies benefits the Acquiring Fund. Pursuant to
the Boards Trustee retirement policy, Mr. Nelson is
retiring from the Board effective as of the Meeting.
Hugo F. Sonnenschein. Mr. Sonnenschein is
the Distinguished Service Professor and President Emeritus of
the University of Chicago and the Adam Smith Distinguished
Service Professor in the Department of Economics at the
University of Chicago. Until July 2000, Mr. Sonnenschein
served as President of the University of Chicago.
Mr. Sonnenschein is a Trustee of the University of
Rochester and a member of its investment committee. He is also a
member of the National Academy of Sciences and the American
Philosophical Society, and a Fellow of the American Academy of
Arts and Sciences. From 1994 to 2010, Mr. Sonnenschein
served as Director or Trustee of investment companies in the Van
Kampen Funds complex. The Board believes that
Mr. Sonnenscheins experiences in academia and in
running a university, and his experience as a director of
investment companies benefits the Acquiring Fund.
Suzanne H. Woolsey. Ms. Woolsey has been
a member of the Board of one or more funds in the Invesco fund
complex since 2003. The Board believes that
Ms. Woolseys experience as a director of numerous
organizations, her service as a Trustee of funds in the Invesco
fund complex and her experience as a director of other
investment companies benefits the Acquiring Fund.
Interested
Trustees.
Colin D. Meadows. Mr. Meadows has been a
member of the Board of one or more funds in the Invesco fund
complex since 2010. The Board believes that
Mr. Meadows financial services and asset management
experience benefits the Acquiring Fund.
Wayne W. Whalen. Mr. Whalen is Of Counsel
and, prior to 2010, was a partner in the law firm of Skadden,
Arps, Slate, Meagher & Flom LLP. Mr. Whalen is a
Director of the Mutual Fund Directors Forum, a nonprofit
membership organization for investment company directors,
Chairman and Director of the Abraham Lincoln Presidential
Library Foundation and Director of the Stevenson Center for
Democracy. From 1995 to 2010, Mr. Whalen served as Director
and Trustee of investment companies in the Van Kampen Funds
complex. The Board believes that Mr. Whalens
experience as a law firm partner and his experience as a
director of investment companies benefits the Acquiring Fund.
Additional biographical information regarding the Trustees can
be found in Exhibit J. Information on the Boards
leadership structure, role in risk oversight, and committees and
meetings can be found in Exhibit K. Information on the
remuneration of Trustees can be found in Exhibit L.
Information on the executive officers of the Funds is available
in Exhibit E. Information on the Funds independent
registered public accounting firm is available in Exhibit I.
THE
ACQUIRING FUND BOARD UNANIMOUSLY RECOMMENDS A VOTE
FOR ALL OF THE NOMINEES.
VOTING
INFORMATION
How to
Vote Your Shares
There are several ways you can vote your shares, including in
person at the Meeting, by mail, by telephone, or via the
Internet. The proxy card that accompanies this Proxy Statement
provides detailed instructions on how you may vote your shares.
If you properly fill in and sign your proxy card and send it to
us in time to vote at the Meeting, your proxy (the
individuals named on your proxy card) will vote your shares as
you have directed. If you sign your proxy card but do not make
specific choices, your proxy will vote your shares
FOR each Proposal and FOR ALL
of the Trustee nominees, in accordance with the
recommendations of the Board of your Fund, and in the
proxys best judgment on other matters.
Why are
you sending me the Proxy Statement?
You are receiving this Proxy Statement because you own Common
Shares of a Fund as of the Record Date and have the right to
vote on the very important proposals described herein concerning
your Fund. This Proxy Statement contains information that
shareholders of the Funds should know before voting on the
proposals. This document is both a proxy statement of each Fund
and also a prospectus for Common Shares of the Acquiring Fund.
37
About the
Proxy Statement and the Meeting
We are sending you this Proxy Statement and the enclosed proxy
card because the Board is soliciting your proxy to vote at the
Meeting and at any adjournments or postponements of the Meeting.
This Proxy Statement gives you information about the business to
be conducted at the Meeting. Fund shareholders may vote by
appearing in person at the Meeting and following the
instructions below. You do not need to attend the Meeting to
vote, however. Instead, you may simply complete, sign, and
return the enclosed proxy card or vote by following the
instructions on the enclosed proxy card to vote via telephone or
the Internet.
Shareholders of record of the Funds as of the close of business
on the Record Date are entitled to vote at the Meeting. The
number of outstanding shares of each class of each Fund on the
Record Date can be found at Exhibit M. Each shareholder is
entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held.
The Funds expect that Preferred Shares will also be voted at the
Meeting. This Proxy Statement is not a solicitation for any
votes of the Preferred Shares of any Fund.
Attendance at the Meeting is generally limited to shareholders
and their authorized representatives. All shareholders must
bring an acceptable form of identification, such as a
drivers license, in order to attend the Meeting in person.
If your shares are held through a broker-dealer or other
financial intermediary you will need to obtain a legal
proxy from them in order to attend or vote your shares at
the Meeting.
Proxies will have the authority to vote and act on behalf of
shareholders at any adjournment of the Meeting. It is the
intention of the persons named in the enclosed proxy card to
vote the shares represented by them for each proposal and for
all of the Trustee nominees, unless the proxy card is marked
otherwise. If a shareholder gives a proxy, the shareholder may
revoke the authorization at any time before it is exercised by
sending in another proxy card with a later date or by notifying
the Secretary of the Fund in writing at the address of the Fund
set forth on the cover page of this Proxy Statement before the
Meeting that the shareholder has revoked its proxy. In addition,
although merely attending the Meeting will not revoke your
proxy, if a shareholder is present at the Meeting, the
shareholder may withdraw the proxy and vote in person.
Quorum
Requirement and Adjournment
A quorum of shareholders is necessary to hold a valid
shareholder meeting of each Fund. Under the governing documents
of each Target Fund, the holders of a majority of the Target
Funds shares issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall be
requisite and shall constitute a quorum for the transaction of
business. Under the governing documents of the Acquiring Fund,
the holders of a majority of outstanding shares of each class or
series or combined class entitled to vote thereat of the
Acquiring Fund present in person or by proxy shall constitute a
quorum at the Meeting.
For the Target Funds, if a quorum is not present at the Meeting,
the chairman of the Meeting or the shareholders present or
represented by proxy and entitled to vote at the Meeting shall
have the power to adjourn the Meeting from time to time. The
shareholders present in person or represented by proxy at the
Meeting and entitled to vote at the Meeting also shall have the
power to adjourn the Meeting from time to time if the vote
required to approve or reject any proposal described herein is
not obtained (with proxies being voted for or against
adjournment consistent with the votes for and against the
proposal for which the required vote has not been obtained). The
affirmative vote of the holders of a majority of a Target
Funds shares then present in person or represented by
proxy shall be required to adjourn the Meeting.
For the Acquiring Fund, if a quorum is not present at the
Meeting, it may be adjourned, with the vote of the majority of
the votes present or represented by proxy, to allow additional
solicitations of proxies in order to attain a quorum. The
shareholders present in person or represented by proxy and
entitled to vote at the Meeting will also have the power to
adjourn the Meeting from time to time if the vote required to
approve or reject any proposal described herein is not obtained,
with proxies, including abstentions and broker non-votes, being
voted for adjournment, provided the proxies determine that such
an adjournment and additional solicitation is reasonable and in
the interest of shareholders based on a consideration of all
relevant factors, including the nature of the relevant proposal,
the percentage of votes then cast, the percentage of negative
votes then cast, the nature of the proposed solicitation
activities and the nature of the reasons for such further
solicitation. The affirmative vote of the holders of a majority
of the Acquiring Funds shares then present in person or
represented by proxy shall be required to so adjourn the Meeting.
In the event that a shareholder of a Fund present at the Meeting
objects to the holding of a joint meeting and moves for an
adjournment of the meeting of such Fund to a time immediately
after the Meeting so that such Funds meeting may be held
separately, the persons named as proxies will vote in favor of
such adjournment.
Abstentions and broker non-votes (described below) are counted
as present and will be included for purposes of determining
whether a quorum is present for each Fund at the Meeting, but
are not considered votes cast at the Meeting. Abstentions and
broker non-votes will have the same effect as a vote against
Proposal 1, 2, or 3, because their approval requires the
affirmative vote of a percentage of the outstanding shares of
the applicable Fund or of a certain proportion of the shares
present at the Meeting, as opposed to a percentage of votes
cast. For Proposal 4, abstentions and broker non-votes will
have no effect because only a plurality of votes is required to
elect a Trustee nominee. A proxy card marked
withhold with respect to the election of Trustees
would have the same effect as an abstention.
Broker non-votes occur when a proposal that is routine (such as
the election of trustees) is voted on at a meeting alongside a
proposal that is non-routine (such as the Redomestication or
Merger proposals). Under New York Stock Exchange rules, brokers
may generally
38
vote in their discretion on routine proposals, but are generally
not able to vote on a non-routine proposal in the absence of
express voting instructions from beneficial owners. As a result,
where both routine and non-routine proposals are voted on at the
same meeting, proxies voted by brokers on the routine proposals
are considered votes present but are not votes on any
non-routine proposals. Because both routine and non-routine
proposals will be voted on at the Meeting, the Funds anticipate
receiving broker non-votes with respect to Proposals 1 and
2. No broker non-votes are anticipated with respect to
Proposals 3 and 4 because they are considered routine
proposals on which brokers typically may vote in their
discretion.
Broker-dealers who are not members of the New York Stock
Exchange may be subject to other rules, which may or may not
permit them to vote your Common Shares without instruction.
Therefore, you are encouraged to contact your broker and record
your voting instructions.
Votes
Necessary to Approve the Proposals
Common Shares of each Fund and Preferred Shares of the Acquiring
Fund, IIC and IQC are entitled to vote at the Meeting. This
Proxy Statement is not a solicitation for any votes of the
Preferred Shares of any Fund. Each Fund will solicit the vote of
its Preferred Shares via a separate proxy statement. Preferred
Shares are subject to a voting trust requiring that certain
voting rights of the Preferred Shares must be exercised as
directed by an unaffiliated third party. Votes by Preferred
Shares to elect Trustees are subject to the voting trust, but
votes regarding the Redomestications and the Mergers are not
subject to the voting trust.
Each Funds Board has unanimously approved the Funds
Plan of Redomestication discussed in Proposal 1.
Shareholder approval of each Funds Plan of Redomestication
requires the affirmative vote of the holders of a majority of
the Common Shares and the Preferred Shares, if applicable,
outstanding and entitled to vote, voting as separate classes, of
such Fund. Proposal 1 may be approved and implemented for a
Fund regardless of whether shareholders approve any other
Proposal applicable to the Fund.
Each Funds Board has unanimously approved the Funds
Plan of Merger discussed in Proposal 2. Shareholder
approval of the Plan of Merger for each Merger requires the
affirmative vote of the holders of a majority of the Common
Shares and Preferred Shares, if applicable, outstanding and
entitled to vote, voting as separate classes, of the applicable
Target Fund and the Acquiring Fund. Proposal 2 may be
approved and implemented for a Target Fund only if
Proposal 1 is also approved by both the Target Fund and the
Acquiring Fund and regardless of whether shareholders approve
any other Proposal applicable to such Funds.
With respect to Proposal 3, the affirmative vote of a
majority of the shares of a Target Fund (with Common Shares and
Preferred Shares, if applicable, voting as a single class)
represented in person or by proxy and entitled to vote at the
Meeting at which a quorum is present is required to elect each
nominee for Trustee of such Target Fund. Proposal 3 may be
approved and implemented for a Fund regardless of whether
shareholders approve any other Proposal applicable to the Fund.
With respect to Proposal 4, the affirmative vote of a
plurality of the Common Shares and Preferred Shares, voting as a
single class, of the Acquiring Fund present at the Meeting in
person or by proxy is required to elect each nominee for Trustee
for the Acquiring Fund. Proposal 4 may be approved and
implemented for the Fund regardless of whether shareholders
approve any other Proposal applicable to the Fund.
Proxy
Solicitation
The Funds have engaged the services of Computershare
Fund Services (the Solicitor) to assist in the
solicitation of proxies for the Meeting. The Solicitors
costs are described under the Costs of the Mergers
section of this Proxy Statement. Proxies are expected to be
solicited principally by mail, but the Funds or the Solicitor
may also solicit proxies by telephone, facsimile or personal
interview. The Funds officers may also solicit proxies but
will not receive any additional or special compensation for any
such solicitation.
Under the agreement with the Solicitor, the Solicitor will be
paid a project management fee as well as telephone solicitation
expenses incurred for reminder calls, outbound telephone voting,
confirmation of telephone votes, inbound telephone contact,
obtaining shareholders telephone numbers, and providing
additional materials upon shareholder request. The agreement
also provides that the Solicitor shall be indemnified against
certain liabilities and expenses, including liabilities under
the federal securities laws.
OTHER
MATTERS
Share
Ownership by Large Shareholders, Management and
Trustees
Information on each person who as of the Record Date, to the
knowledge of each Fund, owned 5% or more of the outstanding
shares of a class of such Fund can be found at Exhibit N.
Information regarding Target Fund Trustee ownership of
shares of Target Funds and of shares of all registered
investment companies in the Fund Complex overseen by such
Trustee can be found at Exhibit F. Information regarding
Acquiring Fund Trustee ownership of shares of the Acquiring
Fund and of shares of all registered investment companies in the
Fund Complex overseen by such Trustee can be found at
Exhibit J. To the best knowledge of each Fund, the
ownership of shares of such Fund by executive officers and
Trustees of such Fund as a group constituted less than 1% of
each outstanding class of shares of such Fund as of the Record
Date.
39
Annual
Meetings of the Funds
If a Merger is completed, the merged Target Fund will not hold
an annual meeting in 2013. If a Merger does not take place, that
Target Funds Board will announce the date of such Target
Funds 2013 annual meeting. The Acquiring Fund will hold an
annual meeting in 2013 regardless of whether a Merger is
consummated.
Shareholder
Proposals
Shareholder proposals intended to be presented at the year 2013
annual meeting of shareholders for a Fund pursuant to
Rule 14a-8
under the Securities Exchange Act of 1934, as amended (the
Exchange Act), must be received by the Funds
Secretary at the Funds principal executive offices by
February 18, 2013 in order to be considered for inclusion
in the Funds proxy statement and proxy card relating to
that meeting. Timely submission of a proposal does not
necessarily mean that such proposal will be included in the
Funds proxy statement. Pursuant to each Funds
governing documents as anticipated to be in effect before the
2013 annual meeting, if a shareholder wishes to make a proposal
at the year 2013 annual meeting of shareholders without having
the proposal included in a Funds proxy statement, then
such proposal must be received by the Funds Secretary at
the Funds principal executive offices not earlier than
March 19, 2013 and not later than April 18, 2013. If a
shareholder fails to provide timely notice, then the persons
named as proxies in the proxies solicited by the Board for the
2013 annual meeting of shareholders may exercise discretionary
voting power with respect to any such proposal. Any shareholder
who wishes to submit a proposal for consideration at a meeting
of such shareholders Fund should send such proposal to the
Funds Secretary at 1555 Peachtree Street, N.E., Atlanta,
Georgia 30309, Attn: Secretary.
Shareholder
Communications
Shareholders may send communications to each Funds Board.
Shareholders should send communications intended for a Board or
for a Trustee by addressing the communication directly to the
Board or individual Trustee
and/or
otherwise clearly indicating that the communication is for the
Board or individual Trustee and by sending the communication to
either the office of the Secretary of the applicable Fund or
directly to such Trustee at the address specified for such
Trustee in Exhibits F and J. Other shareholder
communications received by any Fund not directly addressed and
sent to the Board will be reviewed and generally responded to by
management, and will be forwarded to the Board only at
managements discretion based on the matters contained
therein.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 30(h) of the 1940 Act and Section 16(a) of the
Exchange Act require each of the Funds Trustees, officers,
and investment advisers, affiliated persons of the investment
advisers, and persons who own more than 10% of a registered
class of a Funds equity securities to file forms with the
SEC and the Exchanges reporting their affiliation with the Fund
and reports of ownership and changes in ownership of such
securities. These persons and entities are required by SEC
regulations to furnish such Fund with copies of all such forms
they file. Based on a review of these forms furnished to each
Fund, each Fund believes that during its last fiscal year, its
Trustees, its officers, the Adviser and affiliated persons of
the Adviser complied with the applicable filing requirements.
Other
Meeting Matters
Management of each Fund does not intend to present, and does not
have reason to believe that others will present, any other items
of business at the Meeting. The Funds know of no business other
than the proposals described in this Proxy Statement that will,
or are proposed to, be presented for consideration at the
Meeting. If any other matters are properly presented, the
persons named on the enclosed proxy cards shall vote proxies in
accordance with their best judgment.
WHERE TO
FIND ADDITIONAL INFORMATION
This Proxy Statement and the SAI do not contain all the
information set forth in the annual and semi-annual reports
filed by the Funds as such documents have been filed with the
SEC. The financial highlights of each Fund for the year ended
February 29, 2012 and the description of the Funds
automatic dividend reinvestment plans are incorporated by
reference into this Proxy Statement from the Funds annual
report for the year ended February 29, 2012 on
Form N-CSR.
Such financial highlights and financial statements have been
audited by PricewaterhouseCoopers, an independent registered
public accounting firm, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated
in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing. The SAI
includes additional information about the Funds that is
incorporated herein by reference and is deemed to be part of
this Proxy Statement. The SEC file number of each Fund, which
contains the Funds shareholder reports and other filings
with the SEC, is
811-07404
for the Acquiring Fund,
811-07344
for IIC,
811-07564
for IQC, and
811-07111
for ICS.
Each Fund is subject to the informational requirements of the
Exchange Act and the 1940 Act and in accordance therewith, each
Fund files reports and other information with the SEC. Reports,
proxy materials, registration statements and other information
filed (including the registration statement relating to the
Funds on
Form N-14
of which this Proxy Statement is a part) may be inspected
without charge and copied at the public reference facilities
maintained by the SEC at Room 1580, 100 F Street,
N.E., Washington, D.C. 20549. Copies of such material may
also be obtained from the Public Reference Section of the SEC at
100 F Street, N.E., Washington, D.C. 20549, at
the prescribed rates. The SEC maintains a website at www.sec.gov
that contains information regarding the Funds and other
registrants that file electronically with the SEC. Reports,
proxy materials and other information concerning the Funds can
also be inspected at the Exchanges.
40
EXHIBIT A
FORM OF
AGREEMENT AND PLAN OF REDOMESTICATION
THIS AGREEMENT AND PLAN OF REDOMESTICATION
(Agreement) is made as of
the day
of ,
2012 by and among (i) each of the Invesco closed-end
registered investment companies identified as a Predecessor Fund
on Exhibit A hereto (each a Predecessor Fund);
(ii) each of the Invesco closed-end investment companies
identified as a Successor Fund on Exhibit A hereto (each a
Successor Fund); and (iii) Invesco Advisers,
Inc. (IAI).
This Agreement contemplates a redomestication of each
Predecessor Fund from a Massachusetts Business Trust, Maryland
corporation or Pennsylvania business trust to a Delaware
Statutory Trust, as applicable. For certain Predecessor Funds,
such redomestication is the only corporate action contemplated
(referred to herein and identified on Exhibit A as a
Redomesticating Fund and, together, as the
Redomesticating Funds). For other Predecessor Funds,
the redomestication is the first step in a two-step transaction
that will, subject to approval by shareholders, also involve the
merger of the Successor Fund with another closed-end registered
investment company in the Invesco Fund complex (each such
Predecessor Fund whose Successor Fund will participate in such a
merger being referred to herein and identified on Exhibit A
as a Merging Fund and, together, as the
Merging Funds) pursuant to a separate Agreement and
Plan of Merger (the Merger Agreement).
This Agreement is intended to be and is adopted as a plan
of reorganization with respect to each Reorganization (as
defined below) within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the
Code), and Treasury Regulations
Sections 1.368-2(g)
and 1.368-3(a), and is intended to effect the reorganization of
each Predecessor Fund as a Successor Fund (each such
transaction, a Reorganization and collectively, the
Reorganizations). Each Reorganization will include
the transfer of all of the assets of a Predecessor Fund to the
Successor Fund solely in exchange for (1) the assumption by
the Successor Fund of all liabilities of the Predecessor Fund,
(2) the issuance by the Successor Fund to the Predecessor
Fund of shares of beneficial interest of the Successor Fund,
(3) the distribution of the shares of beneficial interest
of the Successor Fund to the holders of shares of beneficial
interest of the Predecessor Fund according to their respective
interests in complete liquidation of the Predecessor Fund; and
(4) the dissolution of the Predecessor Fund as soon as
practicable after the Closing provided for in
paragraph 3.1, all upon and subject to the terms and
conditions of this Agreement hereinafter set forth.
In consideration of the promises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant
and agree as follows.
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1.
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TRANSFER
OF ASSETS OF THE PREDECESSOR FUNDS IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ISSUANCE OF SUCCESSOR FUND SHARES
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1.1. It is the intention of the parties hereto that
each Reorganization described herein shall be conducted
separately from the others, and a party that is not a party to a
Reorganization shall incur no obligations, duties or
liabilities, and makes no representations, warranties, or
covenants with respect to such Reorganization by reason of being
a party to this Agreement. If any one or more Reorganizations
should fail to be consummated, such failure shall not affect the
other Reorganizations in any way.
1.2. Subject to the terms and conditions set forth
herein and on the basis of the representations and warranties
contained herein, each Predecessor Fund agrees to transfer all
of its Assets (as defined in paragraph 1.3) and to assign
and transfer all of its liabilities, debts, obligations,
restrictions and duties (whether known or unknown, absolute or
contingent, accrued or unaccrued and including, without
limitation, any liabilities of the Predecessor Fund to indemnify
the trustees or officers of the Predecessor Fund or any other
persons under the Predecessor Funds Declaration of Trust
or otherwise, and including, without limitation, any liabilities
of the Predecessor Fund under the Merger Agreement) to the
corresponding Successor Fund, organized solely for the purpose
of acquiring all of the assets and assuming all of the
liabilities of that Predecessor Fund. Each Successor Fund agrees
that in exchange for all of the assets of the corresponding
Predecessor Fund: (1) the Successor Fund shall assume all
of the liabilities of such Predecessor Fund, whether contingent
or otherwise and (2) the Successor Fund shall issue common
shares of beneficial interest (together, the Successor
Fund Common Shares) and preferred shares of
beneficial interest (together, the Successor
Fund Preferred Shares and, together with the
Successor Fund Preferred Shares, the Successor
Fund Shares) to the Predecessor Fund. The number of
Successor Fund Common Shares issued by the Successor Fund
to holders of common shares of the Predecessor Fund will be
identical to the number of shares of common stock of the
Predecessor Fund (together, the Predecessor
Fund Common Shares) outstanding on the Valuation Date
provided for in paragraph 3.1. The Successor Fund shall
issue Successor Fund Preferred Shares to holders of
preferred shares of the Predecessor Fund (together, Predecessor
Fund Preferred Shares and, together with the
Predecessor Fund Common Shares, the Predecessor
Fund Shares), if any, having an aggregate liquidation
preference equal to the aggregate liquidation preference of the
outstanding Predecessor Fund Preferred Shares. The terms of
the Predecessor Fund Preferred Shares shall be
substantially the same as the terms of the Successor
Fund Preferred Shares. Such transactions shall take place
at the Closing provided for in paragraph 3.1.
1.3. The assets of each Predecessor Fund to be
acquired by the corresponding Successor Fund
(Assets) shall include all assets, property and
goodwill, including, without limitation, all cash, securities,
commodities and futures interests, claims (whether absolute or
contingent, known or unknown, accrued or unaccrued and
including, without limitation, any interest in pending or future
legal claims in connection with past or present portfolio
holdings, whether in the form of class action claims, opt-out or
other direct litigation claims, or
A-1
regulator or government-established investor recovery fund
claims, and any and all resulting recoveries), dividends or
interest receivable, and any deferred or prepaid expense shown
as an asset on the books of the Predecessor Fund on the Closing
Date.
1.4 On the Closing Date each Predecessor Fund will
distribute, in complete liquidation, the Successor
Fund Shares to each Predecessor Fund shareholder,
determined as of the close of business on the Valuation Date, of
the corresponding class of the Predecessor Fund pro rata in
proportion to such shareholders beneficial interest in
that class and in exchange for that shareholders
Predecessor Fund shares. Such distribution will be accomplished
by recording on the books of the Successor Fund, in the name of
each Predecessor Fund shareholder, the number of Successor
Fund Shares representing the pro rata number of Successor
Fund Shares received from the Successor Fund which is due
to such Predecessor Fund shareholder. Fractional Successor
Fund Shares shall be rounded to the third place after the
decimal point.
1.5. At the Closing, any outstanding certificates
representing Predecessor Fund Shares will be cancelled. The
Successor Fund shall not issue certificates representing
Successor Fund Common Shares in connection with such
exchange, irrespective of whether Predecessor Fund shareholders
hold their Predecessor Fund Common Shares in certificated
form. Ownership of the Successor Fund Common Shares by each
Successor Fund shareholder shall be recorded separately on the
books of the Successor Funds transfer agent.
1.6. The legal existence of each Predecessor Fund
shall be terminated as promptly as reasonably practicable after
the Closing Date. After the Closing Date, each Predecessor Fund
shall not conduct any business except in connection with its
termination and dissolution and except as provided in
paragraph 1.7 of this Agreement.
1.7. Subject to approval of this Agreement by the
requisite vote of the applicable Predecessor Funds
shareholders but before the Closing Date, a duly authorized
officer of such Predecessor Fund shall cause such Predecessor
Fund, as the sole shareholder of the corresponding Successor
Fund, to (i) elect the Trustees of the Successor Fund;
(ii) ratify the selection of the Successor Funds
independent auditors; (iii) approve the investment advisory
and
sub-advisory
agreements for the Successor Fund in substantially the same form
as the investment advisory and
sub-advisory
agreements in effect with respect to the Predecessor Fund
immediately prior to the Closing; and (iv) implement any
actions approved by the shareholders of the Predecessor Fund at
a meeting of shareholders scheduled
for ,
2012 (the Shareholder Meeting) including, without
limitation, if applicable, a merger with another closed-end fund
in the Invesco Fund complex.
2.1. The value of each Predecessor Funds Assets
shall be the value of such Assets computed as of immediately
after the close of regular trading on the New York Stock
Exchange (NYSE) on the business day immediately
preceding the Closing Date (the Valuation Date),
using the Predecessor Funds valuation procedures
established by the Predecessor Funds Board of
Directors/Trustees.
2.2. The net asset value per share of Successor
Fund Common Shares, and the liquidation preference of
Successor Fund Preferred Shares, together issued in
exchange for the Assets of the corresponding Predecessor Fund,
shall be equal to the net asset value per share of the Successor
Fund Common Shares and the liquidation preference per share
of the Successor Fund Preferred Shares, respectively, on
the Closing Date, and the number of such Successor
Fund Shares of each class shall equal the number of full
and fractional Predecessor Fund Shares outstanding on the
Closing Date.
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3.
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CLOSING
AND CLOSING DATE
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3.1. Each Reorganization shall close
on ,
2012 or such other date as the parties may agree with respect to
any or all Reorganizations (the Closing Date). All
acts taking place at the closing of a Reorganization (the
Closing) shall be deemed to take place
simultaneously as of 9:00 a.m., Eastern Time on the Closing
Date of that Reorganization unless otherwise agreed to by the
parties (the Closing Time).
3.2. At the Closing each party shall deliver to the
other such bills of sale, checks, assignments, stock
certificates, receipts or other documents as such other party or
its counsel may reasonably request.
3.3. Immediately prior to the Closing the Predecessor
Fund shall pay all accumulated but unpaid dividends on the
Predecessor Fund Preferred Shares through the date thereof.
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4.
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REPRESENTATIONS
AND WARRANTIES
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4.1. Each Predecessor Fund represents and warrants to
the corresponding Successor Fund as follows:
4.1.1. At the Closing Date, each Predecessor Fund
will have good and marketable title to the Assets to be
transferred to the Successor Fund pursuant to
paragraph 1.2, and will have full right, power and
authority to sell, assign, transfer and deliver such Assets
hereunder. Upon delivery and in payment for such Assets, the
Successor Fund will acquire good and marketable title thereto
subject to no restrictions on the full transfer thereof,
including, without limitation, such restrictions as might arise
under the Securities Act of 1933, as amended (the
1933 Act), provided that the Successor Fund
will acquire Assets that are segregated as collateral for the
Predecessor Funds derivative positions, including, without
limitation, as collateral for swap positions and as margin for
futures positions, subject to such segregation and liens that
apply to such Assets;
A-2
4.1.2. The execution, delivery and performance of
this Agreement will have been duly authorized prior to the
Closing Date by all necessary action on the part of the
Predecessor Fund and, subject to the approval of the Predecessor
Funds shareholders and the due authorization, execution
and delivery of this Agreement by the Successor Fund and IAI,
this Agreement will constitute a valid and binding obligation of
the Predecessor Fund enforceable in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy laws and any other similar laws affecting the rights
and remedies of creditors generally and by equitable principles;
4.1.3. No consent, approval, authorization, or order
of any court, governmental authority, the Financial Industry
Regulatory Authority (FINRA) or any stock exchange
on which shares of the Predecessor Fund are listed is required
for the consummation by the Predecessor Fund of the transactions
contemplated herein, except such as have been or will be
obtained (at or prior to the Closing Date); and
4.1.4. The Predecessor Fund will have filed with the
Securities and Exchange Commission (SEC) proxy
materials, which, for the Merging Funds, may be in the form of a
proxy statement/prospectus on
Form N-14
(the Proxy Statement), complying in all material
respects with the requirements of the Securities Exchange Act of
1934, as amended, the Investment Company Act of 1940, as amended
(the 1940 Act), the 1933 Act (if applicable)
and applicable rules and regulations thereunder, relating to a
meeting of its shareholders to be called to consider and act
upon the Reorganization contemplated herein.
4.2. Each Successor Fund represents and warrants to
the corresponding Predecessor Fund as follows:
4.2.1. At the Closing Time, the Successor Fund will
be duly formed as a statutory trust, validly existing, and in
good standing under the laws of the State of Delaware;
4.2.2 The Successor Fund Shares to be issued and
delivered to the Predecessor Fund pursuant to the terms of this
Agreement will, at the Closing Time, have been duly authorized
and, when so issued and delivered, will be duly and validly
issued and outstanding and fully paid and non-assessable by the
Successor Fund;
4.2.3 At the Closing Time, the Successor Fund shall
succeed to the Predecessor Funds registration statement
filed under the 1940 Act with the SEC and thus will become duly
registered under the 1940 Act as a closed-end management
investment company;
4.2.4 Prior to the Closing Time, the Successor Fund
shall not have commenced operations and there will be no issued
and outstanding shares in the Successor Fund, except shares
issued by the Successor Fund to an initial sole shareholder for
the purpose of enabling the sole shareholder to take such
actions as are required to be taken by shareholders under the
1940 Act in connection with establishing a new fund;
4.2.5. The execution, delivery and performance of
this Agreement will have been duly authorized prior to the
Closing Date by all necessary action on the part of the
Successor Fund, and, subject to the approval of the Predecessor
Funds shareholders and the due authorization, execution
and delivery of this Agreement by the Predecessor Fund and IAI,
this Agreement will constitute a valid and binding obligation of
the Successor Fund enforceable in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy laws and any other similar laws affecting the rights
and remedies of creditors generally and by equitable principles;
4.2.6. No consent, approval, authorization, or order
of any court, governmental authority, FINRA or stock exchange on
which shares of the Successor Fund are listed is required for
the consummation by the Successor Fund of the transactions
contemplated herein, except such as have been or will be
obtained (at or prior to the Closing Date);
4.2.7. The Successor Fund shall use all reasonable
efforts to obtain the approvals and authorizations required by
the 1933 Act, the 1940 Act and such state or District of
Columbia securities laws as it may deem appropriate in order to
operate after the Closing Date; and
4.2.8 The Successor Fund is, and will be at the
Closing Time, a newly created Delaware statutory trust, without
assets (other than seed capital) or liabilities, formed for the
purpose of receiving the Assets of the Predecessor Fund in
connection with the Reorganization.
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5.
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CONDITIONS
PRECEDENT TO OBLIGATIONS OF THE PREDECESSOR FUNDS AND THE
SUCCESSOR FUNDS
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With respect to each Reorganization, the obligations of the
Predecessor Fund and the corresponding Successor Fund are each
subject to the conditions that on or before the Closing Date:
5.1. This Agreement and the transactions contemplated
herein shall have been approved by the Board of
Directors/Trustees of each of the Predecessor Fund and the
Successor Fund and by the requisite vote of the Predecessor
Funds shareholders;
5.2. All consents of other parties and all other
consents, orders and permits of federal, state and local
regulatory authorities (including those of the SEC and of state
or District of Columbia securities authorities) and stock
exchanges on which shares of the Funds are, or will be, listed
in accordance with this Agreement deemed necessary by the
Predecessor Fund or the Successor Fund to permit consummation,
in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the
Predecessor Fund or the Successor Fund, provided that either
party hereto may waive any of such conditions for itself;
A-3
5.3. Prior to or at the Closing, the Successor Fund
shall enter into or adopt such agreements as are necessary for
the Successor Funds operation as a closed-end investment
company and such agreements shall be substantially similar to
any corresponding agreement of the Predecessor Fund; and
5.4. The Predecessor Fund and the Successor Fund
shall have received on or before the Closing Date an opinion of
Stradley Ronon Stevens & Young, LLP (Stradley
Ronon), in form and substance reasonably acceptable to the
Predecessor Fund and the Successor Fund, as to the matters set
forth on Schedule 5.4. In rendering such opinion, Stradley
Ronon may request and rely upon representations contained in
certificates of officers of the Predecessor Fund and the
Successor Fund and others, and the officers of the Predecessor
Fund and the Successor Fund shall use their best efforts to make
available such truthful certificates.
5.5. If the Predecessor Fund has outstanding
Predecessor Fund Preferred Shares designated as
variable rate muni term preferred shares (VMTP
Shares), the Predecessor Fund and the Successor Fund shall
have received on or before the Closing Date an opinion of
Skadden, Arps, Slate, Meagher & Flom LLP
(Skadden) in form and substance reasonably
acceptable to the Predecessor Fund and the Successor Fund, as to
the matters set forth on Schedule 5.5. In rendering such
opinion, Skadden may request and rely upon representations
contained in certificates of officers of the Predecessor Fund
and the Successor Fund and others, and the officers of the
Predecessor Fund and the Successor Fund shall use their best
efforts to make available such truthful certificates.
5.6. If the Predecessor Fund has outstanding
Predecessor Fund Preferred Shares designated as VMTP
Shares, immediately prior to Closing the Predecessor Fund shall
have satisfied all of its obligations set forth in its
declaration of trust, certificate of designation of the
Predecessor Fund Preferred Shares, registration rights
agreement relating to the Predecessor Fund Preferred Shares
and the Predecessor Fund Preferred Shares certificate
(including, without limitation, satisfaction of the effective
leverage ratio and minimum asset coverage covenants set forth in
its statement of preferences).
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6.
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POST-CLOSING
COVENANTS
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6.1. If the Predecessor Fund has outstanding
Predecessor Fund Preferred Shares designated as VMTP
Shares, immediately after Closing, the Successor Fund shall
satisfy all of its obligations set forth in its declaration of
trust, statement of preferences of the Successor
Fund Preferred Shares, registration rights agreement
relating to the Successor Fund Preferred Shares (including,
without limitation, satisfaction of the effective leverage ratio
and minimum asset coverage covenants set forth in its statement
of preferences).
6.2. If the Predecessor Fund has outstanding
Predecessor Fund Preferred Shares designated as VMTP
Shares, immediately after Closing, the Successor
Fund Preferred Shares shall be rated at least AA-/Aa3 by
each rating agency rating, at the request of the Successor Fund,
the Successor Fund Preferred Shares.
Each Fund will bear its expenses relating to its Reorganization
to the extent that the Funds total annual fund operating
expenses did not exceed the expense limit under the expense
limitation arrangement in place with IAI at the time such
expenses were discussed with the Board (the Expense
Cap). The Fund will bear these expenses regardless of
whether its Reorganization is consummated. IAI will bear the
Reorganization costs of any Fund that had total annual fund
operating expenses which exceeded the Expense Cap at the time
such expenses were discussed with the Board.
Each Successor Fund and corresponding Predecessor Fund
represents and warrants to the other that there are no
brokers or finders fees payable in connection with
the transactions contemplated hereby.
With respect to each Reorganization, this Agreement may be
terminated by the mutual agreement of the Predecessor Fund and
the corresponding Successor Fund, notwithstanding approval
thereof by the shareholders of the Predecessor Fund, at any time
prior to Closing, if circumstances should develop that, in such
parties judgment, make proceeding with this Agreement
inadvisable.
This Agreement may be amended, modified or supplemented in such
manner as may be mutually agreed upon in writing by the parties;
provided, however, that following the approval of this Agreement
by any Predecessor Funds shareholders, no such amendment
may have the effect of changing the provisions for determining
the number of Successor Fund Shares to be distributed to
that Predecessor Funds shareholders under this Agreement
to the detriment of such Predecessor Fund shareholders without
their further approval.
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10.
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HEADINGS;
COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; SURVIVAL;
WAIVER
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10.1. The article and paragraph headings contained in
this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this
Agreement.
10.2. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
10.3. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware,
without regard to its principles of conflicts of laws.
A-4
10.4. This Agreement shall be binding upon and inure
to the benefit of the parties hereto with respect to each
Predecessor Fund and its corresponding Successor Fund, as
applicable, and their respective successors and assigns. Nothing
herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm or corporation other than
the applicable Predecessor Fund and its corresponding Successor
Fund and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
10.5. It is expressly agreed that the obligations of
the parties hereunder shall not be binding upon any of their
respective directors, trustees, shareholders, nominees,
officers, agents, or employees personally, but shall bind only
the property of the applicable Predecessor Fund or the
applicable Successor Fund as provided in the governing documents
of such Funds. The execution and delivery by such officers shall
not be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall
bind only the property of such party.
10.6. The representations, warranties, covenants and
agreements of the parties contained herein shall not survive the
Closing Date; provided that the covenants to be performed after
the Closing shall survive the Closing.
10.7. Each of the Predecessor Funds and the Successor
Funds, after consultation with their respective counsel and by
consent of their respective Board of Directors/Trustees or any
officer, may waive any condition to its obligations hereunder
if, in its or such officers judgment, such waiver will not
have a material adverse effect on the interests of the
shareholders of the applicable Predecessor Fund.
Any notice, report, statement or demand required or permitted by
any provisions of this Agreement shall be in writing and shall
be given by fax or certified mail addressed to the Predecessor
Fund and the Successor Fund, each at 1555 Peachtree Street, N.E.
Atlanta, GA 30309, Attention: Secretary, fax
number .
A-5
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officer.
[ ],
a [Massachusetts business trust] [Maryland corporation]
[Pennsylvania business trust]
Invesco Advisers, Inc.
Name:
Title:
[ ]
a Delaware statutory trust
A-6
EXHIBIT A
CHART OF
REDOMESTICATIONS
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Predecessor
Funds
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Successor
Funds
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Redomesticating
Fund or
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(and Share
Classes)
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(and Share
Classes)
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Merging
Fund
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A-7
SCHEDULE 5.4
TAX
OPINION
(i) The acquisition by the Successor Fund of all of the
Assets of the Predecessor Fund, as provided for in the
Agreement, in exchange solely for Successor Fund Shares and
the assumption by the Successor Fund of all of the liabilities
of the Predecessor Fund, followed by the distribution by the
Predecessor Fund to its shareholders of the Successor
Fund Shares in complete liquidation of the Predecessor
Fund, will qualify as a reorganization within the meaning of
Section 368(a)(1)(F) of the Code, and the Predecessor Fund
and the Successor Fund each will be a party to the
reorganization within the meaning of Section 368(b)
of the Code.
(ii) No gain or loss will be recognized by the Predecessor
Fund upon the transfer of all of its Assets to, and assumption
of its liabilities by, the Successor Fund in exchange solely for
Successor Fund Shares pursuant to Section 361(a) and
Section 357(a) of the Code.
(iii) No gain or loss will be recognized by the Successor
Fund upon the receipt by it of all of the Assets of the
Predecessor Fund in exchange solely for the assumption of the
liabilities of the Predecessor Fund and issuance of the
Successor Fund Shares pursuant to Section 1032(a) of
the Code.
(iv) No gain or loss will be recognized by the Predecessor
Fund upon the distribution of the Successor Fund Shares by
the Predecessor Fund to its shareholders in complete liquidation
(in pursuance of the Agreement) pursuant to
Section 361(c)(1) of the Code.
(v) The tax basis of the Assets of the Predecessor Fund
received by the Successor Fund will be the same as the tax basis
of such Assets in the hands of the Predecessor Fund immediately
prior to the transfer pursuant to Section 362(b) of the
Code.
(vi) The holding periods of the Assets of the Predecessor
Fund in the hands of the Successor Fund will include the periods
during which such Assets were held by the Predecessor Fund
pursuant to Section 1223(2) of the Code.
(vii) No gain or loss will be recognized by the
shareholders of the Predecessor Fund upon the exchange of all of
their Predecessor Fund shares solely for the Successor
Fund Shares pursuant to Section 354(a) of the Code.
(viii) The aggregate tax basis of the Successor
Fund Shares to be received by each shareholder of the
Predecessor Fund will be the same as the aggregate tax basis of
Predecessor Fund shares exchanged therefor pursuant to
Section 358(a)(1) of the Code.
(ix) The holding period of Successor Fund Shares
received by a shareholder of the Predecessor Fund will include
the holding period of the Predecessor Fund shares exchanged
therefor, provided that the shareholder held Predecessor Fund
shares as a capital asset on the Closing Date pursuant to
Section 1223(1) of the Code.
(x) For purposes of Section 381 of the Code, the
Successor Fund will succeed to and take into account, as of the
date of the transfer as defined in
Section 1.381(b)-1(b)
of the income tax regulations issued by the United States
Department of the Treasury (the Income Tax
Regulations), the items of the Predecessor Fund described
in Section 381(c) of the Code as if there had been no
Reorganization.
A-8
SCHEDULE 5.5
PREFERRED
SHARE OPINION
The VMTP Shares issued by the Successor Fund in the
Redomestication in exchange for Predecessor Fund VMTP
Shares will be treated as equity of the Successor Fund for
U.S. federal income tax purposes.
A-9
EXHIBIT B
COMPARISON
OF STATE LAWS
The laws governing Massachusetts business trusts and Delaware
statutory trusts have similar effect, but they differ in certain
respects. Both the Massachusetts business trust law (MA
Statute) and the Delaware statutory trust act (DE
Statute) permit a trusts governing instrument to
contain provisions relating to shareholder rights and removal of
trustees, and provide trusts with the ability to amend or
restate the trusts governing instruments. However, the MA
Statute is silent on many of the salient features of a
Massachusetts business trust (a MA Trust) whereas
the DE Statute provides guidance and offers a significant amount
of operational flexibility to Delaware statutory trusts (a
DE Trust). The DE Statute provides explicitly that
the shareholders and trustees of a Delaware Trust are not liable
for obligations of the trust to the same extent as under
corporate law, while under the MA Statute, shareholders and
trustees could potentially be liable for trust obligations. The
DE Statute authorizes the trustees to take various actions
without requiring shareholder approval if permitted by a
Funds governing instruments. For example, trustees may
have the power to amend the Delaware trust instrument, merge or
consolidate a Fund with another entity, and to change the
Delaware trusts domicile, in each case without a
shareholder vote.
The following is a discussion of only certain material
differences between the DE Statute and MA Statute, as
applicable, and is not a complete description of them. Further
information about each Funds current trust structure is
contained in such Funds organizational documents and in
relevant state law.
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Delaware Statutory Trust
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Massachusetts Business Trust
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Governing Documents/Governing Body
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A DE Trust is formed by the filing of a certificate of trust
with the Delaware Secretary of State. A DE Trust is an
unincorporated association organized under the DE Statute whose
operations are governed by its governing document (which may
consist of one or more documents). Its business and affairs are
managed by or under the direction of one or more trustees. As
described in this chart, DE Trusts are granted a significant
amount of organizational and operational flexibility. Delaware
law makes it easy to obtain needed shareholder approvals, and
also permits the management of a DE Trust to take various
actions without being required to make state filings or obtain
shareholder approval.
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A MA Trust is created by the trustees execution of a
written declaration of trust. A MA Trust is required to file the
declaration of trust with the Secretary of the Commonwealth of
Massachusetts and with the clerk of every city or town in
Massachusetts where the trust has a usual place of business. A
MA Trust is a voluntary association with transferable shares of
beneficial interests, organized under the MA Statute. A MA Trust
is considered to be a hybrid, having characteristics of both
corporations and common law trusts. A MA Trusts operations
are governed by a trust document and bylaws. The business and
affairs of a MA Trust are managed by or under the direction of a
board of trustees.
MA Trusts are also granted a significant amount of
organizational and operational flexibility. The MA Statute is
silent on most of the salient features of MA Trusts, thereby
allowing trustees to freely structure the MA Trust. The MA
Statute does not specify what information must be contained in
the declaration of trust, nor does it require a registered
officer or agent for service of process.
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Ownership Shares of Interest
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Under both the DE Statute and the MA Statute, the ownership
interests in a DE Trust and MA Trust are denominated as
beneficial interests and are held by
beneficial owners.
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B-1
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Delaware Statutory Trust
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Massachusetts Business Trust
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Series and Classes
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Under the DE Statute, the governing document may provide for
classes, groups or series of shares, having such relative
rights, powers and duties as shareholders set forth in the
governing document. Such classes, groups or series may be
described in a DE Trusts governing document or in
resolutions adopted by its trustees.
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The MA Statute is silent as to any requirements for the creation
of such series or classes.
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Shareholder Voting Rights
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Under the DE Statute, the governing document may set forth any
provision relating to trustee and shareholder voting rights,
including the withholding of such rights from certain trustees
or shareholders. If voting rights are granted, the governing
document may contain any provision relating to the exercise of
voting rights. No state filing is necessary and, unless required
by the governing document, shareholder approval is not needed.
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There is no provision in the MA Statute addressing voting by the
shareholders of a MA Trust.
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Quorum
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Under the DE Statute, the governing document may set forth any
provision relating to quorum requirements at meetings of
shareholders.
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There is no provision in the MA Statute addressing quorum
requirements at meetings of shareholders of a MA Trust.
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Shareholder Meetings
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Neither the DE Statute nor the MA Statute mandates an annual
shareholders meeting.
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Organization of Meetings
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Neither the DE Statute nor the MA Statute contain provisions
relating to the organization of shareholder meetings.
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Record Date
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Under the DE Statute, the governing document may provide for
record dates.
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There is no record date provision in the MA Statute.
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Qualification and Election of Trustees
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Under the DE Statute, the governing documents may set forth the
manner in which trustees are elected and qualified.
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The MA Statute does not contain provisions relating to the
election and qualification of trustees of a MA Trust.
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Removal of Trustees
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Under the DE Statute, the governing documents of a DE Trust may
contain any provision relating to the removal of trustees;
provided, however, that there shall at all times be at least one
trustee of a DE Trust.
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The MA Statute does not contain provisions relating to the
removal of trustees.
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Restrictions on Transfer
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Neither the DE Statute nor the MA Statute contain provisions
relating to the ability of a DE Trust or MA Trust, as
applicable, to restrict transfers of beneficial interests.
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Preemptive Rights and Redemption of Shares
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Under each of the DE Statute and the MA Statute, a governing
document may contain any provision relating to the rights,
duties and obligations of the shareholders.
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B-2
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Delaware Statutory Trust
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Massachusetts Business Trust
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Liquidation Upon Dissolution or Termination Events
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Under the DE Statute, a DE Trust that has dissolved shall first
pay or make reasonable provision to pay all known claims and
obligations, including those that are contingent, conditional
and unmatured, and all known claims and obligations for which
the claimant is unknown. Any remaining assets shall be
distributed to the shareholders or as otherwise provided in the
governing document.
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The MA Statute has no provisions pertaining to the liquidation
of a MA Trust.
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Shareholder Liability
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Under the DE Statute, except to the extent otherwise provided in
the governing document of a DE Trust, shareholders of a DE Trust
are entitled to the same limitation of personal liability
extended to shareholders of a private corporation organized for
profit under the General Corporation Law of the State of
Delaware.
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The MA Statute does not include an express provision relating to
the limitation of liability of the shareholders of a MA Trust.
The shareholders of a MA Trust could potentially be held
personally liable for the obligations of the trust,
notwithstanding an express provision in the governing document
stating that the shareholders are not personally liable in
connection with trust property or the acts, obligations or
affairs of the MA Trust.
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Trustee/Director Liability
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Subject to the provisions in the governing document, the DE
Statute provides that a trustee or any other person managing the
DE Trust, when acting in such capacity, will not be personally
liable to any person other than the DE Trust or a shareholder of
the DE Trust for any act, omission or obligation of the DE Trust
or any trustee. To the extent that at law or in equity a trustee
has duties (including fiduciary duties) and liabilities to the
DE Trust and its shareholders, such duties and liabilities may
be expanded or restricted by the governing document.
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The MA Statute does not include an express provision limiting
the liability of the trustee of a MA Trust. The trustees of a MA
Trust could potentially be held personally liable for the
obligations of the trust.
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Indemnification
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Subject to such standards and restrictions as may be contained
in the governing document of a DE Trust, the DE Statute
authorizes a DE Trust to indemnify and hold harmless any
trustee, shareholder or other person from and against any and
all claims and demands.
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The MA Statute is silent as to the indemnification of trustees,
officers and shareholders.
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Insurance
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Neither the DE Statute nor the MA Statute contain provisions
regarding insurance.
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B-3
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Delaware Statutory Trust
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Massachusetts Business Trust
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Shareholder Right of Inspection
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Under the DE Statute, except to the extent otherwise provided in
the governing document of a DE Trust and subject to reasonable
standards established by the trustees, each shareholder has the
right, upon reasonable demand for any purpose reasonably related
to the shareholders interest as a shareholder, to obtain
from the DE Trust certain information regarding the governance
and affairs of the DE Trust, including a current list of the
name and last known address of each beneficial owner and
trustee. In addition, the DE Statute permits the trustees of a
DE Trust to keep confidential from shareholders for such period
of time as deemed reasonable any information that the trustees
in good faith believe would not be in the best interest of the
DE Trust to disclose or that could damage the DE Trust or that
the DE Trust is required by law or by agreement with a third
party to keep confidential.
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There is no provision in the MA Statute relating to shareholder
inspection rights.
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Derivative Actions
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Under the DE Statute, a shareholder may bring a derivative
action if trustees with authority to do so have refused to bring
the action or if a demand upon the trustees to bring the action
is not likely to succeed. A shareholder may bring a derivative
action only if the shareholder is a shareholder at the time the
action is brought and: (a) was a shareholder at the time of the
transaction complained about or (b) acquired the status of
shareholder by operation of law or pursuant to the governing
document from a person who was a shareholder at the time of the
transaction. A shareholders right to bring a derivative
action may be subject to such additional standards and
restrictions, if any, as are set forth in the governing document.
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There is no provision under the MA Statute regarding derivative
actions.
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Arbitration of Claims
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The DE Statute provides flexibility as to providing for
arbitration pursuant to the governing documents of a DE Trust.
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There is no provision under the MA Statute regarding arbitration.
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Amendments to Governing Documents
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The DE Statute provides broad flexibility as to the manner of
amending and/or restating the governing document of a DE Trust.
Amendments to the declaration that do not change the information
in the DE Trusts certificate of trust are not required to
be filed with the Delaware Secretary of State.
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The MA Statute provides broad flexibility as to the manner of
amending and/or restating the governing document of a MA Trust.
The MA Statute provides that the trustees shall, within thirty
days after the adoption of any amendment to the declaration of
trust, file a copy with the Secretary of the Commonwealth of
Massachusetts and with the clerk of every city or town in
Massachusetts where the trust has a usual place of business.
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B-4
EXHIBIT C
COMPARISON
OF GOVERNING DOCUMENTS
The
Target Funds
Each of the Target Funds is a Massachusetts business trust (each
a MA Trust and together, the MA Trusts).
Under Proposal 1, if approved, each MA Trust will
reorganize into a newly formed Delaware statutory trust (a
DE Trust). The following is a discussion of certain
provisions of the governing instruments and governing laws of
each MA Trust and its corresponding DE Trust, but is not a
complete description thereof. Further information about each
Funds governance structure is contained in the Funds
shareholder reports and its governing documents.
Shares. The Trustees of the MA Trusts have the
power to issue shares, including preferred shares, without
shareholder approval. The governing documents of the MA Trusts
indicate that the amount of common shares that a MA Trust may
issue is unlimited. Preferred shares are limited to the amount
set forth in the Declarations (defined below). Shares of the MA
Trusts have no preemptive rights.
The Trustees of the DE Trusts have the power to issue shares,
including preferred shares, without shareholder approval. The
governing documents of the DE Trusts indicate that the amount of
common and preferred shares that a DE Trust may issue is
unlimited. Shares of the DE Trusts have no preemptive rights.
Organization. The MA Trusts are organized as
Massachusetts business trusts, under the laws of the
Commonwealth of Massachusetts. Each MA Trust is governed by its
Declaration of Trust (a Declaration) and its bylaws,
each as may be amended, and its business and affairs are managed
under the supervision of its Board of Trustees.
Each DE Trust is organized as a Delaware statutory trust
pursuant to the Delaware Statutory Trust Act
(Delaware Act). Each DE Trust is governed by its
Amended and Restated Agreement and Declaration of Trust (also, a
Declaration and together with the Declaration of
each MA Trust, the Declarations) and its bylaws, and
its business and affairs are managed under the supervision of
its Board of Trustees.
Composition of the Board of Trustees. The
Boards of Trustees of both the MA Trusts and the DE Trusts are
divided into three classes, with the election of each class
staggered so that each class is only up for election once every
three years.
Shareholder Meetings and Rights of Shareholders to Call a
Meeting. The stock exchanges on which a MA Trust
shares are currently, and DE Trusts shares will be, listed
require annual meetings to elect trustees.
The governing instruments for each MA Trust provide that special
meetings of shareholders may be called by the Chair or a
majority of the Trustees. In addition, special meetings of
shareholders may also be called by the Secretary of a MA Trust
upon written request of shareholders holding and entitled to
vote not less than a majority of all the votes entitled to be
cast at such meeting for matters that do not require a separate
vote by each class of shares.
The bylaws of the DE Trusts authorize the Trustees to call a
meeting of the shareholders for the election of Trustees. The
bylaws of the DE Trusts also authorize a meeting of shareholders
held for any purpose determined by the Trustees. The bylaws of
the DE Trusts state that shareholders have no power to call a
special meeting of shareholders.
Submission of Shareholder Proposals. The
federal securities laws, which apply to all of the MA Trusts and
the DE Trusts, require that certain conditions be met to present
any proposal at a shareholder meeting. The matters to be
considered and brought before an annual or special meeting of
shareholders of the MA Trusts and the DE Trusts are limited to
only those matters, including the nomination and election of
Trustees, that are properly brought before the meeting. For
proposals submitted by shareholders, the bylaws of the MA Trusts
and the DE Trusts contain provisions which require that notice
be given to the DE Trust or MA Trust, respectively, by an
otherwise eligible shareholder in advance of the annual or
special shareholder meeting in order for the shareholder to
present a proposal at any such meeting and requires shareholders
to provide certain information in connection with the proposal.
These requirements are intended to provide the Board the
opportunity to better evaluate the proposal and provide
additional information to shareholders for their consideration
in connection with the proposal. Failure to satisfy the
requirements of these advance notice provisions means that a
shareholder may not be able to present a proposal at the annual
or special shareholder meeting.
In general, for nominations and any other proposals to be
properly brought before an annual meeting of shareholders by a
shareholder of a MA Trust, written notice must be delivered to
the Secretary of the MA Trust not less than 60 days, nor
more than 90 days, prior to the first anniversary of the
preceding years annual meeting. If the annual meeting is
not scheduled to be held within a period that commences
30 days before such anniversary and ends 30 days after
such anniversary, the written notice must be delivered by the
later of the 60th day prior to the meeting or the 10th day
following the public announcement or disclosure of the meeting
date. If the number of Trustees to be elected to the Board is
increased and either all of the nominees for Trustee or the size
of the increased Board are not publicly announced or disclosed
at least 70 days prior to the first anniversary of the
preceding years annual meeting, written notice will be
considered timely if delivered to the Secretary of the MA Trust
no later than the 10th date after such public announcement or
disclosure. With respect to the nomination of individuals for
election to the Board of Trustees at a special shareholder
meeting, written notice must be delivered by a shareholder of
the MA Trust to the Secretary of the MA Trust no later than the
10th date after such meeting is publicly announced or disclosed.
C-1
For nominations and any other proposals to be properly brought
before an annual meeting of shareholders by a shareholder of a
DE Trust, written notice must be delivered to the Secretary of
the DE Trust not less than 90 days, nor more than
120 days, prior to the first anniversary of the preceding
years annual meeting. If the annual meeting is not
scheduled to be held within a period that commences 30 days
before such anniversary and ends 30 days after such
anniversary (an Other Annual Meeting Date), the
written notice must be delivered by the later of the 90th day
prior to the meeting or the 10th day following the public
announcement or disclosure of the meeting date provided,
however, that if the Other Annual Meeting Date was disclosed in
the proxy statement for the prior years annual meeting,
the dates for receipt of the written notice shall be calculated
based on the Other Annual Meeting Date and disclosed in the
proxy statement for the prior years annual meeting. If the
number of Trustees to be elected to the Board is increased and
either all of the nominees for Trustee or the size of the
increased Board are not publicly announced or disclosed at least
70 days prior to the first anniversary of the preceding
years annual meeting, written notice will be considered
timely if delivered to the Secretary of the DE Trust no later
than the 10th date after such public announcement or disclosure.
With respect to the nomination of individuals for election to
the Board of Trustees at a special shareholder meeting, written
notice must be delivered by a shareholder of the DE Trust to the
Secretary of the DE Trust no later than the 10th date after such
meeting is publicly announced or disclosed. Specific
information, as set forth in the bylaws, about the nominee, the
shareholder making the nomination, and the proposal must also be
delivered, and updated as necessary if proposed at an annual
meeting, by the shareholder of the DE Trust. The shareholder or
a qualified representative must also appear at the annual or
special meeting of shareholders to present about the nomination
or proposed business.
Quorum. The governing instruments of the MA
Trusts provide that a quorum will exist if shareholders
representing a majority of the issued and outstanding shares
entitled to vote at a shareholder meeting are present in person
or represented by proxy.
The bylaws of each DE Trust provide that a quorum will exist if
shareholders representing a majority of the outstanding shares
entitled to vote are present or represented by proxy, except
when a larger quorum is required by applicable law or the
requirements of any securities exchange on which shares are
listed for trading, in which case the quorum must comply with
such requirements.
Number of Votes; Aggregate Voting. The
governing instruments of the MA Trusts and the Declaration and
bylaws of the DE Trusts provide that each shareholder is
entitled to one vote for each whole share held as to any matter
on which the shareholder is entitled to vote, and a
proportionate fractional vote for each fractional share held.
The MA Trusts and the DE Trusts do not provide for cumulative
voting for the election or removal of Trustees.
The governing instruments of the MA Trusts generally provide
that all share classes vote by class or series of the MA Trust,
except as otherwise provided by applicable law, the governing
instruments or resolution of the Trustees.
The Declarations for the DE Trusts generally provide that all
shares are voted as a single class, except when required by
applicable law, the governing instruments, or when the Trustees
have determined that the matter affects the interests of one or
more classes, in which case only the shareholders of all such
affected classes are entitled to vote on the matter.
Derivative Actions. Shareholders of each MA
Trust have the power to vote as to whether or not a court
action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the MA
Trust or its shareholders.
The Declarations for the DE Trusts state that a shareholder may
bring a derivative action on behalf of a DE Trust only if
several conditions are met. These conditions include, among
other things, a pre-suit demand upon the Board of Trustees and,
unless a demand is not required, shareholders who hold at least
a majority of the outstanding shares must join in the demand for
the Board of Trustees to commence an action, and the Board of
Trustees must be afforded a reasonable amount of time to
consider such shareholder request and to investigate the basis
of the claim.
Right to Vote. The 1940 Act provides that
shareholders of a fund have the power to vote with respect to
certain matters: specifically, for the election of trustees, the
selection of auditors (under certain circumstances), approval of
investment advisory agreements and plans of distribution, and
amendments to policies, goals or restrictions deemed to be
fundamental. Shareholders also have the right to vote on certain
matters affecting a fund or a particular share class thereof
under their respective governing instruments and applicable
state law. The following summarizes the matters on which
shareholders have the right to vote as well as the minimum
shareholder vote required to approve the matter. For matters on
which shareholders of a MA Trust or DE Trust do not have the
right to vote, the Trustees may nonetheless determine to submit
the matter to shareholders for approval. Where referenced below,
the phrase Majority Shareholder Vote means the vote
required by the 1940 Act, which is the lesser of (a) 67% or
more of the shares present at the meeting, if the holders of
more than 50% of a funds outstanding shares are present or
represented by proxy; or (b) more than 50% of a funds
outstanding shares.
Election and Removal of Trustees. The
shareholders of the MA Trusts are entitled to vote, under
certain circumstances, for the election and the removal of
Trustees. Subject to the rights of the preferred shareholders,
if any, the Trustees of the MA Trusts are elected by an
affirmative vote of a majority of the outstanding shares present
in person or represented by proxy. However, the preferred
shareholders, if any, voting as a class elect at least two
Trustees at all times. Preferred shareholders, if any, may also
elect a majority of Trustees if dividends on the preferred
shares have been unpaid for an amount equal to two full years of
dividends. Any Trustees of the MA Trusts may be removed at any
meeting of shareholders by a vote of 80% of the outstanding
shares of the class or classes of shares of beneficial interest
that elected such Trustee.
C-2
With regard to the DE Trusts, Trustees are elected by the
affirmative vote of a majority of the outstanding shares of the
DE Trust present in person or by proxy and entitled to vote at a
meeting of the shareholders at which a quorum is present.
Preferred shareholders, voting as a separate class, solely elect
at least two Trustees by the affirmative vote of a majority of
the outstanding preferred shares. Under certain circumstances as
set forth by the Trustees in accordance with the Declaration,
holders of preferred shares may elect at least a majority of the
Boards Trustees. The Declaration and bylaws of the DE
Trusts do not provide shareholders with the ability to remove
Trustees.
Amendment of Governing
Instruments. Except as described below, the
Trustees of the MA Trusts and DE Trusts have the right to amend,
from time to time, the governing instruments. For the MA Trusts,
the Trustees have the power to alter, amend or repeal the bylaws
or adopt new bylaws, provided that bylaws adopted by
shareholders may only be altered, amended or repealed by the
shareholders, or by a majority of shares represented in person
or by proxy. For the DE Trusts, the bylaws may be altered,
amended, or repealed by the Trustees, without the vote or
approval of shareholders.
For the MA Trusts, shareholder approval is required to amend the
Declaration, except that the Trustees may make changes necessary
to comply with applicable law and to effect provisions regarding
preferred shares, and may make certain other non-material
changes, such as to correct a mistake, without shareholder
approval. When shareholder approval is required, the vote needed
to effect an amendment is a majority of the common shares and
preferred shares outstanding and entitled to vote, voting as
separate classes, or by an instrument in writing, without a
meeting, signed by a majority of the Trustees and consented to
by the holders of not less than a majority of each of such
common shares and preferred shares. Notwithstanding the
foregoing, any amendment to the Declaration that would reduce
the amount payable upon liquidation of the MA Trusts or
diminishing or eliminating shareholder voting rights pertaining
thereto requires the approval of two-thirds of the class or
classes of shareholders so affected. In addition, any amendment
that would change or repeal the sections in the Declaration
governing merger of the MA Trusts or conversion of the MA Trusts
to open-end funds requires the affirmative vote of 80% of each
of the common shares and preferred shares, voting as separate
classes.
For the DE Trusts the Board generally may amend the Declaration
without shareholder approval, except (i): any amendment to the
Declaration approved by the Board that would reduce the
shareholders rights to indemnification requires the vote
of shareholders owning at least 75% of the outstanding shares;
(ii) any amendments to the Declaration that would change
shareholder voting rights, declassify the Board or change the
minimum or maximum number of Trustees permitted require the
affirmative vote or consent by the Board of Trustees followed by
the affirmative vote or consent of shareholders owning at least
75% of the outstanding shares, unless such amendments have been
previously approved, adopted or authorized by the affirmative
vote of at least
662/3%
of the Board of Trustees, in which case an affirmative Majority
Shareholder Vote is required (the DE Trusts Voting
Standard).
Mergers, Reorganizations, and
Conversions. The governing instruments of the
MA Trusts provide that a merger, consolidation, conversion to an
open-end company, or sale of assets requires the affirmative
vote of not less than 80% of the common shares and preferred
shares, if any, outstanding and entitled to vote, voting as
separate classes. Reorganization or incorporation requires the
approval of the holders of a majority of each of the common
shares and preferred shares, if any, outstanding and entitled to
vote, voting as separate classes. If the merger, consolidation,
sale, lease or exchange is recommended by the Trustees, the vote
or written consent of the holders of a majority of the common
shares and preferred shares, if any, outstanding and entitled to
vote, voting as separate classes, is sufficient authorization.
For the DE Trusts, any such merger, consolidation, conversion,
reorganization, or reclassification requires approval pursuant
to the DE Trusts Voting Standard. The vote required is in
addition to the vote or consent of shareholders otherwise
required by law or by the terms of any class of preferred shares
or any agreement between the Trust and any national securities
exchange.
Principal Shareholder Transactions. The
MA Trusts require a vote or consent of 80% of the common shares
or preferred shares, if any, outstanding and entitled to vote,
voting as separate classes, where a principal shareholder of a
fund (i.e., any corporation, person or other entity which is the
beneficial owner, directly or indirectly, of more than 5% of the
funds outstanding shares) is the party to certain
transactions.
The DE Trusts require a vote pursuant to the DE Trusts
Voting Standard for certain principal shareholder transactions.
The vote required is in addition to the vote or consent of
shareholders otherwise required by law or by the terms of any
class of preferred shares or any agreement between the Trust and
any national securities exchange.
Termination of the Trust. With respect
to the MA Trusts, the termination of a MA Trust requires the
affirmative vote of not less than 80% of the common shares and
preferred shares, if any, outstanding and entitled to vote,
voting as separate classes, at any meeting of shareholders, or
an instrument in writing, without a meeting, signed by a
majority of the Trustees and consented to by an affirmative vote
of a majority of the outstanding shares of the MA Trust.
The DE Trusts may be dissolved upon a vote pursuant to the DE
Trusts Voting Standard. The vote required is in addition
to the vote or consent of shareholders otherwise required by law
or by the terms of any class of preferred shares or any
agreement between a DE Trust and any national securities
exchange. In addition, to spare shareholders the expense of a
shareholder meeting in connection with the dissolution of a
Fund, if the affirmative vote of at least 75% of the Board
approves the dissolution, shareholder approval is not required.
Liability of Shareholders. The Massachusetts
statute governing business trusts does not include an express
provision relating to the limitation of liability of the
shareholders of a Massachusetts business trust. However, the
Declarations for the MA Trusts provide that
C-3
no shareholder will be personally liable in connection with the
acts, obligations or affairs of the Target Trusts. Consistent
with Section 3803 of the Delaware Act, the Declarations of
the DE Trusts generally provide that shareholders will not be
subject to personal liability for the acts or obligations of the
DE Trust.
Liability of Trustees and Officers. Consistent
with the 1940 Act, the governing instruments for both the DE
Trusts and the MA Trusts generally provide that no Trustee or
officer of a DE Trust and no Trustee, officer, employee or agent
of a MA Trust is subject to any personal liability in connection
with the assets or affairs of the DE Trust and the MA Trust,
respectively, except for liability arising from his or her own
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office
(Disabling Conduct).
Indemnification. The MA Trusts generally
indemnify every person who is or has been a Trustee or officer
of the Trust to the fullest extent permitted by law against all
liability and against all expenses reasonably incurred or paid
by them in connection with any claim, action, suit or proceeding
in which they becomes involved as a party or otherwise by virtue
of their being or having been a Trustee or officer and against
amounts paid or incurred by them in the settlement thereof.
The Trustees, officers, employees or agents of a DE Trust
(Covered Persons) are indemnified by the DE Trust to
the fullest extent permitted by the Delaware Act, the bylaws and
other applicable law. The bylaws provide that every Covered
Person is indemnified by the DE Trust for expenses, judgments,
fines and amounts paid in settlement actually and reasonably
incurred in any proceeding to which such Covered Person is made
a party or is threatened to be made a party, or is involved as a
witness in, by reason of the fact that such person is a Covered
Person. For proceedings not by or in the right of the DE Trust
(i.e., derivative lawsuits), every Covered Person is
indemnified by the DE Trust for expenses actually and reasonably
incurred in the investigation, defense or settlement in any
proceeding to which such Covered Person is made a party or is
threatened to be made a party, or is involved as a witness in,
by reason of the fact that such person is a Covered Person. No
Covered Person is indemnified for any expenses, judgments,
fines, amounts paid in settlement, or other liability or loss
arising by reason of disabling conduct or for any proceedings by
such Covered Person against the Trust. The termination of any
proceeding by conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to
judgment, creates a rebuttable presumption that the person
engaged in Disabling Conduct.
A DE Trust is indemnified by any common shareholder who brings
an action against the Trust for all costs, expenses, penalties,
fines or other amounts arising from such action to the extent
that the shareholder is not the prevailing party. The DE Trust
is permitted to redeem shares of and set off against any
distributions to the shareholder for such amounts liable by the
shareholder to the DE Trust.
The
Acquiring Fund
The Acquiring Fund is a Massachusetts business trust. Under
Proposal 1, if approved, the Acquiring Fund will reorganize
into a newly formed Delaware statutory trust (the DE
Trust). The following is a discussion of certain
provisions of the governing instruments and governing laws of
the Acquiring Fund and the corresponding DE Trust, but is not a
complete description thereof. Further information about the
Acquiring Funds governance structure is contained in the
Acquiring Funds shareholder reports and its governing
documents.
Shares. The Trustees of the Acquiring Fund
have the power to issue shares, including preferred shares,
without shareholder approval. The governing documents of the
Acquiring Fund indicate that the amount of common shares that
the Acquiring Fund may issue is unlimited. Preferred shares are
limited to the amount set forth in the Declarations (defined
below). Shares of the Acquiring Fund have no preemptive rights.
The Trustees of the DE Trust have the power to issue shares,
including preferred shares, without shareholder approval. The
governing documents of the DE Trust indicate that the amount of
common and preferred shares that the DE Trust may issue is
unlimited. Shares of the DE Trust have no preemptive rights.
Organization. The Acquiring Fund is organized
as a Massachusetts business trust, under the laws of the
Commonwealth of Massachusetts. The Acquiring Fund is governed by
its Declaration of Trust (a Declaration) and its
bylaws, each as may be amended, and its business and affairs are
managed under the supervision of its Board of Trustees.
The DE Trust is organized as a Delaware statutory trust pursuant
to the Delaware Statutory Trust Act (Delaware
Act). The DE Trust is governed by its Amended and Restated
Agreement and Declaration of Trust (also, a
Declaration and, together with the Declaration of
the Acquiring Fund, the Declarations) and its
bylaws, and its business and affairs are managed under the
supervision of its Board of Trustees.
Composition of the Board of Trustees. The
Boards of Trustees of both the Acquiring Fund and the DE Trust
are divided into three classes, with the election of each class
staggered so that each class is only up for election once every
three years.
Shareholder Meetings and Rights of Shareholders to Call a
Meeting. The stock exchanges on which the
Acquiring Fund shares are currently, and the DE Trusts
shares will be, listed require annual meetings to elect trustees.
The governing instruments for the Acquiring Fund provide that
special meetings of shareholders may be called by a majority of
the Trustees. In addition, special meetings of shareholders may
also be called by any Trustee upon written request from
shareholders holding in the aggregate not less than 51% of the
outstanding common
and/or
preferred shares, if any (depending on whether they are voting
as a single class or separately).
C-4
The bylaws of the DE Trust authorize the Trustees to call a
meeting of the shareholders for the election of Trustees. The
bylaws of the DE Trust also authorize a meeting of shareholders
for any purpose determined by the Trustees. The bylaws of the DE
Trust state that shareholders have no power to call a special
meeting of shareholders.
Submission of Shareholder Proposals. The
Acquiring Fund does not have provisions in its governing
instruments that require shareholders to provide advance notice
to the Acquiring Fund in order to present a proposal at a
shareholder meeting. Nonetheless, the federal securities laws,
which apply to the Acquiring Fund and the DE Trust, require that
certain conditions be met to present any proposal at a
shareholder meeting.
The matters to be considered and brought before an annual or
special meeting of shareholders of the DE Trust are limited to
only those matters, including the nomination and election of
Trustees, that are properly brought before the meeting. For
proposals submitted by shareholders, the bylaws of the DE Trust
contain provisions which require that notice be given to the DE
Trust by an otherwise eligible shareholder in advance of the
annual or special shareholder meeting in order for the
shareholder to present a proposal at any such meeting and
requires shareholders to provide certain information in
connection with the proposal. These requirements are intended to
provide the Board the opportunity to better evaluate the
proposal and provide additional information to shareholders for
their consideration in connection with the proposal. Failure to
satisfy the requirements of these advance notice provisions
means that a shareholder may not be able to present a proposal
at the annual or special shareholder meeting.
In general, for nominations and any other proposals to be
properly brought before an annual meeting of shareholders by a
shareholder of the DE Trust, written notice must be delivered to
the Secretary of the DE Trust not less than 90 days, nor
more than 120 days, prior to the first anniversary of the
preceding years annual meeting. If the annual meeting is
not scheduled to be held within a period that commences
30 days before such anniversary and ends 30 days after
such anniversary (an Other Annual Meeting Date), the
written notice must be delivered by the later of the
90th day
prior to the meeting or the
10th day
following the public announcement or disclosure of the meeting
date provided, however, that if the Other Annual Meeting Date
was disclosed in the proxy statement for the prior years
annual meeting, the dates for receipt of the written notice
shall be calculated based on the Other Annual Meeting Date and
disclosed in the proxy statement for the prior years
annual meeting. If the number of Trustees to be elected to the
Board is increased and either all of the nominees for Trustee or
the size of the increased Board are not publicly announced or
disclosed at least 70 days prior to the first anniversary
of the preceding years annual meeting, written notice will
be considered timely if delivered to the Secretary of the DE
Trust no later than the
10th date
after such public announcement or disclosure. With respect to
the nomination of individuals for election to the Board of
Trustees at a special shareholder meeting, written notice must
be delivered by a shareholder of the DE Trust to the Secretary
of the DE Trust no later than the
10th date
after such meeting is publicly announced or disclosed. Specific
information, as set forth in the bylaws, about the nominee, the
shareholder making the nomination, and the proposal must also be
delivered, and updated as necessary if proposed at an annual
meeting, by the shareholder of the DE Trust. The shareholder or
a qualified representative must also appear at the annual or
special meeting of shareholders to present about the nomination
or proposed business.
Quorum. The governing instruments of the
Acquiring Fund provide that a quorum will exist if shareholders
representing a majority of the outstanding shares of each class
or series or combined class entitled to vote are present at the
meeting in person or by proxy.
The bylaws of the DE Trust provide that a quorum will exist if
shareholders representing a majority of the outstanding shares
entitled to vote are present or represented by proxy, except
when a larger quorum is required by applicable law or the
requirements of any securities exchange on which shares are
listed for trading, in which case the quorum must comply with
such requirements.
Number of Votes; Aggregate Voting. The
governing instruments of the Acquiring Fund and the Declaration
and bylaws of the DE Trust provide that each shareholder is
entitled to one vote for each whole share held as to any matter
on which the shareholder is entitled to vote, and a
proportionate fractional vote for each fractional share held.
The Acquiring Fund and the DE Trust do not provide for
cumulative voting for the election or removal of Trustees.
The governing instruments of the Acquiring Fund generally
provide that all share classes vote by class or series of the
Acquiring Fund, except as otherwise provided by applicable law,
the governing instruments or resolution of the Trustees.
The Declaration for the DE Trust generally provides that all
shares are voted as a single class, except when required by
applicable law, the governing instruments, or when the Trustees
have determined that the matter affects the interests of one or
more classes, in which case only the shareholders of all such
affected classes are entitled to vote on the matter.
Derivative Actions. Shareholders of the
Acquiring Fund have the power to vote as to whether or not a
court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on
behalf of the Acquiring Fund or its shareholders. Such
shareholders have the power to vote to the same extent as the
stockholders of a Massachusetts corporation.
The Declaration for the DE Trust states that a shareholder may
bring a derivative action on behalf of the DE Trust only if
several conditions are met. These conditions include, among
other things, a pre-suit demand upon the Board of Trustees and,
unless a demand is not required, shareholders who hold at least
a majority of the outstanding shares must join in the demand
request for the Board of Trustees to commence an action, and the
Board of Trustees must be afforded a reasonable amount of time
to consider such shareholder request and to investigate the
basis of the claim.
C-5
Right to Vote. The 1940 Act provides that
shareholders of a fund have the power to vote with respect to
certain matters: specifically, for the election of trustees, the
selection of auditors (under certain circumstances), approval of
investment advisory agreements and plans of distribution, and
amendments to policies, goals or restrictions deemed to be
fundamental. Shareholders also have the right to vote on certain
matters affecting a fund or a particular share class thereof
under their respective governing instruments and applicable
state law. The following summarizes the matters on which
shareholders have the right to vote as well as the minimum
shareholder vote required to approve the matter. For matters on
which shareholders of the Acquiring Fund or DE Trust do not have
the right to vote, the Trustees may nonetheless determine to
submit the matter to shareholders for approval. Where referenced
below, the phrase Majority Shareholder Vote means
the vote required by the 1940 Act, which is the lesser of
(a) 67% or more of the shares present at the meeting, if
the holders of more than 50% of a funds outstanding shares
are present or represented by proxy; or (b) more than 50%
of a funds outstanding shares.
Election and Removal of Trustees. The
shareholders of the Acquiring Fund are entitled to vote, under
certain circumstances, for the election and the removal of
Trustees. Subject to the rights of the preferred shareholders,
if any, the Trustees of the Acquiring Fund are elected by a
plurality vote (i.e., the nominees receiving the greatest
number of votes are elected). Any Trustee of the Acquiring Fund
may be removed at any meeting of shareholders by a vote of
two-thirds of the outstanding shares of the class or classes of
shares of beneficial interest that elected such Trustee.
With regard to the DE Trust, Trustees are elected by the
affirmative vote of a majority of the outstanding shares of the
DE Trust present in person or by proxy and entitled to vote at a
meeting of the shareholders at which a quorum is present.
Preferred shareholders, voting as a separate class, solely elect
at least two Trustees by the affirmative vote of a majority of
the outstanding preferred shares. Under certain circumstances as
set forth by the Trustees in accordance with the Declaration,
holders of preferred shares may elect at least a majority of the
Boards Trustees. The Declaration and bylaws of the DE
Trust do not provide shareholders with the ability to remove
Trustees.
Amendment of Governing
Instruments. Except as described below, the
Trustees of the Acquiring Fund and DE Trust have the right to
amend, from time to time, the governing instruments. For the
Acquiring Fund, the Trustees have the power to alter, amend or
repeal the bylaws or adopt new bylaws, provided that bylaws
adopted by shareholders may only be altered, amended or repealed
by the shareholders. For the DE Trust, the bylaws may be
altered, amended, or repealed by the Trustees, without the vote
or approval of shareholders.
For the Acquiring Fund, shareholder approval is required to
amend the Declaration, except that the Trustees may make changes
necessary to comply with applicable law and to effect the
provisions regarding preferred shares, and may make certain
other non-material changes, such as to correct a mistake,
without shareholder approval. When shareholder approval is
required, the vote needed to effect an amendment is a Majority
Shareholder Vote of the common shares and the preferred shares,
if any, outstanding and entitled to vote, voting as separate
classes, or by an instrument in writing, without a meeting,
signed by a majority of the Trustees and consented to by the
holders of not less than a majority of each of such common
shares and preferred shares. Notwithstanding the foregoing, any
amendment to the Declaration that would reduce the amount
payable upon liquidation of the Acquiring Fund or diminishing or
eliminating shareholder voting rights pertaining thereto
requires the approval of two-thirds of the class or classes of
shareholders so affected. In addition, any amendment that would
change or repeal the sections in the Declaration governing
termination or merger of the Acquiring Fund or conversion of the
Acquiring Fund to an open-end fund requires the affirmative vote
of 75% of each of the common shares and preferred shares, voting
as separate classes.
For the DE Trust, the Board generally may amend the Declaration
without shareholder approval, except (i): any amendment to the
Declaration approved by the Board that would reduce the
shareholders rights to indemnification requires the vote
of shareholders owning at least 75% of the outstanding shares;
(ii) any amendments to the Declaration that would change
shareholder voting rights, declassify the Board or change the
minimum or maximum number of Trustees permitted require the
affirmative vote or consent by the Board of Trustees followed by
the affirmative vote or consent of shareholders owning at least
75% of the outstanding shares, unless such amendments have been
previously approved, adopted or authorized by the affirmative
vote of at least
662/3%
of the Board of Trustees, in which case an affirmative Majority
Shareholder Vote is required (the DE Trusts Voting
Standard).
Mergers, Reorganizations, and
Conversions. The governing instruments of the
Acquiring Fund provide that a merger, consolidation, sale, lease
or exchange requires the affirmative vote of not less than
662/3%
of the common shares and the preferred shares, if any,
outstanding and entitled to vote, voting as separate classes. If
the merger, consolidation, sale, lease or exchange is
recommended by the Trustees, the vote or written consent of the
holders of a majority of the common shares and preferred shares,
if any, outstanding and entitled to vote, voting as separate
classes, is sufficient authorization. Conversion to an open-end
company is required to be approved by at least a majority of the
Trustees, including those who are not interested persons as
defined in the 1940 Act, and a Majority Shareholder Vote of each
of the common shares and preferred shareholders, if any, voting
as separate classes. An incorporation or reorganization requires
the approval of a majority of the common shares and preferred
shares, if any, outstanding and entitled to vote, voting as
separate classes.
For the DE Trust, any such merger, consolidation, conversion,
reorganization, or reclassification requires approval pursuant
to the DE Trusts Voting Standard. The vote required is in
addition to the vote or consent of shareholders otherwise
required by law or by the terms of any class of preferred shares
or any agreement between the Trust and any national securities
exchange.
C-6
Principal Shareholder Transactions. The
Acquiring Fund requires a vote or consent of
662/3%
of the common or preferred shares outstanding and entitled to
vote, voting as separate classes, where a principal shareholder
(i.e., any corporation, person or other entity which is
the beneficial owner, directly or indirectly, of more than 5% of
the outstanding shares) is the party to certain transactions.
The DE Trust requires a vote pursuant to the DE Trusts
Voting Standard for certain principal shareholder transactions.
The vote required is in addition to the vote or consent of
shareholders otherwise required by law or by the terms of any
class of preferred shares or any agreement between the Trust and
any national securities exchange.
Termination of a Trust. With respect to
the Acquiring Fund, the affirmative vote of not less than 75% of
the common shares and preferred shares, if any, outstanding and
entitled to vote, voting as separate classes, at any meeting of
shareholders, or by an instrument in writing, without a meeting,
signed by a majority of the Trustees and consented to by the
holders of not less than 75% of each of such common shares and
preferred shares, is required for termination of the Acquiring
Fund.
The DE Trust may be dissolved upon a vote pursuant to the DE
Trusts Voting Standard. The vote required is in addition
to the vote or consent of shareholders otherwise required by law
or by the terms of any class of preferred shares or any
agreement between the DE Trust and any national securities
exchange. In addition, to spare shareholders the expense of a
shareholder meeting in connection with the dissolution of a
Fund, if the affirmative vote of at least 75% of the Board
approves the dissolution, shareholder approval is not required.
Liability of Shareholders. The Massachusetts
statute governing business trusts does not include an express
provision relating to the limitation of liability of the
shareholders of a Massachusetts business trust. However, the
Declaration for the Acquiring Fund provides that no shareholder
will be personally liable in connection with the acts,
obligations or affairs of the Acquiring Fund. Consistent with
Section 3803 of the Delaware Act, the Declaration of the DE
Trust generally provides that shareholders will not be subject
to personal liability for the acts or obligations of the DE
Trust.
Liability of Trustees and Officers. Consistent
with the 1940 Act, the governing instruments for both the DE
Trust and the Acquiring Fund generally provide that no Trustee
or officer of the DE Trust and no Trustee, officer, employee or
agent of the Acquiring Fund is subject to any personal liability
in connection with the assets or affairs of the DE Trust and the
Acquiring Fund, respectively, except for liability arising from
his or her own willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of
the office (Disabling Conduct).
Indemnification. The Acquiring Fund generally
indemnifies every person who is or has been a Trustee or officer
of the Trust to the fullest extent permitted by law against all
liability and against all expenses reasonably incurred or paid
by them in connection with any claim, action, suit or proceeding
in which they becomes involved as a party or otherwise by virtue
of their being or having been a Trustee or officer and against
amounts paid or incurred by them in the settlement thereof,
except otherwise for Disabling Conduct.
The Trustees, officers, employees or agents of the DE Trust
(Covered Persons) are indemnified by the DE Trust to
the fullest extent permitted by the Delaware Act, the bylaws and
other applicable law. The bylaws provide that every Covered
Person is indemnified by the DE Trust for expenses, judgments,
fines and amounts paid in settlement actually and reasonably
incurred in any proceeding to which such Covered Person is made
a party or is threatened to be made a party, or is involved as a
witness in, by reason of the fact that such person is a Covered
Person. For proceedings not by or in the right of the DE Trust
(i.e., derivative lawsuits), every Covered Person is
indemnified by the DE Trust for expenses actually and reasonably
incurred in the investigation, defense or settlement in any
proceeding to which such Covered Person is made a party or is
threatened to be made a party, or is involved as a witness in,
by reason of the fact that such person is a Covered Person. No
Covered Person is indemnified for any expenses, judgments,
fines, amounts paid in settlement, or other liability or loss
arising by reason of Disabling Conduct or for any proceedings by
such Covered Person against the Trust. The termination of any
proceeding by conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to
judgment, creates a rebuttable presumption that the person
engaged in Disabling Conduct.
A DE Trust is indemnified by any common shareholder who brings
an action against the Trust for all costs, expenses, penalties,
fines or other amounts arising from such action to the extent
that the shareholder is not the prevailing party. The DE Trust
is permitted to redeem shares of and set off against any
distributions to the shareholder for such amounts liable by the
shareholder to the DE Trust.
C-7
EXHIBIT D
FORM OF
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (Agreement)
is adopted as of
this
day
of ,
2012 by and among (i) each of the Invesco closed-end
registered investment companies identified as a Merging Fund on
Exhibit A hereto, each a Delaware statutory trust (each a
Merging Fund); (ii) each of the Invesco
closed-end registered investment companies identified as a
Surviving Fund on Exhibit A hereto, each a Delaware
statutory trust (each a Surviving Fund); and
(iii) Invesco Advisers, Inc. (IAI). The
predecessor to each Merging Fund, each a Massachusetts business
trust except the predecessor to the Invesco High Yield
Investment Fund, Inc., which is a Maryland corporation (each a
Predecessor Merging Fund), and the
predecessor to each Surviving Fund, each a Massachusetts
business trust (each a Predecessor Surviving
Fund), joins this agreement solely for the purposes of
making the representations in paragraph 4.1 or 4.2, as
applicable, and agreeing to be bound by paragraphs 5.1(a),
5.1(b), 5.1(d) and 5.1(i). Each Merging Fund and Surviving Fund
are together referred to herein as the Funds
and each Predecessor Merging Fund and Predecessor Surviving Fund
are referred to individually as a Predecessor
Fund.
WHEREAS, each Merging Fund and each Surviving Fund is a
closed-end, registered investment company of the management
type; and
WHEREAS, this Agreement is intended to be and is adopted as a
plan of reorganization with respect to each Merger
(as defined below) within the meaning of Section 368(a) of
the United States Internal Revenue Code of 1986, as amended (the
Code), and Treasury Regulations
Sections 1.368-2(g)
and 1.368-3(a); and
WHEREAS, each merger will consist of the merger of a Merging
Fund into its corresponding Surviving Fund, as set forth on
Exhibit A, pursuant to the provisions of the Delaware
Statutory Trust Act, 12 Del. C. Section 3801, et seq.
(the DSTA), and will have the consequences
described in Section 1.2 below (each such transaction, a
Merger and collectively, the
Mergers); and
WHEREAS, a condition precedent to each Merger is the
redomestication of the Predecessor Merging Fund and the
Predecessor Surviving Fund from a Massachusetts business trust
or Maryland corporation, as applicable, to a Delaware statutory
trust, which will include the transfer of all of the Predecessor
Funds assets and assumption of all of the Predecessor
Funds liabilities by the applicable Fund in exchange for
the issuance by such Fund to the Predecessor Fund of shares of
beneficial interest of the Fund and the distribution of those
shares to the Predecessor Funds shareholders (each a
Redomestication);
WHEREAS, the Boards of Trustees of each Surviving Fund and of
each Merging Fund have determined that the Merger is in the best
interests of the Surviving Fund and the Merging Fund,
respectively, and the interests of the shareholders of the
Surviving Fund and the Merging Fund will not be diluted as a
result of the Merger;
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, and intending to
be legally bound, the parties hereto covenant and agree as
follows:
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1.
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DESCRIPTION
OF THE MERGERS
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1.1. It is the intention of the parties hereto that
each Merger described herein shall be conducted separately from
the others, and a party that is not a party to a Merger shall
incur no obligations, duties or liabilities, nor make any
representations, warranties or covenants, with respect to such
Merger by reason of being a party to this Agreement. If any one
or more Mergers should fail to be consummated, such failure
shall not affect the other Mergers in any way.
1.2. Subject to the terms and conditions herein set
forth and on the basis of the representations and warranties
contained herein, with respect to each Merging Fund and its
corresponding Surviving Fund, at the Closing Time (as defined
below), the Merging Fund shall be merged with and into the
Surviving Fund, the separate existence of the Merging Fund as a
Delaware Statutory Trust and registered investment company shall
cease, and the Surviving Fund will be the surviving entity for
all purposes, including accounting purposes and for purposes of
presenting investment performance history.
1.3. Upon the terms and subject to the conditions of
this Agreement, on the Closing Date (as defined below), the
applicable parties shall cause the Merger to be consummated by
filing a certificate of merger (a Certificate of
Merger) with the Secretary of State of the State of
Delaware in accordance with Section 3815 of the DSTA. The
Merger shall become effective at 9:15 a.m. Eastern
Time, as shall be specified in a Certificate of Merger duly
filed with the Secretary of the State of Delaware, or at such
later date or time as the parties shall agree and specify in the
Certificate of Merger (the Closing Time).
1.4. As a result of operation of the applicable
provisions of the DSTA, the following events occur
simultaneously at the Closing Time, except as otherwise provided
herein:
(a) all of the assets, property, goodwill, rights,
privileges, powers and franchises of the Merging Fund,
including, without limitation, all cash, securities,
commodities and futures interests, claims (whether absolute or
contingent, known or unknown, accrued or unaccrued and
including, without limitation, any interest in pending or future
legal claims in connection with past or present portfolio
holdings, whether in the form of class action claims, opt-out or
other direct litigation claims, or regulator or
government-established investor recovery fund claims, and any
and all resulting recoveries), dividends or interest receivable,
D-1
deferred or prepaid expenses shown as an asset on the books of
the Merging Fund on the Closing Date, goodwill, contractual
rights, originals or copies of all books and records of the
Merging Fund and all intangible property that is owned by the
Merging Fund (collectively, the Merging
Fund Assets) shall vest in the Surviving Fund,
and all of the liabilities, debts, obligations, restrictions and
duties of the Merging Fund (whether known or unknown, absolute
or contingent, accrued or unaccrued and including, without
limitation, any liabilities of the Merging Fund to indemnify the
trustees or officers of the Merging Fund or any other persons
under the Merging Funds Declaration of Trust or otherwise,
and including all liabilities, debts, obligations, restrictions
and duties of the Predecessor Fund assumed by the Merging Fund
pursuant to the Redomestication) (collectively, the
Merging Fund Liabilities) shall become
the liabilities, debts, obligations, restrictions and duties of
the Surviving Fund;
(b) Merging Fund common shares of beneficial interest (the
Merging Fund Common Shares) shall be
converted into Surviving Fund common shares of beneficial
interest (the Surviving Fund Common
Shares) and Merging Fund preferred shares of
beneficial interest, if any (the Merging
Fund Preferred Shares), shall be converted into
Surviving Fund preferred shares of beneficial interest (the
Surviving Fund Preferred Shares). Prior
to the Closing Time or as soon as practicable thereafter, the
Surviving Fund will open shareholder accounts on the share
ledger records of the Surviving Fund in the names of and in the
amounts due to the shareholders of the Merging Fund Common
Shares and Merging Fund Preferred Shares (if any) based on
their respective holdings in the Merging Fund as of the close of
business on the Valuation Date, as more fully described in
Section 3 below;
(c) At the Closing Time, the agreement and declaration of
trust and bylaws of the Surviving Fund in effect immediately
prior to the Closing Time shall continue to be the agreement and
declaration of trust and bylaws of the Surviving Fund, until and
unless thereafter amended in accordance with their respective
terms;
(d) From and after the Closing Time, the trustees and
officers of the Surviving Fund shall continue to be the trustees
and officers of the combined Merging Fund and Surviving Fund,
and such trustees and officers shall serve for such terms as are
provided in the agreement and declaration of trust and the
bylaws of the Surviving Fund; and
(e) From and after the Closing Time, the Surviving
Funds investment objectives, strategies, policies and
restrictions shall continue to be the investment objectives,
strategies, policies and restrictions of the combined Merging
Fund and Surviving Fund.
2. VALUATION
2.1. Computations of value in connection with the
Closing (as defined below) of each Merger shall be as of
immediately after the close of regular trading on the New York
Stock Exchange (NYSE), which shall reflect
the declaration of any dividends, on the business day
immediately preceding the Closing Date (the Valuation
Date).
2.2. All computations of value of the Merging Fund,
the Merging Fund Common Shares, the Merging
Fund Preferred Shares (if any), the Merging
Fund Assets and the Merging Fund Liabilities shall be
made using the Merging Funds valuation procedures
established by the Merging Funds Board of Trustees. All
computations of value of the Surviving Fund, the Surviving
Fund Common Shares, the Surviving Fund Preferred
Shares (if any) and the Surviving Funds assets and
liabilities shall be made using the Surviving Funds
valuation procedures established by the Surviving Funds
Board of Trustees.
3. CLOSING
AND CLOSING DATE
3.1. Each Merger shall close
on ,
2012 or such other date as the parties may agree with respect to
any or all Mergers (the Closing Date). All
acts taking place at the closing of a Merger (the
Closing) shall be deemed to take place
simultaneously as of the Closing Time unless otherwise agreed to
by the parties. In the event that on the Valuation Date or the
Closing Date (a) the NYSE or another primary trading market
for portfolio securities of the Merging Fund (each, an
Exchange) shall be closed to trading or
trading thereupon shall be restricted, or (b) trading or
the reporting of trading on such Exchange or elsewhere shall be
disrupted so that, in the judgment of the Board of Trustees of
the Merging Fund or the corresponding Surviving Fund or the
authorized officers of either of such entities, accurate
appraisal of the value of the net assets of the Surviving Fund
or the Merging Fund, respectively, is impracticable, the Closing
Date shall be postponed until the first business day after the
day when trading shall have been fully resumed and reporting
shall have been restored.
3.2. With respect to each Merger:
(a) The Merging Funds portfolio securities,
investments or other assets that are represented by a
certificate or other written instrument shall be transferred and
delivered by the Merging Fund as of the Closing Date, or as soon
as reasonably practicable thereafter, to the Surviving
Funds custodian for the account of the Surviving Fund,
duly endorsed in proper form for transfer and in such condition
as to constitute good delivery thereof.
(b) No later than the Closing, the Merging Fund shall
provide the Surviving Fund or its transfer agent with the names,
addresses, dividend reinvestment elections and tax withholding
status of the Merging Fund shareholders as of the Valuation Date
and the information and documentation maintained by the Merging
Fund or its agents relating to the identification and
verification of the Merging Fund shareholders under the USA
PATRIOT Act and other applicable anti-money laundering laws,
rules and regulations and such other information as the
Surviving Fund may reasonably request. The Surviving Fund and
its transfer agent
D-2
shall have no obligation to inquire as to the validity,
propriety or correctness of any such instruction, information or
documentation, but shall, in each case, assume that such
instruction, information or documentation is valid, proper,
correct and complete.
(c) The Surviving Fund shall issue and deliver to the
Merging Fund a confirmation evidencing the Surviving
Fund Common Shares and Surviving Fund Preferred
Shares, if any, to be credited on the Closing Date, or provide
other evidence satisfactory to the Merging Fund that such shares
have been credited to the Merging Fund shareholders
accounts on the books of the Surviving Fund.
(d) Surviving Fund Common Shares of an aggregate net
asset value equal to the aggregate net asset value of the
Merging Fund Common Shares shall be issued by the Surviving
Fund to the holders of the Merging Fund Common Shares in
exchange for all of the Merging Fund Common Shares. The
aggregate net asset value of such shares shall be determined as
set forth in Section 2 above.
(e) Surviving Fund Preferred Shares of an aggregate
liquidation preference equal to the aggregate liquidation
preference of the Merging Fund Preferred Shares shall be
issued by the Surviving Fund to the holders of the Merging
Fund Preferred Shares, if any, in exchange for all of the
Merging Fund Preferred Shares. The terms of the Surviving
Fund Preferred Shares shall be substantially the same as
the terms of the Merging Fund Preferred Shares.
(f) The Surviving Fund shall not issue certificates
representing Surviving Fund Common Shares in connection
with the Merger. Any certificates representing ownership of
Merging Fund Common Shares that remain outstanding at the
Closing Time shall be deemed to be cancelled by operation of law
and shall no longer evidence ownership of the Merging Fund or
its shares.
4. REPRESENTATIONS
AND WARRANTIES
4.1. Each Merging Fund and Predecessor Merging Fund
represents and warrants to the corresponding Surviving Fund as
follows:
(a) The Merging Fund is duly formed as a statutory trust,
validly existing, and in good standing under the laws of the
State of Delaware with power under its agreement and declaration
of trust and bylaws (Governing Documents), to
own all of its Merging Fund Assets, to carry on its
business as it is now being conducted and to enter into this
Agreement and perform its obligations hereunder;
(b) The Merging Fund is registered under the Investment
Company Act of 1940, as amended (1940 Act),
as a closed-end management investment company, and such
registration has not been revoked or rescinded and is in full
force and effect;
(c) No consent, approval, authorization, or order of any
court, governmental authority, the Financial Industry Regulatory
Authority (FINRA) or any stock exchange on
which shares of the Merging Fund are listed is required for the
consummation by the Merging Fund of the transactions
contemplated herein, except such as have been or will be
obtained (at or prior to the Closing Time);
(d) The Merging Fund is not obligated under any provision
of its Governing Documents and is not a party to any contract or
other commitment or obligation, and is not subject to any order
or decree, which would be violated by its execution or
performance under this Agreement, except insofar as the Funds
have mutually agreed to amend such contract or other commitment
or obligation to cure any potential violation as a condition
precedent to the Merger;
(e) The Merging Fund is authorized to issue an unlimited
number of Common Shares and an unlimited number of Preferred
Shares and all of the issued and outstanding shares of
beneficial interest of the Merging Fund are, and on the Closing
Date will be, duly authorized and validly issued and
outstanding, fully paid and non-assessable by the Merging Fund
and no shareholder of the Merging Fund will have any preemptive
right of subscription or purchase in respect thereof and, in
every state where offered or sold, such offers and sales by the
Merging Fund have been in compliance in all material respects
with applicable registration
and/or
notice requirements of the Securities Act of 1933, as amended
(the 1933 Act) and state and District of
Columbia securities laws;
(f) Except as otherwise disclosed to and accepted by or on
behalf of the Surviving Fund, the Merging Fund will on the
Closing Date have good title to the Merging Fund Assets and
have full right, power and authority to sell, assign, transfer
and deliver such Merging Fund Assets free of adverse
claims, including any liens or other encumbrances, and upon
delivery and payment for such Merging Fund Assets, the
Surviving Fund will acquire good title thereto, free of adverse
claims and subject to no restrictions on the full transfer
thereof, including, without limitation, such restrictions as
might arise under the 1933 Act, provided that the Surviving
Fund will acquire Merging Fund Assets that are segregated
as collateral for the Merging Funds derivative positions,
including, without limitation, as collateral for swap positions
and as margin for futures positions, subject to such segregation
and liens that apply to such Merging Fund Assets;
(g) The financial statements of the Merging Fund for the
Merging Funds most recently completed fiscal year have
been audited by the independent registered public accounting
firm appointed by the Merging Funds Board of Trustees.
Such statements, as well as the unaudited, semi-annual financial
statements for the semi-annual period next succeeding the
Merging Funds most recently completed fiscal year, if any,
were prepared in accordance with accounting principles generally
accepted in the United States of America
(GAAP) consistently applied, and such
statements present fairly, in all material respects, the
financial condition of the Merging Fund as of such date in
accordance with GAAP;
D-3
(h) The Merging Fund has no known liabilities of a material
nature, contingent or otherwise, other than those shown as
belonging to it on its statement of assets and liabilities as of
the Merging Funds most recently completed fiscal year or
half-year and those incurred in the ordinary course of the
Merging Funds business as an investment company since such
date;
(i) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Merging Fund,
threatened against the Merging Fund which assert liability or
which may, if successfully prosecuted to their conclusion,
result in liability on the part of the Merging Fund, other than
as have been disclosed to the Surviving Fund;
(j) The registration statement filed by the Surviving Fund
on
Form N-14,
which includes, among other things, a proxy statement of the
Merging Fund and a prospectus of the Surviving Fund with respect
to the transactions contemplated herein (including the statement
of additional information incorporated by reference therein, the
Joint Proxy Statement/Prospectus), and any
supplement or amendment thereto or to the documents included or
incorporated by reference therein (collectively, as so amended
or supplemented, the N-14 Registration
Statement), on its effective date, at the time of the
shareholders meeting called to vote on the proposals set forth
in the Joint Proxy Statement/Prospectus and on the Closing Date,
insofar as it relates to the Merging Fund, (i) complied or
will comply in all material respects with the 1933 Act, the
Securities Exchange Act of 1934, as amended (the
1934 Act), and the 1940 Act and the rules and
regulations thereunder (ii) did not or will not contain any
untrue statement of a material fact or omit any material fact
required to be stated therein or necessary to make the
statements therein not misleading; and the Joint Proxy
Statement/Prospectus, as of its date, at the time of the
shareholders meeting called to vote on the proposals set forth
therein and on the Closing Date, insofar as it relates to the
Merging Fund, (i) complied or will comply in all material
respects with the 1933 Act, the 1934 Act and the 1940
Act and the rules and regulations thereunder and (ii) did
not or will not contain any untrue statement of a material fact
or omit any material fact required to be stated therein or
necessary to make the statements therein in light of the
circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in
this subsection shall apply only to statements in or omissions
from the N-14 Registration Statement or the Joint Proxy
Statement/Prospectus made in reliance upon and in conformity
with information furnished by the Merging Fund for use in the
N-14 Registration Statement or the Joint Proxy
Statement/Prospectus.
(k) On the Closing Date, all material Returns (as defined
below) of the Merging Fund required by law to have been filed by
such date (including any extensions) shall have been filed and
are or will be true, correct and complete in all material
respects, and all Taxes (as defined below) shown as due or
claimed to be due by any government entity shall have been paid
or provision has been made for the payment thereof. To the
Merging Funds knowledge, no such Return is currently under
audit by any federal, state, local or foreign Tax authority; no
assessment has been asserted with respect to such Returns; there
are no levies, liens or other encumbrances on the Merging Fund
or its assets resulting from the non-payment of any Taxes; no
waivers of the time to assess any such Taxes are outstanding nor
are any written requests for such waivers pending; and adequate
provision has been made in the Merging Fund financial statements
for all Taxes in respect of all periods ended on or before the
date of such financial statements. As used in this Agreement,
Tax or Taxes means any
tax, governmental fee or other like assessment or charge of any
kind whatsoever (including, but not limited to, withholding on
amounts paid to or by any person), together with any interest,
penalty, addition to tax or additional amount imposed by any
governmental authority (domestic or foreign) responsible for the
imposition of any such tax. Return means
reports, returns, information returns, elections, agreements,
declarations, or other documents of any nature or kind
(including any attached schedules, supplements and additional or
supporting material) filed or required to be filed with respect
to Taxes, including any claim for refund, amended return or
declaration of estimated Taxes (and including any amendments
with respect thereto);
(l) The Merging Fund has elected to be a regulated
investment company under Subchapter M of the Code and is a
fund that is treated as a separate corporation under
Section 851(g) of the Code. The Merging Fund has qualified
for treatment as a regulated investment company for each taxable
year since inception that has ended prior to the Closing Date
and will have satisfied the requirements of Part I of
Subchapter M of the Code to maintain such qualification for the
period beginning on the first day of its current taxable year
and ending on the Closing Date. The Merging Fund has no earnings
or profits accumulated in any taxable year in which the
provisions of Subchapter M of the Code did not apply to it. In
order to (A) ensure continued qualification of the Merging
Fund for treatment as a regulated investment company for tax
purposes and (B) eliminate any tax liability of the Merging
Fund arising by reason of undistributed investment company
taxable income or net capital gain, the Merging Fund, before the
Closing Date, will declare on or prior to the Valuation Date to
the shareholders of the Merging Fund a dividend or dividends
that, together with all previous such dividends, shall have the
effect of distributing (i) all of Merging Funds
investment company taxable income for the taxable year ended
prior to the Closing Date and substantially all of such
investment company taxable income for the final taxable year
ending on the Closing Date (in each case determined without
regard to any deductions for dividends paid); (ii) all of
Merging Funds net capital gain recognized in its taxable
year ended prior to the Closing Date and substantially all of
any such net capital gain recognized in such final taxable year
(in each case after reduction for any capital loss carryover);
and (iii) at least 90 percent of the excess, if any,
of the Merging Funds interest income excludible from gross
income under Section 103(a) of the Code over its deductions
disallowed under Sections 265 and 171(a)(2) of the Code for
the taxable year prior to the Closing Date and at least
90 percent of such net tax-exempt income for such final
taxable year;
D-4
(m) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing
Date by all necessary action, if any, on the part of the Board
of Trustees of the Merging Fund and, subject to the approval of
the shareholders of the Funds and the due authorization,
execution and delivery of this Agreement by IAI, this Agreement
will constitute a valid and binding obligation of the Merging
Fund enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting
creditors rights and to general equity principles;
(n) All of the issued and outstanding Merging
Fund Common Shares were offered for sale and sold in
conformity with all applicable federal and state securities laws.
(o) The books and records of the Merging Fund are true and
correct in all material respects and contain no material
omissions with respect to information required to be maintained
under the laws, rules and regulations applicable to the Merging
Fund;
(p) The Merging Fund is not under the jurisdiction of a
court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code;
(q) The Merging Fund has no unamortized or unpaid
organizational fees or expenses; and
(r) There are no material contracts outstanding to which
the Merging Fund is a party that have not been disclosed in the
N-14 Registration Statement or that will not otherwise be
disclosed to the Surviving Fund prior to the Closing Time.
4.2. Each Surviving Fund and Predecessor Surviving
Fund represents and warrants to the corresponding Merging Fund
as follows:
(a) The Surviving Fund is duly formed as a statutory trust,
validly existing, and in good standing under the laws of the
State of Delaware, with power under its agreement and
declaration of trust, as amended (the Agreement and
Declaration of Trust), to own all of its
properties and assets and to carry on its business as it is now
being, and as it is contemplated to be, conducted, and to enter
into this Agreement and perform its obligations hereunder;
(b) The Surviving Fund is registered under the 1940 Act as
a closed-end management investment company, and such
registration has not been revoked or rescinded and is in full
force and effect;
(c) No consent, approval, authorization, or order of any
court, governmental authority, FINRA or any stock exchange on
which shares of the Surviving Fund are listed is required for
the consummation by the Surviving Fund of the transactions
contemplated herein, except such as have been or will be
obtained (at or prior to the Closing Time);
(d) The financial statements of the Surviving Fund for the
Surviving Funds most recently completed fiscal year have
been audited by the independent registered public accounting
firm appointed by the Surviving Funds Board of Trustees.
Such statements, as well as the unaudited, semi-annual financial
statements for the semi-annual period next succeeding the
Surviving Funds most recently completed fiscal year, if
any, were prepared in accordance with GAAP consistently applied,
and such statements present fairly, in all material respects,
the financial condition of the Surviving Fund as of such date in
accordance with GAAP;
(e) The Surviving Fund has no known liabilities of a
material nature, contingent or otherwise, other than those shown
as belonging to it on its statement of assets and liabilities as
of the Surviving Funds most recently completed fiscal year
or half-year and those incurred in the ordinary course of the
Surviving Funds business as an investment company since
such date;
(f) There are no material legal, administrative or other
proceedings pending or, to the knowledge of Surviving Fund,
threatened against Surviving Fund which assert liability or
which may, if successfully prosecuted to their conclusion,
result in liability on the part of Surviving Fund, other than as
have been disclosed to the Merging Fund;
(g) The N-14 Registration Statement, on its effective date,
at the time of the shareholders meeting called to vote on the
proposals set forth in the Joint Proxy Statement/Prospectus and
on the Closing Date, (i) complied or will comply in all
material respects with the 1933 Act, the 1934 Act and
the 1940 Act and the rules and regulations thereunder and
(ii) did not or will not contain any untrue statement of a
material fact or omit any material fact required to be stated
therein or necessary to make the statements therein not
misleading; and the Joint Proxy Statement/Prospectus, as of its
date, at the time of the shareholders meeting called to vote on
the proposals set forth therein and on the Closing Date
(i) complied or will comply in all material respects with
the 1933 Act, the 1934 Act and the 1940 Act and
regulations thereunder and (ii) did not or will not contain
any untrue statement of a material fact or omit any material
fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which
they were made, not misleading; provided, however, that the
representations and warranties in this subsection shall not
apply to statements in or omissions from the N-14 Registration
Statement or the Joint Proxy Statement/Prospectus made in
reliance upon and in conformity with information furnished by
the Merging Fund for use in the N-14 Registration Statement or
the Joint Proxy Statement/Prospectus;
(h) On the Closing Date, all material Returns of the
Surviving Fund required by law to have been filed by such date
(including any extensions) shall have been filed and are or will
be true, correct and complete in all material respects, and all
Taxes shown as due or claimed to be due by any government entity
shall have been paid or provision has been made for the payment
thereof. To the Surviving Funds knowledge, no such Return
is currently under audit by any federal, state, local or foreign
Tax authority; no assessment has been asserted with respect to
such Returns; there are no levies, liens or other encumbrances
on the Surviving Fund or its assets resulting from the
non-payment of any Taxes; and no waivers of the time to assess
any such Taxes are outstanding nor are
D-5
any written requests for such waivers pending; and adequate
provision has been made in the Surviving Fund financial
statements for all Taxes in respect of all periods ended on or
before the date of such financial statements;
(i) The Surviving Fund has elected to be a regulated
investment company under Subchapter M of the Code and is a fund
that is treated as a separate corporation under
Section 851(g) of the Code. The Surviving Fund has
qualified for treatment as a regulated investment company for
each taxable year since inception that has ended prior to the
Closing Date and will have satisfied the requirements of
Part I of Subchapter M of the Code to maintain such
qualification for the period beginning on the first day of its
current taxable year and ending on the Closing Date. The
Surviving Fund has no earnings or profits accumulated in any
taxable year in which the provisions of Subchapter M of the Code
did not apply to it;
(j) All issued and outstanding Surviving Fund shares are,
and on the Closing Date will be, duly authorized and validly
issued and outstanding, fully paid and non-assessable by the
Surviving Fund and, in every state where offered or sold, such
offers and sales by the Surviving Fund have been in compliance
in all material respects with applicable registration
and/or
notice requirements of the 1933 Act and state and District
of Columbia securities laws or exemptions therefrom, and there
will be a sufficient number of such shares registered under the
1933 Act or exempt from such registration and, as may be
necessary, with applicable state securities commissions, to
permit the issuances contemplated by this Agreement to be
consummated;
(k) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing
Date by all necessary action, if any, on the part of the Board
of Trustees of the Surviving Fund and subject to the approval of
the shareholders of the Funds and the due authorization,
execution and delivery of this Agreement by IAI, this Agreement
will constitute a valid and binding obligation of the Surviving
Fund enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting
creditors rights and to general equity principles;
(l) The Surviving Fund Common Shares and Surviving
Fund Preferred Shares (if any) to be issued and delivered
to the Merging Fund, for the account of the Merging Fund
shareholders, pursuant to the terms of this Agreement, will on
the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued shares of the
Surviving Fund, and will be fully paid and non-assessable by the
Surviving Fund and no shareholder of the Surviving Fund will
have any preemptive right of subscription or purchase in respect
thereof;
(m) The books and records of the Surviving Fund are true
and correct in all material respects and contain no material
omissions with respect to information required to be maintained
under the laws, rules and regulations applicable to the
Surviving Fund;
(n) The Surviving Fund is not under the jurisdiction of a
court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code; and
(o) The Surviving Fund has no unamortized or unpaid
organizational fees or expenses for which it does not expect to
be reimbursed by Invesco or its affiliates.
5. COVENANTS
OF THE SURVIVING FUND AND THE MERGING FUND
5.1. With respect to each Merger:
(a) The Surviving Fund, the Merging Fund and the
corresponding Predecessor Funds each: (i) will operate its
business in the ordinary course and substantially in accordance
with past practices between the date hereof and the Closing Date
for the Merger, it being understood that such ordinary course of
business may include the declaration and payment of customary
dividends and distributions, and any other distribution that may
be advisable, and (ii) shall use its reasonable best
efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business
and customer relations necessary to conduct the business
operations of the Surviving Fund, the Merging Fund or the
corresponding Predecessor Fund, as appropriate, in the ordinary
course in all material respects.
(b) Each Fund and Predecessor Fund agrees to mail to its
shareholders of record entitled to vote at the meeting of
shareholders at which action is to be considered regarding this
Agreement, in sufficient time to comply with requirements as to
notice thereof, the Joint Proxy Statement/Prospectus applicable
to such Fund, to call a meeting of such shareholders and to take
all other action necessary to obtain approval of the
transactions contemplated herein.
(c) The Merging Fund will provide the Surviving Fund with
(1) a statement of the respective tax basis and holding
period of all investments to be transferred by the Merging Fund
to the Surviving Fund, (2) a copy (which may be in
electronic form) of the shareholder ledger accounts including,
without limitation, the name, address and taxpayer
identification number of each shareholder of record, the number
of shares of beneficial interest held by each shareholder, the
dividend reinvestment elections applicable to each shareholder,
and the backup withholding and nonresident alien withholding
certifications, notices or records on file with the Merging Fund
with respect to each shareholder, for all of the shareholders of
record of the Merging Fund as of the close of business on the
Valuation Date, who are to become holders of the Surviving Fund
as a result of the transfer of Merging Fund Assets,
certified by its transfer agent or its President or
Vice-President to the best of their knowledge and belief,
(3) the tax books and records of the Merging Fund for
purposes of preparing any Returns required by law to be filed
for tax periods ending after the Closing Date, and (4) if
reasonably requested by the Surviving Fund in writing, all FASB
ASC 740-10-25
(formerly FIN 48) work papers and
D-6
supporting statements pertaining to the Merging Fund. The
foregoing information to be provided within such timeframes as
is mutually agreed by the parties. The Merging Fund agrees to
cooperate with the Surviving Fund in filing any Return, amended
return or claim for refund, determining a liability for taxes or
a right to a refund of taxes or participating in or conducting
any audit or other proceeding in respect of taxes. The Merging
Fund agrees to retain for a period of seven (7) years
following the Closing Date all Returns and work papers and all
material records or other documents relating to tax matters for
taxable periods ending on or before the Closing Date.
(d) Subject to the provisions of this Agreement, the
Surviving Fund, the Merging Fund and the corresponding
Predecessor Funds will each take, or cause to be taken, all
action, and do or cause to be done all things, reasonably
necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement.
(e) It is the intention of the parties that each Merger
will qualify as a reorganization with the meaning of
Section 368(a)(1)(A) of the Code. None of the parties to a
Merger shall take any action or cause any action to be taken
(including, without limitation the filing of any tax Return)
that is inconsistent with such treatment or results in the
failure of such Merger to qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code.
(f) Any reporting responsibility of the Merging Fund,
including, but not limited to, the responsibility for filing
regulatory reports, tax Returns relating to tax periods ending
on or prior to the Closing Date (whether due before or after the
Closing Date), or other documents with the SEC, any state
securities commission, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and
shall remain the responsibility of the Merging Fund, except as
otherwise is mutually agreed by the parties.
(g) The Merging Fund undertakes that if the Merger is
consummated, it will file an application pursuant to
Section 8(f) of the 1940 Act for an order declaring that
the Merging Fund has ceased to be a registered investment
company.
(h) The Surviving Fund and Predecessor Surviving Fund shall
use their reasonable best efforts to cause the Surviving
Fund Common Shares to be issued in the Merger to be
approved for listing on each of the stock exchanges on which the
corresponding Merging Fund Common Shares are listed.
(i) If the Merging Fund has outstanding Merging
Fund Preferred Shares, the Surviving Fund shall use its
reasonable best efforts to obtain a rating on the Surviving
Fund Preferred Shares from at least one nationally
recognized statistical rating organization (NRSRO)
and include in its governing documents terms relating to the
Surviving Fund Preferred Shares that are either
substantially the same as such terms included in the Governing
Documents of the Merging Fund in respect of the Merging
Fund Preferred Shares or substantially the same as such
terms included in the Merging Fund Governing Documents
except for such changes as required by any NRSRO rating the
Surviving Fund Preferred Shares, prior to the Closing.
(j) If the Merging Fund has outstanding Merging
Fund Preferred Shares or the Surviving Fund has outstanding
Surviving Fund Preferred Shares, the combined Merging Fund
and Surviving Fund will satisfy all of its obligations set forth
in the Surviving Funds declaration of trust, statement of
preferences of the Surviving Fund Preferred Shares,
registration rights agreement relating to the Surviving
Fund Preferred Shares and the Surviving Fund Preferred
Shares certificate (including, without limitation, satisfaction
of the effective leverage ratio and minimum asset coverage
covenants set forth in its statement of preferences) immediately
after Closing.
(k) If the Merging Fund has outstanding Merging
Fund Preferred Shares or the Surviving Fund has outstanding
Surviving Fund Preferred Shares, immediately after closing
the Surviving Fund Preferred Shares shall be rated at least
AA-/Aa3 by each rating agency rating, at the request of the
Surviving Fund, the Surviving Fund Preferred Shares.
6. CONDITIONS
PRECEDENT TO OBLIGATIONS OF THE MERGING FUND
6.1. With respect to each Merger, the obligations of
the Merging Fund to consummate the transactions provided for
herein shall be subject, at the Merging Funds election, to
the performance by the Surviving Fund of all of the obligations
to be performed by it hereunder on or before the Closing Time,
and, in addition thereto, the following conditions:
(a) All representations and warranties of the Surviving
Fund and the Predecessor Surviving Fund contained in this
Agreement shall be true and correct in all material respects as
of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing
Date, with the same force and effect as if made on and as of the
Closing Date;
(b) The Surviving Fund shall have delivered to the Merging
Fund on the Closing Date a certificate executed in its name by
its President or Vice President and Treasurer, in form and
substance reasonably satisfactory to the Merging Fund and dated
as of the Closing Date, to the effect that the representations
and warranties of or with respect to the Surviving Fund and the
Predecessor Surviving Fund made in this Agreement are true and
correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement;
(c) The Surviving Fund and the Predecessor Surviving Fund
shall have performed all of the covenants and complied with all
of the provisions required by this Agreement to be performed or
complied with by the Surviving Fund and the Predecessor
Surviving Fund, on or before the Closing Date;
D-7
(d) If the Merging Fund has outstanding Merging
Fund Preferred Shares, the Surviving Fund shall have
amended its governing documents to include terms relating to the
Surviving Fund Preferred Shares that are either
substantially identical to such terms included in the Governing
Documents of the Merging Fund in respect of the Merging
Fund Preferred Shares or substantially identical to such
terms included in the Merging Fund Governing Documents
except for such changes as required by any NRSRO rating the
Surviving Fund Preferred Shares, and shall have obtained a
rating on the Surviving Fund Preferred Shares from at least
one NRSRO;
(e) If the Surviving Fund has outstanding Surviving
Fund Preferred Shares, immediately prior to Closing, the
Surviving Fund Preferred Shares shall be rated at least
AA-/Aa3 by each rating agency rating, at the request of the
Surviving Fund; the Surviving Fund Preferred
Shares; and
(f) If the Surviving Fund has outstanding Surviving
Fund Preferred Shares, the Surviving Fund shall have
satisfied all of its obligations set forth in its declaration of
trust, statement of preferences of the Surviving
Fund Preferred Shares, registration rights agreement
relating to the Surviving Fund Preferred Shares and the
Surviving Fund Preferred Shares certificate (including,
without limitation, satisfaction of the effective leverage ratio
and minimum asset coverage covenants set forth in its statement
of preferences) immediately prior to Closing.
7. CONDITIONS
PRECEDENT TO OBLIGATIONS OF THE SURVIVING FUND
7.1. With respect to each Merger, the obligations of
the Surviving Fund to consummate the transactions provided for
herein shall be subject, at the Surviving Funds election,
to the performance by the Merging Fund of all of the obligations
to be performed by it hereunder on or before the Closing Date
and, in addition thereto, the following conditions:
(a) All representations and warranties of the Merging Fund
and the Predecessor Merging Fund contained in this Agreement
shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing
Date, with the same force and effect as if made on and as of the
Closing Date;
(b) The Merging Fund shall have delivered an unaudited
statement of assets and liabilities and an unaudited schedule of
investments as of the Valuation Date (together the
Closing Financial Statements) for the purpose
of determining the number of Surviving Fund Common Shares
and the number of Surviving Fund Preferred Shares, if any,
to be issued to the Merging Funds common shareholders and
preferred shareholders, if any, and the Closing Financial
Statements will fairly present the financial position of the
Merging Fund as of the Valuation Date in conformity with GAAP
applied on a consistent basis;
(c) The Merging Fund shall have delivered to the Surviving
Fund on the Closing Date a certificate executed in its name by
its President or Vice President and Treasurer, in form and
substance reasonably satisfactory to the Surviving Fund and
dated as of the Closing Date, to the effect that the
representations and warranties of or with respect to the Merging
Fund and the Predecessor Merging Fund made in this Agreement are
true and correct at and as of the Closing Date, except as they
may be affected by the transactions contemplated by this
Agreement;
(d) The Merging Fund and the Predecessor Merging Fund shall
have performed all of the covenants and complied with all of the
provisions required by this Agreement to be performed or
complied with by the Merging Fund and the Predecessor Merging
Fund, on or before the Closing Date;
(e) The Merging Fund shall have declared and paid or cause
to be paid a distribution or distributions prior to the Closing
that, together with all previous distributions, shall have the
effect of distributing to its shareholders (i) all of
Merging Funds investment company taxable income for the
taxable year ended prior to the Closing Date and substantially
all of such investment company taxable income for the final
taxable year ending on the Closing Date (in each case determined
without regard to any deductions for dividends paid);
(ii) all of Merging Funds net capital gain recognized
in its taxable year ended prior to the Closing Date and
substantially all of any such net capital gain recognized in
such final taxable year (in each case after reduction for any
capital loss carryover); and (iii) at least 90 percent
of the excess, if any, of the Merging Funds interest
income excludible from gross income under Section 103(a) of
the Code over its deductions disallowed under Sections 265
and 171(a)(2) of the Code for the taxable year prior to the
Closing Date and at least 90 percent of such net tax-exempt
income for such final taxable year; and
(f) If the Merging Fund has outstanding Merging
Fund Preferred Shares, the Merging Fund shall have
satisfied all of its obligations set forth in its declaration of
trust, statement of preferences of the Merging
Fund Preferred Shares, registration rights agreement
relating to the Merging Fund Preferred Shares and the
Merging Fund Preferred Shares certificate (including,
without limitation, satisfaction of the effective leverage ratio
and minimum asset coverage covenants set forth in its statement
of preferences) immediately prior to Closing.
D-8
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8.
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FURTHER
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SURVIVING
FUND AND THE MERGING FUND
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With respect to each Merger, if any of the conditions set forth
below have not been satisfied on or before the Closing Date with
respect to the Merging Fund or the Surviving Fund, the Merging
Fund or the Surviving Fund, respectively, shall, at its option,
not be required to consummate the transactions contemplated for
such Merger by this Agreement:
8.1. The Agreement shall have been approved by the
requisite vote of the holders of the outstanding Common Shares
and Preferred Shares of each Fund, as set forth in the N-14
Registration Statement. Notwithstanding anything herein to the
contrary, neither the Merging Fund nor the Surviving Fund may
waive the conditions set forth in this Section 8.1;
8.2. On the Closing Date, no action, suit or other
proceeding shall be pending or, to the Merging Funds or
the Surviving Funds knowledge, threatened before any court
or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with,
this Agreement, the transactions contemplated herein;
8.3. All consents of other parties and all other
consents, orders and permits of federal, state and local
regulatory authorities and national securities exchanges for
purposes of listing shares of the Funds, deemed necessary by the
Surviving Fund or the Merging Fund to permit consummation, in
all material respects, of the transactions contemplated hereby
shall have been obtained, except where failure to obtain any
such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the
Surviving Fund or the Merging Fund, provided that either party
hereto may for itself waive any of such conditions;
8.4. The N-14 Registration Statement shall have
become effective under the 1933 Act and no stop orders
suspending the effectiveness thereof shall have been issued and,
to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be
pending, threatened or known to be contemplated under the
1933 Act; and
8.5. The Merging Fund and the Surviving Fund shall
have received on or before the Closing Date an opinion of
Stradley Ronon Stevens & Young, LLP (Stradley
Ronon) in form and substance reasonably acceptable to
the Merging Fund and the Surviving Fund, as to the matters set
forth on Schedule 8.5. In rendering such opinion, Stradley
Ronon may request and rely upon representations contained in
certificates of officers of the Merging Fund, the Surviving
Fund, IAI and others, and the officers of the Merging Fund, the
Surviving Fund and IAI shall use their best efforts to make
available such truthful certificates.
8.6. If the Merging Fund has outstanding Merging
Fund Preferred Shares, the Merging Fund and the Surviving
Fund shall have received on or before the Closing Date an
opinion of Skadden, Arps, Slate, Meagher & Flom LLP
(Skadden) in form and substance reasonably
acceptable to the Merging Fund and the Surviving Fund, as to the
matters set forth on Schedule 8.6. In rendering such
opinion, Skadden may request and rely upon representations
contained in certificates of officers of the Merging Fund, the
Surviving Fund, IAI and others, and the officers of the Merging
Fund, the Surviving Fund and IAI shall use their best efforts to
make available such truthful certificates.
8.7. The shareholders of each of the Merging Fund and
the Surviving Fund shall have approved the Redomestication of
such fund to a Delaware statutory trust, as described in the
proxy materials related to such Redomestication (including the
N-14 Registration Statement), and each such Redomestication
shall have been consummated.
9. FEES
AND EXPENSES
9.1. Each Fund will bear its expenses relating to its
Merger provided that 1) the Fund is expected to recoup
those costs within 24 months following the Merger as a
result of reduced total annual fund operating expenses based on
estimates prepared by the Adviser and discussed with the Board
and 2) the Funds total annual fund operating expenses
did not exceed the expense limit under the expense limitation
arrangement in place with IAI at the time such expenses were
discussed with the Board. The Fund will bear these expenses
regardless of whether its Merger is consummated, subject to any
expense limitation arrangement in place with IAI. IAI will bear
the Merger costs of any Fund that does not meet the foregoing
threshold.
10. FINAL
TAX RETURNS AND FORMS 1099 OF MERGING FUND
10.1. After the Closing Date, except as otherwise
agreed to by the parties, the Merging Fund shall or shall cause
its agents to prepare any federal, state or local tax Returns,
including any Forms 1099, required to be filed by the
Merging Fund with respect to its final taxable year ending on
the Closing Date and for any prior periods or taxable years and
shall further cause such tax Returns and Forms 1099 to be
duly filed with the appropriate taxing authorities.
11. ENTIRE
AGREEMENT; SURVIVAL OF WARRANTIES AND COVENANTS
11.1. The representations, warranties and covenants
of the Funds and IAI contained in this Agreement or in any
document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions
contemplated hereunder; provided that the covenants to be
performed after the Closing shall survive the Closing. The
representations, warranties and covenants of each Predecessor
Fund contained in this Agreement or in any document delivered
pursuant hereto or in connection herewith shall not survive the
consummation of the Redomestication of such Predecessor Fund.
D-9
12. TERMINATION
With respect to each Merger, this Agreement may be terminated
and the transactions contemplated hereby may be abandoned
(i) by mutual agreement of the Merging Fund and the
corresponding Surviving Fund, (ii) by the Merging Fund if
any condition of the Surviving Funds obligations set forth
in this Agreement has not been fulfilled or waived by the
Merging Fund, or (iii) by the Surviving Fund if any
condition of the Merging Funds obligations set forth in
this Agreement has not been fulfilled or waived by the Surviving
Fund, notwithstanding approval thereof by such Funds
shareholders, if circumstances should develop that, in such
parties judgment, make proceeding with this Agreement
inadvisable.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such
manner as may be mutually agreed upon in writing by the parties;
provided, however, that following the approval of this Agreement
by shareholders of a Merging Fund
and/or its
corresponding Surviving Fund, no such amendment may have the
effect of changing the provisions for determining the number of
Surviving Fund shares to be paid to that Merging Funds
shareholders under this Agreement to the detriment of such
Merging Fund shareholders or shall otherwise materially amend
the terms of this agreement without their further approval.
14. HEADINGS;
GOVERNING LAW; COUNTERPARTS; ASSIGNMENT; LIMITATION OF
LIABILITY
14.1. The Article and Section headings contained in
this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this
Agreement.
14.2. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware
and applicable federal law, without regard to its principles of
conflicts of laws.
14.3. This Agreement shall bind and inure with
respect to each Merger to the benefit of the parties to the
Merger and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any such party without the written
consent of the other parties to such Merger. Nothing herein
expressed or implied is intended or shall be construed to confer
upon or give any person, firm or corporation, other than the
parties with respect to such Merger and their respective
successors and assigns, any rights or remedies under or by
reason of this Agreement.
14.4. This agreement may be executed in any number of
counterparts, each of which shall be considered an original.
14.5. It is expressly agreed that the obligations of
the parties hereunder shall not be binding upon any of their
respective directors or trustees, shareholders, nominees,
officers, agents, or employees personally, but shall bind only
the property of the applicable Merging Fund or the applicable
Surviving Fund as provided in the Governing Documents of the
Merging Fund or the Agreement and Declaration of Trust of the
Surviving Fund, respectively. The execution and delivery by such
officers shall not be deemed to have been made by any of them
individually or to impose any liability on any of them
personally, but shall bind only the property of such party.
14.6. Any notice, report, statement or demand
required or permitted by any provisions of this Agreement shall
be in writing and shall be given by fax or certified mail
addressed to the Merging Fund and the Surviving Fund, each at
1555 Peachtree Street, N.E. Atlanta, GA 30309, Attention:
Secretary, fax
number .
D-10
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be approved on behalf of the Surviving Fund and
Merging Fund.
Invesco Advisers, Inc.
Name:
Title:
[CLOSED-END FUNDS]
Name:
Title:
D-11
EXHIBIT A
CHART OF
MERGERS
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Surviving Fund (and share classes)
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Corresponding Merging Fund (and share classes)
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D-12
SCHEDULE 8.5
TAX
OPINION
(i) The acquisition by Surviving Fund of all of the assets
of Merging Fund in exchange for Surviving Fund shares and the
assumption of the liabilities of Merging Fund through a
statutory merger will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code and the
Surviving Fund and Merging Fund will each be a party to a
reorganization within the meaning of Section 368(b)
of the Code.
(ii) No gain or loss will be recognized by Merging Fund on
the transfer of its assets to, and the assumption of Merging
Fund liabilities by, Surviving Fund in exchange for Surviving
Fund shares pursuant to Sections 361(a) and 357(a) of the
Code.
(iii) No gain or loss will be recognized by Surviving Fund
on the receipt of the Merging Fund assets in exchange for
Surviving Fund shares and the assumption by Surviving Fund of
any liabilities of Merging Fund pursuant to Section 1032(a)
of the Code.
(iv) No gain or loss will be recognized by Merging Fund
upon the distribution of Surviving Fund shares to the
shareholders of Merging Fund pursuant to Section 361(c) of
the Code.
(v) The tax basis of the Merging Fund assets received by
the Surviving Fund will be the same as the tax basis of such
assets in the hands of the Merging Fund immediately prior to the
transfer pursuant to Section 362(b) of the Code.
(vi) The holding periods of the Merging Fund assets in the
hands of the Surviving Fund will include the periods during
which such assets were held by the Merging Fund pursuant to
Section 1223(2) of the Code.
(vii) No gain or loss will be recognized by the
shareholders of Merging Fund on the receipt of Surviving Fund
shares solely in exchange for Surviving Fund shares pursuant to
Section 354(a)(1) of the Code.
(viii) The aggregate tax basis in Surviving Fund shares
received by a shareholder of the Merging Fund will be the same
as the aggregate tax basis of Merging Fund shares surrendered in
exchange therefor pursuant to Section 358(a)(1) of the Code.
(ix) The holding period of Surviving Fund shares received
by a shareholder of the Merging Fund will include the holding
period of the Merging Fund shares surrendered in exchange
therefor, provided that the shareholder held Merging Fund shares
as a capital asset on the Closing Date pursuant to
Section 1223(1) of the Code.
(x) For purposes of Section 381 of the Code, the
Surviving Fund will succeed to and take into account, as of the
date of the transfer as defined in
Section 1.381(b)-1(b)
of the income tax regulations issued by the United States
Department of the Treasury (the Income Tax
Regulations), the items of the Merging Fund described in
Section 381(c) of the Code, subject to the conditions and
limitations specified in Sections 381, 382, 383 and 384 of
the Code and the Income Tax Regulations thereunder.
The foregoing opinion may state that no opinion is expressed as
to the effect of the Merger on a Merging Fund, Surviving Fund or
any Merging Fund Shareholder with respect to any asset as
to which unrealized gain or loss is required to be recognized
for federal income tax purposes at the end of a taxable year (or
on the termination or transfer thereof) under a
mark-to-market
system of accounting.
D-13
SCHEDULE 8.6
PREFERRED
SHARE OPINION
The VMTP Shares issued by the Surviving Fund in the Merger in
exchange for Merging Fund VMTP Shares will be treated as
equity of the Surviving Fund for U.S. federal income tax
purposes.
D-14
EXHIBIT E
EXECUTIVE
OFFICERS OF THE FUNDS
The following information relates to the executive officers of
the Funds. Each officer also serves in the same capacity for all
or a number of the other investment companies advised by the
Adviser or affiliates of the Adviser. The officers of the Funds
are appointed annually by the Trustees and serve for one year or
until their respective successors are chosen and qualified. The
address of each officer is 1555 Peachtree Street, N.E., Atlanta,
Georgia 30309.
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Name, Year of Birth and
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Position(s) Held with the Fund
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Officer Since
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Principal Occupation(s) During Past 5 Years
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Russell C. Burk 1958
Senior Vice President and Senior Officer (with respect only to
the Target Funds)
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2010
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Senior Vice President and Senior Officer, The Invesco Funds.
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John M. Zerr 1962
Senior Vice President, Chief Legal Officer and Secretary
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|
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2010
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Director, Senior Vice President, Secretary and General Counsel,
Invesco Management Group, Inc. (formerly known as Invesco Aim
Management Group, Inc.) and Van Kampen Exchange Corp.; Senior
Vice President, Invesco Advisers, Inc. (formerly known as
Invesco Institutional (N.A.), Inc.) (registered investment
adviser); Senior Vice President and Secretary, Invesco
Distributors, Inc. (formerly known as Invesco Aim Distributors,
Inc.); Director, Vice President and Secretary, Invesco
Investment Services, Inc. (formerly known as Invesco Aim
Investment Services, Inc.) and IVZ Distributors, Inc. (formerly
known as INVESCO Distributors, Inc.); Director and Vice
President, INVESCO Funds Group, Inc.; Senior Vice President,
Chief Legal Officer and Secretary, The Invesco Funds; Manager,
Invesco PowerShares Capital Management LLC; Director, Secretary
and General Counsel, Invesco Investment Advisers LLC (formerly
known as Van Kampen Asset Management); Secretary and General
Counsel, Van Kampen Funds Inc. and Chief Legal Officer,
PowerShares Exchange-Traded Fund Trust, PowerShares
Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded
Fund Trust and PowerShares Actively Managed Exchange-Traded Fund
Trust.
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Formerly: Director and Secretary, Van Kampen Advisors Inc.;
Director Vice President, Secretary and General Counsel Van
Kampen Investor Services Inc.; Director, Invesco Distributors,
Inc. (formerly known as Invesco Aim Distributors, Inc.);
Director, Senior Vice President, General Counsel and Secretary,
Invesco 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.; Chief
Operating Officer and General Counsel, Liberty Ridge Capital,
Inc. (an investment adviser); Vice President and Secretary, PBHG
Funds (an investment company) and PBHG Insurance Series Fund (an
investment company); Chief Operating Officer, General Counsel
and Secretary, Old Mutual Investment Partners (a broker-dealer);
General Counsel and Secretary, Old Mutual Fund Services (an
administrator) and Old Mutual Shareholder Services (a
shareholder servicing center); Executive Vice President, General
Counsel and Secretary, Old Mutual Capital, Inc. (an investment
adviser); and Vice President and Secretary, Old Mutual Advisors
Funds (an investment company).
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Sheri Morris 1964
Vice President, Treasurer and Principal Financial Officer
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2010
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Vice President, Treasurer and Principal Financial Officer, The
Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly
known as Invesco Institutional (N.A.), Inc.) (registered
investment adviser); Treasurer, PowerShares Exchange-Traded Fund
Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares
India Exchange-Traded Fund Trust and PowerShares Actively
Managed Exchange-Traded Fund Trust.
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E-1
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Name, Year of Birth and
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Position(s) Held with the Fund
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Officer Since
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Principal Occupation(s) During Past 5 Years
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Formerly: Vice President, Invesco Advisers, Inc., Invesco Aim
Capital Management, Inc. and Invesco Aim Private Asset
Management, Inc.; Assistant Vice President and Assistant
Treasurer, The Invesco Funds and Assistant Vice President,
Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and
Invesco Aim Private Asset Management, Inc.
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Karen Dunn Kelley 1960
Vice President
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2010
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Head of Invescos World Wide Fixed Income and Cash
Management Group; Senior Vice President, Invesco Management
Group, Inc. (formerly known as Invesco Aim Management Group,
Inc.) and Invesco Advisers, Inc. (formerly known as Invesco
Institutional (N.A.), Inc.) (registered investment adviser);
Executive Vice President, Invesco Distributors, Inc. (formerly
known as Invesco Aim Distributors, Inc.); Director, Invesco
Mortgage Capital Inc.; Vice President, The Invesco Funds (other
than AIM Treasurers Series Trust (Invesco Treasurers
Series Trust) and Short-Term Investments Trust); and President
and Principal Executive Officer, The Invesco Funds (AIM
Treasurers Series Trust (Invesco Treasurers Series
Trust) and Short-Term Investments Trust only).
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Formerly: Senior Vice President, Van Kampen Investments Inc.;
Vice President, Invesco Advisers, Inc. (formerly known as
Invesco Institutional (N.A.), Inc.); Director of Cash Management
and Senior Vice President, Invesco Advisers, Inc. and Invesco
Aim Capital Management, Inc.; President and Principal Executive
Officer, Tax-Free Investments Trust; Director and President,
Fund Management Company; Chief Cash Management Officer, Director
of Cash Management, Senior Vice President, and Managing
Director, Invesco Aim Capital Management, Inc.; Director of Cash
Management, Senior Vice President, and Vice President, Invesco
Advisers, Inc. and The Invesco Funds (AIM Treasurers
Series Trust (Invesco Treasurers Series Trust), Short-Term
Investments Trust and Tax-Free Investments Trust only).
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Yinka Akinsola 1977
Anti-Money Laundering Compliance Officer
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2011
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Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc.
(formerly known as Invesco Institutional (N.A.), Inc.)
(registered investment adviser); Invesco Distributors, Inc.
(formerly known as Invesco Aim Distributors, Inc.), Invesco
Investment Services, Inc. (formerly known as Invesco Aim
Investment Services, Inc.), Invesco Management Group, Inc., The
Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen
Exchange Corp. and Van Kampen Funds Inc.
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Formerly: Regulatory Analyst III, Financial Industry Regulatory
Authority (FINRA).
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Todd L. Spillane 1958
Chief Compliance Officer (with respect only to the Target Funds)
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2010
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Senior Vice President, Invesco Management Group, Inc. (formerly
known as Invesco Aim Management Group, Inc.) and Van Kampen
Exchange Corp.; Senior Vice President and Chief Compliance
Officer, Invesco Advisers, Inc. (registered investment adviser)
(formerly known as Invesco Institutional (N.A.), Inc.); Chief
Compliance Officer, The Invesco Funds, Vice President, Invesco
Distributors, Inc. (formerly known as Invesco Aim Distributors,
Inc.) and Invesco Investment Services, Inc. (formerly known as
Invesco Aim Investment Services, Inc.).
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E-2
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Name, Year of Birth and
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Position(s) Held with the Fund
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Officer Since
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Principal Occupation(s) During Past 5 Years
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Formerly: Chief Compliance Officer, Invesco Van Kampen
Closed-End Funds, PowerShares Exchange-Traded Fund Trust,
PowerShares Exchange-Traded Fund Trust II, PowerShares India
Exchange-Traded Fund Trust, and PowerShares Actively Managed
Exchange-Traded Fund Trust; Senior Vice President, Van Kampen
Investments Inc.; Senior Vice President and Chief Compliance
Officer, Invesco Advisers, Inc. and Invesco Aim Capital
Management, Inc.; Chief Compliance Officer, INVESCO Private
Capital Investments, Inc. (holding company) and Invesco Private
Capital, Inc. (registered investment adviser); Invesco Global
Asset Management (N.A.), Inc., Invesco Senior Secured
Management, Inc. (registered investment adviser) and Van Kampen
Investor Services Inc.; Vice President, Invesco Aim Capital
Management, Inc. and Fund Management Company.
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Valinda Arnett-Patton 1959
Chief Compliance Officer
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2011
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Chief Compliance Officer, Invesco Van Kampen Closed-End Funds.
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Formerly: Compliance Director, Invesco Fixed Income, Invesco;
Deputy Compliance Officer, AIG Sun America Asset Management
Corp.
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E-3
EXHIBIT F
INFORMATION
REGARDING THE TRUSTEES OF THE TARGET FUNDS
The following information pertains to the Target Funds. Not all
of the funds advised by the Adviser are overseen by the same
board of trustees. The Target Funds are overseen by the Board of
Trustees discussed below (the Invesco Board).
References to the Board in this Exhibit F refer
solely to the Invesco Board and references to Funds
in this Exhibit F refer solely to those funds advised by
the Adviser, including the Target Funds, overseen by the Invesco
Board.
The business and affairs of the Funds are managed under the
direction of the Board. The tables below list the incumbent
Trustees and nominees for Trustee, their principal occupations,
other directorships held by them during the past five years, and
any affiliations with the Adviser or its affiliates. The term
Fund Complex includes each of the investment
companies advised by the Adviser as of the Record Date. Trustees
of the Funds generally serve three-year terms or until their
successors are duly elected and qualified. The address of each
Trustee is 1555 Peachtree Street, N.E., Atlanta, Georgia 30309.
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Number of
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Other
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Name, Year of Birth
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Principal
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Portfolios in Fund
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Trusteeship(s) Held
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and Position(s) Held
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Occupation(s)
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Complex Overseen by
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by Trustee over
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with the Funds
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Trustee Since
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During Past 5 Years
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Trustee
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Past 5 Years
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Interested Trustees
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Martin L.
Flanagan(1)
1960 Trustee
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2010
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Executive Director, Chief Executive Officer and President,
Invesco Ltd. (ultimate parent of Invesco and a global investment
management firm); Advisor to the Board, Invesco Advisers, Inc.
(formerly known as Invesco Institutional (N.A.), Inc.); Trustee,
The Invesco Funds; Vice Chair, Investment Company Institute; and
Member of Executive Board, SMU Cox School of Business.
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133
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None.
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Formerly: Chairman, Invesco Advisers, Inc. (registered
investment adviser); Director, Chairman, Chief Executive Officer
and President, IVZ Inc. (holding company), INVESCO Group
Services, Inc. (service provider) and Invesco North American
Holdings, Inc. (holding company); Director, Chief Executive
Officer and President, Invesco Holding Company Limited (parent
of Invesco and a global investment management firm); Director,
Invesco Ltd.; Chairman, Investment Company Institute and
President, Co-Chief Executive Officer, Co-President, Chief
Operating Officer and Chief Financial Officer, Franklin
Resources, Inc. (global investment management organization).
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Philip A.
Taylor(2)
1954
Trustee, President and
Principal Executive Officer
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2010
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Head of North American Retail and Senior Managing Director,
Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief
Executive Officer, Invesco Advisers, Inc. (formerly known as
Invesco Institutional (N.A.), Inc.) (registered investment
adviser); Director, Chairman, Chief Executive Officer and
President, Invesco Management Group, Inc. (formerly Invesco Aim
Management Group, Inc.) (financial services holding company);
Director and President, INVESCO Funds Group, Inc. (registered
investment adviser and registered transfer agent); Director and
Chairman, Invesco Investment Services, Inc. (formerly known as
Invesco Aim Investment Services, Inc.) (registered transfer
agent) and IVZ Distributors, Inc. (formerly known as INVESCO
Distributors, Inc.) (registered broker dealer); Director,
President and Chairman, Invesco Inc. (holding company) and
Invesco Canada Holdings Inc. (holding company); Chief Executive
Officer, Invesco Corporate Class Inc. (corporate mutual fund
company) and Invesco Canada Fund Inc. (corporate mutual fund
company); Director, Chairman and Chief Executive Officer,
Invesco Canada Ltd. (formerly known as Invesco Trimark
Ltd./Invesco Trimark Ltèe) (registered investment adviser
and registered transfer agent); Trustee, President and Principal
Executive Officer, The Invesco Funds (other than AIM
Treasurers Series Trust (Invesco Treasurers Series
Trust) and Short-Term Investments Trust); Trustee and Executive
Vice President, The Invesco Funds (AIM Treasurers Series
Trust (Invesco Treasurers Series Trust) and Short-Term
Investments Trust only); Director, Invesco Investment Advisers
LLC (formerly known as Van Kampen Asset Management); Director,
Chief Executive Officer and President, Van Kampen Exchange Corp.
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133
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None.
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F-1
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Number of
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Other
|
Name, Year of Birth
|
|
|
|
|
Principal
|
|
Portfolios in Fund
|
|
|
Trusteeship(s) Held
|
and Position(s) Held
|
|
|
|
|
Occupation(s)
|
|
Complex Overseen by
|
|
|
by Trustee over
|
with the Funds
|
|
Trustee Since
|
|
|
During Past 5 Years
|
|
Trustee
|
|
|
Past 5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formerly: Director and Chairman, Van Kampen Investor Services
Inc.: Director, Chief Executive Officer and President, 1371
Preferred Inc. (holding company); and Van Kampen Investments
Inc.; Director and President, AIM GP Canada Inc. (general
partner for limited partnerships); and Van Kampen Advisors,
Inc.; Director and Chief Executive Officer, Invesco Trimark
Dealer Inc. (registered broker dealer); Director, Invesco
Distributors, Inc. (formerly known as Invesco Aim Distributors,
Inc.) (registered broker dealer); Manager, Invesco PowerShares
Capital Management LLC; Director, Chief Executive Officer and
President, Invesco Advisers, Inc.; Director, Chairman, Chief
Executive Officer and President, Invesco Aim Capital Management,
Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark
Ltd./Invesco Trimark Ltèe; Director and President, AIM
Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.;
Senior Managing Director, Invesco Holding Company Limited;
Trustee and Executive Vice President, Tax-Free Investments
Trust; Director and Chairman, Fund Management Company (former
registered broker dealer); President and Principal Executive
Officer, The Invesco Funds (AIM Treasurers Series Trust
(Invesco Treasurers Series Trust), Short-Term Investments
Trust and Tax-Free Investments Trust only); President, AIM
Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne W.
Whalen(3)
1939 Trustee
|
|
|
2010
|
|
|
Of Counsel, and prior to 2010, partner in the law firm of
Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to
certain funds in the Fund Complex.
|
|
|
151
|
|
|
Trustee/Managing General Partner of funds in the Fund Complex.
Director of the Mutual Fund Directors Forum, a nonprofit
membership organization for investment company directors.
Chairman and Director for the Abraham Lincoln Presidential
Library Foundation and Director of the Stevenson Center for
Democracy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent Trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce L. Crockett 1944
Trustee and Chair
|
|
|
2010
|
|
|
Chairman, Crockett Technology Associates (technology consulting company).
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company).
|
|
|
133
|
|
|
ACE Limited (insurance company); and Investment Company
Institute.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David C. Arch 1945
Trustee
|
|
|
2010
|
|
|
Retired. Chairman and Chief Executive Officer of Blistex Inc., a
consumer health care products manufacturer.
|
|
|
151
|
|
|
Member of the Heartland Alliance Advisory Board, a nonprofit
organization serving human needs based in Chicago. Board member
of the Illinois Manufacturers Association. Member of the
Board of Visitors, Institute for the Humanities, University of
Michigan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank S. Bayley 1939
Trustee
|
|
|
2010
|
|
|
Retired.
Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and Partner, law firm of Baker & McKenzie.
|
|
|
133
|
|
|
Director and Chairman, C.D. Stimson Company (a real estate
investment company).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James T. Bunch 1942
Trustee
|
|
|
2010
|
|
|
Managing Member, Grumman Hill Group LLC (family office private equity management).
Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation.
|
|
|
133
|
|
|
Vice Chairman of Board of Governors, Western Golf Association;
Chair Elect of Evans Scholars Foundation and Director, Denver
Film Society.
|
F-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Other
|
Name, Year of Birth
|
|
|
|
|
Principal
|
|
Portfolios in Fund
|
|
|
Trusteeship(s) Held
|
and Position(s) Held
|
|
|
|
|
Occupation(s)
|
|
Complex Overseen by
|
|
|
by Trustee over
|
with the Funds
|
|
Trustee Since
|
|
|
During Past 5 Years
|
|
Trustee
|
|
|
Past 5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodney F. Dammeyer 1940
Trustee
|
|
|
2010
|
|
|
Chairman of CAC, LLC, a private company offering capital investment and management advisory services.
Formerly: Prior to January 2004, Director of TeleTech Holdings Inc.; Prior to 2002, Director of Arris Group, Inc.; Prior to 2001, Managing Partner at Equity Group Corporate Investments. Prior to 1995, Vice Chairman of Anixter International. Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc, Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.
|
|
|
151
|
|
|
Director of Quidel Corporation and Stericycle, Inc. Prior to May
2008, Trustee of The Scripps Research Institute. Prior to
February 2008, Director of Ventana Medical Systems, Inc. Prior
to April 2007, Director of GATX Corporation. Prior to April
2004, Director of TheraSense, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albert R. Dowden 1941
Trustee
|
|
|
2010
|
|
|
Director of a number of public and private business
corporations, including the Boss Group, Ltd. (private investment
and management); Reich & Tang Funds (5 portfolios)
(registered investment company); and Homeowners of America
Holding Corporation/Homeowners of America Insurance Company
(property casualty company).
|
|
|
133
|
|
|
Board of Natures Sunshine Products, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formerly: Director, Continental Energy Services, LLC (oil and
gas pipeline service); Director, CompuDyne Corporation (provider
of product and services to the public security market) and
Director, Annuity and Life Re (Holdings), Ltd. (reinsurance
company); Director, President and Chief Executive Officer, Volvo
Group North America, Inc.; Senior Vice President, AB Volvo;
Director of various public and private corporations; Chairman,
DHJ Media, Inc.; Director Magellan Insurance Company; and
Director, The Hertz Corporation, Genmar Corporation (boat
manufacturer), National Media Corporation; Advisory Board of
Rotary Power International (designer, manufacturer, and seller
of rotary power engines); and Chairman, Cortland Trust, Inc.
(registered investment company).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack M. Fields 1952
Trustee
|
|
|
2010
|
|
|
Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); and Owner and Chief Executive Officer, Dos Angelos Ranch, L.P. (cattle, hunting, corporate entertainment), Discovery Global Education Fund (non-profit) and Cross Timbers Quail Research Ranch (non-profit).
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company) and member of the U.S. House of Representatives.
|
|
|
133
|
|
|
Insperity (formerly known as Administaff).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl Frischling 1937
Trustee
|
|
|
2010
|
|
|
Partner, law firm of Kramer Levin Naftalis and Frankel LLP.
|
|
|
133
|
|
|
Director, Reich & Tang Funds (6 portfolios).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prema Mathai-Davis 1950
Trustee
|
|
|
2010
|
|
|
Retired.
Formerly: Chief Executive Officer, YWCA of the U.S.A.
|
|
|
133
|
|
|
None.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry Soll 1942
Trustee
|
|
|
2010
|
|
|
Retired.
Formerly, Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company).
|
|
|
133
|
|
|
None.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugo F. Sonnenschein 1940
Trustee
|
|
|
2010
|
|
|
Distinguished Service Professor and President Emeritus of the
University of Chicago and the Adam Smith Distinguished Service
Professor in the Department of Economics at the University of
Chicago. Prior to July 2000, President of the University of
Chicago.
|
|
|
151
|
|
|
Trustee of the University of Rochester and a member of its
investment committee. Member of the National Academy of
Sciences, the American Philosophical Society and a fellow of the
American Academy of Arts and Sciences.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raymond Stickel, Jr. 1944
Trustee
|
|
|
2010
|
|
|
Retired.
Formerly, Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche.
|
|
|
133
|
|
|
None.
|
|
|
|
(1) |
|
Mr. Flanagan is considered an
interested person of the Funds because he is an adviser to the
board of directors of the Adviser, and an officer and a director
of Invesco Ltd., the ultimate parent company of the Adviser.
|
|
(2) |
|
Mr. Taylor is considered an
interested person of the Funds because he is an officer and a
director of the Adviser.
|
|
(3) |
|
Mr. Whalen is considered an
interested person of the Funds because he is Of Counsel at the
law firm that serves as legal counsel to the Invesco Van Kampen
closed-end funds, for which the Adviser also serves as
investment adviser.
|
F-3
Trustee
Ownership of Fund Shares
The following table shows each Board members ownership of
shares of the Funds and of shares of all registered investment
companies overseen by such Board member in the Fund Complex
as of December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Dollar
Range
|
|
|
|
|
|
|
|
|
|
|
|
|
of Equity
Securities in
|
|
|
|
|
|
|
|
|
|
|
|
|
All Registered
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Companies
|
|
|
|
Dollar Range
of
|
|
|
Dollar Range
of
|
|
|
Dollar Range
of
|
|
|
Overseen by
Board
|
|
|
|
Equity
Securities
|
|
|
Equity
Securities
|
|
|
Equity
Securities
|
|
|
Member in Family
of
|
|
Name
|
|
in IIC
|
|
|
in IQC
|
|
|
in ICS
|
|
|
Investment
Companies
|
|
|
Interested Trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin L. Flanagan
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
Philip A. Taylor
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Wayne W. Whalen
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
Independent Trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce L. Crockett
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
David C. Arch
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
Frank S. Bayley
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
James T. Bunch
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
Rodney Dammeyer
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
Albert R. Dowden
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
Jack M. Fields
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
Carl Frischling
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
Prema Mathai-Davis
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
Larry Soll
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
Hugo F. Sonnenschein
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
Raymond Stickel, Jr.
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
Over $100,000
|
|
F-4
EXHIBIT G
BOARD
LEADERSHIP STRUCTURE FOR THE TARGET FUNDS
The following information pertains to the Target Funds. Not all
funds advised by the Adviser are overseen by the same board of
trustees. The Target Funds are overseen by the Board of Trustees
discussed below (the Invesco Board). References to
the Board in this Exhibit G refer solely to the
Invesco Board and references to Funds in this
Exhibit G refer solely to those funds advised by the
Adviser, including the Target Funds, overseen by the Invesco
Board.
The Board will be composed of fifteen 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. The Board met
twelve times during the twelve months ended February 29,
2012. As discussed below, the Board has established committees
to assist the Board in performing its oversight responsibilities.
The Board has appointed an Independent Trustee to serve in the
role of Chairman. The Chairmans primary role is to
participate in the preparation of the agenda for meetings of the
Board and the identification of information to be presented to
the Board and matters to be acted upon by the Board. The
Chairman also presides at all meetings of the Board and acts as
a liaison with service providers, officers, attorneys, and other
Trustees generally between meetings. The Chairman may perform
such other functions as may be requested by the Board from time
to time. Except for any duties specified herein or pursuant to a
Funds charter documents, the designation of Chairman does
not impose on such Independent Trustee any duties, obligations
or liability that is greater than the duties, obligations or
liability otherwise imposed on such person as a member of the
Board.
The Board believes that its leadership structure, which includes
an Independent Trustee as Chairman, allows for effective
communication between the Trustees and fund management, among
the Boards Trustees and among its Independent Trustees.
The existing Board structure, including its committee structure,
provides the Independent Trustees with effective control over
Board governance while also providing insight from the two
non-Independent Trustees who are active officers of the
Funds investment adviser. The Boards leadership
structure promotes dialogue and debate, which the Board believes
will allow for the proper consideration of matters deemed
important to the Funds and their shareholders and result in
effective decision-making.
Board
Role in Risk Oversight
The Board considers risk management issues as part of its
general oversight responsibilities throughout the year at
regular meetings of the Investments Committee, Audit Committee,
Compliance Committee, and Valuation, Distribution and Proxy
Oversight Committee (each as defined and further described
below). These committees in turn report to the full Board and
recommend actions and approvals for the full Board to take.
Invesco prepares regular reports that address certain
investment, valuation and compliance matters, and the Board as a
whole or the committees may also receive special written reports
or presentations on a variety of risk issues at the request of
the Board, a committee or the Senior Officer. In addition, the
Audit Committee of the Board meets regularly with Invesco
Ltd.s internal audit group to review reports on their
examinations of functions and processes within the Adviser that
affect the Funds.
The Investments Committee and its
sub-committees
receive regular written reports describing and analyzing the
investment performance of the Funds. In addition, the portfolio
managers of the Funds meet regularly with the
sub-committees
of the Investments Committee to discuss portfolio performance,
including investment risk, such as the impact on the Funds of
the investment in particular securities or instruments, such as
derivatives. To the extent that a Fund changes a particular
investment strategy that could have a material impact on the
Funds risk profile, the Board generally is consulted in
advance with respect to such change.
The Adviser provides regular written reports to the Valuation,
Distribution and Proxy Oversight Committee that enable the
Valuation, Distribution and Proxy Oversight Committee to monitor
the number of fair valued securities in a particular portfolio,
the reasons for the fair valuation and the methodology used to
arrive at the fair value. Such reports also include information
concerning illiquid securities within a Funds portfolio.
In addition, the Audit Committee reviews valuation procedures
and pricing results with the Funds independent auditors in
connection with the Audit Committees review of the results
of the audit of the Funds year-end financial statement.
The Compliance Committee receives regular compliance reports
prepared by the Advisers compliance group and meets
regularly with the Funds Chief Compliance Officer (CCO) to
discuss compliance issues, including compliance risks. As
required under U.S. Securities and Exchange Commission
(SEC) rules, the Independent Trustees meet at least quarterly in
executive session with the CCO, and the Funds CCO prepares
and presents an annual written compliance report to the Board.
The Compliance Committee recommends and the Board adopts
compliance policies and procedures for the Funds and approves
such procedures for the Funds service providers. The
compliance policies and procedures are specifically designed to
detect, prevent and correct violations of the federal securities
laws.
Board
Committees and Meetings
The standing committees of the Board are the Audit Committee,
the Compliance Committee, the Governance Committee, the
Investments Committee, and the Valuation, Distribution and Proxy
Voting Oversight Committee (the Committees).
G-1
The members of the Audit Committee are Messrs. David C.
Arch, Frank S. Bayley, James T. Bunch, Bruce L. Crockett, Rodney
Dammeyer (Vice Chair), Raymond Stickel, Jr. (Chair) and
Dr. Larry Soll. The Audit Committees primary purposes
are to: (i) oversee qualifications, independence and
performance of the independent registered public accountants;
(ii) appoint independent registered public accountants for
the Funds; (iii) pre-approve all permissible audit and
non-audit services that are provided to Funds by their
independent registered public accountants to the extent required
by Section 10A(h) and (i) of the Exchange Act;
(iv) pre-approve, in accordance with
Rule 2-01(c)(7)(ii)
of
Regulation S-X,
certain non-audit services provided by the Funds
independent registered public accountants to the Adviser and
certain affiliates of the Adviser; (v) review the audit and
tax plans prepared by the independent registered public
accountants; (vi) review the Funds audited financial
statements; (vii) review the process that management uses
to evaluate and certify disclosure controls and procedures in
Form N-CSR;
(viii) review the process for preparation and review of the
Funds shareholder reports; (ix) review certain tax
procedures maintained by the Funds; (x) review modified or
omitted officer certifications and disclosures; (xi) review
any internal audits of the Funds; (xii) establish
procedures regarding questionable accounting or auditing matters
and other alleged violations; (xiii) set hiring policies
for employees and proposed employees of the Funds who are
employees or former employees of the independent registered
public accountants; and (xiv) remain informed of
(a) the Funds accounting systems and controls,
(b) regulatory changes and new accounting pronouncements
that affect the Funds net asset value calculations and
financial statement reporting requirements, and
(c) communications with regulators regarding accounting and
financial reporting matters that pertain to the Funds. Each
member of the Audit Committee is an Independent Trustee and each
meets the additional independence requirements for audit
committee members as defined by Exchange listing standards. The
Audit Committee held eight meetings during the twelve months
ended February 29, 2012.
The members of the Compliance Committee are Messrs. Bayley,
Bunch, Dammeyer (Vice Chair), Stickel and Dr. Soll (Chair).
The Compliance Committee is responsible for:
(i) recommending to the Board and the Independent Trustees
the appointment, compensation and removal of the Funds
CCO; (ii) recommending to the Independent Trustees the
appointment, compensation and removal of the Funds Senior
Officer appointed pursuant to the terms of the Assurances of
Discontinuance entered into by the New York Attorney General,
Invesco and INVESCO Funds Group, Inc.; (iii) reviewing any
report prepared by a third party who is not an interested person
of the Adviser, upon the conclusion by such third party of a
compliance review of the Adviser; (iv) reviewing all
reports on compliance matters from the Funds CCO,
(v) reviewing all recommendations made by the Senior
Officer regarding the Advisers compliance procedures,
(vi) reviewing all reports from the Senior Officer of any
violations of state and federal securities laws, the Colorado
Consumer Protection Act, or breaches of the Advisers
fiduciary duties to Fund shareholders and of the Advisers
Code of Ethics; (vii) overseeing all of the compliance
policies and procedures of the Funds and their service providers
adopted pursuant to
Rule 38a-1
of the 1940 Act; (viii) from time to time, reviewing
certain matters related to redemption fee waivers and
recommending to the Board whether or not to approve such
matters; (ix) receiving and reviewing quarterly reports on
the activities of the Advisers Internal Compliance
Controls Committee; (x) reviewing all reports made by the
Advisers CCO; (xi) reviewing and recommending to the
Independent Trustees whether to approve procedures to
investigate matters brought to the attention of the
Advisers ombudsman; (xii) risk management oversight
with respect to the Funds and, in connection therewith,
receiving and overseeing risk management reports from Invesco
Ltd. that are applicable to the Funds or their service
providers; and (xiii) overseeing potential conflicts of
interest that are reported to the Compliance Committee by the
Adviser, the CCO, the Senior Officer
and/or the
Compliance Consultant. The Compliance Committee held six
meetings during the twelve months ended February 29, 2012.
The members of the Governance Committee are Messrs. Arch,
Crockett, Albert R. Dowden (Chair), Jack M. Fields (Vice Chair),
Carl Frischling, Hugo F. Sonnenschein and Dr. Prema
Mathai-Davis. The Governance Committee is responsible for:
(i) nominating persons who will qualify as Independent
Trustees for (a) election as Trustees in connection with
meetings of shareholders of the Funds that are called to vote on
the election of Trustees, and (b) appointment by the Board
as Trustees in connection with filling vacancies that arise in
between meetings of shareholders; (ii) reviewing the size
of the Board, and recommending to the Board whether the size of
the Board shall be increased or decreased; (iii) nominating
the Chair of the Board; (iv) monitoring the composition of
the Board and each committee of the Board, and monitoring the
qualifications of all Trustees; (v) recommending persons to
serve as members of each committee of the Board (other than the
Compliance Committee), as well as persons who shall serve as the
chair and vice chair of each such committee; (vi) reviewing
and recommending the amount of compensation payable to the
Independent Trustees; (vii) overseeing the selection of
independent legal counsel to the Independent Trustees;
(viii) reviewing and approving the compensation paid to
independent legal counsel to the Independent Trustees;
(ix) reviewing and approving the compensation paid to
counsel and other advisers, if any, to the Committees of the
Board; and (x) reviewing as they deem appropriate
administrative
and/or
logistical matters pertaining to the operations of the Board.
Each member of the Governance Committee is an Independent
Trustee and each meets the additional independence requirements
for nominating committee members as defined by Exchange listing
standards. The Governance Committees charter is available
at www.invesco.com/us.
The Governance Committee will consider nominees recommended by a
shareholder to serve as Trustee, provided: (i) that such
person is a shareholder of record at the time he or she submits
such names and is entitled to vote at the meeting of
shareholders at which Trustees will be elected; and
(ii) that the Governance Committee or the Board, as
applicable, shall make the final determination of persons to be
nominated. Notice procedures set forth in each Funds
bylaws require that any shareholder of a Fund desiring to
nominate a Trustee for election at a shareholder meeting must
submit to the Funds Secretary the nomination in writing
not later than the close of business on the later of the
60th day prior to such shareholder meeting or the tenth day
following the day on which public announcement
G-2
is made of the shareholder meeting and not earlier than the
close of business on the 90th day prior to the shareholder
meeting. The Governance Committee held six meetings during the
twelve months ended February 29, 2012.
The members of the Investments Committee are Messrs. Arch,
Bayley (Chair), Bunch (Vice Chair), Crockett, Dammeyer, Dowden,
Fields, Martin L. Flanagan, Frischling, Sonnenschein (Vice
Chair), Stickel, Philip A. Taylor, Wayne W. Whalen, and
Drs. Mathai-Davis (Vice Chair) and Soll. The Investments
Committees primary purposes are to: (i) assist the
Board in its oversight of the investment management services
provided by the Adviser and the
Sub-Advisers;
and (ii) review all proposed and existing advisory and
sub-advisory
arrangements for the Funds, and to recommend what action the
full Boards and the Independent Trustees take regarding the
approval of all such proposed arrangements and the continuance
of all such existing arrangements.
The Investments Committee has established three
sub-committees
(the
Sub-Committees).
The
Sub-Committees
are responsible for: (i) reviewing the performance, fees
and expenses of the Funds that have been assigned to a
particular
Sub-Committee
(for each
Sub-Committee,
the Designated Funds), unless the Investments
Committee takes such action directly; (ii) reviewing with
the applicable portfolio managers from time to time the
investment objective(s), policies, strategies and limitations of
the Designated Funds; (iii) evaluating the investment
advisory,
sub-advisory
and distribution arrangements in effect or proposed for the
Designated Funds, unless the Investments Committee takes such
action directly; (iv) being familiar with the registration
statements and periodic shareholder reports applicable to their
Designated Funds; and (v) such other investment-related
matters as the Investments Committee may delegate to the
Sub-Committees
from time to time. The Investments Committee held six meetings
during the twelve months ended February 29, 2012.
The members of the Valuation, Distribution and Proxy Oversight
Committee are Messrs. Dowden, Fields, Frischling (Chair),
Sonnenschein (Vice Chair), Whalen and Dr. Mathai-Davis. The
primary purposes of the Valuation, Distribution and Proxy
Oversight Committee are: (a) to address issues requiring
action or oversight by the Board (i) in the valuation of
the Funds portfolio securities consistent with the Pricing
Procedures, (ii) in oversight of the creation and
maintenance by the principal underwriters of the Funds of an
effective distribution and marketing system to build and
maintain an adequate asset base and to create and maintain
economies of scale for the Funds, (iii) in the review of
existing distribution arrangements for the Funds under
Rule 12b-1
and Section 15 of the 1940 Act, and (iv) in the
oversight of proxy voting on portfolio securities of the Funds;
and (b) to make regular reports to the full Board.
The Valuation, Distribution and Proxy Oversight Committee is
responsible for: (a) with regard to valuation,
(i) developing an understanding of the valuation process
and the Pricing Procedures, (ii) reviewing the Pricing
Procedures and making recommendations to the full Board with
respect thereto, (iii) reviewing the reports described in
the Pricing Procedures and other information from the Adviser
regarding fair value determinations made pursuant to the Pricing
Procedures by the Advisers internal valuation committee
and making reports and recommendations to the full Board with
respect thereto, (iv) receiving the reports of the
Advisers internal valuation committee requesting approval
of any changes to pricing vendors or pricing methodologies as
required by the Pricing Procedures and the annual report of the
Adviser evaluating the pricing vendors, approving changes to
pricing vendors and pricing methodologies as provided in the
Pricing Procedures, and recommending annually the pricing
vendors for approval by the full Board; (v) upon request of
the Adviser, assisting the Advisers internal valuation
committee or the full Board in resolving particular fair
valuation issues; (vi) reviewing the reports described in
the Procedures for Determining the Liquidity of Securities (the
Liquidity Procedures) and other information from the
Adviser regarding liquidity determinations made pursuant to the
Liquidity Procedures by the Adviser and making reports and
recommendations to the full Board with respect thereto, and
(vii) overseeing actual or potential conflicts of interest
by investment personnel or others that could affect their input
or recommendations regarding pricing or liquidity issues;
(b) with regard to distribution and marketing,
(i) developing an understanding of mutual fund distribution
and marketing channels and legal, regulatory and market
developments regarding distribution, (ii) reviewing
periodic distribution and marketing determinations and annual
approval of distribution arrangements and making reports and
recommendations to the full Board with respect thereto, and
(iii) reviewing other information from the principal
underwriters to the Funds regarding distribution and marketing
of the Funds and making recommendations to the full Board with
respect thereto; and (c) with regard to proxy voting,
(i) overseeing the implementation of the Proxy Voting
Guidelines (the Guidelines) and the Proxy Policies
and Procedures (the Proxy Procedures) by the Adviser
and the
Sub-Advisers,
reviewing the Quarterly Proxy Voting Report and making
recommendations to the full Board with respect thereto,
(ii) reviewing the Guidelines and the Proxy Procedures and
information provided by the Adviser and the
Sub-Advisers
regarding industry developments and best practices in connection
with proxy voting and making recommendations to the full Board
with respect thereto, and (iii) in implementing its
responsibilities in this area, assisting the Adviser in
resolving particular proxy voting issues. The Valuation,
Distribution and Proxy Oversight Committee was formed effective
January 1, 2008. It succeeded the Valuation Committee,
which existed prior to 2008. The Valuation, Distribution and
Proxy Oversight Committee held six meetings during the twelve
months ended February 29, 2012.
Trustees are encouraged to attend shareholder meetings, but the
Board has no set policy requiring Board member attendance at
meetings. During each Funds last fiscal year, each of the
Trustees during the period such Trustee served as a Trustee
attended at least 75% of the meetings of the Board and all
committee meetings thereof of which such Trustee was a member.
G-3
EXHIBIT H
REMUNERATION
OF TRUSTEES FOR THE TARGET FUNDS
The following information pertains to the Target Funds. Some of
the Funds in the Fund Complex are overseen by different
boards of trustees. The Target Funds are overseen by the Board
of Trustees discussed below (the Invesco Board).
References to the Board in this Exhibit H refer
solely to the Invesco Board and references to Funds
in this Exhibit H refer solely to those funds in the
Fund Complex, including the Target Funds, overseen by the
Invesco Board.
Each Trustee who is not affiliated with the Adviser is
compensated for his or her services according to a fee schedule
that recognizes the fact that such Trustee also serves as a
Trustee of other Invesco Funds. Each such Trustee receives a
fee, allocated among the Invesco Funds for which he or she
serves as a Trustee, that consists of an annual retainer
component and a meeting fee component. The Chair of the Board
and Chairs and Vice Chairs of certain committees receive
additional compensation for their services.
The Trustees have adopted a retirement plan funded by the Funds
for the Trustees who are not affiliated with the Adviser. The
Trustees also have adopted a retirement policy that permits each
non-Invesco-affiliated Trustee to serve until December 31 of the
year in which the Trustee turns 75. A majority of the Trustees
may extend from time to time the retirement date of a Trustee.
Annual retirement benefits are available from the Funds
and/or the
other Invesco Funds for which a Trustee serves (each, a
Covered Fund), for each Trustee who is not an
employee or officer of the Adviser, who either (a) became a
Trustee prior to December 1, 2008, and who has at least
five years of credited service as a Trustee (including service
to a predecessor fund) of a Covered Fund, or (b) was a
member of the Board of Trustees of a Van Kampen Fund immediately
prior to June 1, 2010 (Former Van Kampen
Trustee), and has at least one year of credited service as
a Trustee of a Covered Fund after June 1, 2010.
For Trustees other than Former Van Kampen Trustees, effective
January 1, 2006, for retirements after December 31,
2005, the retirement benefits will equal 75% of the
Trustees 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
Trustees 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 Trustees
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 death or 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
Trustees 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 Trustees 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 Trustees 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 Trustees 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 Trustees years of credited
service after June 1, 2010, the second component of the
annual retirement benefit will equal the excess of (x) 75%
of the compensation amount described in the preceding paragraph,
over (y) $68,041 plus an interest factor of 4% per year
compounded annually measured from June 1, 2010 through the
first day of each year for which payments under this second
component are to be made. In no event, however, will the
retirement benefits under the two components be made for a
period of time greater than 10 years. For example, if the
Former Van Kampen Trustee completes 7 years of credited
service after June 1, 2010, he or she will receive
7 years of payments under the first component and
thereafter 3 years of payments under the second component,
and if the Former Van Kampen Trustee completes 4 years of
credited service after June 1, 2010, he or she will receive
4 years of payments under the first component and
thereafter 4 years of payments under the second component.
Deferred Compensation Agreements. Edward K.
Dunn (a former Trustee of funds in the Invesco Funds complex),
Messrs. Crockett, Fields, Frischling and Whalen, and
Drs. Mathai-Davis and Soll (for purposes of this paragraph
only, the Deferring Trustees) have
H-1
each executed a Deferred Compensation Agreement (collectively,
the Compensation Agreements). Pursuant to the
Compensation Agreements, the Deferring Trustees have the option
to elect to defer receipt of up to 100% of their compensation
payable by the Funds, and such amounts are placed into a
deferral account and deemed to be invested in one or more
Invesco Funds selected by the Deferring Trustees.
Distributions from these deferral accounts will be paid in cash,
generally in equal quarterly installments over a period of up to
ten (10) years (depending on the Compensation Agreement)
beginning on the date selected under the Compensation Agreement.
If a Deferring Trustee dies prior to the distribution of amounts
in his or her deferral account, the balance of the deferral
account will be distributed to his or her designated
beneficiary. The Compensation Agreements are not funded and,
with respect to the payments of amounts held in the deferral
accounts, the Deferring Trustees have the status of unsecured
creditors of the Funds and of each other Invesco Fund from which
they are deferring compensation.
Set forth below is information regarding compensation paid or
accrued for each Trustee of the Target Funds.
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|
|
|
|
|
|
|
|
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|
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Estimated
Annual
|
|
|
|
|
|
|
|
|
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|
|
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Pension or
|
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Benefits from
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Aggregate
|
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Aggregate
|
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Aggregate
|
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Retirement
Benefits
|
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Invesco
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Total
Compensation
|
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Compensation
|
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Compensation
|
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Compensation
|
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Accrued by All
|
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Funds Upon
|
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Before Deferral
from
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Name of
Trustee
|
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from
IIC(1)
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from
IQC(1)
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from
ICS(1)
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Invesco
Funds(2)
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Retirement(3)
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Invesco
Funds(4)
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Interested Trustees
|
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|
|
|
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Wayne W. Whalen
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$
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1,152
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|
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$
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1,118
|
|
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$
|
1,042
|
|
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$
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304,730
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|
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$
|
195,000
|
|
|
$
|
399,000
|
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Independent Trustees
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|
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|
|
|
|
|
|
|
|
|
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David C. Arch
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|
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1,212
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|
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1,176
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|
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1,097
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164,973
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|
|
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195,000
|
|
|
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412,250
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Frank S. Bayley
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1,770
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|
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1,689
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|
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1,254
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236,053
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|
|
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195,000
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|
|
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420,000
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James T. Bunch
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1,268
|
|
|
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1,230
|
|
|
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1,147
|
|
|
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302,877
|
|
|
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195,693
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|
|
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385,000
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Bruce L. Crockett
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2,966
|
|
|
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2,839
|
|
|
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2,198
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|
|
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227,797
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|
|
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195,000
|
|
|
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693,500
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Rodney F. Dammeyer
|
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1,201
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|
|
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1,166
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|
|
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1,087
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|
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290,404
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|
|
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195,000
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|
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412,250
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Albert R. Dowden
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2,199
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|
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2,071
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1,231
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296,156
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|
|
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195,000
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|
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415,000
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Jack M. Fields
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1,162
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|
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1,128
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|
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1,052
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313,488
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|
|
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195,000
|
|
|
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307,250
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Carl
Frischling(5)
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1,340
|
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|
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1,300
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|
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1,212
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233,415
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|
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195,000
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356,000
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Prema Mathai-Davis
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1,238
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1,202
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1,120
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302,911
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195,000
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330,000
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Larry Soll
|
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1,928
|
|
|
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1,831
|
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|
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1,260
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342,675
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216,742
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375,750
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Hugo F. Sonnenschein
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1,232
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|
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1,196
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|
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1,115
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290,404
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195,000
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412,200
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Raymond Stickel, Jr.
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2,304
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2,173
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|
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1,326
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230,451
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195,000
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|
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399,250
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(1) |
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For
the fiscal year ended February 29, 2012. The total amount
of compensation from IIC, IQC, and ICS deferred by all Trustees
during the fiscal year ended February 29, 2012, including
earnings, was $4,615, $4,470, and $4,070, respectively.
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(2) |
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For
the fiscal year ended December 31, 2011. During the fiscal
year ended February 29, 2012, the total amount of expenses
allocated to IIC, IQC, and ICS in respect of such retirement
benefits was $4,444, $8,559, and $1,290, respectively.
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(3) |
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For
the fiscal year ended December 31, 2011. 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.
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(4) |
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For
the fiscal year ended December 31, 2011. All trustees
except Arch, Dammeyer, Sonnenschein and Whalen currently serve
as trustee of 133 portfolios in the Fund Complex advised by
the Adviser. Messrs. Arch, Dammeyer, Sonnenschein and
Whalen currently serve as trustee of 151 portfolios in the
Fund Complex advised by the Adviser.
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(5) |
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During
the fiscal year ended February 29, 2012, IIC paid
$1,151, IQC paid $1,098, and ICS paid $996 in legal fees to
Kramer Levin Naftalis & Frankel LLP for services
rendered by such firm as counsel to the independent trustees of
the Trust. Mr. Frischling is a partner of such firm.
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H-2
EXHIBIT I
INDEPENDENT
AUDITOR INFORMATION
The Audit Committee of the Board of Trustees of each Fund
appointed, and the Board of Trustees ratified and approved,
PricewaterhouseCoopers LLP (PwC) as the independent
registered public accounting firm of the Fund for fiscal years
ending after May 31, 2010. Prior to May 31, 2010, each
Fund was audited by a different independent registered public
accounting firm (the Prior Auditor). The Board of
Trustees selected a new independent auditor in connection with
the appointment of Invesco Advisers as investment adviser to the
Fund (New Advisory Agreement). Effective
June 1, 2010, the Prior Auditor resigned as the independent
registered public accounting firm of the Fund.
The Prior Auditors report on the financial statements of
each Fund for the prior two years did not contain an adverse
opinion or a disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting
principles. During the period the Prior Auditor was engaged,
there were no disagreements with the Prior Auditor on any matter
of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures which, if not
resolved to the Prior Auditors satisfaction, would have
caused it to make reference to that matter in connection with
its report.
Audit and
Other Fees
The Funds and the Covered Entities (the Adviser,
excluding
sub-advisers
unaffiliated with the Adviser, and any entity controlling,
controlled by or under common control with the Adviser that
provides ongoing services to the Funds) were billed the amounts
listed below by PwC during each Funds last two fiscal
years. Effective February 28, 2011, the fiscal year end of
each Fund was changed to the last day in February.
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Non-Audit
Fees
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Fiscal Year
End
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Audit
Fees
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Audit Related
Fees(1)
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Tax
Fees(2)
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All Other
Fees
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Total Non-Audit
Fees
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Total
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IIC
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2/29/12
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$
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36,300
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$
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5,000
|
|
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$
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4,100
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|
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$
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0
|
|
|
$
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9,100
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|
|
$
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45,400
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|
|
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11/1/10 to 2/28/11
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$
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19,250
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$
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4,000
|
|
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$
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2,300
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$
|
0
|
|
|
$
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6,300
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|
|
$
|
25,550
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|
IQC
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|
2/29/12
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$
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36,300
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$
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5,000
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|
|
$
|
4,300
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|
|
$
|
0
|
|
|
$
|
9,300
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|
|
$
|
45,600
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|
|
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11/1/10 to 2/28/11
|
|
$
|
19,250
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|
|
$
|
4,000
|
|
|
$
|
2,300
|
|
|
$
|
0
|
|
|
$
|
6,300
|
|
|
$
|
25,550
|
|
ICS
|
|
2/29/12
|
|
$
|
31,200
|
|
|
$
|
0
|
|
|
$
|
4,100
|
|
|
$
|
0
|
|
|
$
|
4,100
|
|
|
$
|
35,300
|
|
|
|
11/1/10 to 2/28/11
|
|
$
|
16,445
|
|
|
$
|
0
|
|
|
$
|
2,300
|
|
|
$
|
0
|
|
|
$
|
2,300
|
|
|
$
|
18,745
|
|
Acquiring Fund (VCV)
|
|
02/29/12
|
|
$
|
36,300
|
|
|
$
|
5,000
|
|
|
$
|
5,700
|
|
|
$
|
0
|
|
|
$
|
10,700
|
|
|
$
|
47,000
|
|
|
|
11/1/10 to 2/28/11
|
|
$
|
19,250
|
|
|
$
|
4,000
|
|
|
$
|
2,300
|
|
|
$
|
1,667
|
(3)
|
|
$
|
7,967
|
|
|
$
|
27,217
|
|
Covered Entities
|
|
2/29/12
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
11/1/10 to 2/28/11
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
(1) |
|
Includes
fees billed for agreed upon procedures related to auction rate
preferred securities.
|
|
(2) |
|
Includes
fees billed for reviewing tax returns.
|
|
(3) |
|
All
Other Fees for the fiscal year end February 28, 2011
includes fees billed for completing professional services
related to benchmark analysis.
|
The Audit Committee of each Board has considered whether the
provision of non-audit services performed by PwC to such Funds
and Covered Entities is compatible with maintaining PwCs
independence in performing audit services. Each Funds
Audit Committee also is required to pre-approve services to
Covered Entities to the extent that the services are determined
to have a direct impact on the operations or financial reporting
of such Fund. 100% of such services were pre-approved by the
Audit Committee pursuant to the Audit Committees
pre-approval policies and procedures. Each Boards
pre-approval policies and procedures are included as part of the
Boards Audit Committee charter, which is available at
www.invesco.com/us. The members of the Audit Committee for the
Target Funds are David C. Arch, Frank S. Bayley, James T. Bunch,
Bruce L. Crockett, Rodney Dammeyer, Raymond Stickel, Jr.,
and Dr. Larry Soll. The members of the Audit Committee for
the Acquiring Fund are Jerry D. Choate, Linda Hutton Heagy and
R. Craig Kennedy.
The Audit Committee of each Fund reviewed and discussed the last
audited financial statements of each Fund with management and
with PwC. In the course of its discussions, each Funds
Audit Committee has discussed with PwC its judgments as to the
quality, not just the acceptability, of such Funds
accounting principles and such other matters as are required to
be discussed with the Audit Committee by Statement on Auditing
Standards No. 114 (The Auditors Communication With
Those Charged With Governance). Each Funds Audit Committee
received the written disclosures and the letter from PwC
required under Public Company Accounting Oversight Boards
Ethics & Independence Rule 3526 and has discussed
with PwC its independence with respect to such Fund. Each Fund
knows of no direct financial or material indirect financial
interest of PwC in such Fund. Based on this review, the Audit
Committee recommended to the Board of each Fund that such
Funds audited financial statements be included in such
Funds Annual Report to Shareholders for the most recent
fiscal year for filing with the SEC.
It is not expected that representatives of PwC will attend the
Meeting. In the event representatives of PwC do attend the
Meeting, they will have the opportunity to make a statement if
they desire to do so and will be available to answer appropriate
questions.
I-1
EXHIBIT J
INFORMATION
REGARDING THE TRUSTEES OF THE ACQUIRING FUND
The following information pertains to the Acquiring Fund. Not
all funds advised by the Adviser are overseen by the same board
of trustees. The Acquiring Fund is overseen by the Board of
Trustees discussed below (the IVK Board). References
to the Board in this Exhibit J refer solely to
the IVK Board and references to Funds in this
Exhibit J refer solely to those funds advised by the
Adviser, including the Acquiring Fund, overseen by the IVK Board.
The tables below list the incumbent Trustees, their principal
occupations, other directorships held by them and their
affiliations, if any, with the Adviser or its affiliates. The
term Fund Complex includes each of the
investment companies advised by the Adviser as of the Record
Date. Trustees of the Funds generally serve three year terms or
until their successors are duly elected and qualified.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
Term of
|
|
|
|
Portfolios in
|
|
|
|
|
|
|
|
Office and
|
|
Principal
|
|
Fund
|
|
|
Other Directorships
|
|
|
Position(s)
|
|
Length of
|
|
Occupation(s)
|
|
Complex
|
|
|
Held by
|
Name, Year of Birth,
|
|
Held with
|
|
Time
|
|
During the
|
|
Overseen by
|
|
|
Trustee During the
|
and Address of Trustee
|
|
Funds
|
|
Served
|
|
Past Five Years
|
|
Trustee
|
|
|
Past Five Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent Trustees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David C.
Arch1
1945
Blistex Inc.
1800 Swift Drive
Oak Brook, IL 60523
|
|
Trustee
|
|
1993
|
|
Retired. Chairman and Chief Executive Officer of Blistex Inc., a
consumer health care products manufacturer.
|
|
|
151
|
|
|
Trustee/Managing General Partner of funds in the Fund Complex.
Member of the Heartland Alliance Advisory Board, a nonprofit
organization serving human needs based in Chicago. Board member
of the Illinois Manufacturers Association. Member of the
Board of Visitors, Institute for the Humanities, University of
Michigan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry D.
Choate1
1938
33971 Selva Road Suite 130
Dana Point, CA 92629
|
|
Trustee
|
|
2003
|
|
From 1995 to 1999, Chairman and Chief Executive Officer of the
Allstate Corporation (Allstate) and Allstate
Insurance Company. From 1994 to 1995, President and Chief
Executive Officer of Allstate. Prior to 1994, various management
positions at Allstate.
|
|
|
18
|
|
|
Trustee/Managing General Partner of funds in the Fund Complex.
Director since 1998 and member of the governance and nominating
committee, executive committee, compensation and management
development committee and equity award committee, of Amgen Inc.,
a biotechnological company. Director since 1999 and member of
the nominating and governance committee and compensation and
executive committee, of Valero Energy Corporation, a crude oil
refining and marketing company. Previously, from 2006 to 2007,
Director and member of the compensation committee and audit
committee, of H&R Block, a tax preparation services company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodney F.
Dammeyer***2,4
1940
CAC, LLC
4370 La Jolla Village Drive Suite 685
San Diego, CA
92122-1249
|
|
Trustee
|
|
1993
|
|
President of CAC, LLC, a private company offering capital
investment and management advisory services. Prior to January
2004, Director of TeleTech Holdings, Inc. Prior to 2002,
Director of Arris Group, Inc. Prior to 2001, Managing Partner at
Equity Group Corporate Investments. Prior to 1995, Vice Chairman
of Anixter International. Prior to 1985, experience includes
Senior Vice President and Chief Financial Officer of Household
International, Inc, Executive Vice President and Chief Financial
Officer of Northwest Industries, Inc. and Partner of Arthur
Andersen & Co.
|
|
|
151
|
|
|
Trustee/Managing General Partner of funds in the Fund Complex.
Director of Quidel Corporation and Stericycle, Inc. Prior to May
2008, Trustee of The Scripps Research Institute. Prior to
February 2008, Director of Ventana Medical Systems, Inc. Prior
to April 2007, Director of GATX Corporation. Prior to April
2004, Director of TheraSense, Inc.
|
J-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
Term of
|
|
|
|
Portfolios in
|
|
|
|
|
|
|
|
Office and
|
|
Principal
|
|
Fund
|
|
|
Other Directorships
|
|
|
Position(s)
|
|
Length of
|
|
Occupation(s)
|
|
Complex
|
|
|
Held by
|
Name, Year of Birth,
|
|
Held with
|
|
Time
|
|
During the
|
|
Overseen by
|
|
|
Trustee During the
|
and Address of Trustee
|
|
Funds
|
|
Served
|
|
Past Five Years
|
|
Trustee
|
|
|
Past Five Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Linda Hutton
Heagy2,4
1948
4939 South Greenwood
Chicago, IL 60615
|
|
Trustee
|
|
2003
|
|
Retired. Prior to June 2008, Managing Partner of Heidrick &
Struggles, the second largest global executive search firm, and
from 2001-2004, Regional Managing Director of U.S. operations at
Heidrick & Struggles. Prior to 1997, Managing Partner of
Ray & Berndtson, Inc., an executive recruiting firm. Prior
to 1995, Executive Vice President of ABN AMRO, N.A., a bank
holding company, with oversight for treasury management
operations including all non-credit product pricing. Prior to
1990, experience includes Executive Vice President of The
Exchange National Bank with oversight of treasury management
including capital markets operations, Vice President of Northern
Trust Company and a trainee at Price Waterhouse.
|
|
|
18
|
|
|
Trustee/Managing General Partner of funds in the Fund Complex.
Prior to 2010, Trustee on the University of Chicago Medical
Center Board, Vice Chair of the Board of the YMCA of
Metropolitan Chicago and a member of the Womens Board of
the University of Chicago.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R. Craig
Kennedy3
1952
1744 R Street, N.W.
Washington, D.C. 20009
|
|
Trustee
|
|
2003
|
|
Director and President of the German Marshall Fund of the United
States, an independent U.S. foundation created to deepen
understanding, promote collaboration and stimulate exchanges of
practical experience between Americans and Europeans. Formerly,
advisor to the Dennis Trading Group Inc., a managed futures and
option company that invests money for individuals and
institutions. Prior to 1992, President and Chief Executive
Officer, Director and member of the Investment Committee of the
Joyce Foundation, a private foundation.
|
|
|
18
|
|
|
Trustee/Managing General Partner of funds in the Fund Complex.
Director of First Solar, Inc. Advisory Board, True North
Ventures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Howard J.
Kerr***1
1935
14 Huron Trace
Galena, IL 61036
|
|
Trustee
|
|
1993
|
|
Retired. Previous member of the City Council and Mayor of Lake
Forest, Illinois from 1988 through 2002. Previous business
experience from 1981 through 1996 includes President and Chief
Executive Officer of Pocklington Corporation, Inc., an
investment holding company, President and Chief Executive
Officer of Grabill Aerospace, and President of Custom
Technologies Corporation. United States Naval Officer from 1960
through 1981, with responsibilities including Commanding
|
|
|
18
|
|
|
Trustee/Managing General Partner of funds in the Fund Complex.
Director of the Lake Forest Bank & Trust. Director of the
Marrow Foundation.
|
|
|
|
|
|
|
Officer of United States Navy destroyers and Commander of United
States Navy Destroyer Squadron Thirty-Three, White House
experience in 1973 through 1975 as military aide to Vice
Presidents Agnew and Ford and Naval Aid to President Ford, and
Military Fellow on the Council of Foreign Relations in 1978
through 1979.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack E.
Nelson***3
1936
423 Country Club Drive
Winter Park, FL 32789
|
|
Trustee
|
|
2003
|
|
President of Nelson Investment Planning Services, Inc., a
financial planning company and registered investment adviser in
the State of Florida. President of Nelson Ivest Brokerage
Services Inc., a member of the Financial Industry Regulatory
Authority (FINRA), Securities Investors Protection
Corp. and the Municipal Securities Rulemaking Board. President
of Nelson Sales and Services Corporation, a marketing and
services company to support affiliated companies.
|
|
|
18
|
|
|
Trustee/Managing General Partner of funds in the Fund Complex.
|
J-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
Term of
|
|
|
|
Portfolios in
|
|
|
|
|
|
|
|
Office and
|
|
Principal
|
|
Fund
|
|
|
Other Directorships
|
|
|
Position(s)
|
|
Length of
|
|
Occupation(s)
|
|
Complex
|
|
|
Held by
|
Name, Year of Birth,
|
|
Held with
|
|
Time
|
|
During the
|
|
Overseen by
|
|
|
Trustee During the
|
and Address of Trustee
|
|
Funds
|
|
Served
|
|
Past Five Years
|
|
Trustee
|
|
|
Past Five Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugo F.
Sonnenschein3,4
1940
1126 E. 59th Street
Chicago, IL 60637
|
|
Trustee
|
|
1994
|
|
Distinguished Service Professor and President Emeritus of the
University of Chicago and the Adam Smith Distinguished Service
Professor in the Department of Economics at the University of
Chicago. Prior to July 2000, President of the University of
Chicago.
|
|
|
151
|
|
|
Trustee/Managing General Partner of funds in the Fund Complex.
Trustee of the University of Rochester and a member of its
investment committee. Member of the National Academy of
Sciences, the American Philosophical Society and a fellow of the
American Academy of Arts and Sciences.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suzanne H. Woolsey,
Ph.D.1
1941
815 Cumberstone Road
Harwood, MD 20776
|
|
Trustee
|
|
2003
|
|
Chief Executive Officer of Woolsey Partners LLC. Chief
Communications Officer of the National Academy of Sciences and
Engineering and Institute of Medicine/National Research Council,
an independent, federally chartered policy institution, from
2001 to November 2003 and Chief Operating Officer from 1993 to
2001. Executive Director of the Commission on Behavioral and
Social Sciences and Education at the National Academy of
Sciences/National Research Council from 1989 to 1993. Prior to
1980, experience includes Partner of Coopers & Lybrand
(from 1980 to 1989), Associate Director of the US Office of
Management and Budget (from 1977 to 1980) and Program Director
of the Urban Institute (from 1975 to 1977).
|
|
|
18
|
|
|
Trustee/Managing General Partner of funds in the Fund Complex.
Independent Director and audit committee chairperson of Changing
World Technologies, Inc., an energy manufacturing company, since
July 2008. Independent Director and member of audit and
governance committees of Fluor Corp., a global engineering,
construction and management company, since January 2004.
Director of Intelligent Medical Devices, Inc., a private company
which develops symptom-based diagnostic tools for viral
respiratory infections. Advisory Board member of ExactCost LLC,
a private company providing activity-based costing for
hospitals, laboratories, clinics, and physicians, since 2008.
Chairperson of the Board of Trustees of the Institute for
Defense Analyses, a federally funded research and development
center, since 2000. Trustee from 1992 to 2000 and 2002 to
present, current chairperson of the finance committee, current
member of the audit committee, strategic growth committee and
executive committee,
|
|
|
|
|
|
|
|
|
|
|
|
|
and former Chairperson of the Board of Trustees (from 1997 to
1999), of the German Marshall Fund of the United States, a
public foundation. Lead Independent Trustee of the Rocky
Mountain Institute, a non-profit energy and environmental
institute; Trustee since 2004. Chairperson of the Board of
Trustees of the Colorado College; Trustee since 1995. Trustee of
California Institute of Technology. Previously, Independent
Director and member of audit committee and governance committee
of Neurogen Corporation from 1998 to 2006; and Independent
Director of Arbros Communications from 2000 to 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interested Trustees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colin D.
Meadows*3
1971
1555 Peachtree Street, N.E.
Atlanta, GA 30309
|
|
Trustee;
President
and
Principal
Executive
Officer
|
|
2010
|
|
Chief Administrative Officer of Invesco Advisers, Inc. since
2006. Senior Managing Director and Chief Administrative Officer
of Invesco, Ltd. since 2006. Prior to 2006, Senior Vice
President of business development and mergers and acquisitions
at GE Consumer Finance. Prior to 2005, Senior Vice President of
strategic planning and technology at Wells Fargo Bank. From 1996
to 2003, associate principal with McKinsey & Company,
focusing on the financial services and venture capital
industries, with emphasis in the banking and asset management
sectors.
|
|
|
18
|
|
|
None.
|
J-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
Term of
|
|
|
|
Portfolios in
|
|
|
|
|
|
|
|
Office and
|
|
Principal
|
|
Fund
|
|
|
Other Directorships
|
|
|
Position(s)
|
|
Length of
|
|
Occupation(s)
|
|
Complex
|
|
|
Held by
|
Name, Year of Birth,
|
|
Held with
|
|
Time
|
|
During the
|
|
Overseen by
|
|
|
Trustee During the
|
and Address of Trustee
|
|
Funds
|
|
Served
|
|
Past Five Years
|
|
Trustee
|
|
|
Past Five Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne W.
Whalen**2
1939
155 North Wacker Drive
Chicago, IL 60606
|
|
Trustee
|
|
1993
|
|
Of Counsel, and prior to 2010, partner in the law firm of
Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to
certain funds in the Fund Complex.
|
|
|
151
|
|
|
Trustee/Managing General Partner of funds in the Fund Complex.
Director of the Mutual Fund Directors Forum, a nonprofit
membership organization for investment company directors.
Chairman and Director for the Abraham Lincoln Presidential
Library Foundation and Director of the Stevenson Center for
Democracy.
|
|
|
|
1 |
|
Designated as a Class I
trustee.
|
|
2 |
|
Designated as a Class II
trustee.
|
|
3 |
|
Designated as a Class III
trustee.
|
|
4 |
|
With respect to Funds with
Preferred Shares outstanding, Mr. Sonnenschein and
Ms. Heagy are elected by the Preferred Shareholders.
|
|
*
|
|
Mr. Meadows is an interested
person (within the meaning of Section 2(a)(19) of the 1940
Act) of the funds in the Fund Complex because he is an
officer of the Adviser. The Board of Trustees of the Acquiring
Fund appointed Mr. Meadows as Trustee of the Acquiring Fund
effective June 1, 2010.
|
|
** |
|
Mr. Whalen is an interested
person (within the meaning of Section 2(a)(19) of the 1940
Act) of certain funds in the Fund Complex because he and
his firm currently provide legal services as legal counsel to
such funds in the Fund Complex.
|
|
*** |
|
Pursuant to the Boards
Trustee retirement policy, Howard J Kerr and Jack E. Nelson are
retiring from the Board effective as of the Meeting. Rodney
Dammeyer is not standing for reelection with respect to certain
funds overseen by the Invesco Van Kampen Board for which his
term of office expires in 2012. Therefore, Mr. Dammeyer is
also stepping down from the Board of the Acquiring Fund
effective as of the Meeting.
|
|
|
|
Each Trustee generally serves a
three-year term from the date of election. Each Trustee has
served as a Trustee of the Acquiring Fund since the year shown
in the table.
|
Trustee
Ownership of Fund Shares
The following table shows each Board members ownership of
shares of the Acquiring Fund and of shares of all registered
investment companies overseen by such Board member in the
Fund Complex as of December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Dollar
|
|
|
|
|
|
|
Range of
Equity
|
|
|
|
|
|
|
Securities in
All
|
|
|
|
|
|
|
Registered
Investment
|
|
|
|
Dollar Range of
Equity
|
|
|
Companies
Overseen by
|
|
|
|
Securities in
the
|
|
|
Board Member in
Family of
|
|
Name
|
|
Acquiring
Fund
|
|
|
Investment
Companies
|
|
|
Independent Trustees
|
|
|
|
|
|
|
|
|
David C. Arch
|
|
|
None
|
|
|
|
Over $100,000
|
|
Jerry D. Choate
|
|
|
$10,001-$50,000
(2700 Common Shares
|
)
|
|
|
Over $100,000
|
|
Rodney F. Dammeyer
|
|
|
Over $100,000
(41,614.05 Common Shares
|
)
|
|
|
Over $100,000
|
|
Linda Hutton Heagy
|
|
|
None
|
|
|
|
$50,001-$100,000
|
|
R. Craig Kennedy
|
|
|
None
|
|
|
|
$10,001-$50,000
|
|
Howard J. Kerr
|
|
|
None
|
|
|
|
$1-$10,000
|
|
Jack E. Nelson
|
|
|
None
|
|
|
|
$1-$10,000
|
|
Hugo F. Sonnenschein
|
|
|
None
|
|
|
|
Over $100,000
|
|
Suzanne H. Woolsey
|
|
|
None
|
|
|
|
$10,001-$50,000
|
|
|
|
|
|
|
|
|
|
|
Interested Trustees
|
|
|
|
|
|
|
|
|
Colin D. Meadows
|
|
|
None
|
|
|
|
$1-$10,000
|
|
Wayne W. Whalen
|
|
|
None
|
|
|
|
Over $100,000
|
|
J-4
EXHIBIT K
ACQUIRING
FUND BOARD LEADERSHIP STRUCTURE, ROLE IN RISK OVERSIGHT
AND
COMMITTEES AND MEETINGS
The following information pertains to the Acquiring Fund. Not
all funds advised by the Adviser are overseen by the same board
of trustees. The Acquiring Fund is overseen by the Board of
Trustees discussed below (the IVK Board). References
to the Board in this Exhibit K refer solely to
the IVK Board and references to Funds in this
Exhibit K refer solely to those funds advised by the
Adviser, including the Acquiring Fund, overseen by the IVK Board.
Board
Leadership Structure
The Boards leadership structure consists of a Chairman of
the Board and two standing committees, each described below (and
ad hoc committees when necessary), with each committee staffed
by Independent Trustees and an Independent Trustee as Committee
Chairman. The Chairman of the Board is not the principal
executive officer of the Funds. The Chairman of the Board is not
an interested person (as that term is defined by the
1940 Act) of the Adviser. However, the Chairman of the Board is
an interested person (as that term is defined by the
1940 Act) of the Funds for the reasons described in the Trustee
biographies in Exhibit J. The Board, including the
independent trustees, periodically reviews the Boards
leadership structure for the Invesco Van Kampen Funds, including
the interested person status of the Chairman, and has concluded
the leadership structure is appropriate for the Funds. In
considering the chairman position, the Board has considered
and/or
reviewed (i) the Funds organizational documents,
(ii) the role of a chairman (including, among other things,
setting the agenda and managing information flow, running the
meeting and setting the proper tone), (iii) the background,
experience and skills of the Chairman (including his
independence from the Adviser), (iv) alternative structures
(including combined principal executive officer/chairman,
selecting one of the Independent Trustees as chairman
and/or
appointing an independent lead trustee), (v) rule proposals
in recent years that would have required all fund complexes to
have an independent chairman, (vi) the Chairmans past
and current performance, and (vii) the potential conflicts
of interest of the Chairman (and noted their periodic review as
part of their annual self-effectiveness survey and as part of an
independent annual review by the Funds Audit Committee of
fund legal fees related to such potential conflict). In
conclusion, the Board and the Independent Trustees have
expressed their continuing support of Mr. Whalen as
Chairman.
Board
Committees and Meetings
Each Funds Board of Trustees has two standing committees
(an Audit Committee and a Governance Committee). Each committee
is comprised solely of Independent Trustees, which
is defined for purposes herein as trustees who: (1) are not
interested persons of the Fund as defined by the
1940 Act and (2) are independent of the
respective Fund as defined by Exchange listing standards.
Each Boards Audit Committee consists of Jerry D. Choate,
Linda Hutton Heagy and R. Craig Kennedy. In addition to being
Independent Trustees as defined above, each of these Trustees
also meets the additional independence requirements for audit
committee members as defined by Exchange listing standards. The
Audit Committee makes recommendations to the Board of Trustees
concerning the selection of each Funds independent
registered public accounting firm, reviews with such independent
registered public accounting firm the scope and results of each
Funds annual audit and considers any comments which the
independent registered public accounting firm may have regarding
each Funds financial statements, accounting records or
internal controls. Each Board of Trustees has adopted a formal
written charter for the Audit Committee which sets forth the
Audit Committees responsibilities. The Audit
Committees charter is available at
www.invesco.com/us.
Each member of the Audit Committee is deemed an audit committee
financial expert.
Each Boards Governance Committee consists of David C.
Arch, Rodney Dammeyer, Howard J Kerr, Jack E. Nelson, Hugo F.
Sonnenschein and Suzanne H. Woolsey. In addition to being
Independent Trustees as defined above, each of these Trustees
also meets the additional independence requirements for
nominating committee members as defined by Exchange listing
standards. The Governance Committee identifies individuals
qualified to serve as Independent Trustees on the Board and on
committees of the Board, advises the Board with respect to Board
composition, procedures and committees, develops and recommends
to the Board a set of corporate governance principles applicable
to the respective Fund, monitors corporate governance matters
and makes recommendations to the Board, and acts as the
administrative committee with respect to Board policies and
procedures, committee policies and procedures and codes of
ethics. The governance Committee charter for each of the Funds,
which includes each Funds nominating policies, is
available at www.invesco.com/us. The Independent Trustees of the
respective Fund select and nominate nominee Independent Trustees
for the respective Fund. While the Independent Trustees of the
respective Fund expect to be able to continue to identify from
their own resources an ample number of qualified candidates for
the Board of Trustees as they deem appropriate, they will
consider nominations from shareholders to the Board. Nominations
from shareholders should be in writing and sent to the
Independent Trustees as described herein.
During the Funds last fiscal year, the Board held seven
meetings, the Boards Audit Committee held seven meetings,
and the Boards Governance Committee met five times. The
Board previously had a brokerage and services committee, which
met two times during the Funds last fiscal year. During
the Funds last completed fiscal year, each of the Trustees
of such Funds during the period such Trustee served as a Trustee
attended at least 75% of the meetings of the respective Board of
Trustees and all committee meetings thereof of which such
Trustee was a member.
K-1
Board
Role in Risk Oversight
The management of the fund complex seeks to provide investors
with disciplined investment teams, a research-driven culture,
careful long-term perspective and a legacy of experience. The
goal for each Fund is attractive long-term performance
consistent with the objectives and investment policies and risks
for such Fund, which in turn means, among other things, good
security selection, reasonable costs and quality shareholder
services. An important
sub-component
of delivering this goal is risk management
understanding, monitoring and controlling the various risks in
making investment decisions at the individual security level as
well as portfolio management decisions at the overall fund
level. The key participants in the risk management process of
the Funds are each Funds portfolio managers, the
Advisers senior management, the Advisers risk
management group, the Advisers compliance group, the
Funds chief compliance officer, and the various support
functions (i.e. the custodian, the Funds accountants
(internal and external), and legal counsel). While Funds are
subject to other risks such as valuation, custodial, accounting,
shareholder servicing, etc., a Funds primary risk is
understanding, monitoring and controlling the various risks in
making portfolio management decisions consistent with the
Funds objective and policies. The Boards role is
oversight of managements risk management process. At
regular quarterly meetings, the Board reviews Fund performance
and factors, including risks, affecting such performance by Fund
with the Advisers senior management, and the Board
typically meets at least once a year with the portfolio managers
of each Fund. At regular quarterly meetings, the Board reviews
reports showing monitoring done by the Advisers risk
management group, by the Advisers compliance group, the
Funds chief compliance officer and reports from the
Funds support functions.
K-2
EXHIBIT L
REMUNERATION
OF TRUSTEES FOR THE ACQUIRING FUND
The following information pertains to the Acquiring Fund. Not
all funds advised by the Adviser are overseen by the same board
of trustees. The Acquiring Fund is overseen by the Board of
Trustees discussed below (the IVK Board). References
to the Board in this Exhibit L refer solely to
the IVK Board and references to Funds in this
Exhibit L refer solely to those funds advised by the
Adviser, including the Acquiring Fund, overseen by the IVK Board.
The table below shows compensation for Trustees during the
Funds most recently completed fiscal year. The
compensation of Trustees that are affiliated persons (as defined
in 1940 Act) of the Adviser is paid by the respective affiliated
entity. The Funds pay the non-affiliated Trustees an annual
retainer and meeting fees for services to such Funds. The Funds
do not accrue or pay retirement or pension benefits to Trustees
as of the date of this Proxy Statement.
Compensation
Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Compensation
|
|
|
Number of
|
|
|
|
Aggregate
|
|
|
from Portfolios
in
|
|
|
Portfolios in
Fund
|
|
|
|
Compensation
from
|
|
|
the Fund
|
|
|
Complex Overseen
by
|
|
Name
|
|
the Acquiring
Fund(1)
|
|
|
Complex(2)
|
|
|
Trustee
|
|
|
Interested Trustee
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne W. Whalen
|
|
$
|
4,361
|
|
|
$
|
399,000
|
|
|
|
151
|
|
Colin D. Meadows
|
|
|
0
|
|
|
|
0
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent Trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
David C. Arch
|
|
|
4,361
|
|
|
|
412,250
|
|
|
|
151
|
|
Jerry D. Choate
|
|
|
3,811
|
|
|
|
83,000
|
|
|
|
18
|
|
Rodney F. Dammeyer
|
|
|
4,361
|
|
|
|
412,250
|
|
|
|
151
|
|
Linda Hutton Heagy
|
|
|
4,361
|
|
|
|
95,000
|
|
|
|
18
|
|
R. Craig Kennedy
|
|
|
4,095
|
|
|
|
89,000
|
|
|
|
18
|
|
Howard J Kerr
|
|
|
4,361
|
|
|
|
95,000
|
|
|
|
18
|
|
Jack E. Nelson
|
|
|
4,361
|
|
|
|
95,000
|
|
|
|
18
|
|
Hugo F. Sonnenschein
|
|
|
4,361
|
|
|
|
412,200
|
|
|
|
151
|
|
Suzanne H. Woolsey
|
|
|
4,361
|
|
|
|
95,000
|
|
|
|
18
|
|
|
|
|
(1) |
|
For
the fiscal year ended February 29, 2012.
|
|
(2) |
|
For
the fiscal year ended December 31, 2011.
|
L-1
EXHIBIT M
OUTSTANDING
SHARES OF THE FUNDS
As of the Record Date, there were the following number of shares
outstanding of each Fund:
|
|
|
|
|
|
|
Fund
|
|
Share
Class
|
|
Number of Shares
Outstanding
|
|
IIC
|
|
Common Shares
|
|
|
10,467,280
|
|
IIC
|
|
Preferred Shares
|
|
|
414
|
|
IQC
|
|
Common Shares
|
|
|
8,787,475
|
|
IQC
|
|
Preferred Shares
|
|
|
309
|
|
ICS
|
|
Common Shares
|
|
|
3,399,954
|
|
Acquiring Fund (VCV)
|
|
Common Shares
|
|
|
22,148,618
|
|
VCV
|
|
Preferred Shares
|
|
|
1,160
|
|
M-1
EXHIBIT N
OWNERSHIP
OF THE FUNDS
Significant
Holders
Listed below are the name, address and percent ownership of each
person who as of the Record Date to the best knowledge of the
Funds owned 5% or more of the outstanding shares of a class of a
Fund.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Name and
Address
|
|
Fund
|
|
|
Class of
Shares
|
|
|
Shares
Owned
|
|
|
Percent
Owned*
|
|
|
First Trust Portfolios L.P., First Trust Advisors L.P., The
Charger Corporation 120 East Liberty Drive, Suite 400
Wheaton, IL 60187
|
|
|
IIC
|
|
|
|
Common Shares
|
|
|
|
2,213,898
|
|
|
|
21.2
|
%
|
Citibank, N.A. 390 Greenwich St., 2nd Floor New York, NY 10013
|
|
|
IIC
|
|
|
|
Preferred Shares
|
|
|
|
414
|
**
|
|
|
100
|
%
|
First Trust Portfolios L.P., First Trust Advisors L.P., The
Charger Corporation 120 East Liberty Drive, Suite 400
Wheaton, IL 60187
|
|
|
IQC
|
|
|
|
Common Shares
|
|
|
|
957,281
|
|
|
|
10.9
|
%
|
Citibank, N.A. 390 Greenwich St., 2nd Floor New York, NY 10013
|
|
|
IQC
|
|
|
|
Preferred Shares
|
|
|
|
309
|
**
|
|
|
100
|
%
|
First Trust Portfolios L.P., First Trust Advisors L.P., The
Charger Corporation 120 East Liberty Drive, Suite 400
Wheaton, IL 60187
|
|
|
ICS
|
|
|
|
Common Shares
|
|
|
|
235,611
|
|
|
|
5.9
|
%
|
First Trust Portfolios L.P., First Trust Advisors L.P., The
Charger Corporation 120 East Liberty Drive, Suite 400
Wheaton, IL 60187
|
|
|
Acquiring Fund (VCV
|
)
|
|
|
Common Shares
|
|
|
|
2,866,638
|
|
|
|
13.0
|
%
|
Citibank, N.A. 390 Greenwich St., 2nd Floor New York, NY 10013
|
|
|
VCV
|
|
|
|
Preferred Shares
|
|
|
|
1,160
|
**
|
|
|
100
|
%
|
|
|
|
*
|
|
Based
on filings made by such owners with the SEC. Each Fund has no
knowledge of whether all or any portion of the shares reported
or owned of record are also owned beneficially.
|
|
**
|
|
Preferred
Shares are subject to a voting trust requiring that certain
voting rights of the Preferred Shares must be exercised as
directed by an unaffiliated third party.
|
N-1
STATEMENT OF ADDITIONAL INFORMATION
June 8, 2012
to the
Registration Statement on Form N-14 Filed by the Following (Acquiring Funds):
|
|
|
Invesco Value Municipal Income Trust |
|
NYSE: IIM |
Invesco Municipal Income Opportunities Trust |
|
NYSE: OIA |
Invesco Quality Municipal Income Trust |
|
NYSE: IQI |
Invesco Van Kampen California Value Municipal Income Trust |
|
NYSE: VCV |
Invesco Van Kampen High Income Trust II |
|
NYSE: VLT |
Invesco Van Kampen Municipal Opportunity Trust |
|
NYSE: VMO |
Invesco Van Kampen Trust for Investment Grade New York Municipals |
|
NYSE: VTN |
Invesco Van Kampen Municipal Trust |
|
NYSE: VKQ |
Relating to the July 17, 2012 Joint Annual Meeting of Shareholders of the Above-Listed Funds and the
Following Funds (Target Funds):
|
|
|
Invesco Value Municipal Bond Trust |
|
NYSE: IMC |
Invesco Value Municipal Securities |
|
NYSE: IMS |
Invesco Value Municipal Trust |
|
NYSE: IMT |
Invesco Municipal Income Opportunities Trust II |
|
NYSE: OIB |
Invesco Municipal Income Opportunities Trust III |
|
NYSE: OIC |
Invesco Quality Municipal Investment Trust |
|
NYSE: IQT |
Invesco Quality Municipal Securities |
|
NYSE: IQM |
Invesco California Municipal Income Trust |
|
NYSE: IIC |
Invesco California Quality Municipal Securities |
|
NYSE: IQC |
Invesco California Municipal Securities |
|
NYSE: ICS |
Invesco High Yield Investments Fund, Inc. |
|
NYSE: MSY |
Invesco Municipal Premium Income Trust |
|
NYSE: PIA |
Invesco Van Kampen Select Sector Municipal Trust |
|
NYSE MKT: VKL |
Invesco Van Kampen Trust for Value Municipals |
|
NYSE: VIM |
Invesco New York Quality Municipal Securities |
|
NYSE: IQN |
Invesco Van Kampen Massachusetts Value Municipal Income Trust |
|
NYSE MKT: VMV |
Invesco Van Kampen Ohio Quality Municipal Trust |
|
NYSE: VOQ |
Invesco Van Kampen Trust for Investment Grade New Jersey Municipals |
|
NYSE: VTJ |
This Statement of Additional Information (SAI), which is not a prospectus, supplements and
should be read in conjunction with the Joint Proxy Statement/Prospectus for each Acquiring Fund
(each, a Proxy Statement and together, the Proxy
Statements) dated June 8, 2012, relating
specifically to the Joint Annual Meetings of Shareholders of the above listed funds (collectively,
the Funds) to be held on July 17, 2012. Copies of the Proxy Statements may be obtained at no
charge by writing to Invesco Investment Services, Inc., 1555 Peachtree Street,
N.E., Atlanta, Georgia 30309, or by calling (800) 341-2929. You can also access this information
at http://www.invesco.com/us.
The Securities and Exchange Commission has not approved or disapproved these securities or
determined if this SAI is truthful or complete. Any representation to the contrary is a criminal
offense.
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
1 |
|
|
|
|
2 |
|
|
|
|
3 |
|
|
|
|
32 |
|
|
|
|
69 |
|
|
|
|
69 |
|
|
|
|
71 |
|
|
|
|
71 |
|
|
|
|
71 |
|
|
|
|
71 |
|
|
|
|
73 |
|
|
|
|
73 |
|
|
|
|
78 |
|
|
|
|
91 |
|
|
|
|
Appendix A
|
|
Special State-Specific Investment Considerations |
Appendix B
|
|
Ratings of Debt Securities |
Appendix C
|
|
Strategic Transactions; Options and Futures |
Appendix D
|
|
Portfolio Turnover |
Appendix E
|
|
Management Fees |
Appendix F
|
|
Administrative Services Fees |
Appendix G
|
|
Portfolio Managers |
Appendix H
|
|
Brokerage Commissions |
Incorporation by Reference of Certain Documents
Each Funds financial statements for the fiscal year ended February 20, 2012 are incorporated
into this SAI by reference to the Funds most recent Annual Report to Shareholders. The proxy
policies and procedures of Invesco Advisers, Inc. (Invesco or the Adviser) are also
incorporated into this SAI by reference to Appendix E to the Statement of Additional Information
for AIM Growth Series (Invesco Growth Series), filed as part of Post-Effective Amendment No. 97 to
such registrants Registration Statement. The accession numbers for these documents are listed
below, along with the dates they were filed via EDGAR. These documents will be provided to any
shareholder who requests this SAI and may also be obtained, without charge, by calling (800)
341-2929.
The portions of such Annual Reports and Post-Effective Amendment that are not specifically
referenced above are not incorporated into this SAI.
|
|
|
|
|
Fund |
|
Annual Report Accession No. |
|
Date Filed |
IMC
|
|
0000950123-12-007949
|
|
May 4, 2012 |
IMS
|
|
0000950123-12-008022
|
|
May 7, 2012 |
IMT
|
|
0000950123-12-007955
|
|
May 4, 2012 |
OIB
|
|
0000950123-12-008054
|
|
May 7, 2012 |
OIC
|
|
0000950123-12-008028
|
|
May 7, 2012 |
IQT
|
|
0000950123-12-007963
|
|
May 4, 2012 |
IQM
|
|
0000950123-12-007972
|
|
May 4, 2012 |
IIC
|
|
0000950123-12-007954
|
|
May 4, 2012 |
IQC
|
|
0000950123-12-007947
|
|
May 4, 2012 |
ICS
|
|
0000950123-12-008026
|
|
May 7, 2012 |
MSY
|
|
0000950123-12-008048
|
|
May 7, 2012 |
PIA
|
|
0000950123-12-007956
|
|
May 4, 2012 |
VKL
|
|
0000950123-12-007984
|
|
May 4, 2012 |
VIM
|
|
0000950123-12-007986
|
|
May 4, 2012 |
IQN
|
|
0000950123-12-007958
|
|
May 4, 2012 |
VMV
|
|
0000950123-12-007971
|
|
May 4, 2012 |
VOQ
|
|
0000950123-12-007977
|
|
May 4, 2012 |
VTJ
|
|
0000950123-12-007987
|
|
May 4, 2012 |
IIM
|
|
0000950123-12-007951
|
|
May 4, 2012 |
OIA
|
|
0000950123-12-008024
|
|
May 7, 2012 |
IQI
|
|
0000950123-12-007961
|
|
May 4, 2012 |
VCV
|
|
0000950123-12-007968
|
|
May 4, 2012 |
VLT
|
|
0000950123-12-008033
|
|
May 7, 2012 |
VMO
|
|
0000950123-12-007973
|
|
May 4, 2012 |
VTN
|
|
0000950123-12-007991
|
|
May 4, 2012 |
VKQ
|
|
0000950123-12-007976
|
|
May 4, 2012 |
Registrant
|
|
Post-Effective Amendment
Accession No.
|
|
Date Filed |
AIM Growth Series (Invesco Growth Series)
|
|
0000950123-12-006801
|
|
April 26, 2012 |
- 1 -
General Information
This SAI relates to the proposed reorganization of each Target Fund, as identified below, into
the corresponding Acquiring Fund, as identified below. The table also reflects the former names of
the Funds during the past five years.
|
|
|
Target Funds |
|
Acquiring Funds |
Invesco
Value Municipal Bond Trust (NYSE: IMC) |
|
|
Formerly: Invesco Insured Municipal Bond Trust
(through 1/23/2012); Morgan Stanley Insured Municipal
Bond Trust (through 5/6/2010) |
|
|
|
|
|
Invesco
Value Municipal Securities (NYSE: IMS)
|
|
Invesco Value Municipal Income Trust (NYSE: IIM) |
Formerly: Invesco Insured Municipal Securities
(through 12/1/2011); Morgan Stanley Insured Municipal
Securities (through 5/6/2010)
|
|
Formerly: Invesco Insured Municipal Income Trust
(through 1/6/2012); Morgan Stanley Insured
Municipal Income Trust (through 5/6/2010) |
|
|
|
Invesco Value Municipal Trust (NYSE: IMT) |
|
|
Formerly: Invesco Insured Municipal Trust (through
1/19/2012); Morgan Stanley Insured Municipal Trust
(through 5/6/2010) |
|
|
|
|
|
Invesco Municipal Income Opportunities Trust II
(NYSE: OIB)
|
|
Invesco Municipal Income Opportunities Trust
(NYSE: OIA) |
Formerly: Morgan Stanley Municipal Income
Opportunities Trust II (through 5/7/2010)
|
|
Formerly: Morgan Stanley Municipal Income
Opportunities Trust (through 5/6/2010) |
|
|
|
Invesco Municipal Income Opportunities Trust III
(NYSE: OIC) |
|
|
Formerly: Morgan Stanley Municipal Income
Opportunities Trust III (through 5/7/2010) |
|
|
|
|
|
Invesco Quality Municipal Investment Trust (NYSE: IQT)
|
|
Invesco Quality Municipal Income Trust (NYSE: IQI) |
Formerly: Morgan Stanley Quality Municipal Investment
Trust (through 5/6/2010)
|
|
Formerly: Morgan Stanley Quality Municipal Income
Trust (through 5/10/2010) |
|
|
|
Invesco Quality Municipal Securities (NYSE: IQM) |
|
|
Formerly: Morgan Stanley Quality Municipal Securities
(through 5/6/2010) |
|
|
|
|
|
Invesco California Municipal Income Trust (NYSE: IIC)
|
|
Invesco Van Kampen California Value Municipal
Income Trust (NYSE: VCV) |
Formerly: Invesco California Insured Municipal Income
Trust (through 1/23/2012); Morgan Stanley California
Insured Municipal Income Trust (through 5/6/2010)
|
|
Formerly: Van Kampen California Value Municipal
Income Trust (through 3/31/2010) |
|
|
|
Invesco California Quality Municipal Securities
(NYSE: IQC) |
|
|
Formerly: Morgan Stanley California Quality Municipal
Securities (through 5/6/2010) |
|
|
- 2 -
|
|
|
Target Funds |
|
Acquiring Funds |
Invesco California Municipal Securities (NYSE: ICS) |
|
|
|
|
|
Formerly: Invesco Insured California Municipal
Securities (through 1/23/2012); Morgan Stanley
Insured California Municipal Securities (through
5/6/2010) |
|
|
|
|
|
Invesco High Yield Investments Fund, Inc. (NYSE: MSY)
|
|
Invesco Van Kampen High Income
Trust II (NYSE: VLT) |
|
|
|
Formerly: Morgan Stanley High Yield Fund, Inc.
(through 5/27/2010)
|
|
Formerly: Van Kampen High Income Trust II
(through 5/26/2010) |
|
|
|
Invesco Municipal Premium Income Trust (NYSE: PIA) |
|
|
|
|
|
Formerly: Morgan Stanley Municipal Premium Income
Trust (through 5/10/2010) |
|
|
|
|
|
Invesco Van Kampen Select Sector Municipal Trust
(NYSE MKT: VKL)
|
|
Invesco Van Kampen Municipal Opportunity Trust
(NYSE: VMO) |
|
|
|
Formerly: Van Kampen Select Sector Municipal Trust
(through 3/31/2010)
|
|
Formerly: Van Kampen Municipal Opportunity Trust
(through 3/31/2010) |
|
|
|
Invesco Van Kampen Trust for Value Municipals
(NYSE: VIM) |
|
|
|
|
|
Formerly: Invesco Van Kampen Trust for Insured
Municipals (through 12/16/2011); Van Kampen Trust for
Insured Municipals (through 5/10/2010) |
|
|
|
|
|
Invesco New York Quality Municipal Securities
(NYSE: IQN)
|
|
Invesco Van Kampen Trust for Investment Grade New
York Municipals (NYSE: VTN) |
|
|
|
Formerly: Morgan Stanley New York Quality Municipal
Securities (through 5/6/2010)
|
|
Formerly: Van Kampen Trust for Investment Grade
New York Municipals (through 4/12/2010) |
|
|
|
Invesco Van Kampen Massachusetts Value Municipal
Income Trust (NYSE MKT: VMV) |
|
|
|
|
|
Formerly: Van Kampen Massachusetts Value Municipal
Income Trust (through 3/31/2010) |
|
|
|
|
|
Invesco Van Kampen Ohio Quality Municipal Trust
(NYSE: VOQ)
|
|
Invesco Van Kampen Municipal Trust (NYSE: VKQ) |
|
|
|
Formerly: Van Kampen Ohio Quality Municipal Trust
(through 3/31/2010)
|
|
Formerly: Van Kampen Municipal Trust (through
4/21/2010) |
|
|
|
Invesco Van Kampen Trust for Investment Grade New
Jersey Municipals (NYSE: VTJ) |
|
|
|
|
|
Formerly: Van Kampen Trust for Investment Grade New
Jersey Municipals (through 3/31/2010) |
|
|
Investment Strategies and Risks
The table on the following pages identifies various securities and investment techniques that
Invesco and/or the Sub-Advisers (as defined herein) may use in managing the Funds, including as
part of a temporary defensive strategy, as well as the risks associated with those types of
securities and investment techniques. The table has been marked to indicate those securities and
investment techniques that Invesco and/or a Sub-Adviser may, but is not
- 3 -
required to, use to manage a Fund, including as part of a temporary defensive strategy. A Fund
may choose not to use any or all of these techniques and may use different techniques at different
times. Invesco and/or the Sub-Advisers may invest in other securities and may use other investment
techniques in managing the Funds, including those described below for Funds not specifically
mentioned as investing in the security or using the investment technique, as well as securities and
techniques not described. Each Funds transactions in a particular security or use of a particular
technique is subject to the limitations imposed by a Funds investment objective, principal
investment strategies, and fundamental and non-fundamental investment restrictions (and appendices
thereto) described in that Funds Proxy Statement and/or this SAI, as well as federal securities
laws. Each Funds investment 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 below, elsewhere in this SAI or in the Funds Proxy Statement. The
descriptions of the securities and investment techniques in this section supplement the discussion
of principal investment strategies contained in each Funds Proxy Statement and shareholder
reports; where a particular type of security or investment technique is not discussed in a Funds
Proxy Statement or shareholder reports, that security or investment technique is not a principal
investment strategy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IIM |
|
OIA |
|
IQI |
|
VCV |
|
VLT |
|
VMO |
|
VTN |
|
VKQ |
Debt Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Obligations |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Temporary Investments |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Collateralized Debt
Obligations (CDOs) |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Loan
Obligations (CLOs) |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
Credit Linked Notes (CLNs) |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
Bank Instruments |
|
X |
|
X |
|
X |
|
X |
|
|
|
X |
|
X |
|
X |
Commercial Instruments |
|
X |
|
|
|
X |
|
X |
|
|
|
X |
|
X |
|
X |
Synthetic Municipal
Instruments |
|
X |
|
X |
|
X |
|
X |
|
|
|
X |
|
X |
|
X |
Municipal Securities |
|
X |
|
X |
|
X |
|
X |
|
|
|
X |
|
X |
|
X |
Municipal Lease Obligations |
|
X |
|
X |
|
X |
|
X |
|
|
|
X |
|
X |
|
X |
Investment Grade Debt
Obligations |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Non-Investment Grade Debt
Obligations (Junk Bonds) |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Loans, Loan Participations
and Assignments |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
Public Bank Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured Notes and
Indexed Securities |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Corporate Debt
Obligations |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
Equity Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
Preferred Stock |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
Convertible Securities |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
Foreign Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Securities |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
Foreign Government
Obligations |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
Foreign Exchange
Transactions |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
Floating Rate Corporate
Loans and Corporate Debt
Securities of Non-U.S.
Borrowers |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
Other Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-Traded Funds (ETFs) |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
Other Investment Companies |
|
X |
|
|
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Limited Partnerships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted Securities |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
- 4 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IIM |
|
OIA |
|
IQI |
|
VCV |
|
VLT |
|
VMO |
|
VTN |
|
VKQ |
Municipal Forward Contracts |
|
X |
|
X |
|
X |
|
X |
|
|
|
X |
|
X |
|
X |
Variable or Floating Rate
Instruments |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Inverse Floating Rate
Obligations |
|
X |
|
X |
|
X |
|
X |
|
|
|
X |
|
X |
|
X |
Zero Coupon and Pay-in-Kind
Securities |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Premium Securities |
|
X |
|
X |
|
X |
|
X |
|
|
|
X |
|
X |
|
X |
Participation Notes |
|
X |
|
X |
|
X |
|
X |
|
|
|
X |
|
X |
|
X |
Investment Techniques: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Commitments,
When-Issued and Delayed
Securities |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Borrowing |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Lending Portfolio Securities |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
Repurchase Agreements |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Restricted and Illiquid
Securities |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Reverse Repurchase
Agreements |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Standby Commitments |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap Agreements |
|
X |
|
|
|
|
|
X |
|
X |
|
X |
|
X |
|
X |
Interest Rate Locks |
|
X |
|
X |
|
X |
|
X |
|
|
|
X |
|
X |
|
X |
Options |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
Forward Currency Contracts |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMC |
|
IMS |
|
IMT |
|
OIB |
|
OIC |
|
IQT |
|
IQM |
|
IIC |
|
IQC |
|
Debt Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Obligations |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Temporary Investments |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Collateralized Debt
Obligations (CDOs) |
|
|
|
|
|
|
|
X |
|
X |
|
|
|
|
|
|
|
|
|
|
Collateralized Loan
Obligations (CLOs) |
|
|
|
|
|
|
|
X |
|
X |
|
|
|
|
|
|
|
|
|
|
Credit Linked Notes (CLNs) |
|
|
|
|
|
|
|
X |
|
X |
|
|
|
|
|
|
|
|
|
|
Bank Instruments |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Commercial Instruments |
|
X |
|
X |
|
X |
|
|
|
|
|
X |
|
X |
|
X |
|
|
X |
|
Synthetic Municipal
Instruments |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Municipal Securities |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Municipal Lease Obligations |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Investment Grade Debt
Obligations |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Non-Investment Grade Debt
Obligations (Junk Bonds) |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Loans, Loan Participations
and Assignments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Bank Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured Notes and
Indexed Securities |
|
|
|
|
|
|
|
X |
|
X |
|
|
|
|
|
|
|
|
|
|
U.S. Corporate Debt
Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 5 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMC |
|
IMS |
|
IMT |
|
OIB |
|
OIC |
|
IQT |
|
IQM |
|
IIC |
|
IQC |
|
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Government
Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange
Transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating Rate Corporate
Loans and Corporate Debt
Securities of Non-U.S.
Borrowers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-Traded Funds (ETFs) |
|
|
|
|
|
|
|
X |
|
X |
|
|
|
|
|
|
|
|
|
|
Other Investment Companies |
|
X |
|
X |
|
X |
|
|
|
|
|
X |
|
|
|
X |
|
|
|
|
Limited Partnerships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted Securities |
|
|
|
|
|
|
|
X |
|
X |
|
|
|
|
|
|
|
|
|
|
Municipal Forward Contracts |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Variable or Floating Rate
Instruments |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Inverse Floating Rate
Obligations |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Zero Coupon and Pay-in-Kind
Securities |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Premium Securities |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Participation Notes |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Investment Techniques: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Commitments,
When-Issued and Delayed
Securities |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Borrowing |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Lending Portfolio Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Agreements |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Restricted and Illiquid
Securities |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Reverse Repurchase
Agreements |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Standby Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap Agreements |
|
X |
|
X |
|
X |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
Interest Rate Locks |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Options |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Forward Currency Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ICS |
|
MSY |
|
PIA |
|
VKL |
|
VIM |
|
IQN |
|
VMV |
|
VOQ |
|
VTJ |
|
Debt Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Obligations |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Temporary Investments |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Collateralized Debt
Obligations (CDOs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Loan
Obligations (CLOs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Linked Notes (CLNs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Instruments |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Commercial Instruments |
|
X |
|
X |
|
|
|
X |
|
X |
|
|
|
X |
|
X |
|
|
X |
|
Synthetic Municipal
Instruments |
|
X |
|
|
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
- 6 -
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ICS |
|
MSY |
|
PIA |
|
VKL |
|
VIM |
|
IQN |
|
VMV |
|
VOQ |
|
VTJ |
|
Municipal Securities |
|
X |
|
|
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Municipal Lease Obligations |
|
X |
|
|
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Investment Grade Debt
Obligations |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Non-Investment Grade Debt
Obligations (Junk Bonds) |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Loans, Loan Participations
and Assignments |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Bank Loans |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured Notes and
Indexed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Corporate Debt
Obligations |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Securities |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Securities |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Government
Obligations |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange
Transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating Rate Corporate
Loans and Corporate Debt
Securities of Non-U.S.
Borrowers |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-Traded Funds (ETFs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investment Companies |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Limited Partnerships |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted Securities |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Forward Contracts |
|
X |
|
|
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Variable or Floating Rate
Instruments |
|
X |
|
|
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Inverse Floating Rate
Obligations |
|
X |
|
|
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Zero Coupon and Pay-in-Kind
Securities |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Premium Securities |
|
X |
|
|
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Participation Notes |
|
X |
|
|
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Investment Techniques: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Commitments,
When-Issued and Delayed
Securities |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Borrowing |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Lending Portfolio Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase Agreements |
|
X |
|
|
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Restricted and Illiquid
Securities |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Reverse Repurchase
Agreements |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Standby Commitments |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap Agreements |
|
X |
|
|
|
|
|
X |
|
X |
|
|
|
X |
|
X |
|
|
X |
|
Interest Rate Locks |
|
X |
|
|
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Options |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Warrants |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
X |
|
|
X |
|
Forward Currency Contracts |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 7 -
Debt Investments
U.S. Government Obligations. U.S. Government obligations are obligations issued or guaranteed
by the U.S. Government, its agencies and instrumentalities, and include, among other obligations,
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 agencys
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 portfolio 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 recently provided financial
support to Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage
Corporation (Freddie Mac), no assurance can be given that the U.S. Government will always do so,
since the U.S. Government is not so obligated by law. There also is no guarantee that the
government would support Federal Home Loan Banks. Accordingly, securities of Fannie Mae, Freddie
Mac and Federal Home Loan Banks, and other agencies, may involve a risk of non-payment of principal
and interest.
Temporary Investments. A Fund may invest a portion of its assets in money market funds
(including affiliated money market funds affiliated with Invesco) and in the types of money market
instruments in which money market funds would invest or other short-term U.S. Government securities
for cash management purposes. The Fund may invest up to 100% of its assets in investments that may
be inconsistent with the Funds principal investment strategies for temporary defensive purposes in
anticipation of or in response to adverse market, economic, political or other conditions, or other
atypical circumstances. As a result, the Fund may not achieve its investment objective.
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
CDOs 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 as illiquid securities; 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 with an embedded credit default swap
allowing the issuer to transfer a specific credit risk to credit investors.
CLNs are created through a Special Purpose Company (SPC), or trust, which is collateralized
with AAA-rated securities. The CLNs price or coupon is linked to the performance of the reference
asset of the second party. Generally, the CLN holder receives either fixed or floating coupon rate
during the life of the CLN and par at
- 8 -
maturity. The cash flows are dependent on specified
credit-related events. Should the second party default or declare bankruptcy, the CLN holder will
receive an amount equivalent to the recovery rate. In return for these risks, the CLN holder
receives a higher yield. The Fund bears the risk of default by the second party and any unforeseen
movements in the reference asset, which could lead to loss of principal and receipt of interest
payments. 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 deposits, time deposits, and bankers
acceptances from U.S. or foreign banks as well as Eurodollar certificates of deposit (Eurodollar
CDs) and Eurodollar time deposits (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 a specified rate of interest over a definite period of time; however,
it cannot be traded in the secondary market. A bankers 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
corporations 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 the credit quality criteria of the Funds. 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 subject to any applicable restrictions on investment in illiquid
securities. Commercial instruments may not be registered with the U.S. Securities and Exchange
Commission (SEC).
Synthetic Municipal Instruments. Synthetic municipal instruments are instruments, the value
of and return on which are derived from underlying securities. Synthetic municipal instruments
include tender option bonds and variable rate trust certificates. Both 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 Fund. The trustee or custodian receives the long-term
fixed rate interest payments on the Underlying Bonds, and pays certificate holders 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 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.
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 Fund on certain
synthetic municipal instruments would be deemed to be taxable. The Fund relies
- 9 -
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 generally include, among other things, debt
obligations of states, territories or possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, issued to obtain funds for
various public purposes, including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which municipal securities may be issued include the
refunding of outstanding obligations, obtaining funds for general operating expenses and lending
such funds to other public institutions and facilities.
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 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 Internal Revenue Service
(IRS). See Tax Matters Taxation of Fund Distributions (Tax-Free Funds).
The two major classifications of municipal securities are bonds and notes. Bonds may be
further classified as general obligation or revenue issues. General obligation bonds are
secured by the issuers pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenues derived from a particular
facility or class of facilities, and in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax-exempt industrial development
bonds are in most cases revenue bonds and do not generally carry the pledge of the credit of the
issuing municipality. 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 securities also include the following securities, among others:
|
|
|
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. |
|
|
|
|
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 anticipation notes are usually general obligations of the issuer. |
|
|
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Revenue Anticipation Notes are issued by governments or governmental bodies with the
expectation that future revenues from a designated source will be used to repay the notes.
In general, they also constitute general obligations of the issuer. |
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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. |
Certain Funds also may purchase participation interests or custodial receipts from financial
institutions. These participation interests give the purchaser an undivided interest in one or
more underlying municipal securities.
After purchase by a Fund, an issue of municipal securities may cease to be rated by Moodys
Investors Service, Inc. (Moodys) or Standard and Poors Financial Services LLC, a subsidiary of
the McGraw-Hill Companies, Inc. (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 the Fund to dispose
of the security.
- 10 -
The Funds may invest in municipal securities that are insured by financial insurance
companies. Such insurance guarantees that interest payments on a bond will be made on time and
that principal will be repaid when the bond matures. Insured municipal obligations would generally
be assigned a lower rating if the rating were based primarily on the credit quality of the issuer
without regard to the insurance feature. If the claims-paying ability of the insurer were
downgraded, the ratings on the municipal obligations it insures may also be downgraded. Insurance
does not protect the Fund against losses caused by declines in a bonds value due to a change in
market conditions. 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.
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.
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.
Municipal Lease Obligations. Municipal lease obligations, a type of municipal security, may
take the form of a lease, an installment purchase contract or a conditional sales contract.
Municipal lease obligations are issued by state and local governments and authorities to acquire
land, equipment and facilities such as state and municipal vehicles, telecommunications and
computer equipment, and other capital assets. 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 propertys 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 any applicable
percentage limitations for investments in illiquid securities and the risks of holding illiquid
securities.
For a discussion of the state-specific investment considerations regarding various states in
which certain Funds invest a substantial portion of their assets, see Appendix A to this SAI,
Special State-Specific Investment Considerations.
Investment Grade Debt Obligations. Debt obligations include, among others, bonds, notes,
debentures and variable rate demand notes. They may be U.S. dollar-denominated debt obligations
issued or guaranteed by U.S. corporations or U.S. commercial banks, U.S. dollar-denominated
obligations of foreign issuers and debt obligations of foreign issuers denominated in foreign
currencies.
These obligations must meet minimum ratings criteria set forth for the Fund as described in
its prospectus or, if unrated, be of comparable quality. Bonds rated Baa3 or higher by Moodys
and/or BBB or higher by S&P or
- 11 -
Fitch Ratings, Ltd. are typically considered investment grade debt
obligations. The description of debt securities ratings may be found in Appendix B to this SAI.
In choosing corporate debt securities on behalf of a Fund, portfolio managers may consider:
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(i) |
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general economic and financial conditions; |
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(ii) |
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the specific issuers (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 issuers country;
and |
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(iii) |
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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 Ba or below by Moodys
and/or BB or below by S&P or Fitch Ratings, Ltd. are typically considered non-investment grade or
junk bonds. Analysis of the creditworthiness of junk bond issuers is more complex than that of
investment-grade issuers and the success of the Adviser in managing these decisions is more
dependent upon its own credit analysis than is the case with investment-grade bonds. Description
of debt securities ratings are found in Appendix B to this SAI.
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 issued by 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 issuers 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 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 Funds 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.
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. The 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, the 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 the Fund may
not directly benefit from any collateral supporting the loan in which it has purchased the
participation. As a result, the Fund will be subject to the credit risk of both the borrower and
the lender that is selling the participation. In the event of the insolvency of the lender selling
a participation, a 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.
When the 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, the Fund could be part owner of any
collateral and could bear the costs and liabilities of owning and disposing of the collateral.
- 12 -
Investments in loans, loan participations and assignments present the possibility that the
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 and may not be protected by the securities laws.
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 (Baa or higher by Moodys, BBB or higher
by S&P) or below investment grade (below Baa by Moodys or below BBB by S&P). However, public bank
loans are not registered under the Securities Act of 1933, as amended (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 companys 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 securities are also difficult to value. To the extent a bank loan has
been deemed illiquid, it will be subject to any applicable restrictions on investment in illiquid
securities. 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 Funds 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. 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 are determined by a
reference instrument.
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 securitys 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.
- 13 -
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
referenced 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 Funds 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 any
applicable restrictions on investment in illiquid securities.
Equity Investments
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.
Preferred Stock. Preferred stock, unlike common stock, often offers a specified dividend rate
payable from a companys earnings. Preferred stock also generally has a preference over common
stock on the distribution of a companys assets in the event the company is liquidated or declares
bankruptcy; however, the rights of preferred stockholders on the distribution of a companys assets
in the event of a liquidation or bankruptcy are generally subordinate to the rights of the
companys 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 issuers common stock. Preferred stock may be participating, which means that it may
be entitled to a dividend exceeding the stated dividend in certain cases. In some cases an issuer
may offer auction rate preferred stock, which means that the interest to be paid is set by auction
and will often be reset at stated intervals.
Convertible Securities. 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
- 14 -
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 Funds 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 corporations capital structure and, therefore, generally entail less risk than the corporations
common stock. Convertible securities are subordinate in rank to any senior debt obligations of the
issuer, and, therefore, an issuers 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 issuers 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 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 Funds financial reporting, credit rating and investment limitation purposes.
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
- 15 -
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 securitys term or at maturity.
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), 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.
EDRs are similar to ADRs, except they are typically issued by European banks or trust companies,
denominated in foreign currencies and designed for use outside the U.S. securities markets. ADRs
and EDRs entitle the holder to all dividends and capital gains on the underlying foreign
securities, less any fees paid to the bank. Purchasing ADRs or EDRs gives a Fund the ability to
purchase the functional equivalent of foreign securities without going to the foreign securities
markets to do so. ADRs or EDRs that are sponsored means that the foreign corporation whose
shares are represented by the ADR or EDR is actively involved in the issuance of the ADR or EDR,
and generally provides material information about the corporation to the U.S. market. An
unsponsored ADR or EDR program means that the foreign corporation whose shares are held by the
bank is not obligated to disclose material information in the United States, and, therefore, the
market value of the ADR or EDR may not reflect important facts known only to the foreign company.
Foreign debt securities include corporate debt securities of foreign issuers, certain foreign
bank obligations (see Debt Investments Bank Instruments) and U.S. dollar or foreign currency
denominated obligations of foreign governments or their subdivisions, agencies and
instrumentalities (see Foreign Investments Foreign Government Obligations), international
agencies and supranational entities.
A Fund considers various factors when determining whether a company is in a particular
country, including whether: (1) it is organized under the laws of a country; (2) it has a principal
office in a country; (3) it derives 50% or more of its total revenues from businesses in a country;
and/or (4) its securities are traded principally on a stock exchange, or in an over-the-counter
market, in a particular country.
Investments by a Fund in foreign securities, including ADRs and EDRs, whether denominated in
U.S. dollars or foreign currencies, may entail all of the risks set forth below in addition to
those accompanying an investment in issuers in the United States.
Currency Risk. The value in U.S. dollars of any 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 in which the Funds may invest may
not be as developed as the United States economy and may be subject to significantly different
forces. Political, economic or social instability and development, expropriation or confiscatory
taxation, and limitations on the removal of funds or other assets could also adversely affect the
value of the Funds investments.
Regulatory Risk. Foreign companies are generally not subject to the regulatory controls
imposed on U.S. issuers and, as a consequence, there is generally less publicly available
information about foreign securities than is available about domestic securities. Foreign
companies may not be subject to uniform accounting, auditing and financial reporting standards,
corporate governance practices and requirements comparable to those applicable to domestic
companies. Therefore, financial information about foreign companies may be incomplete, or may not
be comparable to the information available on U.S. companies. Income from foreign securities owned
by the Funds may be reduced by a withholding tax at the source, which tax would reduce dividend
income payable to the Funds shareholders.
- 16 -
There is generally less government supervision and regulation of securities exchanges,
brokers, dealers, and listed companies in foreign countries than in the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. Foreign markets may also have different clearance and settlement procedures.
If a Fund experiences settlement problems it may result in temporary periods when a portion of the
Funds assets are uninvested and could cause the Fund to miss attractive investment opportunities
or a potential liability to the Fund arising out of the Funds 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 less 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, 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. A Fund may invest in securities of companies
located in developing/emerging market countries. Developing/emerging market countries are those
countries in the world other than developed countries of the European Union, the United States of
America, Canada, Japan, Australia, New Zealand, Norway, Switzerland, Hong Kong and Singapore.
Developed countries of the European Union are Austria, Belgium, Cyprus, Czech Republic, Denmark,
Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal,
Slovakia, Slovenia, Spain, Sweden and United Kingdom.
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 value of foreign investments due to changes in currency
exchange rates, currency control regulations or currency devaluation;
iv. Inflation and rapid fluctuations in inflation rates may have negative effects on the
economies and securities markets of certain developing and emerging market countries;
v. Many of the developing and emerging 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; and
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.
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 countrys
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
- 17 -
of emerging market debt securities, both of which are generally
below investment grade, are sometimes referred to as Brady Bonds.
Foreign Exchange Transactions. A Fund that may invest in foreign currency-denominated
securities has the authority to purchase and sell foreign currency options, foreign currency
futures contracts and related options, 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 currency contracts (referred to also as forward
contracts; see also Derivatives Forward Currency Contracts). Because forward contracts are
privately negotiated transactions, there can be no assurance that a counterparty will honor its
obligations.
The Funds will incur any 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 transactions in order to complete a purchase or sale of
foreign currency denominated securities The Funds may also use foreign currency options and forward
contracts to increase or reduce exposure to a foreign currency or to shift exposure from one
foreign currency to another in a cross currency hedge. Forward contracts 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. Certain Funds may also engage in foreign exchange transactions, such as forward
contracts, for non-hedging purposes to enhance returns. Open positions in forward contracts used
for non-hedging purposes will be covered by the segregation of a sufficient amount of liquid
assets.
A Fund may purchase and sell currency futures and purchase and write currency options to
increase or decrease its exposure to different foreign currencies. A Fund also may purchase and
write currency options in connection with currency futures or forward contracts. Currency futures
contracts are similar to forward currency exchange contracts, except that they are traded on
exchanges and have standard contract sizes and delivery dates. Most currency futures contracts
call for payment or delivery in U.S. dollars. The uses and risks of currency futures are similar
to those of futures relating to securities or indices (see also Derivatives Futures Contracts).
Currency futures values can be expected to correlate with exchange rates but may not reflect other
factors that affect the value of the Funds investments.
Whether or not any hedging strategy will be successful is highly uncertain, and use of hedging
strategies may leave a Fund in a less advantageous position than if a hedge had not been
established. Moreover, it is impossible to forecast with precision the market value of portfolio
securities at the expiration of a foreign currency forward contract. Accordingly, a Fund may be
required to buy or sell additional currency on the spot market (and bear the expense of such
transaction) if Invescos or the Sub-Advisers predictions regarding the movement of foreign
currency or securities markets prove inaccurate.
Certain Funds may hold a portion of their assets in bank deposits denominated in foreign
currencies, so as to facilitate investment in foreign securities as well as protect against
currency fluctuations and the need to convert such assets into U.S. dollars (thereby also reducing
transaction costs). To the extent these monies are converted back into U.S. dollars, the value of
the assets so maintained will be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations. Foreign exchange transactions may involve some of
the risks of investments in foreign securities. For a discussion of tax considerations relating to
foreign currency transactions, see Tax Matters Tax Treatment of Portfolio Transactions Foreign
currency transactions.
Floating Rate Corporate Loans and Corporate Debt Securities of Non-U.S. Borrowers. Floating
rate loans are made to and floating rate debt securities are issued by non-U.S. borrowers. Such
loans and securities may be U.S. dollar-denominated or otherwise provide for payment in U.S.
dollars or may be denominated in foreign currencies. 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 U.S. borrowers with
significant non-U.S. dollar-denominated revenues. In some cases where the floating rate loans or
floating rate debt securities are not denominated in U.S. dollars, provisions may be made for
payments to the lenders, including the Funds, in U.S. dollars pursuant to foreign currency swaps.
- 18 -
Other Investments
Exchange-Traded Funds (ETFs). Most ETFs are registered under the Investment Company Act of
1940, as amended (the 1940 Act) as investment companies. Therefore, a Funds purchase of shares
of an ETF may be subject to the restrictions on investments in other investment companies discussed
under Other Investments Other Investment Companies. ETFs have management fees, which increase
their cost. Each Fund may invest in ETFs advised by unaffiliated advisers as well as ETFs advised
by Invesco PowerShares Capital Management LLC (PowerShares). Invesco, the Sub-Advisers and
PowerShares are affiliates of each other as they are all indirect wholly-owned subsidiaries of
Invesco Ltd.
ETFs hold portfolios of securities, commodities and/or currencies that are designed to
replicate, as closely as possible before expenses, the price and/or yield of (i) a specified market
or other index, (ii) a basket of securities, commodities or currencies, or (iii) a particular
commodity or currency. The performance results of ETFs will not replicate exactly the performance
of the pertinent index, basket, commodity or currency due to transaction and other expenses,
including fees to service providers, borne by ETFs. Furthermore, there can be no assurance that
the portfolio of securities, commodities and/or currencies purchased by an ETF will replicate a
particular index or basket or price of a commodity or currency. ETF shares are sold and redeemed
at net asset value only in large blocks called creation units and redemption units, respectively.
ETF shares also may be purchased and sold in secondary market trading on national securities
exchanges, which allows investors to purchase and sell ETF shares at their market price throughout
the day.
Investments in ETFs generally present the same primary risks as an investment in a
conventional mutual fund that has the same investment objective, strategy and policies.
Investments in ETFs further involve the same risks associated with a direct investment in the
commodity or currency, or in the types of securities, commodities and/or currencies included in the
indices or baskets the ETFs are designed to replicate. In addition, shares of an ETF may trade at
a market price that is higher or lower than their net asset value and an active trading market in
such shares may not develop or continue. Moreover, trading of an ETFs shares may be halted if the
listing exchanges 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.
Other Investment Companies. A Fund may purchase shares of other investment companies,
including ETFs. For each Fund, the 1940 Act imposes the following restrictions on investments in
other investment companies: (i) a Fund may not purchase more than 3% of the total outstanding
voting stock of another investment company; (ii) a Fund may not invest more than 5% of its total
assets in securities issued by another investment company; and (iii) a Fund may not invest more
than 10% of its total assets in securities issued by other investment companies. The 1940 Act and
related rules provide certain exemptions from these restrictions. For example, under certain
conditions, a fund may acquire an unlimited amount of shares of mutual funds that are part of the
same group of investment companies as the acquiring fund. In addition, these restrictions do not
apply to investments by the Funds in investment companies that are money market funds, including
money market funds that have Invesco or an affiliate of Invesco as an investment adviser (the
Affiliated Money Market Funds).
When a Fund purchases shares of another investment company, including an Affiliated Money
Market Fund, the Fund will indirectly bear its proportionate share of the advisory fees and other
operating expenses of such investment company and will be subject to the risks associated with the
portfolio investments of the underlying investment company.
Limited Partnerships. A limited partnership interest entitles the Fund to participate in the
investment return of the partnerships 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 partners
liability generally is limited to the amount of its commitment to the partnership.
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, the
Fund may be required to participate in legal proceedings or take possession of and manage assets
securing the issuers obligations on the defaulted securities. This could increase the Funds
operating expenses and adversely affect its net asset value. Risks in
- 19 -
defaulted securities may be
considerably higher as they are generally unsecured and subordinated to other creditors of the
issuer. Any investments by the Fund in defaulted securities will also be considered illiquid
securities subject to any applicable restrictions on investment in illiquid securities, unless
Invesco and/or the Sub-Advisers determine that such defaulted securities are liquid under
guidelines adopted by the Funds Board of Trustees (Board).
Municipal Forward Contracts. A municipal forward contract is a municipal security which is
purchased on a when-issued basis with longer-than-standard settlement dates, in some cases taking
place up to five years from the date of purchase. The buyer, in this case the Fund, will execute a
receipt evidencing the obligation to purchase the bond on the specified issue date, and must
segregate cash to meet that forward commitment.
Municipal forward contracts 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.
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 a 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.
For some Funds, the Funds Adviser, or Sub-Adviser, as applicable, may determine that an unrated
floating rate or variable rate demand obligation meets the Funds rating standards by reason of
being backed by a letter of credit or guarantee issued by a bank that meets those rating standards.
Inverse Floating Rate Obligations. The inverse floating rate obligations in which the Fund
may invest are typically created through a division of a fixed-rate municipal obligation into two
separate instruments, a short-term obligation and a long-term obligation. The interest rate on the
short-term obligation is set at periodic auctions. The interest rate on the long-term obligation
which the Fund may purchase is the rate the issuer would have paid on the fixed-income obligation,
(i) plus the difference between such fixed rate and the rate on the short term obligation, if the
short-term rate is lower than the fixed rate or (ii) minus such difference if the interest rate on
the short-term obligation is higher than the fixed rate. These securities have varying degrees of
liquidity and the market value of such securities generally will fluctuate in response to changes
in market rates of interest to a greater extent than the value of an equal principal amount of a
fixed rate security having similar credit quality, redemption provisions and maturity. These
securities tend to underperform the market for fixed rate bonds in a rising interest rate
environment, but tend to outperform the market for fixed rate bonds when interest rates decline or
remain relatively stable. Although volatile, inverse floating rate obligations typically offer the
potential for yields exceeding the yields available on fixed rate bonds with comparable credit
quality, coupon, call provisions and maturity. These securities usually permit the investor to
convert the floating rate security counterpart to a fixed rate (normally adjusted downward), and
this optional conversion feature may provide a partial hedge against rising rates if exercised at
an opportune time.
Zero Coupon and Pay-in-Kind Securities. Zero coupon securities do not pay interest or
principal until final maturity unlike debt securities that traditionally provide periodic payments
of interest (referred to as a coupon payment). Investors must wait until maturity to receive
interest and principal, which increases the interest rate and credit risks of a zero coupon
security. 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. Investors may purchase zero coupon and
pay-in-kind securities at a price below the amount payable at maturity.
- 20 -
The difference between the
purchase price and the amount paid at maturity represents original issue discount on the
security.
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 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.
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. 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. Participation notes are generally traded
over-the-counter and are subject to counterparty 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.
Investment Techniques
Forward Commitments, When-Issued and Delayed Delivery Securities. Forward commitments,
when-issued or delayed delivery basis means that delivery and payment take place in the future
after the date of the commitment to purchase or sell the securities at a pre-determined price
and/or yield. Settlement of such transactions normally occurs a month or more after the purchase
or sale commitment is made. Typically, no interest accrues to the purchaser until the security is
delivered. Forward commitments also include To Be Announced (TBA) mortgage-backed securities,
which are contracts for the purchase or sale of mortgage-backed securities to be delivered at a
future agreed upon date, whereby the specific mortgage pool numbers or the number of pools that
will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time
of the trade. A Fund may also enter into buy/sell back transactions (a form of delayed delivery
agreement). In a buy/sell back transaction, a Fund enters a trade to sell securities at one price
and simultaneously enters a trade to buy the same securities at another price for settlement at a
future date. Although a Fund generally intends to acquire or dispose of securities on a forward
commitment, when-issued or delayed delivery basis, a Fund may sell these securities or its
commitment before the settlement date if deemed advisable.
When purchasing a security on a forward commitment, when-issued or delayed delivery basis, a
Fund assumes the rights and risks of ownership of the security, including the risk of price and
yield fluctuation, and takes such fluctuations into account when determining its net asset value.
Securities purchased on a forward commitment, when-issued or delayed delivery basis are subject to
changes in value based upon the publics perception of the creditworthiness of the issuer and
changes, real or anticipated, in the level of interest rates. Accordingly, securities acquired on
such a basis may expose a Fund to risks because they may experience such fluctuations prior to
actual delivery. Purchasing securities on a forward commitment, when-issued or delayed delivery
basis may involve the additional risk that the yield available in the market when the delivery
takes place actually may be higher than that obtained in the transaction itself.
Investment in these types of securities may increase the possibility that 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. Until the settlement date, a Fund will
segregate liquid assets of a dollar value sufficient at all times to
- 21 -
make payment for the forward
commitment, when-issued or delayed delivery transactions. Such segregated liquid assets will be
marked-to-market daily, and the amount segregated will be increased if necessary to maintain
adequate coverage of the delayed delivery commitments. 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.
Borrowing. The Funds may borrow money to the extent permitted under their respective
fundamental and non-fundamental investment policies and restrictions. Such borrowings may be
utilized: (i) for temporary or emergency purposes; (ii) in anticipation of or in response to
adverse market conditions; or (iii) for cash management purposes. All borrowings are limited to an
amount not exceeding 33 1/3% of a Funds 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.
The Funds may borrow from a bank or broker-dealer. Additionally, the Funds are permitted to
temporarily carry a negative or overdrawn balance in their account with their custodian bank. To
compensate the custodian bank for such overdrafts, the Funds may either (i) leave funds as a
compensating balance in their account so the custodian bank can be compensated by earning interest
on such funds; or (ii) compensate the custodian bank by paying it an agreed upon rate. A Fund may
not purchase additional securities when any borrowings from banks or broker-dealers exceed 5% of
the Funds total assets or when any borrowings from a Fund are outstanding.
Lending Portfolio Securities. A Fund may lend its portfolio securities (principally to
broker-dealers) to generate additional income. Such loans are callable at any time and are
continuously secured by segregated collateral equal to no less than the market value, determined
daily, of the loaned securities. Such collateral will be cash, letters of credit, or debt
securities issued or guaranteed by the U.S. Government or any of its agencies. A Fund will loan
its securities only to parties that Invesco has determined are in good standing and when, in
Invescos judgment, the income earned would justify the risks.
A Fund will not have the right to vote securities while they are on loan, but it can call a
loan in anticipation of an important vote. The Fund would receive income in lieu of dividends on
loaned securities and may, at the same time, generate income on the loan collateral or on the
investment of any cash collateral.
If the borrower defaults on its obligation to return the securities loaned because of
insolvency or other reasons, the 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
Funds investment guidelines, in short-term money market instruments or 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 Tax
Matters Tax Treatment of Portfolio Transactions Securities lending.
Repurchase Agreements. A Fund may engage in repurchase agreement transactions involving the
types of securities in which it is permitted to invest. Repurchase agreements are agreements under
which a Fund acquires ownership of a security from a broker-dealer or bank that agrees to
repurchase the security at a mutually agreed upon time and price (which is higher than the purchase
price), thereby determining the yield during a Funds 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
- 22 -
interest rate is negotiated on a daily basis. Repurchase agreements may be viewed as loans made by
a Fund which are collateralized by the securities subject to repurchase.
If the seller of a repurchase agreement fails to repurchase the security in accordance with
the terms of the agreement, a Fund might incur expenses in enforcing its rights, and could
experience a loss on the sale of the underlying security to the extent that the proceeds of the
sale including accrued interest are less than the resale price provided in the agreement, including
interest. In addition, although the Bankruptcy Code and other insolvency laws may provide certain
protections for some types of repurchase agreements, if the seller of a repurchase agreement should
be involved in bankruptcy or insolvency proceedings, a Fund may incur delay and costs in selling
the underlying security or may suffer a loss of principal and interest if the value of the
underlying security declines. The securities underlying a repurchase agreement will be
marked-to-market every business day so that the value of such securities is at least equal to the
investment value of the repurchase agreement, including any accrued interest thereon.
The Funds may invest their cash balances in joint accounts with other Funds for the purpose of
investing in repurchase agreements with maturities not to exceed 60 days, and in certain other
money market instruments with remaining maturities not to exceed 90 days. Repurchase agreements
are considered loans by a Fund under the 1940 Act.
Restricted and Illiquid Securities. Illiquid securities are securities that cannot be
disposed of within seven days in the normal course of business at the price at which they are
valued. Illiquid securities may include a wide variety of investments, such as: (1) repurchase
agreements maturing in more than seven days (unless the agreements have demand/redemption
features); (2) over-the-counter (OTC) options contracts and certain other derivatives (including
certain swap agreements); (3) fixed time deposits that are not subject to prepayment or that
provide for withdrawal penalties upon prepayment (other than overnight deposits); (4) loan
interests and other direct debt instruments; (5) municipal lease obligations; (6) commercial paper
issued pursuant to Section 4(2) of the 1933 Act; and (7) securities that are unregistered, that can
be sold to qualified institutional buyers in accordance with Rule 144A under the 1933 Act, or that
are exempt from registration under the 1933 Act or otherwise restricted under the federal
securities laws.
Limitations on the resale of restricted securities may have an adverse effect on their
marketability, which may prevent a Fund from disposing of them promptly at reasonable prices. The
Fund may have to bear the expense of registering such securities for resale, and the risk of
substantial delays in effecting such registrations. A Funds difficulty valuing and selling
illiquid securities may result in a loss or be costly to the Fund.
If a substantial market develops for a restricted security or other illiquid investment held
by a Fund, it may be treated as a liquid security, in accordance with procedures and guidelines
approved by the Board. While Invesco monitors the liquidity of restricted securities on a daily
basis, the Board oversees and retains ultimate responsibility for Invescos liquidity
determinations. Invesco considers various factors when determining whether a security is liquid,
including the frequency of trades, availability of quotations and number of dealers or qualified
institutional buyers in the market.
Reverse Repurchase Agreements. Reverse repurchase agreements are agreements that involve the
sale of securities held by a Fund to financial institutions such as banks and broker-dealers, with
an agreement that the Fund will repurchase the securities at an agreed upon price and date. During
the reverse repurchase agreement period, the Fund continues to receive interest and principal
payments on the securities sold. A Fund may employ reverse repurchase agreements (i) for temporary
emergency purposes; (ii) to cover short-term cash requirements resulting from the timing of trade
settlements; or (iii) to take advantage of market situations where the interest income to be earned
from the investment of the proceeds of the transaction is greater than the interest expense of the
transaction.
Reverse repurchase agreements involve the risk that the market value of securities to be
purchased by the Fund may decline below the price at which the Fund is obligated to repurchase the
securities, or that the other party may default on its obligation, so that the Fund is delayed or
prevented from completing the transaction. At the time the Fund enters into a reverse repurchase
agreement, it will segregate, and maintain, liquid assets having a dollar value equal to the
repurchase price. In the event the buyer of securities under a reverse repurchase agreement files
for bankruptcy or becomes insolvent, a Funds use of the proceeds from the sale of the securities
may be restricted
- 23 -
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Funds obligation to repurchase the securities. Reverse repurchase agreements are
considered borrowings by a Fund under the 1940 Act.
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 Funds 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 commitments depend
upon the issuers 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.
Derivatives
The following discussion regarding derivatives is qualified by each Funds investment policies
and restrictions discussed in the Investment Policies and Restrictions section of this SAI and in
Appendix C to this SAI, Strategic Transactions; Options and Futures. A derivative is a financial
instrument whose value is dependent upon the value of other assets, rates or indices, referred to
as an underlying reference. These underlying references may include commodities, stocks, bonds,
interest rates, currency exchange rates or related indices. Derivatives include swaps, options,
warrants, futures and forward currency contracts. Some derivatives, such as futures and certain
options, are traded on U.S. commodity or securities exchanges, while other derivatives, such as
swap agreements, are privately negotiated and entered into in the OTC market.
Derivatives may be used for hedging, which means that they may be used when the portfolio
manager seeks to protect the Funds investments from a decline in value, which could result from
changes in interest rates, market prices, currency fluctuations and other market factors.
Derivatives may also be used when the portfolio manager seeks to increase liquidity, implement a
tax or cash management strategy, invest in a particular stock, bond or segment of the market in a
more efficient or less expensive way, modify the characteristics of the Funds portfolio
investments, for example, duration, and/or to enhance return. However derivatives are used, their
successful use is not assured and will depend upon the portfolio managers ability to predict and
understand relevant market movements.
Because certain derivatives involve leverage, that is, the amount invested may be smaller than
the full economic exposure of the derivative instrument and the Fund could lose more than it
invested, federal securities laws, regulations and guidance may require the Fund to earmark assets
to reduce the risks associated with derivatives or to otherwise hold instruments that offset the
Funds obligations under the derivatives instrument. This process is known as cover. A Fund
will not enter into any derivative transaction unless it can comply with SEC guidance regarding
cover, and, if SEC guidance so requires, a Fund will earmark cash or liquid assets with a value
sufficient to cover its obligations under a derivative transaction or otherwise cover the
transaction in accordance with applicable SEC guidance. If a large portion of a Funds assets is
used for cover, it could affect portfolio management or the Funds ability to meet current
obligations. The leverage involved in certain derivative transactions may result in a Funds net
asset value being more sensitive to changes in the value of the related investment.
General risks associated with derivatives:
The use by the Funds of derivatives may involve certain risks, as described below.
Counterparty Risk: OTC derivatives are generally governed by a single master agreement for
each counterparty. Counterparty risk refers to the risk that the counterparty under the agreement
will not live up to its obligations. An agreement may not contemplate delivery of collateral to
support fully a counterpartys contractual obligation; therefore, a Fund might need to rely on
contractual remedies to satisfy the counterpartys full obligation. As with any contractual
remedy, there is no guarantee that a Fund will be successful in pursuing such remedies,
particularly in the event of the counterpartys bankruptcy. The agreement may allow for netting of
the
- 24 -
counterpartys obligations on specific transactions, in which case a Funds obligation or right
will be the net amount owed to or by the counterparty. The Fund will not enter into a derivative
transaction with any counterparty that Invesco and/or the Sub-Advisers believe does not have the
financial resources to honor its obligations under the transaction. Invesco monitors the financial
stability of counterparties. Where the obligations of the counterparty are guaranteed, Invesco
monitors the financial stability of the guarantor instead of the counterparty.
A Fund will not enter into a transaction with any single counterparty if the net amount owed
or to be received under existing transactions under the agreements with that counterparty would
exceed 5% of the Funds net assets determined on the date the transaction is entered into.
Leverage Risk: Leverage exists when a Fund can lose more than it originally invests because
it purchases or sells an instrument or enters into a transaction without investing an amount equal
to the full economic exposure of the instrument or transaction. A Fund mitigates leverage by
segregating or earmarking assets or otherwise covers transactions that may give rise to leverage.
Liquidity Risk: The risk that a particular derivative is difficult to sell or liquidate. If
a derivative transaction is particularly large or if the relevant market is illiquid, it may not be
possible to initiate a transaction or liquidate a position at an advantageous time or price, which
may result in significant losses to 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.
Regulatory Risk: The risk that a change in laws or regulations will materially impact a
security or market.
Tax Risks: For a discussion of the tax considerations relating to derivative transactions,
see 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 Invescos 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.
Types of derivatives:
Swap Agreements. Generally, swap agreements are contracts between a Fund and a brokerage
firm, bank, or other financial institution (the counterparty) for periods ranging from a few days
to multiple years. In a basic swap transaction, the Fund agrees with its counterparty to exchange
the returns (or differentials in returns) earned or realized on a particular asset such as an
equity or debt security, commodity, currency or interest rate, calculated with respect to a
notional amount. The notional amount is the set amount selected by the parties to use as the
basis on which to calculate the obligations that the parties to a swap agreement have agreed to
exchange. The parties typically do not exchange the notional amount. Instead, they agree to
exchange the returns that would be earned or
- 25 -
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. 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.
Numerous proposals have been made by various regulatory entities and rulemaking bodies to
regulate the OTC derivatives markets, including, specifically, credit default swaps. The Fund
cannot predict the outcome or final form of any of these proposals or if or when any of them would
become effective. However, any additional regulation or limitation on the OTC markets for
derivatives could materially and adversely impact the ability of the Fund to buy or sell OTC
derivatives, including credit default swaps.
Commonly used swap agreements include:
Credit Default Swaps (CDS). 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,
sovereign debt securities or municipal 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 (CDX). A CDX is an index of CDS. CDX allow an investor to manage
credit risk or to take a position on a basket of credit entities (such as CDS or commercial
mortgage-backed securities (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 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.
Currency Swap. An agreement between two parties pursuant to which the parties exchange a U.S.
dollar-denominated payment for a payment denominated in a different currency.
- 26 -
Interest Rate Swap. An agreement between two parties pursuant to which the parties exchange a
floating rate payment for a fixed rate payment based on a specified principal or notional amount.
In other words, Party A agrees to pay Party B a fixed interest rate and in return Party B agrees to
pay Party A a variable interest rate.
Total Return Swap. An agreement in which one party makes payments based on a set rate, either
fixed or variable, while the other party makes payments based on the return of an underlying asset,
which includes both the income it generates and any capital gains.
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.
Interest Rate Locks. An interest rate lock is a hedging agreement in which the parties lock
in an interest rate at a future maturity date. A cash settlement payment on that date that
reflects changes in agreed upon interest rates. This settlement payment is designed to offset
changes in the cost of borrowing for the hedged bond transaction. An interest rate lock may be
terminated prior to its stated maturity date by calculating the payment due as of the termination
date.
Options. An option is a contract that gives the purchaser of the option, in return for the
premium paid, the right to buy from (in the case of a call) or sell to (in the case of a put) the
writer of the option at the exercise price during the term of the option (for American style
options or on a specified date for European style options), the security, currency or other
instrument underlying the option (or in the case of an index option the cash value of the index).
Options on a CDS or a Futures Contract (defined below) give the purchaser the right to enter into a
CDS or assume a position in a Futures Contract.
The Funds may engage in certain strategies involving options to attempt to manage the risk of
their investments or, in certain circumstances, for investment (i.e., as a substitute for investing
in securities). Option transactions present the possibility of large amounts of exposure (or
leverage), which may result in a Funds 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.
A Fund may effectively terminate its right or obligation under an option by entering into an
offsetting closing transaction. For example, a Fund may terminate its obligation under a call or
put option that it had written by purchasing an identical call or put option, which is known as a
closing purchase transaction. Conversely, a Fund may terminate a position in a put or call option
it had purchased by writing an identical put or call option, which is known as a closing sale
transaction. Closing transactions permit a Fund to realize profits or limit losses on an option
position prior to its exercise or expiration.
Options may be either listed on an exchange or traded in OTC markets. Listed options are
tri-party contracts (i.e., performance of the obligations of the purchaser and seller are
guaranteed by the exchange or clearing corporation) and have standardized strike prices and
expiration dates. OTC options are two-party contracts with negotiated strike prices and expiration
dates and differ from exchange-traded options in that OTC options are transacted with dealers
directly and not through a clearing corporation (which guarantees performance). In the case of OTC
options, there can be no assurance that a liquid secondary market will exist for any particular
option at any specific time; therefore the Fund may be required to treat some or all OTC options as
illiquid securities. Although a Fund will enter into OTC options only with dealers that are
expected to be capable of entering into closing transactions with it , there is no assurance that
the Fund will in fact be able to close out an OTC option position at a favorable price prior to
exercise or expiration. In the event of insolvency of the dealer, a Fund might be unable to close
out an OTC option position at any time prior to its expiration.
- 27 -
Types of Options:
Put Options on Securities. A put option gives the purchaser the right to sell, to the writer,
the underlying security, contract or foreign currency at the stated exercise price at any time
prior to the expiration date of the option for American style options or on a specified date for
European style options, regardless of the market price or exchange rate of the security, contract
or foreign currency, as the case may be, at the time of exercise. If the purchaser exercises the
put option, the writer of a put option is obligated to buy the underlying security, contract or
foreign currency for the exercise price.
Call Options on Securities. A call option gives the purchaser the right to buy, from the
writer, the underlying security, contract or foreign currency at the stated exercise price at any
time prior to the expiration of the option (for American style options) or on a specified date (for
European style options), regardless of the market price or exchange rate of the security, contract
or foreign currency, as the case may be, at the time of exercise. If the purchaser exercises the
call option, the writer of a call option is obligated to sell to and deliver the underlying
security, contract or foreign currency to the purchaser of the call option for the exercise price.
Index Options. Index options (or options on securities indices) give the holder the right to
receive, upon exercise, cash instead of securities, if the closing level of the securities index
upon which the option is based is greater than, in the case of a call, or less than, in the case of
a put, the exercise price of the option. The amount of cash is equal to the difference between the
closing price of the index and the exercise price of the call or put times a specified multiple
(the multiplier), which determines the total dollar value for each point of such difference.
The risks of investment in index options may be greater than options on securities. Because
index options are settled in cash, when a Fund writes a call on an index it cannot provide in
advance for its potential settlement obligations by acquiring and holding the underlying
securities. A Fund can offset some of the risk of writing a call index option by holding a
diversified portfolio of securities similar to those on which the underlying index is based.
However, the Fund cannot, as a practical matter, acquire and hold a portfolio containing exactly
the same securities that underlie the index and, as a result, bears the risk that the value of the
securities held will not be perfectly correlated with the value of the index.
CDS Option. A CDS option transaction gives the holder the right to enter into a CDS at a
specified future date and under specified terms in exchange for a 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.
Options on Futures Contracts. Options on Futures Contracts give the holder the right to
assume a position in a Futures Contract (to buy the Futures Contract if the option is a call and to
sell the Futures Contract if the option is a put) at a specified exercise price at any time during
the period of the option.
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.
Option Techniques:
Writing Options. A Fund may write options to generate additional income and to seek to hedge
its portfolio against market or exchange rate movements. As the writer of an option, the Fund may
have no control over when the underlying instruments must be sold (in the case of a call option) or
purchased (in the case of a put option) because the option purchaser may notify the Fund of
exercise at any time prior to the expiration of the option (for American style options). In
general, options are rarely exercised prior to expiration. Whether or not an option expires
unexercised, the writer retains the amount of the premium.
- 28 -
A Fund would write a put option at an exercise price that, reduced by the premium
received on the option, reflects the price it is willing to pay for the underlying security,
contract or currency. In return for the premium received for writing a put option, the Fund
assumes the risk that the price of the underlying security, contract, or foreign currency will
decline below the exercise price, in which case the put would be exercised and the Fund would
suffer a loss.
In return for the premium received for writing a call option on a security the Fund holds, the
Fund foregoes the opportunity for profit from a price increase in the underlying security,
contract, or foreign currency above the exercise price so long as the option remains open, but
retains the risk of loss should the price of the security, contract, or foreign currency decline.
If an option that a Fund has written expires, the Fund will realize a gain in the amount of
the premium; however, such gain may be offset by a decline in the market value of the underlying
security, contract or currency, held by the Fund during the option period. If a call option is
exercised, a Fund will realize a gain or loss from the sale of the underlying security, contract or
currency, which will be increased or offset by the premium received. The obligation imposed upon
the writer of an option is terminated upon the expiration of the option, or such earlier time at
which a Fund effects a closing purchase transaction by purchasing an option (put or call as the
case may be) identical to that previously sold.
Purchasing Options. A Fund may only purchase a put option on an underlying security, contract
or currency owned by the Fund in order to protect against an anticipated decline in the value of
the security, contract or currency held by the Fund; or purchase put options on underlying
securities, contracts or currencies against which it has written other put options. The premium
paid for the put option and any transaction costs would reduce any profit realized when the
security, contract or currency is delivered upon the exercise of the put option. Conversely, if
the underlying security, contract or currency does not decline in value, the option may expire
worthless and the premium paid for the protective put would be lost.
A Fund may purchase a call option for the purpose of acquiring the underlying security,
contract or currency for its portfolio, or on underlying securities, contracts or currencies
against which it has written other call options. The Fund is not required to own the underlying
security in order to purchase a call option. If the Fund does not own the underlying position, the
purchase of a call option would enable a Fund to acquire the security, contract or currency at the
exercise price of the call option plus the premium paid. So long as it holds a call option, rather
than the underlying security, contract or currency itself, the Fund is partially protected from any
unexpected increase in the market price of the underlying security, contract or currency. If the
market price does not exceed the exercise price, the Fund could purchase the security on the open
market and could allow the call option to expire, incurring a loss only to the extent of the
premium paid for the option.
Straddles/Spreads/Collars.
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 Funds
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 Funds right to sell the security is typically set at a
price that is below the counterpartys right to buy the security. Thus, the combined position
collars the performance of the underlying security, providing protection from
- 29 -
depreciation below
the price specified in the put option, and allowing for participation in any appreciation up to the
price specified by the call option.
Warrants. A warrant gives the holder the right to purchase securities from the issuer at a
specific price within a certain time frame and is similar to a call option. The main difference
between warrants and call options is that warrants are issued by the company that will issue the
underlying security, whereas options are not issued by the company. Young, unseasoned companies
often issue warrants to finance their operations.
Rights. Rights are equity securities representing a preemptive right of stockholders to
purchase additional shares of a stock at the time of a new issuance, before the stock is offered to
the general public. A stockholder who purchases rights may be able to retain the same ownership
percentage after the new stock offering. A right usually enables the stockholder to purchase
common stock at a price below the initial offering price. A Fund that purchases a right takes the
risk that the right might expire worthless because the market value of the common stock falls below
the price fixed by the right.
Futures Contracts. A Futures Contract is a two-party agreement to buy or sell a specified
amount of a specified security or currency (or delivery of a cash settlement price, in the case of
certain futures such as an index future or Eurodollar Future) for a specified price at a designated
date, time and place (collectively, Futures Contracts). A sale of a Futures Contract means the
acquisition of a contractual obligation to deliver the underlying instrument or asset called for by
the contract at a specified price on a specified date. A purchase of a Futures Contract means
the acquisition of a contractual obligation to acquire the underlying instrument or asset called
for by the contract at a specified price on a specified date.
The Funds will only enter into Futures Contracts that are traded (either domestically or
internationally) on futures exchanges and are standardized as to maturity date and underlying
financial instrument. Futures exchanges and trading thereon in the United States are regulated
under the Commodity Exchange Act and by the Commodity Futures Trading Commission (CFTC). Foreign
futures exchanges and trading thereon are not regulated by the CFTC and are not subject to the same
regulatory controls. Each Fund has claimed an exclusion from the definition of the term commodity
pool operator under the Commodity Exchange Act and, therefore, is not subject to registration or
regulation as a pool operator under the act.
However, in February 2012, the Commodity Futures Trading Commission (CFTC) announced
regulatory amendments to the provisions that permitted the Funds to claim an exclusion from the
definition of commodity pool operator. As amended, the CFTC rules would subject a registered
investment companys investment adviser to regulation by the CFTC if the registered investment
companys investments in commodity futures, commodity options, or swaps exceed prescribed limits,
or if the registered investment company markets itself as trading in or otherwise providing
investment exposure to commodity interests or swaps markets. Upon the effectiveness of these
regulatory amendments, an investment adviser to a Fund that invests in commodity futures, commodity
options or swaps may become subject to CFTC regulation and may be required to comply with
disclosure and operations requirements of CFTC and self-regulatory organization regulations.
Compliance with these additional requirements would likely result in increased Fund expenses.
Alternatively, a Fund may need to revise its investment strategies with respect to its investments
in commodity futures, commodity options, or swaps in order to avoid being subject to CFTC
regulation, which could deprive the Fund of the investment benefits that the use of commodity
interests and related instruments may provide.
Brokerage fees are incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times when a Futures Contract is outstanding. Margin for a Futures
Contracts is the amount of funds that must be deposited by a Fund in order to initiate Futures
Contracts trading and maintain its open positions in Futures Contracts. A margin deposit made when
the Futures Contract is entered (initial margin) is intended to ensure the Funds performance
under the Futures Contract. The margin required for a particular Futures Contract is set by the
exchange on which the Futures Contract is traded and may be significantly modified from time to
time by the exchange during the term of the Futures Contract.
Subsequent payments, called variation margin, received from or paid to the futures
commission merchant through which a Fund enters into the Futures Contract will be made on a daily
basis as the futures price fluctuates making the Futures Contract more or less valuable, a process
known as marking-to-market. When the Futures
- 30 -
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 futures commission merchant
along with any amount in excess of the margin amount; if the Fund has a loss of less than the
margin amount, the difference is returned to the Fund; or if the Fund has a gain, the margin amount
is paid to the Fund and the futures commission merchant pays the Fund any excess gain over the
margin amount.
Closing out an open Futures Contract is affected by entering into an offsetting Futures
Contract for the same aggregate amount of the identical financial instrument or currency and the
same delivery date. There can be no assurance, however, that a Fund will be able to enter into an
offsetting transaction with respect to a particular Futures Contract at a particular time. If a
Fund is not able to enter into an offsetting transaction, it will continue to be required to
maintain the margin deposits on the Futures Contract.
In addition, if a Fund were unable to liquidate a Futures Contract or an option on a Futures
Contract position due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Fund would continue to be subject to market risk
with respect to the position. In addition, except in the case of purchased options, the Fund would
continue to be required to make daily variation margin payments.
Types of Futures Contracts:
Currency Futures. A currency Futures Contract is a standardized, exchange-traded contract to
buy or sell a particular currency at a specified price at a future date (commonly three months or
more). Currency Futures Contracts may be highly volatile and thus result in substantial gains or
losses to the Fund.
Index Futures. A stock index Futures Contract is an exchange-traded contract that provides
for the delivery, at a designated date, time and place, of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of trading on the
date specified in the contract and the price agreed upon in the Futures Contract; no physical
delivery of stocks comprising the index is made.
Interest Rate Futures. An interest-rate Futures Contract is an exchange-traded contact in
which the specified underlying security is either an interest-bearing fixed income security or an
inter-bank deposit. Two examples of common interest rate Futures Contracts are U.S. Treasury
futures and Eurodollar Futures Contracts. The specified security for U.S. Treasury futures is a
U.S. Treasury security. The specified security for Eurodollar futures is the London Interbank
Offered Rate (LIBOR) which is a daily reference rate based on the interest rates at which banks
offer to lend unsecured funds to other banks in the London wholesale money market.
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.
Forward Currency Contracts. A forward currency contract is an over-the-counter contract
between two parties to buy or sell a particular currency at a specified price at a future date.
The parties may exchange currency at the maturity of the forward currency contract, or if the
parties agree prior to maturity, enter into a closing transaction involving the purchase or sale of
an offsetting amount of currency. Forward currency contracts are traded over-the-counter, and not
on organized commodities or securities exchanges.
A Fund may enter into forward currency contracts with respect to a specific purchase or sale
of a security, or with respect to its portfolio positions generally.
The cost to a Fund of engaging in forward currency contracts varies with factors such as the
currencies involved, the length of the contract period, interest rate differentials and the
prevailing market conditions. Because forward currency contracts are usually entered into on a
principal basis, no fees or commissions are involved. The use of forward currency contracts does
not eliminate fluctuations in the prices of the underlying securities a Fund owns or intends to
acquire, but it does establish a rate of exchange in advance. While forward 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.
- 31 -
Investment Policies and Restrictions
Each Fund is subject to the following restrictions that are fundamental, which means that
they may not be changed without shareholder approval, as provided under the 1940 Act. This section
describes such investment restrictions and policies for each Fund. Capitalized terms not otherwise
defined herein are used as defined in the Funds original prospectus, as amended. References in a
Funds fundamental policies and restrictions to the Prospectus or above sections should be read
as references to the Funds original prospectus, as amended.
Invesco Value Municipal Income Trust (IIM)
For purposes of the restrictions: (a) an issuer of a security is the entity whose assets and
revenues are committed to the payment of interest and principal on that particular security; (b) a
taxable security is any security the interest on which is subject to federal income tax (which
does not include private activity bonds subject to the alternative minimum tax discussed under
Tax Matters Taxation of Fund Distributions (Tax-Free Funds) Alternative minimum tax private
activity bonds.); and (c) all percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total or net assets does not require elimination of
any security from the portfolio.
The Fund may not:
1. |
|
As to 75% of its total assets, invest more than 5% of the value of its total assets in the
securities of any one issuer. This limitation shall not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or to the investment of
25% of the Funds total assets. |
|
2. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the United States Government, its agencies or instrumentalities. In
addition, the Fund reserves the right to invest 25% or more of its assets in any of the
following types of Municipal Obligations, provided that the percentage of the Funds total
assets in private activity bonds in any one category does not exceed 25% of the Funds total
assets: health facility obligations, housing obligations, single family mortgage revenue
bonds, industrial revenue obligations (including pollution control obligations), electric
utility obligations, airport facility revenue obligations, water and sewer obligations,
university and college revenue obligations, bridge authority and toll road obligations and
resource recovery obligations. |
|
3. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from
purchasing, holding and selling real estate acquired as a result of the ownership of such
securities. |
|
4. |
|
Purchase or sell physical commodities unless acquired as a result of ownership of securities
or other instruments; provided that this restriction shall not prohibit the Fund from
purchasing or selling options, futures contracts and related options thereon, forward
contracts, swaps, caps, floors, collars and any other financial instruments or from investing
in securities or other instruments backed by physical commodities or as otherwise permitted by
(i) the Investment Company Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the Investment Company Act, as amended from time to time, or
(iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
|
5. |
|
Borrow money, except that the Fund may borrow money to the extent permitted by (i) the
Investment Company Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the Investment Company Act, as amended from time to time, or
(iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
|
6. |
|
Issue senior securities, except the Fund may issue senior securities to the extent permitted
by (i) the Investment Company Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the |
- 32 -
|
|
Investment Company Act, as amended from time to
time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
7. |
|
Make loans of money or property to any person, except (a) to the extent that securities or
interests in which the Fund may invest are considered to be loans, (b) through the loan of
portfolio securities, (c) by engaging in repurchase agreements or (d) as may otherwise be
permitted by (i) the Investment Company Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the Investment Company Act, as amended from time to
time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
|
8. |
|
Engage in the underwriting of securities, except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
|
9. |
|
Invest in a manner inconsistent with its classification as a diversified company as
provided by (i) the Investment Company Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the Investment Company Act, as amended from time to
time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
Invesco Value Municipal Bond Trust (IMC)
For purposes of the restrictions: (a) an issuer of a security is the entity whose assets and
revenues are committed to the payment of interest and principal on that particular security; (b) a
taxable security is any security the interest on which is subject to federal income tax (which
does not include private activity bonds subject to the alternative minimum tax discussed under
Tax Matters Taxation of Fund Distributions (Tax-Free Funds) Alternative minimum tax private
activity bonds.); and (c) all percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total or net assets does not require elimination of
any security from the portfolio.
The Fund may not:
1. |
|
Invest more than 5% of the value of its total assets in the securities of any one issuer.
This limitation shall not apply to obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities or to the investment of 25% of the Funds total assets. |
|
2. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the United States Government, its agencies or instrumentalities. In
addition, the Fund reserves the right to invest 25% or more of its assets in any of the
following types of Municipal Obligations, provided that the percentage of the Funds total
assets in private activity bonds in any one category does not exceed 25% of the Funds total
assets: health facility obligations, housing obligations, single family mortgage revenue
bonds, industrial revenue obligations (including pollution control obligations), electric
utility obligations, airport facility revenue obligations, water and sewer obligations,
university and college revenue obligations, bridge authority and toll road obligations and
resource recovery obligations. |
|
3. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from purchasing,
holding and selling real estate acquired as a result of the ownership of such securities. |
|
4. |
|
Purchase or sell physical commodities unless acquired as a result of ownership of securities
or other instruments; provided that this restriction shall not prohibit the Fund from
purchasing or selling options, futures contracts and related options thereon, forward
contracts, swaps, caps, floors, collars and any other financial instruments or from investing
in securities or other instruments backed by physical commodities or as otherwise permitted by
(i) the Investment Company Act, as amended from time to time, (ii) the rules and |
- 33 -
|
|
regulations promulgated by the SEC under the Investment Company Act, as amended from time to time, or
(iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
5. |
|
Borrow money, except that the Fund may borrow money to the extent permitted by (i) the
Investment Company Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the Investment Company Act, as amended from time to time, or
(iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
|
6. |
|
Issue senior securities, except the Fund may issue senior securities to the extent permitted
by (i) the Investment Company Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the Investment Company Act, as amended from time to
time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
|
7. |
|
Make loans of money or property to any person, except (a) to the extent that securities or
interests in which the Fund may invest are considered to be loans, (b) through the loan of
portfolio securities, (c) by engaging in repurchase agreements or (d) as may otherwise be
permitted by (i) the Investment Company Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the Investment Company Act, as amended from time to
time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
|
8. |
|
Engage in the underwriting of securities, except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
|
9. |
|
Invest in a manner inconsistent with its classification as a diversified company as
provided by (i) the Investment Company Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the Investment Company Act, as amended from time to
time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
Invesco Value Municipal Securities (IMS)
For purposes of the restrictions: (a) an issuer of a security is the entity whose assets and
revenues are committed to the payment of interest and principal on that particular security; (b) a
taxable security is any security the interest on which is subject to federal income tax (which
does not include private activity bonds subject to the alternative minimum tax discussed under
Tax Matters Taxation of Fund Distributions (Tax-Free Funds) Alternative minimum tax private
activity bonds.); and (c) all percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total or net assets does not require elimination of
any security from the portfolio.
The Fund may not:
1. |
|
Invest in a manner inconsistent with its classification as a diversified company as
provided by (i) the Investment Company Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the Investment Company Act, as amended from time to
time, or (iii) an exemption order relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
|
2. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the United States Government, its agencies or instrumentalities. In
addition, the Fund reserves the right to invest 25% or more of its assets in any of the
following types of Municipal Obligations, provided that the percentage of the Funds total
assets in private activity bonds in any one category does not exceed 25% of the Funds total
assets: health facility obligations, housing obligations, single family mortgage revenue
bonds, industrial revenue obligations (including pollution control obligations), electric
utility obligations, airport facility revenue obligations, water |
- 34 -
|
|
and sewer obligations,
university and college revenue obligations, bridge authority and toll road obligations and
resource recovery obligations. |
3. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from purchasing,
holding and selling real estate acquired as a result of the ownership of such securities. |
|
4. |
|
Purchase or sell physical commodities unless acquired as a result of ownership of securities
or other instruments; provided that this restriction shall not prohibit the Fund from
purchasing or selling options, futures contracts and related options thereon, forward
contracts, swaps, caps, floors, collars and any other financial instruments or from investing
in securities or other instruments backed by physical commodities or as otherwise permitted by
(i) the Investment Company Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the Investment Company Act, as amended from time to time, or
(iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
|
5. |
|
Borrow money, except the Fund may borrow money to the extent permitted by (i) the Investment
Company Act, as amended from time to time, (ii) the rules and regulation promulgated by the
SEC under the Investment Company Act, as amended from time to time, or (iii) an exemption or
other relief applicable to the Fund from the provisions of the Investment Company Act, as
amended from time to time. |
|
6. |
|
Issue senior securities, except the Fund may issue senior securities to the extent permitted
by (i) the Investment Company Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the Investment Company Act, as amended from time to
time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
|
7. |
|
Make loans of money or property to any person, except (a) to the extent that securities or
interests in which the Fund may invest are considered to be loans, (b) through the loan of
portfolio securities, (c) by engaging in repurchase agreements or (d) as may otherwise be
permitted by (i) the Investment Company Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the Investment Company Act, as amended from time to
time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the
Investment Company Act, as amended from time to time. |
|
8. |
|
Engage in the underwriting of securities, except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
Invesco Value Municipal Trust (IMT)
For purposes of the restrictions: (a) an issuer of a security is the entity whose assets and
revenues are committed to the payment of interest and principal on that particular security; (b) a
taxable security is any security the interest on which is subject to federal income tax (which
does not include private activity bonds subject to the alternative minimum tax discussed under
Tax Matters Taxation of Fund Distributions (Tax-Free Funds) Alternative minimum tax private
activity bonds.); and (c) all percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total or net assets does not require elimination of
any security from the portfolio.
The Fund may not:
1. |
|
Invest in a manner inconsistent with its classification as a diversified company as
provided by (i) the Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the Act, as amended from time to time, or (iii) an exemption or
other relief applicable to the Fund from the provisions of the Act, as amended from time to
time. |
2. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or |
- 35 -
|
|
political subdivisions of governments, and obligations
issued or guaranteed by the United States Government, its agencies or instrumentalities. In
addition, the Fund reserves the right to invest 25% or more of its assets in any of the
following types of Municipal Obligations, provided that the percentage of the Funds total
assets in private activity bonds in any one category does not exceed 25% of the Funds total
assets: health facility obligations, housing obligations, single family mortgage revenue
bonds, industrial revenue obligations (including pollution control obligations), electric
utility obligations, airport facility revenue obligations, water and sewer obligations,
university and college revenue obligations, bridge authority and toll road obligations and
resource recovery obligations. |
3. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from
purchasing, holding and selling real estate acquired as a result of the ownership of such
securities. |
|
4. |
|
Purchase or sell physical commodities unless acquired as a result of ownership of securities
or other instruments; provided that this restriction shall not prohibit the Fund from
purchasing or selling options, futures contracts and related options thereon, forward
contracts, swaps, caps, floors, collars and any other financial instruments or from investing
in securities or other instruments backed by physical commodities or as otherwise permitted by
(i) the Act, as amended from time to time, (ii) the rules and regulations promulgated by the
SEC under the Act, as amended from time to time, or (iii) an exemption or other relief
applicable to the Fund from the provisions of the Act, as amended from time to time. |
|
5. |
|
Borrow money, except the Fund may borrow money to the extent permitted by (i) the Investment
Company Act, as amended from time to time, (ii) the rules and regulations promulgated by the
SEC under the Act, as amended from time to time, or (iii) an exemption or other relief
applicable to the Fund from the provisions of the Act, as amended from time to time. |
|
6. |
|
Issue senior securities, except the Fund may issue senior securities to the extent permitted
by (i) the Act, as amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the Act, as amended from time to time, or (iii) an exemption or other relief
applicable to the Fund from the provisions of the Act, as amended from time to time. |
|
7. |
|
Make loans of money or property to any person, except (a) to the extent that securities or
interests in which the Fund may invest are considered to be loans, (b) through the loan of
portfolio securities, (c) by engaging in repurchase agreements or (d) as may otherwise be
permitted by (i) the Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the Act, as amended from time to time, or (iii) an exemption or
other relief applicable to the Fund from the provisions of the Act, as amended from time to
time. |
|
8. |
|
Engage in the underwriting of securities, except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
Invesco Municipal Income Opportunities Trust (OIA)
For purposes of the restrictions: (a) an issuer of a security is the entity whose assets and
revenues are committed to the payment of interest and principal on that particular security,
provided that the guarantee of a security will be considered a separate security; (b) a taxable
security is any security the interest on which is subject to federal income tax (which does not
include private activity bonds subject to the alternative minimum tax discussed under Tax
Matters Taxation of Fund Distributions (Tax-Free Funds) Alternative minimum tax private
activity bonds.); and (c) all percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total or net assets does not require elimination of
any security from the portfolio.
The Fund may not:
1. |
|
Invest more than 5% of the value of its total assets in the securities of any one issuer,
except that this limitation shall not apply to obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities or to the investment of 25% of the Funds
total assets. |
- 36 -
2. |
|
Purchase more than 10% of all outstanding taxable debt securities of any one issuer (other
than obligations issued, or guaranteed as to principal and interest, by the United States
Government, its agencies or instrumentalities). |
|
3. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the United States Government, its agencies or instrumentalities. In
addition, the Fund reserves the right to invest 25% or more of its assets in any of the
following types of Municipal Obligations, provided that the percentage of the Funds total
assets in private activity bonds in any one category does not exceed 25% of the Funds total
assets: health facility obligations, housing obligations, single family mortgage revenue
bonds, industrial revenue obligations (including pollution control obligations), electric
utility obligations, airport facility revenue obligations, water and sewer obligations,
university and college revenue obligations, bridge authority and toll road obligations and
resource recovery obligations. |
|
4. |
|
Invest more than 5% of the value of its total assets in taxable securities of issuers having
a record, together with predecessors, of less than three years of continuous operation. This
restriction shall not apply to any obligation of the United States Government, its agencies or
instrumentalities. |
|
5. |
|
Invest in common stock. |
|
6. |
|
Invest in securities of any issuer if, to the knowledge of the Fund, any officer or trustee
of the Fund or any officer or director of the Adviser or Administrator owns more than 1/2 of 1%
of the outstanding securities of such issuer, and such officers, trustees and directors who
own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such
issuer. |
|
7. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from purchasing,
holding and selling real estate acquired as a result of the ownership of such securities. |
|
8. |
|
Purchase or sell commodities except that the Fund may purchase or sell financial futures
contracts and related options thereon. |
|
9. |
|
Purchase oil, gas or other mineral leases, rights or royalty contracts, or exploration or
development programs. |
|
10. |
|
Write, purchase or sell puts, calls, or combinations thereof, except for options on futures
contracts or options on debt securities. |
|
11. |
|
Purchase securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets. |
|
12. |
|
Borrow money, except that the Fund may borrow from a bank for temporary or emergency purposes
or for repurchase of its shares provided that immediately after such borrowing the amount
borrowed does not exceed 33 1/3% of the value of its total assets
(including the amount borrowed) less its liabilities (not including any borrowings but
including the fair market value at the time of computation of any other senior securities
which are outstanding at the time). |
|
13. |
|
Pledge its assets or assign or otherwise encumber them except to secure borrowings effected
within the limitations set forth in Restriction 12. However, for the purpose of this
restriction, collateral arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures are not deemed to be pledges of
assets. |
|
14. |
|
Issue senior securities as defined in the Act, except insofar as the Fund may be deemed to
have issued a senior security by reason of: (a) entering into any repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; (c) purchasing or
selling any financial futures contracts; (d) borrowing money in accordance with restrictions
described above; or (e) lending portfolio securities. In interpreting this |
- 37 -
|
|
restriction,
collateral arrangements with respect to the writing of options and collateral arrangements
with respect to initial margin for futures are not deemed to be pledges of assets and neither
such arrangements nor the purchase or sale of futures are deemed to be the issuance of a
senior security. |
15. |
|
Make loans of money or securities, except: (a) by the purchase of debt obligations in which
the Fund may invest consistent with its investment objective and policies; (b) by investment
in repurchase agreements (provided that no more than 10% of the Funds total assets will be
invested in repurchase agreements that do not mature within seven days); and (c) by lending
its portfolio securities (provided that the Fund may not lend its portfolio securities in
excess of 25% of its total assets). |
|
16. |
|
Make short sales of securities. |
|
17. |
|
Purchase securities on margin, except for such short-term loans as are necessary for the
clearance of purchases of portfolio securities. |
|
18. |
|
Engage in the underwriting of securities, except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
|
19. |
|
Invest for the purpose of exercising control or management of any other issuer. |
|
20. |
|
Invest over 10% of its total assets in restricted securities. |
Invesco Municipal Income Opportunities Trust II (OIB)
For purposes of the restrictions: (a) an issuer of a security is the entity whose assets and
revenues are committed to the payment of interest and principal on that particular security,
provided that the guarantee of a security will be considered a separate security; (b) a taxable
security is any security the interest on which is subject to federal income tax (which does not
include private activity bonds subject to the alternative minimum tax discussed under Tax
Matters Taxation of Fund Distributions (Tax-Free Funds) Alternative minimum tax private
activity bonds.); and (c) all percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total or net assets does not require elimination of
any security from the portfolio.
The Fund may not:
1. |
|
Invest more than 5% of the value of its total assets in the securities of any one issuer,
except that this limitation shall not apply to obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities or to the investment of 25% of the Funds
total assets. |
|
2. |
|
Purchase more than 10% of all outstanding taxable debt securities of any one issuer (other
than obligations issued, or guaranteed as to principal and interest, by the United States
Government, its agencies or instrumentalities). |
|
3. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the United States Government, its agencies or instrumentalities. In
addition, the Fund reserves the right to invest 25% or more of its assets in any of the
following types of Municipal Obligations, provided that the percentage of the Funds total
assets in private activity bonds in any one category does not exceed 25% of the Funds total
assets: health facility obligations, housing obligations, single family mortgage revenue
bonds, industrial revenue obligations (including pollution control obligations), electric
utility obligations, airport facility revenue obligations, water and sewer obligations,
university and college revenue obligations, bridge authority and toll road obligations and
resource recovery obligations. |
- 38 -
4. |
|
Invest more than 5% of the value of its total assets in taxable securities of issuers having
a record, together with predecessors, of less than three years of continuous operation. This
restriction shall not apply to any obligation of the United States Government, its agencies or
instrumentalities. |
|
5. |
|
Invest in common stock. |
|
6. |
|
Invest in securities of any issuer if, to the knowledge of the Fund, any officer or trustee
of the Fund or any officer or director of the Adviser or administrator owns more than 1/2 of 1%
of the outstanding securities of such issuer, and such officers, trustees and directors who
own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such
issuer. |
|
7. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from purchasing,
holding and selling real estate acquired as a result of the ownership of such securities. |
|
8. |
|
Purchase or sell commodities except that the Fund may purchase or sell financial futures
contracts and related options thereon. |
|
9. |
|
Purchase oil, gas or other mineral leases, rights or royalty contracts, or exploration or
development programs. |
|
10. |
|
Write, purchase or sell puts, calls, or combinations thereof, except for options on futures
contracts or options on debt securities. |
|
11. |
|
Purchase securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets or, by purchase in the open market of
securities of closed-end investment companies where no underwriters or dealers commission or
profit, other than customary brokers commission, is involved and only if immediately
thereafter not more than (i) 5% of the Funds total assets, taken at market value, would be
invested in any one such company and (ii) 10% of the Funds total assets, taken at market
value, would be invested in such securities. |
|
12. |
|
Borrow money, except that the Fund may borrow from a bank for temporary or emergency purposes
or for repurchase of its shares provided that immediately after such borrowing the amount
borrowed does not exceed 33 1/3% of the value of its total assets
(including the amount borrowed) less its liabilities (not including any borrowings but
including the fair market value at the time of computation of any other senior securities
which are outstanding at the time). |
|
13. |
|
Pledge its assets or assign or otherwise encumber them except to secure borrowings effected
within the limitations set forth in Restriction 12. However, for the purpose of this
restriction, collateral arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures are not deemed to be pledges of
assets. |
|
14. |
|
Issue senior securities as defined in the Act, except insofar as the Fund may be deemed to
have issued a senior security by reason of: (a) entering into any repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; (c) purchasing or
selling any financial futures contracts; (d) borrowing money in accordance with restrictions
described above; or (e) lending portfolio securities. In interpreting this restriction,
collateral arrangements with respect to the writing of options and collateral arrangements
with respect to initial margin for futures are not deemed to be pledges of assets and neither
such arrangements nor the purchase or sale of futures are deemed to be the issuance of a
senior security. |
|
15. |
|
Make loans of money or securities, except: (a) by the purchase of debt obligations in which
the Fund may invest consistent with its investment objective and policies; (b) by investment
in repurchase agreements (provided that no more than 10% of the Funds total assets will be
invested in repurchase agreements that do not mature within seven days); and (c) by lending
its portfolio securities (provided that the Fund may not lend its portfolio securities in
excess of 25% of its total assets). |
|
16. |
|
Make short sales of securities. |
- 39 -
17. |
|
Purchase securities on margin, except for such short-term loans as are necessary for the
clearance of purchases of portfolio securities. |
|
18. |
|
Engage in the underwriting of securities, except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
|
19. |
|
Invest for the purpose of exercising control or management of any other issuer. |
|
20. |
|
Invest over 10% of its total assets in restricted securities. |
Invesco Municipal Income Opportunities Trust III (OIC)
For purposes of the restrictions: (a) an issuer of a security is the entity whose assets and
revenues are committed to the payment of interest and principal on that particular security,
provided that the guarantee of a security will be considered a separate security; (b) a taxable
security is any security the interest on which is subject to federal income tax (which does not
include private activity bonds subject to the alternative minimum tax discussed under Tax
Matters Taxation of Fund Distributions (Tax-Free Funds) Alternative minimum tax private
activity bonds.); and (c) all percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total or net assets does not require elimination of
any security from the portfolio.
The Fund may not:
1. |
|
Invest more than 5% of the value of its total assets in the securities of any one issuer,
except that this limitation shall not apply to obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities or to the investment of 25% of the Funds
total assets. |
|
2. |
|
Purchase more than 10% of all outstanding taxable debt securities of any one issuer (other
than obligations issued, or guaranteed as to principal and interest, by the United States
Government, its agencies or instrumentalities). |
|
3. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the United States Government, its agencies or instrumentalities. In
addition, the Fund reserves the right to invest 25% or more of its assets in any of the
following types of Municipal Obligations, provided that the percentage of the Funds total
assets in private activity bonds in any one category does not exceed 25% of the Funds total
assets: health facility obligations, housing obligations, single family mortgage revenue
bonds, industrial revenue obligations (including pollution control obligations), electric
utility obligations, airport facility revenue obligations, water and sewer obligations,
university and college revenue obligations, bridge authority and toll road obligations and
resource recovery obligations. |
|
4. |
|
Invest more than 5% of the value of its total assets in taxable securities of issuers having
a record, together with predecessors, of less than three years of continuous operation. This
restriction shall not apply to any obligation of the United States Government, its agencies or
instrumentalities. |
|
5. |
|
Invest in common stock. |
|
6. |
|
Invest in securities of any issuer if, to the knowledge of the Fund, any officer or trustee
of the Fund or any officer or director of the Adviser or administrator owns more than 1/2 of 1%
of the outstanding securities of such issuer, and such officers, trustees and directors who
own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such
issuer. |
|
7. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from purchasing,
holding and selling real estate acquired as a result of the ownership of such securities.
|
- 40 -
8. |
|
Purchase or sell commodities except that the Fund may purchase or sell financial futures
contracts and related options thereon. |
|
9. |
|
Purchase oil, gas or other mineral leases, rights or royalty contracts, or exploration or
development programs. |
|
10. |
|
Write, purchase or sell puts, calls, or combinations thereof, except for options on futures
contracts or options on debt securities. |
|
11. |
|
Purchase securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets or, by purchase in the open market of
securities of closed-end investment companies where no underwriters or dealers commission or
profit, other than customary brokers commission, is involved and only if immediately
thereafter not more than (i) 5% of the Funds total assets, taken at market value, would be
invested in any one such company and (ii) 10% of the Funds total assets, taken at market
value, would be invested in such securities. |
|
12. |
|
Borrow money, except that the Fund may borrow from a bank for temporary or emergency purposes
or for repurchase of its shares provided that immediately after such borrowing the amount
borrowed does not exceed 33 1/3% of the value of its total assets
(including the amount borrowed) less its liabilities (not including any borrowings but
including the fair market value at the time of computation of any other senior securities
which are outstanding at the time). |
|
13. |
|
Pledge its assets or assign or otherwise encumber them except to secure borrowings effected
within the limitations set forth in Restriction 12. However, for the purpose of this
restriction, collateral arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures are not deemed to be pledges of
assets. |
|
14. |
|
Issue senior securities as defined in the Act, except insofar as the Fund may be deemed to
have issued a senior security by reason of: (a) entering into any repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; (c) purchasing or
selling any financial futures contracts; (d) borrowing money in accordance with restrictions
described above; or (e) lending portfolio securities. In interpreting this restriction,
collateral arrangements with respect to the writing of options and collateral arrangements
with respect to initial margin for futures are not deemed to be pledges of assets and neither
such arrangements nor the purchase or sale of futures are deemed to be the issuance of a
senior security. |
|
15. |
|
Make loans of money or securities, except: (a) by the purchase of debt obligations in which
the Fund may invest consistent with its investment objective and policies; (b) by investment
in repurchase agreements (provided that no more than 10% of the Funds total assets will be
invested in repurchase agreements that do not mature within seven days); and (c) by lending
its portfolio securities (provided that the Fund may not lend its portfolio securities in
excess of 25% of its total assets). |
|
16. |
|
Make short sales of securities. |
|
17. |
|
Purchase securities on margin, except for such short-term loans as are necessary for the
clearance of purchases of portfolio securities. |
|
18. |
|
Engage in the underwriting of securities, except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
|
19. |
|
Invest for the purpose of exercising control or management of any other issuer. |
|
20. |
|
Invest over 10% of its total assets in restricted securities. |
Invesco Quality Municipal Income Trust (IQI)
For purposes of the restrictions: (a) an issuer of a security is the entity whose assets and
revenues are committed to the payment of interest and principal on that particular security,
provided that the guarantee of a
- 41 -
security will be considered a separate security; (b) a taxable
security is any security the interest on which is subject to federal income tax (which does not
include private activity bonds subject to the alternative minimum tax); and (c) all percentage
limitations apply immediately after a purchase or initial investment, and any subsequent change in
any applicable percentage resulting from market fluctuations or other changes in the amount of
total or net assets does not require elimination of any security from the portfolio.
The Fund may not:
1. |
|
Issue any senior securities (as defined in the 1940 Act) other than Preferred Shares of
beneficial interest (in accordance with the terms of this Prospectus and the 1940 Act), except
insofar as the Fund may be deemed to have issued a senior security by reason of: (a) entering
into any repurchase agreement; (b) purchasing any securities on a when-issued or delayed
delivery basis; (c) purchasing or selling any financial futures contracts; (d) borrowing money
in accordance with restriction 3 below; or (e) lending portfolio securities. For the purpose
of this restriction, collateral arrangements with respect to the writing of options and
collateral arrangements with respect to initial margin for futures are not deemed to be
pledges of assets and neither such arrangements nor the purchase or sale of futures are deemed
to be the issuance of a senior security. |
|
2. |
|
Purchase securities on margin, except for such short-term loans as are necessary for the
clearance of purchases of portfolio securities, or write puts, calls or combinations of both,
except for options on futures contracts and options on debt securities. |
|
3. |
|
Borrow money, except that the Fund may borrow money from a bank for temporary or emergency
purposes or for repurchase of its shares provided that immediately after such borrowing the
amount borrowed does not exceed 33 1/3% of the value of its total assets (including the amount
borrowed) less its liabilities (not including any borrowings but including the fair market
value at the time of computation of any other senior securities which are outstanding at the
time, including the Preferred Shares). |
|
4. |
|
Engage in the underwriting of securities of other issuers except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purposes of certain federal securities laws. |
|
5. |
|
Invest more than 25% of the market value of its total assets in securities of issuers in any
one industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the U. S. Government, its agencies or instrumentalities. In addition,
the Fund reserves the right to invest 25% or more of its assets in any of the following
Municipal Obligations, provided that the percentage of the Funds total assets in private
activity bonds in any one category does not exceed 25% of the Funds total assets: health
facility obligations, housing obligations, single-family mortgage revenue bonds, industrial
revenue obligations (including pollution control obligations), electric utility obligations,
airport facility revenue obligations, water and sewer obligations, university and college
revenue obligations, bridge authority and toll road obligations and resource recovery
obligations. |
|
6. |
|
Purchase real estate or interests in real estate except that the Fund may purchase securities
secured by real estate or interests therein. The Fund is not prohibited from purchasing,
holding and selling real estate acquired as a result of the ownership of such securities. |
|
7. |
|
Invest in commodities or commodity contracts, except the Fund may purchase financial futures
contracts and related options and options on debt securities. |
|
8. |
|
Make loans except (a) by the purchase of debt securities in which the Fund may invest
consistent with its investment objective and policies, (b) by investment in repurchase
agreements, and (c) by lending its portfolio securities. |
|
9. |
|
Invest in companies for the purpose of exercising control or management. |
|
10. |
|
Make short sales of securities. |
- 42 -
11. |
|
Invest in securities of any issuer if, to the knowledge of the Fund, any officer or trustee
of the Fund or any officer or director of the Adviser or Administrator owns more than 1/2 of 1%
of the outstanding securities of such issuer, and such officers, trustees and directors who
own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such
issuer. |
|
12. |
|
Purchase the securities of any other investment company, except in connection with a merger,
consolidation, reorganization or acquisition of assets, or by purchase in the open market of
securities of closed-end investment companies where no underwriters or dealers commission or
profit, other than customary brokers commissions, is involved and only if immediately
thereafter not more than (i) 5% of the Funds total assets, taken at market value, would be
invested in any one such company and (ii) 10% of the Funds total assets would be invested in
such securities. |
|
13. |
|
Invest more than 5% of the value of its total assets in securities of any one issuer, except
that this limitation shall not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or to the investment of 25% of the Funds total
assets. |
|
14. |
|
Purchase more than 10% of all outstanding taxable debt securities of any one issuer (other
than obligations issued, or guaranteed as to principal and interest, by the U.S. Government,
its agencies or instrumentalities). |
|
15. |
|
Invest more than 5% of the value of its total assets in taxable securities of issuers having
a record, together with predecessors, of less than three years of continuous operation. This
restriction shall not apply to any obligation of the U.S. Government, its agencies or
instrumentalities. |
|
16. |
|
Invest in common stock. |
|
17. |
|
Purchase oil, gas or other mineral leases, rights or royalty contracts, or exploration or
development programs. |
|
18. |
|
Pledge its assets or assign or otherwise encumber them except to secure borrowings effected
within the limitations set forth in restriction 3 above. However, for the purpose of this
restriction, collateral arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures are not deemed to be pledges of
assets. |
|
19. |
|
Write, purchase or sell puts, calls, or combinations thereof, except for options on futures
contracts or options on debt securities. |
Municipal Obligations, as used above, consist of municipal bonds, municipal notes and
municipal commercial paper, as well as lease obligations, including such obligations purchased on a
when-issued or delayed delivery basis.
Invesco Quality Municipal Investment Trust (IQT)
For purposes of the restrictions: (a) an issuer of a security is the entity whose assets and
revenues are committed to the payment of interest and principal on that particular security,
provided that the guarantee of a security will be considered a separate security; (b) a taxable
security is any security the interest on which is subject to federal income tax (which does not
include private activity bonds subject to the alternative minimum tax); and (c) all percentage
limitations apply immediately after a purchase or initial investment, and any subsequent change in
any applicable percentage resulting from market fluctuations or other changes in the amount of
total or net assets does not require elimination of any security from the portfolio.
The Fund may not:
1. |
|
Issue any senior securities (as defined in the 1940 Act) other than Preferred Shares of
beneficial interest (in accordance with the terms of this Prospectus and the 1940 Act), except
insofar as the Fund may be deemed to have issued a senior security by reason of: (a) entering
into any repurchase agreement; (b) purchasing any securities on a when-issued or delayed
delivery basis; (c) purchasing or selling any financial futures contracts; (d) borrowing money
in accordance with restriction 3 below; or (e) lending portfolio securities. For the |
- 43 -
|
|
purpose of this restriction, collateral arrangements with respect to the writing of options and
collateral arrangements with respect to initial margin for futures are not deemed to be
pledges of assets and neither such arrangements nor the purchase or sale of futures are deemed
to be the issuance of a senior security. |
2. |
|
Purchase securities on margin, except for such short-term loans as are necessary for the
clearance of purchases of portfolio securities, or write puts, calls or combinations of both,
except for options on futures contracts and options on debt securities. |
|
3. |
|
Borrow money, except that the Fund may borrow money from a bank for temporary or emergency
purposes or for repurchase of its shares provided that immediately after such borrowing the
amount borrowed does not exceed 33 1/3% of the value of its total assets (including the amount
borrowed) less its liabilities (not including any borrowings but including the fair market
value at the time of computation of any other senior securities which are outstanding at the
time, including the Preferred Shares). |
|
4. |
|
Engage in the underwriting of securities of other issuers except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purposes of certain federal securities laws. |
|
5. |
|
Invest more than 25% of the market value of its total assets in securities of issuers in any
one industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the U. S. Government, its agencies or instrumentalities. In addition,
the Fund reserves the right to invest 25% or more of its assets in any of the following
Municipal Obligations, provided that the percentage of the Funds total assets in private
activity bonds in any one category does not exceed 25% of the Funds total assets: health
facility obligations, housing obligations, single-family mortgage revenue bonds, industrial
revenue obligations (including pollution control obligations), electric utility obligations,
airport facility revenue obligations, water and sewer obligations, university and college
revenue obligations, bridge authority and toll road obligations and resource recovery
obligations. |
|
6. |
|
Purchase real estate or interests in real estate except that the Fund may purchase securities
secured by real estate or interests therein. The Fund is not prohibited from purchasing,
holding and selling real estate acquired as a result of the ownership of such securities. |
|
7. |
|
Invest in commodities or commodity contracts, except the Fund may purchase financial futures
contracts and related options and options on debt securities. |
|
8. |
|
Make loans except (a) by the purchase of debt securities in which the Fund may invest
consistent with its investment objective and policies, (b) by investment in repurchase
agreements, and (c) by lending its portfolio securities. |
|
9. |
|
Invest in companies for the purpose of exercising control or management. |
|
10. |
|
Make short sales of securities. |
|
11. |
|
Invest in securities of any issuer if, to the knowledge of the Fund, any officer or trustee
of the Fund or any officer or director of the Adviser or Administrator owns more than 1/2 of 1%
of the outstanding securities of such issuer, and such officers, trustees and directors who
own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such
issuer. |
|
12. |
|
Purchase the securities of any other investment company, except in connection with a merger,
consolidation, reorganization or acquisition of assets, or by purchase in the open market of
securities of closed-end investment companies where no underwriters or dealers commission or
profit, other than customary brokers commissions, is involved and only if immediately
thereafter not more than (i) 5% of the Funds total assets, taken at market value, would be
invested in any one such company and (ii) 10% of the Funds total assets would be invested in
such securities. |
- 44 -
13. |
|
Invest more than 5% of the value of its total assets in securities of any one issuer, except
that this limitation shall not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or to the investment of 25% of the Funds total
assets. |
|
14. |
|
Purchase more than 10% of all outstanding taxable debt securities of any one issuer (other
than obligations issued, or guaranteed as to principal and interest, by the U.S. Government,
its agencies or instrumentalities). |
|
15. |
|
Invest more than 5% of the value of its total assets in taxable securities of issuers having
a record, together with predecessors, of less than three years of continuous operation. This
restriction shall not apply to any obligation of the U.S. Government, its agencies or
instrumentalities. |
|
16. |
|
Invest in common stock. |
|
17. |
|
Purchase oil, gas or other mineral leases, rights or royalty contracts, or exploration or
development programs. |
|
18. |
|
Pledge its assets or assign or otherwise encumber them except to secure borrowings effected
within the limitations set forth in restriction 3 above. However, for the purpose of this
restriction, collateral arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures are not deemed to be pledges of
assets. |
|
19. |
|
Write, purchase or sell puts, calls, or combinations thereof, except for options on futures
contracts or options on debt securities. |
Municipal Obligations, as used above, consist of municipal bonds, municipal notes and
municipal commercial paper, as well as lease obligations, including such obligations purchased on a
when-issued or delayed delivery basis.
Invesco Quality Municipal Securities (IQM)
For purposes of the restrictions: (a) an issuer of a security is the entity whose assets and
revenues are committed to the payment of interest and principal on that particular security,
provided that the guarantee of a security will be considered a separate security; (b) a taxable
security is any security the interest on which is subject to federal income tax (which does not
include private activity bonds subject to the alternative minimum tax); and (c) all percentage
limitations apply immediately after a purchase or initial investment, and any subsequent change in
any applicable percentage resulting from market fluctuations or other changes in the amount of
total or net assets does not require elimination of any security from the portfolio.
The Fund may not:
1. |
|
Invest more than 5% of the value of its total assets in the securities of any one issuer.
This limitation shall not apply to obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities or to the investment of 25% of the Funds total assets. |
|
2. |
|
Purchase more than 10% of all outstanding taxable debt securities of any one issuer (other
than obligations issued, or guaranteed as to principal and interest, by the U.S. Government,
its agencies or instrumentalities). |
|
3. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the U. S. Government, its agencies or instrumentalities. In addition,
the Fund reserves the right to invest 25% or more of its assets in any of the following
Municipal Obligations, provided that the percentage of the Funds total assets in private
activity bonds in any one category does not exceed 25% of the Funds total assets: health
facility obligations, housing obligations, single-family mortgage revenue bonds, industrial
revenue obligations (including pollution control obligations), electric utility obligations,
airport facility revenue obligations, water and sewer obligations, university and college
revenue obligations, bridge authority and toll road obligations and resource recovery
obligations. |
- 45 -
4. |
|
Invest more than 5% of the value of its total assets in taxable securities of issuers having
a record, together with predecessors, of less than three years of continuous operation. This
restriction shall not apply to obligation of the U.S. Government, its agencies or
instrumentalities. |
|
5. |
|
Invest in common stock. |
|
6. |
|
Invest in securities of any issuer, other than securities of the Fund, if to the knowledge of
the Fund, any officer or trustee of the Fund or any officer or director of the Adviser owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such officers, trustees
and directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer. |
|
7. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from purchasing,
holding and selling real estate acquired as a result of the ownership of such securities. |
|
8. |
|
Purchase or sell commodities except that the Fund may purchase or sell financial futures
contracts and related options thereon. |
|
9. |
|
Purchase oil, gas or other mineral leases, rights or royalty contracts, or exploration or
development programs. |
|
10. |
|
Write, purchase or sell puts, calls, or combinations thereof, except for options on futures
contracts or options on debt securities. |
|
11. |
|
Purchase securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets or by purchase in the open market of
securities of closed-end investment companies where no underwriters or dealers commission or
profit, other than customary brokers commissions, is involved and only if immediately
thereafter not more than (i) 5% of the Funds total assets, taken at market value, would be
invested in any one such company and (ii) 10% of the Funds total assets, taken at market
value, would be invested in such securities. |
|
12. |
|
Borrow money, except that the Fund may borrow money from a bank for temporary or emergency
purposes or for repurchase of its shares provided that immediately after such borrowing the
amount borrowed does not exceed 33 1/3% of the value of its total assets (including the amount
borrowed) less its liabilities (not including any borrowings but including the fair market
value at the time of computation of any other senior securities which are outstanding at the
time, including the Preferred Shares). |
|
13. |
|
Pledge its assets or assign or otherwise encumber them except to secure borrowings effected
within the limitations set forth in restriction 12. However, for the purpose of this
restriction, collateral arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures are not deemed to be pledges of
assets. |
|
14. |
|
Issue senior securities (as defined in the 1940 Act) other than Preferred Shares of
beneficial interest (in accordance with the terms of the 1940 Act), except insofar as the Fund
may be deemed to have issued a senior security by reason of: (a) entering into any repurchase
agreement; (b) purchasing any securities on a when-issued or delayed delivery basis; (c)
purchasing or selling any financial futures contracts; (d) borrowing money in accordance with
restrictions described above; or (e) lending portfolio securities. |
|
15. |
|
Make loans of money or securities except: (a) by the purchase of debt securities in which the
Fund may invest consistent with its investment objective and policies; (b) by investment in
repurchase agreements (provided that no more than 10% of the Funds total assets will be
invested in repurchase agreements that do not mature within seven days); and (c) by lending
its portfolio securities (provided that the Fund may not lend its portfolio securities in
excess of 10% of its total assets). |
|
16. |
|
Make short sales of securities. |
- 46 -
17. |
|
Purchase securities on margin, except for such short-term loans as are necessary for the
clearance of purchases of portfolio securities. |
|
18. |
|
Engage in the underwriting of securities except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
|
19. |
|
Invest for the purpose of exercising control or management of any other issuer. |
Municipal Obligations, as used above, consist of municipal bonds, municipal notes and
municipal commercial paper, as well as lease obligations, including such obligations purchased on a
when-issued or delayed delivery basis.
Invesco Van Kampen California Value Municipal Income Trust (VCV)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from changing market
values will not be considered a deviation from policy.
The Fund may not:
1. |
|
With respect to 75% of its total assets, purchase any securities (other than tax exempt
obligations guaranteed by the United States Government or by its agencies or
instrumentalities), if as a result more than 5% of the Funds total assets would then be
invested in securities of a single issuer or if as a result the Fund would hold more than 10%
of the outstanding voting securities of any single issuer, except that the Fund may purchase
securities of other investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. |
|
2. |
|
Invest more than 25% of its total assets in a single industry, however, as described above
under Principal Risks of Investing in the Fund- Market Segment Risk, the Fund may from time
to time invest more than 25% of its total assets in a particular segment of the municipal
securities market. |
|
3. |
|
Issue senior securities, as defined in the 1940 Act, other than preferred shares of
beneficial interest, except to the extent such issuance might be involved with borrowings
described under subparagraph (4) below or with respect to Strategic Transactions described in
Appendix C to this SAI. |
|
4. |
|
Borrow money, except for temporary or emergency purposes from banks or for repurchase of the
Funds Shares, and then only in an amount not exceeding one-third of the Funds total assets,
including the amount borrowed. The Fund will not mortgage, pledge or hypothecate any assets
except in connection with a borrowing or a Strategic Transaction described in Appendix C to
this SAI. The Fund will not purchase portfolio securities during any period that such
borrowings exceed 5% of the total asset value of the Fund. Notwithstanding this investment
restriction, the Fund may enter into when-issued and delayed delivery transactions. |
|
5. |
|
Make loans of money or property to any person, except to the extent the securities in which
the Fund may invest are considered to be loans and except that the Fund may lend money or
property in connection with maintenance of the value of or the Funds interest with respect to
the securities owned by the Fund. |
|
6. |
|
Buy any securities on margin. Neither the deposit of initial or variation margin in
connection with Strategic Transactions described in Appendix C to this SAI nor short-term
credits as may be necessary for the clearance of transactions is considered the purchase of a
security on margin. |
|
7. |
|
Sell any securities short, write, purchase or sell puts, calls or combinations thereof, or
purchase or sell financial futures or options, except in connection with Strategic
Transactions described in Appendix C to this SAI. |
- 47 -
8. |
|
Act as an underwriter of securities, except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities held in its portfolio. |
|
9. |
|
Make investments for the purpose of exercising control or participation in management, except
to the extent that exercise by the Fund of its rights under agreements related to municipal
securities would be deemed to constitute such control or participation, except that the Fund
may purchase securities of other investment companies to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations promulgated by the
Securities and Exchange Commission under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act. |
|
10. |
|
Invest in securities issued by other investment companies except as part of a merger,
reorganization or other acquisition and except to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. |
|
11. |
|
Invest in equity interests in oil, gas or other mineral exploration or development programs
except pursuant to the exercise by the Fund of its rights under agreements relating to
municipal securities. |
|
12. |
|
Purchase or sell real estate, commodities or commodity contracts, except to the extent the
securities the Fund may invest in are considered to be interests in real estate, commodities
or commodity contracts or to the extent the Fund exercises its rights under agreements
relating to such municipal securities (in which case the Fund may liquidate real estate
acquired as a result of a default on a mortgage), and except to the extent that Strategic
Transactions described in Appendix C to this SAI, the Fund may engage in are considered to be
commodities or commodities contracts. |
The Fund generally will not engage in the trading of securities for the purpose of realizing
short-term profits, but it will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions to accomplish the Funds investment objective. For example, the Fund
may sell portfolio securities in anticipation of a movement in interest rates. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund does not anticipate that the annual
portfolio turnover rate of the Fund will be in excess of 100%. A high rate of portfolio turnover
involves correspondingly greater brokerage commission and transaction expenses than a lower rate,
which expenses must be borne by the Fund and its Common Shareholders. High portfolio turnover may
also result in the realization of substantial net short-term capital gains, and any distributions
resulting from such gains will be taxable at ordinary income rates for federal income tax purposes.
As a matter of operating policy (which means it can be changed by the Funds Board of Trustees
without Shareholder vote), the Fund will not invest 25% or more of its assets in a single industry;
however, the Fund may from time to time invest 25% or more of its assets in a particular segment of
the municipal securities market.
Invesco California Municipal Income Trust (IIC)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from changing market
values will not be considered a deviation from policy. For purposes of the restrictions: (a) an
issuer of a security is the entity whose assets and revenues are committed to the payment of
interest and principal on that particular security; (b) a taxable security is any security the
interest on which is subject to federal income tax (which does not include private activity bonds
subject to the alternative minimum tax); and (c) all percentage limitations apply immediately after
a purchase or initial investment, and any subsequent change in any applicable percentage resulting
from market fluctuations or other changes in the amount of total or net assets does not require
elimination of any security from the portfolio.
The Fund may not:
1. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to municipal
obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the United States Government, |
- 48 -
|
|
its agencies or instrumentalities. In
addition, the Fund reserves the right to invest 25% or more of its assets in any of the
following types of municipal obligations, provided that the percentage of the Funds total
assets in private activity bonds in any one category does not exceed 25% of the Funds total
assets: health facility obligations, housing obligations, single family mortgage revenue
bonds, industrial revenue obligations (including pollution control obligations), electric
utility obligations, airport facility revenue obligations, water and sewer obligations,
university and college revenue obligations, bridge authority and toll road obligations and
resource recovery obligations. |
2. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from
purchasing, holding and selling real estate acquired as a result of the ownership of such
securities. |
|
3. |
|
Purchase or sell physical commodities unless acquired as a result of ownership of securities
or other instruments; provided that this restriction shall not prohibit the Fund from
purchasing or selling options, futures contracts and related options thereon, forward
contracts, swaps, caps, floors, collars and any other financial instruments or from investing
in securities or other instruments backed by physical commodities or as otherwise permitted by
(i) the 1940 Act, as amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief applicable to the Fund from the provisions of the 1940 Act, as amended from time to
time. |
|
4. |
|
Borrow money, except the Fund may borrow money to the extent permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the
1940 Act, as amended from time to time, or (iii) an exemption or other relief applicable to
the Fund from the provisions of the 1940 Act, as amended from time to time. |
|
5. |
|
Issue senior securities, except the Fund may issue senior securities to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief applicable to the Fund from the provisions of the 1940 Act, as amended from time to
time. |
|
6. |
|
Make loans of money or property to any person, except (a) to the extent that securities or
interests in which the Fund may invest are considered to be loans, (b) through the loan of
portfolio securities, (c) by engaging in repurchase agreements or (d) as may otherwise be
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief applicable to the Fund from the provisions of the 1940 Act, as amended from
time to time. |
|
7. |
|
Engage in the underwriting of securities, except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
Invesco California Quality Municipal Securities (IQC)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from changing market
values will not be considered a deviation from policy. For purposes of the restrictions: (a) an
issuer of a security is the entity whose assets and revenues are committed to the payment of
interest and principal on that particular security; (b) a taxable security is any security the
interest on which is subject to federal income tax (which does not include private activity bonds
subject to the alternative minimum tax); and (c) all percentage limitations apply immediately after
a purchase or initial investment, and any subsequent change in any applicable percentage resulting
from market fluctuations or other changes in the amount of total or net assets does not require
elimination of any security from the portfolio.
The Fund may not:
1. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the United States Government, |
- 49 -
|
|
its agencies or instrumentalities. In
addition, the Fund reserves the right to invest 25% or more of its assets in any of the
following types of Municipal Obligations, provided that the percentage of the Funds total
assets in private activity bonds in any one category does not exceed 25% of the Funds total
assets: health facility obligations, housing obligations, single family mortgage revenue
bonds, industrial revenue obligations (including pollution control obligations), electric
utility obligations, airport facility revenue obligations, water and sewer obligations,
university and college revenue obligations, bridge authority and toll road obligations and
resource recovery obligations. For purposes of this investment restriction, Municipal
Obligations consist of Municipal Bonds, Municipal Notes and Municipal Commercial Paper,
including such obligations purchased on a when-issued or delayed delivery basis. Municipal
Bonds and Municipal Notes are debt obligations of states, cities, counties, municipalities
and state and local governmental agencies which generally have maturities, at the time of
their issuance, of either one year or more (Bonds) or from six months to three years (Notes).
Municipal Commercial Paper, as presently constituted, although issued under programs having
a final maturity of more than one year, is generally short-term paper subject to periodic rate
changes and maturities of less than one year selected at the holders option. |
2. |
|
Invest more than 5% of the value of its total assets in taxable securities of issuers having
a record, together with predecessors, of less than three years of continuous operation. This
restriction shall not apply to any obligation of the United States Government, its agencies or
instrumentalities. |
|
3. |
|
Invest in common stock. |
|
4. |
|
Invest in securities of any issuer, other than securities of the Fund, if, to the knowledge
of the Fund, any officer or trustee of the Fund or any officer or director of the Adviser owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such officers, trustees
and directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding
securities of such issuer. |
|
5. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from
purchasing, holding and selling real estate acquired as a result of the ownership of such
securities. |
|
6. |
|
Purchase or sell commodities except that the Fund may purchase or sell financial futures
contracts and related options thereon. |
|
7. |
|
Purchase oil, gas or other mineral leases, rights or royalty contracts, or exploration or
development programs. |
|
8. |
|
Write, purchase or sell puts, calls, or combinations thereof, except for options on futures
contracts or options on debt securities. |
|
9. |
|
Purchase securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets or, by purchase in the open market of
securities of closed-end investment companies where no underwriters or dealers commission or
profit, other than customary brokers commissions, is involved and only if immediately
thereafter not more than (i) 5% of the Funds total assets, taken at market value, would be
invested in any one such company and (ii) 10% of the Funds total assets, taken at market
value, would be invested in such securities. |
|
10. |
|
Borrow money, except that the Fund may borrow from a bank for temporary or emergency purposes
or for repurchase of its shares provided that immediately after such borrowing the amount
borrowed does not exceed 33 1/3% of the value of its total assets
(including the amount borrowed) less its liabilities (not including any borrowings but
including the fair market value at the time of computation of any other senior securities
which are outstanding at the time, including the Preferred Shares). |
|
11. |
|
Pledge its assets or assign or otherwise encumber them except to secure borrowings effected
within the limitations set forth in Restriction 10. However, for the purpose of this
restriction, collateral arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures are not deemed to be pledges of
assets.
|
- 50 -
12. |
|
Issue senior securities as defined in the 1940 Act, other than preferred shares of beneficial
interest (in accordance with the terms of the 1940 Act), except insofar as the Fund may be
deemed to have issued a senior security by reason of: (a) entering into any repurchase
agreement; (b) purchasing any securities on a when-issued or delayed delivery basis; (c)
purchasing or selling any financial futures contracts; (d) borrowing money in accordance with
restrictions described above; or (e) lending portfolio securities. |
|
13. |
|
Make loans of money or securities, except: (a) by the purchase of debt obligations in which
the Fund may invest consistent with its investment objective and policies; (b) by investment
in repurchase agreements (provided that no more than 10% of the Funds total assets will be
invested in repurchase agreements that do not mature within seven days); and (c) by lending
its portfolio securities (provided that the Fund may not lend its portfolio securities in
excess of 10% of its total assets). |
|
14. |
|
Make short sales of securities. |
|
15. |
|
Purchase securities on margin, except for such short-term loans as are necessary for the
clearance of purchases of portfolio securities. |
|
16. |
|
Engage in the underwriting of securities, except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
|
17. |
|
Invest for the purpose of exercising control or management of any other issuer. |
Invesco California Municipal Securities (ICS)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from changing market
values will not be considered a deviation from policy. For purposes of the restrictions: (a) an
issuer of a security is the entity whose assets and revenues are committed to the payment of
interest and principal on that particular security; (b) a taxable security is any security the
interest on which is subject to federal income tax (which does not include private activity bonds
subject to the alternative minimum tax); and (c) all percentage limitations apply immediately after
a purchase or initial investment, and any subsequent change in any applicable percentage resulting
from market fluctuations or other changes in the amount of total or net assets does not require
elimination of any security from the portfolio.
The Fund may not:
1. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to municipal
obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the United States Government, its agencies or instrumentalities. In
addition, the Fund reserves the right to invest 25% or more of its assets in any of the
following types of municipal obligations, provided that the percentage of the Funds total
assets in private activity bonds in any one category does not exceed 25% of the Funds total
assets: health facility obligations, housing obligations, single family mortgage revenue
bonds, industrial revenue obligations (including pollution control obligations), electric
utility obligations, airport facility revenue obligations, water and sewer obligations,
university and college revenue obligations, bridge authority and toll road obligations and
resource recovery obligations. |
|
2. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from
purchasing, holding and selling real estate acquired as a result of the ownership of such
securities. |
|
3. |
|
Purchase or sell physical commodities unless acquired as a result of ownership of securities
or other instruments; provided that this restriction shall not prohibit the Fund from
purchasing or selling options, futures contracts and related options thereon, forward
contracts, swaps, caps, floors, collars and any other financial instruments or from investing
in securities or other instruments backed by physical commodities or as otherwise permitted by
(i) the 1940 Act, as amended from time to time, (ii) the rules and regulations |
- 51 -
|
|
promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief applicable to the Fund from the provisions of the 1940 Act, as amended from time to
time. |
4. |
|
Borrow money, except the Fund may borrow money to the extent permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the
1940 Act, as amended from time to time, or (iii) an exemption or other relief applicable to
the Fund from the provisions of the 1940 Act, as amended from time to time. |
|
5. |
|
Issue senior securities, except the Fund may issue senior securities to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief applicable to the Fund from the provisions of the 1940 Act, as amended from time to
time. |
|
6. |
|
Make loans of money or property to any person, except (a) to the extent that securities or
interests in which the Fund may invest are considered to be loans, (b) through the loan of
portfolio securities, (c) by engaging in repurchase agreements or (d) as may otherwise be
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time, or (iii) an exemption
or other relief applicable to the Fund from the provisions of the 1940 Act, as amended from
time to time. |
|
7. |
|
Engage in the underwriting of securities, except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
Invesco Van Kampen High Income Trust II (VLT)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from changing market
values will not be considered a deviation from policy.
The Fund may not:
1. |
|
With respect to 75% of its total assets, purchase any securities (other than obligations
guaranteed by the United States Government or by its agencies or instrumentalities), if as a
result more than 5% of the Funds total assets would then be invested in securities of a
single issuer or if as a result the Fund would hold more than 10% of the outstanding voting
securities of any single issuer, except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as amended from time to
time, (ii) the rules and regulations promulgated by the Securities and Exchange Commission
under the 1940 Act, as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act. |
|
2. |
|
Invest more than 25% of its total assets in securities of issuers conducting their principal
business activities in the same industry; provided, that this limitation shall not apply with
respect to investments in U.S. Government securities. |
|
3. |
|
Issue senior securities, (including borrowing money or entering into reverse repurchase
agreements) in excess of 33 1/3% of its total assets (including the
amount of senior securities issued but excluding any liabilities and indebtedness not
constituting senior securities) except that the Fund may issue senior securities which are
stocks (including preferred shares of beneficial interest) subject to the limitations set
forth in Section 18 of the 1940 Act and except that the Fund may borrow up to an additional 5%
of its total assets for temporary purposes; or pledge its assets other than to secure such
issuance or in connection with hedging transactions, when-issued and delayed delivery
transactions and similar investment strategies. The Funds obligations under interest rate
swaps are not treated as senior securities. |
|
4. |
|
Make loans of money or property to any person, except (i) to the extent the securities the
Fund may invest are considered to be loans; (ii) through loans of portfolio securities, (iii)
through the acquisition of securities subject to repurchase agreements and (iv) that the
Fund may lend money or property in connection with maintenance of the value of, or the Funds
interest with respect to, the securities owned by the Fund.
|
- 52 -
5. |
|
Buy any securities on margin. Neither the deposit of initial or variation margin in
connection with hedging transactions nor short-term credits as may be necessary for the
clearance of transactions is considered the purchase of a security on margin. |
|
6. |
|
Sell any securities short, write, purchase or sell puts, calls or combinations thereof, or
purchase or sell financial futures or options, except as described under Appendix C to this
SAI. |
|
7. |
|
Act as an underwriter of securities, except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities held in its portfolio. |
|
8. |
|
Make investments for the purpose of exercising control or participation in management, except
to the extent that exercise by the Fund of its rights under agreements related to securities
owned by the Fund would be deemed to constitute such control or participation except that
the Fund may purchase securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and regulations promulgated by the
Securities and Exchange Commission under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act. |
|
9. |
|
Invest in securities issued by other investment companies except as part of a merger,
reorganization or other acquisition and except to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. |
|
10. |
|
Buy or sell oil, gas or other mineral leases, rights or royalty contracts, although the Fund
may purchase securities of issuers which deal in, represent interests in or are secured by
interests in such leases, rights or contracts, except to the extent that the Fund may invest
in equity interests generally, as described in the Funds Prospectus. |
|
11. |
|
Purchase or sell real estate, commodities or commodity contracts, except to the extent the
securities the Fund may invest in are considered to be interests in real estate, commodities
or commodity contracts or to the extent the Fund exercises its rights under agreements
relating to such securities (in which case the Fund may liquidate real estate acquired as a
result of a default on a mortgage), and except to the extent the hedging and risk management
transactions the Fund may engage in are considered to be commodities or commodities contracts. |
Invesco High Yield Investment Fund, Inc. (MSY)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes will not be considered a violation of the
restriction. Also, if the Fund receives from an issuer of securities held by the Fund subscription
rights to purchase securities of that issuer, and if the Fund exercises such subscription rights at
a time when the Funds portfolio holdings of securities of that issuer would otherwise exceed the
limits set forth below, it will not constitute a violation if, prior to receipt of securities upon
exercise of such rights, and after announcement of such rights, the Fund has sold at least as many
securities of the same class and value as it would receive on exercise of such rights.
As a matter of fundamental policy:
1. |
|
The Fund may not purchase any security (other than obligations of the U.S. government or its
agencies or instrumentalities) if as a result more than 25% of the Funds total assets would
be invested in a particular industry; provided, however, that the foregoing restriction will
not be deemed to prohibit the Fund from purchasing the securities of any issuer pursuant to
the exercise of rights distributed to the Fund by the issuer. |
|
2. |
|
The Fund may not make any investment for the purpose of exercising control or management. |
|
3. |
|
The Fund may not buy or sell commodities or commodity contracts or real estate or interests
in real estate, except that it may purchase and sell futures contracts on stock indices and
foreign currencies, securities which |
- 53 -
|
|
are secured by real estate or commodities, and securities
of companies which invest or deal in real estate or commodities. |
4. |
|
The Fund may not make loans, except that the Fund may (i) buy and hold debt instruments in
accordance with its investment objectives and policies, (ii) enter into repurchase
agreements to the extent permitted under applicable law, and (iii) make loans of portfolio
securities. |
|
5. |
|
The Fund may not act as an underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under applicable
securities laws. |
|
6. |
|
The Fund may not issue senior securities or borrow money, except for (a) preferred stock and
other senior securities (including borrowing money, including on margin if margin securities
are owned, entering into reverse repurchase agreements and entering into similar transactions)
not in excess of 33 1/3% of its total assets, and (b) borrowings up
to 5% of its total assets (including the amount borrowed) for temporary or emergency purposes
(including for clearance of transactions, repurchase of its shares or payment of dividends),
without regard to the amount of senior securities outstanding under clause (a) above;
provided, however, that the Funds obligations under when-issued and delayed delivery
transactions and similar transactions and reverse repurchase agreements are not treated as
senior securities if covering assets are appropriately segregated, and the use of hedging
transactions shall not be deemed to involve the issuance of a senior security or a
borrowing; for purposes of clauses (a) and (b) above, the term total assets shall be
calculated after giving effect to the net proceeds of senior securities issued by the Fund
reduced by any liabilities and indebtedness not constituting senior securities except for such
liabilities and indebtedness as are excluded from treatment as senior securities by this item
(6). The Funds obligations under interest rate swaps are not treated as senior securities. |
Invesco Van Kampen Municipal Opportunity Trust (VMO)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from changing market
values will not be considered a deviation from policy. With respect to the limitations on
borrowings, the percentage limitations apply at the time of purchase and on an ongoing basis.
The Fund may not:
1. |
|
With respect to 75% of its total assets, purchase any securities (other than obligations
issued or guaranteed as to principal or interest by the United States Government or by its
agencies or instrumentalities), if as a result more than 5% of the Funds total assets would
then be invested in securities of a single issuer or if as a result the Fund would hold more
than 10% of the outstanding voting securities of any single issuer, except that the Fund may
purchase securities of other investment companies to the extent permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. |
|
2. |
|
Invest more than 25% of its total assets in a single industry; however, as described above
under Principal Risk of Investing in the Fund Market Segment Risk, the Fund may from time
to time invest more than 25% of its total assets in a particular segment of the municipal
securities market. |
|
3. |
|
Issue senior securities, as defined in the 1940 Act, other than preferred shares of
beneficial interest, except to the extent such issuance might be involved with borrowings
described under subparagraph (4) below or with respect to hedging and risk management
transactions or the writing of options. |
|
4. |
|
Borrow money, except for temporary or emergency purposes from banks or for repurchase of the
Funds Shares, and then only in an amount not exceeding one-third of the Funds total assets,
including the amount borrowed. The Fund will not mortgage, pledge or hypothecate any assets
except in connection with a borrowing. The Fund will not purchase portfolio securities during
any period that such borrowings exceed 5% |
- 54 -
|
|
of the total asset value of the Fund.
Notwithstanding this investment restriction, the Fund may enter into when issued and
delayed delivery transactions. |
5. |
|
Make loans of money or property to any person, except to the extent the securities in which
the Fund may invest are considered to be loans and except that the Fund may lend money or
property in connection with maintenance of the value of or the Funds interest with respect to
the securities owned by the Fund. |
|
6. |
|
Buy any securities on margin. Neither the deposit of initial or variation margin in
connection with hedging and risk management transactions nor short-term credits as may be
necessary for the clearance of transactions is considered the purchase of a security on
margin. |
|
7. |
|
Sell any securities short, write, purchase or sell puts, calls or combinations thereof, or
purchase or sell financial futures or options, except in connection with hedging or risk
management transactions. |
|
8. |
|
Act as an underwriter of securities, except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities held in its portfolio. |
|
9. |
|
Make investments for the purpose of exercising control or participation in management, except
to the extent that exercise by the Fund of its rights under agreements related to municipal
securities would be deemed to constitute such control or participation, and except that the
Fund may purchase securities of other investment companies to the extent permitted by (i) the
1940 Act, as amended from time to time, (ii) the rules and regulations promulgated by the
Securities and Exchange Commission under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act. |
|
10. |
|
Invest in securities issued by other investment companies except as part of a merger,
reorganization or other acquisition and except to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. |
|
11. |
|
Invest in equity interests in oil, gas or other mineral exploration or development programs
except pursuant to the exercise by the Fund of its rights under agreements relating to
municipal securities. |
|
12. |
|
Purchase or sell real estate, commodities or commodity contracts, except to the extent the
securities the Fund may invest in are considered to be interests in real estate, commodities
or commodity contracts or to the extent the Fund exercises its rights under agreements
relating to such municipal securities (in which case the Fund may liquidate real estate
acquired as a result of a default on a mortgage), and except to the extent that financial
futures and related options the Fund may invest in are considered to be commodities or
commodities contracts. |
The Fund generally will not engage in the trading of securities for the purpose of realizing
short-term profits, but it will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions to accomplish the Funds investment objective. For example, the Fund
may sell portfolio securities in anticipation of a movement in interest rates. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund does not anticipate that the annual portfolio
turnover rate of the Fund will be in excess of 100%. A high rate of portfolio turnover involves
correspondingly greater brokerage commission and transaction expenses than a lower rate, which
expenses must be borne by the Fund and the Shareholders. High portfolio turnover may also result
in the realization of substantial net short-term capital gains, and any distributions resulting
from such gains will be taxable at ordinary income rates for federal income tax purposes.
As a matter of operating policy (which means it can be changed by the Funds Board of Trustees
without Shareholder vote), the Fund will not invest 25% or more of its assets in a single industry;
however, the Fund may from time to time invest 25% or more of its assets in a particular segment of
the municipal securities market.
- 55 -
Invesco Municipal Premium Income Trust (PIA)
For purposes of the restrictions: (a) an issuer of a security is the entity whose assets and
revenues are committed to the payment of interest and principal on that particular security,
provided that the guarantee of a security will be considered a separate security; (b) a taxable
security is any security the interest on which is subject to federal income tax (which does not
include private activity bonds subject to the alternative minimum tax discussed under Tax
Matters Taxation of Fund Distributions (Tax-Free Funds) Alternative minimum tax private
activity bonds.); and (c) all percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total or net assets does not require elimination of
any security from the portfolio.
The Fund may not:
1. |
|
Invest more than 5% of the value of its total assets in the securities of any one issuer,
except that this limitation shall not apply to obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities or to the investment of 25% of the Funds
total assets. |
|
2. |
|
Purchase more than 10% of all outstanding taxable debt securities of any one issuer (other
than obligations issued, or guaranteed as to principal and interest, by the United States
Government, its agencies or instrumentalities). |
|
3. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the United States Government, its agencies or instrumentalities. In
addition, the Fund reserves the right to invest 25% or more of its assets in any of the
following types of Municipal Obligations, provided that the percentage of the Funds total
assets in private activity bonds in any one category does not exceed 25% of the Funds total
assets: health facility obligations, housing obligations, single family mortgage revenue
bonds, industrial revenue obligations (including pollution control obligations), electric
utility obligations, airport facility revenue obligations, water and sewer obligations,
university and college revenue obligations, bridge authority and toll road obligations and
resource recovery obligations. |
|
4. |
|
Invest more than 5% of the value of its total assets in taxable securities of issuers having
a record, together with predecessors, of less than three years of continuous operation. This
restriction shall not apply to any obligation of the United States Government, its agencies or
instrumentalities. |
|
5. |
|
Invest in common stock. |
|
6. |
|
Invest in securities of any issuer, other than securities of the Fund, if, to the knowledge
of the Fund, any officer or trustee of the Fund or any officer or director of the Investment
Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the aggregate more than 5%
of the outstanding securities of such issuer. |
|
7. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from
purchasing, holding and selling real estate acquired as a result of the ownership of such
securities. |
|
8. |
|
Purchase or sell commodities except that the Fund may purchase or sell financial futures
contracts and related options thereon. |
|
9. |
|
Purchase oil, gas or other mineral leases, rights or royalty contracts, or exploration or
development programs. |
|
10. |
|
Write, purchase or sell puts, calls, or combinations thereof, except for options on futures
contracts or options on debt securities. |
- 56 -
11. |
|
Purchase securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets or, by purchase in the open market of
securities of closed-end investment companies where no underwriters or dealers commission or
profit, other than customary brokers commissions, is involved and only if immediately
thereafter not more than 10% of the Funds total assets would be invested in such securities. |
12. |
|
Borrow money, except that the Fund may borrow from a bank for temporary or emergency purposes
or for repurchase of its shares provided that immediately after such borrowing the amount
borrowed does not exceed 33⅓% of the value of its total assets (including the amount borrowed)
less its liabilities (not including any borrowings but including the fair market value at the
time of computation of any other senior securities which are outstanding at the time,
including the Preferred Shares). |
13. |
|
Pledge its assets or assign or otherwise encumber them except to secure borrowings effected
within the limitations set forth in Restriction 12. However, for the purpose of this
restriction, collateral arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures are not deemed to be pledges of
assets. |
14. |
|
Issue senior securities as defined in the Act, other than preferred shares of beneficial
interest (in accordance with the terms of the Prospectus and the Act), except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a) entering into any
repurchase agreement; (b) purchasing any securities on a when-issued or delayed delivery
basis; (c) purchasing or selling any financial futures contracts; (d) borrowing money in
accordance with restrictions described above; or (e) lending portfolio securities. For the
purpose of this restriction, collateral arrangements with respect to the writing of options
and collateral arrangements with respect to initial margin for futures are not deemed to be
pledges of assets and neither such arrangements nor the purchase or sale of futures are deemed
to be the issuance of a senior security. |
15. |
|
Make loans of money or securities, except: (a) by the purchase of debt obligations in which
the Fund may invest consistent with its investment objective and policies; (b) by investment
in repurchase agreements (provided that no more than 10% of the Funds total assets will be
invested in repurchase agreements that do not mature within seven days); and (c) by lending
its portfolio securities (provided that the Fund may not lend its portfolio securities in
excess of 10% of its total assets). |
16. |
|
Make short sales of securities. |
17. |
|
Purchase securities on margin, except for such short-term loans as are necessary for the
clearance of purchases of portfolio securities. |
18. |
|
Engage in the underwriting of securities, except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
19. |
|
Invest for the purpose of exercising control or management of any other issuer. |
Whenever any fundamental investment policy states a maximum percentage of Registrants assets
which may be invested, it is intended that if the percentage limitation was adhered to at the time
the investment was made, a later change in percentage resulting from changing values or other
changes in total or net assets will not be considered a violation of such policy.
Invesco Van Kampen Select Sector Municipal Trust (VKL)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from changing market
values will not be considered a deviation from policy. The Fund may not:
1. |
|
Invest more than 25% of its total assets in a single industry; however, as described above
under Principal Risks of Investing in the Fund Market Sector Risk, the Fund may from time
to time invest more than 25% of its total assets in one or more particular segments or sectors
of the municipal securities market. |
- 57 -
2. |
|
Issue senior securities, as defined in the 1940 Act, other than preferred shares of
beneficial interest, except to the extent such issuance might be involved with borrowings
described under subparagraph (3) below or with respect to Strategic Transactions described in
Appendix C to this SAI. |
3. |
|
Borrow money, except for temporary or emergency purposes from banks or for repurchase of the
Funds Shares, and then only in an amount not exceeding one-third of the Funds total assets
including the amount borrowed. The Fund will not mortgage, pledge or hypothecate any assets
except in connection with a borrowing or a Strategic Transaction described in Appendix C to
this SAI. The Fund will not purchase portfolio securities during any period that such
borrowings exceed 5% of the total asset value of the Fund. Notwithstanding this investment
restriction, the Fund may enter into when-issued and delayed delivery transactions. |
4. |
|
Make loans of money or property to any person, except to the extent the securities in which
the Fund may invest are considered to be loans and except that the Fund may lend money or
property in connection with maintenance of the value of or the Funds interest with respect to
the securities owned by the Fund. |
5. |
|
Buy any securities on margin. Neither the deposit of initial or variation margin in
connection with Strategic Transactions described in Appendix C to this SAI nor short-term
credits as may be necessary for the clearance of transactions is considered the purchase of a
security on margin. |
6. |
|
Sell any securities short, write, purchase or sell puts, calls or combinations thereof, or
purchase or sell financial futures or options, except in connection with Strategic
Transactions described in Appendix C to this SAI. |
7. |
|
Act as an underwriter of securities, except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities held in its portfolio. |
8. |
|
Make investments for the purpose of exercising control or participation in management, except
to the extent that exercise by the Fund of its rights under agreements related to municipal
securities would be deemed to constitute such control or participation, except that the Fund
may purchase securities of other investment companies to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under
the 1940 Act, as amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act. |
9. |
|
The Fund may not invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent permitted by (i) the
1940 Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act. |
10. |
|
Invest in equity interests in oil, gas or other mineral exploration or development programs
except pursuant to the exercise by the Fund of its rights under agreements relating to
municipal securities. |
11. |
|
Purchase or sell real estate, commodities or commodity contracts, except to the extent the
securities the Fund may invest in are considered to be interests in real estate, commodities
or commodity contracts or to the extent the Fund exercises its rights under agreements
relating to such municipal securities (in which case the Fund may liquidate real estate
acquired as a result of a default on a mortgage), and except to the extent that Strategic
Transactions described in Appendix C to this SAI that the Fund may engage in are considered to
be commodities or commodities contracts. |
In addition, to comply with federal tax requirements for qualification as a regulated
investment company, the Funds investments will be limited in a manner such that at the close of
each quarter of each fiscal year, (a) no more than 25% of the Funds total assets are invested in
the securities of a single issuer, and (b) with regard to at least 50% of the Funds total assets,
no more than 5% of its total assets are invested in the securities of a single issuer. These
tax-related limitations may be changed by the Board of Trustees to the extent necessary to comply
with changes to the applicable tax requirements.
- 58 -
The Fund generally will not engage in the trading of securities for the purpose of realizing
short-term profits, but it will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions to accomplish the Funds investment objective. For example, the Fund
may sell portfolio securities in anticipation of a movement in interest rates. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund does not anticipate that the annual portfolio
turnover rate of the Fund will be in excess of 100%. A high rate of portfolio turnover involves
correspondingly greater brokerage commission and transaction expenses than a lower rate, which
expenses must be borne by the Fund and its shareholders. High portfolio turnover may also result in
the realization of substantial net short-term capital gains, and any distributions resulting from
such gains will be taxable at ordinary income rates for federal income tax purposes.
As a matter of operating policy (which means it can be changed by the Funds Board of Trustees
without Shareholder vote), the Fund will not invest 25% or more of its assets in a single industry;
however, the Fund may from time to time invest 25% or more of its assets in a particular segment of
the municipal securities market.
Invesco Van Kampen Trust for Value Municipals (VIM)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from changing market
values will not be considered a deviation from policy. The Fund may not:
1. |
|
With respect to 75% of its total assets, purchase any securities (other than tax-exempt
obligations guaranteed by the United States Government or by its agencies or
instrumentalities), if as a result more than 5% of the Funds total assets would then be
invested in securities of a single issuer or if as a result the Fund would hold more than 10%
of the outstanding voting securities of any single issuer, except that the Fund may purchase
securities of other investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. |
2. |
|
Invest more than 25% of its total assets in a single industry; however, as described above
under Principal Risks of Investing in the Fund Market Segment Risk, the Fund may from
time to time invest more than 25% of its total assets in a particular segment of the municipal
securities market. |
3. |
|
Issue senior securities, as defined in the 1940 Act, other than preferred shares of
beneficial interest, except to the extent such issuance might be involved with borrowings
described under subparagraph (4) below or with respect to hedging and risk management
transactions or the writing of options within limits described in Appendix C to this SAI. |
4. |
|
Borrow money, except for temporary or emergency purposes from banks or for repurchase of the
Funds Shares, and then only in an amount not exceeding one third of the Funds total assets,
including the amount borrowed. The Fund will not mortgage, pledge or hypothecate any assets
except in connection with a borrowing. The Fund will not purchase portfolio securities during
any period that such borrowings exceed 5% of the total asset value of the Fund.
Notwithstanding this investment restriction, the Fund may enter into when-issued and
delayed delivery transactions as described above under the heading Principal Investment
Strategies of the Fund in this Prospectus. |
5. |
|
Make loans of money or property to any person, except to the extent the securities in which
the Fund may invest are considered to be loans and except that the Fund may lend money or
property in connection with maintenance of the value of or the Funds interest with respect to
the municipal securities owned by the Fund. |
6. |
|
Buy any securities on margin. Neither the deposit of initial or variation margin in
connection with hedging and risk management transactions nor short-term credits as may be
necessary for the clearance of transactions is considered the purchase of a security on
margin. |
7. |
|
Sell any securities short, write, purchase or sell puts, calls or combinations thereof, or
purchase or sell financial futures or options, except as described in Appendix C to this SAI. |
- 59 -
8. |
|
Act as an underwriter of securities, except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities held in its portfolio. |
9. |
|
Make investments for the purpose of exercising control or participation in management, except
to the extent that exercise by the Fund of its rights under agreements related to municipal
securities would be deemed to constitute such control or participation, and except that the
Fund may purchase securities of other investment companies to the extent permitted by (i) the
1940 Act, as amended from time to time, (ii) the rules and regulations promulgated by the
Securities and Exchange Commission under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act. |
10. |
|
Invest in securities issued by other investment companies, except as part of a merger,
reorganization or other acquisition and except to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. |
11. |
|
Invest in equity interests in oil, gas or other mineral exploration or development programs
except pursuant to the exercise by the Fund of its rights under agreements relating to
municipal securities. |
12. |
|
Purchase or sell real estate, commodities or commodity contracts, except to the extent the
municipal securities the Fund may invest in are considered to be interests in real estate,
commodities, or commodity contracts or to the extent the Fund exercises its rights under
agreements relating to such municipal securities (in which case the Fund may liquidate real
estate acquired as a result of a default on a mortgage), and except to the extent that
financial futures and related options the Fund may invest in are considered to be commodities
or commodities contracts. |
The Fund generally will not engage in the trading of securities for the purpose of realizing
short-term profits, but it will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions to accomplish the Funds investment objective. For example, the Fund
may sell portfolio securities in anticipation of a movement in interest rates. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund does not anticipate that the annual portfolio
turnover rate of the Fund will be in excess of 100%. A high rate of portfolio turnover involves
correspondingly greater brokerage commission and transaction expenses than a lower rate, which
expenses must be borne by the Fund and its shareholders. High portfolio turnover may also result in
the realization of substantial net short-term capital gains, and any distributions resulting from
such gains will be taxable at ordinary income rates for federal income tax purposes.
Invesco Van Kampen Trust for Investment Grade New York Municipals (VTN)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from changing market
values will not be considered a deviation from policy. With respect to the limitations on
borrowings, the percentage limitations apply at the time of purchase and on an ongoing basis. The
Fund may not:
1. |
|
Invest more than 25% of its total assets in a single industry; however, the Fund may from
time to time invest more than 25% of its total assets in a particular segment of the municipal
securities market. |
2. |
|
Issue senior securities, as defined in the 1940 Act, other than preferred shares of
beneficial interest, except to the extent such issuance might be involved with borrowings
described under subparagraph (3) below or with respect to hedging and risk management
transactions or the writing of options. |
3. |
|
Borrow money, except for temporary or emergency purposes from banks or for repurchase of the
Funds Shares, and then only in an amount not exceeding one-third of the Funds total assets,
including the amount borrowed. The Fund will not mortgage, pledge or hypothecate any assets
except in connection with a borrowing. The Fund will not purchase portfolio securities during
any period that such borrowings exceed 5% of the total asset value of the Fund.
Notwithstanding this investment restriction, the Fund may enter into when issued and
delayed delivery transactions. |
- 60 -
4. |
|
Make loans of money or property to any person, except to the extent the securities in which
the Fund may invest are considered to be loans and except that the Fund may lend money or
property in connection with maintenance of the value of or the Funds interest with respect to
the securities owned by the Fund. |
5. |
|
Buy any securities on margin. Neither the deposit of initial or variation margin in
connection with hedging and risk management transactions nor short-term credits as may be
necessary for the clearance of transactions are considered the purchase of a security on
margin. |
6. |
|
Sell any securities short, write, purchase or sell puts, calls or combinations thereof, or
purchase or sell futures or options, except in connection with hedging or risk management
transactions. |
7. |
|
Act as an underwriter of securities, except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities held in its portfolio. |
8. |
|
Make investments for the purpose of exercising control or participation in management, except
to the extent that exercise by the Fund of its rights under agreements related to municipal
securities would be deemed to constitute such control or participation, and except that the
Fund may purchase securities of other investment companies to the extent permitted by (i) the
1940 Act, as amended from time to time, (ii) the rules and regulations promulgated by the
Securities and Exchange Commission under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act. |
9. |
|
Invest in securities issued by other investment companies except as part of a merger,
reorganization or other acquisition and except to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. |
10. |
|
Invest in equity interests in oil, gas or other mineral exploration or development programs
except pursuant to the exercise by the Fund of its rights under agreements relating to
municipal securities. |
11. |
|
Purchase or sell real estate, commodities or commodity contracts, except to the extent the
securities the Fund may invest in are considered to be interests in real estate, commodities
or commodity contracts or to the extent the Fund exercises its rights under agreements
relating to such municipal securities (in which case the Fund may liquidate real estate
acquired as a result of a default on a mortgage), and except to the extent that financial
futures and related options the Fund may invest in are considered to be commodities or
commodities contracts. |
In addition, to comply with federal tax requirements for qualifications as a regulated
investment company, the Funds investments will be limited in a manner such that at the close of
each quarter of each fiscal year, (a) no more than 25% of the Funds total assets are invested in
the securities of a single issuer and (b) with regard to at least 50% of the Funds total assets,
no more than 5% of its total assets are invested in the securities of a single issuer. These
tax-related limitations may be changed by the Trustees to the extent necessary to comply with
changes to applicable tax requirements.
The Fund generally will not engage in the trading of securities for the purpose of realizing
short-term profits, but it will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions to accomplish the Funds investment objective. For example, the Fund
may sell portfolio securities in anticipation of a movement in interest rates. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund does not anticipate that the annual
portfolio turnover rate of the Fund will be in excess of 100%. A high rate of portfolio turnover
involves correspondingly greater brokerage commission and transaction expenses than a lower rate,
which expenses must be borne by the Fund and the shareholders. High portfolio turnover may also
result in the realization of substantial net short-term capital gains, and any distributions
resulting from such gains will be taxable at ordinary income rates for federal income tax purposes.
As a matter of operating policy (which means it can be changed by the Funds Board of Trustees
without Shareholder vote), each Fund will not invest 25% or more of its assets in a single
industry; however, each Fund may from time to time invest 25% or more of its assets in a particular
segment of the municipal securities market.
- 61 -
Invesco New York Quality Municipal Securities (IQN)
For purposes of the restrictions: (a) an issuer of a security is the entity whose assets
and revenues are committed to the payment of interest and principal on that particular security;
(b) a taxable security is any security the interest on which is subject to federal income tax
(which does not include private activity bonds subject to the alternative minimum tax); and (c)
all percentage limitations apply immediately after a purchase or initial investment, and any
subsequent change in any applicable percentage resulting from market fluctuations or other changes
in the amount of total or net assets does not require elimination of any security from the
portfolio. The Fund may not:
1. |
|
Invest 25% or more of the value of its total assets in securities of issuers in any one
industry; provided, however, that such limitations shall not be applicable to Municipal
Obligations issued by governments or political subdivisions of governments, and obligations
issued or guaranteed by the United States Government, its agencies or instrumentalities. In
addition, the Fund reserves the right to invest 25% or more of its assets in any of the
following types of Municipal Obligations, provided that the percentage of the Funds total
assets in private activity bonds in any one category does not exceed 25% of the Funds total
assets: health facility obligations, housing obligations, single family mortgage revenue
bonds, industrial revenue obligations (including pollution control obligations), electric
utility obligations, airport facility revenue obligations, water and sewer obligations,
university and college revenue obligations, bridge authority and toll road obligations and
resource recovery obligations. |
2. |
|
Invest more than 5% of the value of its total assets in taxable securities of issuers having
a record, together with predecessors, of less than three years of continuous operation. This
restriction shall not apply to any obligation of the United States Government, its agencies or
instrumentalities. |
3. |
|
Invest in common stock. |
4. |
|
Invest in securities of any issuer, other than securities of the Fund, if, to the knowledge
of the Fund, any officer or trustee of the Fund or any officer or director of the Investment
Adviser owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the aggregate more than 5%
of the outstanding securities of such issuer. |
5. |
|
Purchase or sell real estate or interests therein, although it may purchase securities
secured by real estate or interests therein. This shall not prohibit the Fund from
purchasing, holding and selling real estate acquired as a result of the ownership of such
securities. |
6. |
|
Purchase or sell commodities except that the Fund may purchase or sell financial futures
contracts and related options thereon. |
7. |
|
Purchase oil, gas or other mineral leases, rights or royalty contracts, or exploration or
development programs. |
8. |
|
Write, purchase or sell puts, calls, or combinations thereof, except for options on futures
contracts or options on debt securities. |
9. |
|
Purchase securities of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets or, by purchase in the open market of
securities of closed-end investment companies where no underwriters or dealers commission or
profit, other than customary brokers commissions, is involved and only if immediately
thereafter not more than (i) 5% of the Funds total assets, taken at market value, would be
invested in any one such company and (ii) 10% of the Funds total assets, taken at market
value, would be invested in such securities. |
10. |
|
Borrow money, except that the Fund may borrow from a bank for temporary or emergency purposes
or for repurchase of its shares provided that immediately after such borrowing the amount
borrowed does not exceed 33 ⅓% of the value of its total assets (including the amount
borrowed) less its liabilities (not including any borrowings but including the fair market
value at the time of computation of any other senior securities which are outstanding at the
time, including the Preferred Shares). |
- 62 -
11. |
|
Pledge its assets or assign or otherwise encumber them except to secure borrowings effected
within the limitations set forth in Restriction 10. However, for the purpose of this
restriction, collateral arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures are not deemed to be pledges of
assets. |
12. |
|
Issue senior securities as defined in the 1940 Act, other than preferred shares of beneficial
interest (in accordance with the terms of the 1940 Act), except insofar as the Fund may be
deemed to have issued a senior security by reason of: (a) entering into any repurchase
agreement; (b) purchasing any securities on a when-issued or delayed delivery basis; (c)
purchasing or selling any financial futures contracts; (d) borrowing money in accordance with
restrictions described above; or (e) lending portfolio securities. |
13. |
|
Make loans of money or securities, except: (a) by the purchase of debt obligations in which
the Fund may invest consistent with its investment objective and policies; (b) by investment
in repurchase agreements (provided that no more than 10% of the Funds total assets will be
invested in repurchase agreements that do not mature within seven days); and (c) by lending
its portfolio securities (provided that the Fund may not lend its portfolio securities in
excess of 10% of its total assets). |
14. |
|
Make short sales of securities. |
15. |
|
Purchase securities on margin, except for such short-term loans as are necessary for the
clearance of purchases of portfolio securities. |
16. |
|
Engage in the underwriting of securities, except insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in disposing of a portfolio security. |
17. |
|
Invest for the purpose of exercising control or management of any other issuer. |
Invesco Van Kampen Municipal Trust (VKQ)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from changing market
values will not be considered a deviation from policy. With respect to the limitations on
borrowings, the percentage limitations apply at the time of purchase and on an ongoing basis. The
Fund may not:
1. |
|
With respect to 75% of its total assets, purchase any securities (other than tax-exempt
obligations guaranteed by the United States Government or by its agencies or
instrumentalities), if as a result more than 5% of the Funds total assets would then be
invested in securities of a single issuer or if as a result the Fund would hold more than 10%
of the outstanding voting securities of any single issuer, except that the Fund may purchase
securities of other investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. |
2. |
|
Invest more than 25% of its total assets in a single industry; however, as described above
under Principal Risks of Investing in the Fund Market Segment Risk, the Fund may from
time to time invest more than 25% of its total assets in a particular segment of the municipal
securities market. |
3. |
|
Issue senior securities, as defined in the 1940 Act, other than preferred shares of
beneficial interest, except to the extent such issuance might be involved with borrowings
described under subparagraph (4) below or with respect to hedging and risk management
transactions or the writing of options within limits described in Appendix C to this SAI. |
4. |
|
Borrow money, except for temporary or emergency purposes from banks or for repurchase of the
Funds Shares, and then only in an amount not exceeding one-third of the Funds total assets,
including the amount borrowed. The Fund will not mortgage, pledge or hypothecate any assets
except in connection with a borrowing. The Fund will not purchase portfolio securities during
any period that such borrowings exceed 5% of the total asset value of the Fund.
Notwithstanding this investment restriction, the Fund may enter into when |
- 63 -
|
|
issued and delayed delivery transactions as described above under the heading Principal
Investment Strategies of the Fund in this Prospectus. |
|
5. |
|
Make loans of money or property to any person, except to the extent the securities in which
the Fund may invest are considered to be loans and except that the Fund may lend money or
property in connection with maintenance of the value of or the Funds interest with respect to
the municipal securities owned by the Fund. |
|
6. |
|
Buy any securities on margin. Neither the deposit of initial or variation margin in
connection with hedging and risk management transactions nor short-term credits as may be
necessary for the clearance of transactions is considered the purchase of a security on
margin. |
|
7. |
|
Sell any securities short, write, purchase or sell puts, calls or combinations thereof, or
purchase or sell financial futures or options, except as described in Appendix C to this SAI. |
|
8. |
|
Act as an underwriter of securities, except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities held in its portfolio. |
|
9. |
|
Make investments for the purpose of exercising control or participation in management, except
to the extent that exercise by the Fund of its rights under agreements related to municipal
securities would be deemed to constitute such control or participation, and except that the
Fund may purchase securities of other investment companies to the extent permitted by (i) the
1940 Act, as amended from time to time, (ii) the rules and regulations promulgated by the
Securities and Exchange Commission under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act. |
|
10. |
|
Invest in securities issued by other investment companies except as part of a merger,
reorganization or other acquisition and except to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. |
11. |
|
Invest in equity interests in oil, gas or other mineral exploration or development programs
except pursuant to the exercise by the Fund of its rights under agreements relating to
municipal securities. |
12. |
|
Purchase or sell real estate, commodities or commodity contracts, except to the extent the
municipal securities the Fund may invest in are considered to be interests in real estate,
commodities or commodity contracts or to the extent the Fund exercises its rights under
agreements relating to such municipal securities (in which case the Fund may liquidate real
estate acquired as a result of a default on a mortgage), and except to the extent that
financial futures and related options the Fund may invest in are considered to be commodities
or commodities contracts. |
The Fund generally will not engage in the trading of securities for the purpose of realizing
short-term profits, but it will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions to accomplish the Funds investment objective. For example, the Fund
may sell portfolio securities in anticipation of a movement in interest rates. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund does not anticipate that the annual portfolio
turnover rate of the Fund will be in excess of 100%. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses than a lower rate, which expenses must be
borne by the Fund and its shareholders. High portfolio turnover may also result in the realization
of substantial net short-term capital gains, and any distributions resulting from such gains will
be taxable at ordinary income rates for federal income tax purposes.
As a matter of operating policy (which means it can be changed by the Funds Board of Trustees
without Shareholder vote), each Fund will not invest 25% or more of its assets in a single
industry; however, each Fund may from time to time invest 25% or more of its assets in a particular
segment of the municipal securities market.
- 64 -
Invesco Van Kampen Massachusetts Value Municipal Income Trust (VMV)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from changing market
values will not be considered a deviation from policy. The Fund may not:
1. |
|
Invest more than 25% of its total assets in a single industry; however, as described above
under Principal Risks of Investing in the Fund Market Segment Risk, the Fund may from
time to time invest more than 25% of its total assets in a particular segment of the municipal
securities market. |
|
2. |
|
Issue senior securities, as defined in the 1940 Act, other than preferred shares of
beneficial interest, except to the extent such issuance might be involved with borrowings
described under subparagraph (3) below or with respect to Strategic Transactions described in
Appendix C to this SAI. |
|
3. |
|
Borrow money, except for temporary or emergency purposes from banks or for repurchase of the
Funds Shares, and then only in an amount not exceeding one-third of the Funds total assets
including the amount borrowed. The Fund will not mortgage, pledge or hypothecate any assets
except in connection with a borrowing or a Strategic Transaction described in Appendix C to
this SAI. The Fund will not purchase portfolio securities during any period that such
borrowings exceed 5% of the total asset value of the Fund. Notwithstanding this investment
restriction, the Fund may enter into when-issued and delayed delivery transactions. |
|
4. |
|
Make loans of money or property to any person, except to the extent the securities in which
the Fund may invest are considered to be loans and except that the Fund may lend money or
property in connection with maintenance of the value of or the Funds interest with respect to
the securities owned by the Fund. |
|
5. |
|
Buy any securities on margin. Neither the deposit of initial or variation margin in
connection with Strategic Transactions described in Appendix C to this SAI nor short-term
credits as may be necessary for the clearance of transactions is considered the purchase of a
security on margin. |
|
6. |
|
Sell any securities short, write, purchase or sell puts, calls or combinations thereof, or
purchase or sell financial futures or options, except in connection with Strategic
Transactions described in Appendix C to this SAI. |
|
7. |
|
Act as an underwriter of securities, except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities held in its portfolio. |
|
8. |
|
Make investments for the purpose of exercising control or participation in management, except
to the extent that exercise by the Fund of its rights under agreements related to municipal
securities would be deemed to constitute such control or participation, except that the Fund
may purchase securities of other investment companies to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under
the 1940 Act, as amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act. |
|
9. |
|
Invest in securities issued by other investment companies except as part of a merger,
reorganization or other acquisition and except to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the SEC under the
1940 Act, as amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act. |
|
10. |
|
Invest in equity interests in oil, gas or other mineral exploration or development programs
except pursuant to the exercise by the Fund of its rights under agreements relating to
municipal securities. |
|
11. |
|
Purchase or sell real estate, commodities or commodity contracts, except to the extent the
securities the Fund may invest in are considered to be interests in real estate, commodities
or commodity contracts or to the extent the Fund exercises its rights under agreements
relating to such municipal securities (in which case the Fund may liquidate real estate
acquired as a result of a default on a mortgage), and except to the extent that Strategic |
- 65 -
|
|
Transactions described in Appendix C to this SAI that the Fund may engage in are considered to be
commodities or commodities contracts. |
In addition, to comply with federal tax requirements for qualification as a regulated
investment company, the Funds investments will be limited in a manner such that at the close of
each quarter of each fiscal year, (a) no more than 25% of the Funds total assets are invested in
the securities of a single issuer and (b) with regard to at least 50% of the Funds total assets,
no more than 5% of its total assets are invested in the securities of a single issuer. These
tax-related limitations may be changed by the Board of Trustees to the extent necessary to comply
with changes to applicable tax requirements.
The Fund generally will not engage in the trading of securities for the purpose of realizing
short-term profits, but it will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions to accomplish the Funds investment objective. For example, the Fund
may sell portfolio securities in anticipation of a movement in interest rates. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund does not anticipate that the annual portfolio
turnover rate of the Fund will be in excess of 100%. A high rate of portfolio turnover involves
correspondingly greater brokerage commission and transaction expenses than a lower rate, which
expenses must be borne by the Fund and its Common Shareholders. High portfolio turnover may also
result in the realization of substantial net short-term capital gains, and any distributions
resulting from such gains will be taxable at ordinary income rates for federal income tax purposes.
Invesco Van Kampen Ohio Quality Municipal Trust (VOQ)
If a percentage restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from changing market
values will not be considered a deviation from policy. With respect to the limitations on
borrowings, the percentage limitations apply at the time of purchase and on an ongoing basis. The
Fund may not:
1. |
|
Invest more than 25% of its total assets in a single industry; however, as described above
under Principal Risks of Investing in the Fund Market Segment Risk, the Fund may from
time to time invest more than 25% of its total assets in a particular segment of the municipal
securities market. |
2. |
|
Issue senior securities, as defined in the 1940 Act, other than preferred shares of
beneficial interest, except to the extent such issuance might be involved with borrowings
described under subparagraph (3) below or with respect to hedging and risk management
transactions or the writing of options within limits described in Appendix C to this SAI. |
3. |
|
Borrow money, except for temporary or emergency purposes from banks or for repurchase of the
Funds Shares, and then only in an amount not exceeding one-third of the Funds total assets,
including the amount borrowed. The Fund will not mortgage, pledge or hypothecate any assets
except in connection with a borrowing. The Fund will not purchase portfolio securities during
any period that such borrowings exceed 5% of the total asset value of the Fund.
Notwithstanding this investment restriction, the Fund may enter into when issued and
delayed delivery transactions as described above under the heading Principal Investment
Strategies of the Fund in this Prospectus. |
4. |
|
Make loans of money or property to any person, except to the extent the securities in which
the Fund may invest are considered to be loans and except that the Fund may lend money or
property in connection with maintenance of the value of or the Funds interest with respect to
the municipal securities owned by the Fund. |
5. |
|
Buy any securities on margin. Neither the deposit of initial or variation margin in
connection with hedging and risk management transactions nor short-term credits as may be
necessary for the clearance of transactions is considered the purchase of a security on
margin. |
6. |
|
Sell any securities short, write, purchase or sell puts, calls or combinations thereof, or
purchase or sell financial futures or options, except as described in Appendix C to this SAI. |
- 66 -
7. |
|
Act as an underwriter of securities, except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities held in its portfolio. |
|
8. |
|
Make investments for the purpose of exercising control or participation in management, except
to the extent that exercise by the Fund of its rights under agreements related to municipal
securities would be deemed to constitute such control or participation, and except that the
Fund may purchase securities of other investment companies to the extent permitted by (i) the
1940 Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act. |
|
9. |
|
Invest in securities issued by other investment companies except as part of a merger,
reorganization or other acquisition and except to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the SEC under the
1940 Act, as amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act. |
|
10. |
|
Invest in equity interests in oil, gas or other mineral exploration or development programs,
except pursuant to the exercise by the Fund of its rights under agreements relating to
municipal securities. |
|
11. |
|
Purchase or sell real estate, commodities or commodity contracts, except to the extent the
municipal securities the Fund may invest in are considered to be interests in real estate,
commodities or commodity contracts or to the extent the Fund exercises its rights under
agreements relating to municipal securities (in which case the Fund may liquidate real estate
acquired as a result of a default on a mortgage), and except to the extent that financial
futures and related options the Fund may invest in are considered to be commodities or
commodities contracts. |
In addition, to comply with federal tax requirements for qualification as a regulated
investment company, the Funds investments will be limited in a manner such that, at the close of
each quarter of each fiscal year, (a) no more than 25% of the Funds total assets are invested in
the securities of a single issuer, and (b) with regard to at least 50% of the Funds total assets,
no more than 5% of its total assets are invested in the securities of a single issuer. These
tax-related limitations may be changed by the Trustees to the extent necessary to comply with
changes to applicable tax requirements.
The Fund generally will not engage in the trading of securities for the purpose of realizing
short-term profits, but it will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions to accomplish the Funds investment objective. For example, the Fund
may sell portfolio securities in anticipation of a movement in interest rates. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund does not anticipate that the annual portfolio
turnover rate of the Fund will be in excess of 100%. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses than a lower rate, which expenses must be
borne by the Fund and its shareholders. High portfolio turnover may also result in the realization
of substantial net short-term capital gains, and any distributions resulting from such gains will
be taxable at ordinary income rates for federal income tax purposes.
As a matter of operating policy (which means it can be changed by the Funds Board of Trustees
without Shareholder vote), each Fund will not invest 25% or more of its assets in a single
industry; however, each Fund may from time to time invest 25% or more of its assets in a particular
segment of the municipal securities market.
Invesco Van Kampen Trust for Investment Grade New Jersey Municipals (VTJ)
The Funds investment objective, its investment policy with respect to investing at least 80%
of its total assets in municipal securities and the following investment restrictions are
fundamental and cannot be changed without the approval of the holders of a majority of the Funds
outstanding voting securities as defined in the 1940 Act. All other investment policies or
practices are considered by the Fund not to be fundamental and accordingly may be changed without
shareholder approval. If a percentage restriction on investment or use of assets set forth below is
adhered to at the time a transaction is effected, later changes in percentage resulting from
changing market values will not be considered a deviation from policy. The Fund may not:
- 67 -
1. |
|
With respect to 75% of its total assets, purchase any securities (other than tax-exempt
obligations guaranteed by the United States Government or by its agencies or
instrumentalities), if as a result more than 5% of the Funds total assets would then be
invested in securities of a single issuer or if as a result the Fund would hold more than 10%
of the outstanding voting securities of any single issuer, except that the Fund may purchase
securities of other investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. |
|
2. |
|
Invest more than 25% of its total assets in a single industry; however, the Fund may from
time to time invest more than 25% of its total assets in a particular segment of the municipal
securities market. |
|
3. |
|
Issue senior securities, as defined in the 1940 Act, other than preferred shares of
beneficial interest, except to the extent such issuance might be involved with borrowings
described under subparagraph (4) below or with respect to hedging and risk management
transactions or the writing of options. |
|
4. |
|
Borrow money, except for temporary or emergency purposes from banks or for repurchase of the
Funds Shares, and then only in an amount not exceeding one-third of the Funds total assets,
including the amount borrowed. The Fund will not mortgage, pledge or hypothecate any assets
except in connection with a borrowing. The Fund will not purchase portfolio securities during
any period that such borrowings exceed 5% of the total asset value of the Fund.
Notwithstanding this investment restriction, the Fund may enter into when-issued and
delayed delivery transactions. |
|
5. |
|
Make loans of money or property to any person, except to the extent the securities in which
the Fund may invest are considered to be loans and except that the Fund may lend money or
property in connection with maintenance of the value of or the Funds interest with respect to
the securities owned by the Fund. |
|
6. |
|
Buy any securities on margin. Neither the deposit of initial or variation margin in
connection with hedging and risk management transactions nor short-term credits as may be
necessary for the clearance of transactions is considered the purchase of a security on
margin. |
|
7. |
|
Sell any securities short, write, purchase or sell puts, calls or combinations thereof, or
purchase or sell futures or options, except in connection with hedging or risk management
transactions. |
|
8. |
|
Act as an underwriter of securities, except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities held in its portfolio. |
|
9. |
|
Make investments for the purpose of exercising control or participation in management, except
to the extent that exercise by the Fund of its rights under agreements related to municipal
securities would be deemed to constitute such control or participation, and except that the
Fund may purchase securities of other investment companies to the extent permitted by (i) the
1940 Act, as amended from time to time, (ii) the rules and regulations promulgated by the
Securities and Exchange Commission under the 1940 Act, as amended from time to time, or (iii)
an exemption or other relief from the provisions of the 1940 Act. |
|
10. |
|
Invest in securities issued by other investment companies except as part of a merger,
reorganization or other acquisition and except to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by the Securities and
Exchange Commission under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. |
|
11. |
|
Invest in equity interests in oil, gas or other mineral exploration or development programs
except pursuant to the exercise by the Fund of its rights under agreements relating to
municipal securities. |
|
12. |
|
Purchase or sell real estate, commodities or commodity contracts, except to the extent the
securities the Fund may invest in are considered to be interests in real estate, commodities
or commodity contracts or to the extent the Fund exercises its rights under agreements
relating to such municipal securities (in which case the Fund |
- 68 -
|
|
may liquidate real estate acquired as a result of a default on a mortgage), and except to the
extent that financial futures and related options the Fund may invest in are considered to be
commodities or commodities contracts. |
The Fund generally will not engage in the trading of securities for the purpose of realizing
short-term profits, but it will adjust its portfolio as it deems advisable in view of prevailing or
anticipated market conditions to accomplish the Funds investment objective. For example, the Fund
may sell portfolio securities in anticipation of a movement in interest rates. Other than for tax
purposes, frequency of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund does not anticipate that the annual
portfolio turnover rate of the Fund will be in excess of 100%. A high rate of portfolio turnover
involves correspondingly greater brokerage commission and transaction expenses than a lower rate,
which expenses must be borne by the Fund and the Shareholders. High portfolio turnover may also
result in the realization of substantial net short-term capital gains, and any distributions
resulting from such gains will be taxable at ordinary income rates for federal income tax purposes.
Portfolio Turnover
The portfolio turnover rates for each Fund are presented in Appendix D to this SAI.
Management of the Funds
For additional discussion regarding management of your Fund, see your Funds Proxy Statement.
Biographical information about the executive officers and Trustees of the Funds, as well as
information about Trustee qualifications and experience, remuneration of Trustees and Board
leadership structure, role in risk oversight, and committees and meetings can be found in your
Funds Proxy Statement.
Code of Ethics. Invesco, the Funds, Invesco Distributors and the Sub-Advisers each have
adopted a Code of Ethics under Rule 17j-1 under the 1940 Act that applies to all Invesco Fund
trustees and officers, and employees of Invesco, the Sub-Advisers and their affiliates, and
governs, among other things, the personal trading activities of all such persons. Unless
specifically noted, each Sub-Advisers Code of Ethics does not materially differ from Invesco Code
of Ethics discussed below. The Code of Ethics is intended to address conflicts of interest with
the Funds that may arise from personal trading, including personal trading in most of the Invesco
Funds. Personal trading, including personal trading involving securities that may be purchased or
held by an Invesco Fund, is permitted under the Code of Ethics subject to certain restrictions;
however, employees are required to pre-clear security transactions with the Compliance Officer or a
designee and to report transactions on a regular basis.
These Codes of Ethics can be reviewed and copied at the SECs Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may be obtained by
calling the SEC at (202) 551-8090. Copies of the Codes of Ethics may alternatively be obtained,
after paying a duplicating fee, by sending an electronic request to publicinfo@sec.gov or by
writing the SECs Public Reference Section, Washington, D.C. 20549-0102. The Codes of Ethics are
also available, free of charge, on the EDGAR Database on the SECs Web site at http://www.sec.gov.
Proxy Voting Policies. Invesco is comprised of two business divisions, Invesco Aim and
Invesco Institutional, each of which have adopted their own specific Proxy Voting Policies.
The Board of each Fund has delegated responsibility for decisions regarding proxy voting for
securities held by each Fund to the following divisions of Invesco:
|
|
|
Fund |
|
Proxy Voting Entity |
Invesco Value Municipal Income Trust
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco Municipal Income Opportunities Trust
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco Quality Municipal Income Trust
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco Van Kampen California Value Municipal Income Trust
|
|
Invesco Aim a division of Invesco |
- 69 -
|
|
|
Fund |
|
Proxy Voting Entity |
Invesco Van Kampen High Income Trust II
|
|
Invesco Aim a division of Invesco |
|
|
|
Invesco Van Kampen Municipal Opportunity Trust
|
|
Invesco Aim a division of Invesco |
|
|
|
Invesco Van Kampen Trust for Investment Grade New York
Municipals
|
|
Invesco Aim a division of Invesco |
|
|
|
Invesco Van Kampen Municipal Trust
|
|
Invesco Aim a division of Invesco |
|
|
|
Invesco Value Municipal Bond Trust
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco Value Municipal Securities
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco Value Municipal Trust
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco Municipal Income Opportunities Trust II
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco Municipal Income Opportunities Trust III
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco Quality Municipal Investment Trust
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco Quality Municipal Securities
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco California Municipal Income Trust
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco California Quality Municipal Securities
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco California Municipal Securities
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco High Yield Investments Fund, Inc.
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco Municipal Premium Income Trust
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco Van Kampen Select Sector Municipal Trust
|
|
Invesco Aim a division of Invesco |
|
|
|
Invesco Van Kampen Trust for Value Municipals
|
|
Invesco Aim a division of Invesco |
|
|
|
Invesco New York Quality Municipal Securities
|
|
Invesco Institutional a division
of Invesco |
|
|
|
Invesco Van Kampen Massachusetts Value Municipal Income Trust
|
|
Invesco Aim a division of Invesco |
|
|
|
Invesco Van Kampen Ohio Quality Municipal Trust
|
|
Invesco Aim a division of Invesco |
|
|
|
Invesco Van Kampen Trust for Investment Grade New Jersey
Municipals
|
|
Invesco Aim a division of Invesco |
Invesco (the proxy voting entity) will vote such proxies in accordance with its proxy policies
and procedures, which have been reviewed and approved by the Board. Invescos proxy policies and
procedures are incorporated into this SAI by reference to Appendix E to the Statement of Additional
Information for AIM Growth Series (Invesco Growth Series), filed via EDGAR on April 26, 2012 as
part of Post-Effective Amendment No. 97 to such registrants Registration Statement. The accession
number for such Post-Effective Amendment is listed on page 2 of this SAI.
The portions of such Post-Effective Amendment that are not specifically referenced above are
not incorporated into this SAI.
Any material changes to the proxy policies and procedures will be submitted to the Board for
approval. The Board will be supplied with a summary quarterly report of each Funds proxy voting
record. Information regarding how the Funds voted proxies related to their portfolio securities
during the twelve months ended June 30, 2011, is available without charge at our Web site,
http://www.invesco.com/us. This information is also available at the SEC Web site,
http://www.sec.gov.
- 70 -
Ownership of Securities
For information about Trustee and officer security ownership in the Funds as well as
information about other significant holders of securities of the Funds, see the exhibit to your
Proxy Statement entitled, Ownership of the Funds. A shareholder who owns beneficially 25% or
more of the outstanding shares of a Fund is presumed to control that Fund. Such a shareholders
vote could have a more significant effect on matters presented at a shareholders meeting than
votes of other shareholders.
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 successor in
interest to multiple investment advisers, has been an investment adviser since 1976. Invesco
is an indirect, wholly owned subsidiary of Invesco Ltd. Invesco Ltd. and its subsidiaries are an
independent global investment management group. Certain of the directors and officers of Invesco
are also executive officers of the Funds and their affiliations are shown in each Proxy Statement.
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. Each Funds
Investment Advisory Agreement (the Advisory Agreement) provides that, in fulfilling its
responsibilities, Invesco may engage the services of other investment managers with respect to 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, the Adviser is also
responsible for furnishing to the Funds the services of persons believed to be competent to perform
supervisory and administrative services required by the Funds and that, 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 the Funds 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, accounting, auditing, or governmental fees, the cost of preparing share certificates,
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
trustees and shareholder meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by the Funds 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 Funds office space and facilities. Invesco
furnishes to the Funds all personnel for managing the affairs of the Funds. Information about
advisory fees and any applicable fee waiver and/or expense reimbursement for your Fund can be found
in your Funds Proxy Statement in the section entitled, APPROVAL OF MERGERS How do the
management, investment adviser and other service providers of the Funds compare? The management
fees paid during each Funds last three completed fiscal years are found in Appendix E to this SAI.
Investment Sub-Advisers
Invesco has entered into a Sub-Advisory Agreement with certain affiliates to serve as
sub-advisers to each Fund pursuant to which these affiliated sub-advisers may be appointed by
Invesco from time to time to provide discretionary investment management services, investment
advice, and/or order execution services to the Funds.
- 71 -
These affiliated sub-advisers, each of which is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, are:
Invesco Asset Management Deutschland GmbH (Invesco Deutschland)
Invesco Asset Management Limited (Invesco Asset Management)
Invesco Asset Management (Japan) Limited (Invesco Japan)
Invesco Australia Limited (Invesco Australia)
Invesco Hong Kong Limited (Invesco Hong Kong)
Invesco Senior Secured Management, Inc. (Invesco Senior Secured)
Invesco Canada Ltd. (Invesco Canada); (each a Sub-Adviser and collectively, the Sub-Advisers).
Invesco and each Sub-Adviser are indirect wholly-owned subsidiaries of Invesco Ltd.
The only fees payable to the Sub-Advisers under the Sub-Advisory Agreement are for providing
discretionary investment management services. For such services, Invesco pays each Sub-Adviser a
fee, computed daily and paid monthly, equal to (i) 40% of the monthly compensation that Invesco
receives from each Fund, multiplied by (ii) the fraction equal to the net assets of such Fund as to which such
Sub-Adviser shall have provided discretionary investment management services for that month divided
by the net assets of such Fund for that month. Pursuant to the Sub-Advisory Agreement, this fee is
reduced to reflect contractual or voluntary fee waivers or expense limitations by Invesco, if any,
in effect from time to time. In no event shall the aggregate monthly fees paid to the Sub-Advisers
under the Sub-Advisory Agreement exceed 40% of the monthly compensation that Invesco receives from
a Fund pursuant to its advisory agreement with the Fund, as reduced to reflect contractual or
voluntary fees waivers or expense limitations by Invesco, if any.
Securities Lending Arrangements
If a Fund engages in securities lending, Invesco will provide the Fund related investment
advisory and administrative services. The Advisory Agreement describes the administrative services
to be rendered by Invesco if a Fund engages in securities lending activities, as well as the
compensation Invesco may receive for such administrative services. Services to be provided
include: (a) overseeing participation in the securities lending program to ensure compliance with
all applicable regulatory and investment guidelines; (b) assisting the securities lending agent or
principal (the agent) in determining which specific securities are available for loan; (c)
monitoring the agent to ensure that securities loans are effected in accordance with Invescos
instructions and with procedures adopted by the Board; (d) preparing appropriate periodic reports
for, and seeking appropriate approvals from, the Board with respect to securities lending
activities; (e) responding to agent inquiries; and (f) performing such other duties as may be
necessary.
Invescos compensation for advisory services rendered in connection with securities lending is
included in the advisory fee schedule. As compensation for the related administrative services
Invesco will provide, a lending Fund will pay Invesco a fee equal to 25% of the net monthly
interest or fee income retained or paid to the Fund from such activities. Invesco currently waives
such fee, and has agreed to seek Board approval prior to its receipt of all or a portion of such
fee.
Service Agreements
Administrative Services Agreement. Invesco and each Fund 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 the
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, by votes cast in person at a meeting called for such purpose. Under the
Administrative Services Agreement, Invesco is entitled to receive from the Funds reimbursement of
its costs or such reasonable compensation as may be approved by the Board. Currently, Invesco is
reimbursed for the services of the Funds principal financial officer and her staff and any
expenses related to fund accounting services.
- 72 -
Administrative services fees paid for the last three fiscal years of each Fund are found in
Appendix F to this SAI.
Other Service Providers
Transfer Agent. Computershare Trust Company, N.A. (Computershare), P.O. Box 43078,
Providence, RI 02940-3078 is the transfer agent for each Fund.
The Transfer Agency and Service Agreement (the TA Agreement) between each Fund and
Computershare provides that Computershare will perform certain services related to the servicing of
shareholders of the Funds. Other such services may be delegated or subcontracted to third party
intermediaries.
Custodian. State Street Bank and Trust Company (the Custodian), 225 Franklin Street,
Boston, Massachusetts 02110, is custodian of all securities and cash of the Funds. The Bank of New
York Mellon, 2 Hanson Place, Brooklyn, New York 11217-1431, also serves as sub-custodian to
facilitate cash management.
The Custodian is 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 each Fund, the Custodian maintains the portfolio securities of the
Fund, administers the purchases and sales of portfolio securities, collects interest and dividends
and other distributions made on the securities held in the portfolio of the Fund 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 each Funds Board has appointed, and the Board has ratified and approved,
PricewaterhouseCoopers LLP, 1201 Louisiana Street, Suite 2900, Houston, Texas 77002, as the
independent registered public accounting firm to audit the financial statements of the Funds.
Counsel to the Funds. Stradley Ronon Stevens & Young, LLP, 2600 One Commerce Square,
Philadelphia, Pennsylvania 19103 serves as counsel to IIM, IMC, IMS, IMT, OIA, OIB, OIC, IQI, IQT,
IQM, IIC, IQC, ICS, MSY, PIA and IQN. Skadden, Arps, Slate, Meagher & Flom, LLP, 155 West Wacker
Drive, Chicago, Illinois 60606 serves as counsel to VCV, VLT, VMO, VKL, VIM, VTN, VKQ, VMV, VOQ and
VTJ.
Portfolio Managers
Appendix G to this SAI contains the following information regarding the portfolio managers
identified in your Funds Proxy Statement:
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The dollar range of the managers investments in each Fund. |
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A description of the managers compensation structure. |
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Information regarding other accounts managed by the manager and potential
conflicts of interest that might arise from the management of multiple accounts. |
Trading Practices and Brokerage
Invesco has adopted compliance procedures that cover, among other items, brokerage allocation
and other trading practices.
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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 third-party
broker-dealers to execute the trades, and negotiating commissions and spreads. Various Invesco Ltd.
subsidiaries have created a global equity trading desk. The global equity trading desk has
assigned local traders in six primary trading centers to place equity securities trades in their
regions. Invesco Advisers Americas desk, located in Atlanta, Houston and Toronto (the Americas
Desk), generally places trades of equity securities trading in North America, Canada and Latin
America; the Hong Kong desk of Invesco Hong Kong (the Hong Kong Desk) generally places trades of
equity securities in the Asia-Pacific markets, except Japan; the Japan trading desk of Invesco
Japan generally places trades of equity securities in the Japanese markets; the London trading desk
of Invesco Global Investment Funds Limited (the London Desk) generally places trades of equity
securities in European, Middle Eastern and African countries; the Australia desk, located in Sydney
and Melbourne, for the execution of orders of equity securities trading in the Australian and New
Zealand markets and the Taipei desk, located in Taipei, for the execution of orders of securities
trading in the Chinese market. Invesco, Invesco Canada, Invesco Australia, Invesco Japan, Invesco
Deutschland, Invesco Hong Kong and Invesco Asset Management use the global equity trading desk to
place equity trades. Other Sub-Advisers
may use the global equity trading desk in the future. The trading procedures for the global
trading desks are similar in all material respects.
References in the language below to actions by Invesco or a Sub-Adviser (other than Invesco
Canada or Invesco Japan) making determinations or taking actions related to equity trading include
these entities delegation of these determinations/actions to the Americas Desk, the Hong Kong
Desk, and the London Desk. Even when trading is delegated by Invesco or the Sub-Advisers to the
various arms of the global equity trading desk, Invesco or a Sub-Adviser that delegates trading is
responsible for oversight of this trading activity.
Invesco or a Sub-Adviser makes decisions to buy and sell securities for each Fund, selects
broker-dealers (each, a Broker), effects the Funds investment portfolio transactions, allocates
brokerage fees in such transactions and, where applicable, negotiates commissions and spreads on
transactions. Invescos and the Sub-Advisers primary consideration in effecting a security
transaction is to obtain best execution, which is defined as prompt and efficient execution of the
transaction at the best obtainable price with payment of commissions, mark-ups or mark-downs which
are reasonable in relation to the value of the brokerage and research services provided by the
Broker. While Invesco or the Sub-Advisers seeks 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 are traded in over-the-counter markets.
Portfolio transactions in such markets may be effected on a principal basis at net prices without
commissions, but which include compensation to the Broker in the form of a mark-up or mark-down, or
on an agency basis, which involves the payment of negotiated brokerage commissions to the Broker,
including electronic communication networks. Purchases of underwritten issues, which include
initial public offerings and secondary offerings, include a commission or concession paid by the
issuer (not the Funds) to the underwriter. Purchases of money market instruments may be made
directly from issuers without the payment of commissions.
Historically, Invesco and the Sub-Advisers did not negotiate commission rates on stock markets
outside the United States. In recent years many overseas stock markets have adopted a system of
negotiated rates; however, a number of markets maintain an established schedule of minimum
commission rates.
In some cases, Invesco may decide to place trades on a blind principal bid basis, which
involves combining all trades for one or more portfolios into a single basket, and generating a
description of the characteristics of the basket for provision to potential executing brokers.
Based on the trade characteristics information provided by Invesco, these brokers submit bids for
executing all of the required trades at the market close price for a specific commission. Invesco
generally selects the broker with the lowest bid to execute these trades.
Brokerage commissions during each Funds last three fiscal years are found in Appendix H to
this SAI.
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Commissions
None of the Funds pay or will pay brokerage commissions to Brokers affiliated with the Funds,
Invesco (or Invesco Advisors, Inc., former adviser to the Funds that merged into Invesco Advisers,
Inc. on December 31, 2009), Invesco Distributors, the Sub-Advisers or any affiliates of such
entities.
A Fund may purchase or sell a security from or to certain other Invesco Funds or other
accounts (and may invest in the Affiliated Money Market Funds) provided the Funds follow procedures
adopted by the Boards of the various Invesco Funds, including the Fund. These inter-fund
transactions do not generate brokerage commissions but may result in custodial fees or taxes or
other related expenses.
Broker Selection
Invescos or the Sub-Advisers primary consideration in selecting Brokers to execute portfolio
transactions for an Invesco Fund is to obtain best execution. In selecting a Broker to execute a
portfolio transaction in equity securities for a Fund, Invesco or the Sub-Advisers consider the
full range and quality of a Brokers services, including the value of research and/or brokerage services provided, execution capability,
commission rate, and willingness to commit capital, anonymity and responsiveness. Invescos and
the Sub-Advisers primary consideration when selecting a Broker to execute a portfolio transaction
in fixed income securities for a Fund is the Brokers ability to deliver or sell the relevant fixed
income securities; however, Invesco and the Sub-Advisers will also consider the various factors
listed above. In each case, the determinative factor is not the lowest commission or spread
available but whether the transaction represents the best qualitative execution for the Fund.
Invesco and the Sub-Advisers will not select Brokers based upon their promotion or sale of shares
of funds advised by Invesco and/or the Sub-Advisers.
In choosing Brokers to execute portfolio transactions for the Funds, Invesco or the
Sub-Advisers may select Brokers that provide brokerage and/or research services (Soft Dollar
Products) to the Funds and/or the other accounts over which Invesco and its affiliates have
investment discretion. Section 28(e) of the Securities Exchange Act of 1934, as amended, provides
that Invesco or the Sub-Advisers, under certain circumstances, lawfully may cause an account to pay
a higher commission than the lowest available. Under Section 28(e)(1), Invesco or the Sub-Advisers
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 [Invescos or the Sub-Advisers] overall responsibilities with respect to
the accounts as to which [it] exercises investment discretion. The services provided by the Broker
also must lawfully and appropriately assist Invesco or the Sub-Adviser in the performance of its
investment decision-making responsibilities. Accordingly, a Fund may pay a Broker commissions
higher than those available from another Broker in recognition of the Brokers 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 Invescos or the Sub-Advisers expenses to the extent that Invesco or the
Sub-Advisers would have purchased such products had they not been provided by Brokers. Section
28(e) permits Invesco or the Sub-Advisers to use Soft Dollar Products for the benefit of any
account it manages. Certain Invesco-managed accounts (or accounts managed by the Sub-Advisers) may
generate soft dollars used to purchase Soft Dollar Products that ultimately benefit other Invesco
Advisers, Inc.-managed accounts (or Sub-Adviser-managed accounts), effectively cross subsidizing
the other Invesco-managed accounts (or the other Sub-Adviser-managed accounts) that benefit
directly from the product. Invesco or the Sub-Advisers may not use all of the Soft Dollar Products
provided by Brokers through which a Fund effects securities transactions in connection with
managing the Fund whose trades generated the soft dollars used to purchase such products.
Invesco presently engages in the following instances of cross-subsidization:
Smaller funds that do not generate significant soft dollar commissions may be cross-subsidized
by the larger equity Invesco funds in that the smaller equity funds receive the benefit of Soft
Dollar Products for which
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they do not pay. Certain other accounts managed by Invesco or certain of its affiliates may
benefit from Soft Dollar Products services for which they do not pay.
Invesco and the Sub-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 dollars to purchase two types of Soft Dollar Products:
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proprietary research created by the Broker executing the trade, and |
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other products created by third parties that are supplied to Invesco or the
Sub-Adviser through the Broker executing the trade. |
Proprietary research consists primarily of traditional research reports, recommendations and
similar materials produced by the in-house research staffs of broker-dealer firms. This research
includes evaluations and recommendations of specific companies or industry groups, as well as
analyses of general economic and market conditions and trends, market data, contacts and other
related information and assistance. Invesco periodically rates the quality of proprietary research
produced by various Brokers. Based on the evaluation of the quality of information that Invesco
receives from each Broker, Invesco develops an estimate of each Brokers share of Invesco clients
commission dollars and attempts to direct trades to these firms to meet these estimates.
Invesco and the Sub-Advisers also use soft dollars to acquire products from third parties that
are supplied to Invesco or the Sub-Advisers through Brokers executing the trades or other Brokers
who step in to a transaction and receive a portion of the brokerage commission for the trade.
Invesco or the Sub-Advisers may from time to time instruct the executing Broker to allocate or
step out a portion of a transaction to another Broker. The Broker to which Invesco or the
Sub-Advisers have stepped out would then settle and complete the designated portion of the
transaction, and the executing Broker would settle and complete the remaining portion of the
transaction that has not been stepped out. Each Broker may receive a commission or brokerage fee
with respect to that portion of the transaction that it settles and completes.
Soft Dollar Products received from Brokers supplement Invescos and or the Sub-Advisers own
research (and the research of certain of its affiliates), and may include the following types of
products and services:
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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). |
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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. |
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Economic Data/Forecasting Tools various macro-economic forecasting tools,
such as economic data or currency and political forecasts for various countries or regions. |
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Quantitative/Technical Analysis software tools that assist in quantitative
and technical analysis of investment data. |
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Fundamental/Industry Analysis industry specific fundamental investment
research. |
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Other Specialized Tools other specialized products, such as consulting
analyses, access to industry experts, and distinct investment expertise such as forensic
accounting or custom built investment-analysis software. |
- 76 -
If Invesco or the Sub-Advisers determines that any service or product has a mixed use (i.e.,
it also serves functions that do not assist the investment decision-making or trading process),
Invesco or the Sub-Advisers will allocate the costs of such service or product accordingly in its
reasonable discretion. Invesco or the Sub-Advisers will allocate brokerage commissions to Brokers
only for the portion of the service or product that Invesco or the Sub-Advisers determines assists
it in the investment decision-making or trading process and will pay for the remaining value of the
product or service in cash.
Outside research assistance is useful to Invesco or the Sub-Advisers because the Brokers used
by Invesco or the Sub-Advisers tend to provide more in-depth analysis of a broader universe of
securities and other matters than Invescos or the Sub-Advisers staff follows. In addition, such
services provide Invesco or the Sub-Advisers with a diverse perspective on financial markets. Some
Brokers may indicate that the provision of research services is dependent upon the generation of
certain specified levels of commissions and underwriting concessions by Invescos or the
Sub-Advisers clients, including the Funds. However, the Funds are not under any obligation to
deal with any Broker in the execution of transactions in portfolio securities. In some cases, Soft
Dollar Products are available only from the Broker 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 Invescos or the Sub-Advisers research, the receipt of such
research tends to improve the quality of Invescos or the Sub-Advisers investment advice. The
advisory fee paid by the Funds is not reduced because Invesco or the Sub-Advisers receives such
services. To the extent the Funds portfolio transactions are used to obtain Soft Dollar Products,
the brokerage commissions obtained by the Funds might exceed those that might otherwise have been
paid.
Invesco or the Sub-Advisers may determine target levels of brokerage business with various
Brokers on behalf of its clients (including the Funds) over a certain time period. Invesco
determines target levels based upon the following factors, among others: (1) the execution
services provided by the Broker; and (2) the research services provided by the Broker. Portfolio
transactions may be effected through Brokers that recommend the Funds to their clients, or that act
as agent in the purchase of a Funds shares for their clients, provided that Invesco or the
Sub-Advisers believes such Brokers provide best execution and such transactions are executed in
compliance with Invescos 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.
Directed Brokerage (Research Services)
No Fund paid any directed brokerage (research services) during its most recently completed
fiscal year.
Regular Brokers
During their last fiscal year, the Funds did not acquire any securities of regular brokers or
dealers, as defined in Rule 10b-1 under the 1940 Act.
Allocation of Portfolio Transactions
Invesco and the Sub-Advisers manage numerous Invesco Funds and other accounts. Some of these
accounts may have investment objectives similar to the Funds. Occasionally, identical securities
will be appropriate for investment by one of the Funds and by another Fund or one or more other
accounts. However, the position of each account in the same security and the length of time that
each account may hold its investment in the same security may vary. Invesco and the Sub-Adviser
will also determine the timing and amount of purchases for an account based on its cash position.
If the purchase or sale of securities is consistent with the investment policies of the Fund(s) and
one or more other accounts, and is considered at or about the same time, Invesco or the Sub-Adviser
will allocate transactions in such securities among the Fund(s) and these accounts on a pro rata
basis based on order size or in such other manner believed by Invesco to be fair and equitable.
Invesco or the Sub-Adviser may combine transactions in accordance with applicable laws and
regulations to obtain the most favorable execution. Simultaneous transactions could, however,
adversely affect a Funds ability to obtain or dispose of the full amount of a security which it
seeks to purchase or sell.
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Tax Matters
The following is a general summary of certain additional tax considerations of investing,
holding and disposing of Common Shares of the Funds (for purposes of this section, the Fund). It
is not intended to be a complete discussion of all such federal income tax consequences, nor does
it purport to deal with all categories of investors (including common shareholders with large
positions in the Fund). 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 Internal Revenue Code of 1986, as amended (the
Code) and applicable regulations in effect on the date of this Statement of Additional
Information. 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:
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Distribution Requirement the Fund must distribute 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). |
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Income Requirement the Fund must derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward contracts) derived
from its business of investing in such stock, securities or currencies and net income
derived from qualified publicly traded partnerships (QPTPs). |
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Asset Diversification Test the Fund must satisfy the following asset diversification
test at the close of each quarter of the Funds tax year: (1) at least 50% of the value of
the Funds 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 Funds 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
Funds total assets may be invested in the securities of any one issuer (other than U.S.
Government securities and 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 IRS with respect to such type of investment may
adversely affect the Funds 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
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Requirement, Distribution Requirement, or Asset Diversification Test, which may have a
negative impact on the Funds 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, for taxable years of the Fund with respect to which the extended due date of the return is
after December 22, 2010.
If for any taxable year the Fund does not qualify as a regulated investment company, all of
its taxable income (including its net capital gain) would be subject to tax at regular corporate
rates without any deduction for dividends paid to shareholders, and the dividends would be taxable
to the shareholders as ordinary income (or possibly as qualified dividend income) to the extent of
the Funds current and accumulated earnings and profits. Failure to qualify as a regulated
investment company thus would have a negative impact on the Funds 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 Funds after-tax performance. See Taxation of Fund Distributions
(All Funds) Capital gain dividends below. For non-U.S. investors, any such acceleration of the
recognition of capital gains that results in more short-term and less long-term capital gains being
recognized by the Fund may cause such investors to be subject to increased U.S. withholding taxes.
See, Foreign Shareholders U.S. withholding tax at the source below.
Capital loss carryovers. The capital losses of the Fund, if any, do not flow through to
shareholders. Rather, the Fund may use its capital losses, subject to applicable limitations, to
offset its capital gains without being required to pay taxes on or distribute to shareholders such
gains that are offset by the losses. Under the Regulated Investment Company Modernization Act of
2010 (RIC Mod Act), if the Fund has a net capital loss (that is, capital losses in excess of
capital gains) for a taxable year beginning after December 22, 2010, the excess (if any) of the
Funds 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 Funds next taxable year, and the excess
(if any) of the Funds 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 Funds next taxable year. Any
such net capital losses of the Fund that are not used to offset capital gains may be carried
forward indefinitely to reduce any future capital gains realized by the Fund in succeeding taxable
years. However, for any net capital losses realized in taxable years of the Fund beginning on or
before December 22, 2010, the Fund is permitted to carry forward such capital losses for eight
years as a short-term capital loss. Under a transition rule, capital losses arising in a taxable
year beginning after December 22, 2010 must be used before capital losses realized in a prior
taxable year. 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 (or, in the case of those
realized in taxable years of the Fund beginning on or before December 22, 2010, to expire), thereby
reducing the Funds ability to offset capital gains with those losses. An increase in the amount
of taxable gains distributed to the Funds 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 Funds 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 Funds
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
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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 (All Funds)
Capital gain dividends below). A qualified late year loss includes:
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any net capital loss, net long-term capital loss, or net short-term capital
loss incurred after October 31 of the current taxable year (post-October losses), and |
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the excess, if any, of (1) the sum of (a) specified losses incurred after
October 31 of the current taxable year, and (b) other ordinary losses incurred after
December 31 of the current taxable year, over (2) the sum of (a) specified gains
incurred after October 31 of the current taxable year, and (b) other ordinary gains
incurred after December 31 of the current taxable year. |
The terms specified losses and specified gains mean ordinary losses and gains from the
sale, exchange, or other disposition of property (including the termination of a position with
respect to such property), foreign currency losses and gains, and losses and gains resulting from holding stock in a passive
foreign investment company (PFIC) for which a mark-to-market election is in effect. The terms
ordinary losses and ordinary gains mean other ordinary losses and gains that are not described
in the preceding sentence.
Undistributed capital gains. The Fund may retain or distribute to shareholders its net
capital gain for each taxable year. The Fund currently intends to distribute net capital gains.
If the Fund elects to retain its net capital gain, the Fund will be taxed thereon (except to the
extent of any available capital loss carryovers) at the highest corporate tax rate (currently 35%).
If the Fund elects to retain its net capital gain, it is expected that the Fund also will elect to
have shareholders treated as if each received a distribution of its pro rata share of such gain,
with the result that each shareholder will be required to report its pro rata share of such gain on
its tax return as long-term capital gain, will receive a refundable tax credit for its pro rata
share of tax paid by the Fund on the gain and will increase the tax basis for its shares by an
amount equal to the deemed distribution less the tax credit.
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: (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. Under the RIC Mod Act, 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 funds 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 intends to make
sufficient distributions to avoid any material 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 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. Other countries may subject capital gains realized by the Fund
on sale or disposition of securities of that country to taxation. It is impossible to determine the
effective rate of foreign tax in advance since the amount of the Funds assets to be invested in
various countries is not known. Under certain circumstances, the Fund may elect to pass-through
foreign tax credits to shareholders, although it reserves the right not to do so.
Taxation of Fund Distributions (All Funds). 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
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treated in the manner described regardless of whether such distributions are paid in cash or
reinvested in additional shares of the Fund (or of another Fund).
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 Funds 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 Funds earnings
and profits. None of the dividends paid by the Fund will qualify for the dividends received
deduction in the case of corporate shareholders or as qualified dividend income subject to reduced
rates of taxation in the case of noncorporate shareholders.
Capital gain dividends. Taxes on distributions of capital gains are determined by how long the
Fund owned the investments that generated them, rather than how long a shareholder has owned his or
her shares. In general, the Fund will recognize long-term capital gain or loss on the sale or other
disposition of assets it has owned for more than one year, and short-term capital gain or loss on investments it has owned for one year or
less. Distributions of net capital gain (the excess of net long-term capital gain over net
short-term capital loss) that are properly reported by the Fund to shareholders as capital gain
dividends generally will be taxable to a shareholder receiving such distributions as long-term
capital gain. Long-term capital gain rates applicable to individuals are taxed at the maximum rate
of 15% or 25% (through 2012) depending on the nature of the capital gain. Distributions of net
short-term capital gains for a taxable year in excess of net long-term capital losses for such
taxable year generally will be taxable to a shareholder receiving such distributions as ordinary
income.
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
shareholders 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
shareholders 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. Where one or more distributions occur in
any taxable year, the available current and accumulated earnings and profits of the Fund will be
allocated, first, to the distributions made to the holders of any outstanding Preferred Shares of
the Fund, and only thereafter to distributions made to common shareholders of such Fund. As a
result, the holders of any outstanding Preferred Shares of the Fund may receive a disproportionate
share of the distributions treated as dividends, and the holders of the Common Shares may receive a
disproportionate share of the distributions treated as a return of capital.
U.S. Government interest. Income earned on certain U.S. Government obligations is exempt from
state and local personal income taxes if earned directly by you. States also grant tax-free status
to dividends paid to you from interest earned on direct obligations of the U.S. Government,
subject in some states to minimum investment or reporting requirements that must be met by the
Fund. Income on investments by the Fund in certain other obligations, such as repurchase agreements
collateralized by U.S. Government obligations, commercial paper and federal agency-backed
obligations (e.g., Government National Mortgage Association (GNMA) or Federal National Mortgage
Association (FNMA) obligations), generally does not qualify for tax-free treatment. The rules on
exclusion of this income are different for corporations.
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.
Medicare tax. The recently enacted Patient Protection and Affordable Care Act of 2010, as
amended by the Health Care and Education Affordability Reconciliation Act of 2010, will impose a
3.8% Medicare tax on net investment income earned by certain individuals, estates and trusts for
taxable years beginning after December 31, 2012. 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
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be imposed on the lesser of (1) the shareholders net investment income or (2) the amount by which
the shareholders 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).
Reporting to Shareholders. 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. The IRSs position in a published revenue ruling
indicates that the Fund is required to report distributions paid with respect to its Common Shares
and its Preferred Shares as consisting of a portion of each type of income distributed by such
Fund. The portion of each type of income deemed received by the holders of each class of shares
will be equal to the portion of total Fund dividends received by such class. Thus, the Fund intends
to report dividends paid as exempt-interest dividends in a manner that allocates such dividends
between the holders of the Common Shares and the holders of Preferred Shares in proportion to the
total dividends paid to each such class during or with respect to the taxable year, or otherwise as
required by applicable law. Capital gain dividends and ordinary income dividends will similarly be
allocated between the two classes. To the extent permitted under
applicable law, the Fund reserves the right to make special allocations of income, consistent with
the objectives of the Fund and any requirements with respect to any Preferred Shares.
Under certain circumstances such as those described in Dividends and Distributions in the
prospectus, the Fund will not be allowed to declare a cash dividend or other distribution on its
Common Shares. This inability to declare distributions may prevent the Fund from distributing at
least an amount equal to the sum of 90% of the sum of its investment company taxable income
(determined without regard to the deduction for dividends paid) and its net tax-exempt interest,
and may therefore jeopardize the Funds qualification for taxation as a RIC or cause the Fund to
incur a tax liability or a non-deductible 4% excise tax on the undistributed taxable income
(including net capital gain) (as described above), or both. Although the Fund may redeem Preferred
Shares in order to avoid the adverse consequences to the Fund and its shareholders of failing to
qualify as a RIC, there can be no assurance that any such redemption would achieve such objectives.
Taxation of Fund Distributions (Tax-Free Funds). Each of the Tax-Free Funds intends to qualify
each year to pay exempt-interest dividends by satisfying the requirement that at the close of each
quarter of the Funds taxable year at least 50% of the Funds total assets consists of municipal
securities, which are exempt from federal income tax. For purposes of this discussion, the
Tax-Free Funds include all Funds, except the Invesco Van Kampen High Income Trust II and the
Invesco High Yield Investments Fund, Inc.
Exempt-interest dividends. Distributions from the Fund will constitute exempt-interest
dividends to the extent of the Funds tax-exempt interest income (net of allocable expenses and
amortized bond premium). Exempt-interest dividends distributed to shareholders of the Fund are
excluded from gross income for federal income tax purposes. However, shareholders required to file
a federal income tax return will be required to report the receipt of exempt-interest dividends on
their returns. Moreover, while exempt-interest dividends are excluded from gross income for federal
income tax purposes, they may be subject to alternative minimum tax (AMT) in certain circumstances
and may have other collateral tax consequences as discussed below.
Distributions of ordinary income and capital gains. Any gain or loss from the sale or other
disposition of a tax-exempt security generally is treated as either long-term or short-term capital
gain or loss, depending upon its holding period, and is fully taxable. However, gain recognized
from the sale or other disposition of a tax-exempt security purchased after April 30, 1993, will be
treated as ordinary income to the extent of the accrued market discount on such security.
Distributions by the Fund of ordinary income and capital gains will be taxable to shareholders as
discussed under Taxation of Fund Distributions (All Funds).
Alternative minimum tax private activity bonds. AMT is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum rate of 28% for non-corporate
taxpayers and 20% for corporate taxpayers on the excess of the taxpayers alternative minimum
taxable income (AMTI) over an exemption amount. Exempt-interest dividends derived from certain
private activity municipal securities issued after August 7, 1986 generally will constitute an
item of tax preference includable in AMTI for both corporate and non-corporate taxpayers. However,
tax-exempt interest on private activity bonds issued in 2009 and 2010 is not an item of tax
preference for purposes of the AMT. In addition, exempt-interest dividends derived from all
municipal securities regardless of the date of issue must be included in adjusted current earnings
that are used in computing an additional
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corporate preference item includable in AMTI. Certain small corporations are wholly exempt from the
AMT. Consistent with its stated investment objective, the fund intends to limit its investments in
private activity bonds subject to the AMT to no more than 20% of its total assets in any given
year.
Effect on taxation of social security benefits; denial of interest deduction; substantial
users. Exempt-interest dividends must be taken into account in computing the portion, if any, of
social security or railroad retirement benefits that must be included in an individual
shareholders gross income subject to federal income tax. Further, a shareholder of the Fund is
denied a deduction for interest on indebtedness incurred or continued to purchase or carry shares
of the Fund. Moreover, a shareholder who is (or is related to) a substantial user of a facility
financed by industrial development bonds held by the Fund likely will be subject to tax on
dividends paid by the Fund that are derived from interest on such bonds. Receipt of exempt-interest
dividends may result in other collateral federal income tax consequences to certain taxpayers,
including financial institutions, property and casualty insurance companies and foreign
corporations engaged in a trade or business in the United States.
Exemption from state tax. To the extent that exempt-interest dividends are derived from
interest on obligations of a state or its political subdivisions or from interest on qualifying
U.S. territorial obligations (including qualifying obligations of Puerto Rico, the U.S. Virgin
Islands, and Guam), they also may be exempt from that states personal income taxes. Most states,
however, do not grant tax-free treatment to interest on state and municipal securities of other
states.
Failure of a Municipal Security to qualify to pay exempt-interest. Failure of the issuer of a
tax-exempt security to comply with certain legal or contractual requirements relating to a
municipal security could cause interest on the municipal security, as well as Fund distributions
derived from this interest, to become taxable, perhaps retroactively to the date the municipal
security was issued. In such a case, the Fund may be required to report to the IRS and send to
shareholders amended Forms 1099 for a prior taxable year in order to report additional taxable
income. This in turn could require shareholders to file amended federal and state income tax
returns for such prior year to report and pay tax and interest on their pro rata share of the
additional amount of taxable income.
Effect of changes in tax rates and policies. The value of the Funds investments and its net
asset value may be adversely affected by changes in tax rates and policies. Because interest income
from municipal securities is normally not subject to regular federal income taxation, the
attractiveness of municipal securities in relation to other investment alternatives is affected by
changes in federal income tax rates or changes in the tax-exempt status of interest income from
municipal securities. Any proposed or actual changes in such rates or exempt status, therefore, can
significantly affect the demand for and supply, liquidity and marketability of municipal
securities. This could in turn affect the Funds net asset value and ability to acquire and dispose
of municipal securities at desirable yield and price levels. Additionally, the Fund is not suitable
investments for individual retirement accounts, for other tax-exempt or tax-deferred accounts or
for investors who are not sensitive to the federal income tax consequences of their investments.
Distributions paid by the Invesco Van Kampen California Value Municipal Income Trust, Invesco
California Municipal Income Trust, Invesco California Quality Municipal Securities, and Invesco
California Municipal Securities. Shareholders of the Fund may exclude any exempt interest dividends
paid to you by the Fund from your California taxable income for purposes of the California personal
income tax if:
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the Fund qualifies as a regulated investment company under the Code and at the close of
each quarter of its taxable year, at least 50 percent of the value of its total assets
consists of obligations the interest on which is exempt from taxation by the State of
California when held by an individual; |
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the dividends are derived from interest on obligations of the State of California and
its political subdivisions or qualifying obligations of U.S. territories and possessions
that are exempt from state taxation under federal law; |
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the dividends paid do not exceed the amount of interest (minus certain non-deductible
expenses) the Fund receives, during its taxable year, on obligations that, when held by an
individual, pay interest exempt from taxation by California; and |
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the Fund properly identifies the dividends as California exempt interest dividends in a
written notice mailed to the investor. |
Any distributions of net short-term and long-term capital gain earned by the Fund and any
gain from the sale of shares of the Fund by a shareholder are included in a shareholders taxable
income for purposes of the California personal income tax. Residents of California may be subject
to backup withholding at 7% on the proceeds from the sale of Fund shares.
Distributions from the Fund, including exempt-interest dividends, may be taxable to
shareholders that are subject to certain provisions of the California Corporation Tax Law.
Distributions paid by the Invesco New York Quality Municipal Securities and the Invesco Van
Kampen Trust for Investment Grade New York Municipals. Shareholders of the Fund may exclude any
exempt interest dividends paid to you by the Fund from your taxable income for purposes of the New
York state income taxes and
the New York City income tax, if the dividends can be excluded from your gross income for
federal income tax purposes and if the dividends are attributable to interest on:
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obligations of the State of New York or its political subdivisions; or |
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qualifying obligations of possessions of the United States. |
Dividends from (or the value of) the Fund, including exempt interest dividends, may be taken into
account in determining the New York State and New York City income and franchise taxes on business
corporations, banking corporations and insurance companies when paid to (or held by) shareholders
subject to such taxes.
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 shareholders 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.
Any redemption fees you incur on shares redeemed will decrease the amount of any capital gain (or
increase any capital loss) you realize on the sale. 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 will be required to provide shareholders with cost basis
information on the redemption of any of the shareholders shares in the Fund, subject to certain
exceptions for exempt recipients. This cost basis reporting requirement is effective for shares
purchased in the Fund on or after January 1, 2012 where the cost basis of the shares is known by
the Fund and which are disposed of after that date. If you hold your Fund shares through a broker
(or other nominee), please contact that broker (nominee) with respect to the reporting of cost
basis and available elections for your account. For more information about the cost basis methods
offered by Invesco, please refer to the Tax Center located under the Accounts & Services menu of
our website at http://www.Invesco.com/us.
Wash sale rule. All or a portion of any loss so recognized may be deferred under the wash
sale rules if the shareholder purchases other shares of the Fund within 30 days before or after the
sale or redemption.
Sales at a loss within six months of purchase. Any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term capital loss to the
extent of the amount of capital gain dividends received on such shares and any such loss will be
disallowed to the extent of any exempt-interest dividends that were received within the six-month
period.
Tax shelter reporting. Under Treasury regulations, if a shareholder recognizes a loss with
respect to the Funds shares of $2 million or more for an individual shareholder or $10 million or
more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on
Form 8886.
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
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read in conjunction with the discussion under Investment Strategies and Risks for a detailed
description of the various types of securities and investment techniques that apply to the Fund.
In general. In general, gain or loss recognized by a fund on the sale or other disposition of
portfolio investments will be a capital gain or loss. Such capital gain and loss may be long-term
or short-term depending, in general, upon the length of time a particular investment position is
maintained and, in some cases, upon the nature of the transaction. Property held for more than one
year generally will be eligible for long-term capital gain or loss treatment. The application of
certain rules described below may serve to alter the manner in which the holding period for a
security is determined or may otherwise affect the characterization as long-term or short-term, and
also the timing of the realization and/or character, of certain gains or losses.
Certain fixed-income investments. Gain recognized on the disposition of a debt obligation
purchased by a fund at a market discount (generally, at a price less than its principal amount)
will be treated as ordinary income to the extent of the portion of the market discount that accrued
during the period of time the fund held the debt
obligation unless the fund made a current inclusion election to accrue market discount into
income as it accrues. If a fund purchases a debt obligation (such as a zero coupon security or
pay-in-kind security) that was originally issued at a discount, the fund generally is required to
include in gross income each year the portion of the original issue discount that accrues during
such year. Therefore, a funds 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) sum of the
strike price and the option premium received by the fund minus (b) the funds 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 funds 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.
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In addition to the special rules described above in respect of options and futures
transactions, a funds 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 funds 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 funds investments in derivatives and foreign currency-denominated instruments,
and the funds transactions in foreign currencies and hedging activities, may produce a difference
between its book income and its taxable income. If a funds 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 funds 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 funds 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 recipients basis in the
shares, and (iii) thereafter, as gain from the sale or exchange of a capital asset.
Foreign currency transactions. A funds 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 funds ordinary income distributions to you, and may cause
some or all of the funds 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 funds 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 identity 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. Real Estate Investment Trusts (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 funds pro rata share of any such taxes will
reduce the funds return on its investment. A funds investment in a non-U.S. REIT may be
considered an investment in a PFIC, as discussed above in Tax Treatment of Portfolio Transactions
PFIC investments. Additionally, foreign withholding taxes on distributions from the non-U.S.
REIT may be reduced or eliminated under certain tax treaties, as discussed above in Taxation of
the Fund Foreign income
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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. REITs current and
accumulated earnings and profits. Capital gain dividends paid by a U.S. REIT to the fund will be
treated as long term capital gains by the fund and, in turn, may be distributed by the fund to its
shareholders as a capital gain distribution. Because of certain noncash expenses, such as property
depreciation, an equity U.S. REITs cash flow may exceed its taxable income. The equity U.S. REIT,
and in turn a fund, may distribute this excess cash to shareholders in the form of a return of
capital distribution. However, if a U.S. REIT is operated in a manner that fails to qualify as a
REIT, an investment in the U.S. REIT would become subject to double taxation, meaning the taxable
income of the U.S. REIT would be subject to federal
income tax at regular corporate rates without any deduction for dividends paid to shareholders
and the dividends would be taxable to shareholders as ordinary income (or possibly as qualified
dividend income) to the extent of the U.S. REITs 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 funds income from a U.S. REIT
that is attributable to the REITs residual interest in a real estate mortgage investment conduits
(REMICs) 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 UBTI) is a record holder of a
share in a regulated investment company, then the regulated investment company will be subject to a
tax equal to that portion of its excess inclusion income for the taxable year that is allocable to
the disqualified organization, multiplied by the highest federal income tax rate imposed on
corporations. The Notice imposes certain reporting requirements upon regulated investment companies
that have excess inclusion income. There can be no assurance that a fund will not allocate to
shareholders excess inclusion income.
These rules are potentially applicable to a fund with respect to any income it receives from
the equity interests of certain mortgage pooling vehicles, either directly or, as is more likely,
through an investment in a U.S. REIT. It is unlikely that these rules will apply to a fund that has
a non-REIT strategy.
Investments in partnerships and qualified publicly traded partnerships (QPTP). For purposes of
the Income Requirement, income derived by a fund from a partnership that is not a QPTP will be
treated as qualifying income only to the extent such income is attributable to items of income of
the partnership that would be qualifying income if realized directly by the fund. For purposes of
testing whether the 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 (i.e., 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
- 87 -
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 funds being subject to state, local or foreign income, franchise or
withholding tax liabilities.
Investments in commodities structured notes, corporate subsidiary and certain ETFs. Gains
from the disposition of commodities, including precious metals, will neither be considered
qualifying income for purposes of satisfying the Income Requirement nor qualifying assets for
purposes of satisfying the Asset Diversification Test. See Taxation of the Fund Qualification
as a regulated investment company. Also, the IRS has issued a Revenue Ruling which holds that
income derived from commodity-linked swaps is not qualifying income for purposes of the Income
Requirement. However, in a subsequent Revenue Ruling, as well as in a number of follow-on private
letter rulings, the IRS provides that income from certain alternative investments which create
commodity exposure, such as certain commodity index-linked or structured notes or a corporate
subsidiary that invests in commodities, may be considered qualifying income under the Code. However, as of the date of this Statement of
Additional Information, the IRS has suspended the issuance of any further private letter rulings
pending a review of its position. Should the IRS issue guidance that adversely affects the tax
treatment of a funds use of commodity-linked notes, or a corporate subsidiary, the fund may no
longer be able to utilize commodity index-linked notes or a corporate subsidiary to gain commodity
exposure. In addition, a fund may gain exposure to commodities through investment in QPTPs such as
an exchange traded fund or ETF that is classified as a partnership and which invests in
commodities. Accordingly, the extent to which a fund invests in commodities or commodity-linked
derivatives may be limited by the Income Requirement and the Asset Diversification Test, which the
fund must continue to satisfy to maintain its status as a regulated investment company. A fund also
may be limited in its ability to sell its investments in commodities, commodity-linked derivatives,
and certain ETFs or be forced to sell other investments to generate income due to the Income
Requirement. 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, for taxable years of a fund with
respect to which the extended due date of the return is after December 22, 2010.
Securities lending. While securities are loaned out by a fund, the fund generally will
receive from the borrower amounts equal to any dividends or interest paid on the borrowed
securities. For federal income tax purposes, payments made in lieu of dividends are not
considered dividend income. These distributions will neither qualify for the reduced rate of
taxation for individuals on qualified dividends nor the 70% dividends received deduction for
corporations. Also, any foreign tax withheld on payments made in lieu of dividends or interest
will not qualify for the pass-through of foreign tax credits to shareholders. Additionally, in the
case of a fund with a strategy of investing in tax-exempt securities, any payments made in lieu
of tax-exempt interest will be considered taxable income to the fund, and thus, to the investors,
even though such interest may be tax-exempt when paid to the borrower.
Investments in convertible securities. Convertible debt is ordinarily treated as a single
property consisting of a pure debt interest until conversion, after which the investment becomes
an equity interest. If the security is issued at a premium (i.e., for cash in excess of the face
amount payable on retirement), the creditor-holder may amortize the premium over the life of the
bond. If the security is issued for cash at a price below its face amount, the creditor-holder
must accrue original issue discount in income over the life of the debt. The creditor-holders
exercise of the conversion privilege is treated as a nontaxable event. Mandatorily convertible
debt (e.g., an exchange traded note or ETN issued in the form of an unsecured obligation that pays
a return based on the performance of a specified market index, exchange currency, or commodity) is
often, but not always, treated as a contract to buy or sell the reference property rather than
debt. Similarly, convertible preferred stock with a mandatory conversion feature is ordinarily,
but not always, treated as equity rather than debt. Dividends received generally are qualified
dividend income and eligible for the corporate dividends received deduction. In general,
conversion of preferred stock for common stock of the same corporation is tax-free. Conversion of
preferred stock for cash is a taxable redemption. Any redemption premium for preferred stock that
is redeemable by the issuing company might be required to be amortized under original issue
discount (OID) principles.
Tax Certification and Backup Withholding. Tax certification and backup withholding tax laws
may require that you certify your tax information when you become an investor in the Fund. For
U.S. citizens and
- 88 -
resident aliens, this certification is made on IRS Form W-9. Under these laws, the Fund must
withhold a portion of your taxable distributions and sales proceeds unless you:
|
|
|
provide your correct Social Security or taxpayer identification number, |
|
|
|
|
certify that this number is correct, |
|
|
|
|
certify that you are not subject to backup withholding, and |
|
|
|
|
certify that you are a U.S. person (including a U.S. resident alien). |
The Fund also must withhold if the IRS instructs it to do so. When withholding is required,
the amount will be 28% of any distributions or proceeds paid. This rate will expire and the backup
withholding rate will be 31% for amounts paid after December 31, 2012, unless Congress enacts tax
legislation providing otherwise. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholders 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 |
|
|
|
|
with respect to taxable years of the Fund beginning before January 1, 2012 (unless such
sunset date is extended, possibly retroactively to January 1, 2012, or made permanent),
interest-related dividends paid by the Fund from its qualified net interest income from
U.S. sources and short-term capital gains dividends. After such sunset date, short-term
capital gains are taxable to Non-U.S. investors as ordinary dividends subject to U.S.
withholding tax at a 30% or lower treaty rate. |
However, the Fund does not intend to utilize the exemptions for interest-related dividends
paid and short-term capital gain dividends paid. Moreover, notwithstanding such exemptions from
U.S. withholding at the source, any dividends and distributions of income and capital gains,
including the proceeds from the sale of your Fund shares, will be subject to backup withholding at
a rate of 28% if you fail to properly certify that you are not a U.S. person. This rate will
expire and the backup withholding tax rate will be 31% for amounts paid after December 31, 2012,
unless Congress enacts tax legislation providing otherwise.
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
- 89 -
or (ii) a RIC classified as a U.S. real property
holding corporation or which would be if the exceptions for holding 5% or less of a class of
publicly traded shares or an interest in a domestically controlled QIE did not apply) or (b) that
are realized by the Fund on the sale of a U.S. real property interest (including gain realized on
sale of shares in a QIE other than one that is a domestically controlled), will not be exempt from
U.S. federal income tax and may be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate) if the Fund by reason of having a REIT strategy is classified as a QIE. If the Fund
is so classified, foreign shareholders owning more than 5% of the Funds shares may be treated as
realizing gain from the disposition of a U.S. real property interest, causing Fund distributions to
be subject to U.S. withholding tax at a rate of 35%, and requiring the filing of a nonresident U.S.
income tax return. In addition, if the Fund is classified as a QIE, anti-avoidance rules apply to
certain wash sale transactions. Namely, if the Fund is a QIE and a foreign shareholder disposes of
the Funds 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 Funds 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. These rules generally apply to dividends paid by the
Fund before January 1, 2012 (unless such sunset date is extended, possibly retroactively to January
1, 2012, or made permanent). After such sunset date, Fund distributions from a U.S. REIT (whether
or not domestically controlled) attributable to gain from the disposition of a U.S. real property
interest will continue to be subject to the withholding rules described above provided the Fund is
classified as a QIE.
Income effectively connected with a U.S. trade or business. If the income from the Fund is
effectively connected with a U.S. trade or business carried on by a foreign shareholder, then
ordinary income dividends, capital gain dividends and any gains realized upon the sale or
redemption of shares of the Fund will be subject to U.S. federal income tax at the rates applicable
to U.S. citizens or domestic corporations and require the filing of a nonresident U.S. income tax
return.
Tax certification and backup withholding. Foreign shareholders may have special U.S. tax
certification requirements to avoid backup withholding (at a rate of 28%, subject to increase to
31% as described above), and if applicable, to obtain the benefit of any income tax treaty between
the foreign shareholders 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. Under the Foreign Account Tax Compliance Act, the relevant
withholding agent may be required to withhold 30% of: (a) income dividends paid after December 31,
2013 and (b) certain capital gains distributions and the proceeds of a sale of shares paid after
December 31, 2014 to (i) a foreign financial institution unless such foreign financial institution
agrees to verify, report and disclose certain of its U.S. accountholders and meets certain other
specified requirements or (ii) a non-financial foreign entity that is the beneficial owner of the
payment unless such entity certifies that it does not have any substantial U.S. owners or provides
the name, address and taxpayer identification number of each substantial U.S. owner and such entity
meets certain other specified requirements. These requirements are different from, and in addition
to, the U.S. tax certification rules described above. The scope of these requirements remains
unclear, and shareholders are urged to consult their tax advisors regarding the application of
these requirements to their own situation.
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 shareholders particular situation.
- 90 -
Financial Statements and Pro Forma Financial Information
Each Funds financial statements for the fiscal year ended February 20, 2012 are incorporated
into this SAI by reference to the Funds most recent Annual Report to Shareholders. The accession
numbers for these documents, along with the dates they were filed via EDGAR, are listed on page 2
of this SAI.
The portions of such Annual Reports to Shareholders that are not specifically referenced above
are not incorporated into this SAI.
Invesco Value Municipal Bond Trust, Invesco Value Municipal Securities, and Invesco Value Municipal
Trust into Invesco Value Municipal Income Trust
The unaudited pro forma financial information set forth below is for informational purposes only
and does not purport to be indicative of the financial condition that actually would have resulted
if the mergers had been consummated. These pro forma numbers have been estimated in good faith
based on information regarding the Target Funds and the Acquiring Fund, each as identified below,
for the twelve month period ended February 29, 2012. The unaudited pro forma financial information
should be read in conjunction with the historical financial statements of the Target Funds and
Acquiring Fund, which are available in their respective annual and semi-annual shareholder reports.
Narrative Description of the Pro Forma Effects of the Mergers
Note 1 Mergers
The unaudited pro forma information has been prepared to give effect to the proposed merger of each
of the Target Funds into the Acquiring Fund pursuant to an agreement and Plan of Merger (the
Plan) as of the beginning of the period as indicated below in the table. No merger is contingent
upon any other merger.
|
|
|
|
|
Target Fund |
|
Acquiring Fund |
|
12 Month Period Ended |
Invesco Value
Municipal Bond Trust (IMC)
|
|
Invesco Value
Municipal Income Trust (IIM)
|
|
February 29, 2012 |
|
|
|
|
|
Invesco Value
Municipal Securities
(IMS) |
|
|
|
|
|
|
|
|
|
Invesco Value
Municipal Trust
(IMT) |
|
|
|
|
Basis of Pro Forma
Each merger will be accounted for as a tax-free reorganization of investment companies; therefore,
no gain or loss will be recognized by a Fund or its shareholders as a result of a merger. The
Target Funds and the Acquiring Fund are registered closed-end management investment companies. Each
merger would be accomplished by a statutory merger of the applicable Target Fund with and into the
Acquiring Fund. The table below shows the Acquiring Fund shares that Target Fund shareholders
would have received if the merger were to have taken place on February 29, 2012.
|
|
|
|
|
|
|
|
|
Target Fund |
|
Shares Converted |
|
|
Acquiring Fund |
|
IMC |
|
|
3,778,375 |
|
|
IIM |
IMS |
|
|
6,113,633 |
|
|
|
|
|
IMT |
|
|
16,603,710 |
|
|
|
|
|
Under accounting principles generally accepted in the United States of America, the historical cost
of investment securities will be carried forward to the surviving entity, the Acquiring Fund, and
the results of operations of the
- 91 -
Acquiring Fund for pre-merger periods will not be restated. All
securities held by the Target Funds comply with investment objectives, strategies and restrictions
of the Acquiring Fund at February 29, 2012.
Note 2 Net Assets
The table below shows the net assets of the Target Fund and the Acquiring Fund and Pro Forma
combined net assets as of February 29, 2012.
|
|
|
|
|
Fund |
|
Net Assets |
IMC (Target Fund)
|
|
$ |
61,626,757 |
|
IMS (Target Fund)
|
|
|
99,510,631 |
|
IMT (Target Fund)
|
|
|
270,271,617 |
|
IIM (Acquiring Fund)
|
|
|
336,854,000 |
|
IIM (Pro Forma Combined)
|
|
|
768,083,005 |
|
Pro Forma combined net assets have been adjusted for expenses expected to be incurred by the Target
Funds and the Acquiring Fund in connection with the mergers.
Note 3 Pro Forma Adjustments
The table below reflects adjustments to expenses needed to the pro forma combined Fund as if the
mergers had taken place on March 1, 2011. The pro forma information has been derived from the
books and records used in calculating daily net asset values of the Target Funds and Acquiring Fund
and has been prepared in accordance with accounting principles generally accepted in the United
States of America which requires management to make estimates and assumptions that affect this
information. Actual results could differ from those estimates.
|
|
|
|
|
Expense Category |
|
Increase (decrease)
in expense |
Advisory fees (1)
|
|
$ |
3,114,076 |
|
Administrative services fees (2)
|
|
|
(125,032 |
) |
Professional fees (3)
|
|
|
(875,456 |
) |
Listing fees (4)
|
|
|
(25,459 |
) |
Investment-related expenses (5)
|
|
|
2,043,730 |
|
Fee waiver and/or expense reimbursements (1)
|
|
|
(3,362,736 |
) |
|
|
|
(1) |
|
Advisory fees were adjusted to reflect the proposed increase in advisory fee rate from 0.27%
to 0.55% of average weekly managed assets for the Acquiring Fund based on pro forma combined
managed assets. In addition, upon closing of all of the Mergers, the Adviser has
contractually agreed for at least two years following the closing of all of the Mergers to
waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual
fund operating expenses (excluding certain items discussed below) to 0.46%. In determining
the Advisers obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund operating expenses
after fee waiver to exceed the limit reflected above: (1) interest, facilities and
maintenance fees; (2) taxes; (3) dividend on short sales; (4) extraordinary or non-routine
items, including litigation expenses; and (5) expenses that the Acquiring Fund has incurred
but did not actually pay because of an expense offset arrangement. Correspondingly, the fee
waiver and/or expense reimbursements have been adjusted to reflect the contractual agreement
by the Adviser. Unless the Board of Trustees and the Adviser mutually agree to amend or
continue the fee waiver agreement, it will terminate two years after the closing of the
mergers. |
|
(2) |
|
Administrative services fees were adjusted to eliminate the duplicative costs of
administering three funds pursuant to the Master Administrative Services Agreement for the
Target Funds and the Acquiring Fund. |
|
(3) |
|
Professional fees were reduced to eliminate the effects of duplicative fees for audit and
legal services. |
|
(4) |
|
Listing fees were adjusted to reflect the per share listing rate based on pro forma combined
shares. |
- 92 -
|
|
|
(5) |
|
Investment-related expenses were adjusted to reflect financing costs related to the
anticipated issuance of Variable Rate Muni Term Preferred Shares and other financing costs
based on investment strategies of the Acquiring Fund. |
No significant accounting policies will change as a result of the mergers, specifically policies
regarding security valuation or compliance with Subchapter M of the Internal Revenue Code.
Note 4 Security Valuation Policy
Securities, including restricted securities, are valued according to the following policy.
Securities are fair valued using an evaluated quote provided by an independent pricing service
approved by the Board of Trustees. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, individual trading characteristics and other market data. Securities with a demand
feature exercisable within one to seven days are valued at par. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve some risk of default with
respect to interest and principal payments.
Securities for which market quotations either are not readily available or are unreliable are
valued at fair value as determined in good faith by or under the supervision of the Trusts
officers following procedures approved by the Board of Trustees. Some of the factors which may be
considered in determining fair value are fundamental analytical data relating to the investment;
the nature and duration of any restrictions on transferability or disposition; trading in similar
securities by the same issuer or comparable companies; relevant political, economic or issuer
specific news; and other relevant factors under the circumstances.
Valuations change in response to many factors including the historical and prospective earnings of
the issuer, the value of the issuers assets, general economic conditions, interest rates, investor
perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values
reflected in the financial statements may materially differ from the value received upon actual
sale of those investments.
Note 5 Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date, under
current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation
methods giving the highest priority to readily available unadjusted quoted prices in an active
market for identical assets (Level 1) and the lowest priority to significant unobservable inputs
(Level 3) generally when market prices are not readily available or are unreliable. Based on the
valuation inputs, the securities or other investments are tiered into one of three levels. Changes
in valuation methods may result in transfers in or out of an investments assigned level:
|
Level 1 |
|
Prices are determined using quoted prices in an active market for identical
assets. |
|
|
Level 2 |
|
Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, yield curves, loss severities, default rates, discount
rates, volatilities and others. |
|
|
Level 3 |
|
Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for example, when
there is little or no market activity for an investment at the end of the period),
unobservable inputs may be used. Unobservable inputs reflect the Funds own assumptions
about the factors market participants would use in determining fair value of the
securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of February 29, 2012. The
level assigned to the securities valuations may not be an indication of the risk or liquidity
associated with investing in those securities.
- 93 -
Because of the inherent uncertainties of valuation,
the values reflected in the financial statements may materially differ from the value received upon
actual sale of those investments.
During the twelve months ended February 29, 2012, there were no significant transfers between
investment levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMC (Target Fund)
|
|
Municipal
Obligations
|
|
$ |
|
|
|
$ |
92,272,104 |
|
|
$ |
|
|
|
$ |
92,272,104 |
|
IMS (Target Fund)
|
|
Municipal
Obligations
|
|
|
|
|
|
|
105,987,970 |
|
|
|
|
|
|
|
105,987,970 |
|
IMT (Target Fund)
|
|
Municipal
Obligations
|
|
|
|
|
|
|
396,913,641 |
|
|
|
|
|
|
|
396,913,641 |
|
IIM (Acquiring Fund)
|
|
Municipal
Obligations
|
|
|
|
|
|
|
493,626,653 |
|
|
|
|
|
|
|
493,626,653 |
|
IIM (Pro Forma Combined)
|
|
Municipal
Obligations
|
|
$ |
|
|
|
$ |
1,088,800,368 |
|
|
$ |
|
|
|
$ |
1,088,800,368 |
|
Note 6 Merger Costs
The estimated total costs of the merger for each Target Fund and the Acquiring Fund are set forth
in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Portion of |
|
|
Estimated Total |
|
Total Merger Costs to |
|
|
Merger Costs |
|
be Paid by the Funds |
IMC (Target Fund)
|
|
$ |
110,000 |
|
|
$ |
110,000 |
|
IMS (Target Fund)
|
|
|
110,000 |
|
|
|
0 |
|
IMT (Target Fund)
|
|
|
130,000 |
|
|
|
0 |
|
IIM (Acquiring Fund)
|
|
|
70,000 |
|
|
|
70,000 |
|
These costs represent the estimated non recurring expenses of the Target Funds and the Acquiring
Fund carrying out their obligations under the Plan and consistent of managements estimate of
professional services fees, printing costs and mailing charges related to the proposed mergers.
The Adviser will bear all costs not borne by the Funds.
Note 7 Accounting Survivor
The Acquiring Fund will be the accounting survivor. The surviving fund will have the portfolio
management team, portfolio composition strategies, investment objective, expense structure, and
policies/ restrictions of the Acquiring Fund.
Note 8 Capital Loss Carryforward
The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code
necessary to qualify as a regulated investment company and to distribute substantially all of the
Funds taxable earnings to shareholders. As such, the Fund will not be subject to federal income
taxes on otherwise taxable income (including net realized capital gain) that is distributed to
shareholders.
At February 29, 2012, the Target Funds, including IMC, IMS, and IMT had capital loss carryforwards
of approximately $816,183, $2,928,967, and $6,428,975, respectively. At February 29, 2012, the
Acquiring Fund, IIM, had a capital loss carryforward of approximately $8,099,679. For additional
information regarding capital loss limitations, please see the section entitled Federal Income Tax
Considerations of the Mergers in the Proxy Statement/Prospectus filed on Form N-14 with the
Securities and Exchange Commission.
- 94 -
Invesco Municipal Income Opportunities Trust II and Invesco Municipal Income Opportunities Trust III
into Invesco Municipal Income Opportunities Trust
The unaudited pro forma financial information set forth below is for informational purposes only
and does not purport to be indicative of the financial condition that actually would have resulted
if the mergers had been consummated. These pro forma numbers have been estimated in good faith
based on information regarding the Target Funds and the Acquiring Fund, each as identified below,
for the twelve month period ended February 29, 2012. The unaudited pro forma financial information
should be read in conjunction with the historical financial statements of the Target Funds and
Acquiring Fund, which are available in their respective annual and semi-annual shareholder reports.
Narrative Description of the Pro Forma Effects of the Mergers
Note 1 Mergers
The unaudited pro forma information has been prepared to give effect to the proposed merger of each
of the Target Funds into the Acquiring Fund pursuant to an agreement and Plan of Merger (the
Plan) as of the beginning of the period as indicated below in the table. No merger is contingent
upon any other merger.
|
|
|
|
|
Target Fund |
|
Acquiring Fund |
|
12 Month Period Ended |
Invesco Municipal
Income Opportunities
Trust II (OIB)
|
|
Invesco Municipal
Income Opportunities
Trust (OIA)
|
|
February 29, 2012 |
|
|
|
|
|
Invesco Municipal Income
Opportunities
Trust III (OIC) |
|
|
|
|
Basis of Pro Forma
Each merger will be accounted for as a tax-free reorganization of investment companies; therefore,
no gain or loss will be recognized by a Fund or its shareholders as a result of a merger. The
Target Funds and the Acquiring Fund are registered closed-end management investment companies. Each
merger would be accomplished by a statutory merger of the applicable Target Fund with and into the
Acquiring Fund. The table below shows the Acquiring Fund shares that Target Fund shareholders
would have received if the merger were to have taken place on February 29, 2012.
|
|
|
|
|
|
|
|
|
Target Fund |
|
Shares Converted |
|
|
Acquiring Fund |
|
OIB |
|
|
17,839,095 |
|
|
OIA |
OIC |
|
|
10,132,449 |
|
|
|
|
|
Under accounting principles generally accepted in the United States of America, the historical cost
of investment securities will be carried forward to the surviving entity, the Acquiring Fund, and
the results of operations of the Acquiring Fund for pre-merger periods will not be restated. All
securities held by the Target Funds comply with investment objectives, strategies and restrictions
of the Acquiring Fund at February 29, 2012.
Note 2 Net Assets
The table below shows the net assets of the Target Funds and the Acquiring Fund and Pro Forma
combined net assets as of February 29, 2012.
|
|
|
|
|
Fund |
|
Net Assets |
OIB (Target Fund)
|
|
$ |
127,304,962 |
|
OIC (Target Fund)
|
|
|
72,320,207 |
|
OIA (Acquiring Fund)
|
|
|
140,079,673 |
|
OIA (Pro Forma Combined)
|
|
|
339,704,842 |
|
- 95 -
Note 3 Pro Forma Adjustments
The table below reflects adjustments to expenses needed to the pro forma combined Fund as if the
mergers had taken place on March 1, 2011. The pro forma information has been derived from the
books and records used in calculating daily net asset values of the Target Funds and Acquiring Fund
and has been prepared in accordance with accounting principles generally accepted in the United
States of America which requires management to make estimates and assumptions that affect this
information. Actual results could differ from those estimates.
|
|
|
|
|
Expense Category |
|
Increase (decrease)
in expense |
Advisory fees (1)
|
|
$ |
279,561 |
|
Administrative services fees (2)
|
|
|
(76,524 |
) |
Professional fees (3)
|
|
|
(74,432 |
) |
Listing fees (4)
|
|
|
(28,726 |
) |
Investment-related expenses (5)
|
|
|
(54,943 |
) |
Fee waiver and/or expense reimbursements (1)
|
|
|
(283,619 |
) |
|
|
|
(1) |
|
Advisory fees were adjusted to reflect the proposed increase in advisory fee rate from 0.50%
to 0.55% of average weekly managed assets for the Acquiring Fund based on pro forma combined
managed assets. In addition, upon closing of all of the mergers, the Adviser has
contractually agreed for at least two years following the closing of all of the Mergers to
waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual
fund operating expenses (excluding certain items discussed below) to 0.67%. In determining
the Advisers obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund operating expenses
after fee waiver to exceed the limit reflected above: (1) interest, facilities and
maintenance fees; (2) taxes; (3) dividend on short sales; (4) extraordinary or non-routine
items, including litigation expenses; and (5) expenses that the Acquiring Fund has incurred
but did not actually pay because of an expense offset arrangement. Correspondingly, the fee
waiver and/or expense reimbursements have been adjusted to reflect the contractual agreement
by the Adviser. Unless the Board of Trustees and the Adviser mutually agree to amend or
continue the fee waiver agreement, it will terminate two years after the closing of the
mergers. |
|
(2) |
|
Administrative services fees were adjusted to eliminate the duplicative costs of
administering two funds pursuant to the Master Administrative Services Agreement for the
Target Funds and the Acquiring Fund. |
|
(3) |
|
Professional fees were reduced to eliminate the effects of duplicative fees for audit and
legal services. |
|
(4) |
|
Listing fees were adjusted to reflect the per share listing rate based on pro forma combined
shares. |
|
(5) |
|
Investment-related expenses were adjusted to reflect financing costs related to investment
strategies of the Acquiring Fund. |
No significant accounting policies will change as a result of the mergers, specifically policies
regarding security valuation or compliance with Subchapter M of the Internal Revenue Code.
Note 4 Security Valuation Policy
Securities, including restricted securities, are valued according to the following policy.
Securities are fair valued using an evaluated quote provided by an independent pricing service
approved by the Board of Trustees. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, individual trading characteristics and other market data. Securities with a demand
feature exercisable within one to seven days are valued at par. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve some risk of default with
respect to interest and principal payments.
- 96 -
Securities for which market quotations either are not readily available or are unreliable are
valued at fair value as determined in good faith by or under the supervision of the Trusts
officers following procedures approved by the Board of Trustees. Some of the factors which may be
considered in determining fair value are fundamental analytical data relating to the investment;
the nature and duration of any restrictions on transferability or disposition; trading in similar
securities by the same issuer or comparable companies; relevant political, economic or issuer
specific news; and other relevant factors under the circumstances.
Valuations change in response to many factors including the historical and prospective earnings of
the issuer, the value of the issuers assets, general economic conditions, interest rates, investor
perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values
reflected in the financial statements may materially differ from the value received upon actual
sale of those investments.
Note 5 Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date, under
current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation
methods giving the highest priority to readily available unadjusted quoted prices in an active
market for identical assets (Level 1) and the lowest priority to significant unobservable inputs
(Level 3) generally when market prices are not readily available or are unreliable. Based on the
valuation inputs, the securities or other investments are tiered into one of three levels. Changes
in valuation methods may result in transfers in or out of an investments assigned level:
|
Level 1 |
|
Prices are determined using quoted prices in an active market for identical
assets. |
|
|
Level 2 |
|
Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, yield curves, loss severities, default rates, discount
rates, volatilities and others. |
|
|
Level 3 |
|
Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for example, when
there is little or no market activity for an investment at the end of the period),
unobservable inputs may be used. Unobservable inputs reflect the Funds own assumptions
about the factors market participants would use in determining fair value of the
securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of February 29, 2012. The
level assigned to the securities valuations may not be an indication of the risk or liquidity
associated with investing in those securities. Because of the inherent uncertainties of valuation,
the values reflected in the financial statements may materially differ from the value received upon
actual sale of those investments.
During the twelve months ended February 29, 2012, there were no significant transfers between
investment levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
OIB (Target Fund)
|
|
Municipal
Obligations
|
$ |
|
|
$ |
133,881,977 |
|
$ |
|
|
$ |
133,881,977 |
|
OIC (Target Fund)
|
|
Municipal
Obligations
|
|
|
|
|
76,435,853 |
|
|
|
|
|
76,435,853 |
|
OIA (Acquiring Fund)
|
|
Municipal
Obligations
|
|
|
|
|
146,205,354 |
|
|
|
|
|
146,205,354 |
|
OIA (Pro Forma Combined)
|
|
Municipal
Obligations
|
$ |
|
|
$ |
356,523,184 |
|
$ |
|
|
$ |
356,523,184 |
|
Note 6 Merger Costs
The estimated total costs of the merger for each Target Fund and the Acquiring Fund are set forth
in the table below.
- 97 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Portion of |
|
|
Estimated Total Merger |
|
Total Merger Costs to |
|
|
Costs |
|
be Paid by the Funds |
OIB (Target Fund)
|
|
$ |
140,000 |
|
|
$ |
0 |
|
OIC (Target Fund)
|
|
|
130,000 |
|
|
|
0 |
|
OIA (Acquiring Fund)
|
|
|
90,000 |
|
|
|
0 |
|
These costs represent the estimated non recurring expenses of the Target Funds and the Acquiring
Fund carrying out their obligations under the Plan and consistent of managements estimate of
professional services fees, printing costs and mailing charges related to the proposed mergers.
The Adviser will bear all costs not borne by the Funds.
Note 7 Accounting Survivor
The Acquiring Fund will be the accounting survivor. The surviving fund will have the portfolio
management team, portfolio composition strategies, investment objective, expense structure, and
policies/ restrictions of the Acquiring Fund.
Note 8 Capital Loss Carryforward
The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code
necessary to qualify as a regulated investment company and to distribute substantially all of the
Funds taxable earnings to shareholders. As such, the Fund will not be subject to federal income
taxes on otherwise taxable income (including net realized capital gain) that is distributed to
shareholders.
At February 29, 2012, the Target Funds, including OIB, and OIC had capital loss carryforwards of
approximately $16,977,149 and $9,748,142, respectively. At February 29, 2012, the Acquiring Fund
OIA had a capital loss carryforward of approximately $28,756,283. For additional information
regarding capital loss limitations, please see the section entitled Federal Income Tax
Considerations of the Mergers in the Proxy Statement/Prospectus filed on Form N-14 with the
Securities and Exchange Commission.
- 98 -
Invesco Quality Municipal Investment Trust and Invesco Quality Municipal Securities into Invesco Quality
Municipal Income Trust
The unaudited pro forma financial information set forth below is for informational purposes only
and does not purport to be indicative of the financial condition that actually would have resulted
if the mergers had been consummated. These pro forma numbers have been estimated in good faith
based on information regarding the Target Funds and the Acquiring Fund, each as identified below,
for the twelve month period ended February 29, 2012. The unaudited pro forma financial information
should be read in conjunction with the historical financial statements of the Target Funds and
Acquiring Fund, which are available in their respective annual and semi-annual shareholder reports.
Narrative Description of the Pro Forma Effects of the Mergers
Note 1 Mergers
The unaudited pro forma information has been prepared to give effect to the proposed merger of each
of the Target Funds into the Acquiring Fund pursuant to an agreement and Plan of Merger (the
Plan) as of the beginning of the period as indicated below in the table. No merger is contingent
upon any other merger.
|
|
|
|
|
Target Fund |
|
Acquiring Fund |
|
12 Month Period Ended |
Invesco Quality Municipal Investment
Trust (IQT)
|
|
Invesco Quality
Municipal Income Trust
(IQI)
|
|
February 29, 2012 |
|
|
|
|
|
Invesco Quality
Municipal Securities
(IQM) |
|
|
|
|
Basis of Pro Forma
Each merger will be accounted for as a tax-free reorganization of investment companies; therefore,
no gain or loss will be recognized by a Fund or its shareholders as a result of a merger. The
Target Funds and the Acquiring Fund are registered closed-end management investment companies.
Each merger would be accomplished by a statutory merger of the applicable Target Fund with and into
the Acquiring Fund. The table below shows the Acquiring Fund shares that Target Fund shareholders
would have received if the merger were to have taken place on February 29, 2012.
|
|
|
|
|
|
|
|
|
Target Fund |
|
Shares Converted |
|
|
Acquiring Fund |
|
IQT |
|
|
14,584,614 |
|
|
IQI |
IQM |
|
|
15,092,321 |
|
|
|
|
|
Under accounting principles generally accepted in the United States of America, the historical cost
of investment securities will be carried forward to the surviving entity, the Acquiring Fund, and
the results of operations of the Acquiring Fund for pre-merger periods will not be restated. All
securities held by the Target Funds comply with investment objectives, strategies and restrictions
of the Acquiring Fund at February 29, 2012.
Note 2 Net Assets
The table below shows the net assets of the Target Funds and the Acquiring Fund and Pro Forma
combined net assets as of February 29, 2012.
|
|
|
|
|
Fund |
|
Net Assets |
IQT (Target Fund)
|
|
$ |
202,475,282 |
|
IQM (Target Fund)
|
|
|
209,425,189 |
|
IQI (Acquiring Fund)
|
|
|
326,271,421 |
|
IQI (Pro Forma Combined)
|
|
|
738,071,892 |
|
- 99 -
Pro Forma combined net assets have been adjusted for expenses expected to be incurred by the
Acquiring Fund in connection with the mergers.
Note 3
Pro Forma Adjustments
The table below reflects adjustments to expenses needed to the pro forma combined Fund as if the
mergers had taken place on March 1, 2011. The pro forma information has been derived from the
books and records used in calculating daily net asset values of the Target Funds and Acquiring Fund
and have been prepared in accordance with accounting principles generally accepted in the United
States of America which requires management to make estimates and assumptions that affect this
information. Actual results could differ from those estimates.
|
|
|
|
|
Expense Category |
|
Increase
(decrease) in expense |
Advisory fees (1)
|
|
$ |
3,318,714 |
|
Administrative services fees (2)
|
|
|
(52,124 |
) |
Professional fees (3)
|
|
|
(1,521,365 |
) |
Listing fees (4)
|
|
|
(10,823 |
) |
Investment-related expenses (5)
|
|
|
3,358,155 |
|
Fee waiver and/or expense reimbursements (1)
|
|
|
(3,500,145 |
) |
|
|
|
(1) |
|
Advisory fees were adjusted to reflect the proposed increase in advisory fee rate from 0.27%
to 0.55% of average weekly managed assets for the Acquiring Fund based on pro forma combined
managed assets. In addition, upon closing of all of the mergers, the Adviser has
contractually agreed, through at least two years from the closing date of the mergers, to
waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual
fund operating expenses (excluding certain items discussed below) to 0.50%. In determining
the Advisers obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund operating expenses
after fee waiver to exceed the limit reflected above: (1) interest, facilities and
maintenance fees; (2) taxes; (3) dividend on short sales; (4) extraordinary or non-routine
items, including litigation expenses; and (5) expenses that the Acquiring Fund has incurred
but did not actually pay because of an expense offset arrangement. Correspondingly, the fee
waiver and/or expense reimbursements have been adjusted to reflect the contractual agreement
by the Adviser. Unless the Board of Trustees and the Adviser mutually agree to amend or
continue the fee waiver agreement, it will terminate two years after the closing of the
mergers. |
|
(2) |
|
Administrative services fees were adjusted to eliminate the duplicative costs of
administering two funds pursuant to the Master Administrative Services Agreement for the
Target Funds and the Acquiring Fund. |
|
(3) |
|
Professional fees were reduced to eliminate the effects of duplicative fees for audit and
legal services. |
|
(4) |
|
Listing fees were adjusted to reflect the per share listing rate based on pro forma combined
shares. |
|
(5) |
|
Investment-related expenses were adjusted to reflect financing costs related to the
anticipated issuance of Variable Rate Muni Term Preferred Shares and other financing costs
based on investment strategies of the Acquiring Fund. |
No significant accounting policies will change as a result of the mergers, specifically policies
regarding security valuation or compliance with Subchapter M of the Internal Revenue Code.
Note 4 Security Valuations Policy
Securities, including restricted securities, are valued according to the following policy.
Securities are fair valued using an evaluated quote provided by an independent pricing service
approved by the Board of Trustees. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, individual trading characteristics and other market data. Securities with a demand
feature exercisable within one to seven days are valued at par. Debt securities are subject
- 100 -
to
interest rate and credit risks. In addition, all debt securities involve some risk of default with
respect to interest and principal payments.
Securities for which market quotations either are not readily available or are unreliable are
valued at fair value as determined in good faith by or under the supervision of the Trusts
officers following procedures approved by the Board of Trustees. Some of the factors which may be
considered in determining fair value are fundamental analytical data relating to the investment;
the nature and duration of any restrictions on transferability or disposition; trading in similar
securities by the same issuer or comparable companies; relevant political, economic or issuer
specific news; and other relevant factors under the circumstances.
Valuations change in response to many factors including the historical and prospective earnings of
the issuer, the value of the issuers assets, general economic conditions, interest rates, investor
perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values
reflected in the financial statements may materially differ from the value received upon actual
sale of those investments.
Note 5 Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date, under
current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation
methods giving the highest priority to readily available unadjusted quoted prices in an active
market for identical assets (Level 1) and the lowest priority to significant unobservable inputs
(Level 3) generally when market prices are not readily available or are unreliable. Based on the
valuation inputs, the securities or other investments are tiered into one of three levels. Changes
in valuation methods may result in transfers in or out of an investments assigned level:
|
Level 1 |
|
Prices are determined using quoted prices in an active market for identical
assets. |
|
|
Level 2 |
|
Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, yield curves, loss severities, default rates, discount
rates, volatilities and others. |
|
|
Level 3 |
|
Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for example, when
there is little or no market activity for an investment at the end of the period),
unobservable inputs may be used. Unobservable inputs reflect the Funds own assumptions
about the factors market participants would use in determining fair value of the
securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of February 29, 2012. The
level assigned to the securities valuations may not be an indication of the risk or liquidity
associated with investing in those securities. Because of the inherent uncertainties of valuation,
the values reflected in the financial statements may materially differ from the value received upon
actual sale of those investments.
During the twelve months ended February 29, 2012, there were no significant transfers between
investment levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IQT (Target Fund) |
|
Municipal Obligations |
|
$ |
|
|
|
$ |
303,942,785 |
|
|
$ |
|
|
|
$ |
303,942,785 |
|
IQM (Target Fund) |
|
Municipal Obligations |
|
|
|
|
|
|
304,788,226 |
|
|
|
|
|
|
|
304,788,226 |
|
IQI (Acquiring Fund) |
|
Municipal Obligations |
|
|
|
|
|
|
518,985,470 |
|
|
|
|
|
|
|
518,985,470 |
|
IQI (Pro Forma Combined) |
|
Municipal Obligations |
|
$ |
|
|
|
$ |
1,127,716,481 |
|
|
$ |
|
|
|
$ |
1,127,716,481 |
|
- 101 -
Note 6
Merger Costs
The estimated total costs of the merger for each Target Fund and the Acquiring Fund are set forth
in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Portion of |
|
|
Estimated Total |
|
Total Merger Costs to |
|
|
Merger Costs |
|
be Paid by the Funds |
IQT (Target Fund)
|
|
$ |
140,000 |
|
|
$ |
0 |
|
IQM (Target Fund)
|
|
|
140,000 |
|
|
|
0 |
|
IQI (Acquiring Fund)
|
|
|
100,000 |
|
|
|
100,000 |
|
These costs represent the estimated non recurring expenses of the Target Funds and the Acquiring
Fund carrying out their obligations under the Plan and consistent of managements estimate of
professional services fees, printing costs and mailing charges related to the proposed mergers.
The Adviser will bear all costs not borne by the Funds.
Note 7 Accounting Survivor
The Acquiring Fund will be the accounting survivor. The surviving fund will have the portfolio
management team, portfolio composition strategies, investment objective, expense structure, and
policies/ restrictions of the Acquiring Fund.
Note 8 Capital Loss Carryforward
The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code
necessary to qualify as a regulated investment company and to distribute substantially all of the
Funds taxable earnings to shareholders. As such, the Fund will not be subject to federal income
taxes on otherwise taxable income (including net realized capital gain) that is distributed to
shareholders.
At February 29, 2012 the Target Funds, including IQT and IQM, had capital loss carryforwards of
approximately $18,149,887 and $16,658,564, respectively. At February 29, 2012, the Acquiring Fund,
IQI, had a capital loss carryforward of approximately $41,102,394. For additional information
regarding capital loss limitations, please see the section entitled Federal Income Tax
Considerations of the Mergers in the Proxy Statement/Prospectus filed on Form N-14 with the
Securities and Exchange Commission.
- 102 -
Invesco California Municipal Income Trust, Invesco California Quality Municipal Securities, and Invesco
California Municipal Securities into Invesco Van Kampen California Value Municipal Income Trust
The unaudited pro forma financial information set forth below is for informational purposes only
and does not purport to be indicative of the financial condition that actually would have resulted
if the mergers had been consummated. These pro forma numbers have been estimated in good faith
based on information regarding the Target Funds and the Acquiring Fund, each as identified below,
for the twelve month period ended February 29, 2012. The unaudited pro forma financial information
should be read in conjunction with the historical financial statements of the Target Funds and
Acquiring Fund, which are available in their respective annual and semi-annual shareholder reports.
Narrative Description of the Pro Forma Effects of the Mergers
Note 1 Mergers
The unaudited pro forma information has been prepared to give effect to the proposed merger of each
of the Target Funds into the Acquiring Fund pursuant to an agreement and Plan of Merger (the
Plan) as of the beginning of the period as indicated below in the table. No merger is contingent
upon any other merger.
|
|
|
|
|
Target Fund |
|
Acquiring Fund |
|
12 Month Period Ended |
Invesco California
Municipal Income Trust
(IIC)
|
|
Invesco Van Kampen
California Value
Municipal Income Trust (VCV)
|
|
February 29, 2012 |
|
|
|
|
|
Invesco California
Quality Municipal
Securities (IQC) |
|
|
|
|
|
|
|
|
|
Invesco California
Municipal Securities
(ICS) |
|
|
|
|
Basis of Pro Forma
Each merger will be accounted for as a tax-free reorganization of investment companies; therefore,
no gain or loss will be recognized by a Fund or its shareholders as a result of the merger. The
Target Funds and the Acquiring Fund are registered closed-end management investment companies.
Each merger would be accomplished by a statutory merger of the applicable Target Fund with and into
the Acquiring Fund. The table below shows the Acquiring Fund shares that Target Fund shareholders
would have received if the merger were to have taken place on February 29, 2012.
|
|
|
|
|
Target Fund |
|
Shares Converted |
|
Acquiring Fund |
IIC |
|
12,650,930 |
|
VCV |
IQC |
|
9,757,222 |
|
|
ICS |
|
3,980,750 |
|
|
Under accounting principles generally accepted in the United States of America, the historical cost
of investment securities will be carried forward to the surviving entity, the Acquiring Fund, and
the results of operations of the Acquiring Fund for pre-merger periods will not be restated. All
securities held by the Target Funds comply with investment objectives, strategies and restrictions
of the Acquiring Fund at February 29, 2012.
Note 2 Net Assets
The table below shows the net assets of the Target Funds and the Acquiring Fund and Pro Forma
combined net assets as of February 29, 2012.
- 103 -
|
|
|
|
|
Fund |
|
Net Assets |
IIC (Target Fund)
|
|
$ |
167,342,758 |
|
IQC (Target Fund)
|
|
|
129,094,753 |
|
ICS (Target Fund)
|
|
|
52,673,929 |
|
VCV (Acquiring Fund)
|
|
|
293,012,026 |
|
VCV (Pro Forma Combined)
|
|
|
642,123,466 |
|
Note 3 Pro Forma Adjustments
The table below reflects adjustments to expenses needed to the pro forma combined Fund as if the
mergers had taken place on March 1, 2011. The pro forma information has been derived from the
books and records used in calculating daily net asset values of the Target Funds and Acquiring Fund
and has been prepared in accordance with accounting principles generally accepted in the United
States of America which requires management to make estimates and assumptions that affect this
information. Actual results could differ from those estimates.
|
|
|
|
|
Expense Category |
|
Increase
(decrease) in expense |
Advisory fees (1)
|
|
$ |
1,945,199 |
|
Administrative services fees (2)
|
|
|
(106,090 |
) |
Professional fees (3)
|
|
|
(161,009 |
) |
Listing fees (4)
|
|
|
(39,127 |
) |
Investment-related expenses (5)
|
|
|
3,413,758 |
|
Fee waiver and/or expense reimbursements (1)
|
|
|
(3,231,090 |
) |
|
|
|
(1) |
|
Under the terms of the investment advisory contract of the Acquiring Fund, the advisory fees
have been adjusted to reflect the advisory fee rates in effect for the Acquiring Fund based on
pro forma combined managed assets. Upon closing of all of the mergers, the Adviser has
contractually agreed for at least two years following the closing of the Mergers to waive
advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund
operating expenses (excluding certain items discussed below) to 0.52%. In determining the
Advisers obligation to waive advisory fees and/or reimburse expenses, the following expenses
are not taken into account, and could cause the total annual fund operating expenses after fee
waiver to exceed the limit reflected above: (1) interest, facilities and maintenance fees;
(2) taxes; (3) dividend on short sales; (4) extraordinary or non-routine items, including
litigation expenses; and (5) expenses that the Acquiring Fund has incurred but did not
actually pay because of an expense offset arrangement. Correspondingly, the fee waiver and/or
expense reimbursements have been adjusted to reflect the contractual agreement by the Adviser.
Unless the Board of Trustees and the Adviser mutually agree to amend or continue the fee
waiver agreement, it will terminate two years after the closing of the mergers. |
|
(2) |
|
Administrative services fees were adjusted to eliminate the duplicative costs of
administering three funds pursuant to the Master Administrative Services Agreement for the
Target Funds and the Acquiring Fund. |
|
(3) |
|
Professional fees were reduced to eliminate the effects of duplicative fees for audit and
legal services. |
|
(4) |
|
Listing fees were adjusted to reflect the per share listing rate based on pro forma combined
shares. |
|
(5) |
|
Investment-related expenses were adjusted to reflect financing costs related to the
anticipated issuance of Variable Rate Muni Term Preferred Shares and other financing costs
based on investment strategies of the Acquiring Fund |
No significant accounting policies will change as a result of the merger, specifically policies
regarding security valuation or compliance with Subchapter M of the Internal Revenue Code.
Note 4 Security Valuations Policy
Securities, including restricted securities, are valued according to the following policy.
- 104 -
Securities are fair valued using an evaluated quote provided by an independent pricing service
approved by the Board of Trustees. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, individual trading characteristics and other market data. Securities with a demand
feature exercisable within one to seven days are valued at par. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve some risk of default with
respect to interest and principal payments.
Securities for which market quotations either are not readily available or are unreliable are
valued at fair value as determined in good faith by or under the supervision of the Trusts
officers following procedures approved by the Board of Trustees. Some of the factors which may be
considered in determining fair value are fundamental analytical data relating to the investment;
the nature and duration of any restrictions on transferability or disposition; trading in similar
securities by the same issuer or comparable companies; relevant political, economic or issuer
specific news; and other relevant factors under the circumstances.
Valuations change in response to many factors including the historical and prospective earnings of
the issuer, the value of the issuers assets, general economic conditions, interest rates, investor
perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values
reflected in the financial statements may materially differ from the value received upon actual
sale of those investments.
Note 5 Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date, under
current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation
methods giving the highest priority to readily available unadjusted quoted prices in an active
market for identical assets (Level 1) and the lowest priority to significant unobservable inputs
(Level 3) generally when market prices are not readily available or are unreliable. Based on the
valuation inputs, the securities or other investments are tiered into one of three levels. Changes
in valuation methods may result in transfers in or out of an investments assigned level:
|
Level 1 |
|
Prices are determined using quoted prices in an active market for identical
assets. |
|
|
Level 2 |
|
Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, yield curves, loss severities, default rates, discount
rates, volatilities and others. |
|
|
Level 3 |
|
Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for example, when
there is little or no market activity for an investment at the end of the period),
unobservable inputs may be used. Unobservable inputs reflect the Funds own assumptions
about the factors market participants would use in determining fair value of the
securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of February 29, 2012. The
level assigned to the securities valuations may not be an indication of the risk or liquidity
associated with investing in those securities. Because of the inherent uncertainties of valuation,
the values reflected in the financial statements may materially differ from the value received upon
actual sale of those investments.
During the twelve months ended February 29, 2012 there were no significant transfers between
investment levels.
- 105 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IIC (Target Fund) |
|
Municipal Obligations |
|
$ |
|
|
|
$ |
232,889,601 |
|
|
$ |
|
|
|
$ |
232,889,601 |
|
IQC (Target Fund) |
|
Municipal Obligations |
|
|
|
|
|
|
189,795,945 |
|
|
|
|
|
|
|
189,795,945 |
|
ICS (Target Fund) |
|
Municipal Obligations |
|
|
|
|
|
|
58,787,878 |
|
|
|
|
|
|
|
58,787,878 |
|
VCV (Acquiring Fund) |
|
Municipal Obligations |
|
|
|
|
|
|
504,362,717 |
|
|
|
|
|
|
|
504,362,717 |
|
VCV (Pro Forma Combined) |
|
Municipal Obligations |
|
$ |
|
|
|
$ |
985,836,141 |
|
|
$ |
|
|
|
$ |
985,836,141 |
|
Note 6
Merger Costs
The estimated total costs of the merger for each Target Fund and the Acquiring Fund are set forth
in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Portion of |
|
|
Estimated Total |
|
Total Merger Costs to |
|
|
Merger Costs |
|
be Paid by the Funds |
IIC (Target Fund)
|
|
$ |
140,000 |
|
|
$ |
0 |
|
IQC (Target Fund)
|
|
|
140,000 |
|
|
|
0 |
|
ICS (Target Fund)
|
|
|
130,000 |
|
|
|
0 |
|
VCV (Acquiring Fund)
|
|
|
110,000 |
|
|
|
0 |
|
These costs represent the estimated non recurring expenses of the Target Funds and the Acquiring
Fund carrying out their obligations under the Plan and consistent of managements estimate of
professional services fees, printing costs and mailing charges related to the proposed mergers.
The Adviser will bear all costs not borne by the Funds.
Note 7 Accounting Survivor
The Acquiring Fund will be the accounting survivor. The surviving fund will have the portfolio
management team, portfolio composition strategies, investment objective, expense structure, and
policies/ restrictions of the Acquiring Fund.
Note 8 Capital Loss Carryforward
The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code
necessary to qualify as a regulated investment company and to distribute substantially all of the
Funds taxable earnings to shareholders. As such, the Fund will not be subject to federal income
taxes on otherwise taxable income (including net realized capital gain) that is distributed to
shareholders.
At February 29, 2012, the Target Funds, including IIC, IQC, and ICS, had capital loss carryforwards
of approximately $2,291,975, $12,302,990, and $499,669, respectively. At February 29, 2012, the
Acquiring Fund, VCV, had a capital loss carryforward of approximately $71,798,228. For additional
information regarding capital loss limitations, please see the section entitled Federal Income Tax
Considerations of the Mergers in the Proxy Statement/Prospectus filed on Form N-14 with the
Securities and Exchange Commission.
- 106 -
Invesco High Yield Investment Fund Inc. into Invesco Van Kampen High Income Trust II
The unaudited pro forma financial information set forth below is for informational purposes only
and does not purport to be indicative of the financial condition that actually would have resulted
if the merger had been consummated. These pro forma numbers have been estimated in good faith
based on information regarding the Target Fund and the Acquiring Fund, each as identified below,
for the twelve month period ended February 29, 2012. The unaudited pro forma financial information
should be read in conjunction with the historical financial statements of the Target Fund and
Acquiring Fund, which are available in their respective annual and semi-annual shareholder reports.
Narrative Description of the Pro Forma Effects of the Merger
Note 1 Merger
The unaudited pro forma information has been prepared to give effect to the proposed merger of the
Target Fund into the Acquiring Fund pursuant to an agreement and Plan of Merger (the Plan) as of
the beginning of the period as indicated below in the table.
|
|
|
|
|
Target Fund |
|
Acquiring Fund |
|
12 Month Period Ended |
Invesco High Yield
Investment Fund, Inc.
(MSY)
|
|
Invesco Van Kampen
High Income Trust II
(VLT)
|
|
February 29, 2012 |
Basis of Pro Forma
The merger will be accounted for as a tax-free reorganization of investment companies; therefore,
no gain or loss will be recognized by the Acquiring Fund or its shareholders as a result of the
merger. The Target Fund and the Acquiring Fund are both registered closed-end management
investment companies. The merger would be accomplished by a statutory merger of the Target Fund
with and into the Acquiring Fund. The table below shows the Acquiring Fund shares that Target Fund
shareholders would have received if the merger were to have taken place on February 29, 2012.
|
|
|
|
|
|
|
Target Fund |
|
Shares Converted |
|
Acquiring Fund |
MSY
|
|
|
4,409,461 |
|
|
VLT |
Under accounting principles generally accepted in the United States of America, the historical cost
of investment securities will be carried forward to the surviving entity, the Acquiring Fund, and
the results of operations of the Acquiring Fund for pre-merger periods will not be restated. All
securities held by the Target Fund comply with investment objectives, strategies and restrictions
of the Acquiring Fund at February 29, 2012.
Note 2 Net Assets
The table below shows the net assets of the Target Fund and the Acquiring Fund and Pro Forma
combined net assets as of February 29, 2012.
|
|
|
|
|
Fund |
|
Net Assets |
MSY (Target Fund)
|
|
$ |
72,277,840 |
|
VLT (Acquiring Fund)
|
|
|
61,755,099 |
|
VLT (Pro Forma Combined)
|
|
|
133,912,939 |
|
Pro Forma combined net assets have been adjusted for expenses expected to be incurred by the
Acquiring Fund in connection with the merger.
- 107 -
Note 3
Pro Forma Adjustments
The table below reflects adjustments to expenses needed to the pro forma combined Fund as if the
merger had taken place on March 1, 2011. The pro forma information has been derived from the books
and records used in calculating daily net asset values of the Target Fund and Acquiring Fund and
has been prepared in accordance with accounting principles generally accepted in the United States
of America which requires management to make estimates and assumptions that affect this
information. Actual results could differ from those estimates.
|
|
|
|
|
Expense Category |
|
Increase
(decrease) in expense |
Advisory fees (1)
|
|
$ |
193,392 |
|
Administrative services fees (2)
|
|
|
(50,000 |
) |
Professional fees (3)
|
|
|
(296,139 |
) |
Listing fees (4)
|
|
|
(21,250 |
) |
Investment-related expenses (5)
|
|
|
(51,577 |
) |
Fee waiver and/or expense reimbursements (1)
|
|
|
(266,632 |
) |
|
|
|
(1) |
|
Under the terms of the investment advisory contract of the Acquiring Fund, the advisory fees
have been adjusted to reflect the advisory fee rates in effect for the Acquiring Fund based on
pro forma combined managed assets including bank borrowings entered into to retire preferred
shares. Upon closing of the Merger, the Adviser has contractually agreed for at least two
years following the closing of the Merger to waive advisory fees and/or reimburse expenses to
the extent necessary to limit total annual fund operating expenses (excluding certain items
discussed below) to 1.07%. In determining the Advisers obligation to waive advisory fees
and/or reimburse expenses, the following expenses are not taken into account, and could cause
the total annual fund operating expenses after fee waiver to exceed the limit reflected
above: (1) interest, facilities and maintenance fees; (2) taxes; (3) dividend on short
sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses
that the Acquiring Fund has incurred but did not actually pay because of an expense offset
arrangement. Correspondingly, the fee waiver and/or expense reimbursements have been adjusted
to reflect the contractual agreement by the Adviser. Unless the Board of Trustees and the
Adviser mutually agree to amend or continue the fee waiver agreement, it will terminate two
years after the closing of the merger. |
|
(2) |
|
Administrative services fees were adjusted to eliminate the duplicative costs of
administering one fund pursuant to the Master Administrative Services Agreement for the Target
Fund and the Acquiring Fund. |
|
(3) |
|
Professional fees were reduced to eliminate the effects of duplicative fees for audit and
legal services. |
|
(4) |
|
Listing fees were adjusted to reflect the per share listing rate based on pro forma combined
shares. |
|
(5) |
|
Investment-related expenses were adjusted to reflect financing costs related to investment
strategies of the Acquiring Fund. |
No significant accounting policies will change as a result of the merger, specifically policies
regarding security valuation or compliance with Subchapter M of the Internal Revenue Code.
Note 4 Security Valuation Policy
Securities, including restricted securities, are valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales
price or official closing price as of the close of the customary trading session on the exchange
where the security is principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that day. Securities traded
in the over-the-counter market are valued based on prices furnished by independent pricing services
or market makers. When such securities are valued by an independent pricing service they may be
considered fair valued. Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at the mean between the
last bid and ask prices from the exchange on which they are principally traded. Options not listed
on an exchange are valued by an independent
- 108 -
source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option contracts generally are
valued 15 minutes after the close of the customary trading session of the New York Stock Exchange
(NYSE).
Investments in open-end and closed-end registered investment companies that do not trade on an
exchange are valued at the end of day net asset value per share. Investments in open-end and
closed-end registered investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading session on the exchange
where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes provided by the
pricing service 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 specific securities, dividend rate, yield, quality, type of issue, coupon rate,
maturity, individual trading characteristics and other market data. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve some risk of default with
respect to interest and/or principal payments.
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts
using the applicable 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 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 make the closing price unreliable, the Trust may fair value the
security. If the event is likely to have affected the closing price of the security, the security
will be valued at fair value in good faith using procedures approved by the Board of Trustees.
Adjustments to closing prices to reflect fair value may also be based on a screening process of an
independent pricing service to indicate the degree of certainty, based on historical data, that the
closing price in the principal market where a foreign security trade is not the current value as of
the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price
is not reflective of current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the independent pricing service
in determining adjustments to reflect fair value and may include information relating to sector
indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities
may have additional risks including exchange rate changes, potential for sharply devalued
currencies and high inflation, political and economic upheaval, the relative lack of issuer
information, relatively low market liquidity and the potential lack of strict financial and
accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based
upon quotes furnished by independent sources. The last bid price may be used to value equity
securities. The mean between the last bid and asked prices is used to value debt obligations,
including Corporate Loans.
Securities for which market quotations are not readily available or are unreliable are valued at
fair value as determined in good faith by or under the supervision of the Trusts officers
following procedures approved by the Board of Trustees. 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 securitys fair value.
Valuations change in response to many factors including the historical and prospective earnings of
the issuer, the value of the issuers assets, general economic conditions, interest rates, investor
perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values
reflected in the financial statements may materially differ from the value received upon actual
sale of those investments.
Note 5 Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date, under
current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation
methods giving the highest priority to readily available unadjusted quoted prices in an active
market for identical assets (Level 1) and the lowest priority to significant unobservable inputs
(Level 3) generally when market prices are not readily available or are unreliable. Based on the
- 109 -
valuation inputs, the securities or other investments are tiered into one of three levels. Changes
in valuation methods may result in transfers in or out of an investments assigned level:
|
Level 1 |
|
Prices are determined using quoted prices in an active market for identical
assets. |
|
|
Level 2 |
|
Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, yield curves, loss severities, default rates, discount
rates, volatilities and others. |
|
|
Level 3 |
|
Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for example, when
there is little or no market activity for an investment at the end of the period),
unobservable inputs may be used. Unobservable inputs reflect the Funds own assumptions
about the factors market participants would use in determining fair value of the
securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of February 29, 2012. The
level assigned to the securities valuations may not be an indication of the risk or liquidity
associated with investing in those securities. Because of the inherent uncertainties of valuation,
the values reflected in the financial statements may materially differ from the value received upon
actual sale of those investments.
During the twelve months ended February 29, 2012, there were no significant transfers between
investment levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
MSY (Target Fund) |
|
Equity Securities |
|
$ |
4,472,775 |
|
|
$ |
433,875 |
|
|
$ |
|
|
|
$ |
4,906,650 |
|
MSY (Target Fund) |
|
Corporate Debt Securities |
|
|
|
|
|
|
93,874,047 |
|
|
|
7,015 |
|
|
|
93,881,062 |
|
MSY (Target Fund) |
|
Foreign Currency Contracts* |
|
|
|
|
|
|
(80,533 |
) |
|
|
|
|
|
|
(80,533 |
) |
MSY (Target Fund) |
|
Total |
|
$ |
4,472,775 |
|
|
$ |
94,227,389 |
|
|
$ |
7,015 |
|
|
$ |
98,707,179 |
|
VLT (Acquiring Fund) |
|
Equity Securities |
|
$ |
2,418,131 |
|
|
$ |
355,777 |
|
|
$ |
0 |
|
|
$ |
2,773,908 |
|
VLT (Acquiring Fund) |
|
Corporate Debt Securities |
|
|
|
|
|
|
73,681,275 |
|
|
|
6,600 |
|
|
|
73,687,875 |
|
VLT (Acquiring Fund) |
|
Foreign Debt Securities |
|
|
|
|
|
|
7,997,805 |
|
|
|
|
|
|
|
7,997,805 |
|
VLT (Acquiring Fund) |
|
Foreign Currency Contracts* |
|
|
|
|
|
|
(63,567 |
) |
|
|
|
|
|
|
(63,567 |
) |
VLT (Acquiring Fund) |
|
Total |
|
$ |
2,418,131 |
|
|
$ |
81,971,290 |
|
|
$ |
6,600 |
|
|
$ |
84,396,021 |
|
VLT (Pro Forma Combined) |
|
Total |
|
$ |
6,890,906 |
|
|
$ |
176,198,679 |
|
|
$ |
13,615 |
|
|
$ |
183,103,200 |
|
|
|
|
* |
|
Unrealized appreciation (depreciation). |
Note 6
Merger Costs
The estimated total costs of the merger for the Target Fund and the Acquiring Fund are set forth in
the table below.
- 110 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Portion of |
|
|
Estimated Total |
|
Total Merger Costs to |
|
|
Merger |
|
be Paid by the Funds |
MSY (Target Fund)
|
|
$ |
190,000 |
|
|
$ |
0 |
|
VLT (Acquiring Fund)
|
|
|
120,000 |
|
|
|
120,000 |
|
These costs represent the estimated non recurring expenses of the Target Fund and the Acquiring
Fund carrying out their obligations under the Plan and consistent of managements estimate of
professional services fees, printing costs and mailing charges related to the proposed merger. The
Adviser will bear all costs not borne by the Funds.
Note 7 Accounting Survivor
The Acquiring Fund will be the accounting survivor. The surviving fund will have the portfolio
management team, portfolio composition strategies, investment objective, expense structure, and
policies/ restrictions of the Acquiring Fund.
Note 8 Capital Loss Carryforward
The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code
necessary to qualify as a regulated investment company and to distribute substantially all of the
Funds taxable earnings to shareholders. As such, the Fund will not be subject to federal income
taxes on otherwise taxable income (including net realized capital gain) that is distributed to
shareholders.
At February 29, 2012 the Target Fund, MSY had a capital loss carryforward of approximately
$20,413,038. At February 29, 2012 the Acquiring Fund, VLT had a capital loss carryforward of
approximately $32,142,797. For additional information regarding capital loss limitations, please
see the section entitled Federal Income Tax Considerations of the Merger in the Proxy
Statement/Prospectus filed on Form N-14 with the Securities and Exchange Commission.
- 111 -
Invesco Municipal Premium Income Trust, Invesco Van Kampen Select Sector Municipal Trust, and Invesco Van
Kampen Trust for Value Municipals into Invesco Van Kampen Municipal Opportunity Trust
The unaudited pro forma financial information set forth below is for informational purposes
only and does not purport to be indicative of the financial condition that actually would have
resulted if the mergers had been consummated. These pro forma numbers have been estimated in good
faith based on information regarding the Target Funds and the Acquiring Fund, each as identified
below, for the twelve month period ended February 29, 2012. The unaudited pro forma financial
information should be read in conjunction with the historical financial statements of the Target
Funds and Acquiring Fund, which are available in their respective annual and semi-annual
shareholder reports.
Narrative Description of the Pro Forma Effects of the Mergers
Note 1 Mergers
The unaudited pro forma information has been prepared to give effect to the proposed merger of each
of the Target Funds into the Acquiring Fund pursuant to an agreement and Plan of Merger (the
Plan) as of the beginning of the period as indicated below in the table. No merger is contingent
upon any other merger.
|
|
|
|
|
Target Fund |
|
Acquiring Fund |
|
12 Month Period Ended |
Invesco Municipal
Premium Income Trust
(PIA)
|
|
Invesco Van Kampen
Municipal Opportunity
Trust (VMO)
|
|
February 29, 2012 |
Invesco Van Kampen
Select Sector Municipal
Trust (VKL) |
|
|
|
Invesco Van Kampen
Trust for Value
Municipals (VIM) |
|
|
|
Basis of Pro Forma
Each merger will be accounted for as a tax-free reorganization of investment companies; therefore,
no gain or loss will be recognized by a Fund or its shareholders as a result of a merger. The
Target Funds and the Acquiring Fund are registered closed-end management investment companies. Each
merger would be accomplished by a statutory merger of the applicable Target Fund with and into the
Acquiring Fund. The table below shows the Acquiring Fund shares that Target Fund shareholders
would have received if the merger were to have taken place on February 29, 2012.
|
|
|
Target Fund |
Shares Converted |
Acquiring Fund |
PIA |
10,629,685 |
VMO |
VKL |
13,488,584 |
VIM |
9,670,718 |
Under accounting principles generally accepted in the United States of America, the historical cost
of investment securities will be carried forward to the surviving entity, the Acquiring Fund, and
the results of operations of the Acquiring Fund for pre-merger periods will not be restated. All
securities held by the Target Funds comply with investment objectives, strategies and restrictions
of the Acquiring Fund at February 29, 2012.
- 112 -
Note 2 Net Assets
The table below shows the net assets of the Target Funds and the Acquiring Fund and Pro Forma
combined net assets as of February 29, 2012.
|
|
|
|
|
Fund |
|
Net Assets |
PIA (Target Fund)
|
|
$ |
150,776,682 |
|
VKL (Target Fund)
|
|
|
191,469,377 |
|
VIM (Target Fund)
|
|
|
137,210,808 |
|
VMO(Acquiring Fund)
|
|
|
480,291,241 |
|
VMO (Pro Forma Combined)
|
|
|
959,748,108 |
|
Note 3
Pro Forma Adjustments
The table below reflects adjustments to expenses needed to the pro forma combined Fund as if the
mergers had taken place on March 1, 2011. The pro forma information has been derived from the
books and records used in calculating daily net asset values of the Target Funds and Acquiring Fund
and has been prepared in accordance with accounting principles generally accepted in the United
States of America which requires management to make estimates and assumptions that affect this
information. Actual results could differ from those estimates.
|
|
|
|
|
Expense Category |
|
Increase (decrease)
in expense |
Advisory fees (1)
|
|
$ |
523,725 |
|
Administrative services fees (2)
|
|
|
(97,639 |
) |
Professional fees (3)
|
|
|
(1,174,440 |
) |
Listing fees (4)
|
|
|
(38,290 |
) |
Investment-related expenses (5)
|
|
|
5,258,674 |
|
Fee waiver and/or expense reimbursements (1)
|
|
|
(1,428,591 |
) |
|
|
|
(1) |
|
Under the terms of the investment advisory contract of the Acquiring Fund, the advisory fees
have been adjusted to reflect the advisory fee rates in effect for the Acquiring Fund based on
pro forma combined managed assets. Upon closing of all of the mergers, the Adviser has
contractually agreed, through at least two years from the closing date of the mergers, to
waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual
fund operating expenses (excluding certain items discussed below) to 0.89%. In determining
the Advisers obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund operating expenses
after fee waiver to exceed the limit reflected above: (1) interest, facilities and
maintenance fees; (2) taxes; (3) dividend on short sales; (4) extraordinary or non-routine
items, including litigation expenses; and (5) expenses that the Acquiring Fund has incurred
but did not actually pay because of an expense offset arrangement. Correspondingly, the fee
waiver and/or expense reimbursements have been adjusted to reflect the contractual agreement
by the Adviser. Unless the Board of Trustees and the Adviser mutually agree to amend or
continue the fee waiver agreement, it will terminate two years after the closing of the
mergers. |
|
(2) |
|
Administrative services fees were adjusted to eliminate the duplicative costs of
administering three funds pursuant to the Master Administrative Services Agreement for the
Target Funds and the Acquiring Fund. |
|
(3) |
|
Professional fees were reduced to eliminate the effects of duplicative fees for audit and
legal services. |
|
(4) |
|
Listing fees were adjusted to reflect the per share listing rate based on pro forma combined
shares. |
|
(5) |
|
Investment-related expenses were adjusted to reflect financing costs related to the
anticipated issuance of Variable Rate Muni Term Preferred Shares and other financing costs
based on investment strategies of the Acquiring Fund. |
No significant accounting policies will change as a result of the mergers, specifically policies
regarding security valuation or compliance with Subchapter M of the Internal Revenue Code.
- 113 -
Note 4 Security Valuation Policy
Securities, including restricted securities, are valued according to the following policy.
Securities are fair valued using an evaluated quote provided by an independent pricing service
approved by the Board of Trustees. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, individual trading characteristics and other market data. Securities with a demand
feature exercisable within one to seven days are valued at par. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve some risk of default with
respect to interest and principal payments.
Securities for which market quotations either are not readily available or are unreliable are
valued at fair value as determined in good faith by or under the supervision of the Trusts
officers following procedures approved by the Board of Trustees. Some of the factors which may be
considered in determining fair value are fundamental analytical data relating to the investment;
the nature and duration of any restrictions on transferability or disposition; trading in similar
securities by the same issuer or comparable companies; relevant political, economic or issuer
specific news; and other relevant factors under the circumstances.
Valuations change in response to many factors including the historical and prospective earnings of
the issuer, the value of the issuers assets, general economic conditions, interest rates, investor
perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values
reflected in the financial statements may materially differ from the value received upon actual
sale of those investments.
Note 5 Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date, under
current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation
methods giving the highest priority to readily available unadjusted quoted prices in an active
market for identical assets (Level 1) and the lowest priority to significant unobservable inputs
(Level 3) generally when market prices are not readily available or are unreliable. Based on the
valuation inputs, the securities or other investments are tiered into one of three levels. Changes
in valuation methods may result in transfers in or out of an investments assigned level:
|
Level 1 |
|
Prices are determined using quoted prices in an active market for identical
assets. |
|
|
Level 2 |
|
Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, yield curves, loss severities, default rates, discount
rates, volatilities and others. |
|
|
Level 3 |
|
Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for example, when
there is little or no market activity for an investment at the end of the period),
unobservable inputs may be used. Unobservable inputs reflect the Funds own assumptions
about the factors market participants would use in determining fair value of the
securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of February 29, 2012. The
level assigned to the securities valuations may not be an indication of the risk or liquidity
associated with investing in those securities. Because of the inherent uncertainties of valuation,
the values reflected in the financial statements may materially differ from the value received upon
actual sale of those investments.
During the twelve months ended February 29, 2012, there were no significant transfers between
investment levels.
- 114 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
PIA (Target Fund) |
|
Municipal Obligations |
|
$ |
|
|
|
$ |
251,237,032 |
|
|
$ |
|
|
|
$ |
251,237,032 |
|
VKL (Target Fund) |
|
Municipal Obligations |
|
|
|
|
|
|
318,886,580 |
|
|
|
|
|
|
|
318,886,580 |
|
VIM (Target Fund) |
|
Municipal Obligations |
|
|
|
|
|
|
219,743,307 |
|
|
|
|
|
|
|
219,743,307 |
|
VMO (Acquiring Fund) |
|
Municipal Obligations |
|
|
|
|
|
|
822,193,743 |
|
|
|
|
|
|
|
822,193,743 |
|
VMO (Pro Forma
Combined) |
|
Municipal Obligations |
|
$ |
|
|
|
$ |
1,612,060,662 |
|
|
$ |
|
|
|
$ |
1,612,060,662 |
|
Note 6
Merger Costs
The estimated total costs of the merger for each Target Fund and the Acquiring Fund are set forth
in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Portion of |
|
|
Estimated Total Merger |
|
Total Merger Costs to |
|
|
Costs |
|
be Paid by the Funds |
PIA (Target Fund)
|
|
$ |
140,000 |
|
|
$ |
0 |
|
VKL (Target Fund)
|
|
|
150,000 |
|
|
|
0 |
|
VIM (Target Fund)
|
|
|
150,000 |
|
|
|
0 |
|
VMO (Acquiring Fund)
|
|
|
130,000 |
|
|
|
0 |
|
These costs represent the estimated non recurring expenses of the Target Funds and the Acquiring
Fund carrying out their obligations under the Plan and consistent of managements estimate of
professional services fees, printing costs and mailing charges related to the proposed mergers.
The Adviser will bear all costs not borne by the Funds.
Note 7 Accounting Survivor
The Acquiring Fund will be the accounting survivor. The surviving fund will have the portfolio
management team, portfolio composition strategies, investment objective, expense structure, and
policies/ restrictions of the Acquiring Fund.
Note 8 Capital Loss Carryforward
The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code
necessary to qualify as a regulated investment company and to distribute substantially all of the
Funds taxable earnings to shareholders. As such, the Fund will not be subject to federal income
taxes on otherwise taxable income (including net realized capital gain) that is distributed to
shareholders.
At February 29, 2012, the Target Funds, including PIA, VKL, and VIM, had capital loss carryforwards
of approximately $26,648,849, $33,274,131, and $21,435,223, respectively. At February 29, 2012, the
Acquiring Fund, VMO, had a capital loss carryforward of approximately $85,677,970. For additional
information regarding capital loss limitations, please see the section entitled Federal Income Tax
Considerations of the Mergers in the Proxy Statement/Prospectus filed on Form N-14 with the
Securities and Exchange Commission.
- 115 -
Invesco New York Quality Municipal Securities into Invesco Van Kampen Trust for Investment Grade New
York Municipals
The unaudited pro forma financial information set forth below is for informational purposes only
and does not purport to be indicative of the financial condition that actually would have resulted
if the merger had been consummated. These pro forma numbers have been estimated in good faith
based on information regarding the Target Fund and the Acquiring Fund, each as identified below,
for the twelve month period ended February 29, 2012. The unaudited pro forma financial information
should be read in conjunction with the historical financial statements of the Target Fund and
Acquiring Fund, which are available in their respective annual and semi-annual shareholder reports.
Narrative Description of the Pro Forma Effects of the Merger
Note 1 Merger
The unaudited pro forma information has been prepared to give effect to the proposed merger of the
Target Fund into the Acquiring Fund pursuant to an agreement and Plan of Merger (the Plan) as of
the beginning of the period as indicated below in the table.
|
|
|
|
|
Target Fund |
|
Acquiring Fund |
|
12 Month Period Ended |
Invesco New York
Quality Municipal
Securities (IQN)
|
|
Invesco Van Kampen
Trust for Investment
Grade New York
Municipals (VTN)
|
|
February 29, 2012 |
Basis of Pro Forma
The merger will be accounted for as a tax-free reorganization of investment companies; therefore,
no gain or loss will be recognized by the Acquiring Fund or its shareholders as a result of the
merger. The Target Fund and the Acquiring Fund are both registered closed-end management
investment companies. The merger would be accomplished by a statutory merger of the Target Fund
with and into the Acquiring Fund in exchange for shares of the Acquiring Fund. The table below
shows the Acquiring Fund shares that Target Fund shareholders would have received if the merger
were to have taken place on February 29, 2012.
|
|
|
|
|
|
|
Target Fund |
|
Shares Converted |
|
Acquiring Fund |
IQN
|
|
|
4,247,296 |
|
|
VTN |
Under accounting principles generally accepted in the United States of America, the historical cost
of investment securities will be carried forward to the surviving entity, the Acquiring Fund, and
the results of operations of the Acquiring Fund for pre-merger periods will not be restated. All
securities held by the Target Fund comply with investment objectives, strategies and restrictions
of the Acquiring Fund at February 29, 2012.
Note 2 Net Assets
The table below shows the net assets of the Target Fund and the Acquiring Fund and Pro Forma
combined net assets as of February 29, 2012.
|
|
|
|
|
Fund |
|
Net Assets |
IQN (Target Fund)
|
|
$ |
66,265,649 |
|
VTN (Acquiring Fund)
|
|
|
237,814,947 |
|
VTN (Pro Forma Combined)
|
|
|
304,080,596 |
|
- 116 -
Note 3 Pro Forma Adjustments
The table below reflects adjustments to expenses needed to the pro forma combined Fund as if the
merger had taken place on March 2, 2011. The pro forma information has been derived from the books
and records used in calculating daily net asset values of the Target Fund and Acquiring Fund and
have been prepared in accordance with accounting principles generally accepted in the United States
of America which requires management to make estimates and assumptions that affect this
information. Actual results could differ from those estimates.
|
|
|
|
|
Expense Category |
|
Increase (decrease) in expense |
Advisory fees (1)
|
|
$ |
348,799 |
|
Administrative services fees (2)
|
|
|
(55,803 |
) |
Professional fees (3)
|
|
|
(170,717 |
) |
Listing fees (4)
|
|
|
(15,808 |
) |
Investment-related expenses (5)
|
|
|
1,358,644 |
|
Fee waiver and/or expense reimbursements (1)
|
|
|
(943,634 |
) |
|
|
|
(1) |
|
Under the terms of the investment advisory contract of the Acquiring Fund, the advisory fees
have been adjusted to reflect the advisory fee rates in effect for the Acquiring Fund based on
pro forma combined managed assets. Upon closing of the merger, the Adviser has contractually
agreed, through at least two years from the closing date of the merger, to waive advisory fees
and/or reimburse expenses to the extent necessary to limit total annual fund operating
expenses (excluding certain items discussed below) to 0.69%. In determining the Advisers
obligation to waive advisory fees and/or reimburse expenses, the following expenses are not
taken into account, and could cause the total annual fund operating expenses after fee waiver
to exceed the limit reflected above: (1) interest, facilities and maintenance fees; (2)
taxes; (3) dividend on short sales; (4) extraordinary or non-routine items, including
litigation expenses; and (5) expenses that the Acquiring Fund has incurred but did not
actually pay because of an expense offset arrangement. Correspondingly, the fee waiver and/or
expense reimbursements have been adjusted to reflect the contractual agreement by the Adviser.
Unless the Board of Trustees and the Adviser mutually agree to amend or continue the fee
waiver agreement, it will terminate two years after the closing of the merger. |
|
(2) |
|
Administrative services fees were adjusted to eliminate the duplicative costs of
administering one fund pursuant to the Master Administrative Services Agreement for the Target
Fund and the Acquiring Fund. |
|
(3) |
|
Professional fees were reduced to eliminate the effects of duplicative fees for audit and
legal services. |
|
(4) |
|
Listing fees were adjusted to reflect the per share listing rate based on pro forma combined
shares. |
|
(5) |
|
Investment-related expenses were adjusted to reflect financing costs related to the
anticipated issuance of Variable Rate Muni Term Preferred Shares and other financing costs based on investment strategies of the Acquiring Fund |
No significant accounting policies will change as a result of the merger, specifically policies
regarding security valuation or compliance with Subchapter M of the Internal Revenue Code.
Note 4 Security Valuations Policy
Securities, including restricted securities, are valued according to the following policy.
Securities are fair valued using an evaluated quote provided by an independent pricing service
approved by the Board of Trustees. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, individual trading characteristics and other market data. Securities with a demand
feature exercisable within one to seven days are valued at par. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve some risk of default with
respect to interest and principal payments.
- 117 -
Securities for which market quotations either are not readily available or are unreliable are
valued at fair value as determined in good faith by or under the supervision of the Trusts
officers following procedures approved by the Board of Trustees. Some of the factors which may be
considered in determining fair value are fundamental analytical data relating to the investment;
the nature and duration of any restrictions on transferability or disposition; trading in similar
securities by the same issuer or comparable companies; relevant political, economic or issuer
specific news; and other relevant factors under the circumstances.
Valuations change in response to many factors including the historical and prospective earnings of
the issuer, the value of the issuers assets, general economic conditions, interest rates, investor
perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values
reflected in the financial statements may materially differ from the value received upon actual
sale of those investments.
Note 5 Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date, under
current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation
methods giving the highest priority to readily available unadjusted quoted prices in an active
market for identical assets (Level 1) and the lowest priority to significant unobservable inputs
(Level 3) generally when market prices are not readily available or are unreliable. Based on the
valuation inputs, the securities or other investments are tiered into one of three levels. Changes
in valuation methods may result in transfers in or out of an investments assigned level:
|
Level 1 |
|
Prices are determined using quoted prices in an active market for identical
assets. |
|
|
Level 2 |
|
Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, yield curves, loss severities, default rates, discount
rates, volatilities and others. |
|
|
Level 3 |
|
Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for example, when
there is little or no market activity for an investment at the end of the period),
unobservable inputs may be used. Unobservable inputs reflect the Funds own assumptions
about the factors market participants would use in determining fair value of the
securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of February 29, 2012. The
level assigned to the securities valuations may not be an indication of the risk or liquidity
associated with investing in those securities. Because of the inherent uncertainties of valuation,
the values reflected in the financial statements may materially differ from the value received upon
actual sale of those investments.
During the twelve months ended February 29, 2012, there were no significant transfers between
investment levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
IQN (Target Fund) |
|
Municipal Obligations |
|
$ |
|
|
|
$ |
89,991,149 |
|
|
$ |
|
|
|
$ |
89,991,149 |
|
VTN (Acquiring Fund) |
|
Municipal Obligations |
|
|
|
|
|
|
384,870,041 |
|
|
|
|
|
|
|
384,870,041 |
|
VTN (Pro Forma Combined) |
|
Municipal Obligations |
|
$ |
|
|
|
$ |
474,861,190 |
|
|
$ |
|
|
|
$ |
474,861,190 |
|
Note 6 Merger Costs
The estimated total costs of the merger for the Target Fund and the Acquiring Fund are set forth in
the table below.
- 118 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Portion of Total |
|
|
|
Estimated Total |
|
|
Merger Costs to be Paid by the |
|
|
|
Merger Costs |
|
|
Funds |
|
IQN (Target Fund) |
|
$ |
180,000 |
|
|
$ |
0 |
|
VTN (Acquiring Fund) |
|
|
120,000 |
|
|
|
0 |
|
These costs represent the estimated non recurring expenses of the Target Fund and the Acquiring
Fund carrying out their obligations under the Plan and consistent of managements estimate of
professional services fees, printing costs and mailing charges related to the proposed merger. The
Adviser will bear all costs not borne by the Funds.
Note 7 Accounting Survivor
The Acquiring Fund will be the accounting survivor. The surviving fund will have the portfolio
management team, portfolio composition strategies, investment objective, expense structure, and
policies/ restrictions of the Acquiring Fund.
Note 8 Capital Loss Carryforward
The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code
necessary to qualify as a regulated investment company and to distribute substantially all of the
Funds taxable earnings to shareholders. As such, the Fund will not be subject to federal income
taxes on otherwise taxable income (including net realized capital gain) that is distributed to
shareholders.
At February 29, 2012 the Target Fund, IQN, had a capital loss carryforward of approximately
$683,607. At February 29, 2012, the Acquiring Fund, VTN, had a capital loss carryforward of
approximately $27,163,307. For additional information regarding capital loss limitations, please
see the section entitled Federal Income Tax Considerations of the Merger in the Proxy
Statement/Prospectus filed on Form N-14 with the Securities and Exchange Commission.
- 119 -
Invesco Van Kampen Massachusetts Value Municipal Income Trust, Invesco Van Kampen Ohio Quality
Municipal Trust, and Invesco Van Kampen Trust for Investment Grade New Jersey Municipals into
Invesco Van Kampen Municipal Trust
The unaudited pro forma financial information set forth below is for informational purposes only
and does not purport to be indicative of the financial condition that actually would have resulted
if the mergers had been consummated. These pro forma numbers have been estimated in good faith
based on information regarding the Target Funds and the Acquiring Fund, each as identified below,
for the twelve month period ended February 29, 2012. The unaudited pro forma financial information
should be read in conjunction with the historical financial statements of the Target Funds and
Acquiring Fund, which are available in their respective annual and semi-annual shareholder reports.
Narrative Description of the Pro Forma Effects of the Mergers
Note 1 Mergers
The unaudited pro forma information has been prepared to give effect to the proposed merger of each
of the Target Funds into the Acquiring Fund pursuant to an agreement and Plan of Merger (the
Plan) as of the beginning of the period as indicated below in the table. No merger is contingent
upon any other merger.
|
|
|
|
|
Target Fund |
|
Acquiring Fund |
|
12 Month Period Ended |
Invesco Van Kampen Massachusetts Value Municipal Income Trust
(VMV)
Invesco Van Kampen Ohio Quality Municipal Trust (VOQ)
Invesco Van Kampen Trust for Investment Grade New Jersey
Municipals (VTJ)
|
|
Invesco Van Kampen Municipal Trust
(VKQ)
|
|
February 29, 2012 |
Basis of Pro Forma
Each merger will be accounted for as a tax-free reorganization of investment companies; therefore,
no gain or loss will be recognized by a Fund or its shareholders as a result of a merger. The
Target Funds and the Acquiring Fund are registered closed-end management investment companies. Each
merger would be accomplished by a statutory merger of the applicable Target Fund with and into the
Acquiring Fund. The table below shows the Acquiring Fund shares that Target Fund shareholders would
have received if the merger were to have taken place on February 29, 2012.
|
|
|
|
|
|
|
|
|
Target Fund |
|
Shares Converted |
|
|
Acquiring Fund |
|
VMV |
|
|
2,565,907 |
|
|
VKQ |
VOQ |
|
|
6,545,852 |
|
|
|
|
|
VTJ |
|
|
7,332,519 |
|
|
|
|
|
Under accounting principles generally accepted in the United States of America, the historical cost
of investment securities will be carried forward to the surviving entity, the Acquiring Fund, and
the results of operations of the Acquiring Fund for pre-merger periods will not be restated. All
securities held by the Target Funds comply with investment objectives, strategies and restrictions
of the Acquiring Fund at February 29, 2012.
Note 2 Net Assets
The table below shows the net assets of the Target Funds and the Acquiring Fund and Pro Forma
combined net assets as of February 29, 2012.
- 120 -
|
|
|
|
|
Fund |
|
Net Assets |
|
VMV (Target Fund) |
|
$ |
36,508,342 |
|
VOQ (Target Fund) |
|
|
93,158,210 |
|
VTJ (Target Fund) |
|
|
104,337,789 |
|
VKQ (Acquiring Fund) |
|
|
556,183,964 |
|
VKQ (Pro Forma Combined) |
|
|
790,188,305 |
|
Note 3
Pro Forma Adjustments
The table below reflects adjustments to expenses needed to the pro forma combined Fund as if the
mergers had taken place on March 1, 2011. The pro forma information has been derived from the
books and records used in calculating daily net asset values of the Target Funds and Acquiring Fund
and has been prepared in accordance with accounting principles generally accepted in the United
States of America which requires management to make estimates and assumptions that affect this
information. Actual results could differ from those estimates.
|
|
|
|
|
|
|
Increase (decrease) |
|
Expense Category |
|
in expense |
|
Advisory fees (1) |
|
$ |
29,804 |
|
Administrative services fees (2) |
|
|
(140,653 |
) |
Investment-related expenses (3) |
|
|
3,666,462 |
|
Listing fees (4) |
|
|
(20,696 |
) |
Professional fees (5) |
|
|
(587,919 |
) |
Fee waiver and/or expense reimbursements (1) |
|
|
716,695 |
|
|
|
|
(1) |
|
Under the terms of the investment advisory contract of the Acquiring Fund, the advisory fees
have been adjusted to reflect the advisory fee rates in effect for the Acquiring Fund based on
pro forma combined managed assets. Correspondingly, fee waivers and/or expense reimbursements
have been adjusted to reflect such agreements. |
|
(2) |
|
Administrative services fees were adjusted to eliminate the duplicative costs of
administering three funds pursuant to the Master Administrative Services Agreement for the
Target Funds and the Acquiring Fund. |
|
(3) |
|
Investment-related expenses were adjusted to reflect financing costs related to the
anticipated issuance of Variable Rate Muni Term Preferred Shares and other financing costs
based investment strategies of the Acquiring Fund. |
|
(4) |
|
Listing fees were adjusted to reflect the per share listing rate based on pro forma combined
shares. |
|
(5) |
|
Professional fees were reduced to eliminate the effects of duplicative fees for audit and
legal services. |
No significant accounting policies will change as a result of the mergers, specifically policies
regarding security valuation or compliance with Subchapter M of the Internal Revenue Code.
Note 4 Security Valuation Policy
Securities, including restricted securities, are valued according to the following policy.
Securities are fair valued using an evaluated quote provided by an independent pricing service
approved by the Board of Trustees. Evaluated quotes provided by the pricing service may be
determined without exclusive reliance on quoted prices and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, individual trading characteristics and other market data. Securities with a demand
feature exercisable within one to seven days are valued at par. Debt securities are subject to
interest rate and credit risks. In addition, all debt securities involve some risk of default with
respect to interest and principal payments.
Securities for which market quotations either are not readily available or are unreliable are
valued at fair value as determined in good faith by or under the supervision of the Trusts
officers following procedures approved by the
- 121 -
Board of Trustees. Some of the factors which may be
considered in determining fair value are fundamental analytical data relating to the investment;
the nature and duration of any restrictions on transferability or disposition; trading in similar
securities by the same issuer or comparable companies; relevant political, economic or issuer
specific news; and other relevant factors under the circumstances.
Valuations change in response to many factors including the historical and prospective earnings of
the issuer, the value of the issuers assets, general economic conditions, interest rates, investor
perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values
reflected in the financial statements may materially differ from the value received upon actual
sale of those investments.
Note 5 Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date, under
current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation
methods giving the highest priority to readily available unadjusted quoted prices in an active
market for identical assets (Level 1) and the lowest priority to significant unobservable inputs
(Level 3) generally when market prices are not readily available or are unreliable. Based on the
valuation inputs, the securities or other investments are tiered into one of three levels. Changes
in valuation methods may result in transfers in or out of an investments assigned level:
|
Level 1 |
|
Prices are determined using quoted prices in an active market for identical
assets. |
|
|
Level 2 |
|
Prices are determined using other significant observable inputs.
Observable inputs are inputs that other market participants may use in pricing a
security. These may include quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, yield curves, loss severities, default rates, discount
rates, volatilities and others. |
|
|
Level 3 |
|
Prices are determined using significant unobservable inputs. In
situations where quoted prices or observable inputs are unavailable (for example, when
there is little or no market activity for an investment at the end of the period),
unobservable inputs may be used. Unobservable inputs reflect the Funds own assumptions
about the factors market participants would use in determining fair value of the
securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of February 29, 2012. The
level assigned to the securities valuations may not be an indication of the risk or liquidity
associated with investing in those securities. Because of the inherent uncertainties of valuation,
the values reflected in the financial statements may materially differ from the value received upon
actual sale of those investments.
During the twelve months ended February 29, 2012, there were no significant transfers between
investment levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
VMV (Target Fund) |
|
Municipal Obligations |
|
$ |
|
|
|
$ |
60,051,351 |
|
|
$ |
|
|
|
$ |
60,051,351 |
|
VOQ (Target Fund) |
|
Municipal Obligations |
|
|
|
|
|
|
151,209,363 |
|
|
|
|
|
|
|
151,209,363 |
|
VTJ (Target Fund) |
|
Municipal Obligations |
|
|
|
|
|
|
167,177,069 |
|
|
|
|
|
|
|
167,177,069 |
|
VKQ (Acquiring Fund) |
|
Municipal Obligations |
|
|
|
|
|
|
892,390,655 |
|
|
|
|
|
|
|
892,390,655 |
|
VKQ (Pro Forma Combined) |
|
Municipal Obligations |
|
$ |
|
|
|
$ |
1,270,828,438 |
|
|
$ |
|
|
|
$ |
1,270,828,438 |
|
Note 6
Merger Costs
The estimated total costs of the merger for each Target Fund and the Acquiring Fund are set forth
in the table below.
- 122 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Portion of Total |
|
|
|
Estimated Total Merger |
|
|
Merger Costs to be Paid by the |
|
|
|
Costs |
|
|
Funds |
|
VMV (Target Fund) |
|
$ |
140,000 |
|
|
$ |
0 |
|
VOQ (Target Fund) |
|
|
140,000 |
|
|
|
0 |
|
VTJ (Target Fund) |
|
|
140,000 |
|
|
|
0 |
|
VKQ (Acquiring Fund) |
|
|
140,000 |
|
|
|
0 |
|
These costs represent the estimated non recurring expenses of the Target Funds and the Acquiring
Fund carrying out their obligations under the Plan and consistent of managements estimate of
professional services fees, printing costs and mailing charges related to the proposed mergers.
The Adviser will bear all costs not borne by the Funds.
Note 7 Accounting Survivor
The Acquiring Fund will be the accounting survivor. The surviving fund will have the portfolio
management team, portfolio composition strategies, investment objective, expense structure, and
policies/ restrictions of the Acquiring Fund.
Note 8 Capital Loss Carryforward
The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code
necessary to qualify as a regulated investment company and to distribute substantially all of the
Funds taxable earnings to shareholders. As such, the Fund will not be subject to federal income
taxes on otherwise taxable income (including net realized capital gain) that is distributed to
shareholders.
At February 29, 2012, the Target Funds, including VMV, VOQ, and VTJ, had capital loss carryforwards
of approximately $6,262,814, $7,165,379, and $6,711,297, respectively. At February 29, 2012, the
Acquiring Fund, VKQ, had a capital loss carryforward of approximately $88,181,515. For additional
information regarding capital loss limitations, please see the section entitled Federal Income Tax
Considerations of the Mergers in the Proxy Statement/Prospectus filed on Form N-14 with the
Securities and Exchange Commission.
- 123 -
APPENDIX A
SPECIAL STATE-SPECIFIC INVESTMENT CONSIDERATIONS
Special Risk Considerations Regarding California Municipal Securities. Funds that invest in
California municipal securities are susceptible to political, economic, regulatory or other factors
affecting issuers of California municipal securities. The following information constitutes only a
brief summary of a number of the complex factors which may impact issuers of California municipal
securities and does not purport to be a complete or exhaustive description of all adverse
conditions to which issuers of California municipal securities may be subject. Such information is
derived from official statements utilized in connection with the issuance of California municipal
securities, as well as from other publicly available documents. Such information has not been
independently verified by the Funds and the Funds assume no responsibility for the completeness or
accuracy of such information.
The summary below does not include all of the information pertaining to the economy, budget,
receipts and disbursements of the State that would ordinarily be included in various public
documents, such as an official statement prepared in connection with the issuance of general
obligation bonds of the State. Additionally, many factors, including national, economic, social and
environmental policies and conditions, which are not within the control of such issuers, could have
an adverse impact on the financial condition of such issuers. The creditworthiness of obligations
issued by local California issuers may be unrelated to the creditworthiness of obligations issued
by the State, and there is no obligation on the part of the State to make payments on such local
obligations. There may be specific factors that are applicable in connection with investment in the
obligations of particular issuers located within California, and it is possible the Fund will
invest in obligations of particular issuers as to which such specific factors are applicable. The
information set forth below is intended only as a general summary and not as a discussion of any
specific factors that may affect any particular issuer of California municipal securities.
Economic condition and outlook. Californias economy, the largest among the 50 states and one
of the largest in the world, has major components in high technology, trade, entertainment,
agriculture, manufacturing, tourism, construction and services. Beginning in the first quarter of
2008 and ending in the second half of 2009, California, as the rest of the nation, experienced the
most significant economic downturn since the Great Depression of the 1930s, marked in California by
high unemployment, steep contraction in housing construction and home values, a drop in statewide
assessed valuation of property for the first time on record, a year-over-year decline in personal
income in the State for the first time in 60 years, and a sharp drop in taxable sales. The
continuing weakness in the State economy has caused State tax revenues to decline precipitously,
resulting in large budget gaps and cash shortfalls. The State is slowly emerging from the
recession, but economic growth is modest and the level of unemployment is still very high.
California is by far the most populous state in the nation, with its April 2010 population
representing over 12 percent of the total United States population.
The unemployment rate in the State reached a high of 12.5 percent in late 2010. The rate
improved thereafter, falling to 11.7 percent in May 2011, but rising to 12.0 percent for July 2011.
The U.S. unemployment rate for July 2011 was 9.1 percent. Personal income increased in the State
for the sixth consecutive quarter in the first quarter of 2011. After falling for six consecutive
quarters, taxable sales grew in the third and fourth quarters of 2009 and continued to improve
through the first quarter of 2011.
Californias housing sector began a meager recovery during 2009 and the early months of 2010.
Existing home sales stabilized around the half-million unit rate and the median sales price rose by
10% in 2010. Unsold inventory trended downward in 2009, as did the number of days needed to sell a
home. However, the housing market indicators worsened during the middle of 2010 after the
expiration of the federal home buyers tax credit. Housing market indicators again appeared to
stabilize during the early months of 2011.
Made-in-California exports grew by 19% in 2010 and 13% during the first half of 2011, led by
strong growth in computer and electronic products, machinery and manufactured commodities.
A-1
Revenues and expenditures. The economic downturn of the last few years adversely affected the
States budget situation. To exacerbate the problem, as California entered the recession, annual
revenues generally were less than annual expenses, resulting in a structural budget deficit.
The States revenue estimates utilized in connection with the 2011 Budget Act assumed slow but
positive economic growth, and the 2011 Budget Act projected that most of Californias major revenue
sources will grow in fiscal 2011-12. The 2011 Budget Act also takes into account the end of
federal stimulus funds which provided $4.2 billion to the State to offset General Fund costs in
fiscal year 2010-11, and the expiration on June 30, 2011 of temporary surcharges on personal income
taxes, sales taxes and vehicle license fees which provided $7.1 billion in the last fiscal year.
The 2011 Budget act closed a projected $26.6 billion budget gap for the two fiscal years 2010-11
and 2011-12 and made substantial progress in addressing the States longterm structural budget
deficit. Despite eliminating a significant portion of the structural deficit in the 2011 Budget
Act, the State continues to face major long-term challenges and must address the remaining
structural budget deficit and the consequences of budget balancing actions taken in the past.
Budget process. The States fiscal year begins on July 1st and ends on June 30th of the
following year. Under the State Constitution, money may be drawn from the Treasury only through an
appropriation made by law. The primary source of the annual expenditure is the annual Budget Act
as approved by the Legislature and signed by the Governor. Appropriations also may be included in
legislation other than the Budget Act.
The Balanced Budget Amendment (Proposition 58) requires the State to enact a balanced
budget, establishes a special reserve in the General Fund, restricts future borrowings to cover
budget deficits, and provides for mid-year budget adjustments in the event that the budget falls
out of balance. The Legislature may not pass a budget bill in which General Fund expenditures
exceed estimated General Fund revenues and fund balances at the time of passage and as set forth in
the budget bill. As a result of the requirements of Proposition 58, the State would, in some
cases, have to take more immediate actions to correct budgetary shortfalls. These restrictions
apply to general obligation bonds, revenue bonds and certain other forms of long-term borrowings,
but do not apply to certain short-term and inter-fund borrowings.
In addition to Proposition 58, a number of other laws and constitutional amendments have been
enacted over the years, often through voter initiatives, which have made it more difficult to raise
State taxes, have restricted the use of State General Fund or special fund revenues, or have
otherwise limited the Legislature and Governors discretion in enacting budgets.
Current State budget. The 2011-12 budget was approved on June 30, 2011. The 2011 Budget Act
was projected to end fiscal year 2011-12 with a $543 million reserve, however, it also included
tiered trigger cuts to take effect if revenues for 2011-12 were forecast to be less than the
amount assumed in the budget package by $1 billion or more.
The California Legislative Analysts Office (LAO), in its November 2011 California Fiscal
Outlook, estimates that 2011-12 will end with a $3 billion General Fund deficit. The outlook
assumes lower projected revenues, the implementation of $2 billion in trigger cuts to various state
programs and the expected inability of the State to achieve about $1.2 billion of other budget
actions.
Obligations of the State of California. The State Treasurer is responsible for the sale of
most debt obligations of the State and its various authorities and agencies. Current State debt
obligations include:
General Obligation Bonds. General obligation bond acts provide that debt service on general
obligation bonds shall be appropriated annually from the General Fund and all debt service on
general obligation bonds is paid from the General Fund. Under the State Constitution, debt service
on general obligation bonds is the second charge to the General Fund after the application of
moneys in the General Fund to the support of the public school system and public institutions of
higher education. As of August 1, 2011, the State had outstanding $71.1 billion aggregate
principal amount of long-term general obligation bonds.
Commercial Paper Notes Program. Voter-approved general obligation indebtedness may, in some
cases, be issued as commercial paper notes. Commercial paper notes may be renewed or refunded by
the issuance of long-
A-2
term bonds. Pursuant to the terms of the bank credit agreement presently in
effect, the general obligation commercial paper program may have up to $1.57 billion in aggregate
principal amount outstanding at any time. The issuance of general obligation bonds on September
28, 2011 provided funds which, together with certain additional funds, have retired all of the
$1.29 billion aggregate principal amount of general obligation commercial paper notes which had
been outstanding. The State plans to terminate its existing bank credit agreement and restructure
the commercial paper notes program.
Lease-Revenue Obligations. The State builds and acquires facilities through the use of lease
revenue borrowing, in addition to general obligation bonds. Under these arrangements, the State
Public Works Board, another State or local agency or a joint powers authority issues bonds to pay
for the construction of facilities, such as office buildings, university buildings or correctional
institutions. These facilities are leased to a State agency, the California State University, the
Judicial Council or the University of California under a long-term lease that provides the source
of payment of the debt service on the lease-purchase bonds. The State had approximately $9.4
billion in lease-revenue obligations outstanding as of August 1, 2011.
Cash Flow Borrowings. As part of its cash management program, the State has regularly issued
short-term obligations to meet cash flow needs. The State has issued revenue anticipation notes
(RANs) in all but one fiscal year since the mid-1980s to partially fund timing differences
between receipts and disbursements. By law, RANs must mature prior to the end of the fiscal year
of issuance. If additional external cash flow borrowings are required, the State has issued
revenue anticipation warrants (RAWs), which can mature in a subsequent fiscal year. RANs and
RAWs are both payable from any Unapplied Money in the General Fund on their maturity date,
subject to the prior application of such money in the General Fund to pay priority payments.
Other issuers of California municipal obligations. There are a number of State agencies,
instrumentalities, and political subdivisions of the State that issue municipal obligations, some
of which may be conduit revenue obligations payable from payments from private borrowers. These
entities are subject to various economic risks and uncertainties, and the credit quality of the
securities issued may vary considerably from the credit quality of the obligations backed by the
full faith and credit of the State. The State of California has no obligation with respect to any
obligations or securities of a county or any of the other participating entities, although under
existing legal precedents, the State may be obligated to ensure that school districts have
sufficient funds to operate. State agencies and authorities had approximately $59 billion
aggregate principal amount of revenue bonds and notes which are non-recourse to the General Fund
outstanding as of June 30, 2011.
Bond ratings. The States general obligation bonds are currently rated A- (with a stable
outlook) by S&P and A1 by Moodys (with a stable outlook) (ratings confirmed as of December 8,
2011). There can be no assurance that such ratings will be maintained in the future. It should be
noted that the creditworthiness of obligations issued by local California issuers may be unrelated
to the creditworthiness of obligations issued by the State of California, and that there is no
obligation on the part of the State to make payment on such local obligations in the event of
default.
Legal proceedings. The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations. In addition, the State is involved in certain other legal
proceedings (described in the States recent financial statements) that, if decided against the
State might require the State to make significant future expenditures or substantially impair
future revenue sources. Because of the prospective nature of these proceedings, it is not presently
possible to predict the outcome of such litigation, estimate the potential impact on the ability of
the State to pay debt service costs on its obligations, or determine what impact, if any, such
proceedings may have on the Tax-Free California Fund.
Other considerations. Substantially all of California is within an active geologic region
subject to major seismic activity. Northern California, in 1989, and Southern California, in 1994,
experienced major earthquakes causing billions of dollars in damages. The States and any other
municipal issuers outstanding obligations could be affected by an interruption of revenues because
of damaged facilities, or, consequently, income tax deductions for casualty losses or property tax
assessment reductions due to earthquakes. Compensatory financial assistance could be constrained
by the inability of (i) an issuer to have obtained earthquake insurance coverage; (ii) an insurer
to perform on its contracts of insurance in the event of widespread losses; or (iii) the federal or
State government to appropriate sufficient funds within their respective budget limitations.
A-3
The Tax-Free California Fund is susceptible to political, economic or regulatory factors
affecting issuers of California municipal obligations. These include the possible adverse effects
of certain California constitutional amendments, legislative measures, voter initiatives and other
matters. The information provided is only a brief summary of the complex factors affecting the
financial situation in California and is derived from sources that are generally available to
investors and are believed to be accurate. It is based in part on information obtained from
various State and local agencies in California or contained in Official Statements for various
California municipal obligations. No independent verification has been made of the accuracy or
completeness of any of the preceding information.
Special Investment Considerations Regarding Massachusetts Municipal Securities. A Fund that
invests in Massachusetts (referred to herein as the Commonwealth or Massachusetts) municipal
securities are susceptible to political, economic, regulatory or other factors affecting issuers of
Massachusetts municipal securities. The following information constitutes only a brief summary of a
number of the complex factors which may impact issuers of Massachusetts municipal securities and
does not purport to be a complete or exhaustive description of all adverse conditions to which
issuers of Massachusetts municipal securities may be subject. Such information is derived from
official statements utilized in connection with the issuance of Massachusetts municipal securities,
as well as from other publicly available documents. Such information has not been independently
verified by the Fund and the Fund assumes no responsibility for the completeness or accuracy of
such information.
The summary below does not include all of the information pertaining to the economy, budget,
receipts and disbursements of the Commonwealth that would ordinarily be included in various public
documents, such as an official statement prepared in connection with the issuance of general
obligation bonds of the Commonwealth. Additionally, many factors, including national, economic,
social and environmental policies and conditions, which are not within the control of such issuers,
could have an adverse impact on the financial condition of such issuers. The creditworthiness of
obligations issued by local Massachusetts issuers may be unrelated to the creditworthiness of
obligations issued by the Commonwealth, and there is no obligation on the part of the Commonwealth
to make payments on such local obligations. There may be specific factors that are applicable in
connection with investment in the obligations of particular issuers located within Massachusetts,
and it is possible the Fund will invest in obligations of particular issuers as to which such
specific factors are applicable. The information set forth below is intended only as a general
summary and not as a discussion of any specific factors that may affect any particular issuer of
Massachusetts municipal securities.
Economic condition and outlook. Massachusetts is a densely populated state with a
well-educated population and comparatively high income levels. The Commonwealths economy remains
diversified, but its strongest component is its knowledge-based technology and service sectors.
The four largest sectors of the economy, real estate and rental and leasing, professional and
technical services, finance and insurance, and health care and social assistance, contributed 47.2%
of the 2010 Massachusetts gross domestic product.
Following significant declines in 2002 and 2003, total non-agricultural employment in the
Commonwealth eventually increased 0.5% in 2005 and continued to increase through 2008. Employment
declined 3.3% in 2009 and grew 0.2% in 2010. Since the beginning of the recession in December 2007
there has been a net loss of approximately 46,000 jobs in Massachusetts. The job losses were not
spread evenly across all sectors. The construction and manufacturing sectors were the hardest hit
with losses of 26.2% and 21.6%, respectively. However, the education and health sector and the
leisure and hospitality sector have seen growth of 7.2% and 8.6%, respectively.
The Commonwealths economy has outperformed the nations economy as a whole during and
following the most recent recession. Home prices in Massachusetts have fallen by less than in the
U.S. as a whole. The Commonwealths unemployment rate rose from 5.2% in July 2008 to a high of
9.5% in February 2011, but has since declined, and in November 2011 was 7.0%. This decline is
greater than in the nation as a whole, where unemployment rose from 5.8% in July 2008 to a high of
10.1% in October 2009, and declined to 8.6% in November 2011.
A-4
Federal government spending contributes significantly to the Massachusetts economy. In fiscal
2010, Massachusetts received almost $82.5 billion, a 1.7% decrease from 2009, and ranked ninth
among the states in per capita distribution of federal funds, with total spending of $12,593 per
person, excluding loans and insurance.
Revenues and expenditures. The Commonwealth collects a variety of taxes and receives revenues
from other non-tax sources, including the federal government and various fees, fines, court
revenues, assessments, reimbursements, interest earnings and transfers from its non-budgeted funds.
Total primary government revenues increased by $2.7 billion in fiscal year 2011 or 5.4% over
fiscal year 2010. Tax revenues increased by $2.0 billion, or 10.7%, primarily as the result of the
growth in individual income tax.
The major components of state tax revenue are the income tax, the sales and use tax, and the
corporations and other business and excise taxes which were projected to account for approximately
55.2%, 24.8%, and 11.3%, respectively, of total tax revenues in fiscal 2011. Dedicated portions of
the Commonwealths sales tax revenues are pledged to provide financial support for the
Massachusetts Bay Transportation Authority and the Massachusetts School Building Authority.
Municipal revenues consist of taxes on real and personal property, distributions from the
Commonwealth under a variety of programs and formulas, local receipts (including motor vehicle
excise taxes, local options taxes, fines, licenses and permits, charges for utility and other
services and investment income) and appropriations from other available funds (including general
and dedicated reserve funds). Following the enactment in 1980 of the tax limitation initiative
petition commonly known as Proposition 21/2, local governments have become increasingly reliant on
distribution of revenues from the Commonwealth to support local programs and services, although the
amount of aid received varies significantly among municipalities. As a result of comprehensive
education reform legislation enacted in June 1993, a large portion of local aid general revenue
sharing funds is earmarked for public education and distributed through a formula designed to
provide more aid to the Commonwealths poorer communities. There are also several specific local
aid programs, such as public libraries, police education incentives, and property tax abatement for
certain elderly or disabled residents.
Total expenses of the primary government increased by $1.2 billion in fiscal year 2011, or
2.3% over fiscal year 2010. This included a $1.45 billion increase in Medicaid spending and a
decline of $1.05 billion in unemployment insurance compensation expenses.
At the end of fiscal year 2011 the liabilities of the primary government exceeded assets by
almost $18.5 billion, a reduction of $137 million from the fiscal year 2010 deficit.
Fiscal 2011 budgeted fund total revenues and other financing sources exceeded fiscal 2011
budgeted fund total expenditures and other uses by $998 million, and fiscal 2011 ended with a
budgeted fund balance of $1.901 billion. Of that amount, $1.379 billion was reserved in the
Stabilization Fund, $400 million was reserved for continuing appropriations and debt service and
$122 million was undesignated. The Stabilization Fund balance at the end of fiscal 2011 represents
a $709 million increase from the close of fiscal 2010.
Budget process. The House of Representatives generally approves its version of the budget in
late April, and the Senate generally approves its version in late May. The differences are then
reconciled by legislatively conference committee in June, so that a final version can be enacted by
Legislature and sent to the Governor for his approval prior to the start of the new fiscal year on
July 1.
Current Commonwealth budget. Total spending in the final fiscal 2012 budget amounts to
approximately $30.6 billion. The current budget assumes tax revenues of $21.010 billion, enhanced
tax enforcement initiatives (an additional $61.5 million) and the impact of a two-day sales tax
holiday held on August 13-14, 2011 (reduction of $20.6 million).
On November 16, 1991, the Governor approved legislation containing pension reforms, including
increasing the retirement ages, eliminating early retirement subsidies and increasing the period
for average earnings from the highest three years to the highest five years for all new state
employees who join a retirement system on or
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after April 2, 2012. The legislation is expected to
generate savings of more than $3 billion to the Commonwealth and $2 billion for municipalities over
the next 30 years.
Obligations of the Commonwealth of Massachusetts. The Commonwealth incorporates the periodic
use of commercial paper borrowing to meet cash flow needs for both capital and operating
expenditures. The Commonwealth periodically makes several cash flow borrowings for operating
purposes. All commercial paper of the Commonwealth issued for operating purposes in a fiscal year
is required by state finance law to be paid not later than June 30 of such year.
The Commonwealth is authorized to issue three types of long-term debt directly general
obligation debt, special obligation debt, and federal grant anticipation notes. General obligation
debt is secured by a pledge of the full faith and credit of the Commonwealth. Special obligation
debt may be secured either with a pledge of receipts credited to the Commonwealth Transportation
Fund or with a pledge of receipts credited to the Convention Center Fund. Federal grant
anticipation notes are secured by a pledge of federal highway construction reimbursements. As of
June 30, 2011, the amount of Commonwealth long-term debt was approximately $20.9 billion,
consisting of approximately $18.5 billion of general obligation debt, $1.6 billion of special
obligation debt, and $767 million of federal grant anticipation notes. Based on the United States
census resident population estimate for Massachusetts for 2011, the per capita amount of such debt
as of the end of fiscal year 2011 was approximately $3,720.
In addition to the long-term liabilities described above, the Commonwealth is also authorized
to pledge its credit in aid of and provide contractual support for certain independent authorities
and political subdivisions within the Commonwealth. These Commonwealth liabilities are classified
as general obligation contract assistance liabilities, budgetary contractual assistance liabilities
or contingent liabilities. General obligation contract assistance liabilities arise from statutory
requirements for payments by the Commonwealth to the Massachusetts Water Pollution Abatement Trust,
the Massachusetts Department of Transportation and the Massachusetts Development Finance Agency
that are used by such entities to pay a portion of the debt service on certain of their outstanding
bonds. Such liabilities constitute a pledge of the Commonwealths credit for which a two-thirds
vote of the Legislature is required. Budgetary contractual assistance liabilities arise from
statutory requirements for payments by the Commonwealth under certain capital leases. Such
liabilities do not constitute a pledge of the Commonwealths credit. Contingent liabilities relate
to debt obligations of independent authorities and agencies of the Commonwealth that are expected
to be paid without Commonwealth assistance, but for which the Commonwealth has some kind of
liability if expected payment sources do not materialize.
Massachusetts statutes limit the Commonwealths ability to issue direct debt. The direct debt
limit for fiscal year 2011 was approximately $18.0 billion. Outstanding debt subject to the limit
at fiscal year end was approximately $16.3 billion. The limit increases by 5% each year. Pursuant
to legislation enacted over the years, certain outstanding Commonwealth debt obligations are not
counted in computing the amount of bonds subject to the limit. The limit for fiscal year 2012 is
approximately $18.9 billion.
Legislation enacted in 1999 also provides that no more than 10% of the appropriations in any
fiscal year may be expended for payment of interest and principal on general obligation debt of the
Commonwealth. Debt service relating to bonds that are excluded from the debt limit on direct debt
is not included in the limit on debt service appropriations.
During the 2009 fiscal year, the Commonwealth announced an administrative policy that sets the
annual borrowing limit at a level designed to keep debt service at a maximum of 8% of budgeted
revenues. The debt management policy also limits future annual growth in the bond cap to not more
than $125 million through fiscal 2012.
Bond ratings. The States general obligation bonds are rated AA+ by S&P and Aa1 by Moodys
(ratings confirmed as of March 1, 2012). There can be no assurance that such ratings will be
maintained in the future. It should be noted that the creditworthiness of obligations issued by
local Massachusetts issuers may be unrelated to the creditworthiness of obligations issued by the
Commonwealth, and that there is no obligation on the part of the State to make payment on such
local obligations in the event of default.
Legal proceedings. The Commonwealth is a defendant in numerous legal proceedings pertaining
to matters
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incidental to the performance of routine governmental operations. Such litigation
includes, but is not limited to, claims asserted against the Commonwealth arising from alleged
torts, alleged breaches of contracts, condemnation proceedings and other alleged violations of law.
For those cases in which it is probable that a loss will be incurred and the amount of potential
judgment can be reasonably be estimated or a settlement or judgment has been reached but not paid,
the Attorney General estimates fiscal year 2012 liability at $20 million.
Other considerations. The Fund is susceptible to political, economic or regulatory factors
affecting issuers of Massachusetts municipal obligations. The information provided is only a brief
summary of the complex factors affecting the financial situation in Massachusetts and is derived
from sources that are generally available to investors and are believed to be accurate. It is
based in part on information obtained from various State agencies in Massachusetts or contained in
Official Statements for various Massachusetts municipal obligations. No independent verification
has been made of the accuracy or completeness of any of the preceding information.
Special Investment Considerations Regarding New Jersey Municipal Securities. A Fund that
invests in New Jersey (referred to herein as the State or New Jersey) municipal securities is
susceptible to political, economic, regulatory or other factors affecting issuers of New Jersey
municipal securities. The following information constitutes only a brief summary of a number of
the complex factors which may impact issuers of New Jersey municipal securities and does not
purport to be a complete or exhaustive description of all adverse conditions to which issuers of
New Jersey municipal securities may be subject. Such information is derived from official
statements utilized in connection with the issuance of New Jersey municipal securities, as well as
from other publicly available documents. Such information has not been independently verified by
the Fund and the Fund assumes no responsibility for the completeness or accuracy of such
information.
The summary below does not include all of the information pertaining to the economy, budget,
receipts and disbursements of the State that would ordinarily be included in various public
documents, such as an official statement prepared in connection with the issuance of general
obligation bonds of the State. Additionally, many factors, including national, economic, social
and environmental policies and conditions, which are not within the control of such issuers, could
have an adverse impact on the financial condition of such issuers. The creditworthiness of
obligations issued by local New Jersey issuers may be unrelated to the creditworthiness of
obligations issued by the State, and there is no obligation on the part of the State to make
payments on such local obligations. There may be specific factors that are applicable in connection
with investment in the obligations of particular issuers located within New Jersey, and it is
possible the Fund will invest in obligations of particular issuers as to which such specific
factors are applicable. The information set forth below is intended only as a general summary and
not as a discussion of any specific factors that may affect any particular issuer of New Jersey
municipal securities.
Economic condition and outlook. New Jersey is the eleventh largest state in population and
the fifth smallest in land area. According to the United States Bureau of the Census, the
population of New Jersey was 8,414,350 in 2000 and 8,791,894 in 2010. With an average of 1,196
persons per square mile, it is the most densely populated of all the states. Centrally located in
the Northeast, New Jersey is near many major cities such as New York, Boston, Washington D.C., and
Philadelphia. The States favorable location is bolstered by an extensive highway system, as well
as other major land, air, and water transportation systems and facilities. The Port of
Newark-Elizabeth Marine Terminal is the East Coasts largest seaport and handles about one-third of
the nations ocean going trade. Various commercial and industrial businesses have headquarters or
regional offices within New Jerseys borders, including substantial construction, pharmaceutical,
manufacturing, chemical, financial and service industries. Since 1978, casino gambling in Atlantic
City has been an important State tourist attraction.
New Jersey has a diversified economic base, consisting of a variety of manufacturing,
constructions and service industries, supplemented by rural areas with selective commercial
agriculture. The construction, manufacturing and mining sectors experienced the largest job losses
over the recession. Since the beginning of 2010, the greatest employment increases have been in
the other services, education and health services, and professional and business services sectors.
Layoffs of government employees due to the States persistent budget issues and the re-entry of
formerly discouraged jobseekers into the job market have contributed to the States high
unemployment which still exceeded the national average by .7% as of January 2012.
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The States economic indicators (not seasonally adjusted), showed that total private dwelling
units authorized by building permits in January 2012, were 950, up from 922 the prior year, the
unemployment rate for January, 2012 was 9.0%, which is down from 9.4% the prior year and non-farm
payroll employment in January, 2012 was approximately 3,807,300, up from approximately 3,756,300
the prior year. Real per capital personal income in New Jersey was approximately $45,233 in the
third quarter of 2011, up from $45, 232 in the third quarter of 2009. New Jersey unemployment
still exceeds the national average as of January 2012 by .7%.
Revenues and expenditures. The primary governments assets and deferred outflows for fiscal
year 2011 total $36.9 billion, an increase of $925.5 million from the prior fiscal year. As of
June 30, 2011, liabilities exceed assets and deferred outflows by $34.2 billion. The States
unrestricted net assets, which represent net assets that have no statutory commitments and are
available for discretionary use, totaled a negative $45.1 billion. The negative balance was
primarily a result of under funding the annual pension costs to the States retirement system and
the States recognition of other postemployment benefits. Financing activities that have
contributed to the State s negative unrestricted net asst amount include liabilities from pension
bonds, the funding of a portion of local elementary and high school construction, and the
securitization of a major portion of annual tobacco master settlement agreement receipts, with no
corresponding assets.
The economic slowdown caused a falloff in State revenues. During fiscal 2011 the State
implemented tax increases, expenditure reductions (including layoffs of State employees),
expenditure deferrals, and draw-downs of reserves, as well as using federal stimulus money. The
State and its political subdivisions also face increasing financial pressure from costs relating to
pensions and other post-employment benefits for government employees.
Budget process. The State Constitution has a balanced budget measure which provides that no
money shall be drawn from the State Treasury but for appropriations made by law and that no law
appropriating money for any state purpose shall be enacted if the appropriations contained therein,
together with all prior appropriations made for the same fiscal period, shall exceed the total
amount of revenue on hand and anticipated to be available to meet such appropriations during such
fiscal period, as certified by the Governor.
In addition, the State Constitution has a debt limitation clause which provides that the State
Legislature shall not, in any manner, create in any fiscal year a debt or liability of the State,
which, together with any previous debts or liabilities, shall exceed at any time 1% of the total
amount appropriated by the general appropriation law for such year, unless the same shall be
authorized by a law for some single object or work distinctly specified therein, or shall have been
approved by the voters. The debt limitation clause was amended in 2008 and currently prohibits the
State Legislature from enacting any law that creates or authorizes the creation of a debt or
liability of an autonomous State corporate entity, which debt or liability has a pledge of an
annual appropriation as the means to pay the principal of and interest on such debt or liability,
unless approved by the voters.
Current State budget. Total budgeted revenues for fiscal 2012 are $29.6 billion, which is
approximately 4% above fiscal 2011 levels. Total budgeted appropriations for fiscal 2012 are $29.7
billion, which is approximately 1.2% above fiscal 2011 levels.
Obligations of the State of New Jersey. For the year ended June 20, 2011, New Jerseys
long-term debt obligations increased 12.3%, to $65.1 billion, which includes a net increase in
bonded debt of $7.1 billion. During the fiscal year, the State issued $4.9 billion in bonds. New
money issuances represented $1.6 billion, primarily for transportation and education system
improvements, while $3.3 billion represented five refunding transactions that provided the State
with $30.9 million in net present value savings. During fiscal year 2011, the State paid $2.4
billion in debt service on its long-term obligations.
Non-bonded portions of the States long-term debt total $27.0 billion. This amount represents
a $6.0 billion increase from the prior fiscal year and is mainly attributable to increases in net
pension obligations as well as the States other postemployment benefits obligations.
New Jerseys debt burden has increased substantially in the past decade and is high by any
number of measurements, which may reduce financial flexibility in the future. New Jersey now has
the fourth highest per capita debt burden among the states.
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Bond ratings. Bond ratings. The States general obligation bonds are rated AA- by S&P and
Aa3 by Moodys (ratings confirmed as of March 1, 2012. There can be no assurance that such ratings
will be maintained in the future. It should be noted that the creditworthiness of obligations
issued by local New Jersey issuers may be unrelated to the creditworthiness of obligations issued
by the State of New Jersey, and that there is no obligation on the part of the State to make
payment on such local obligations in the event of default.
Other issuers of New Jersey municipal obligations. The New Jersey Local Bond Law (N.J.S.A.
Section 40A:2-1 et seq.) (Local Bond Law) governs the issuance of bonds and notes by local units
(including counties). The statute provides that (i) the power and obligation of a local unit to
pay any and all bonds and notes issued by it pursuant to the Local Bond Law shall be unlimited,
(ii) the county or municipality shall levy ad valorem taxes upon all taxable property therein for
the payment of the principal of and interest on such bonds and notes, without limitation as to rate
or amount, (iii) no local unit shall authorize obligations for any improvement or purpose having a
period of usefulness of less than five years, and (iv) after issuance, all obligations shall be
conclusively presumed to be fully authorized and issued under all of the laws of the State, and any
person shall be estopped from questioning their sale, execution or delivery by the local unit.
No bond ordinance will be finally adopted if it appears from the supplemental debt statement
required by the Local Bond Law that the percentage of net debt as stated therein exceeds 2%, in the
case of a county, or 3 1/2%, in the case of a municipality. The Local Bond Law sets forth certain
exceptions to the foregoing debt limitation.
A local government may seek a waiver from the Local Finance Board from the debt limitation for
a bond ordinance authorizing obligations solely for the exceptions set forth in the Local Bond Law.
Approval of bond and note financing in excess of the debt limit in certain instances require the
applicant to justify and demonstrate the existence of extraordinary conditions. The Local Finance
Board is a functional area within the Division of Local Government Services. It is statutorily
responsible for promulgating rules and regulations on the fiscal obligations, fiscal reporting and
overseeing the fiscal condition of all New Jersey municipalities, counties, local authorities and
special districts.
In 2010, New Jersey enacted a property tax cap that placed a 2% limit on annual property-tax
increases, which may put additional financial pressure local governments. Costs associated with
debt service are not subject to the property tax cap.
Legal proceedings. The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations. In addition, the State is involved in certain other legal
proceedings (described in the States recent financial statements) that, if decided against the
State might require the State to make significant future expenditures or substantially impair
future revenue sources. Because of the prospective nature of these proceedings, it is not presently
possible to predict the outcome of such litigation, estimate the potential impact on the ability of
the State to pay debt service costs on its obligations, or determine what impact, if any, such
proceedings may have on the Fund.
Other considerations. The Fund is susceptible to political, economic or regulatory factors
affecting issuers of New Jersey municipal obligations. The information provided is only a brief
summary of the complex factors affecting the financial situation in New Jersey and is derived from
sources that are generally available to investors and are believed to be accurate. It is based in
part on information obtained from various State agencies in New Jersey or contained in Official
Statements for various New Jersey municipal obligations. No independent verification has been made
of the accuracy or completeness of any of the preceding information.
Special Investment Considerations Regarding New York Municipal Securities. Funds that invest
in New York municipal securities are susceptible to political, economic, regulatory or other
factors affecting issuers of New York municipal securities. The following information constitutes
only a brief summary of a number of the complex factors which may impact issuers of New York
municipal securities and does not purport to be a complete or exhaustive description of all adverse
conditions to which issuers of New York municipal securities may be subject. Such information is
derived from official statements utilized in connection with the issuance of New York municipal
securities, as well as from other publicly available documents. Such information has not been
independently verified by the Funds, and the Funds assume no responsibility for the completeness or
accuracy of such information.
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The summary below does not include all of the information pertaining to the budget, receipts
and disbursements of the State of New York (New York or the State) that would ordinarily be
included in various public documents issued thereby, such as an official statement prepared in
connection with the issuance of general obligation bonds of the State. Such an official statement,
together with any updates or supplements thereto, may generally be obtained upon request to the
Division of Budget of the State of New York (DOB) of the State. There may be specific factors
that are applicable in connection with investment in the obligations of particular issuers located
within New York, and it is possible a Fund will invest in obligations of particular issuers as to
which such specific factors are applicable. However, the information set forth below is intended
only as a general summary and not as a discussion of any specific factors that may affect any
particular issuer of New York municipal securities.
Economic condition and outlook. New York is the third most populous state in the nation and
has a relatively high level of personal wealth. The States economy is diverse, with a
comparatively large share of the nations financial activities, information, education, and health
services employment, and a very small share of the nations farming and mining activity. The
States location and its air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part of the economy.
During 2010, economic conditions began to improve for both the nation and New York State.
Private sector employment slowly started to increase, although gains were partially offset by
rising job losses in government. While the State as a whole outperformed the nation, the recovery
in the State was still slow by historical standards, and not all regions of the State benefitted
equally. At the beginning of 2011, the recovery continued to be weak, with consumers buffeted by
rising energy prices and renewed declines in home values.
Although job growth resumed in 2010, unemployment rates remain high. During the recession,
the unemployment rate more than doubled for the nation (rising from 4.4% in May 2007 to 10.1% in
October 2009) and for New York State (rising from 4.3% in March 2007 to 8.9% in September 2009).
By December 2010 the rate had only eased to 9.4% for the nation and 8.2% for New York.
Personal income rebounded in 2010 following declines in 2009. Nationally, personal income
increased by 3%, while New Yorks gain of 4.1% was the second-highest growth rate among all the
states. Wages, the largest component of personal income, increased in New York in 2010 after
falling by 7.2% in 2009. The rebound in personal income and wages reflects Wall Streets continued
recovery from the financial crisis. During 2010, the broker/dealer operations of New York Stock
Exchange member firms earned $27.6 billion, second only to the record profits of $61.4 billion
earned in 2009 (during the previous two years, the industry had combined losses of $53.8 billion).
The rapid return to profitability was driven by government bailouts, the Federal Reserves low
interest rate polices and other government actions.
Although the securities industry accounted for less than 3% of all jobs in the State it
comprised 12.5% of all wages in 2010 and accounted for more than one-third of the statewide
increase in total wages in 2010.
General government results. An operating surplus of $1.5 billion is reported in the New York
State General Fund for fiscal year ended March 31, 2011. This results in an accumulated General
Fund deficit of $2 billion. The State completed its fiscal year ended March 31, 2011, with a
combined Governmental Funds operating surplus of $1.9 billion as compared to a combined
Governmental Funds operating surplus for the preceding fiscal year of $123 million. The combined
operating surplus of $1.9 billion included an operating surplus in the General Fund of $1.5 billion
as well as in the Federal Special Reserve Fund of $2 million, in the General Debt Service Fund of
$276 million and in the Other Governmental Funds of $94 million.
The States financial position as shown in its Governmental Funds Balance Sheet as of March
31, 2011, includes a fund balance of $5.8 billion comprised of $34 billion of assets available to
liquidate liabilities of $28.2 billion. The Governmental Funds fund balance includes a $2 billion
accumulated deficit in the General Fund.
Budget process. New Yorks budget process begins with the Governors submission of the
Executive Budget to the Legislature each January, in preparation for the start of the fiscal year
on April 1. New Yorks Constitution requires the Governor to submit an Executive Budget that is
balanced on a cash basis in the General Fund the Fund that receives the majority of State taxes,
and all income not earmarked for a particular program or
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activity. In acting on the bills
submitted by the Governor, the Legislature has certain powers to alter the recommended
appropriations and proposed changes to existing law. Once the appropriation bills and other bills
become law, the Division of Budget of the State of New York (DOB) revises the State Financial
Plan to reflect the Legislatures actions, and begins the process of implementing the budget.
State budgetary outlook. The DOB currently projects that the State will end the 2011-12
fiscal year with a General Fund balance of $1.7 billion, which consists of $1.0 billion in the Tax
Stabilization Reserve, $275 million in the Rainy Day Reserve, $275 million in the Contingency
Reserve Fund, and $13 million in undesignated fund balance. The estimated closing balance reflects
the assumption that the estimated current year shortfall of $350 million is closed through
administrative or legislative actions or both..
General Fund disbursements, including transfers to other funds, are expected to total $56.8
billion in 2011-12, an increase of $1.4 billion (2.4%) over preliminary 2010-11 results. General
Fund spending is projected to grow at an average annual rate of 12.8% from 2010-11 through 2013-14.
State Operating Funds disbursements for 2011-12 are estimated to total $86.9 billion, and
increase of $2.4 billion (2.9%) over preliminary 2010-11 results. For both the General Fund and
State Operating Funds, spending growth is driven by Medicaid, education, pension costs, employee
and retiree health benefits, social services programs and debt service.
In the most recent State annual report, it was noted that the enacted 2011-12 budget made
significant progress in addressing the States structural deficit primarily through spending
reductions and without relying heavily on non-recurring or temporary revenue. The State also needs
to do a better job of monitoring its debt levels. Debt service is one of the fastest growing
categories of the budget and much of this debt has been issued by public authorities without voter
approval.
The budget gap for 2012-13, which the Governor must address in his Executive Budget due on
February 1, 2012, is now projected at $3.25 billion. In the General Fund, the projected budget
gaps total approximately $3.25 billion in 2012-13, $3.3 billion in 2013-14 and $4.8 billion in
2013-14.
Debt and other financing activities. The State has obtained long-term financing in the form
of voter-approved general obligation debt (voter-approved debt) and other obligations that are
authorized by legislation but not approved by the voters (non-voterapproved debt), including
lease-purchase contractual obligations where the States legal obligation to make payments is
subject to and paid from annual appropriations made by the Legislature or from assignment of
revenue in the case of Tobacco Settlement Revenue Bonds. The indebtedness of the State may be
classified as State-supported debt and State-related debt.
State-supported debt. State-supported debt includes general obligation debt, to which the
full faith and credit of the State has been pledged, and lease-purchase and contractual obligations
of public authorities and municipalities, where the States legal obligation to make payments to
those public authorities and municipalities is subject to and paid from annual appropriations made
by the Legislature. These include the State Personal Income Tax (PIT) Revenue Bond Program and
the New York Local Government Assistance Program bonds.
The Debt Reform Act of 2000 (the Act) imposes statutory limitations which restrict the
issuance of State-supported debt to capital purposes only and establishes a maximum term of 30
years for such debt. The Act also imposed phased-in caps that ultimately limit the amount of new
State-supported debt (issued on or after April 1, 2000) to 4% of State personal income, and new
State-supported debt service (on debt issued on and after April 1, 2000) to 5% of total
governmental funds receipts. For the fiscal year ended March 31, 2011, the cumulative debt
outstanding and debt service caps were 4.00% and 4.32%, respectively. The Act does not apply to
debt which is not considered State-supported and therefore does not encompass State-guaranteed
debt, moral obligation debt, and contingent-contractual obligations financing such as the bonds
issued by the Tobacco Settlement Financing Corporation.
General obligation debt. General obligation debt is debt to which the full faith and credit
of the State has been pledged. Under New Yorks Constitution, the State may not, with limited
exceptions for emergencies, undertake long-term general obligation borrowing (i.e., borrowing for
more than one year) unless the borrowing is authorized in a specific amount for a single work or
purpose by the Legislature and approved by the voters. Under the State Constitution, the State may
undertake short-term general obligation borrowings without voter approval (i)
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in anticipation of
the receipt of taxes and revenues, by issuing general obligation tax and revenue anticipation
notes, and (ii) in anticipation of the receipt of proceeds from the sale of duly authorized but
unissued general obligation bonds, by issuing bond anticipation notes. General obligation debt is
currently authorized for transportation, environment and housing purposes. The State had $3.625
billion in general obligation bonds outstanding at 2011 fiscal year-end. During the year the State
issued $500 million in general obligation bonds. The total amount of general obligation bonded
debt authorized but not yet issued at 20102011 year-end was $1.7 billion. At March 31, 2011 the
State had $56.1 billion in bonds, notes and other financing agreements outstanding compared with
$55.3 billion last year, an increase of $842 million. New York has never defaulted on any of its
general obligation debt.
State-supported lease-purchase and contractual-obligation financings. Prior to the
commencement of the State PIT Revenue issuances in 2002, public authorities or municipalities
issued other long-term, lease-purchase and contractual-obligation debt. This type of debt, where
debt service is payable from monies received from the State and is subject to annual State
appropriation, not general obligations of the State. Under this financing structure bonds were
issued to finance various capital programs, including those which finance the States highway and
bridge projects, State University of New York and City University of New York educational
facilities, health and mental hygiene facilities, prison construction and rehabilitation, economic
development projects, State buildings and housing programs, and equipment acquisitions. Debt
service payable to certain public authorities from State appropriations for such lease-purchase and
contractual obligation financings may be paid from general resources of the State or from dedicated
tax and other sources (i.e., State personal income taxes, motor vehicle and motor fuel
related-taxes, dormitory facility rentals, and patient charges). Although these financing
arrangements involve a contractual agreement by the State to make payments to a public authority,
municipality or other entity, the States obligation to make such payments is expressly made
subject to appropriation by the Legislature and the actual availability of money to the State for
making the payments. New York has never defaulted on any of its obligations under lease purchase
or contractual obligation financing arrangements. As of March 31, 2011, the State had long-term
debt obligations of $40.4 billion under lease/purchase and other financing arrangements (nonvoter
approved), a decrease from $40.7 billion for fiscal 2010.
State-related debt. State-related debt is a broader measure of State debt that includes the
State-supported debt referenced above, as well as State-guaranteed debt (to which the full faith
and credit of the State has been pledged), moral obligation financings and certain
contingent-contractual obligation financings.
Contingent contractual-obligation financing. New York may also enter into statutorily
authorized contingent contractual-obligation via a service contracts obligating it to pay debt
service on bonds, subject to annual appropriation, in the event there are shortfalls in revenues
from other non-State resources pledged, or otherwise available, to pay the debt service on the
bonds. New York has never been required to make any payments under this financing arrangement, but
the bankruptcy of certain hospitals in the secured hospitals program may require the State to make
payments in the future.
Moral obligation financings. Moral obligation financing generally involves the issuance of
debt by a public authority to finance a revenue-producing project or other activity. The debt is
secured by project revenues and includes statutory provisions requiring the State, subject to
appropriation by the Legislature, to make up any deficiencies which may occur in the issuers debt
service reserve fund. There has never been a payment default on any moral obligation debt of any
public authority. The DOB does not expect the State to increase statutory authorizations for moral
obligation bond programs. The State has not been called upon to make any payments pursuant to any
moral obligations since the 1986-87 fiscal year and no such requirements are anticipated during the
2011-12 fiscal year.
State-guaranteed financings. Pursuant to specific constitutional authorization, New York may
also directly guarantee certain public authority obligations. Payments of debt service on
State-guaranteed bonds and notes are legally enforceable obligations of the State. The only
current authorization provides for the State guarantee of the repayment of certain borrowings for
designated projects of the New York State Job Development Authority. The State has never been
called upon to make any direct payments pursuant to any such guarantees and does not anticipate
that it will be called upon to make any payments pursuant to the State guarantee in the 2011-12
fiscal year.
Public authorities. Public authorities refer to certain public benefit corporations, created
pursuant to State
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law. Public authorities are not subject to the constitutional restrictions on
the incurrence of debt that apply to the State itself and may issue bonds and notes within the
amounts and restrictions set forth in legislative authorization. The States access to the public
credit markets could be impaired and the market price of its outstanding debt may be materially and
adversely affected if any of its public authorities were to default on their respective
obligations, particularly those using State-supported or State-related debt. As of December 31,
2010, there were 17 public authorities that had outstanding debt of $100 million or more, and the
aggregate outstanding debt, including refunding bonds, of these State public authorities was
approximately $161 billion, only a portion of which constitutes State-supported or State-related
debt.
New York City (the City). The fiscal demands on New York may be affected by the fiscal
condition of the City, which relies in part on State aid to balance its budget and meet its cash
requirements. It is also possible that the States finances may be affected by the ability of the
City, and certain entities issuing debt for the benefit of the City, to market securities
successfully in the public credit markets.
Other Localities. Certain localities outside the City have experienced financial problems and
have requested and received additional State assistance during the last several State fiscal years.
Between 2004 and July 2010, the New York Legislature authorized 21 bond issuances to finance local
government operating deficits. Like the State, local governments must respond to changing
political, economic and financial influences over which they have little or no control. Such
changes may adversely affect the financial condition of certain local governments. For example,
the State or federal government may reduce (or in some cases eliminate) funding of some local
programs or disallow certain claims which, in turn, may require local governments to fund these
expenditures from their own resources. It is also possible that localities or local public
authorities may suffer serious financial difficulties that could jeopardize local access to the
public credit markets, which may adversely affect the marketability of notes and bonds issued by
localities within the State. Localities may also face unanticipated problems resulting from
certain pending litigation, judicial decisions and long-range economic trends. Other large-scale
potential problems, such as declining urban populations, increasing expenditures, and the loss of
skilled manufacturing jobs, may also adversely affect localities and necessitate State assistance.
Bond ratings. The States general obligation bonds are rated AA (with a stable outlook) by
S&P and Aa2 (with a stable outlook) by Moodys (ratings confirmed as of December 12, 2011 and
December 8, 2011, respectively). There can be no assurance that such ratings will be maintained in
the future. It should be noted that the creditworthiness of obligations issued by local New York
issuers may be unrelated to the creditworthiness of obligations issued by the State of New York,
and that there is no obligation on the part of the State to make payment on such local obligations
in the event of default.
Risk management. New York State does not insure its buildings or their contents against
theft, fire or other risks and does not insure its automobiles against the possibility of bodily
injury and property damages. The State does, however, have fidelity insurance on State employees.
Workers compensation coverage is provided on a self-insurance basis.
Legal proceedings. The State is a defendant in numerous legal proceedings pertaining to
matters incidental to the performance of routine governmental operations. Such litigation
includes, but is not limited to, claims asserted against the State arising from alleged torts,
alleged breaches of contracts, condemnation proceedings and other alleged violations of State and
federal laws.
Included in the States outstanding litigation are a number of cases challenging the legality
or the adequacy of a variety of significant social welfare programs primarily involving the States
Medicaid and mental health programs. Adverse judgments in these matters generally could result in
injunctive relief coupled with prospective changes in patient care that could require substantial
increased financing of the litigated programs in the future.
With respect to pending and threatened litigation, the State has reported liabilities of $538
million for awarded and anticipated unfavorable judgments. In addition, the State is party to
other claims and litigation that its legal counsel has advised may result in possible adverse court
decisions with estimated potential losses of approximately $379 million.
Other considerations. The Tax-Free New York Fund is susceptible to political, economic or
regulatory
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factors affecting issuers of New York municipal obligations. The information provided
is only a brief summary of the complex factors affecting the financial situation in New York and is
derived from sources that are generally available to investors and are believed to be accurate. It
is based in part on information obtained from various State agencies in New York or contained in
Official Statements for various New York municipal obligations. No independent verification has
been made of the accuracy or completeness of any of the preceding information.
Special Investment Considerations Regarding Ohio Municipal Securities. A Fund that invests in
Ohio (referred to herein as the State or New Jersey) municipal securities is susceptible to
political, economic, regulatory or other factors affecting issuers of Ohio municipal securities.
The following information constitutes only a brief summary of a number of the complex factors which
may impact issuers of Ohio municipal securities and does not purport to be a complete or exhaustive
description of all adverse conditions to which issuers of Ohio municipal securities may be subject.
Such information is derived from official statements utilized in connection with the issuance of
Ohio municipal securities, as well as from other publicly available documents. Such information
has not been independently verified by the Fund and the Fund assumes no responsibility for the
completeness or accuracy of such information.
The summary below does not include all of the information pertaining to the economy, budget,
receipts and disbursements of the State that would ordinarily be included in various public
documents, such as an official statement prepared in connection with the issuance of general
obligation bonds of the State. Additionally, many factors, including national, economic, social
and environmental policies and conditions, which are not within the control of such issuers, could
have an adverse impact on the financial condition of such issuers. The creditworthiness of
obligations issued by local Ohio issuers may be unrelated to the creditworthiness of obligations
issued by the State, and there is no obligation on the part of the State to make payments on such
local obligations. There may be specific factors that are applicable in connection with investment
in the obligations of particular issuers located within Ohio, and it is possible the Fund will
invest in obligations of particular issuers as to which such specific factors are applicable. The
information set forth below is intended only as a general summary and not as a discussion of any
specific factors that may affect any particular issuer of Ohio municipal securities.
Economic condition and outlook. Although manufacturing (including auto-related manufacturing)
in Ohio remains an integral part of the States economy, the greatest growth in recent years has
been in the non-manufacturing sectors. In 2009, Ohios economic output as measured by gross state
product totaled $462.0 billion, 3.30% of the national gross product and eighth largest among the
states. Ohio ranks fifth within the manufacturing sector as a whole ($73.2 billion) and third in
durable goods ($42.0 billion). Ohio is the seventh largest exporting state with 2009 merchandise
exports totaling $34.1 billion.
The States overall unemployment rate is commonly somewhat higher than the national figure.
For example, the reported average monthly State unemployment rates for 2007, 2008, 2009, and 2010
were 5.6%, 6.6%, 10.2%, and 10.1%, respectively, compared to national rates of 4.6%, 5.8%, 9.3%,
and 9.6% , respectively. In 2011 the States monthly rates fluctuated above and below the national
rates, and in December 2011, the State unemployment rate was 8.1% compared to the national rate of
8.5%.
Payroll employment in Ohio increased in 2004 through 2006 and decreased in 2007 through 2010.
Employment is shifting toward the service industry, with manufacturing employment decreasing. The
non-manufacturing sector employs approximately 88% of all non-farm payroll workers in the State.
While diversifying more into the service and other non-manufacturing areas, the Ohio economy
continues to rely in part on durable goods manufacturing largely concentrated in motor vehicles and
machinery, including electrical machinery. As a result, general economic activity, as in many
other industrially developed states, tends to be more cyclical than in some other states and in the
nation as a whole. Agriculture is an important segment of the economy, with over half the States
area devoted to farming and a significant portion of total employment in agribusiness.
Ohio is the seventh most populous state. The Census count for 2010 was 11,536,504, up from
11,353,140 in 2000.
Revenues and expenditures. Most State operations are financed through the General Revenue
Fund (GRF). Personal income and sales-use taxes are the major sources of GRF tax revenue.
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The Ohio Office of Budget and Management (OBM) continually monitors and analyzes
revenues and expenditures developments (including pending litigation) affecting both, and prepares
a financial report summarizing its analysis at the end of each month.
The 2010-11 biennial appropriations Act (the 2010-11 Act) was approved on July 17, 2009.
All necessary debt service and lease-rental payments related to State obligations for the entire
2010-11 biennium were fully appropriated for the three week interim period and under the final
2010-11 Act. Reflecting the final implementation of the restructuring of State taxes commenced in
2006-07 and a conservative underlying economic forecast, the 2010-11 Act provided for total GRF
biennial appropriations of approximately $50.5 billion (a 3.8% decrease from the 2008-09 biennial
expenditures) and total GRF biennial revenues of approximately $51.1 billion (a 4.2% decrease from
the 2008-09 biennial revenues). Appropriations for major program categories compared to 2008-09
actual spending reflected increases of 3.4% for Medicaid (excluding American Recovery and
Reinvestment Act of 2009 (ARRA) funding) and 0.7% for corrections and youth services; and
decreases of 13.8% for mental health and development disabilities, 8.3% for higher education, and
5.15% for elementary and secondary education. The 2010-11 Act also included the restructuring of
$736 million of fiscal years 2010 and 2011 GRF fund debt service into fiscal years 2012 through
2025.
During fiscal year 2011, net assets of the States primary government increased by $2.6
billion and ended fiscal year 2011 with a balance of $22.8 billion. Net assets of the States
component units increased by $1.4 billion and ended fiscal year 2011 with a balance of $13.8
billion.
As of June 30, 2011, the General Funds fund balance was approximately $2.2 billion. The
General Funds fund balance increased by $606.9 million (exclusive of a $3.8 million increase in
inventories) or 37.6% during fiscal year 2011. The General Fund includes the States GRF as well
as other funds, such as the budget stabilization fund and certain reimbursement-supported funds
used for activities administered by State agencies and departments.
Budget process. Consistent with the Ohio Constitution provision that no State appropriation
may be made for a period longer than two years, the State operates on the basis of a fiscal
biennium for its appropriations and expenditures, and is effectively precluded by law from ending
its July 1 to June 30 fiscal year or fiscal biennium in a deficit position. Most State operations
are financed through the GRF, for which the personal income and sales use taxes are the major
sources.
Current State budget. The 2012-13 biennial appropriations Act (the 2012-13 Act) was
approved on June 30, 2011. To address the use of non-recurring funding sources in the 2010-11
biennium including amounts received under ARRA, the 2012-13 Act includes targeted spending cuts
across most State agencies and major new Medicaid reform and cost containment measures. Reflecting
tax law changes and a conservative underlying economic forecast, the 2012-13 Act provides for total
GRF biennial appropriations of approximately $55.78 billion (an 11% increase from 2010-11 GRF
biennial expenditures) and total GRF biennial estimated revenues of approximately $56.07 billion (a
6% increase from 2010-11 GRF revenues). GRF appropriations include a 30% increase for Medicaid
(due in part to the absence of ARRA funding in the current biennium) and 3% for elementary an
secondary educations; decreases of 9% for higher education and 8% for mental health and
developmental disabilities; and flat funding for corrections and youth services. The 2012-13 Act
also reflects the restructuring of $440 million of fiscal year 2012 general revenue fund debt
service into fiscal years 2013 through 2025.
Major new sources of revenues or expenditure savings reflected in the 2012-13 Act include:
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Transfer of the States liquor sales system to JobsOhio, a nonprofit
corporation created to promote economic development, job creation and
retention, job training and the recruitment of business to the State. In
consideration of this transfer, the 2012-13 Act reflects that the State
anticipates receiving a $500 million one-time payment from JobsOhio in fiscal
year 2012. With that transfer, the State will forgo annual deposits to the GRF
from net liquor profits (those deposits totaled $153.0 million in fiscal year
2011). In 2011, a complaint was filed claiming the law authorizing the
creation of JobsOhio, as amended by the 2012-13 Act, is an improper special act
conferring corporate powers and that the State may not lend its aid and credit
to JobsOhio. The |
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court granted the States motions to dismiss the complaint based on lack of
standing. On December 23, 2011, plaintiffs appealed the trial courts
ruling and the parties are awaiting a decision from the Court of Appeals. |
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Sale of a State-owned prison facility to private operators. |
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Reducing local government fund allocations by $111 million in fiscal year
2012 and $340 million in fiscal year 2013. |
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Reducing public library fund allocations resulting in expenditure reductions
of $52.3 million in fiscal year 2012 and $102.8 million in fiscal year 2013. |
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Accelerated phase-out of reimbursement payments to local governments and
school districts in connection with the elimination of the tangible personal
property tax resulting in an increased share of the Commercial Activity Tax
being deposited into the GRF (estimated at $293.5 million in fiscal year 2012
and $597.7 million in fiscal year 2013). |
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Accelerated phase-out of reimbursement payments to local governments and
school districts for electric power generation deregulation and the entire
natural gas deregulation resulting in a larger share of the kilowatt-hour tax
and natural gas consumption tax being relocated to the GRF (estimated at $141.6
million in fiscal year 2012 and $147.4 million in fiscal year 2013). |
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$235 million from transfers to the GRF of unclaimed funds and from other
non-GRF funds and $12 million from a tax amnesty program. |
Obligations of the State of Ohio. The incurrence or assumption of debt by the State without a
popular vote is, with limited exceptions, prohibited by the State Constitution. The State may
incur debt to cover casual deficits or to address failures in revenues or to meet expenses not
otherwise provided for, but limited in amount to $750,000. The Constitution expressly precludes
the State from assuming the debts of any county, city, town or township, or of any corporation.
(An exception in both cases is for debts incurred to repel invasion, suppress insurrection, or
defend the State in war.) The Constitution provides that Except the debts above specified
no debt whatever shall hereafter be created by, or on behalf of the state.
By 19 constitutional amendments approved from 1921 to present, Ohio voters have authorized the
incurrence of State general obligation debt and the pledge of taxes or excises to its payment, all
related to the financing of capital facilities, except for four that funded bonuses for veterans,
one that funded coal technology research and development, and one for research and development
activities. Currently, tax supported general obligation debt of the State is authorized to be
incurred for the following purposes: highways, local infrastructure, coal development, natural
resources, higher education, common schools, conservation, research and development, site
development, and veterans compensation. Although supported by the general obligation pledge,
highway debt is also backed by a pledge of and has always been paid from the States motor fuel
taxes and other highway user receipts that are constitutionally restricted in use to highway
related purposes.
A 1999 constitutional amendment provides an annual debt service cap applicable to future
issuances of State direct obligations payable from the GRF or net State lottery proceeds.
Generally, new obligations may not be issued if future fiscal year debt service on those new and
the then outstanding bonds of those categories would exceed 5% of the total estimated GRF revenues
plus net State lottery proceeds during the fiscal year of issuance. Application of the cap may be
waived in a particular instance by a three-fifths vote of each house of the Ohio General Assembly
and may be changed by future constitutional amendments.
In addition to its issuance of highway bonds, the State has financed selected highway
infrastructure projects by issuing bonds and entering into agreements that call for debt service
payments to be made from federal transportation funds allocated to the State, subject to biennial
appropriations by the General Assembly. The highest annual State payment under those agreements
in the current or any future fiscal year is $173.1 million in fiscal year
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2012. In the event of any insufficiency in the anticipated federal
allocations to make payments on State bonds, the payments are to be made from any lawfully
available moneys appropriated to Ohio Department of Transportation for the purpose.
State agencies also have participated in buildings and equipment, information systems and
non-highway transportation projects that have local as well as State use and benefit, in connection
with which the State has entered into lease-purchase agreements with terms ranging from 7 to 20
years. Certificates of Participation (COPs) have been issued in connection with those agreements
that represent fractionalized interests in and are payable from the States anticipated lease
payments. The maximum annual payment from GRF appropriations under those existing agreements is
$30.5 in fiscal year 2013 and the total GRF-supported principal amount outstanding is $186.4
million. Payments by the State are subject to biennial appropriations by the General Assembly with
the lease terms subject to renewal if appropriations are made. The approval of the OBM Director
and either the General Assembly or the state controlling board is required if COPs are to be
publicly-offered in connection with those agreements.
A statewide economic development program assists the financing of facilities and equipment for
industry, commerce, research and distribution, including technology innovation, by providing loans
and loan guarantees. The law authorizes the issuance of State bonds and notes secured by a pledge
of portions of the State profits from liquor sales. The General Assembly has authorized the
issuance of these obligations with a maximum of $630 million to be outstanding at any one time, of
which not more than $84 million may be issued for eligible advanced energy projects and not more
than $100 million may be issued for eligible logistics and distribution projects. The aggregate
amount from the net liquor profit to be used in any fiscal year to pay debt service on these bonds
may not exceed $63 million. Pursuant to constitutional authority, the State has issued $250
million of bonds or notes for revitalization purposes that are also payable from a separate,
subordinate pledge of State liquor profits. The maximum annual debt service on all State bonds
payable from State liquor profits is $51.1 million in fiscal year 2016.
Certain State agencies issue revenue bonds that are payable from revenues from or relating to
revenue producing facilities, such as those issued by the Ohio Turnpike Commission. By judicial
interpretation, such revenue bonds do not constitute debt under the constitutional provisions
described above. The Constitution authorizes State bonds for certain housing purposes (issued by
the Ohio Housing Finance Agency) to which tax moneys may not be obligated or pledged.
As of June 30, 2011, the State had $7.87 billion in general obligation bonds outstanding.
Other issuers of Ohio municipal obligations. Legislation was enacted in 1996 to address
school districts in financial straits. It is similar to similar legislation adopted in 1979 for
municipal fiscal emergencies and fiscal watch, but is particularly tailored to certain school
districts and their then existing or potential fiscal problems. There are currently eight school
districts in fiscal emergency status and five in fiscal watch status. New legislation created a
third, more preliminary, category of fiscal caution.
For those municipalities that have faced significant financial problems, there are statutory
procedures for a commission composed of State and local officials, and private sector members
experienced in business and finance appointed by the Governor to monitor the fiscal affairs of the
municipality. The municipality is required to develop a financial plan, subject to the approval of
the commission, to eliminate deficits and cure any defaults. As of March 2012, twenty-three
municipalities, including one county and two townships, are in fiscal emergency status, three
municipalities are in fiscal watch status and three in fiscal caution status.
At present the State itself does not levy ad valorem taxes on real or tangible personal
property. Those taxes are levied by political subdivisions and local taxing districts. The
Constitution has since 1934 limited the amount of the aggregate levy of ad valorem property taxes
on particular property, without a vote of the electors or municipal charter provision, to 1% of
true value in money, and statutes limit the amount of that aggregate levy without a vote or charter
provision to 10 mills per $1 of assessed valuation commonly referred to in the context of Ohio
local government finance as the ten-mill limitation.
Bond ratings. The States general obligation bonds are rated AA+ by S&P and Aa1 by Moodys
(ratings confirmed as of March 1, 2012. There can be no assurance that such ratings will be
maintained in the future. It
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should be noted that the creditworthiness of obligations issued by
local Ohio issuers may be unrelated to the creditworthiness of obligations issued by the State of
Ohio, and that there is no obligation on the part of the State to make payment on such local
obligations in the event of default.
Legal proceedings. The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations. In addition, the State is involved in certain other legal
proceedings affecting the Department of Commerce, the Department of Transportation, and the Bureau
of Workers Compensation. (described in the States recent financial statements). As of June 30,
2011, $26.8 million remains payable to the defendant in the Department of Transportation case and
has been recorded as a liability in the States financial statements. Because of the prospective
nature of the other proceedings, it is not presently possible to predict the outcome of such
litigation, estimate the potential impact on the States financial position, or determine what
impact, if any, such proceedings may have on the Fund.
Other considerations. The Fund is susceptible to political, economic or regulatory factors
affecting issuers of Ohio municipal obligations. The information provided is only a brief summary
of the complex factors affecting the financial situation in Ohio and is derived from sources that
are generally available to investors and are believed to be accurate. It is based in part on
information obtained from various State agencies in Ohio or contained in Official Statements for
various Ohio municipal obligations. No independent verification has been made of the accuracy or
completeness of any of the preceding information.
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APPENDIX B
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt ratings of Moodys, S&P and
Fitch.
Moodys Long-Term Debt Ratings
Aaa: Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk. Aa:
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk. A:
Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Baa: Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade
and as such may possess certain speculative characteristics.
Ba: Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.
B: Obligations rated B are considered speculative and are subject to high credit risk.
Caa: Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
Ca: Obligations rated Ca are highly speculative and are likely in, or very near, default, with some
prospect of recovery of principal and interest.
C: Obligations rated C are the lowest rated class of bonds and are typically in default, with
little prospect for recovery of principal or interest.
Note: Moodys applies numerical modifiers 1, 2, and 3 in each generic rating classification from
Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
Moodys Short-Term Prime Rating System
P-1
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt
obligations.
P-2
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt
obligations.
P-3
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term
obligations.
NP (Not Prime)
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating
categories.
Note: In addition, in certain countries the prime rating may be modified by the issuers or
guarantors senior unsecured long-term debt rating.
B-1
Moodys MIG/VMIG US Short-Term Ratings
In municipal debt issuance, there are three rating categories for short-term obligations that are
considered investment grade. These ratings are designated as Moodys Investment Grade (MIG) and
are divided into three levels MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative quality are designated SG, or
speculative grade.
In the case of variable rate demand obligations (VRDOs), a two-component rating is assigned. The
first element represents Moodys evaluation of the degree of risk associated with scheduled
principal and interest payments. The second element represents Moodys evaluation of the degree of
risk associated with the demand feature, using the MIG rating scale.
The short-term rating assigned to the demand feature of VRDOs is designated as VMIG. When either
the long- or short-term aspect of a VRDO is not rated, that piece is designated NR, e.g., Aaa/NR or
NR/VMIG 1.
MIG ratings expire at note maturity. By contrast, VMIG rating expirations will be a function of
each issues specific structural or credit features.
Gradations of investment quality are indicated by rating symbols, with each symbol representing a
group in which the quality characteristics are broadly the same.
MIG 1/VMIG 1: This designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support or demonstrated broad-based
access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes strong credit quality. Margins of protection are
ample although not as large as in the preceding group.
MIG 3/VMIG 3: This designation denotes acceptable credit quality. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be less well established.
SG: This designation denotes speculative-grade credit quality. Debt instruments in this
category may lack sufficient margins of protection.
Standard & Poors Long-Term Issue Credit Ratings
Issue credit ratings are based, in varying degrees, on Standard & Poors analysis of the following
considerations:
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Likelihood of payment capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the obligation; |
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Nature of and provisions of the obligation; |
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Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other
laws affecting creditors rights. |
Issue ratings are an assessment of default risk, but may incorporate an assessment of relative
seniority or ultimate recovery in the event of default. Junior obligations are typically rated
lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such
differentiation may apply when an entity has both senior and subordinated obligations, secured and
unsecured obligations, or operating company and holding company obligations.)
AAA
An obligation rated AAA has the highest rating assigned by Standard & Poors. The obligors
capacity to meet its financial commitment on the obligation is extremely strong.
B-2
AA
An obligation rated AA differs from the highest-rated obligations only to a small degree. The
obligors capacity to meet its financial commitment on the obligation is very strong.
A
An obligation rated A is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher-rated categories. However, the
obligors capacity to meet its financial commitment on the obligation is still strong.
BBB
An obligation rated BBB exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor
to meet its financial commitment on the obligation.
BB, B, CCC, CC and C
Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest. While such
obligations will likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB
An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However,
it faces major ongoing uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to the obligors inadequate capacity to meet its financial commitment
on the obligation.
B
An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligors capacity or
willingness to meet its financial commitment on the obligation.
CCC
An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its financial commitment on
the obligation. In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the obligation.
CC
An obligation rated CC is currently highly vulnerable to nonpayment.
C
A C rating is assigned to obligations that are currently highly vulnerable to nonpayment,
obligations that have payment arrearages allowed by the terms of the documents, or obligations of
an issuer that is the subject of a bankruptcy petition or similar action which have not experienced
a payment default. Among others, the C rating may be assigned to subordinated debt, preferred
stock or other obligations on which cash payments have been suspended in accordance with the
instruments terms or when preferred stock is the subject of a distressed exchange
B-3
offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by
other instruments having a total value that is less than par.
D
An obligation rated D is in payment default. The D rating category is used when payments on an
obligation, including a regulatory capital instrument, are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poors believes that such payments will
be made during such grace period. The D rating also will be used upon the filing of bankruptcy
petition or the taking of similar action if payments on an obligation are jeopardized. An
obligations rating is lowered to D upon completion of distressed exchange offer, whereby some or
all of the issue is either repurchased for an amount of cash or replaced by other instruments
having a total value that is less than par.
Plus (+) or minus (-)
The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to
show relative standing within the major rating categories.
NR
This indicates that no rating has been requested, that there is insufficient information on which
to base a rating, or that Standard & Poors does not rate a particular obligation as a matter of
policy.
Standard & Poors Short-Term Issue Credit Ratings
A-1
A short-term obligation rated A-1 is rated in the highest category by Standard & Poors. The
obligors capacity to meet its financial commitment on the obligation is strong. Within this
category, certain obligations are designated with a plus sign (+). This indicates that the
obligors capacity to meet its financial commitment on these obligations is extremely strong.
A-2
A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating categories. However,
the obligors capacity to meet its financial commitment on the obligation is satisfactory.
A-3
A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B
A short-term obligation rated B is regarded as having significant speculative characteristics.
Ratings of B-1, B-2, and B-3 may be assigned to indicate finer distinctions within the B
category. The obligor currently has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties which could lead to the obligors
inadequate capacity to meet its financial commitment on the obligation.
B-1
A short-term obligation rated B-1 is regarded as having significant speculative characteristics,
but the obligor has a relatively stronger capacity to meet its financial commitments over the
short-term compared to other speculative-grade obligors.
B-4
B-2
A short-term obligation rated B-2 is regarded as having significant speculative characteristics,
and the obligor has an average speculative-grade capacity to meet its financial commitments over
the short-term compared to other speculative-grade obligors.
B-3
A short-term obligation rated B-3 is regarded as having significant speculative characteristics,
and the obligor has a relatively weaker capacity to meet its financial commitments over the
short-term compared to other speculative-grade obligors.
C
A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions for the obligor to meet its financial
commitment on the obligation.
D
A short-term obligation rated D is in payment default. The D rating category is used when
payments on an obligation, including a regulatory capital instrument, are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poors believes that such
payments will be made during such grace period. The D rating also will be used upon the filing
of a bankruptcy petition or the taking of similar action if payments on an obligation are
jeopardized.
Standard & Poors Municipal Short-Term Note Ratings Definitions
A Standard & Poors U.S. municipal note rating reflects Standard & Poors opinion about the
liquidity factors and market access risks unique to the notes. Notes due in three years or less
will likely receive a note rating. Notes with an original maturity of more than three years will
most likely receive a long-term debt rating. In determining which type of rating, if any, to
assign, Standard & Poors analysis will review the following considerations:
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Amortization schedule the larger final maturity relative to other
maturities, the more likely it will be treated as a note; and |
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Source of payment the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note. |
Note rating symbols are as follows:
SP-1
Strong capacity to pay principal and interest. An issue determined to possess a very strong
capacity to pay debt service is given a plus (+) designation.
SP-2
Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial
and economic changes over the term of the notes.
SP-3
Speculative capacity to pay principal and interest.
B-5
Standard & Poors Dual Ratings
Standard & Poors assigns dual ratings to all debt issues that have a put option or demand
feature as part of their structure. The first rating addresses the likelihood of repayment of
principal and interest as due, and the second rating addresses only the demand feature. The
long-term rating symbols are used for bonds to denote the long-term maturity and the short-term
rating symbols for the put option (for example, AAA/A-1+). With U.S. municipal short-term demand
debt, note rating symbols are used with the short-term issue credit rating symbols (for example,
SP-1+/A-1+)
The ratings and other credit related opinions of Standard & Poors and its affiliates are
statements of opinion as of the date they are expressed and not statements of fact or
recommendations to purchase, hold or sell any securities or make any investment decisions.
Standard & Poors assumes no obligation to update any information following publication. Users of
ratings and credit related opinions should not rely on them in making any investment decision.
Standard & Poors opinions and analysis do not address the suitability of any security. Standard &
Poors Financial Services LLC does not act as a fiduciary or an investment advisor. While Standard
& Poors has obtained information from sources it believes to be reliable, Standard & Poors does
not perform an audit and undertakes no duty of due diligence or independent verification of any
information it receives. Ratings and credit related opinions may be changed, suspended, or
withdrawn at any time.
Fitch Credit Rating Scales
Fitch Ratings credit ratings provide an opinion on the relative ability of an entity to meet
financial commitments, such as interest, preferred dividends, repayment of principal, insurance
claims or counterparty obligations. Credit ratings are used by investors as indications of the
likelihood of receiving the money owed to them in accordance with the terms on which they invested.
The agencys credit ratings cover the global spectrum of corporate, sovereign (including
supranational and sub-national), financial, bank, insurance, municipal and other public finance
entities and the securities or other obligations they issue, as well as structured finance
securities backed by receivables or other financial assets.
The terms investment grade and speculative grade have established themselves over time as
shorthand to describe the categories AAA to BBB (investment grade) and BB to D (speculative
grade). The terms investment grade and speculative grade are market conventions, and do not
imply any recommendation or endorsement of a specific security for investment purposes.
Investment grade categories indicate relatively low to moderate credit risk, while ratings in the
speculative categories either signal a higher level of credit risk or that a default has already
occurred.
A designation of Not Rated or NR is used to denote securities not rated by Fitch where Fitch
has rated some, but not all, securities comprising an issuance capital structure.
Credit ratings express risk in relative rank order, which is to say they are ordinal measures of
credit risk and are not predictive of a specific frequency of default or loss.
Fitch Ratings credit ratings do not directly address any risk other than credit risk. In
particular, ratings do not deal with the risk of a market value loss on a rated security due to
changes in interest rates, liquidity and other market considerations. However, in terms of payment
obligation on the rated liability, market risk may be considered to the extent that it influences
the ability of an issuer to pay upon a commitment. Ratings nonetheless do not reflect market risk
to the extent that they influence the size or other conditionality of the obligation to pay upon a
commitment (for example, in the case of index-linked bonds).
In the default components of ratings assigned to individual obligations or instruments, the agency
typically rates to the likelihood of non-payment or default in accordance with the terms of that
instruments documentation. In limited cases, Fitch Ratings may include additional considerations
(i.e. rate to a higher or lower standard than that implied in the obligations documentation). In
such cases, the agency will make clear the assumptions underlying the agencys opinion in the
accompanying rating commentary.
B-6
Fitch Long-Term Rating Scales
Issuer Credit Rating Scales
Rated entities in a number of sectors, including financial and non-financial corporations,
sovereigns and insurance companies, are generally assigned Issuer Default Ratings (IDRs). IDRs
opine on an entitys relative vulnerability to default on financial obligations. The threshold
default risk addressed by the IDR is generally that of the financial obligations whose non-payment
would best reflect the uncured failure of that entity. As such, IDRs also address relative
vulnerability to bankruptcy, administrative receivership or similar concepts, although the agency
recognizes that issuers may also make pre-emptive and therefore voluntary use of such mechanisms.
In aggregate, IDRs provide an ordinal ranking of issuers based on the agencys view of their
relative vulnerability to default, rather than a prediction of a specific percentage likelihood of
default. For historical information on the default experience of Fitch-rated issuers, please
consult the transition and default performance studies available from the Fitch Ratings website.
AAA: Highest credit quality.
AAA ratings denote the lowest expectation of default risk. They are assigned only in cases of
exceptionally strong capacity for payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very high credit quality.
AA ratings denote expectations of very low default risk. They indicate very strong capacity for
payment of financial commitments. This capacity is not significantly vulnerable to foreseeable
events.
A: High credit quality.
A ratings denote expectations of low default risk. The capacity for payment of financial
commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse
business or economic conditions than is the case for higher ratings.
BBB: Good credit quality.
BBB ratings indicate that expectations of default risk are currently low. The capacity for
payment of financial commitments is considered adequate but adverse business or economic conditions
are more likely to impair this capacity.
BB: Speculative.
BB ratings indicate an elevated vulnerability to default risk, particularly in the event of
adverse changes in business or economic conditions over time; however, business or financial
flexibility exists which supports the servicing of financial commitments.
B: Highly speculative.
B ratings indicate that material default risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued payment is
vulnerable to deterioration in the business and economic environment.
CCC: Substantial credit risk.
Default is a real possibility.
B-7
CC: Very high levels of credit risk.
Default of some kind appears probable.
C: Exceptionally high levels of credit risk
Default is imminent or inevitable, or the issuer is in standstill. Conditions that are indicative
of a C category rating for an issuer include:
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the issuer has entered into a grace or cure period following non-payment of a
material financial obligation; |
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the issuer has entered into a temporary negotiated waiver or standstill
agreement following a payment default on a material financial obligation; or |
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Fitch Ratings otherwise believes a condition of RD or D to be imminent or
inevitable, including through the formal announcement of a coercive debt exchange. |
RD: Restricted default.
RD ratings indicate an issuer that in Fitch Ratings opinion has experienced an uncured payment
default on a bond, loan or other material financial obligation but which has not entered into
bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure,
and which has not otherwise ceased business. This would include:
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the selective payment default on a specific class or currency of debt; |
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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; |
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the extension of multiple waivers or forbearance periods upon a payment default
on one or more material financial obligations, either in series or in parallel; or |
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execution of a coercive debt exchange on one or more material financial
obligations. |
D: Default.
D ratings indicate an issuer that in Fitch Ratings opinion has entered into bankruptcy filings,
administration, receivership, liquidation or other formal winding-up procedure, or which has
otherwise ceased business.
Default ratings are not assigned prospectively to entities or their obligations; within this
context, non-payment on an instrument that contains a deferral feature or grace period will
generally not be considered a default until after the expiration of the deferral or grace period,
unless a default is otherwise driven by bankruptcy or other similar circumstance, or by a coercive
debt exchange.
Imminent default typically refers to the occasion where a payment default has been intimated by
the issuer, and is all but inevitable. This may, for example, be where an issuer has missed a
scheduled payment, but (as is typical) has a grace period during which it may cure the payment
default. Another alternative would be where an issuer has formally announced a coercive debt
exchange, but the date of the exchange still lies several days or weeks in the immediate future.
In all cases, the assignment of a default rating reflects the agencys 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 issuers financial obligations or local
commercial practice.
B-8
Note:
The modifiers + or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA Long-Term IDR category, or to Long-Term IDR
categories below B.
Fitch Short-Term Rating Scales
A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to
default of the rated entity or security stream and relates to the capacity to meet financial
obligations in accordance with the documentation governing the relevant obligation. Short-Term
Ratings are assigned to obligations whose initial maturity is viewed as short term based on
market convention. Typically, this means up to 13 months for corporate, sovereign, and structured
obligations, and up to 36 months for obligations in U.S. public finance markets.
F1: Highest short-term credit quality.
Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an
added + to denote any exceptionally strong credit feature.
F2: Good short-term credit quality.
Good intrinsic capacity for timely payment of financial commitments.
F3: Fair short-term credit quality.
The intrinsic capacity for timely payment of financial commitments is adequate.
B: Speculative short-term credit quality.
Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near
term adverse changes in financial and economic conditions.
C: High short-term default risk.
Default is a real possibility.
RD: Restricted default.
Indicates an entity that has defaulted on one or more of its financial commitments, although it
continues to meet other financial obligations. Applicable to entity ratings only.
D: Default.
Indicates a broad-based default event for an entity, or the default of a short-term obligation.
B-9
APPENDIX C
STRATEGIC TRANSACTIONS; OPTIONS AND FUTURES
This appendix provides additional information about the investment policies and restrictions
for some of the Funds. Capitalized terms not otherwise defined herein are used as defined in the
Funds original prospectus, as amended. References herein to the Prospectus should be read as
references to the Funds original prospectus, as amended.
Invesco Van Kampen California Value Municipal Income Trust (VCV), Invesco Van Kampen Select
Sector Municipal Trust (VKL) and Invesco Van Kampen Massachusetts Value Municipal Income Trust
(VMV)
Strategic Transactions
The Fund may purchase and sell exchange-listed and over-the-counter put and call options on
securities, financial futures, fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and enter into various interest rate transactions such as swaps,
caps, floors or collars. Collectively, all the above are referred to as Strategic Transactions.
Strategic Transactions may be used to attempt to protect against possible changes in the market
value of securities held in or to be purchased for the Funds portfolio resulting from securities
markets fluctuations, to protect the Funds unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Funds portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling particular securities.
Strategic Transactions, other than Strategic Transactions involving financial futures and options
thereon, may also be used to enhance potential gain. Any or all of these investment techniques may
be used at any time and there is no particular strategy that dictates the use of one technique
rather than another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic Transactions
successfully will depend on the Advisers ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements when implementing
these strategies, techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide hedging, risk
management or portfolio management purposes and not for speculative purposes.
Strategic Transactions have risks associated with them including possible default by the other
party to the transaction, illiquidity and, to the extent the Advisers view as to certain market
movements is incorrect, the risk that the use of such Strategic Transactions could result in losses
greater than if they had not been used. Use of put and call options may result in losses to the
Fund, force the sale of portfolio securities at inopportune times or for prices other than at
current market values, limit the amount of appreciation the Fund can realize on its investments or
cause the Fund to hold a security it might otherwise sell. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related portfolio position
of the Fund creates the possibility that losses on the hedging instrument may be greater than gains
in the value of the Funds position. In addition, futures and options markets may not be liquid in
all circumstances and certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the contemplated use of these futures contracts and options thereon
should tend to minimize the risk of loss due to a decline in the value of the hedged position, at
the same time they tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures contracts and the sale
of options thereon would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly income, and such
losses can be greater than if the Strategic Transactions had not been utilized. Income earned or
gains realized or deemed to be earned or realized, if any, by the Fund from engaging in Strategic
Transactions generally will be taxable income of the Fund. Such income will be allocated to both
the Common Shares and the Preferred Shares on a pro rata basis. The Strategic Transactions that the
Fund may use and some of their risks are described more fully below.
The Fund may, but is not required to, utilize various other investment strategies as described
below to hedge various market risks (such as interest rates), to manage the effective maturity or
duration of securities or
C-1
portfolios or to enhance potential gain. Such strategies are generally accepted by modern
portfolio managers and are regularly utilized by many mutual funds and other institutional
investors. Techniques and instruments may change over time as new instruments and strategies are
developed or regulatory changes occur.
Strategic Transactions. In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on securities,
financial futures, interest rate indices and other financial instruments, purchase and sell
financial futures contracts and enter into various interest rate transactions such as swaps, caps,
floors or collars (collectively, all the above are called Strategic Transactions). Presently,
options on municipal securities are traded exclusively over-the-counter, although if options on
municipal securities were to be listed for trading on a national securities exchange the Fund might
trade in such exchange-listed options. Strategic Transactions may be used to attempt to protect
against possible changes in the market value of securities held in or to be purchased for the
Funds portfolio resulting from securities markets fluctuations, to protect the Funds unrealized
gains in the value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of the Funds portfolio, or to
establish a position as a temporary substitute for purchasing or selling particular securities.
Some Strategic Transactions may also be used to enhance potential gain although no more than 5% of
the Funds assets will be committed to Strategic Transactions entered into for non-hedging or risk
management purposes. Any or all of these investment techniques may be used at any time and there
is no particular strategy that dictates the use of one technique rather than another, as the use of
any Strategic Transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these Strategic Transactions successfully will depend on the
Advisers ability to predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these strategies, techniques and
instruments. Strategic Transactions involving financial futures and options thereon will be
purchased, sold or entered into only for bona fide hedging, risk management or portfolio management
purposes and not for speculative purposes.
Strategic Transactions have risks associated with them including possible default by the other
party to the transaction, illiquidity and, to the extent the Advisers view as to certain market
movements is incorrect, the risk that the use of such Strategic Transactions could result in losses
greater than if they had not been used. Use of put and call options may result in losses to the
Fund, force the sale of portfolio securities at inopportune times or for prices other than current
market values, limit the amount of appreciation the Fund can realize on its investments or cause
the Fund to hold a security it might otherwise sell. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio position of the Fund
creates the possibility that losses on the hedging instrument may be greater than gains in the
value of the Funds position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the contemplated use of these futures contracts and options thereon
should tend to minimize the risk of loss due to a decline in the value of the hedged position, at
the same time they tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures contracts and the sale
of options thereon would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly income, and such
losses can be greater than if the Strategic Transactions had not been utilized. Income earned or
gains realized or deemed to be earned or realized, if any, by the Fund from engaging in Strategic
Transactions generally will be taxable income of the Fund. Such income will be allocated to both
the Common Shares and the Preferred Shares on a pro rata basis.
General Characteristics of Options. Put options and call options typically have similar
structural characteristics and operational mechanics regardless of the underlying instrument on
which they are purchased or sold. Thus, the following general discussion relates to each of the
particular types of options discussed in greater detail below. In addition, many Strategic
Transactions involving options require segregation of Fund assets in special accounts, as described
below under Use of Segregated and Other Special Accounts.
A put option gives the purchaser of the option, upon payment of a premium, the right to sell,
and the writer the obligation to buy, the underlying security, commodity, index or other instrument
at the exercise price. For instance, the Funds purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by
C-2
giving the Fund the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy, and the seller the
obligation to sell, the underlying instrument at the exercise price. The Funds purchase of a call
option on a security, financial future, index or other instrument might be intended to protect the
Fund against an increase in the price of the underlying instrument that it intends to purchase in
the future by fixing the price at which it may purchase such instrument. An American style put or
call option may be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter options (OTC
options). Exchange listed options are issued by a regulated intermediary such as the Options
Clearing Corporation (OCC), which guarantees the performance of the obligations of the parties to
such options. The discussion below uses the OCC as a paradigm, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle by physical
delivery of the underlying security, although in the future cash settlement may become available.
Index options and Eurodollar instruments are cash settled for the net amount, if any, to the extent
the option is in-the-money (i.e., where the value of the underlying instrument exceeds in the
case of a call option, or is less than, in the case of a put option, the exercise price of the
option) at the time the option is exercised. Frequently, rather than taking or making delivery of
the underlying instrument through the process of exercising the option, listed options are closed
by entering into offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Funds ability to close out its position as a purchaser or seller of an OCC or exchange
listed put or call option is dependent, in part, upon the liquidity of the option market. Among
the possible reasons for the absence of a liquid option market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions imposed by an exchange;
(iii) trading halts, suspensions or other restrictions imposed with respect to the particular
classes or series of options or underlying securities including reaching daily price limits; (iv)
interruption of the normal operations of the OCC or an exchange; (v) inadequacy of the facilities
of an exchange or OCC to handle current trading volume; or (vi) a decision by one or more exchanges
to discontinue the trading of options (or a particular class or series of options), in which event
the relevant market for that option on that exchange would cease to exist, although outstanding
options on that exchange would generally continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during which the
underlying financial instruments are traded. To the extent that the option markets close before
the markets for the underlying financial instruments, significant price movements can take place in
the underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial institutions or other
parties (Counterparties) through direct bilateral agreements with the Counterparty. In contrast
to exchange listed options, which generally have standardized terms and performance mechanics, all
the terms of an OTC option, including such terms as method of settlement, term, exercise price,
premium, guaranties and security, are set by negotiation of the parties. The Fund will only enter
into OTC options that have a buy-back provision permitting the Fund to require the Counterparty to
buy back the option at a formula price within seven days. The Fund expects generally to enter into
OTC options that have cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty function in an OTC
option. As a result, if the Counterparty fails to make or take delivery of the security or other
instrument underlying an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of the option, the Fund will lose any premium
it paid for the option as well as any anticipated benefit of the transaction. Accordingly, the
Adviser must access the creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterpartys credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only with United States
government securities dealers recognized by the Federal Reserve Bank in New York as primary
dealers, broker-dealers, domestic or foreign banks or other financial institutions which have
received a short-term credit rating of A-1 from S&P or P-1 from Moodys Investor Services
(Moodys) or any equivalent rating from any other nationally recognized statistical rating
organization (NRSRO). The staff of the Securities and Exchange Commission currently takes the
C-3
position that assets used as cover or segregated in connection with the amount of the Funds
obligation pursuant to certain OTC options are illiquid.
If the Fund sells a call option, the premium that it receives may serve as a partial hedge, to
the extent of the option premium, against a decrease in the value of the underlying securities or
instruments in its portfolio or will increase the Funds income. The sale of put options can also
provide income.
The Fund may purchase and sell call options on municipal securities and other financial
instruments that the adviser believes have a high degree of correlation to the municipal securities
which the Fund may purchase, including U.S. Treasury and agency securities, mortgage-backed
securities and Eurodollar instruments that are traded on U.S. securities exchanges and in the
over-the-counter markets and related futures on such securities. All calls sold by the Fund must
be covered or must meet the asset segregation requirements described below as long as the call is
outstanding (i.e., the Fund must own the securities or futures contract subject to the call). Even
though the Fund will receive the option premium to help protect it against loss, a call sold by the
Fund exposes the Fund during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security and may require the Fund to hold a
security which it might otherwise have sold.
The Fund may purchase and sell put options that relate to municipal securities and other
financial instruments that the Adviser believes have a high degree of correlation to the municipal
securities which the Fund may purchase, including U.S. Government Securities, mortgage-backed
securities, and Eurodollar instruments (whether or not it holds the above securities in its
portfolio) or futures on such securities. The Fund will not sell put options if, as a result, more
than 50% of the Funds assets would be required to be segregated to cover its potential obligations
under its hedging, duration management, risk management, and other Strategic Transactions other
than those with respect to futures and options thereon. In selling put options, there is a risk
that the Fund may be required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. The Fund may purchase and sell financial futures
contracts or purchase put and call options on such futures as a hedge against anticipated interest
rate movements for duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment of initial and
variation margin as described below. The sale of a futures contract creates a firm obligation by
the Fund, as seller, to deliver the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to index futures and
Eurodollar instruments, the net cash amount). Options on futures contracts are similar to options
on securities except that an option on a futures contract gives the purchaser the right in return
for the premium paid to assume a position in a futures contract.
The Funds use of financial futures and options thereon will in all cases be consistent with
applicable regulatory requirements and in particular the rules and regulations of the Commodity
Futures Trading Commission and will be entered into for bona fide hedging (including duration
management), risk management or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with a financial
intermediary as security for its obligations an amount of cash or other specified assets (initial
margin) which initially is typically 1% to 5% of the face amount of the contract (but may be higher
in some circumstances). Additional cash or assets (variation margin) may be required to be
deposited thereafter on a daily basis as the mark to market value of the contract fluctuates. The
purchase of options on financial futures involves payment of a premium for the option without any
further obligation on the part of the Fund. If the Fund exercises an option on a futures contract
it will be obligated to post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts and options
thereon are generally settled by entering into an offsetting transaction but there can be no
assurance that the position will be offset prior to settlement and that delivery will not occur.
The Fund will not enter into a futures contract or related option (except for closing
transactions) for other than bona fide hedging purposes if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Funds net assets (taken at current value); however, in the case of an option that
is in-the-money at the time of the purchase, the in-the-money amount may be excluded in calculating
the 5% limitation. Certain state securities laws to which the Fund may be subject may
C-4
further restrict the Funds ability to engage in transactions in futures contracts and related
options. The segregation requirements with respect to futures and options thereon are described
below.
Options on Securities Indices and Other Financial Indices. The Fund also may purchase and
sell call and put options on securities indices and other financial indices, including indices
based upon municipal securities to the extent that an active market exists or develops, and, in so
doing can achieve many of the same objectives it would achieve through the sale or purchase of
options on individual securities or other instruments. Options on securities indices and other
financial indices are similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash settlement, i.e.,
an option on an index gives the holder the right to receive, upon exercise of the option, an amount
of cash if the closing level of the index upon which the option is based exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option (except if, in the
case of an OTC option, physical delivery is specified). This amount of cash is equal to the excess
of the closing price of the index over the exercise price of the option, which also may be
multiplied by a formula value. The seller of the option is obligated, in return for the premium
received, to make delivery of this amount. The gain or loss on an option on an index depends on
price movements in the instruments making up the market, market segment, industry or other
composite on which the underlying index is based, rather than price movements in individual
securities, as is the case with respect to options on securities.
Combined Transactions. The Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions and any combination of futures and options
transactions (component transactions), instead of a single Strategic Transaction, as part of a
single or combined strategy when, in the opinion of the Adviser, it is in the best interests of the
Fund to do so. A combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally entered into based
on the Advisers judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that the combination will
instead increase such risks or hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the Fund may
enter are interest rate and index swaps and the purchase or sale of related caps, floors and
collars. The Fund expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to use these
transactions as hedges and not as speculative investments and will not sell interest rate caps or
floors where it does not own securities or other instruments providing the income stream the Fund
may be obligated to pay. Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments with respect to a notional amount of principal. An index swap is
an agreement to swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive
payments on a notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is a combination of
a cap and a floor that preserves a certain return within a predetermined range of interest rates or
values.
The Fund may enter into swaps, caps, floors or collars on either an asset-based or
liability-based basis, depending on whether it is hedging its assets or its liabilities, and will
usually enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash
settlement on the payment date or dates specified in the instrument, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments. Inasmuch as these swaps,
caps, floors and collars are entered into for good faith hedging purposes, the Adviser and the Fund
believe such obligations do not constitute senior securities under the 1940 Act and, accordingly,
will not treat them as being subject to its borrowing restrictions. The Fund will not enter into
any swap, cap, floor or collar transaction unless, at the time of entering into such transaction,
the unsecured long-term debt of the Counterparty, combined with any credit enhancements, is rated
at least A by S&P or Moodys or has an equivalent rating from an NRSRO or is determined to be of
equivalent credit quality by the Adviser. If there is a default by the Counterparty, the Fund will
have contractual remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and investment banking firms
acting both as principals
C-5
and as agents utilizing standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments. Eurodollar
instruments are U.S. dollar-denominated futures contracts or options thereon which are linked to
the London Interbank Offered Rate (LIBOR). Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate for borrowings.
The Fund might use Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR, to which many interest rate swaps and fixed income instruments are linked.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in addition to
other requirements, require that the Fund segregate liquid high grade assets with its custodian to
the extent Fund obligations are not otherwise covered through ownership of the underlying
security or financial instrument. In general, either the full amount of any obligation by the Fund
to pay or deliver securities or assets must be covered at all times by the securities or
instruments required to be delivered, or an amount of cash or liquid high grade securities at least
equal to the current amount of the obligation must be segregated with the Funds custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. For example, a call option written by the
Fund will require the Fund to hold the securities subject to the call (or securities convertible
into the underlying securities without additional consideration) or to segregate liquid high grade
assets sufficient to purchase and deliver the securities if the call is exercised. A call option
sold by the Fund on an index will require the Fund to own portfolio securities which correlate with
the index or to segregate liquid high grade assets equal to the excess of the index value over the
exercise price on a current basis. A put option written by the Fund requires the Fund to segregate
liquid, high grade assets equal to the exercise price.
OTC options entered into by the Fund, including those on securities, financial instruments or
indices, OCC issued and exchange listed index options, swaps, caps, floors and collars will
generally provide for cash settlement. As a result, with respect to these instruments the Fund
will only segregate an amount of assets equal to its accrued net obligations, as there is no
requirement for payment or delivery of amounts in excess of the net amount. These amounts
generally will equal 100% of the exercise price in the case of a put, or the in-the-money amount in
the case of a call. In addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until the option expires
or is closed out, cash or cash equivalents equal in value to such excess. OCC issued and exchange
listed options sold by the Fund other than those above generally settle with physical delivery, and
the Fund will segregate an amount of assets equal to the full value of the option. OTC options
settling with physical delivery, if any, will be treated the same as other options settling with
physical delivery.
In the case of a futures contract or an option thereon, the Fund must deposit initial margin
and possible daily variation margin in addition to segregating assets sufficient to meet its
obligation to purchase or provide securities or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents, liquid debt or
other acceptable assets.
With respect to swaps entered into on a net basis, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each swap on a daily basis
and will segregate an amount of cash or liquid high grade securities having a value equal to the
accrued excess. Caps, floors and collars require segregation of assets with a value equal to the
Funds net obligation, if any.
Strategic Transactions may be covered by other means when consistent with applicable
regulatory policies. The Fund may also enter into offsetting transactions so that its combined
position, coupled with any segregated assets, equals its net outstanding obligation in related
options and Strategic Transactions. For example, the Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put option sold by the
Fund. Moreover, instead of segregating assets if the Fund held a futures or forward contract, it
could purchase a put option on the same futures or forward contract with a strike price as high or
higher than the price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction
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terminates at the time of or after the primary transaction, no segregation is required; but if it
terminates prior to such time, assets equal to any remaining obligation would need to be
segregated.
The Funds activities involving Strategic Transactions may be limited by the requirements of
Subchapter M of the Internal Revenue Code for qualification as a regulated investment company.
Invesco Van Kampen High Income Trust II (VLT)
Investment Practices
In connection with the Funds investment objective and policies, the Fund may: purchase and
sell options on fixed-income securities and on indices based on fixed-income securities to the
extent a market in any such indices exists or develops and engage in interest rate and other
hedging transactions. These investment practices entail risks. The Adviser may use some or all of
the following hedging and risk management practices when their use appears appropriate. Although
the Adviser believes that these investment practices may further the Funds investment objective,
no assurance can be given that these investment practices will achieve this result. If the Fund
issues Senior Securities and seeks to obtain a rating of the Senior Securities, the rating service
issuing such rating may, as a condition thereof, impose asset coverage or other requirements
compliance with which may restrict the Funds ability to engage in these investment practices. The
Fund anticipates the imposition of some such restrictions in connection with obtaining a rating of
the Preferred Shares. The Fund cannot predict what, if any, additional requirements may be imposed
by such rating service in connection with its rating of any Senior Securities other than the
anticipated requirements in connection with seeking a rating of the Preferred Shares.
Securities Options Transactions. The Fund may invest in options on fixed-income securities.
Such options may be traded over-the- counter or on a national securities exchange. In general, the
Fund may purchase and sell (write) options on up to 25% of its assets. The SEC requires that
obligations of investment companies such as the Fund, in connection with option sale positions,
must comply with certain segregation or coverage requirements which are more fully described below.
No limitation exists on the amount of the Funds assets which can be used to comply with such
segregation or cover requirements.
A call option gives the purchaser the right to buy, and obligates the writer to sell, the
underlying security at the agreed upon exercise (or strike) price during the option period. A put
option gives the purchaser the right to sell, and obligates the writer to buy, the underlying
security at the strike price during the option period. Purchasers of options pay an amount, known
as a premium, to the option writer in exchange for the right under the option contract. Option
contracts may be written with terms which would permit the holder of the option to purchase or sell
the underlying security only upon the expiration date of the option.
The Fund may purchase put and call options in hedging transactions to protect against a
decline in the market value of the securities in the Funds portfolio (e.g., by the purchase of a
put option) and to protect against an increase in the cost of fixed-income securities that the Fund
may seek to purchase in the future (e.g., by the purchase of a call option). In the event the Fund
purchases put and call options, paying premiums therefor, and price movements in the underlying
securities are such that exercise of the options would not be profitable for the Fund, then to the
extent such underlying securities correlate in value to the Funds portfolio securities, losses of
the premiums paid may be offset by an increase in the value of the Funds portfolio securities (in
the case of a purchase of put options) or by a decrease in the cost of acquisition of securities by
the Fund (in the case of a purchase of call options).
The Fund may also sell put and call options as a means of increasing the yield on the Funds
portfolio and as a means of providing limited protection against decreases in market value of the
Funds portfolio. When the Fund sells an option, if the underlying securities do not increase (in
the case of a call option) or decrease (in the case of a put option) to a price level that would
make the exercise of the option profitable to the holder of the option, the option generally will
expire without being exercised and the Fund will realize as profit the premium received for such
option. When a call option of which the Fund is the writer is exercised, the Fund will be required
to sell the underlying securities to the option holder at the strike price; therefore the Fund will
not participate in any increase in the price of such securities above the strike price. When a put
option of which the Fund is the writer is exercised, the
C-7
Fund will be required to purchase the underlying securities at the strike price, which may be
in excess of the market value of such securities.
Over-the-counter options (OTC options) differ from exchange-traded options in several
respects. They are transacted directly with dealers and not with a clearing corporation, and a risk
exists of non-performance by the dealer. OTC options are available for a greater variety of
securities and for a wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange, pricing is done
normally by reference to information from a market maker, which information is monitored carefully
by the Adviser and verified in appropriate cases.
Generally the Funds policy, in order to avoid the exercise of an option sold by it, will be
to cancel its obligation under the option by entering into a closing purchase transaction, if
available, unless selling (in the case of a call option) or to purchasing (in the case of a put
option) the underlying securities is determined to be in the Funds interest. A closing purchase
transaction consists of the Fund purchasing an option having the same terms as the option sold by
the Fund and has the effect of cancelling the Funds position as a seller. The premium which the
Fund will pay in executing a closing purchase transaction may be higher (or lower) than the premium
received when the option was sold, depending in large part upon the relative price of the
underlying security at the time of each transaction. To the extent options sold by the Fund are
exercised and the Fund either delivers portfolio securities to the holder of a call option or
liquidates securities in its portfolio as a source of funds to purchase securities put to the Fund,
the Funds portfolio turnover rate will increase, which would cause the Fund to incur additional
brokerage expenses.
During the option period the Fund, as a covered call writer, gives up the potential
appreciation above the exercise price should the underlying security rise in value, and the Fund,
as a secured put writer, retains the risk of loss should the underlying security decline in value.
For the covered call writer, substantial appreciation in the value of the underlying security would
result in the security being called away at the strike price of the option which may be
substantially below the fair market value of such security. For the secured put writer, substantial
depreciation in the value of the underlying security would result in the security being put to
the writer at the strike price of the option which may be substantially in excess of the fair
market value of such security. If a covered call option or a secured put option expires
unexercised, the writer realizes a gain, and the buyer a loss, in the amount of the premium.
To the extent that an active market exists or develops, whether on a national securities
exchange or over-the-counter, in options on indices based upon fixed-income securities, the Fund
may purchase and sell options on such indices, subject to the limitation that the Fund may purchase
and sell options on up to 25% of its assets. Through the writing or purchase of index options the
Fund can achieve many of the same objectives as through the use of options on individual
securities. Options on securities indices are similar to options on securities except that, rather
than the right to take or make delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the securities index upon which the option is based is greater than,
in the case of a call, or less than, in the case of a put, the strike price of the option.
Price movements in securities which the Fund owns or intends to purchase will not correlate
perfectly with movements in the level of an index and, therefore, the Fund bears the risk of a loss
on an index option which is not offset completely by movements in the price of such securities.
Because index options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific securities, cannot provide
in advance for, or cover, its potential settlement obligations by acquiring and holding the
underlying securities.
Interest Rate and Other Hedging Transactions. In order to seek to protect the value of its
portfolio securities against declines resulting from changes in interest rates or other market
changes, the Fund may enter into various hedging transactions, such as financial futures contracts
and related options contracts.
The Fund may enter into various interest rate hedging transactions using financial instruments
with a high degree of correlation to the securities which the Fund may purchase for its portfolio,
including interest rate futures contracts in such financial instruments and interest rate related
indices, put and call options on such futures contracts
C-8
and on such financial instruments. The Fund expects to enter into these transactions to lock
in a return or spread on a particular investment or portion of its portfolio, to protect against
any increase in the price of securities the Fund anticipates purchasing at a later date, or for
other risk management strategies. Financial futures and options contracts and the risks attendant
to the Funds use thereof are described more completely below.
The Fund will not engage in the foregoing transactions for speculative purposes, but only as a
means to hedge risks associated with management of the Funds portfolio. Typically, investment in
these contracts requires the Fund to deposit with the applicable exchange or other specified
financial intermediary as a good faith deposit for its obligations, known as initial margin, an
amount of cash or specified debt securities which initially is 1%-15% of the face amount of the
contract and which thereafter fluctuates on a periodic basis as the value of the contract
fluctuates. Thereafter, the Fund must make additional deposits equal to any net losses due to
unfavorable price movements of the contract and will be credited with an amount equal to any net
gains due to favorable price movements. These additional deposits or credits are calculated and
required daily and are known as variation margin.
The SEC generally requires that when an investment company, such as the Fund, effects
transactions of the foregoing nature, such a fund either must segregate cash or high quality,
readily marketable portfolio securities with its custodian in the amount of its obligations under
the foregoing transactions or must cover such obligations by maintaining positions in portfolio
securities, futures contracts or options that would serve to satisfy or offset the risk of such
obligations. When effecting transactions of the foregoing nature, the Fund will comply with such
segregation or cover requirements. No limitation exists as to the percentage of the Funds assets
which may be segregated in connection with such transactions.
The Fund will not enter into a futures contract or related option if, immediately after such
investment, the sum of the amount of its initial margin deposits and premiums on open contracts and
options would exceed 5% of the Funds total assets at current value. The Fund, however, may invest
more than such amount in the future if it obtains authority to do so from the appropriate
regulatory agencies without rendering the Fund a commodity pool operator or adversely affecting its
status as an investment company for federal securities law or income tax purposes.
All of the foregoing transactions present certain risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in the security being
hedged creates the possibility that losses on the hedge may be greater than gains in the value of
the Funds securities. In addition, these instruments may not be liquid in all circumstances and
are closed out generally by entering into offsetting transactions rather than by disposing of the
obligations. As a result, in volatile markets, the Fund may not be able to close out a transaction
without incurring losses. Although the contemplated use of those contracts should tend to reduce
the risk of loss due to a decline in the value of the hedged security, at the same time the use of
these contracts could tend to limit any potential gain which might result from an increase in the
value of such security. Finally, the daily deposit requirements for futures contracts create an
ongoing greater potential financial risk than do option purchase transactions, where the exposure
is limited to the cost of the premium for the option.
Successful use of futures contracts and options thereon by the Fund is subject to the ability
of the Adviser to predict correctly movements in the direction of interest rates and other factors
affecting markets for securities. If the Advisers expectations are not met, the Fund would be in a
worse position than if a hedging strategy had not been pursued. For example, if the Fund has hedged
against the possibility of an increase in interest rates which would adversely affect the price of
securities in its portfolio and the price of such securities increases instead, the Fund will lose
part or all of the benefit of the increased value of its securities because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash
to meet daily variation margin requirements, it may have to sell securities to meet such
requirements. Such sales of securities may, but will not necessarily, be at increased prices which
reflect the rising market. The Fund may have to sell securities at a time when it is
disadvantageous to do so.
In addition to engaging in transactions utilizing options on futures contracts, the Fund may
purchase put and call options on securities and, as developed from time to time, on interest
indices and other instruments. Purchasing options may increase investment flexibility and improve
total return, but also risks loss of the option
C-9
premium if an asset the Fund has the option to buy declines in value or if an asset the Fund
has the option to sell increases in value.
The Fund also may enter into various other hedging transactions, such as interest rate swaps
and the purchase or sale of interest rate caps and floors. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund intends to use these transactions as a hedge and not as a
speculative investment. The Fund will not sell interest rate caps or floors that it does not own.
Interest rate swaps involve the exchange by the Fund with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate
payments. The purchase of an interest rate cap entitles the purchaser, to the extent that a
specified index exceeds a predetermined interest rate, to receive payments of interest on a
notional principal amount from the party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional principal amount from
the party selling such interest rate floor.
The Fund may enter into interest rate swaps, caps and floors on either an asset-based or
liability- based basis, depending on whether it is hedging its assets or its liabilities, and will
enter usually into interest rate swaps on a net basis, i.e., the two payment streams are netted
out, with the Fund receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as these hedging transactions are entered into for good faith risk management
purposes, the Adviser and the Fund believe such obligations do not constitute senior securities
and, accordingly, will not treat them as being subject to its investment restrictions on borrowing.
The net amount of the excess, if any, of the Funds obligations over its entitlements with respect
to each interest rate swap will be accrued on a daily basis and an amount of cash or liquid
securities having an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Funds custodian. The creditworthiness of firms with
which the Fund enters into interest rate swaps, caps or floors will be monitored on an ongoing
basis by the Adviser pursuant to procedures adopted and reviewed, on an ongoing basis, by the Board
of Trustees of the Fund. If a default occurs by the other party to such transaction, the Fund will
have contractual remedies pursuant to the agreements related to the transaction.
New options and futures contracts and other financial products, and various combinations
thereof, continue to be developed and the Fund may invest in any such options, contracts and
products as may be developed to the extent consistent with its investment objective and the
regulatory requirements applicable to investment companies.
Options and Futures
General. The Fund may engage in futures and options transactions in accordance with its
investment objective and policies. The Fund intends to engage in such transactions if it appears
advantageous to the Adviser to do so in order to pursue its investment objective, to hedge against
the effects of market conditions and to stabilize the value of its assets. The use of futures and
options, and the possible benefits and attendant risks are discussed below, along with information
concerning certain other investment policies and techniques.
Financial Futures Contracts. The Fund may enter into financial futures contracts for the
future delivery of a financial instrument, such as a security, or the cash value of a securities
index. This investment technique is designed primarily to hedge (i.e., protect) against anticipated
future changes in market conditions which otherwise might adversely affect the value of securities
which the Fund holds or intends to purchase. A sale of a futures contract means the undertaking
of a contractual obligation to deliver the securities, or the cash value of an index, called for by
the contract at a specified price during a specified delivery period. A purchase of a futures
contract means the undertaking of a contractual obligation to acquire the securities, or cash value
of an index, at a specified price during a specified delivery period. At the time of delivery in
the case of fixed income securities pursuant to the contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different interest rate than
that specified in the contract. In some cases, securities called for by a futures contract may not
have been issued at the time the contract was written.
Although some financial futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual commitment is closed out before delivery
without having to make or take delivery of the security. The offsetting of a contractual obligation
is accomplished by purchasing (or selling, as the
C-10
case may be) on a commodities exchange an identical futures contract calling for delivery in
the same period. Such a transaction cancels the obligation to make or take delivery of the
securities. All transactions in the futures market are made, offset or fulfilled through a clearing
house associated with the exchange on which the contracts are traded. The Fund will incur brokerage
fees when it purchases or sells contracts, and will be required to maintain margin deposits.
Futures contracts entail risks. If the Advisers judgment about the general direction of securities
markets or interest rates is wrong, the Funds overall performance may be poorer than if the Fund
had not entered into such contracts.
There may be an imperfect correlation between movements in prices of futures contracts and
portfolio securities being hedged. In addition, the market prices of futures contracts may be
affected by certain factors. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin requirements, distortions in the
normal relationship between the securities and futures markets could result. Price distortions
could also result if investors in futures contracts decide to make or take delivery of underlying
securities rather than engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, because from the point of view of speculators, the
margin requirements in the futures market may be less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of securities and movements in the prices of
futures contracts, a correct forecast of market trends by the Adviser may still not result in a
successful hedging transaction. If this should occur, the Fund could lose money on the financial
futures contracts and also on the value of its portfolio securities.
Options on Financial Futures Contracts. The Fund may purchase and write call and put options
on financial futures contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise, the writer of the option delivers
the futures contract to the holder at the exercise price. The Fund would be required to deposit
with its custodian initial margin and maintenance margin with respect to put and call options on
futures contracts written by it. Options on futures contracts involve risks similar to those risks
relating to transactions in financial futures contracts described above. Also, an option purchased
by the Fund may expire worthless, in which case the Fund would lose the premium paid therefor.
Options on Securities. The Fund may write covered call options so long as it owns securities
which are acceptable for escrow purposes and may write secured put options, which means that so
long as the Fund is obligated as a writer of a put option, it will invest an amount, not less than
the exercise price of the put option, in eligible securities. A call option gives the purchaser the
right to buy, and the writer the obligation to sell, the underlying security at the exercise price
during the option period. A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying security at the exercise price during the option period. The
premium received for writing an option will reflect, among other things, the current market price
of the underlying security, the relationship of the exercise price to the market price, the price
volatility of the underlying security, the option period, supply and demand and interest rates. The
Fund may write or purchase spread options, which are options for which the exercise price may be a
fixed dollar spread or yield spread between the security underlying the option and another security
that is used as a benchmark. The exercise price of an option may be below, equal to or above the
current market value of the underlying security at the time the option is written. The buyer of a
put who also owns the related security is protected by ownership of a put option against any
decline in that securitys price below the exercise price, less the amount paid for the option. At
times the Fund may wish to establish a position in a security upon which call options are
available. By purchasing a call option on such security the Fund would be able to fix the cost of
acquiring the security, this being the cost of the call plus the exercise price of the option. This
procedure also provides some protection from an unexpected downturn in the market, because the Fund
is only at risk for the amount of the premium paid for the call option which it can, if it chooses,
permit to expire.
Options on Securities Indices. The Fund also may purchase and write call and put options on
securities indices. Through the writing or purchase of index options, the Fund can achieve many of
the same objectives as through the use of options on individual securities. Options on securities
indices are similar to options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing level of the
securities index upon which the option is based is greater than, in the case of a call, or less
than, in the case of a put,
C-11
the exercise price of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount. Unlike options on
securities (which require, upon exercise, delivery of the underlying security), all settlements of
options on securities indices, upon exercise thereof, are in cash, and the gain or loss on an
option on an index depends on price movements in the market generally (or in a particular industry
or segment of the market on which the underlying index base) rather than price movements in
individual securities, as is the case with respect to options on securities.
When the Fund writes an option on a securities index, it will be required to deposit with its
custodian eligible securities equal in value to 100% of the exercise price in the case of a put, or
the contracts value in the case of a call. In addition, where the Fund writes a call option on a
securities index at a time when the contract value exceeds the exercise price, the Fund will
segregate, until the option expires or is closed out, cash or cash equivalents equal in value to
such excess.
Options on futures contracts and index options involve risks similar to those risks relating
to transactions in financial futures described above. Also, an option purchased by the Fund may
expire worthless, in which case the Fund would lose the premium paid therefor.
Over-the-Counter Options. As previously indicated in this Prospectus (see Investment
PracticesSecurities Options Transactions), the Fund may deal in OTC options. The Fund
understands the position of the staff of the SEC to be that purchased OTC options and the assets
used as cover for written OTC options are illiquid securities. The Fund and the Adviser disagree
with this position and have found the dealers with which they engage in OTC options transactions
generally agreeable to and capable of entering into closing transactions. As also indicated in
this Prospectus, the Fund has adopted procedures for engaging in OTC options for the purpose of
reducing any potential adverse impact of such transactions upon the liquidity of the Funds
portfolio.
As part of these procedures the Fund will only engage in OTC options transactions with primary
dealers that have been specifically approved by the Board of Trustees of the Fund. The Fund and its
Adviser believe that the approved dealers should be agreeable and able to enter into closing
transactions if necessary and, therefore, present minimal credit risks to the Fund. The Fund
anticipates entering into written agreements with those dealers to whom the Fund may sell OTC
options, pursuant to which the Fund would have the absolute right to repurchase the OTC options
from such dealers at any time at a price determined pursuant to a formula set forth in certain no
action letters published by the SEC staff. The Fund will not engage in OTC options transactions if
the amount invested by the Fund in OTC options plus, with respect to OTC options written by the
Fund, the amounts required to be treated as illiquid pursuant to the terms of such letters (and the
value of the assets used as cover with respect to OTC option sales which are not within the scope
of such letters), plus the amount invested by the Fund in illiquid securities, would exceed 20% of
the Funds total assets.
Regulatory Restrictions. To the extent required to comply with applicable SEC releases and
staff positions, when purchasing a futures contract or writing a put option, the Fund will
maintain, in a segregated account, cash or liquid high-grade securities equal to the value of such
contracts.
To the extent required to comply with Commodity Futures Trading Commission Regulations and
avoid commodity pool operator status, the Fund will not enter into a futures contract or purchase
an option thereon if immediately thereafter the initial margin deposits for futures contracts held
by the Fund plus premiums paid by it for open options on futures would exceed 5% of the Funds
total assets. The Fund will not engage in transactions in financial futures contracts or options
thereon for speculation, but only to attempt to hedge against changes in market conditions
affecting the values of securities which the Fund holds or intends to purchase. When futures
contracts or options thereon are purchased to protect against a price increase on securities
intended to be purchased later, it is anticipated that at least 75% of such intended purchases will
be completed. When other futures contracts or options thereon are purchased, the underlying value
of such contracts will at all times not exceed the sum of: (1) accrued profit on such contracts
held by the broker; (2) cash or high quality money market instruments set aside in an identifiable
manner; and (3) cash proceeds from investments due in 30 days.
Accounting and Tax Considerations. When the Fund writes an option, an amount equal to the
premium received by it is included in the Funds Statement of Assets and Liabilities as a
liability. The amount of the liability
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is subsequently marked to market to reflect the current market value of the option written.
When the Fund purchases an option, the premium paid by the Fund is recorded as an asset and is
subsequently adjusted to the current market value of the option.
In the case of a regulated futures contract purchased or sold by the Fund, an amount equal to
the initial margin deposit is recorded as an asset. The amount of the asset is subsequently
adjusted to reflect changes in the amount of the deposit as well as changes in the value of the
contract.
Certain listed options and futures contracts are considered section 1256 contracts for
federal income tax purposes. In general, gain or loss realized by the Fund on section 1256
contracts will be considered 60% long term and 40% short term capital gain or loss. Also, section
1256 contracts held by the Fund at the end of each taxable year (and at October 31 for purposes of
calculating the excise tax) will be marked to market, that is, treated for federal income tax
purposes as though sold for fair market value on the last business day of such taxable year. The
Fund can elect to exempt its section 1256 contracts which are part of a mixed straddle (as
described below) from the application of section 1256.
Gain or loss realized by the Fund upon the expiration or sale of certain over-the-counter put
and call options held by the Fund will be either long term or short term capital gain or loss
depending upon the Funds holding period with respect to such option. However, gain or loss
realized upon the expiration or closing out of such options that are written by the Fund will be
treated as short term capital gain or loss. In general, if the Fund exercises an option, or an
option that the Fund has written is exercised, gain or loss on the option will not be separately
recognized, but the premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.
Any security, option or futures contract, delayed delivery transaction, or other position
entered into or held by the Fund in conjunction with any other position held by the Fund may
constitute a straddle for federal income tax purposes. A straddle of which at least one, but not
all, of the positions are section 1256 contracts will constitute a mixed straddle. In general,
straddles are subject to certain rules that may affect the character and timing of the Funds gains
and losses with respect to straddle positions by requiring, among other things, that loss realized
on disposition of one position of a straddle be deferred to the extent of any unrealized gain in an
offsetting position until such position is disposed of; that the Funds holding period in certain
straddle positions not begin until the straddle is terminated (possibly resulting in gain being
treated as short term capital gain rather than long term capital gain); and that losses recognized
with respect to certain straddle positions, that would otherwise constitute short term capital
losses, be treated as long term capital losses. Different elections are available to the Fund which
may mitigate the effects of the straddle rules, particularly with respect to mixed straddles.
Invesco Van Kampen Municipal Trust (VKQ), Invesco Van Kampen Trust for Value Municipals (VIM)
and Invesco Van Kampen Ohio Quality Municipal Trust (VOQ)
Options and Futures
General. The Fund may engage in futures and options transactions in accordance with its
investment objective and policies. The Fund intends to engage in such transactions if it appears
advantageous to the Adviser to do so in order to pursue its investment objective, to hedge against
the effects of market conditions and to stabilize the value of its assets. The use of futures and
options, and the possible benefits and attendant risks are discussed below, along with information
concerning certain other investment policies and techniques.
In connection with the investment objective and policies described above, the Fund may engage
in interest rate and other hedging and risk management transactions; and purchase and sell options
on municipal securities and on indices based on municipal securities. These investment practices
entail risks. The Adviser may use some or all of the following hedging and risk management
practices when their use appears appropriate. Although the Adviser believes that these investment
practices may further the Funds investment objective, no assurance can be given that these
investment practices will achieve this result.
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Securities Options Transactions. The Fund may invest in options on municipal securities. Such
options are traded over-the-counter, although if options on municipal securities were to be listed
for trading on a national securities exchange the Fund may trade in exchange-listed options. In
general, the Fund may purchase and sell (write) options on up to 20% of its assets. The Securities
and Exchange Commission (the SEC) requires that obligations of investment companies such as the
Fund, in connection with options sale positions, must comply with certain segregation or cover
requirements which are more fully described below. There is no limitation on the amount of the
Funds assets which can be used to comply with such segregation or cover requirements.
A call option gives the purchaser the right to buy, and the writer the obligation to sell, the
underlying security at the agreed upon exercise (or strike) price during the option period. A put
option gives the purchaser the right to sell, and the writer the obligation to buy, the underlying
security at the strike price during the option period. Purchasers of options pay an amount, known
as a premium, to the option writer in exchange for the right under the option contract. Option
contracts may be written with terms which would permit the holder of the option to purchase or sell
the underlying security only upon the expiration date of the option.
The Fund may purchase put and call options in hedging transactions to protect against a
decline in the market value of municipal securities in the Funds portfolio (e.g., by the purchase
of a put option) and to protect against an increase in the cost of fixed income securities that the
Fund may seek to purchase in the future (e.g., by the purchase of a call option). In the event the
Fund purchases put and call options, paying premiums therefor, and price movements in the
underlying securities are such that exercise of the options would not be profitable for the Fund,
to the extent such underlying securities correlate in value to the Funds portfolio securities,
losses of the premiums paid may be offset by an increase in the value of the Funds portfolio
securities (in the case of a purchase of put options) or by a decrease in the cost of acquisition
of securities by the Fund (in the case of a purchase of call options).
The Fund may also sell put and call options as a means of increasing the yield on the Funds
portfolio and also as a means of providing limited protection against decreases in market value of
the Funds portfolio. When the Fund sells an option, if the underlying securities do not increase
(in the case of a call option) or decrease (in the case of a put option) to a price level that
would make the exercise of the option profitable to the holder of the option, the option generally
will expire without being exercised and the Fund will realize as profit the premium received for
such option. When a call option of which the Fund is the writer is exercised, the option holder
purchases the underlying security at the strike price and the Fund does not participate in any
increase in the price of such securities above the strike price. When a put option of which the
Fund is the writer is exercised, the Fund will be required to purchase the underlying securities at
the strike price, which may be in excess of the market value of such securities.
Over-the-counter options (OTC options) differ from exchange-traded options in several
respects. They are transacted directly with dealers and not with a clearing corporation, and there
is a risk of non-performance by the dealer. OTC options are available for a greater variety of
securities and for a wider range of expiration dates and exercise prices than for exchange-traded
options. Because OTC options are not traded on an exchange, pricing is normally done by reference
to information from a market maker, which information is carefully monitored by the Adviser and
verified in appropriate cases. The Fund may be required to treat certain of its OTC options
transactions as illiquid securities as described below.
It will generally be the Funds policy, in order to avoid the exercise of an option sold by
it, to cancel its obligation under the option by entering into a closing purchase transaction, if
available, unless it is determined to be in the Funds interest to sell (in the case of a call
option) or to purchase (in the case of a put option) the underlying securities. A closing purchase
transaction consists of the Fund purchasing an option having the same terms as the option sold by
the Fund and has the effect of cancelling the Funds position as a seller. The premium which the
Fund will pay in executing a closing purchase transaction may be higher than the premium received
when the option was sold, depending in large part upon the relative price of the underlying
security at the time of each transaction. To the extent options sold by the Fund are exercised and
the Fund either delivers portfolio securities to the holder of a call option or liquidates
securities in its portfolio as a source of funds to purchase securities put to the Fund, the Funds
portfolio turnover rate will increase, which would cause the Fund to incur additional brokerage
expenses.
During the option period the Fund, as a covered call writer, gives up the potential
appreciation above the exercise price should the underlying security rise in value, and the Fund,
as a secured put writer, retains the risk of
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loss should the underlying security decline in value. For the covered call writer, substantial
appreciation in the value of the underlying security would result in the security being called
away at the strike price of the option which may be substantially below the fair market value of
such security. For the secured put writer, substantial depreciation in the value of the underlying
security would result in the security being put to the writer at the strike price of the option
which may be substantially in excess of the fair market value of such security. If a covered call
option or a secured put option expires unexercised, the writer realizes a gain, and the buyer a
loss, in the amount of the premium.
To the extent that an active market exists or develops, whether on a national securities
exchange or over-the-counter, in options on indices based upon municipal securities, the Fund may
purchase and sell options on such indices, subject to the limitation that the Fund may purchase and
sell options on up to 20% of its assets. Through the writing or purchase of index options the Fund
can achieve many of the same objectives as through the use of options on individual securities.
Options on securities indices are similar to options on securities except that, rather than the
right to take or make delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of cash if the
closing level of the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the strike price of the option.
Price movements in securities which the Fund owns or intends to purchase will not correlate
perfectly with movements in the level of an index and, therefore, the Fund bears the risk of a loss
on an index option which is not completely offset by movements in the price of such securities.
Because index options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific securities, cannot provide
in advance for, or cover, its potential settlement obligations by acquiring and holding the
underlying securities.
Income earned or deemed to be earned, if any, by the Fund from transactions in securities
options will be taxable income of the Fund. Under a revenue ruling issued by the Service, the Fund
is required to allocate net capital gains and other taxable income, if any, among Common Shares and
Preferred Shares on a pro rata basis for the year in which such net capital gains or other taxable
income is realized. For a further discussion of certain characteristics of options and risks
associated with options transaction, see below.
Interest Rate and Other Hedging Transactions. In order to seek to protect the value of its
portfolio securities against declines resulting from changes in interest rates or other market
changes, the Fund may enter into various hedging transactions, such as financial futures contracts
and related options contracts.
The Fund may enter into various interest rate hedging transactions using financial instruments
with a high degree of correlation to the municipal securities which the Fund may purchase for its
portfolio, including interest rate futures contracts in such financial instruments (e.g., futures
contracts on U.S. Treasury securities) and interest rate related indices (e.g., municipal bond
indices), put and call options on such futures contracts and on such financial instruments. The
Fund expects to enter into these transactions to lock in a return or spread on a particular
investment or portion of its portfolio, to protect against any increase in the price of securities
the Fund anticipates purchasing at a later date, or for other risk management strategies such as
managing the effective dollar weighted average duration of the Funds portfolio. Financial futures
and options contracts and the risks attendant to the Funds use thereof are more completely
described below. The successful utilization of hedging and risk management transactions requires
skills different from those needed in the selection of the Funds portfolio securities. The Fund
believes that the Adviser possesses the skills necessary for the successful utilization of hedging
and risk management transactions.
The Fund will not engage in the foregoing transactions for speculative purposes, but only as a
means to hedge risks associated with management of the Funds portfolio. Typically, investments in
futures contracts and sales of futures options contracts require the Fund to deposit in a custodial
account a good faith deposit, known as initial margin, in connection with its obligations in an
amount of cash or specified debt securities which generally is equal to 1%-15% of the face amount
of the contract, which initial margin requirement may be revised periodically by the applicable
exchange as the volatility of the contract fluctuates. Thereafter, the Fund must make additional
deposits with the applicable financial intermediary equal to any net losses due to unfavorable
price movements of
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the contract, and will be credited with an amount equal to any net gains due to favorable
price movements. These additional deposits or credits are calculated and required daily and are
known as variation margin.
The SEC generally requires that when investment companies, such as the Fund, effect
transactions of the foregoing nature, such funds must either segregate cash or high quality,
readily marketable portfolio securities with its custodian or financial intermediary in the amount
of its obligations under the foregoing transactions, or cover such obligations by maintaining
positions in portfolio securities, futures contracts or options that would serve to satisfy or
offset the risk of such obligations. When effecting transactions of the foregoing nature, the Fund
will comply with such segregation or cover requirements. There is no limitation as to the
percentage of the Funds assets which may be segregated with respect to such transactions.
The Fund will not enter into a futures contract or related option, if, immediately after such
investment, the sum of the amount of its initial margin deposits and premiums on open contracts and
options would exceed 5% of the Funds total assets at current value. The Fund may, however, invest
more than such amount in the future if it obtains authority to do so from the appropriate
regulatory agencies without rendering the Fund a commodity pool operator or adversely affecting its
status as an investment company for federal securities law or income tax purposes.
All of the foregoing transactions present certain risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in the securities
being hedged creates the possibility that losses on the hedge may be greater than gains in the
value of the Funds securities. In addition, these instruments may not be liquid in all
circumstances and generally are closed out by entering into offsetting transactions rather than by
delivery or cash settlement at maturity. As a result, in volatile markets, the Fund may not be able
to close out a transaction without incurring losses. Although the contemplated use of those
contracts should tend to reduce the risk of loss due to a decline in the value of the hedged
security, at the same time the use of these contracts could tend to limit any potential gain which
might result from an increase in the value of such security. Finally, the daily deposit
requirements for futures contracts and sales of futures options contracts create an ongoing greater
potential financial risk than do option purchase transactions, where the exposure is limited to the
cost of the premium for the option.
Successful use of futures contracts and options thereon by the Fund is subject to the ability
of the Adviser to predict correctly movements in the direction of interest rates and other factors
affecting markets for securities. If the Advisers expectations are not met, the Fund would be in a
worse position than if a hedging strategy had not been pursued. For example, if the Fund has hedged
against the possibility of an increase in interest rates which would adversely affect the price of
securities in its portfolio and the price of such securities increases instead, the Fund will lose
part or all of the benefit of the increased value of its securities because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash
to meet daily variation margin requirements, it may have to sell securities to meet such
requirements. Such sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. The Fund may have to sell securities at a time when it is
disadvantageous to do so.
In addition to engaging in transactions utilizing options on futures contracts, the Fund may
purchase put and call options on securities and, as developed from time to time, on interest
indices and other instruments. Purchasing options may increase investment flexibility and improve
total return, but also risks loss of the option premium if an asset the Fund has the option to buy
declines in value or if an asset the Fund has the option to sell increases in value.
To the extent permitted by applicable regulatory authority, the Fund also may enter into
various other hedging transactions, such as interest rate swaps and the purchase or sale of
interest rate caps and floors. The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund anticipates purchasing at a later date.
The Fund intends to use these transactions as a hedge and not as a speculative investment. The Fund
will not sell interest rate caps or floors that it does not own. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay or receive interest,
e.g., an exchange of floating rate payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a notional principal amount (the
C-16
reference amount with respect to which interest obligations are determined, although no actual
exchange of principal occurs) from the party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional principal amount from
the party selling such interest rate floor. The Fund will not enter into swaps, caps or floors if,
on a net basis, the aggregate notional principal amount with respect to such agreements exceeds the
net assets of the Fund.
Inasmuch as these hedging transactions are entered into for good-faith risk management
purposes, the Adviser and the Fund believe such obligations do not constitute senior securities.
The staff of the SEC is presently considering its position with respect to swaps, caps and floors
as senior securities. Pending a determination by the staff, the Fund will either treat swaps, caps
and floors as being subject to its senior securities restrictions or will refrain from engaging in
swaps, caps and floors. Once the staff has expressed a position with respect to swaps, caps and
floors, the Fund intends to engage in swaps, caps and floors, if at all, in a manner consistent
with such position. The Fund will usually enter into interest rate swaps on a net basis, i.e.,
where the two parties make net payments with the Fund receiving or paying, as the case may be, only
the net amount of the two payments. The net amount of the excess, if any, of the Funds obligations
over its entitlements with respect to each interest rate swap will be accrued and an amount of cash
or liquid securities having an aggregate net asset value at least equal to the accrued excess will
be designated on the Funds books. If the Fund enters into a swap on other than a net basis, the
Fund will designate on the Funds books the full amount of the Funds obligations under each such
swap. The Fund may enter into swaps, caps and floors with member banks of the Federal Reserve
System, members of the New York Stock Exchange or other entities determined by the Adviser,
pursuant to procedures adopted and reviewed on an ongoing basis by the Board of Trustees, to be
creditworthy. If a default occurs by the other party to such transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction but such remedies may be
subject to bankruptcy and insolvency laws which could affect the Funds rights as a creditor. The
swap market has grown substantially in recent years with a large number of banks and financial
services firms acting both as principals and as agents utilizing standardized swap documentation.
As a result, the swap market has become relatively liquid. Caps and floors are more recent
innovations and they are less liquid than swaps. There can be no assurance, however, that the Fund
will be able to enter into interest rate swaps or to purchase interest rate caps or floors at
prices or on terms the Adviser believes are advantageous to the Fund. In addition, although the
terms of interest rate swaps, caps and floors may provide for termination, there can be no
assurance that the Fund will be able to terminate an interest rate swap or to sell or offset
interest rate caps or floors that it has purchased. Payments received on transactions in swaps,
caps or floors will generally constitute taxable income or gains to the Fund.
New options and futures contracts and other financial products, and various combinations
thereof, continue to be developed and the Fund may invest in any such options, contracts and
products as may be developed to the extent consistent with its investment objective and the
regulatory requirements applicable to investment companies.
Income earned or deemed to be earned, if any, by the Fund from its hedging activities, will be
taxable income of the Fund. Such income will be allocated to both the Common Shares and the
Preferred Shares.
Financial Futures Contracts. The Fund may enter into financial futures contracts for the
future delivery of a financial instrument, such as a security, or the cash value of a securities
index. This investment technique is designed primarily to hedge (i.e., protect) against anticipated
future changes in market conditions which otherwise might adversely affect the value of securities
which the Fund holds or intends to purchase. A sale of a futures contract means the undertaking
of a contractual obligation to deliver the securities, or the cash value of an index, called for by
the contract at a specified price during a specified delivery period. A purchase of a futures
contract means the undertaking of a contractual obligation to acquire the securities, or cash value
of an index, at a specified price during a specified delivery period. At the time of delivery, in
the case of fixed income securities pursuant to the contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different interest rate than
that specified in the contract. In some cases, securities called for by a futures contract may not
have been issued at the time the contract was written.
Although some financial futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual commitment is closed out before delivery
without having to make or take delivery of the security. The offsetting of a contractual obligation
is accomplished by purchasing (or selling, as the case may be) on a commodities exchange an
identical futures contract calling for delivery in the same period. Such a
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transaction cancels the obligation to make or take delivery of the securities. All
transactions in the futures market are made, offset or fulfilled through a clearing house
associated with the exchange on which the contracts are traded. The Fund will incur brokerage fees
when it purchases or sells contracts, and will be required to maintain margin deposits. Futures
contracts entail risk. If the Advisers judgment about the general direction of securities markets
or interest rates is wrong, the Funds overall performance may be poorer than if the Fund had not
entered into such contracts.
There may be an imperfect correlation between movements in prices of futures contracts and
portfolio securities being hedged. In addition, the market prices of futures contracts may be
affected by certain factors. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin requirements, distortions in the
normal relationship between the securities and futures markets could result. Price distortions
could also result if investors in futures contracts decide to make or take delivery of underlying
securities rather than engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, because from the point of view of speculators, the
margin requirements in the futures market may be less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of securities and movements in the prices of
futures contracts, a correct forecast of market trends by the Adviser may still not result in a
successful hedging transaction. If this should occur, the Fund could lose money on the financial
futures contracts and also on the value of its portfolio securities.
Options on Financial Futures Contracts. The Fund may purchase and write call and put options
on financial futures contracts. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a specified exercise
price at any time during the period specified in the terms of the option. Upon exercise, the writer
of the option delivers the futures contract to the holder at the exercise price. The Fund would be
required to deposit with its custodian initial margin and maintenance margin with respect to put
and call options on futures contracts written by it. Options on futures contracts involve risks
similar to those risks relating to transactions in financial futures contracts described above.
Also, an option purchased by the Fund may expire worthless, in which case the Fund would lose the
premium paid therefor.
Options on Securities. The Fund may write covered call options so long as it owns securities
which are acceptable for escrow purposes and may write secured put options, which means that so
long as the Fund is obligated as a writer of a put option, it will invest an amount, not less than
the exercise price of the put option, in eligible securities. A call option gives the purchaser the
right to buy, and the writer the obligation to sell, the underlying security at the exercise price
during the period specified in the terms of the option. A put option gives the purchaser the right
to sell, and the writer the obligation to buy, the underlying security at the exercise price during
the period specified in the terms of the option. The premium received for writing an option will
reflect, among other things, the current market price of the underlying security, the relationship
of the exercise price to the market price, the price volatility of the underlying security, the
option period, supply and demand and interest rates. The Fund may write or purchase spread options,
which are options for which the exercise price may be a fixed dollar spread or yield spread between
the security underlying the option and another security that is used as a benchmark. The exercise
price of an option may be below, equal to or above the current market value of the underlying
security at the time the option is written. The buyer of a put who also owns the related security
is protected by ownership of a put option against any decline in that securitys price below the
exercise price, less the amount paid for the option. At times the Fund may wish to establish a
position in a security upon which call options are available. By purchasing a call option on such
security the Fund would be able to fix the cost of acquiring the security, this being the cost of
the call plus the exercise price of the option. This procedure also provides some protection from
an unexpected downturn in the market, because the Fund is only at risk for the amount of the
premium paid for the call option which it can, if it chooses, permit to expire.
Options on Securities Indices. The Fund also may purchase and write call and put options on
securities indices. Through the writing or purchase of index options, the Fund can achieve many of
the same objectives as through the use of options on individual securities. Options on securities
indices are similar to options on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing level of the
securities index upon which the option is based is greater than, in the case of a call, or less
than, in the case of a put,
C-18
the exercise price of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount. Unlike options on
securities (which require, upon exercise, delivery of the underlying security), settlements of
options on securities indices, upon exercise thereof, are in cash, and the gain or loss on an
option on an index depends on price movements in the market generally (or in a particular industry
or segment of the market on which the underlying index base) rather than price movements in
individual securities, as is the case with respect to options on securities.
When the Fund writes an option on a securities index, it will be required to deposit with its
custodian eligible securities equal in value to 100% of the exercise price in the case of a put, or
the contracts value in the case of a call. In addition, where the Fund writes a call option on a
securities index at a time when the contract value exceeds the exercise price, the Fund will
segregate, until the option expires or is closed out, cash or cash equivalents equal in value to
such excess.
Options on securities and index options involve risks similar to those risks relating to
transactions in financial futures described above. Also, an option purchased by the Fund may expire
worthless, in which case the Fund would lose the premium paid therefor.
Over-the-Counter Options. As previously indicated in this Prospectus (see Investment
PracticesSecurities Options Transactions), the Fund may deal in OTC options. The Fund
understands the position of the staff of the SEC to be that purchased OTC options and the assets
used as cover for written OTC options arc illiquid securities. The Fund and the Adviser disagree
with this position and have found the dealers with which they engage in OTC options transactions
generally agreeable to and capable of entering into closing transactions. The Fund has adopted
procedures for engaging in OTC options for the purpose of reducing any potential adverse impact of
such transactions upon the liquidity of the Funds portfolio.
As part of these procedures the Fund will only engage in OTC options transactions with respect
to U.S. government securities with primary dealers that have been specifically approved by the
Board of Trustees of the Fund. The Fund will engage in OTC options transactions with respect to
municipal securities only with dealers that have been specifically approved by the Board of
Trustees. The Fund and its Adviser believe that the approved dealers should be agreeable and able
to enter into closing transactions as necessary and, therefore, present minimal credit risks to the
Fund. The Fund anticipates entering into written agreements with those dealers to whom the Fund may
sell OTC options, pursuant to which the Fund would have the absolute right to repurchase the OTC
options from such dealers at any time at a price with respect to U.S. government securities
determined pursuant to a formula set forth in certain no action letters published by the SEC staff.
The Fund will not engage in OTC options transactions if the amount invested by the Fund in OTC
options, plus, with respect to OTC options written by the Fund, the amounts required to be treated
as illiquid pursuant to the terms of such letters (and the value of the assets used as cover with
respect to OTC option sales which are not within the scope of such letters), plus the amount
invested by the Fund in illiquid securities, would exceed 15% of the Funds total assets. OTC
options on securities other than U.S. government securities, including options on municipal
securities, may not be within the scope of such letters and, accordingly, the amount invested by
the Fund in OTC options on such other securities and the value of the assets used as cover with
respect to OTC option sales regarding such non-U.S. government securities will be treated as
illiquid and subject to the 15% limitation on the Funds assets which may be invested in illiquid
securities.
Regulatory Restrictions. To the extent required to comply with applicable SEC releases and
staff positions, when purchasing a futures contract or writing a put option, the Fund will
designate on the Funds books cash or liquid high-grade securities equal to the value of such
contracts.
To the extent required to comply with Commodity Futures Trading Commission Regulations and
avoid commodity pool operator status, the Fund will not enter into a futures contract or purchase
an option thereon if immediately thereafter the initial margin deposits for futures contracts held
by the Fund plus premiums paid by it for open options on futures would exceed 5% of the Funds
total assets. The Fund will not engage in transactions in financial futures contracts or options
thereon for speculation, but only to attempt to hedge against changes in market conditions
affecting the values of securities which the Fund holds or intends to purchase. When futures
contracts or options thereon are purchased to protect against a price increase on securities
intended to be purchased later, it is anticipated that at least 75% of such intended purchases will
be completed. When other futures contracts or options
C-19
thereon are purchased, the underlying value of such contracts will at all times not exceed the
sum of: (1) accrued profit on such contracts held by the broker; (2) cash or high quality money
market instruments set aside in an identifiable manner; and (3) cash proceeds from investments due
in 30 days.
Accounting and Tax Considerations. When the Fund writes an option, an amount equal to the
premium received by it is included in the Funds Statement of Assets and Liabilities as a
liability. The amount of the liability is subsequently marked to market to reflect the current
market value of the option written. When the Fund purchases an option, the premium paid by the Fund
is recorded as an asset and is subsequently adjusted to the current market value of the option.
In the case of a regulated futures contract purchased or sold by the Fund, an amount equal to
the initial margin deposit is recorded as an asset. The amount of the asset is subsequently
adjusted to reflect changes in the amount of the deposit as well as changes in the value of the
contract.
Certain listed options and futures contracts are considered section 1256 contracts for
Federal income tax purposes. In general, gain or loss realized by the Fund on section 1256
contracts will be considered 60% long term and 40% short term capital gain or loss. Also, section
1256 contracts held by the Fund at the end of each taxable year (and at October 31 for purposes of
calculating the excise tax) will be marked to market, that is, treated for Federal income tax
purposes as though sold for fair market value on the last business day of such taxable year. The
Fund can elect to exempt its section 1256 contracts which are part of a mixed straddle (as
described below) from the application of section 1256.
Gain or loss realized by the Fund upon the expiration or sale of certain over-the-counter put
and call options held by the Fund will be either long term or short term capital gain or loss
depending upon the Funds holding period with respect to such option. However, gain or loss
realized upon the expiration or closing out of such options that are written by the Fund will be
treated as short term capital gain or loss. In general, if the Fund exercises an option, or an
option that the Fund has written is exercised, gain or loss on the option will not be separately
recognized, but the premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.
Any security, option or futures contract, delayed delivery transaction, or other position
entered into or held by the Fund in conjunction with any other position held by the Fund may
constitute a straddle for Federal income tax purposes. A straddle of which at least one, but not
all, the positions are section 1256 contracts will constitute a mixed straddle. In general,
straddles are subject to certain rules that may affect the character and timing of the Funds gains
and losses with respect to straddle positions by requiring, among other things, that loss realized
on disposition of one position of a straddle be deferred to the extent of any unrealized gain in an
offsetting position until such position is disposed of; that the Funds holding period in certain
straddle positions not begin until the straddle is terminated (possibly resulting in gain being
treated as short term capital gain rather than long term capital gain); and that losses recognized
with respect to certain straddle positions, that would otherwise constitute short term capital
losses, be treated as long term capital losses. Different elections are available to the Fund which
may mitigate the effects of the straddle rules, particularly with respect to mixed straddles.
C-20
APPENDIX D
PORTFOLIO TURNOVER
For the fiscal year ended in 2010, blended portfolio turnover rates of the predecessor funds
and the Funds are presented in the tables below. For the fiscal year or period ended 2011 and the
fiscal year ended 2012, the portfolio turnover rates for each Fund are presented in the tables
below. Variations in turnover rate may be due to a fluctuating volume of shareholder purchase and
redemption orders, market conditions and/or changes in the predecessor funds advisers or
Invescos investment outlook.
|
|
|
|
|
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
February 28, 2011 |
Invesco Municipal Income
Opportunities Trust II
|
|
|
20 |
% |
|
|
18 |
% |
Prior to February 28, 2010, the fiscal year end of the Funds in the table below was
October 31; the current fiscal year end is the last day of February.
|
|
|
|
|
|
|
|
|
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
Four months ended February 28, 20111 |
|
October 31, 2010 |
Invesco Value Municipal Income Trust
|
|
|
13 |
% |
|
|
3 |
% |
|
|
7 |
% |
Invesco Quality Municipal Income Trust
|
|
|
26 |
% |
|
|
3 |
% |
|
|
11 |
% |
Invesco Van Kampen California Value
Municipal Income Trust
|
|
|
20 |
% |
|
|
4 |
% |
|
|
12 |
% |
Invesco Van Kampen Municipal Opportunity
Trust
|
|
|
16 |
% |
|
|
2 |
% |
|
|
10 |
% |
Invesco Van Kampen Trust for Investment
Grade New York Municipals
|
|
|
17 |
% |
|
|
5 |
% |
|
|
14 |
% |
Invesco Van Kampen Municipal Trust
|
|
|
14 |
% |
|
|
3 |
% |
|
|
10 |
% |
Invesco Value Municipal Bond Trust
|
|
|
10 |
% |
|
|
4 |
% |
|
|
7 |
% |
Invesco Value Municipal Securities
|
|
|
15 |
% |
|
|
5 |
% |
|
|
9 |
% |
Invesco Value Municipal Trust
|
|
|
15 |
% |
|
|
3 |
% |
|
|
8 |
% |
Invesco Quality Municipal Investment Trust
|
|
|
14 |
% |
|
|
1 |
% |
|
|
9 |
% |
Invesco Quality Municipal Securities
|
|
|
17 |
% |
|
|
1 |
% |
|
|
11 |
% |
Invesco California Municipal Income Trust
|
|
|
21 |
% |
|
|
2 |
% |
|
|
13 |
% |
Invesco California Quality Municipal
Securities
|
|
|
25 |
% |
|
|
2 |
% |
|
|
13 |
% |
Invesco California Municipal Securities
|
|
|
18 |
% |
|
|
2 |
% |
|
|
12 |
% |
Invesco Van Kampen Select Sector
Municipal Trust
|
|
|
14 |
% |
|
|
2 |
% |
|
|
12 |
% |
Invesco Van Kampen Trust for Value
Municipals
|
|
|
12 |
% |
|
|
4 |
% |
|
|
5 |
% |
|
|
|
1 |
|
The fiscal year end for these Funds changed from October 31 to the last day of February effective February 28, 2011. |
D-1
|
|
|
|
|
|
|
|
|
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
Four months ended
February 28, 20111 |
|
October 31, 2010 |
Invesco New York Quality Municipal
Securities
|
|
|
14 |
% |
|
|
7 |
% |
|
|
21 |
% |
Invesco Van Kampen Massachusetts Value
Municipal Income Trust
|
|
|
26 |
% |
|
|
3 |
% |
|
|
33 |
% |
Invesco Van Kampen Ohio Quality Municipal
Trust
|
|
|
22 |
% |
|
|
5 |
% |
|
|
14 |
% |
Invesco Van Kampen Trust for Investment
Grade New Jersey Municipals
|
|
|
8 |
% |
|
|
6 |
% |
|
|
17 |
% |
Prior to February 28, 2010, the fiscal year end of the Funds in the table below was May
31; the current fiscal year end is the last day of February.
|
|
|
|
|
|
|
|
|
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
Nine months ended
February 28,
20112 |
|
May 31, 2010 |
Invesco Municipal Income Opportunities Trust
|
|
|
22 |
% |
|
|
12 |
% |
|
|
13 |
% |
Invesco Municipal Premium Income Trust
|
|
|
18 |
% |
|
|
5 |
% |
|
|
12 |
% |
Prior to February 28, 2010, the fiscal year end of the Funds in the table below was
December 31; the current fiscal year end is the last day of February.
|
|
|
|
|
|
|
|
|
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
Two months ended February 28, 20113 |
|
December 31, 2010 |
Invesco Van Kampen High Income Trust II
|
|
|
60 |
% |
|
|
18 |
% |
|
|
135 |
% |
Invesco High Yield Investments Fund, Inc.
|
|
|
62 |
% |
|
|
16 |
% |
|
|
109 |
% |
Prior to February 28, 2010, the fiscal year end of the Funds in the table below was March 31;
the current fiscal year end is the last day of February.
|
|
|
|
|
|
|
|
|
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
Eleven months ended February 28, 20114 |
|
March 31, 2010 |
Invesco Municipal Income Opportunities Trust III
|
|
|
22 |
% |
|
|
16 |
% |
|
|
14 |
% |
|
|
|
2 |
|
The fiscal year end for these Funds changed from May 31 to the last day of February effective February 28, 2011. |
|
3 |
|
The fiscal year end for these Funds changed from December 31 to the last day of February effective February 28, 2011. |
|
4 |
|
The fiscal year end for these Funds changed from March 31 to the last day of February effective February 28, 2011. |
D-2
APPENDIX E
MANAGEMENT FEES
For the last three fiscal years ended February 28th or 29th, the
management (MGMT) fees payable by the Fund, the amounts waived by the Adviser and the net fees paid
by the Fund were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
|
February 28, 2011 |
|
|
February 28, 2010 |
|
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
|
Fee
Payable |
|
|
Fee
Waivers |
|
|
MGMT
Fee Paid |
|
|
Fee
Payable |
|
|
Fee
Waivers |
|
|
MGMT
Fee Paid |
|
|
Fee
Payable |
|
|
Fee
Waivers |
|
|
MGMT
Fee Paid |
|
Invesco Municipal
Income
Opportunities Trust
II |
|
$ |
598,136 |
|
|
$ |
0 |
|
|
$ |
598,136 |
|
|
$ |
605,593 |
|
|
$ |
0 |
|
|
$ |
605,593 |
|
|
$ |
553,714 |
|
|
$ |
0 |
|
|
$ |
553,714 |
|
|
For the fiscal year ended February 29, 2012, the period November 1, 2010 through February
28, 2011, and the fiscal years ended October 31, 2010 and 2009, the management (MGMT) fees payable
by each Fund, the amounts waived by the Adviser and the net fees paid by each Fund were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
|
Four months ended
February 28,
20111 |
|
|
October 31, 2010 |
|
|
October 31, 2009 |
|
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
Invesco Value
Municipal Income
Trust |
|
$ |
1,260,269 |
|
|
$ |
0 |
|
|
$ |
1,260,269 |
|
|
$ |
400,246 |
|
|
$ |
0 |
|
|
$ |
400,246 |
|
|
$ |
1,259,956 |
|
|
$ |
(2,593 |
) |
|
$ |
1,257,363 |
|
|
$ |
1,185,054 |
|
|
$ |
0 |
|
|
$ |
1,185,054 |
|
Invesco Quality
Municipal Income
Trust |
|
|
1,328,663 |
|
|
|
0 |
|
|
|
1,328,663 |
|
|
|
428,879 |
|
|
|
0 |
|
|
|
428,879 |
|
|
|
1,367,347 |
|
|
|
(5,495 |
) |
|
|
1,361,852 |
|
|
|
1,292,771 |
|
|
|
0 |
|
|
|
1,292,771 |
|
Invesco Van Kampen
California Value
Municipal Income
Trust |
|
|
2,527,951 |
|
|
|
(160,762 |
) |
|
|
2,367,189 |
|
|
|
802,072 |
|
|
|
(27,271 |
) |
|
|
774,801 |
|
|
|
2,574,534 |
|
|
|
(268,891 |
) |
|
|
2,305,643 |
|
|
|
2,359,507 |
|
|
|
(429,000 |
) |
|
|
1,930,507 |
|
Invesco Van Kampen
Municipal
Opportunity Trust |
|
|
4,230,819 |
|
|
|
(260,730 |
) |
|
|
3,970,089 |
|
|
|
1,355,930 |
|
|
|
(64,217 |
) |
|
|
1,291,713 |
|
|
|
4,318,515 |
|
|
|
(454,127 |
) |
|
|
3,864,388 |
|
|
|
4,006,685 |
|
|
|
(728,500 |
) |
|
|
3,278,185 |
|
|
|
|
|
|
1 The fiscal year end for these Funds changed from October 31 to the last day of February effective February 28, 2011. |
E-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2012 |
|
|
Four months ended February 28, 20111 |
|
|
October 31, 2010 |
|
|
October 31, 2009 |
|
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
FUND NAME |
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
Invesco Van Kampen
Trust for
Investment Grade
New York Municipals |
|
$ |
1,986,120 |
|
|
$ |
(94,910 |
) |
|
$ |
1,891,210 |
|
|
$ |
635,799 |
|
|
$ |
0 |
|
|
$ |
635,799 |
|
|
$ |
2,009,542 |
|
|
$ |
(219,252 |
) |
|
$ |
1,790,290 |
|
|
$ |
1,845,283 |
|
|
$ |
(335,500 |
) |
|
$ |
1,509,783 |
|
Invesco Van Kampen
Municipal Trust |
|
|
4,579,741 |
|
|
|
(383,025 |
) |
|
|
4,196,716 |
|
|
|
1,464,000 |
|
|
|
(110,359 |
) |
|
|
1,353,641 |
|
|
|
4,647,305 |
|
|
|
(588,085 |
) |
|
|
4,059,220 |
|
|
|
4,236,296 |
|
|
|
(770,200 |
) |
|
|
3,466,096 |
|
Invesco Value
Municipal Bond
Trust |
|
|
234,466 |
|
|
|
0 |
|
|
|
234,466 |
|
|
|
74,310 |
|
|
|
0 |
|
|
|
74,310 |
|
|
|
234,283 |
|
|
|
(1,492 |
) |
|
|
232,791 |
|
|
|
219,526 |
|
|
|
0 |
|
|
|
219,526 |
|
Invesco Value
Municipal
Securities |
|
|
256,292 |
|
|
|
0 |
|
|
|
256,292 |
|
|
|
81,427 |
|
|
|
0 |
|
|
|
81,427 |
|
|
|
256,760 |
|
|
|
(7,210 |
) |
|
|
249,550 |
|
|
|
241,317 |
|
|
|
0 |
|
|
|
241,317 |
|
Invesco Value
Municipal Trust |
|
|
998,842 |
|
|
|
0 |
|
|
|
998,842 |
|
|
|
320,922 |
|
|
|
0 |
|
|
|
320,922 |
|
|
|
1,025,858 |
|
|
|
(13,447 |
) |
|
|
1,012,411 |
|
|
|
978,117 |
|
|
|
0 |
|
|
|
978,117 |
|
Invesco Quality
Municipal
Investment Trust |
|
|
782,350 |
|
|
|
0 |
|
|
|
782,350 |
|
|
|
246,217 |
|
|
|
0 |
|
|
|
246,217 |
|
|
|
773,296 |
|
|
|
(2,479 |
) |
|
|
770,817 |
|
|
|
737,734 |
|
|
|
0 |
|
|
|
737,734 |
|
Invesco Quality
Municipal
Securities |
|
|
771,123 |
|
|
|
0 |
|
|
|
771,123 |
|
|
|
247,755 |
|
|
|
0 |
|
|
|
247,755 |
|
|
|
777,393 |
|
|
|
(1,987 |
) |
|
|
775,406 |
|
|
|
730,183 |
|
|
|
0 |
|
|
|
730,183 |
|
Invesco California
Municipal Income
Trust |
|
|
586,685 |
|
|
|
0 |
|
|
|
586,685 |
|
|
|
186,967 |
|
|
|
0 |
|
|
|
186,967 |
|
|
|
593,259 |
|
|
|
0 |
|
|
|
593,259 |
|
|
|
563,370 |
|
|
|
0 |
|
|
|
563,370 |
|
Invesco California
Quality Municipal
Securities |
|
|
466,256 |
|
|
|
0 |
|
|
|
466,256 |
|
|
|
148,383 |
|
|
|
0 |
|
|
|
148,383 |
|
|
|
470,517 |
|
|
|
0 |
|
|
|
470,517 |
|
|
|
439,192 |
|
|
|
0 |
|
|
|
439,192 |
|
Invesco California
Municipal
Securities |
|
|
132,063 |
|
|
|
0 |
|
|
|
132,063 |
|
|
|
41,692 |
|
|
|
0 |
|
|
|
41,692 |
|
|
|
133,799 |
|
|
|
0 |
|
|
|
133,799 |
|
|
|
129,475 |
|
|
|
0 |
|
|
|
129,475 |
|
Invesco Van Kampen
Select Sector
Municipal Trust |
|
|
1,660,443 |
|
|
|
(81,874 |
) |
|
|
1,578,569 |
|
|
|
530,488 |
|
|
|
(4,407 |
) |
|
|
526,081 |
|
|
|
1,688,408 |
|
|
|
(187,132 |
) |
|
|
1,501,276 |
|
|
|
1,555,502 |
|
|
|
(282,800 |
) |
|
|
1,272,702 |
|
Invesco Van Kampen
Trust for Value
Municipals |
|
|
1,141,043 |
|
|
|
(12,027 |
) |
|
|
1,129,016 |
|
|
|
368,441 |
|
|
|
0 |
|
|
|
368,441 |
|
|
|
1,175,153 |
|
|
|
(124,117 |
) |
|
|
1,051,036 |
|
|
|
1,115,739 |
|
|
|
(202,900 |
) |
|
|
912,839 |
|
E-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2012 |
|
|
Four months ended February 28, 20111 |
|
|
October 31, 2010 |
|
|
October 31, 2009 |
|
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
FUND NAME |
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
Invesco New York
Quality Municipal
Securities |
|
$ |
231,178 |
|
|
$ |
0 |
|
|
$ |
231,178 |
|
|
$ |
73,078 |
|
|
$ |
0 |
|
|
$ |
73,078 |
|
|
$ |
228,528 |
|
|
$ |
0 |
|
|
$ |
228,528 |
|
|
$ |
210,608 |
|
|
$ |
0 |
|
|
$ |
210,608 |
|
Invesco Van Kampen
Massachusetts Value
Municipal Income
Trust |
|
|
310,639 |
|
|
|
(118,369 |
) |
|
|
192,270 |
|
|
|
96,465 |
|
|
|
(25,217 |
) |
|
|
71,248 |
|
|
|
309,370 |
|
|
|
(100,909 |
) |
|
|
208,461 |
|
|
|
300,471 |
|
|
|
(136,600 |
) |
|
|
163,871 |
|
Invesco Van Kampen
Ohio Quality
Municipal Trust |
|
|
749,541 |
|
|
|
(135,863 |
) |
|
|
613,678 |
|
|
|
238,066 |
|
|
|
(14,362 |
) |
|
|
223,704 |
|
|
|
757,536 |
|
|
|
(131,032 |
) |
|
|
626,504 |
|
|
|
704,573 |
|
|
|
(192,200 |
) |
|
|
512,373 |
|
Invesco Van Kampen
Trust for
Investment Grade
New Jersey
Municipals |
|
|
877,345 |
|
|
|
(79,437 |
) |
|
|
797,908 |
|
|
|
274,494 |
|
|
|
0 |
|
|
|
274,494 |
|
|
|
869,608 |
|
|
|
(128,339 |
) |
|
|
741,269 |
|
|
|
827,317 |
|
|
|
(150,400 |
) |
|
|
676,917 |
|
For the fiscal year ended February 29, 2012, the period June 1, 2010 through February 28,
2011, and the fiscal years ended May 31, 2010 and 2009, the management (MGMT) fees payable by each
Fund, the amounts waived by the Adviser and the net fees paid by each Fund were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2012 |
|
|
Nine
months ended February 28, 20112 |
|
|
May 31, 2010 |
|
|
May 31, 2009 |
|
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
FUND NAME |
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
Invesco Municipal
Income
Opportunities Trust |
|
$ |
656,990 |
|
|
$ |
0 |
|
|
$ |
656,990 |
|
|
$ |
495,129 |
|
|
$ |
0 |
|
|
$ |
495,129 |
|
|
$ |
629,842 |
|
|
$ |
0 |
|
|
$ |
629,842 |
|
|
$ |
609,305 |
|
|
$ |
0 |
|
|
$ |
609,305 |
|
Invesco Municipal
Premium Income
Trust |
|
|
949,388 |
|
|
|
0 |
|
|
|
949,388 |
|
|
|
707,388 |
|
|
|
0 |
|
|
|
707,388 |
|
|
|
940,333 |
|
|
|
0 |
|
|
|
940,333 |
|
|
|
917,039 |
|
|
|
0 |
|
|
|
917,039 |
|
|
|
|
2 |
|
The fiscal year end for these Funds changed from October 31 to the last day of February effective February 28, 2011. |
E-3
For the fiscal years ended February 29, 2012, the period January 1, 2011 through February
28, 2011, and the fiscal years ended December 31, 2010 and 2009, the management (MGMT) fees payable
by each Fund, the amounts waived by the Adviser and the net fees paid by each Fund were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2012 |
|
|
Two
months ended February 28, 20113 |
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
FUND NAME |
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
Invesco Van Kampen
High Income Trust
II |
|
$ |
590,468 |
|
|
$ |
(1,489 |
) |
|
$ |
588,979 |
|
|
$ |
99,620 |
|
|
$ |
(208 |
) |
|
$ |
99,412 |
|
|
$ |
597,234 |
|
|
$ |
(21,660 |
) |
|
|
575,574 |
|
|
$ |
568,387 |
|
|
$ |
(40,600 |
) |
|
$ |
527,787 |
|
Invesco High Yield
Investments Fund,
Inc. |
|
|
486,594 |
|
|
|
(58,038 |
) |
|
|
428,556 |
|
|
|
81,457 |
|
|
|
(48,506 |
) |
|
|
32,951 |
|
|
|
482,667 |
|
|
|
(5,464 |
) |
|
|
477,203 |
|
|
|
426,000 |
|
|
|
(10,000 |
) |
|
|
416,000 |
|
For the fiscal year ended February 29, 2012, the period April 1, 2010 through February
28, 2011, and the fiscal years ended March 31, 2010 and 2009, the management (MGMT) fees payable by
the Fund, the amounts waived by the Adviser and the net fees paid by the Fund were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2012 |
|
|
Eleven
months ended February 28, 20114 |
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
MGMT |
|
|
MGMT |
|
|
Net |
|
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
|
Fee |
|
|
Fee |
|
|
MGMT |
|
FUND NAME |
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
|
Payable |
|
|
Waivers |
|
|
Fee Paid |
|
Invesco Municipal
Income
Opportunities Trust
III |
|
$ |
339,535 |
|
|
$ |
(3,896 |
) |
|
$ |
335,639 |
|
|
$ |
312,415 |
|
|
|
0 |
|
|
$ |
312,415 |
|
|
$ |
320,980 |
|
|
|
0 |
|
|
$ |
320,980 |
|
|
$ |
336,190 |
|
|
|
0 |
|
|
$ |
336,190 |
|
|
|
|
3 |
|
The fiscal year end for these Funds changed from December 31 to February 28, 2011. |
|
4 |
|
The fiscal year end for this Fund changed from March 31 to the last day of February effective February 28, 2011. |
E-4
APPENDIX F
ADMINISTRATIVE SERVICES FEES
The Fund paid the Adviser the following amounts for administrative services for the last three
fiscal years ended February 28th or 29th.
|
|
|
|
|
|
|
|
|
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
|
February 28, 2011 |
|
|
February 28, 2010 |
|
Invesco Municipal
Income
Opportunities Trust
II |
|
$ |
50,000 |
|
|
$ |
63,203 |
|
|
$ |
88,594 |
|
For the fiscal year ended February 29, 2012, the period November 1, 2010 through February
28, 2011, and the fiscal years ended October 31, 2010 and 2009, the Funds paid the Adviser the
following amounts for administrative services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Four months ended |
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
February 28, 20111 |
|
October 31, 2010 |
|
October 31, 2009 |
Invesco Value Municipal Income Trust |
|
$121,958 |
|
$38,672 |
|
$266,429 |
|
$351,127 |
Invesco Quality Municipal Income Trust |
|
119,974 |
|
38,381 |
|
287,400 |
|
383,043 |
Invesco Van Kampen California Value Municipal Income Trust |
|
100,594 |
|
31,949 |
|
100,998 |
|
109,130 |
Invesco Van Kampen Municipal Opportunity Trust |
|
162,710 |
|
52,027 |
|
173,751 |
|
171,886 |
Invesco Van Kampen Trust for Investment Grade New York
Municipals |
|
80,361 |
|
16,438 |
|
86,678 |
|
88,401 |
Invesco Van Kampen Municipal Trust |
|
168,583 |
|
53,605 |
|
188,281 |
|
190,866 |
Invesco Value Municipal Bond Trust |
|
50,000 |
|
16,438 |
|
60,891 |
|
65,045 |
Invesco Value Municipal Securities |
|
50,000 |
|
16,438 |
|
64,651 |
|
71,502 |
Invesco Value Municipal Trust |
|
77,633 |
|
24,422 |
|
208,986 |
|
289,813 |
Invesco Quality Municipal Investment Trust |
|
50,000 |
|
16,439 |
|
152,762 |
|
218,588 |
Invesco Quality Municipal Securities |
|
50,000 |
|
16,438 |
|
153,435 |
|
216,351 |
Invesco California Municipal Income Trust |
|
50,000 |
|
16,438 |
|
122,344 |
|
166,924 |
Invesco California Quality Municipal Securities |
|
50,000 |
|
16,438 |
|
101,274 |
|
130,131 |
Invesco California Municipal Securities |
|
50,000 |
|
16,439 |
|
43,806 |
|
38,363 |
Invesco Van Kampen Select Sector Municipal Trust |
|
50,000 |
|
16,438 |
|
81,673 |
|
95,506 |
Invesco Van Kampen Trust for Value Municipals |
|
50,000 |
|
16,438 |
|
61,560 |
|
68,648 |
Invesco New York Quality Municipal Securities |
|
50,000 |
|
16,438 |
|
59,725 |
|
62,402 |
Invesco Van Kampen Massachusetts Value Municipal Income
Trust |
|
50,000 |
|
16,439 |
|
42,301 |
|
37,598 |
Invesco Van Kampen Ohio Quality Municipal Trust |
|
50,000 |
|
16,438 |
|
52,462 |
|
52,403 |
Invesco Van Kampen Trust for Investment Grade New Jersey Municipals |
|
50,000 |
|
16,438 |
|
62,868 |
|
56,614 |
|
|
|
1 |
|
The fiscal year end for these Funds changed from October 31 to the last day of February effective February 28, 2011. |
F-1
For the fiscal year ended February 29, 2012, the period June 1, 2010 through February 28,
2011, and the fiscal years ended May 31, 2010 and 2009, the Funds paid the Adviser the following
amounts for administrative services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
February 28, |
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
20112 |
|
May 31, 2010 |
|
May 31, 2009 |
Invesco Municipal Income Opportunities Trust |
|
$50,000 |
|
$37,397 |
|
$100,774 |
|
$97,489 |
Invesco Municipal Premium Income Trust |
|
50,000 |
|
37,397 |
|
188,067 |
|
183,408 |
For the fiscal years ended February 29, 2012, the period January 1, 2011 through February
28, 2011, and the fiscal years ended December 31, 2010 and 2009, the Funds paid the Adviser the
following amounts for administrative services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Two months ended |
|
|
|
|
|
|
|
|
February 28, |
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
20113 |
|
December 31, 2010 |
|
December 31, 2009 |
Invesco Van Kampen High Income Trust II |
|
$50,000 |
|
$8,082 |
|
$50,934 |
|
$50,493 |
Invesco High Yield Investments Fund, Inc. |
|
50,000 |
|
8,082 |
|
42,766 |
|
49,000 |
For the fiscal year ended February 29, 2012, the period April 1, 2010 through February
28, 2011, and the fiscal years ended March 31, 2010 and 2009, the Funds paid the Adviser the
following amounts for administrative services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven months ended |
|
|
|
|
|
|
|
|
February 28, |
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
20114 |
|
March 31, 2010 |
|
March 31, 2009 |
Invesco Municipal Income Opportunities Trust III |
|
$50,000 |
|
$46,550 |
|
$51,357 |
|
$53,791 |
|
|
|
2 |
|
The fiscal year end for these Funds changed from May 31 to the last day of February effective February 28, 2011. |
|
3 |
|
The fiscal year end for these Funds changed from December 31 to February 28, 2011. |
|
4 |
|
The fiscal year end for this Fund changed from March 31 to the last day of February effective February 28, 2011. |
F-2
APPENDIX G
PORTFOLIO MANAGERS
Portfolio Manager Fund Holdings and Information on Other Managed Accounts
Invescos 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 Funds that they manage. Accounts are grouped into three
categories: (i) investments made directly in the Fund, (ii) investments made in an Invesco pooled
investment vehicle with the same or similar objectives and strategies as the Fund, and (iii) any
investments made in any Invesco Fund or Invesco pooled investment vehicle. 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 broken out. 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 February 29, 2012:
|
|
|
|
|
|
|
Portfolio
Manager |
|
Dollar Range of
Investments in each
Fund1 |
|
Dollar Range of
Investments in Invesco pooled investment
vehicles2 |
|
Dollar Range of all Investments in
Funds and Invesco pooled investment
vehicles |
Invesco Value Municipal Income Trust (IIM) |
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Municipal Income Opportunities Trust (OIA) |
|
|
|
|
|
|
|
William Black |
|
None |
|
N/A |
|
$100,001-$500,000 |
Mark
Paris |
|
None |
|
N/A |
|
$100,001-$500,000 |
Jim
Phillips |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Quality Municipal Income Trust (IQI) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Van Kampen California Value Municipal Income Trust (VCV) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Julius Williams |
|
None |
|
N/A |
|
$50,001-$100,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
G-1
|
|
|
|
|
|
|
Portfolio
Manager |
|
Dollar Range of
Investments in each
Fund1 |
|
Dollar Range of
Investments in Invesco pooled investment
vehicles2 |
|
Dollar Range of all Investments in
Funds and Invesco pooled investment
vehicles |
Invesco Van Kampen High Income Trust II (VLT) |
|
|
|
|
|
|
|
Peter
Ehret |
|
None |
|
N/A |
|
$100,001-$500,000 |
Darren Hughes |
|
None |
|
N/A |
|
$100,001-$500,000 |
Scott Roberts |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Van Kampen Municipal Opportunity Trust (VMO) |
|
|
|
|
|
|
|
Thomas Byron |
|
$1-$10,000 |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Van Kampen Trust for Investment Grade New York Municipals (VTN) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Julius Williams |
|
None |
|
N/A |
|
$50,001-$100,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Van Kampen Municipal Trust (VKQ) |
|
|
|
|
|
|
|
Thomas Byron |
|
$1-$10,000 |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Value Municipal Bond Trust (IMC) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Value Municipal Securities (IMS) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Value Municipal Trust (IMT) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
G-2
|
|
|
|
|
|
|
Portfolio
Manager |
|
Dollar Range of
Investments in each
Fund1 |
|
Dollar Range of
Investments in Invesco pooled investment
vehicles2 |
|
Dollar Range of all Investments in
Funds and Invesco pooled investment
vehicles |
Invesco Municipal Income Opportunities Trust II (OIB) |
|
|
|
|
|
|
|
William Black |
|
None |
|
N/A |
|
$100,001-$500,000 |
Mark
Paris |
|
None |
|
N/A |
|
$100,001-$500,000 |
Jim
Phillips |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Municipal Income Opportunities Trust III (OIC) |
|
|
|
|
|
|
|
William Black |
|
None |
|
N/A |
|
$100,001-$500,000 |
Mark
Paris |
|
None |
|
N/A |
|
$100,001-$500,000 |
Jim
Phillips |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Quality Municipal Investment Trust (IQT) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Quality Municipal Securities (IQM) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco California Municipal Income Trust (IIC) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Julius Williams |
|
None |
|
N/A |
|
$50,001-$100,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco California Quality Municipal Securities (IQC) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Julius Williams |
|
None |
|
N/A |
|
$50,001-$100,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco California Municipal Securities (ICS) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Julius Williams |
|
None |
|
N/A |
|
$50,001-$100,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
G-3
|
|
|
|
|
|
|
Portfolio
Manager |
|
Dollar Range of
Investments in each
Fund1 |
|
Dollar Range of
Investments in Invesco pooled investment
vehicles2 |
|
Dollar Range of all Investments in
Funds and Invesco pooled investment
vehicles |
Invesco High Yield Investments Fund, Inc. (MSY) |
|
|
|
|
|
|
|
Peter
Ehret |
|
None |
|
N/A |
|
$100,001-$500,000 |
Darren Hughes |
|
None |
|
N/A |
|
$500,001-$1,000,000 |
Scott Roberts |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Municipal Premium Income Trust (PIA) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Van Kampen Select Sector Municipal Trust (VKL) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,000-$500,000 |
|
|
|
|
|
|
|
Invesco Van Kampen Trust for Value Municipals (VIM) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco New York Quality Municipal Securities (IQN) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Julius Williams |
|
None |
|
N/A |
|
$50,001-$100,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Van Kampen Massachusetts Value Municipal Income Trust (VMV) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Julius Williams |
|
None |
|
N/A |
|
$50,001-$100,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
|
|
|
|
Invesco Van Kampen Ohio Quality Municipal Trust (VOQ) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Julius Williams |
|
None |
|
N/A |
|
$100-001-$500,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
G-4
|
|
|
|
|
|
|
Portfolio
Manager |
|
Dollar Range of
Investments in each
Fund1 |
|
Dollar Range of
Investments in Invesco pooled investment
vehicles2 |
|
Dollar Range of all Investments in
Funds and Invesco pooled investment
vehicles |
Invesco Van Kampen Trust for Investment Grade New Jersey Municipals (VTJ) |
|
|
|
|
|
|
|
Thomas Byron |
|
None |
|
N/A |
|
$100,001-$500,000 |
Robert Stryker |
|
None |
|
N/A |
|
$100,001-$500,000 |
Julius Williams |
|
None |
|
N/A |
|
$50,001-$100,000 |
Robert Wimmel |
|
None |
|
N/A |
|
$100,001-$500,000 |
|
|
|
1 |
|
This column reflects investments in a Funds 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
managers immediate family members sharing the same household. |
|
2 |
|
This column reflects portfolio managers investments made either directly or
through a deferred compensation or a similar plan in Invesco pooled investment vehicles with
the same or similar objectives and strategies as the Fund as of the most recent fiscal year
end of the Fund. |
Assets Managed
The following information is as of February 29, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Registered Investment |
|
|
|
|
|
|
|
|
Companies Managed (assets in |
|
Other Pooled Investment Vehicles |
|
Other Accounts Managed |
Portfolio |
|
millions) |
|
Managed (assets in millions) |
|
(assets in millions) |
Manager |
|
Number of Accounts |
|
Assets |
|
Number of Accounts |
|
Assets |
|
Number of Accounts |
|
Assets |
Invesco Value Municipal Income Trust (IIM) |
Thomas Byron |
|
30 |
|
$14,150.0 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,150.0 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,150.0 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Municipal Income Opportunities Trust (OIA) |
|
|
|
|
|
|
|
|
|
|
|
|
|
William Black |
|
4 |
|
$6,171.7 |
|
None |
|
None |
|
None |
|
None |
Mark
Paris |
|
4 |
|
$6,171.7 |
|
None |
|
None |
|
None |
|
None |
Jim
Phillips |
|
4 |
|
$6,171.7 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Quality Municipal Income Trust (IQI) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,118.8 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,118.8 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,118.8 |
|
None |
|
None |
|
None |
|
None |
G-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Registered Investment |
|
|
|
|
|
|
|
|
Companies Managed (assets in |
|
Other Pooled Investment Vehicles |
|
Other Accounts Managed |
Portfolio |
|
millions) |
|
Managed (assets in millions) |
|
(assets in millions) |
Manager |
|
Number of Accounts |
|
Assets |
|
Number of Accounts |
|
Assets |
|
Number of Accounts |
|
Assets |
Invesco Van Kampen California Value Municipal Income Trust (VCV) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,147.6 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,147.6 |
|
None |
|
None |
|
None |
|
None |
Julius Williams |
|
12 |
|
$2,629.8 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,147.6 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Van Kampen High Income Trust II (VLT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter
Ehret |
|
11 |
|
$3,634.5 |
|
None |
|
None |
|
None |
|
None |
Darren Hughes |
|
7 |
|
$1,908.9 |
|
None |
|
None |
|
None |
|
None |
Scott Roberts |
|
6 |
|
$1,885.8 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Van Kampen Municipal Opportunity Trust (VMO) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$13,832.5 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$13,832.5 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$13,832.5 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Van Kampen Trust for Investment Grade New York Municipals (VTN) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,254.8 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,254.8 |
|
None |
|
None |
|
None |
|
None |
Julius Williams |
|
12 |
|
$2,954.2 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,254.8 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Van Kampen Municipal Trust (VKQ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$13,759.4 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$13,759.4 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$13,759.4 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Value Municipal Bond Trust (IMC) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,549.0 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,549.0 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,549.0 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Value Municipal Securities (IMS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,514.1 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,514.1 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,514.1 |
|
None |
|
None |
|
None |
|
None |
G-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Registered Investment |
|
|
|
|
|
|
|
|
Companies Managed (assets in |
|
Other Pooled Investment Vehicles |
|
Other Accounts Managed |
Portfolio |
|
millions) |
|
Managed (assets in millions) |
|
(assets in millions) |
Manager |
|
Number of Accounts |
|
Assets |
|
Number of Accounts |
|
Assets |
|
Number of Accounts |
|
Assets |
Invesco Value Municipal Trust (IMT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$13,759.4 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$13,759.4 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$13,759.4 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Municipal Income Opportunities Trust II (OIB) |
|
|
|
|
|
|
|
|
|
|
|
|
|
William Black |
|
4 |
|
$6,184.5 |
|
None |
|
None |
|
None |
|
None |
Mark
Paris |
|
4 |
|
$6,184.5 |
|
None |
|
None |
|
None |
|
None |
Jim
Phillips |
|
4 |
|
$6,184.5 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Municipal Income Opportunities Trust III (OIC) |
|
|
|
|
|
|
|
|
|
|
|
|
|
William Black |
|
4 |
|
$6,239.5 |
|
None |
|
None |
|
None |
|
None |
Mark
Paris |
|
4 |
|
$6,239.5 |
|
None |
|
None |
|
None |
|
None |
Jim
Phillips |
|
4 |
|
$6,239.5 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Quality Municipal Investment Trust (IQT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,332.8 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,332.8 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,332.8 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Quality Municipal Securities (IQM) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,335.7 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,335.7 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,335.7 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco California Municipal Income Trust (IIC) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,408.3 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,408.3 |
|
None |
|
None |
|
None |
|
None |
Julius Williams |
|
12 |
|
$2,890.5 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,408.3 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco California Quality Municipal Securities (IQC) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,456.5 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,456.5 |
|
None |
|
None |
|
None |
|
None |
Julius Williams |
|
12 |
|
$2,938.7 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,456.5 |
|
None |
|
None |
|
None |
|
None |
G-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Registered Investment |
|
|
|
|
|
|
|
|
Companies Managed (assets in |
|
Other Pooled Investment Vehicles |
|
Other Accounts Managed |
Portfolio |
|
millions) |
|
Managed (assets in millions) |
|
(assets in millions) |
Manager |
|
Number of Accounts |
|
Assets |
|
Number of Accounts |
|
Assets |
|
Number of Accounts |
|
Assets |
Invesco California Municipal Securities (ICS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,587.9 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,587.9 |
|
None |
|
None |
|
None |
|
None |
Julius Williams |
|
12 |
|
$3,070.2 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,587.9 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco High Yield Investments Fund, Inc. (MSY) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter
Ehret |
|
11 |
|
$3,620.0 |
|
None |
|
None |
|
None |
|
None |
Darren Hughes |
|
7 |
|
$1,894.3 |
|
None |
|
None |
|
None |
|
None |
Scott Roberts |
|
6 |
|
$1,871.2 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Municipal Premium Income Trust (PIA) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,391.2 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,391.2 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,391.2 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Van Kampen Select Sector Municipal Trust (VKL) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,322.4 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,322.4 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,322.4 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Van Kampen Trust for Value Municipals (VIM) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,424.5 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,424.5 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,424.5 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco New York Quality Municipal Securities (IQN) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,548.9 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,548.9 |
|
None |
|
None |
|
None |
|
None |
Julius Williams |
|
12 |
|
$3,031.1 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,548.9 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Van Kampen Massachusetts Value Municipal Income Trust (VMV) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,580.4 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,580.4 |
|
None |
|
None |
|
None |
|
None |
Julius Williams |
|
12 |
|
$3,062.6 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,580.4 |
|
None |
|
None |
|
None |
|
None |
G-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Registered Investment |
|
|
|
|
|
|
|
|
Companies Managed (assets in |
|
Other Pooled Investment Vehicles |
|
Other Accounts Managed |
Portfolio |
|
millions) |
|
Managed (assets in millions) |
|
(assets in millions) |
Manager |
|
Number of Accounts |
|
Assets |
|
Number of Accounts |
|
Assets |
|
Number of Accounts |
|
Assets |
Invesco Van Kampen Ohio Quality Municipal Trust (VOQ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,497.5 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,497.5 |
|
None |
|
None |
|
None |
|
None |
Julius Williams |
|
12 |
|
$2,979.7 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,497.5 |
|
None |
|
None |
|
None |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Van Kampen Trust for Investment Grade New Jersey Municipals (VTJ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Byron |
|
30 |
|
$14,472.0 |
|
None |
|
None |
|
None |
|
None |
Robert Stryker |
|
30 |
|
$14,472.0 |
|
None |
|
None |
|
None |
|
None |
Julius Williams |
|
12 |
|
$2,954.2 |
|
None |
|
None |
|
None |
|
None |
Robert Wimmel |
|
30 |
|
$14,472.0 |
|
None |
|
None |
|
None |
|
None |
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. |
|
|
|
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. |
G-9
|
|
Finally, 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. |
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 affiliated 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 bonus opportunity and an equity 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 managers 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-Advisers intention is to be competitive in light of the particular portfolio
managers 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 amount of the bonus pool available for the
Adviser and each of the Sub-Advisers investment centers. The Compensation Committee considers
investment performance and financial results in its review. 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 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 managers compensation is linked to the pre-tax investment performance of the
Funds/accounts managed by the portfolio manager as described in the table below.
|
|
|
Sub-Adviser |
|
Performance time period1 |
Invesco 2
Invesco Australia2
Invesco Deutschland
|
|
One-, Three- and Five-year performance
against Fund peer group. |
|
|
|
Invesco Advisors- Invesco Real Estate3
Invesco Senior Secured2, 4
|
|
Not applicable |
|
|
|
Invesco Canada2
|
|
One-year performance against Fund peer group.
Three- and Five-year performance against
entire universe of Canadian funds. |
|
|
|
Invesco Hong Kong2
Invesco Asset Management
|
|
One-, Three- and Five-year performance
against Fund peer group. |
|
|
|
Invesco Japan5
|
|
One-, Three- and Five-year performance
against the appropriate Micropol benchmark. |
|
|
|
1 |
|
Rolling time periods based on calendar year-end. |
|
2 |
|
Portfolio managers may be granted an annual deferral award that vests on a
pro-rata basis over a four year period and final payments are based on the performance of
eligible Funds selected by the portfolio manager at the time the award is granted. |
G-10
|
|
|
3 |
|
Portfolio managers for Invesco Global Real Estate Fund, Invesco Real Estate
Fund, Invesco Global Real Estate Income Fund and Invesco V.I. Global Real Estate Fund base
their bonus on new operating profits of the U.S. Real Estate Division of Invesco. |
|
4 |
|
Invesco Senior Secureds bonus is based on annual measures of equity return
and standard tests of collateralization performance. |
|
5 |
|
Portfolio managers for Invesco Pacific Growth Funds compensation is based
on the one-, three- and five-year performance against the appropriate Micropol benchmark.
Furthermore, for the portfolio manager(s) formerly managing the predecessor fund to
Invesco Pacific Growth Fund, they also have a ten-year performance measure. |
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.
Equity-Based Compensation. Portfolio managers may be granted an annual deferral award that
allows them to select receipt of shares of certain Invesco Funds with a vesting period as well as
common shares and/or restricted shares of Invesco Ltd. stock from pools determined from time to
time by the Compensation Committee of Invesco Ltd.s Board of Directors. Awards of equity-based
compensation typically vest over time, so as to create incentives to retain key talent.
Portfolio managers also participate in benefit plans and programs available generally to all
employees.
G-11
APPENDIX H
BROKERAGE COMMISSIONS
For the last three fiscal years ended February 28th or 29th, the Fund
paid the following commissions to brokers:
|
|
|
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
February 28, 2011 |
|
February 28, 2010 |
Invesco Municipal Income Opportunities Trust II |
|
None |
|
None |
|
None |
For the fiscal year ended February 29, 2012, the period November 1, 2010 through February
28, 2011, and the fiscal years ended October 31, 2010 and 2009, the Funds paid the following
commissions to brokers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Four months ended |
|
|
|
|
|
|
February 29, |
|
February 28, |
|
October 31, |
|
October 31, |
FUND NAME |
|
2012 |
|
201113 |
|
2010 |
|
2009 |
Invesco Value Municipal Income Trust |
|
None |
|
None |
|
$5,061 |
|
$45,000 |
Invesco Quality Municipal Income Trust |
|
None |
|
None |
|
3,154 |
|
52,000 |
Invesco Van Kampen California Value Municipal
Income Trust |
|
None |
|
None |
|
4,773 |
|
None |
Invesco Van Kampen Municipal Opportunity Trust |
|
None |
|
None |
|
None |
|
None |
Invesco Van Kampen Trust for Investment Grade
New York Municipals |
|
None |
|
None |
|
None |
|
None |
Invesco Van Kampen Municipal Trust |
|
None |
|
None |
|
None |
|
None |
Invesco Value Municipal Bond Trust |
|
None |
|
None |
|
1,401 |
|
10,000 |
Invesco Value Municipal Securities |
|
None |
|
None |
|
1,945 |
|
15,000 |
Invesco Value Municipal Trust |
|
None |
|
None |
|
3,648 |
|
34,000 |
Invesco Quality Municipal Investment Trust |
|
None |
|
None |
|
1,462 |
|
26,000 |
Invesco Quality Municipal Securities |
|
None |
|
None |
|
1,445 |
|
22,000 |
Invesco California Municipal Income Trust |
|
None |
|
None |
|
4,773 |
|
29,000 |
Invesco California Quality Municipal Securities |
|
None |
|
None |
|
4,354 |
|
21,000 |
Invesco California Municipal Securities |
|
None |
|
None |
|
1,896 |
|
9,000 |
Invesco Van Kampen Select Sector Municipal
Trust |
|
None |
|
None |
|
None |
|
None |
Invesco Van Kampen Trust for Value Municipals |
|
None |
|
None |
|
None |
|
None |
Invesco New York Quality Municipal Securities |
|
None |
|
None |
|
922 |
|
7,000 |
Invesco Van Kampen Massachusetts Value
Municipal Income Trust |
|
None |
|
None |
|
None |
|
None |
Invesco Van Kampen Ohio Quality Municipal Trust |
|
None |
|
None |
|
None |
|
None |
Invesco Van Kampen Trust for Investment Grade
New Jersey Municipals |
|
None |
|
None |
|
None |
|
None |
|
|
|
13 |
|
The fiscal year end for these Funds changed from October 31 to the last day of February effective February 28,
2011. |
H-1
For the fiscal year ended February 29, 2012, the period June 1, 2010 through February 28,
2011, and the fiscal years ended May 31, 2010 and 2009, the Funds paid the following commissions to
brokers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
February 28, |
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
201114 |
|
May 31, 2010 |
|
May 31, 2009 |
Invesco Municipal
Income
Opportunities Trust |
|
None |
|
None |
|
None |
|
None |
Invesco Municipal
Premium Income
Trust |
|
None |
|
None |
|
4,000 |
|
$42,000 |
For the fiscal years ended February 29, 2012, the period January 1, 2011 through February
28, 2011, and the fiscal years ended December 31, 2010 and 2009, the Funds paid the following
commissions to brokers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Two months ended |
|
|
|
|
|
|
|
|
February 28, |
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
201115 |
|
December 31, 2010 |
|
December 31, 2009 |
Invesco Van Kampen
High Income Trust
II |
|
None |
|
None |
|
None |
|
$7,000 |
Invesco High Yield
Investments Fund,
Inc. |
|
None |
|
None |
|
None |
|
None |
For the fiscal year ended February 29, 2012, the period April 1, 2010 through February
28, 2011, and the fiscal years ended March 31, 2010 and 2009, the Fund paid the following
commissions to brokers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven months ended |
|
|
|
|
|
|
|
|
February 28, |
|
|
|
|
FUND NAME |
|
February 29, 2012 |
|
201116 |
|
March 31, 2010 |
|
March 31, 2009 |
Invesco Municipal
Income
Opportunities Trust
III |
|
None |
|
.14 |
|
None |
|
None |
|
|
|
14 |
|
The fiscal year end for these Funds
changed from May 31 to the last day of February effective February 28, 2011. |
|
15 |
|
The fiscal year end for these Funds
changed from December 31 to the last day of February effective February 28,
2011. |
|
16 |
|
The fiscal year end for this Fund changed
from March 31 to the last day of February effective February 28, 2011. |
H-2