As filed with the Securities and Exchange Commission on February 1, 1999
Registration No. 33-____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.___ [ ] Post-Effective Amendment No.___
INVESCO TAX-FREE INCOME FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
7800 East Union Avenue
Denver, Colorado 80237
(Address of Principal Executive Offices)
P.O. Box 173706, Denver, Colorado 80217-3706
(Mailing Address)
(303) 930-6300
(Registrant's Area Code and Telephone Number)
Glen A. Payne, Esq.
7800 E. Union Avenue
Denver, Colorado 80237
(Name and Address of Agent for Service)
Copies to:
Susan M. Casey, Esq.
Judith A. Caesar-Brown, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9036
Approximate Date of Proposed Public Offering: as soon as practicable
after this Registration Statement becomes effective under the Securities Act
of 1933.
Title of securities being registered: Common stock, par value $0.01 per
share.
No filing fee is required because of reliance on Section 24(f) under the
Investment Company Act of 1940, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
INVESCO TAX-FREE INCOME FUNDS, INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheets
Letter to Shareholders
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
INVESCO TAX-FREE INCOME FUNDS, INC.
FORM N-14 CROSS REFERENCE SHEET
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
- ----------- -----------------
1. Beginning of Registration Cover Page
Statement and Outside Front Cover
Page of Prospectus
2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus
3. Synopsis Information and Risk Synopsis; Comparison of Principal Risk
Factors Factors
4. Information About the Transaction Synopsis; The Proposed Transaction
5. Information About the Registrant Synopsis; Comparison of Principal Risk
Factors; Miscellaneous; See also, the
Prospectus for INVESCO Tax-Free Long-Term
Bond Fund, dated November 1, 1998,
previously filed on EDGAR, Accession
Number 0000352662-98-000008.
6. Information About the Company Synopsis; Comparison of Principal Risk
Being Acquired Factors; Miscellaneous; See also, the
Prospectus for INVESCO Tax-Free
Intermediate Bond Fund, dated November 1,
1998, previously filed on EDGAR,
Accession Number 0000352662-98-000008
7. Voting Information Voting Information
8. Interest of Certain Persons and Not Applicable
Experts
9. Additional Information Required Not Applicable
for Re-offering by Persons Deemed
to be Underwriters
Part B Item No. Statement of Additional
and Caption Information Caption
- ----------- -------------------
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information About the Statement of Additional Information of
Registrant INVESCO Tax-Free Long-Term Bond Fund,
dated November 1, 1998, previously filed
on EDGAR, Accession Number
0000352662-98-000008.
13. Additional Information About the Statement of Additional Information of
Company Being Acquired INVESCO Tax-Free Intermediate Bond Fund,
dated November 1, 1998, previously filed
on EDGAR, Accession Number
0000352662-98-000008.
14. Financial Statements Annual Report of INVESCO Tax-Free
Long-Term Bond Fund for Fiscal Year Ended
June 30, 1998, previously filed on EDGAR,
Accession Number 0000352662-98-000005;
Annual Report of INVESCO Tax-Free
Intermediate Bond Fund for Fiscal Year
Ended June 30, 1998, previously filed on
EDGAR, Accession Number
0000352662-98-000005. [Semi-Annual Report
of INVESCO Tax-Free Long-Term Bond Fund
for six months ended December 31, 1998,
previously filed on EDGAR, Accession
Number 0000352662-99-______.]
Part C
- ------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
INVESCO TAX-FREE INCOME FUNDS, INC.
PART A
INVESCO TAX-FREE INTERMEDIATE BOND FUND
(A SERIES OF INVESCO TAX-FREE INCOME FUNDS, INC.)
March __, 1999
Dear INVESCO Tax-Free Intermediate Bond Fund Shareholder:
The attached proxy materials describe a proposal that INVESCO Tax-Free
Intermediate Bond Fund ("Intermediate Bond Fund") reorganize and become part of
INVESCO Tax-Free Long-Term Bond Fund ("Long-Term Bond Fund"). If the proposal is
approved and implemented, each shareholder of Intermediate Bond Fund will
automatically become a shareholder of Long-Term Bond Fund.
The attached proxy materials also seek your approval (if the
reorganization is not approved, or cannot be completed for some other reason) of
certain changes in the fundamental investment restrictions of Intermediate Bond
Fund, to convert Intermediate Bond Fund to a portfolio of INVESCO Bond Funds,
Inc. ("Bond Funds"), to elect directors, and to ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants of Intermediate Bond Fund.
YOUR BOARD RECOMMENDS A VOTE FOR ALL PROPOSALS. The board believes that
combining the two Funds will benefit Intermediate Bond Fund's shareholders by
providing them with a portfolio that has an investment objective that is
identical to that of Intermediate Bond Fund, that has a substantially similar
investment strategy and that, before and after taking into account voluntary fee
waivers and expense reimbursements, will have lower operating expenses as a
percentage of net assets. If, however, the reorganization is not approved or
cannot be completed for some other reason, you are also being asked to approve
certain changes to the fundamental investment restrictions of Intermediate Bond
Fund that will update and streamline the restrictions. The attached proxy
materials provide more information about the proposed reorganization and the two
Funds, as well as the proposed changes in fundamental investment restrictions
and the other matters you are being asked to vote upon.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
shares early will permit Intermediate Bond Fund to avoid costly follow-up mail
and telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today. As an alternative to using the paper proxy card to vote, you may
vote by mail, by telephone, by facsimile, through the Internet, or in person.
Very truly yours,
Mark H. Williamson
President
INVESCO Tax-Free Intermediate Bond Fund
[HEADLINE] WHAT YOU SHOULD KNOW ABOUT
THIS PROPOSED FUND MERGER
March 23, 1999
INVESCO AND THE FUND 'S BOARD OF DIRECTORS ENCOURAGE YOU TO READ THE ENCLOSED
PROXY STATEMENT CAREFULLY. THE FOLLOWING IS A BRIEF QUICK OVERVIEW OF THE KEY
ISSUE.
WHY IS MY FUND HOLDING A SPECIAL SHAREHOLDERS MEETING?
The main reason for the meeting is so that shareholders of INVESCO Tax-Free
Intermediate Bond Fund can decide whether or not to reorganize their fund. If
shareholders decide in favor of the proposal, Tax-Free Intermediate Bond Fund
will merge with another, similar mutual fund managed by INVESCO, and you will
become a shareholder OF INVESCO TAX-FREE LONG-TERM BOND FUND. Whether or not
shareholders decide they wish to merge the Funds, there are other matters of
business to be considered. So, no matter how you choose to vote on the proposed
merger, please do review all of the other proposals and vote on them as well.
WHAT ARE THE ADVANTAGES OF MERGING THE FUNDS?
There are two key potential advantages:
o By combining the Funds, SHAREHOLDERS MAY ENJOY LOWER EXPENSE RATIOS over time.
Larger funds tend to enjoy economies of scale not available to funds with
smaller assets under management.
o These LOWER COSTS MAY LEAD TO STRONGER PERFORMANCE, since total return to a
fund's shareholders is net of fund expenses.
The potential benefits and possible disadvantages are explained in more detail
in the enclosed proxy statement.
HOW ARE THESE TWO FUNDS ALIKE?
The investment goals of the Funds are similar: They both seek current income
(paid monthly) from a diversified portfolio of municipal debt obligations free
from federal income tax. However, there are significant differences in
investment strategy:
o TAX-FREE INTERMEDIATE BOND FUND invests in shorter-term debt obligations
typically maturing in three to five years.
o Tax-Free Long-Term Bond Fund, on the other hand, pursues higher income from
longer-term bonds. So this fund may offer higher income levels, but its price
may also be more volatile than an intermediate-term fund.
WHAT HAPPENS IF SHAREHOLDERS DECIDE IN FAVOR OF A MERGER?
A Closing Date will be set for the reorganization. Shareholders will receive
full and fractional shares of Tax-Free Long-Term Bond Fund equal in value to the
shares of Tax-Free Intermediate Bond Fund that they owned on the Closing Date.
The net asset value per share of Tax-Free Long-Term Bond Fund will not be
affected by the transaction. That means the reorganization will not result in a
dilution of any shareholder's interest.
IF THE FUNDS MERGE, WILL THERE BE TAX CONSEQUENCES FOR ME?
Unlike a transaction where you direct INVESCO to sell shares of one fund in
order to buy shares of another, the reorganization WILL NOT BE CONSIDERED A
TAXABLE EVENT. The Funds themselves will recognize no gains or losses on assets
as a result of a reorganization. So you will not have reportable capital gains
or losses due to the reorganization. However, you should consult your own tax
advisor regarding any possible effect a reorganization might have on you, given
your personal circumstances -- particularly regarding state and local taxes.
WHO WILL PAY FOR THIS REORGANIZATION ?
The expenses of the reorganization, including legal expenses, printing,
packaging and postage, plus the costs of any supplementary solicitation, will be
borne partly by INVESCO and partly by the two Funds.
WHAT DOES THE FUND 'S BOARD OF DIRECTORS RECOMMEND?
The Board believes you should vote in favor of the reorganization. More
important, though, the directors recommend that you study the issues involved,
call us with any questions, and vote promptly to ensure that a quorum of
Tax-Free Intermediate Bond Fund shares will be represented at this Fund's
special shareholder meeting.
WHERE DO I GET MORE INFORMATION ABOUT INVESCO TAX-FREE LONG-TERM BOND FUND ? o
Please visit our Web site at WWW.INVESCO.COM o Or call Investor Services
toll-free at 1-800-646-8372
[BACK COVER] YOU SHOULD KNOW WHAT INVESCO KNOWS
At INVESCO, we've built a global reputation on professional investment
management. Some of the world's largest institutions and more than a million
individuals rely on our knowledgeable investment specialists for effective
management of their portfolios. INVESCO provides investors the perspective
gained from more than 65 years of helping clients seek their financial goals.
The heart of INVESCO's business is to provide strong core mutual fund portfolios
designed as solid foundations for our clients' investments. We draw on the
resources of affiliates worldwide, so we have seasoned experts in the investment
strategies you want to pursue -- both for your core investments as well as to
meet special needs. And we offer award-winning service to help you better take
advantage of our investment expertise. Call us to learn more about your choices
at lNVESCO.
INVESCO TAX-FREE INTERMEDIATE BOND FUND
(A SERIES OF INVESCO TAX-FREE INCOME FUNDS, INC.)
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
MAY 20, 1999
To the Shareholders:
A special meeting of shareholders of INVESCO Tax-Free Intermediate Bond
Fund ("Intermediate Bond Fund"), a series of INVESCO Tax-Free Income Funds, Inc.
("Income Funds"), will be held on May 20, 1999, at 10:00 a.m., Mountain Time, at
the offices of INVESCO Funds Group Inc., 7800 East Union Avenue, Denver,
Colorado, for the following purposes:
(1) To approve a Plan of Reorganization and Termination under which
INVESCO Tax-Free Long-Term Bond Fund ("Long-Term Bond Fund"), also a series of
Income Funds, would acquire all of the assets of Intermediate Bond Fund in
exchange solely for shares of Long-Term Bond Fund and the assumption by
Long-Term Bond Fund of all of Intermediate Bond Fund's liabilities, followed by
the distribution of those shares to the shareholders of Intermediate Bond Fund,
all as described in the accompanying Prospectus/Proxy Statement;
(2) To approve an Agreement and Plan of Conversion and Termination
providing for the conversion of Intermediate Bond Fund from a separate series of
Income Funds to a separate series of Bond Funds;
(3) To approve certain changes to the fundamental investment restrictions
of Intermediate Bond Fund;
(4) To elect a board of directors of Income Funds;
(5) To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of Intermediate Bond Fund; and
(6) To transact such other business as may properly come before the
meeting or any adjournment thereof.
You are entitled to vote at the meeting and any adjournment thereof if you
owned shares of the Intermediate Bond Fund at the close of business on March 12,
1999. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF YOU DO
NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE, AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
By order of the Board,
Glen A. Payne
Secretary
March ___, 1999
Denver, Colorado
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card, sign,
and date the card, and return it in the envelope provided. IF YOU SIGN, DATE AND
RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED
"FOR" THE PROPOSALS DESCRIBED ABOVE. In order to avoid the additional expense of
further solicitation, we ask your cooperation in mailing your proxy card
promptly. As an alternative to using the paper proxy card to vote, you may vote
by mail, telephone, through the Internet, by facsimile machine or in person. To
vote by telephone, please call the toll-free number listed on the enclosed proxy
card(s). Shares that are registered in your name, as well as shares held in
"street name" through a broker, may be voted via the Internet or by telephone.
To vote in this manner, you will need the 12-digit "control" number(s) that
appear on your proxy card(s). To vote via the Internet, please access
www.______.com on the World Wide Web. In addition, shares that are registered in
your name may be voted by faxing your completed proxy card(s) to 1-800-_______.
If we do not receive your completed proxy card(s) after several weeks, you may
be contacted by our proxy solicitor, Shareholder Communications Corporation. Our
proxy solicitor will remind you to vote your shares or will record your vote
over the phone if you choose to vote in that manner. You may also call
Shareholder Communications Corporation directly at [1-800-________, extension
___,] and vote by phone.
Unless proxy card(s) submitted by corporations and partnerships are signed by
the appropriate persons as indicated in the voting instructions on the proxy
card, they will not be voted.
- -------------------------------------------------------------------------------
2
INVESCO TAX-FREE LONG-TERM BOND FUND
(A SERIES OF INVESCO TAX-FREE INCOME FUNDS, INC.)
INVESCO TAX-FREE INTERMEDIATE BOND FUND
(A SERIES OF INVESCO TAX-FREE INCOME FUNDS, INC.)
7800 EAST UNION AVENUE
DENVER, COLORADO 80237
(TOLL FREE) 1-800-646-8372
PROSPECTUS/PROXY STATEMENT
MARCH __, 1999
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of INVESCO Tax-Free Intermediate Bond Fund ("Intermediate Bond
Fund"), a series of INVESCO Tax-Free Income Funds, Inc. ("Income Funds"), in
connection with the solicitation of proxies by its board of directors for use at
a special meeting of its shareholders to be held on May 20, 1999, at 10:00 a.m.,
Mountain Time, and at any adjournment of the meeting, if the meeting is
adjourned for any reason.
As more fully described in this Proxy Statement, one of the main purposes
of the meeting is to vote on a proposed reorganization. In the reorganization,
INVESCO Tax-Free Long-Term Bond Fund ("Long-Term Bond Fund"), also a series of
Income Funds, would acquire all of the assets of Intermediate Bond Fund in
exchange solely for shares of Long-Term Bond Fund and the assumption by
Long-Term Bond Fund of all of the liabilities of Intermediate Bond Fund. Those
shares of Long-Term Bond Fund would then be distributed to the shareholders of
Intermediate Bond Fund, so that each shareholder of Intermediate Bond Fund would
receive a number of full and fractional shares of Long-Term Bond Fund having an
aggregate value that, on the effective date of the reorganization, is equal to
the aggregate net asset value of the shareholder's shares of Intermediate Bond
Fund. As soon as practicable following the distribution of shares, Intermediate
Bond Fund will be terminated.
Long-Term Bond Fund is a diversified series of Income Funds, which is an
open-end management investment company. Long-Term Bond Fund seeks as high a
level of current income exempt from federal income taxes as is consistent with
the preservation of capital.
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about the reorganization and Long-Term Bond Fund
that a shareholder should know before voting on the reorganization. A Statement
of Additional Information, dated March __, 1999, relating to the reorganization
and including historical financial statements, has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated herein by
reference (that is, the Statement of Additional Information is legally a part of
this Proxy Statement). A Prospectus and a Statement of Additional Information
for Long-Term Bond Fund, each dated November 1, 1998, Long-Term Bond Fund's
Annual Report to Shareholders for the fiscal year ended June 30, 1998, and
Long-Term Bond Fund's Semi-Annual Report to Shareholders for the Six Months
Ended December 31, 1998, have been filed with the SEC and are incorporated
herein by reference. A Prospectus and a Statement of Additional Information for
Intermediate Bond Fund, each dated November 1, 1998, have been filed with the
SEC and also are incorporated herein by this reference. A copy of Long-Term Bond
Fund's Prospectus and Annual Report accompany this Proxy Statement. Copies of
the referenced documents, as well as Intermediate Bond Fund's Annual Report to
Shareholders for the fiscal year ended December 31, 1998 and [Long-Term Bond
Fund's Semi-Annual Report to Shareholders for the Six Months Ended December 31,
1998] may be obtained without charge, and further inquiries may be made, by
writing to INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado
80217-3706, or by calling toll-free 1-800-646-8372.
The SEC maintains a Website (http://www.sec.gov) that contains the
Statement of Additional Information and other material incorporated by
reference, together with other information regarding Long-Term Bond Fund and
Intermediate Bond Fund.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES OF LONG-TERM BOND FUND OR DETERMINED WHETHER THIS PROXY STATEMENT IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
TABLE OF CONTENTS
VOTING INFORMATION.............................................................1
PART I: THE REORGANIZATION....................................................3
PROPOSAL 1. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION
AND TERMINATION UNDER WHICH LONG-TERM BOND FUND WOULD ACQUIRE
ALL THE ASSETS OF INTERMEDIATE BOND FUND IN EXCHANGE SOLELY FOR
SHARES OF LONG-TERM BOND FUND AND THE ASSUMPTION BY LONG-TERM
BOND FUND OF ALL OF INTERMEDIATE BOND FUND'S LIABILITIES,
FOLLOWED BY THE DISTRIBUTION OF THOSE SHARES TO THE
SHAREHOLDERS OF INTERMEDIATE BOND FUND ("REORGANIZATION").................3
Synopsis..............................................................3
Comparison Of Principal Risk Factors.................................10
The Proposed Transaction.............................................13
PART II: PROPOSED ORGANIZATIONAL MATTER......................................19
PROPOSAL 2. TO APPROVE AN AGREEMENT AND PLAN OF CONVERSION AND
TERMINATION PROVIDING FOR THE CONVERSION OF INTERMEDIATE BOND FUND
FROM A SEPERATE SERIES OF INCOME FUNDS TO A SEPERATE SERIES OF BOND
FUNDS....................................................................20
Reason for the Proposed Conversion...................................20
Summary of the Plan of Conversion and Termination....................21
Continuation of Shareholder Accounts.................................23
Expenses.............................................................23
Temporary Waiver of Investment Restrictions..........................23
Tax Consequences of the Conversion...................................23
Conclusion...........................................................23
PART III: PROPOSED MODIFICATIONS TO FUNDAMENTAL INVESTMENT RESTRICTIONS AND
ROUTINE CORPORATE GOVERNANCE MATTERS..........................................24
PROPOSAL 3. TO APPROVE AMENDMENTS TO THE FUNDAMENTAL INVESTMENT
RESTRICTIONS OF INTERMEDIATE BOND FUND..................................24
a. To Modify the Funds's Fundamental Investment Restriction on
Issuer Diversification............................................25
b. To Modify the Funds's Fundamental Investment Restriction on
Borrowing and Adoption of Non-Fundamental Policy on Borrowing.....26
c. To Modify the Funds's Fundamental Investment Restriction on
Industry Concentration............................................27
d. To Modify the Funds's Fundamental Investment Restriction on
Real Estate Investment............................................28
e. To Modify the Funds's Fundamental Investment Restriction on
Investing In Commodities..........................................28
f. To Modify the Funds's Fundamental Investment Restriction on
Loans.............................................................29
g. To Modify the Funds's Fundamental Investment Restriction on
Underwriting......................................................29
h. To Adopt A Fundamental Investment Restriction on
the Issuance of Senior Securities.................................30
i. To Adopt A Fundamental Investment Restriction on
Investing in Another Investment Company...........................30
PROPOSAL 4. TO ELECT THE BOARD OF DIRECTORS..............................31
PROPOSAL 5: TO RATIFY OR REJECT THE SELECTION OFINDEPENDENT
ACCOUNTANTS..............................................................37
OTHER BUSINESS................................................................38
INFORMATION CONCERNING ADVISER, DISTRIBUTOR AND AFFILIATED COMPANIES..........38
MISCELLANEOUS.................................................................39
Available Information....................................................39
Legal Matters............................................................39
Experts..................................................................39
APPENDIX A: AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION.............A-1
APPENDIX B: PRINCIPAL SHAREHOLDERS...........................................B-1
APPENDIX C: AGREEMENT AND PLAN OF CONVERSION AND
TERMINATION..................................................................C-1
INVESCO TAX-FREE INTERMEDIATE BOND FUND
(a series of INVESCO Tax-Free Income Funds, Inc.)
-----------
PROSPECTUS/PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
MAY 20, 1999
-----------
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of INVESCO Tax-Free Intermediate Bond Fund ("Intermediate Bond
Fund"), a series of INVESCO Tax-Free Income Funds, Inc. ("Income Funds"), in
connection with the solicitation of proxies from Intermediate Bond Fund
shareholders by the board of directors of Income Funds ("Board") for use at a
special meeting of shareholders to be held on May 20, 1999 ("Meeting"), and at
any adjournment of the Meeting. This Proxy Statement will first be mailed to
shareholders on or about March 23, 1999.
One-third of Intermediate Bond Fund's shares outstanding on March 12,
1999, represented in person or by proxy, shall constitute a quorum and must be
present for the transaction of business at the Meeting. If a quorum is not
present at the Meeting or a quorum is present but sufficient votes to approve
one or more of the proposals are not received, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies. Any such adjournment will require the affirmative vote of a majority
of those shares represented at the Meeting in person or by proxy. The persons
named as proxies will vote those proxies that they are entitled to vote FOR any
proposal in favor of such an adjournment and will vote those proxies required to
be voted AGAINST a proposal against such adjournment. A shareholder vote may be
taken on one or more of the proposals in this Proxy Statement prior to any such
adjournment if sufficient votes have been received and it is otherwise
appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and for which the broker does not have
discretionary voting authority. Abstentions and broker non-votes will be counted
as shares present for purposes of determining whether a quorum is present but
will not be voted for or against any adjournment or proposal. Accordingly,
abstentions and broker non-votes effectively will be a vote against adjournment
or against any proposal where the required vote is a percentage of the shares
present or outstanding. Abstentions and broker non-votes will not be counted,
however, as votes cast for purposes of determining whether sufficient votes have
been received to approve a proposal.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your directions as indicated on the proxy card, if your proxy
card is received properly executed by you or by your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval of each of
the proposals, and the duly appointed proxies may, in their discretion, vote
upon such other matters as may come before the Meeting. The proxy card may be
revoked by giving another proxy or by letter or telegram revoking the initial
proxy. To be effective, revocation must be received by Income Funds prior to the
Meeting and must indicate your name and account number. If you attend the
Meeting in person you may, if you wish, vote by ballot at the Meeting, thereby
canceling any proxy previously given.
In order to reduce costs, the notices to a shareholder having more than
one account in Intermediate Bond Fund listed under the same Social Security
number at a single address have been combined. The proxy cards have been coded
so that a shareholder's votes will be counted for each such account.
As of March 12, 1999 ("Record Date"), Intermediate Bond Fund had _______
shares of common stock outstanding. The solicitation of proxies, the cost of
which will be borne half by INVESCO Funds Group, Inc., the investment adviser
and transfer agent of Intermediate Bond Fund ("INVESCO"), and half by INVESCO
Tax-Free Long-Term Bond Fund ("Long-Term Bond Fund"), also a series of Income
Funds, and Intermediate Bond Fund (each, a "Fund"), will be made primarily by
mail but also may be made by telephone or oral communications by representatives
of INVESCO and INVESCO Distributors, Inc. ("IDI"), the distributor of the
INVESCO group of investment companies ("INVESCO Funds"), who will not receive
any compensation for these activities from either Fund, or by Shareholder
Communications Corporation, professional proxy solicitors, who will be paid fees
and expenses of up to approximately $471 for soliciting services. If votes
are recorded by telephone, Shareholder Communications Corporation will use
procedures designed to authenticate shareholders' identities, to allow
shareholders to authorize the voting of their shares in accordance with their
instructions, and to confirm that a shareholder's instructions have been
properly recorded. You may also vote by mail, by facsimile, or through a secure
Internet site. Proxies voted by telephone, facsimile, or Internet may be revoked
at any time before they are voted in the same manner that proxies voted by mail
may be revoked.
Except as set forth in Appendix B, INVESCO does not know of any person who
owns beneficially 5% or more of the shares of either Fund. Directors and
officers of Income Funds own in the aggregate less than 1% of the shares of
Intermediate Bond Fund.
VOTE REQUIRED. Approval of Proposal 1 and Proposal 2 requires the
affirmative vote of a majority of the outstanding voting securities of
Intermediate Bond Fund. Approval of Proposal 3 requires the affirmative vote of
a "majority of the outstanding voting securities" of Intermediate Bond Fund, as
defined in the Investment Company Act of 1940, as amended ("1940 Act"). This
means that Proposal 3 must be approved by the lesser of (1) 67% of Intermediate
Bond Fund's shares present at a meeting of shareholders if the owners of more
than 50% of Intermediate Bond Fund's shares then outstanding are present in
person or by proxy or (2) more than 50% of Intermediate Bond Fund's outstanding
shares. A plurality of the votes cast at the Meeting, and at a concurrent
2
meeting of the shareholders of Long-Term Bond Fund, taken in the aggregate, is
sufficient to approve Proposal 4. Approval of Proposal 5 requires the
affirmative vote of a majority of the votes present at the Meeting, provided a
quorum is present. Each outstanding full share of Intermediate Bond Fund is
entitled to one vote, and each outstanding fractional share thereof is entitled
to a proportionate fractional share of one vote. If any Proposal is not approved
by the requisite vote of shareholders of Intermediate Bond Fund, the persons
named as proxies may propose one or more adjournments of the Meeting to permit
further solicitation of proxies.
PART I: THE REORGANIZATION
PROPOSAL 1. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION
AND TERMINATION ("REORGANIZATION PLAN") UNDER WHICH LONG-TERM
BOND FUND WOULD ACQUIRE ALL THE ASSETS OF INTERMEDIATE BOND FUND
IN EXCHANGE SOLELY FOR SHARES OF LONG-TERM BOND FUND AND THE
ASSUMPTION BY LONG-TERM BOND FUND OF INTERMEDIATE BOND FUND'S
LIABILITIES, FOLLOWED BY THE DISTRIBUTION OF THOSE SHARES TO THE
SHAREHOLDERS OF INTERMEDIATE BOND FUND ("REORGANIZATION")
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement, the Prospectuses of the Funds (which are incorporated
herein by reference), and the Reorganization Plan (which is attached as Appendix
A to this Proxy Statement). Shareholders should read this Proxy Statement and
the Prospectus of Long-Term Bond Fund carefully. As discussed more fully below,
the Board believes that the Reorganization will benefit each Fund's
shareholders. The Funds have an identical investment objective, although the
focus of the Funds' investment strategies differ in that Intermediate Bond
Fund's investments are primarily intermediate-term obligations. The Fund
maintains a diversified portfolio with a dollar-weighted average maturity from
five to ten years. Long-Term Bond Fund invests primarily in long-term
obligations with a dollar-weighted average maturity of ten years or longer. The
Board, subject to Long-Term Bond Fund's shareholders' approval, has determined,
that if the Reorganization is approved, Long-Term Bond Fund will change its name
to "INVESCO Tax-Free Bond Fund" and will be permitted to invest in both
intermediate-term and long-term obligations. It is anticipated that following
the Reorganization, the former shareholders of Intermediate Bond Fund will, as
shareholders of Long-Term Bond Fund, be subject to lower total operating
expenses as a percentage of net assets.
THE PROPOSED REORGANIZATION
The Board considered and unanimously approved the Reorganization Plan at a
meeting held on [February 3, 1999]. The Reorganization Plan provides for the
acquisition of all the assets of Intermediate Bond Fund by Long-Term Bond Fund,
in exchange solely for shares of common stock of Long-Term Bond Fund and the
assumption by Long-Term Bond Fund of all the liabilities of Intermediate Bond
Fund. Intermediate Bond Fund will distribute those shares of Intermediate Bond
3
Fund to its shareholders, so that each Intermediate Bond Fund shareholder will
receive the number of full and fractional shares that is equal in aggregate
value to the value of such shareholder's holdings in Intermediate Bond Fund as
of the day the reorganization is completed. Intermediate Bond Fund will be
terminated as soon as practicable thereafter, and Long-Term Bond Fund will be
renamed INVESCO Tax-Free Bond Fund.
The Reorganization will occur as of the close of business on June ____,
1999, or at a later date when the conditions to the closing are satisfied (the
"Closing Date").
For the reasons set forth below under "The Proposed Transaction Reasons
for the Reorganization," the Board, including its directors who are not
"interested persons," as that term is defined in the 1940 Act, of Tax-Free
Income Funds, INVESCO, (collectively "Independent Directors"), has determined
that the Reorganization is in the best interests of Intermediate Bond Fund, that
the terms of the Reorganization are fair and reasonable and that the interests
of Intermediate Bond Fund's shareholders will not be diluted as a result of the
Reorganization. Accordingly, the Board recommends approval of the transaction.
In addition, the Board, including its Independent Directors, has determined that
the Reorganization is in the best interests of Long-Term Bond Fund, that the
terms of the Reorganization are fair and reasonable and that the interests of
Long-Term Bond Fund's shareholders will not be diluted as a result of the
Reorganization.
COMPARATIVE FEE TABLE
Certain fees and expenses that Intermediate Bond Fund's shareholders pay,
directly or indirectly, are slightly higher than those incurred by Long-Term
Bond Fund's shareholders, although neither Fund's shares are subject to any
shareholder transaction expenses, i.e., there are no sales charges on shares
purchased or deferred sales charges for shares redeemed. The following tables
show (1) fees currently incurred by shareholders of each Fund and fees that each
shareholder will incur after giving effect to the Reorganization, and (2) the
current fees and expenses incurred by each Fund for the year ended December 31,
1998, and PRO FORMA fees for Long-Term Bond Fund after the Reorganization.
SHAREHOLDER FEES (fees paid directly from your investment)
Long-term Intermediate
Bond Fund Bond Fund Combined Fund
--------- --------- -------------
Sales charge (load) on purchases None None None
of shares
Sales charge (load) on reinvested None None None
dividends
Redemption fee or deferred sales None None None
charge (load)
4
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
Long-term Intermediate Combined Fund
Bond Fund Bond Fund (Pro Forma)
--------- ------------ -------------
Management Fees 0.55% 0.50% 0.55%
Distribution (12b-1) Fees* 0.25% 0.25% 0.25%
(1)(2) (1)(2)
Other Expenses 0.23% 1.35% 0.33%
----- -----
(1)(2) (1)(2)
Total Fund Operating Expenses 1.03% 2.10% 1.03%
===== ===== =====
* Because each Fund pays distribution fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(1) Certain expenses of each Fund are being voluntarily absorbed by INVESCO.
Accordingly, "Other Expenses" and "Total Fund Operating Expenses" after
absorption for the year ended December 31, 1998 were 0.10% and 0.90%,
respectively, for Long-Term Bond Fund, and 0.16% and 0.91%, respectively, for
Intermediate Bond Fund. Intermediate Bond Fund's expenses are more than those of
Long-Term Bond Fund and INVESCO does not intend to continue absorbing the
expenses of Intermediate Bond Fund. INVESCO will, however, continue to absorb
the expenses of Long-Term Bond Fund for a period of at least one year, so that
Total Fund Operating Expenses will not exceed 0.90%. Thus, if the Reorganization
is not approved, the Other Expenses and Total Fund Operating Expenses paid by
Intermediate Bond Fund will likely increase.
(2) Each Fund's Total Fund Other Expenses and Operating Expenses were lower than
the figures shown, because their transfer agent fees and/or custodian fees were
reduced under expense offset arrangements. Because of an SEC requirement, the
figures shown above do not reflect these reductions.
EXAMPLE OF EFFECT ON FUND EXPENSES
This Example is intended to help you compare the cost of investing in
Intermediate Bond Fund with the cost of investing in Long-Term Bond Fund and the
cost of investing in Long-Term Bond Fund assuming the Reorganization has been
completed.
The Example assumes that you invest $10,000 in the specified Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year, that all dividends and other distributions are reinvested and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Long-Term Bond Fund............. $106 $329 $571 $1,864
Intermediate Bond Fund.......... $215 $664 $1,139 $2,450
Combined Fund (PRO FORMA)....... $106 $329 $571 $1,264
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND EACH FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses of each Fund will depend upon, among other things, the level
of its average net assets and the extent to which it incurs variable expenses
such as transfer agency costs.
5
FORMS OF ORGANIZATION
Each Fund is a series of Income Funds, an open-end, diversified management
investment company organized as a Maryland corporation on April 2, 1993. Income
Funds' Articles of Incorporation authorize the directors to issue up to five
hundred million shares, par value $0.01 per share. Neither Fund is required to
(nor does it) hold annual shareholder
meetings. Neither Fund issues share certificates.
INVESTMENT ADVISER
INVESCO is the investment adviser of each Fund. In this capacity, INVESCO
supervises all aspects of each Fund's operations and makes and implements all
investment decisions for the Funds.
INVESCO, as investment adviser, is currently paid a monthly management
fee, which is based upon a percentage of each Fund's average net assets
determined daily. The management fee is computed (1) by Intermediate Bond Fund,
at the annual rate of 0.50% on the first $300 million of the Fund's average net
assets; 0.40% on the next $200 million of the Fund's average net assets; and
0.30% of the Fund's average net assets over $500 million, and (2) by Long-Term
Bond Fund, at the annual rate of 0.55% on the first $300 million of the Fund's
average net assets; 0.45% on the next $200 million of the Fund's average net
assets; and 0.35% on the Fund's average net assets over $500 million. Based on
Long-Term Bond Fund's average net assets of $214,220,657 for the year ended
December 31, 1998, Long-Term Bond Fund paid management fees at the effective
annual rate of 0.55% of average daily net assets, which is more than the current
fee paid by Intermediate Bond Fund. Following the Reorganization, the initial
management fee for the combined Fund is expected to be 0.55% of the average net
assets, although this fee will decrease in accordance with the fee schedule for
Long-Term Bond Fund described above if the assets of the combined Fund increase.
Following the Reorganization, INVESCO, in its capacity as investment
adviser to Long-Term Bond Fund, will have sole responsibility for managing the
Fund's combined assets.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are set forth below.
Long-Term Bond Fund has an identical investment objective to that of
Intermediate Bond Fund in that each Fund seeks as high a level of current income
exempt from federal income taxation as is consistent with preservation of
capital. Both Funds pursue this investment objective by investing in a
diversified portfolio of obligations issued by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest on which
is[, in the opinion of counsel to the issuer,] exempt from federal income tax
("municipal bonds"). Under ordinary circumstances, no more than 20% of each
Fund's total assets may consist of bonds the interest on which is a tax
preference item for purposes of the federal alternative minimum tax ("AMT
Bonds"), short-term or temporary taxable securities (the income from which may
be subject to federal income tax), debt obligations rated below investment grade
and cash.
6
The Funds may invest in temporary and/or short-term taxable investments.
Short-term taxable investments, if any, normally will consist of notes having
quality ratings within the two highest grades of Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"), Fitch Investors Services, Inc. ("Fitch") or Duff & Phelps, Inc.
("D&P"), obligations of the U.S. government, its agencies or instrumentalities;
commercial paper rated at least P-2 by Moody's or A-2 by S&P; certificates of
deposit of U.S. domestic banks, including foreign branches of domestic banks,
with assets of $1 billion or more; time deposits; bankers' acceptances and other
short-term bank obligations; and repurchase agreements. Temporary taxable
investments, if any, normally will consist of corporate bonds and other debt
obligations. Dividends paid by a Fund attributable to income from such
investments will be taxable to investors.
Under normal circumstances, at least 80% of each Fund's assets are
invested in a combination of municipal bonds rated investment grade -- those
rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P and short-term
municipal notes rated within the two highest rating categories. No more than 10%
of a Fund's total assets may be invested in issues rated below investment grade
quality (i.e., "junk bonds," rated BB or lower by S&P or Ba or lower by Moody's
or, if unrated, judged by INVESCO to be of equivalent quality).
There can be no assurance that either Fund will achieve its investment
objective.
LONG-TERM BOND FUND. As a matter of policy, the dollar-weighted average
maturity of Long-Term Bond Fund's portfolio normally will be at least ten years
and will vary as INVESCO responds to changes in interest rates.
Long Term Bond Fund's investment portfolio is actively traded --
securities may be bought and sold relatively quickly under certain market or
economic conditions. The Fund's portfolio turnover rates generally exceed 100%,
resulting in greater brokerage commissions and acceleration of capital gains,
which are taxable when distributed to shareholders. Intermediate Bond Fund's
turnover rates have been considerably lower.
Long-Term Bond Fund may not borrow in excess of 10% of its net assets.
Long-Term Bond Fund is not permitted, under any circumstances, to invest
in bonds that are rated below B by Moody's or B- by S&P.
INTERMEDIATE BOND FUND. The dollar-weighted average maturity of
Intermediate Bond Fund's obligations normally will range from five to ten years
and will also vary as INVESCO responds to changes in interest rates.
Intermediate Bond Fund may seek to earn additional income by purchasing
"tender option bonds," municipal bonds that have relatively long maturities and
offer fixed income at a substantially higher rate than other short-term
tax-exempt bonds.
Intermediate Bond Fund may invest up to 10% of its total assets in
illiquid securities, including securities that are subject to restrictions on
resale and securities that are not readily marketable. Intermediate Bond Fund is
7
authorized to invest in securities that are not registered for sale to the
general public, but may be sold to institutional investors.
Intermediate Bond Fund may not borrow more than 33 1/3% of its net assets.
Intermediate Bond Fund does not under any circumstances, invest in bonds
that are rated below CCC or Caa by S&P or Moody's, respectively.
OTHER POLICIES OF BOTH FUNDS. Each Fund may purchase securities on a
when-issued or delayed delivery basis -- that is, with settlement taking place
in the future. Each Fund is authorized to lend up to 33 1/3% of the total value
of its portfolio securities to qualified brokers, dealers, banks or other
financial institutions that INVESCO deems qualified.
Each Fund is authorized to invest in zero-coupon securities. Of the 10% of
Intermediate Bond Fund's total assets that may be invested in debt obligations
rated below investment grade, no more than 5% of its total assets may be
invested in zero-coupon bonds having such ratings. Both Funds may also enter
into repurchase agreements with banks of the Federal Reserve System, registered
broker-dealers and registered U.S. government securities dealers that are deemed
creditworthy by the Board.
Each Fund is authorized to invest in futures contracts and options on
futures contracts to hedge against price changes in the value of its current or
intended investments in securities. The aggregate market value of the futures
contracts Long-Term Bond Fund holds cannot exceed 30% of the market value of its
total assets.
When INVESCO believes market or economic conditions are unfavorable, the
Funds may assume a defensive position by temporarily investing up to 100% of
their assets in short-term taxable investments or cash, seeking to protect their
assets until conditions stabilize.
Each Fund may borrow money for temporary or emergency purposes.
OPERATIONS OF LONG-TERM BOND FUND FOLLOWING THE REORGANIZATION
As indicated above, the investment objectives and policies of the two
Funds are similar, although the focus of Intermediate Bond Fund is on
investments in intermediate-term obligations, and its authority to invest in
lower-rated debt securities is less limited than the authority of Long-Term Bond
Fund to do so. In addition, Intermediate Bond Fund has the authority to purchase
tender option bonds and illiquid securities while Long-Term Bond Fund currently
has no such authority. As indicated above, if the Reorganization is approved,
Long-Term Bond Fund will change its policy as to the average dollar-weighted
maturity of its investments, so that it will have the ability to invest in
intermediate-term and long-term obligations. At the same time, it will change
its name to "INVESCO Tax-Free Bond Fund." Based on its review of the investment
portfolios of each Fund, INVESCO believes that most of the assets held by
Intermediate Bond Fund will be consistent with the investment policies of
Long-Term Bond Fund and thus can be transferred to and held by Long-Term Bond
Fund if the Reorganization is approved. If the Reorganization Plan is approved,
however, and Intermediate Bond Fund has assets that may not be held by Long-Term
8
Bond Fund, Intermediate Bond Fund will sell any assets that are not consistent
with Long-Term Bond Fund's investment policies prior to the Reorganization. The
proceeds of such sales will be held in temporary investments or reinvested in
assets that qualify to be held by Long-Term Bond Fund. The possible need for
Intermediate Bond Fund to dispose of assets prior to the Reorganization could
result in selling securities at a disadvantageous time and could result in
Intermediate Bond Fund's realizing losses that would not otherwise have been
realized. Alternatively, these sales could result in Intermediate Bond Fund's
realizing gains that would not otherwise have been realized, the net proceeds of
which would be included in a distribution to its shareholders prior to the
Reorganization.
As discussed above, INVESCO serves as investment adviser to both Funds.
After the Reorganization, INVESCO, the directors and officers of Long-Term Bond
Fund, and its distributor and other outside agents will continue to serve
Long-Term Bond Fund in their current capacities.
PURCHASES AND REDEMPTIONS
PURCHASES. Shares of each Fund may be purchased by wire, telephone, mail
or direct payroll purchase. The shares of each Fund are sold on a continuous
basis at the net asset value ("NAV") per share next calculated after receipt of
a purchase order in good form. The NAV per share for each Fund is computed
separately and is determined once each day that the New York Stock Exchange is
open as of the close of regular trading on the Exchange ("Business Day") but may
also be computed at other times. For a more complete discussion of share
purchases, see "How to Buy Shares" in the Income Funds Prospectus and "How
Shares Can Be Purchased" in the Income Funds Statement of Additional
Information.
REDEMPTIONS. Shares of each Fund may be redeemed by telephone, by mail, by
exchange, by periodic withdrawal plan, or by payment to a third party. Such
redemptions are made at the NAV per share of each Fund next determined after a
request in proper form is received at the Fund's office. Normally, payments of
redemption proceeds will be mailed within seven days following receipt of the
required documents. For a more complete discussion of share redemption
procedures, see "How to Sell Shares" in the Funds Prospectus.
Intermediate Bond Fund shares will no longer be available for purchase
beginning on the Business Day following the date on which the Reorganization is
approved and all contingencies have been met (the "Closing Date"). Redemptions
of Intermediate Bond Fund shares may be effected through the Closing Date.
EXCHANGES
Shares of the Funds are exchangeable for shares of another INVESCO Fund,
on the basis of their respective NAVs per share at the time of the exchange.
After the Reorganization, shares of Long-Term Bond Fund will continue to be
exchangeable for shares of another INVESCO Fund. For a more complete discussion
of the Funds' exchange policies, see "How to Buy Shares" in the Income Funds
Prospectus.
9
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund earns investment income in the form of interest on investments.
Dividends paid by each Fund will be based solely on its investment income. Each
Fund's policy is to distribute substantially all of its investment income, less
expenses, to shareholders. Dividends from net investment income are declared
daily and paid monthly at the discretion of the Board. Dividends are
automatically reinvested in additional shares of the Funds at the net asset
value on the ex-dividend date unless otherwise requested.
Exempt-interest dividends paid by each Fund are normally free of federal
income tax to shareholders, although they may be subject to state and local
income taxes. Shareholders must include all other distributions, including any
dividends earned on a Fund's short-term taxable investments, and any capital
gains recognized as taxable income for federal, state and local income tax
purposes unless they are exempt from income taxes. These distributions are
taxable whether they are received in cash or automatically reinvested in shares
of a Fund or another fund in the INVESCO group.
Each Fund also realizes capital gains and losses when it sells securities
or engages in futures transactions for more or less than it paid. If total gains
on these sales exceed total losses (including losses carried forward from
previous years), a Fund has capital gain net income. Net realized capital gains,
if any, together with net gains realized on certain foreign currency
transactions, if any, are distributed to shareholders at least annually, usually
in December.
On or before the Closing Date, Intermediate Bond Fund will declare as a
distribution substantially all of its net investment income and realized net
capital gain, if any, and distribute that amount plus any previously declared
but unpaid dividends, in order to continue to maintain its tax status as a
regulated investment company.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
Income Funds will receive an opinion of its counsel, Kirkpatrick &
Lockhart LLP, to the effect that the Reorganization will constitute a tax-free
reorganization within the meaning of section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended ("Code"). Accordingly, neither Fund nor any of
its shareholders will recognize any gain or loss as a result of the
Reorganization. See "The Proposed Transaction - Federal Income Tax
Considerations," page 16.
COMPARISON OF PRINCIPAL RISK FACTORS
An investment in Long-Term Bond Fund is subject to specific risks arising
from the types of securities in which the Fund invests and general risks arising
from investing in any mutual fund. The principal specific risks associated with
investing in Long-Term Bond Fund include:
10
MUNICIPAL SECURITIES. Long-Term Bond Fund's investments in municipal
securities generally are subject to both credit risk and market risk. Credit
risk relates to the ability of the issuer to meet interest or principal
payments, or both, as they come due. Overall, these municipal securities enjoy
strong to adequate capacity to pay principal and interest. Market risk relates
to sensitivity to changes in interest rates. An increase in interest rates will
tend to reduce the market values of outstanding debt securities, whereas a
decline in interest rates will tend to increase their values. Municipal
securities with longer maturities (such as those that may be held by Long-Term
Bond Fund) are more sensitive to interest rate movements.
RISK OF LOWER RATED BONDS. Long-Term Bond Fund may invest in issues rated
below investment grade quality (junk bonds), that are rated Ba or lower by
Moody's or BB or lower by S&P, or if unrated, are judged by INVESCO to be of
equivalent quality. These include issues which are of poorer quality and may
have some speculative characteristics according to the ratings services.
The lower a bond's quality, the more it is believed by the rating service
to be subject to credit risk and market risk and the more speculative it
becomes; this is also true of most unrated securities. To reduce these risks, at
least 80% of Long-Term Bond Fund's assets normally are invested in debt
securities rated Baa or above by Moody's or BBB or above by S&P. In addition,
Long-Term Bond Fund may invest in temporary and/or short-term taxable
investments. Overall, these bonds and notes enjoy strong to adequate capacity to
pay principal and interest. No more than 10% of the Fund's total assets may be
invested in junk bonds or in unrated securities. Never, under any circumstances,
is Long-Term Bond Fund permitted to invest in bonds which are rated below B by
Moody's or B- by S&P. Bonds rated below B or B- generally lack characteristics
of a desirable investment and are deemed speculative with respect to the
issuer's capacity to pay interest and repay principal over a long period of
time.
FUTURES AND OPTIONS. Long-Term Bond Fund will enter into futures contracts
and options on futures contracts and securities solely for hedging or other
non-speculative purposes. The use of futures and options, however, involves
certain risks. For example, a lack of correlation between the value of an
instrument underlying an option or futures contract and the assets being hedged,
or unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful and could result in losses. In addition, there can be no assurance
that a liquid secondary market will exist for any contract purchased or sold,
and the Fund might be required to maintain a position until exercise or
expiration, which could result in losses. Transactions in futures contracts and
options are subject to other risks as well, which are set forth in greater
detail in the Statement of Additional Information for Income Funds.
ZERO-COUPON BONDS. Long-Term Bond Fund may invest in zero-coupon bonds if
INVESCO determines that the risk of a default on the security, which could
result in adverse tax consequences, is not significant. Zero-coupon bonds make
no periodic interest payments. Instead, they are sold at a discount from their
face value. The buyer of the security receives the rate of return by the gradual
appreciation in the price of the security, which is redeemed at face value at
maturity. Zero-coupon bonds are more sensitive to changes in interest rates than
bonds that pay interest on a current basis in cash. When interest rates fall,
the value of these types of bonds will increase more rapidly, and when interest
rates rise, their value falls more dramatically, than the value of other types
11
of bonds. The Fund may be required to distribute income recognized on these
bonds, even though no cash interest payments are received, which could reduce
the amount of cash available for investment by the Fund.
DELAYED DELIVERY OR WHEN-ISSUED SECURITIES. Long-Term Bond Fund may invest
in when-issued or delayed delivery municipal obligations, that is, purchases of
those obligations with settlement taking place up to 90 days in the future. The
payment obligation and the interest rate received on the securities generally
are fixed at the time the Fund enters into the commitment. Between the date of
purchase and the settlement date, the market value of the securities may vary,
and no interest is payable to the Fund prior to settlement.
SECURITIES LENDING. Long-Term Bond Fund may seek to earn additional income
by lending securities to qualified brokers, dealers, banks or other financial
institutions on a fully collateralized basis. Lending securities involves
certain risks, the most significant of which is the risk that a borrower may
fail to return a portfolio security. INVESCO monitors the creditworthiness of
borrowers in order to minimize such risks.
REPURCHASE AGREEMENTS. Long-Term Bond Fund may invest money, for as short
a time as overnight, using repurchase agreements ("repos"). With a repo, the
Fund buys a debt instrument, agreeing simultaneously to sell it back to the
prior owner at an agreed-upon price and date. The Fund could incur costs or
delays in seeking to sell the security if the prior owner defaults on its
repurchase obligation. To reduce that risk, the securities that are the subject
of the repurchase agreement will be maintained with the Fund's custodian in an
amount at least equal to the repurchase price under the agreement (including
accrued interest). These agreements are entered into only with member banks of
the Federal Reserve System, registered brokers and dealers, and registered U.S.
government securities dealers that are deemed creditworthy under standards set
by the Board.
TURNOVER RATE. Long-Term Bond Fund's investment portfolio is actively
traded. There are no fixed limitations regarding turnover for the Fund;
securities may be sold without regard to the time they have been held when
investment considerations warrant such action. The Fund's portfolio turnover
rate may be higher than that of many other mutual funds, sometimes approaching
200%. This turnover may result in greater brokerage commissions and acceleration
of capital gains, which are taxable when distributed to shareholders.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own computer systems will continue to function on and after
January 1, 2000. In addition the markets for or value of securities, in which
the Fund invests may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000. For example,
improperly functioning systems could result in securities trade settlement
problems and liquidity issues, production issues for individual companies and
overall economic uncertainties. Individual issuers may incur increased costs in
making their own systems Year 2000 compliant. The combination of market
12
uncertainty and increased costs means that there is a possibility that Year 2000
issues may adversely affect the Fund's investments.
Because Intermediate Bond Fund's investment objective and policies are
similar to those of Long-Term Bond Fund, an investment in Intermediate Bond Fund
is also subject to many of the same specific risks as an investment in Long-Term
Bond Fund. In particular, Intermediate Bond Fund is also subject to the risk of
lower-rated securities and market risk, although in the case of market risk, its
risk would normally be lower than the market risk in that area for Long-Term
Bond Fund. As indicated above, Long-Term Bond Fund's dollar-weighted average
maturity is normally at least ten years, while Intermediate Bond Fund typically
invests in debt securities with shorter maturities. Intermediate Bond Fund also
engages in futures and options transactions, lends its portfolio securities, and
purchases zero-coupon bonds. Although Intermediate Bond Fund's investment
portfolio is also actively traded, its portfolio turnover rate is substantially
lower than that of Long-Term Bond Fund.
See "Investment Policies and Risks" in the Income Funds Prospectus for a
more complete description of investment risks.
THE PROPOSED TRANSACTION
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction will be
consummated are set forth in the Reorganization Plan. Significant provisions of
the Reorganization Plan are summarized below; however, this summary is qualified
in its entirety by reference to the Reorganization Plan, which is attached as
Appendix A to this Proxy Statement.
The Reorganization Plan provides for (a) the acquisition by Long-Term Bond
Fund on the Closing Date of all of the assets of Intermediate Bond Fund in
exchange solely for Long-Term Bond Fund shares and the assumption by Long-Term
Bond Fund of all of Intermediate Bond Fund's liabilities and (b) the
distribution of those Long-Term Bond Fund shares to the shareholders of
Intermediate Bond Fund.
The assets of Intermediate Bond Fund to be acquired by Long-Term Bond Fund
include all cash, cash equivalents, securities, receivables, claims and rights
of action, rights to register shares under applicable securities laws, books and
records, deferred and prepaid expenses shown as assets on Intermediate Bond
Fund's books and all other property owned by Intermediate Bond Fund. Long-Term
Bond Fund will assume from Intermediate Bond Fund all liabilities, debts,
obligations and duties of Intermediate Bond Fund of whatever kind or nature;
provided, however, that Intermediate Bond Fund will use its best efforts to
discharge all of its known debts, liabilities, obligations and duties before the
Closing Date. Long-Term Bond Fund will deliver its shares to Intermediate Bond
Fund, which then will be constructively distributed to Intermediate Bond Fund's
shareholders.
The value of Intermediate Bond Fund's assets to be acquired by Long-Term
Bond Fund and the NAV per share of the Long-Term Bond Fund shares to be
13
exchanged for those assets will be determined as of the close of regular trading
on the New York Stock Exchange on the Closing Date ("Valuation Time"), using the
valuation procedures described in Income Fund then-current Prospectus and
Statement of Additional Information. Intermediate Bond Fund's net value shall be
the value of its assets to be acquired by Long-Term Bond Fund, less the amount
of Intermediate Bond Fund's liabilities, as of the Valuation Time.
On, or as soon as practicable after, the Closing Date, Intermediate Bond
Fund will distribute the Long-Term Bond Fund shares it receives to its
shareholders of record as of the effective time of the Reorganization, PRO RATA
so that each Intermediate Bond Fund shareholder will receive a number of full
and fractional Long-Term Bond Fund shares equal in aggregate value to the
shareholder's holdings in Intermediate Bond Fund. Intermediate Bond Fund will be
terminated as soon as practicable after the share distribution. The shares will
be distributed by opening accounts on the books of Long-Term Bond Fund in the
names of Intermediate Bond Fund shareholders and by transferring to those
accounts the shares previously credited to the account of Intermediate Bond Fund
on those books. Fractional shares in Long-Term Bond Fund will be rounded to the
third decimal place.
Accordingly, immediately after the Reorganization, each former shareholder
of Intermediate Bond Fund will own Long-Term Bond Fund shares that will be equal
in aggregate value to that shareholder's Intermediate Bond Fund shares
immediately prior to the Reorganization. Moreover, because Long-Term Bond Fund
shares will be issued at NAV in exchange for the net assets of Intermediate Bond
Fund, the aggregate value of Long-Term Bond Fund shares issued to Intermediate
Bond Fund shareholders will equal the aggregate value of Intermediate Bond Fund
shares. The NAV per share of Long-Term Bond Fund will be unchanged by the
transaction. Thus, the Reorganization will not result in a dilution of any
shareholder's interest.
Any transfer taxes payable upon issuance of Long-Term Bond Fund shares in
a name other than that of the registered holder of the shares on the books of
Intermediate Bond Fund shall be paid by the person to whom those shares are to
be issued as a condition of such transfer. Any reporting responsibility of
Intermediate Bond Fund to a public authority will continue to be its
responsibility until it is dissolved.
Half of the cost of the Reorganization, including professional fees and
the cost of soliciting proxies for the Meeting, consisting principally of
printing and mailing expenses, together with the cost of any supplementary
solicitation, will be borne by INVESCO, the investment adviser to each Fund, and
half by the Funds. The Board considered the fact that INVESCO will pay half of
these expenses in approving the Reorganization and finding that the
Reorganization is in the best interests of the Funds.
The consummation of the Reorganization is subject to a number of
conditions set forth in the Reorganization Plan, some of which may be waived by
either Fund. In addition, the Reorganization Plan may be amended in any mutually
agreeable manner, except that no amendment may be made subsequent to the Meeting
that has a material adverse effect on the interests of Intermediate Bond Fund's
shareholders.
14
REASONS FOR THE REORGANIZATION
The Board, including a majority of the Independent Directors, has
determined that the Reorganization is in the best interests of each Fund, that
the terms of the Reorganization are fair and reasonable and that the interests
of each Fund's shareholders will not be diluted as a result of the
Reorganization.
In approving the Reorganization, the Board, including a majority of the
Independent Directors, considered a number of factors, including the following:
(1) the compatibility of the Fund's investment objectives, policies and
restrictions;
(2) the effect of the Reorganization on the Fund's expected investment
performance;
(3) the effect of the Reorganization on the expense ratio of each Fund
relative to its current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including whether
Intermediate Bond Fund could continue to operate on a stand-alone
basis or should be liquidated; and
(7) the potential benefits of the Reorganization to INVESCO and to other
persons.
The Reorganization was recommended to the Board by INVESCO at a Board
meeting held on [February 3, 1999]. In recommending the Reorganization, INVESCO
advised the Board that the investment management fee schedule applicable to
Long-Term Bond Fund would be slightly higher than that currently in effect for
Intermediate Bond Fund, but that the "Other Expenses" and "Total Expenses" of
Intermediate Bond Fund are higher than those of Long-Term Bond Fund. (See "Other
Expenses" on page 5.) INVESCO also advised the Board that if the Reorganization
is not approved, INVESCO will no longer continue to absorb expenses for
Intermediate Bond Fund, as it has done over the past [5] years, because the Fund
has failed to attract significant assets. The directors were advised by INVESCO
that because Long-Term Bond Fund has greater net assets than Intermediate Bond
Fund, combining the two Funds should reduce the expenses borne by the
shareholders of Intermediate Bond Fund as a percentage of net assets. The Board
was also advised that following the Reorganization, the expense ratio for
Long-Term Bond Fund may possibly decrease because the investment management fee
paid by that Fund decreases as its size increases.
15
DESCRIPTION OF SECURITIES TO BE ISSUED
Long-Term Bond Fund is registered with the SEC as a series of Income
Funds, an open-end management investment company. It has an authorized
capitalization of one hundred million shares of common stock (par value $0.01
per share). Shares of Long-Term Bond Fund entitle their holders to one vote per
full share and fractional votes for fractional shares held.
Long-Term Bond Fund does not hold annual meetings of shareholders. There
normally will be no meetings of shareholders for the purpose of electing
directors unless fewer than a majority of the directors holding office have been
elected by shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. The directors will call
annual or special meetings of shareholders for action by shareholder vote as may
be required by the 1940 Act or Income Funds' Articles of Incorporation, or at
their discretion.
Both Funds are series of an investment company organized as a Maryland
corporation. Thus, the rights of shareholders of each Fund with respect to
shareholder meetings, inspection of shareholder lists, and distributions on
liquidation of a Fund are identical.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of Intermediate Bond Fund,
which prohibit it from acquiring more than a stated percentage of ownership of
another company, might be construed as restricting its ability to carry out the
Reorganization. By approving the Reorganization Plan, Intermediate Bond Fund's
shareholders will be agreeing to waive, only for the purpose of the
Reorganization, those fundamental investment restrictions that could prohibit or
otherwise impede the transaction.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Intermediate Bond Fund's assets for Long-Term Bond Fund
shares and Long-Term Bond Fund's assumption of Intermediate Bond Fund's
liabilities is intended to qualify for federal income tax purposes as a tax-free
reorganization under section 368(a)(1)(C) of the Code. Income Funds will receive
an opinion of its counsel, Kirkpatrick & Lockhart LLP, substantially to the
effect that:
(1) Long-Term Bond Fund's acquisition of Intermediate Bond Fund's assets
in exchange solely for Long-Term Bond Fund shares and Long-Term Bond
Fund's assumption of Intermediate Bond Fund's liabilities, followed
by Intermediate Bond Fund's distribution of those shares PRO RATA to
its shareholders constructively in exchange for their Intermediate
Bond Fund shares, will constitute a "reorganization" within the
meaning of section 368(a)(1)(C) of the Code, and each Fund will be
"a party to a reorganization" within the meaning of section 368(b)
of the Code;
(2) Intermediate Bond Fund will recognize no gain or loss on the
transfer to Long-Term Bond Fund of its assets in exchange solely for
16
Long-Term Bond Fund shares and Long-Term Bond Fund's assumption of
Intermediate Bond Fund's liabilities or on the subsequent
distribution of those shares to Intermediate Bond Fund's
shareholders in constructive exchange for their Intermediate Bond
Fund shares;
(3) Long-Term Bond Fund will recognize no gain or loss on its receipt of
the transferred assets in exchange solely for Long-Term Bond Fund
shares and its assumption of Intermediate Bond Fund's liabilities;
(4) Long-Term Bond Fund's basis for the transferred assets will be the
same as the basis thereof in Intermediate Bond Fund's hands
immediately before the Reorganization, and Long-Term Bond Fund's
holding period for those assets will include Intermediate Bond
Fund's holding period therefor;
(5) An Intermediate Bond Fund shareholder will recognize no gain or loss
on the constructive exchange of all its Intermediate Bond Fund
shares solely for Long-Term Bond Fund shares pursuant to the
Reorganization; and
(6) An Intermediate Bond Fund shareholder's aggregate basis for the
Long-Term Bond Fund shares to be received by it in the
Reorganization will be the same as the aggregate basis for its
Intermediate Bond Fund shares to be constructively surrendered in
exchange for those Long-Term Bond Fund shares, and its holding
period for those Long-Term Bond Fund shares will include its holding
period for those Intermediate Bond Fund shares, provided they are
held as capital assets by the shareholder on the Closing Date.
The tax opinion may state that no opinion is expressed as to the effect of
the Reorganization on the Funds or any shareholder with respect to any 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.
Shareholders of Intermediate Bond Fund should consult their tax advisers
regarding the effect, if any, of the Reorganization in light of their individual
circumstances. Because the foregoing discussion only relates to federal income
tax consequences of the Reorganization, those shareholders also should consult
their tax advisers about state and local tax consequences, if any, of the
Reorganization.
17
CAPITALIZATION
The following table shows the capitalization of each Fund as of December
31, 1998 (unaudited), and on a pro forma combined basis (unaudited) as of
December 31, 1998, giving effect to the Reorganization:
Long-term Intermediate Combined Fund
Bond Fund Bond Fund (Pro Forma)
--------- --------- -----------
Net Assets..................... 208,208,929 7,529,649 216,338,578
Net Asset Value Per Share...... 15.29 10.22 15.29
Shares Outstanding............. 13,660,042 736,465 14,152,498
ADDITIONAL INFORMATION ABOUT LONG-TERM BOND FUND
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one share
of Long-Term Bond Fund for each of the periods shown. This information is
supplemented by the financial statements and accompanying notes in Long-Term
Bond Fund's Annual Report to Shareholders for the fiscal year ended June 30,
1998, and the unaudited financial statements and accompanying notes in Long-Term
Bond Fund's Semi-Annual Report to Shareholders for the six month period ended
December 31, 1998, which are incorporated by reference into the Statement of
Additional Information. The financial statements and notes for the fiscal years
ended June 30, 1998 and earlier shown below have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report is included in
the Annual Report to Shareholders.
Six months
Ended Year Ended
December 31 June 30
--------------- -------------------------------------------------------------
1998 1998 1997 1996 1995 1994
(unaudited)
PER SHARE DATA
Net Asset Value -
Beginning of Period 15.57 $15.34 $15.20 $15.07 $15.29 $16.35
--------------- ----------- ------------ ----------- ----------- ------------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.32 0.63 0.66 0.73 0.80 0.83
Net Gains or (Losses) on
Securities (Both Realized
and Unrealized) 0.18 0.40 0.38 0.32 0.09 (1.00)
--------------- ----------- ------------ ----------- ----------- ------------
Total from Investment Operations 0.50 1.03 1.04 1.05 0.89 (0.17)
--------------- ----------- ------------ ----------- ----------- ------------
LESS DISTRIBUTIONS
Dividends from Net Investment
Income 0.32 0.63 0.66 0.73 0.80 0.83
In Excess of Net Invested Income 0.00 0.00 0.01 0.00 0.00 0.00
Distribution from Capital Gains 0.46 0.17 0.23 0.19 0.31 0.06
--------------- ----------- ------------ ----------- ----------- ------------
18
6 Months
Ended Year Ended
December 31 June 30
--------------- -------------------------------------------------------------
1998 1998 1997 1996 1995 1994
(unaudited)
Total Distributions 0.78 0.80 0.90 0.92 1.11 0.89
--------------- ----------- ------------ ----------- ----------- ------------
Net Asset Value - End of Period 15.29 $15.57 $15.34 $15.20 $15.07 $15.29
--------------- ----------- ------------ ----------- ----------- ------------
Total Return 3.23(a) 6.87% 7.05% 7.01% 6.16% (1.16%)
===== ======
RATIOS
Net Assets - End of Period
($000 Omitted) 208,809 $211,471 $220,410 $250,890 $254,584 $282,407
Ratio of Expenses to Average
Net Assets (b) 0.46%(a)(c) 0.91%(c) 0.90%(c) 0.91%(c) 0.92% 1.00%
Ratio of Net Investment
Income (Loss) to Average
Net Assets (b) 2.02%(a) 4.06% 4.36% 4.76% 5.31% 5.14%
Portfolio Turnover Rate 44%(a) 173% 123% 146% 99% 28%
(a) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(b) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
six months ended December 31, 1998 and the years ended June 30, 1998, 1997, 1996
and 1995. If such expenses had not been voluntarily absorbed, ratio of expenses
to average net assets would have been 0.52% (not annualized), 1.04%, 1.05%,
1.04% and 1.05%, respectively, and ratio of net investment income to average net
assets would have been 1.96% (not annualized), 3.93%, 4.21%, 4.63% and 5.18%,
respectively.
(c) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements.
REQUIRED VOTE. Approval of the Reorganization requires the affirmative vote of a
majority of the outstanding voting securities of Intermediate Bond Fund.
THE BOARD UNANIMOUSLY RECOMMENDS
THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL 1
----------------------------------------------------------
PART II. PROPOSED ORGANIZATIONAL MATTER
PROPOSAL 1 SEEKS SHAREHOLDER APPROVAL TO REORGANIZE INTERMEDIATE BOND FUND
INTO LONG-TERM BOND FUND. IF PROPOSAL 1 IS APPROVED, SHAREHOLDERS WILL RECEIVE
FULL AND FRACTIONAL SHARES OF LONG-TERM BOND FUND EQUIVALENT IN AGGREGATE VALUE
TO THE SHARES OF THE INTERMEDIATE BOND FUND THAT THEY OWNED ON THE DAY OF THE
CLOSING AND PROPOSAL 2 WILL HAVE NO EFFECT. HOWEVER, WHETHER OR NOT SHAREHOLDERS
VOTE TO APPROVE THE REORGANIZATION AS SET FORTH IN PROPOSAL 1, THE BOARD
RECOMMENDS THAT SHAREHOLDERS APPROVE PROPOSAL 2, SET FORTH BELOW. THIS PROPOSAL
IS INTENDED TO RATIONALIZE THE OPERATIONS OF INTERMEDIATE BOND FUND BY
RESTRUCTURING THAT FUND AS A SERIES OF BOND FUNDS, RATHER THAN INCOME FUNDS.
19
PROPOSAL 2. TO APPROVE AN AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
("CONVERSION PLAN") PROVIDING FOR THE CONVERSION OF INTERMEDIATE BOND FUND
FROM A SEPARATE SERIES OF INCOME FUNDS TO A SEPARATE SERIES OF BOND FUNDS
("CONVERSION")
Intermediate Bond Fund is presently organized as one of two series of
Income Funds. The Board, including a majority of its Independent Directors, has
approved a Conversion Plan in the form attached to this Prospectus/Proxy
Statement as Appendix C. The Conversion Plan provides for the conversion of
Intermediate Bond Fund from a separate series of Income Funds, a Maryland
corporation, to a newly established separate series (the "New Series") of Bond
Funds, also a Maryland corporation. THE PROPOSED CHANGE WILL HAVE NO MATERIAL
EFFECT ON THE SHAREHOLDERS, OFFICERS, OPERATIONS OR MANAGEMENT OF INTERMEDIATE
BOND FUND.
The New Series, which has not yet commenced business operations, and was
established for the purpose of effecting the Conversion, will carry on the
business of Intermediate Bond Fund following the Conversion and will have an
investment objective, policies and limitations similar to those of Intermediate
Bond Fund. The investment objective, policies and limitations of Intermediate
Bond Fund will not change except as approved by shareholders and as described in
Proposal 3 of this Proxy Statement. Since both Income Funds and Bond Funds are
Maryland corporations organized under substantially similar Articles of
Incorporation, the rights of the security holders of Intermediate Bond Fund
under state law and its governing documents are expected to remain unchanged
after the Conversion. Shareholder voting rights under both Income Funds and Bond
Funds are currently based on the number of shares owned. The same individuals
serve as Directors of both Income Funds and Bond Funds.
INVESCO, Intermediate Bond Fund's investment adviser and administrator
will be responsible for providing the New Series with various investment and
administrative services and supervising the New Series' daily business affairs,
subject to the supervision of the board of directors, under a management
contract substantially identical to the contract in effect between INVESCO and
Intermediate Bond Fund immediately prior to the Closing Date. Intermediate Bond
Fund's distribution agent, IDI, will distribute shares of the New Series under a
General Distribution Agreement substantially identical to the contract in effect
between IDI and Intermediate Bond Fund immediately prior to the Closing Date.
REASON FOR THE PROPOSED CONVERSION
The Board unanimously recommends conversion of Intermediate Bond Fund to a
separate series of Bond Funds (i.e., the New Series). Moving Intermediate Bond
Fund from Income Funds to Bond Funds will consolidate and streamline the
production and mailing of certain financial reports and legal documents,
reducing expense to Intermediate Bond Fund. THE PROPOSED CHANGE WILL HAVE NO
MATERIAL EFFECT ON THE SHAREHOLDERS, OFFICERS, OPERATIONS OR MANAGEMENT OF
INTERMEDIATE BOND FUND.
20
The proposal to present the Conversion Plan to shareholders was approved
by the Board, including all of its Independent Directors, on [February 3, 1999.]
The Board recommends that Intermediate Bond Fund shareholders vote FOR the
approval of the Conversion Plan. Such a vote encompasses approval of both (i)
the conversion of Intermediate Bond Fund to a separate series of Bond Funds and
(ii) a temporary waiver of certain investment limitations of Intermediate Bond
Fund to permit the conversion (see "Temporary Waiver of Investment
Restrictions," below). If shareholders of Intermediate Bond Fund do not approve
the Reorganization Plan set forth in Proposal 1, which provides for combining
Intermediate Bond Fund with Long-Term Bond Fund, and do not approve the
alternative Conversion Plan set forth herein, Intermediate Bond Fund will
continue to operate as a series of Income Funds.
SUMMARY OF THE PLAN OF CONVERSION
The following discussion summarizes the important terms of the Conversion
Plan. This summary is qualified in its entirety by reference to the Conversion
Plan itself, which is attached as Appendix C to this Proxy Statement.
If this Proposal is approved by shareholders, then on [June 18, 1999] or
such later date to which Income Funds and Bond Funds agree (the "Closing Date"),
Intermediate Bond Fund will transfer all of its assets to the New Series in
exchange solely shares of the New Series ("New Series Shares") equal to the
number of Intermediate Bond Fund shares outstanding on the Closing Date ("Fund
Shares") and the assumption by the New Series of all of the liabilities of
Intermediate Bond Fund. Immediately thereafter, Intermediate Bond Fund will
constructively distribute to each Fund shareholder one New Series Share for each
Intermediate Bond Fund Share held by the shareholder on the Closing Date, in
liquidation of such Fund Shares. As soon as is practicable after this
distribution of New Series Shares, Intermediate Bond Fund will be terminated as
a series of Income Funds and will be liquidated. UPON COMPLETION OF THE
CONVERSION, EACH INTERMEDIATE BOND FUND SHAREHOLDER WILL OWN FULL AND FRACTIONAL
NEW SERIES SHARES EQUAL IN NUMBER, DENOMINATION AND AGGREGATE NAV TO HIS OR HER
FUND SHARES.
The Conversion Plan authorizes Bond Funds, on behalf of the New Series, to
approve (i) a Management Contract with INVESCO with respect to the New Series
(the "New Management Contract") and (ii) a Distribution and Service Plan under
Rule 12b-1 (the "New 12b-1 Plan") with respect to the New Series (collectively,
the "New Agreements"). Approval of the Conversion Plan will authorize Income
Funds (which will be issued a single share of the New Series on a temporary
basis) to approve the New Agreements as the sole initial shareholder of the New
Series. Each New Agreement will be identical to the corresponding contract or
plan in effect with respect to Intermediate Bond Fund immediately prior to the
Closing Date.
The New Agreements will take effect on the Closing Date, and each will
continue in effect until [June __, 2000.] Thereafter, the New Management
Contract will continue in effect only if its continuance is approved at least
annually (i) by the vote of a majority of the Independent Directors cast in
person at a meeting called for the purpose of voting on such approval and (ii)
by the vote of a majority of the directors or a majority of the outstanding
voting shares of the New Series. The New 12b-1 Plan will continue in effect only
21
if approved annually by a vote of the Independent Directors, cast in person at a
meeting called for that purpose. The New Management Contract will be terminable
without penalty on sixty days' written notice either by Bond Funds or INVESCO
and will terminate automatically in the event of its assignment. The New 12b-1
Plan will be terminable at any time without penalty by a vote of a majority of
the Independent Directors or a majority of the outstanding voting shares of the
New Series.
The board of directors of Bond Funds will hold office without limit in
time except that (i) any Director may resign and (ii) a Director may be removed
at any Special Meeting of the shareholders at which a quorum is present by the
affirmative vote of a majority of the outstanding voting shares of Bond Funds.
In case a vacancy shall for any reason exist, a majority of the remaining
Directors, though less than a quorum, will vote to fill such vacancy by
appointing another Director, so long as, immediately after such appointment, at
least two-thirds of the Directors have been elected by shareholders. If, at any
time, less than a majority of the Directors holding office have been elected by
shareholders, the Directors then in office will promptly call a shareholders'
meeting for the purpose of electing a board of directors. Otherwise, there need
normally be no meetings of shareholders for the purpose of electing Directors.
Assuming the Conversion Plan is approved and the Reorganization set forth
in Proposal 1 is not approved, it is currently contemplated that the Conversion
will become effective on the Closing Date. However, the Conversion may become
effective at such other date as Income Funds and Bond Funds may agree in
writing.
The obligations of Income Funds and Bond Funds under the Conversion Plan
are subject to various conditions as stated therein. Notwithstanding the
approval of the Conversion Plan by Intermediate Bond Fund shareholders, the
Conversion Plan may be terminated or amended at any time prior to the Conversion
by action of the Directors to provide against unforeseen events, if (i) there is
a material breach by the other party of any representation, warranty or
agreement contained in the Conversion Plan to be performed at or prior to the
Closing Date or (ii) it reasonably appears that a party will not or cannot meet
a condition of the Conversion Plan. Either Income Funds or Bond Funds may at any
time waive compliance with any of the covenants and conditions contained in, or
may amend, the Conversion Plan, provided that the waiver or amendment does not
materially adversely affect the interests of Intermediate Bond Fund
shareholders.
CONTINUATION OF FUND SHAREHOLDER ACCOUNTS
Bond Fund's transfer agent will establish an account for the New Series
shareholders containing the appropriate number of New Series Shares to be
received by each holder of Fund Shares under the Conversion Plan. Such accounts
will be identical in all material respects to the accounts currently maintained
by Intermediate Bond Fund's transfer agent for its shareholders.
22
EXPENSES The Fund and the New Series will each be responsible for one half of
the expenses of the Conversion, estimated at approximately $____________ in the
aggregate.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of Intermediate Bond Fund,
which prohibit it from acquiring more than a stated percentage of ownership of
another company, might be construed as restricting its ability to carry out the
Conversion. By approving the Conversion Plan, Intermediate Bond Fund
shareholders will be agreeing to waive, only for the purpose of the Conversion,
those fundamental investment restrictions that could prohibit or otherwise
impede the transaction.
TAX CONSEQUENCES OF THE CONVERSION
Both Income Funds and Bond Funds will receive an opinion from their
counsel, Kirkpatrick & Lockhart LLP, that the Conversion will constitute a
tax-free reorganization within the meaning of section 368(a)(1)(F) of the Code.
Accordingly, Intermediate Bond Fund, the New Series, and Intermediate Bond
Fund's shareholders will recognize no gain or loss for federal income tax
purposes upon (i) the transfer of Intermediate Bond Fund's assets in exchange
solely for New Series Shares and the assumption by the New Series of
Intermediate Bond Fund's liabilities or (ii) the distribution of the New Series
Shares to Intermediate Bond Fund's shareholders in liquidation of their Fund
Shares. The opinion will further provide, among other things, that (1) an
Intermediate Bond Fund shareholder's aggregate basis for federal income tax
purposes of the New Series Shares to be received by the shareholder in the
Conversion will be the same as the aggregate basis of his or her Fund Shares to
be constructively surrendered in exchange for those New Series shares and (2) an
Intermediate Bond Fund shareholder's holding period for his or her New Series
Shares will include the shareholder's holding period for his or her Fund Shares,
provided that those Fund Shares were held as capital assets at the time of the
Conversion.
CONCLUSION
The Board has concluded that the proposed Conversion Plan is in the best
interests of Intermediate Bond Fund's shareholders, provided the Reorganization
set forth in Proposal 1 is not approved. A vote in favor of the Conversion Plan
encompasses (i) approval of the conversion of Intermediate Bond Fund to the New
Series, (ii) approval of the temporary waiver of certain investment limitations
of Intermediate Bond Fund to permit the Conversion (see "Temporary Waiver of
Investment Restrictions," above) and (iii) authorization of Income Funds, as the
sole initial shareholder of the New Series, to approve (a) a Management Contract
with respect to the New Series between Bond Funds and INVESCO and (b) a
Distribution and Service Plan under Rule 12b-1 with respect to the New Series.
Each of these New Agreements is identical to the corresponding contract or plan
in effect with Intermediate Bond Fund immediately prior to the Closing Date. If
approved, the Conversion Plan will take effect on the Closing Date. If neither
the Conversion Plan nor the Reorganization of Intermediate Bond Fund under
Proposal 1 is approved, Intermediate Bond Fund will continue to operate as a
series of Income Funds; otherwise, Intermediate Bond Fund will be reorganized
consistent with shareholder approval.
23
REQUIRED VOTE. Approval of the Conversion Plan requires the
affirmative vote of a majority of the outstanding voting securities of
Intermediate Bond Fund.
THE BOARD UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 2
----------------------------------------------------------
PART III: PROPOSED MODIFICATIONS TO FUNDAMENTAL INVESTMENT RESTRICTIONS AND
ROUTINE CORPORATE GOVERNANCE MATTERS
PROPOSAL 3. TO APPROVE AMENDMENTS TO THE FUNDAMENTAL
INVESTMENT RESTRICTIONS OF INTERMEDIATE BOND FUND
As required by the 1940 Act, Intermediate Bond Fund has adopted certain
fundamental investment restrictions ("fundamental restrictions"), which are set
forth in the Fund's Statement of Additional Information. These fundamental
restrictions may be changed only with shareholder approval. Restrictions and
policies that the Fund has not specifically designated as fundamental are
considered to be "non-fundamental" and may be changed by the Board of Income
Funds without shareholder approval.
Some of Intermediate Bond Fund's fundamental restrictions reflect past
regulatory, business or industry conditions, practices or requirements that are
no longer in effect. Also, as other INVESCO Funds have been created over the
years, they have adopted substantially similar fundamental restrictions that
often have been phrased in slightly different ways, resulting in minor but
unintended differences in effect or potentially giving rise to unintended
differences in interpretation. Accordingly, the Board of Income Funds has
approved revisions to Intermediate Bond Fund's fundamental restrictions in order
to simplify, modernize and make the Fund's fundamental restrictions more uniform
with those of the other INVESCO Funds.
The Board believes that eliminating the disparities among the INVESCO
Funds' fundamental restrictions will enhance management's ability to manage the
funds' assets efficiently and effectively in changing regulatory and investment
environments and permit directors to review and monitor investment policies more
easily. In addition, standardizing the fundamental restrictions of the INVESCO
Funds will assist the INVESCO Funds in making required regulatory filings in a
more efficient and cost-effective way. Although the proposed changes in
fundamental restrictions will allow Intermediate Bond Fund greater investment
flexibility to respond to future investment opportunities, the Board does not
anticipate that the changes, individually or in the aggregate, will result at
this time in a material change in the level of investment risk associated with
an investment in the Fund.
The text and a summary description of each proposed change to Intermediate
Bond Fund's fundamental restrictions are set forth below, together with the text
24
of each current corresponding fundamental restriction. The text below also
describes any non-fundamental restrictions that would be adopted by the Board in
conjunction with the revision of certain fundamental restrictions. Any
non-fundamental restriction may be modified or eliminated by the Board at any
future date without further shareholder approval.
If approved by Intermediate Bond Fund shareholders at the Meeting, the
proposed changes in Intermediate Bond Fund's fundamental restrictions will be
adopted by the Fund only if the Reorganization is NOT approved by Intermediate
Bond Fund shareholders. In that event, Intermediate Bond Fund's Statement of
Additional Information will be revised to reflect those changes as soon as
practicable following the Meeting. If the Reorganization is approved, the
proposed changes in the Fund's fundamental restrictions will not be implemented.
Instead, as described in Proposal 1, Intermediate Bond Fund shareholders will
become shareholders of Long-Term Bond Fund, whose shareholders are being asked
to approve substantially similar changes in Long-Term Bond Fund's fundamental
restrictions, and Intermediate Bond Fund will be terminated.
a. MODIFICATION OF FUNDAMENTAL RESTRICTION ON ISSUER DIVERSIFICATION
Intermediate Bond Fund's current fundamental restriction on issuer
diversification is as follows:
The Fund may not, with respect to seventy-five percent (75%) of the
value of its total assets, purchase the securities of any one issuer
(except cash items and "Government securities" as defined under the
1940 Act), if the purchase would cause the Fund to have more than 5%
of the value of its total assets invested in the securities of such
issuer or to own more than 10% of the outstanding voting securities
of such issuer.
The Board recommends that this restriction be replaced with the following
fundamental restriction:
The Fund may not, with respect to 75% of the Fund's total assets,
purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, or securities of other investment companies) if,
as a result, (i) more than 5% of the Fund's total assets would be
invested in the securities of that issuer, or (ii) the Fund would
hold more than 10% of the outstanding voting securities of that
issuer.
The primary purpose of the proposal is to revise the Fund's fundamental
restriction on issuer diversification to conform to a restriction that is
expected to become standard for all INVESCO Funds. If the proposed revision is
approved, Intermediate Bond Fund could invest without limit in other investment
companies to the extent permitted by the 1940 Act. The proposed change would
also provide the Fund's managers with greater investment flexibility.
25
b. MODIFICATION OF FUNDAMENTAL RESTRICTION ON BORROWING AND ADOPTION OF
NON-FUNDAMENTAL RESTRICTION ON BORROWING
Intermediate Bond Fund's current fundamental restriction on borrowing is
as follows:
The Fund may not borrow money, except that the Fund may borrow money
for temporary or emergency purposes (not for leveraging or
investment) and may enter into reverse repurchase agreements in an
aggregate amount not exceeding 331/3% of the value of its total
assets (including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed 331/3% of the value
of the Fund's total assets by reason of a decline in net assets will
be reduced within three business days to the extent necessary to
comply with the 331/3% limitation. This restriction shall not
prohibit deposits of assets to margin or guarantee positions in
futures, options, swaps, or forward contracts, or the segregation of
assets in connection with such contracts.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not borrow money, except that the Fund may borrow money
in an amount not exceeding 331/3% of its total assets (including the
amount borrowed) less liabilities (other than borrowings).
The primary purpose of the proposal is to eliminate minor differences in
the wording of the INVESCO Funds' current restrictions on borrowing for greater
uniformity and to conform to the 1940 Act requirements for borrowing. Currently,
the Fund's fundamental restriction is significantly more limiting than the
restrictions imposed by the 1940 Act in that it limits the purposes for which
Intermediate Bond Fund may borrow money. The proposed revision would eliminate
the restrictions on the purposes for which the Fund may borrow money and the
explicit requirement that any borrowings that come to exceed 331/3% of the
Fund's net assets by reason of a decline in net assets be reduced within three
business days.
If the proposal is approved, the Board will adopt a non-fundamental
restriction with respect to borrowing as follows:
The Fund may borrow money only from a bank or from an open-end
management investment company managed by INVESCO Funds Group, Inc.
or an affiliate or a successor thereof for temporary or emergency
purposes (not for leveraging or investing) or by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
will be treated as borrowings for purposes of fundamental limitation
(_) [the borrowing limitiation].
26
The non-fundamental restriction reflects the Fund's current policy that
borrowing by the Fund may only be for temporary or emergency purposes. In
addition to borrowing from banks, as permitted in the Fund's current policy, the
non-fundamental restriction would permit the Fund to borrow from open-end funds
managed by INVESCO or an affiliate or successor thereof. The Fund would not be
able to do so, however, unless it obtains permission for such borrowings from
the SEC. The non-fundamental restriction also clarifies that reverse repurchase
agreements will be treated as borrowings.
The Board believes that this approach, making the Fund's fundamental
restriction on borrowing no more limiting than is required under the 1940 Act,
while incorporating more strict limits on borrowing in a non-fundamental
restriction, will maximize the Fund's flexibility for future contingencies.
c. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INDUSTRY CONCENTRATION
Intermediate Bond Fund's current fundamental restriction on industry
concentration is as follows:
The Fund may not invest more than 25% of the value of
its total assets in any particular industry (other
than municipal securities or U.S. Government
securities).
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities or municipal securities) if, as a
result, more than 25% of the Fund's total assets would be invested
in the securities of companies whose principal business activities
are in the same industry.
The purpose of the modification is to eliminate minor differences in the
wording of the INVESCO Funds' current restrictions on concentration for greater
uniformity and to avoid unintended limitations. The proposed changes to
Intermediate Bond Fund's fundamental concentration restriction clarifies that
the concentration restriction does not apply to securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities or to municipal
securities. This clarification is important because a failure to except
government securities of all types from the concentration restriction could
hinder the Fund's ability to purchase such securities in conjunction with taking
temporary defensive positions. In total, the proposed changes will enhance the
ability of Intermediate Bond Fund's management to adapt to changing market
conditions.
27
d. MODIFICATION OF FUNDAMENTAL RESTRICTION ON REAL ESTATE INVESTMENT
Intermediate Bond Fund's current fundamental restriction on real estate
investment is as follows:
The Fund may not invest directly in real estate or interests in real
estate; however, the Fund may own debt or equity securities issued
by companies engaged in those businesses.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but this
shall not prevent the Fund from investing in securities or other
instruments backed by real estate or securities of companies engaged
in the real estate business).
In addition to conforming Intermediate Bond Fund's fundamental restriction
to that of the other INVESCO Funds, the proposed amendment of the Fund's
fundamental restriction on investment in real estate would more completely
describe the types of real estate-related securities investments that are
permissible for the Fund. The Board believes that this clarification will make
it easier for decisions to be made concerning the Fund's investments in real
estate-related securities.
e. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN COMMODITIES
Intermediate Bond Fund's current fundamental restriction on the purchase
of commodities is as follows:
The Fund may not purchase or sell physical commodities other than
foreign currencies unless acquired as a result of ownership of
securities (but this shall not prevent the Fund from purchasing or
selling options, futures, and forward contracts or from investing in
securities or other instruments backed by physical commodities).
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not purchase or sell physical commodities; however,
this policy shall not prevent the Fund from purchasing and selling
foreign currency, futures contracts, options, forward contracts,
swaps, caps, floors, collars and other financial instruments.
The proposed changes to this investment restriction are intended to
conform the restriction to those of the other INVESCO Funds and ensure that
28
Intermediate Bond Fund will have the maximum flexibility to enter into hedging
or other transactions utilizing financial instruments and derivative products
when doing so is permitted by operating policies established for the Fund by the
Board. Due to the rapid and continuing development of derivative products and
the possibility of changes in the definition of "commodities," particularly in
the context of the jurisdiction of the Commodities Futures Trading Commission,
it is important for the Fund's policy to be flexible enough to allow it to enter
into hedging and other transactions using these products when doing so is deemed
appropriate by INVESCO and is within the investment parameters established by
the Board. To maximize that flexibility, the Board recommends that the Fund's
fundamental restriction on commodities investments be clear in permitting the
use of derivative products, even if the current non-fundamental investment
policies of the Fund would not permit investment in one or more of the permitted
transactions.
f. MODIFICATION OF FUNDAMENTAL RESTRICTION ON LOANS
Intermediate Bond Fund's current fundamental restriction on loans is as
follows:
The Fund may not lend any security or make any other loan if, as a
result, more than 331/3% of its total assets would be lent to other
parties (but this limitation does not apply to purchases of
commercial paper, debt securities or to repurchase agreements.)
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not lend any security or make any loan if, as a result,
more than 331/3 % of its total assets would be lent to other
parties, but this limitation does not apply to the purchase of debt
securities or to repurchase agreements.
The primary purpose of the proposal is to eliminate minor differences in
the wording of the INVESCO Funds' current restrictions on loans for greater
uniformity. The proposed changes to this fundamental restriction are relatively
minor and would have no substantive effect on Intermediate Bond Fund's lending
activities or other investments.
g. MODIFICATION OF FUNDAMENTAL RESTRICTION ON UNDERWRITING
Intermediate Bond Fund's current fundamental restriction on underwriting
is as follows:
The Fund may not act as an underwriter of securities issued by
others, except to the extent that it may be deemed an underwriter in
connection with the disposition of portfolio securities of the Fund.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not underwrite securities of other issuers, except
insofar as it may be deemed to be an underwriter under the
29
Securities Act of 1933, as amended, in connection with the
disposition of the Fund's portfolio securities.
The primary purpose of the proposal is to eliminate minor differences in
the wording of the Fund's current fundamental restriction on underwriting for
greater uniformity with the fundamental restrictions of the other INVESCO Funds
and to avoid unintended limitations.
h. ADOPTION OF FUNDAMENTAL RESTRICTION ON THE ISSUANCE OF SENIOR SECURITIES
Currently, Intermediate Bond Fund has no fundamental restriction on the
issuance of senior securities. The Board recommends that shareholders vote to
adopt the following fundamental restriction:
The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940.
The primary purpose of the proposal is to adopt a fundamental restriction
indicating the extent to which the Fund may issue "senior securities," a term
that is generally defined to refer to fund obligations that have a priority over
a fund's shares with respect to the distribution of fund assets or the payment
of dividends. The Board believes that the adoption of the proposed fundamental
restriction, which does not specify the manner in which senior securities may be
issued and is no more limiting than is required under the 1940 Act, would
maximize the Fund's borrowing flexibility for future contingencies and would
conform to the fundamental restrictions of the other INVESCO Funds on the
issuance of senior securities.
i. ADOPTION OF FUNDAMENTAL RESTRICTION ON INVESTING IN ANOTHER INVESTMENT
COMPANY
Currently, Intermediate Bond Fund has no fundamental policy regarding
investment in another investment company. The Board recommends that shareholders
vote to adopt the following fundamental restriction:
The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of
a single open-end management investment company managed by INVESCO
Funds Group, Inc. or an affiliate or a successor thereof, with
substantially the same fundamental investment objective, policies
and limitations as the Fund.
The adoption of the proposed fundamental restriction would ensure that the
INVESCO Funds have uniform policies permitting each Fund to adopt a
"master/feeder" structure whereby one or more Funds invest all of their assets
in another Fund. The master/feeder structure has the potential, under certain
circumstances, to minimize administration costs and maximize the possibility of
gaining a broader investor base. Currently, none of the INVESCO Funds intend to
establish a master/feeder structure; however, the Board recommends that
Intermediate Bond Fund shareholders adopt a policy that would permit this
structure in the event that the Board determines to recommend the adoption of a
master/feeder structure by the Fund. The proposed revision would require that
30
any fund in which the Fund may invest under a master/feeder structure be advised
by INVESCO or an affiliate.
REQUIRED VOTE. Approval of Proposal 3 requires the affirmative vote of a
"majority of the outstanding voting securities" of Intermediate Bond Fund, which
for this purpose means the affirmative vote of the lesser of (1) 67% or more of
the shares of the Fund present at the Meeting or represented by proxy if more
than 50% of the outstanding shares of the Fund are so present or represented, or
(2) more than 50% of the outstanding shares of the Fund. SHAREHOLDERS WHO VOTE
"FOR" PROPOSAL 3 WILL VOTE "FOR" EACH PROPOSED CHANGE DESCRIBED ABOVE. THOSE
SHAREHOLDERS WHO WISH TO VOTE AGAINST ANY OF THE SPECIFIC PROPOSED CHANGES
DESCRIBED ABOVE MAY DO SO ON THE PROXY PROVIDED.
THE BOARD UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" PROPOSAL 3
----------------------------------------------------------
PROPOSAL 4. TO ELECT THE DIRECTORS OF INCOME FUNDS
The Board of Income Funds has nominated the individuals identified below
for election to the Board at the Meeting. Income Funds currently has ten
directors. Vacancies on the Board are generally filled by appointment by the
remaining directors. However, the 1940 Act provides that vacancies may not be
filled by directors unless thereafter at least two-thirds of the directors shall
have been elected by shareholders. To ensure continued compliance with this rule
without incurring the expense of calling additional shareholder meetings,
shareholders are being asked at this meeting to elect the current ten directors.
Consistent with the provisions of Income Funds' by-laws, and as permitted by
Maryland law, Income Funds does not anticipate holding annual shareholder
meetings. Thus, the directors will be elected for indefinite terms, subject to
termination or resignation. Each nominee has indicated a willingness to serve if
elected. If any of the nominees should not be available for election, the
persons named as proxies (or their substitutes) may vote for other persons in
their discretion. Management has no reason to believe that any nominee will be
unavailable for election.
All of the Independent Directors now being proposed for election were
nominated and selected by Independent Directors. Eight of the ten current
directors are Independent Directors.
The persons named as attorneys-in-fact in the enclosed proxy have advised
Income Funds that unless a proxy instructs them to withhold authority to vote
for all listed nominees or for any individual nominee, they will vote all
validly executed proxies for the election of the nominees named below.
The nominees for director, their ages, a description of their principal
occupations, the number of Intermediate Bond Fund shares owned by each, and
their respective memberships on Board committees are listed in the table below.
31
Number of
---------
Intermediate Income
-------------------
Director or Fund Shares
----------- -----------
Executive Beneficially Owned
--------- ------------------
Name, Position With Principal Occupation and Business Officer of Directly or Member of
- ------------------- --------------------------------- ---------- ---------- ---------
Income Funds, and Age Experience (During the Past Five Income Indirectly On Committee
- --------------------- -------------------------------- ------ ------------- ---------
Years) Funds Since December 31, 1998(1)
------ ----------- --------------------
CHARLES W. BRADY, Chief Executive Officer and 1993 _______ (3),(5),(6)
CHAIRMAN OF THE BOARD, Director of AMVESCAP, PLC, London,
AGE 63* England, and of various
subsidiaries thereof. Chairman of
the Board of INVESCO Global Health
Sciences Fund.
FRED A. DEERING, VICE Trustee of INVESCO Global Health 1993 _______ (2),(3),(5)
CHAIRMAN OF THE BOARD, Sciences Fund. Formerly, Chairman
AGE 70 of the Executive Committee and
Chairman of the Board of Security
Life of Denver Insurance Company,
Denver, Colorado; Director of ING
America Life Insurance Company.
MARK H. WILLIAMSON, President, Chief Executive Officer, 1998 _______ (3),(5)
PRESIDENT, CHIEF and Director, INVESCO Distributors
EXECUTIVE OFFICER, AND Inc.; President, Chief Executive
DIRECTOR, AGE 47* Officer, and Director, INVESCO;
President, INVESCO Global Health
Sciences Fund. Formerly, Chairman
of the Board and Chief Executive
Officer, NationsBanc Advisors, Inc.
(1995-1997); Chairman of the Board,
NationsBanc Investments, Inc.
(1997-1998).
DR. VICTOR L. ANDREWS, Professor Emeritus, Chairman 1993 _______ (4),(6),(8)
DIRECTOR, AGE 68 Emeritus and Chairman of the CFO
Roundtable of the Department of
Finance at Georgia State
University, Atlanta, Georgia;
President, Andrews Financial
Associates, Inc. (consulting firm);
since October 1984, Director of the
Center for the Study of Regulated
Industry at Georgia State
University; formerly, member of the
faculties of the Harvard Business
School and the Sloan School of
Management of MIT. Dr. Andrews is
also a director of the Southeastern
Thrift and Bank Fund, Inc. and the
Sheffield Funds, Inc.
BOB R. BAKER, DIRECTOR, President and Chief Executive 1993 _______ (3),(4),(5)
AGE 62 Officer of AMC Cancer Research
Center, Denver, Colorado, since
January 1989; until December 1988,
Vice Chairman of the Board, First
Columbia Financial Corporation,
Englewood, Colorado. Formerly,
Chairman of the Board and Chief
Executive Officer of First Columbia
Financial Corporation.
LAWRENCE H. BUDNER, Trust Consultant; Prior to June 1993 _______ (2),(6),(7)
DIRECTOR, AGE 68 1987, Senior Vice President and
Senior Trust Officer, InterFirst
Bank, Dallas, Texas.
32
Number of
---------
Intermediate Income
-------------------
Director or Fund Shares
----------- -----------
Executive Beneficially Owned
--------- ------------------
Name, Position With Principal Occupation and Business Officer of Directly or Member of
- ------------------- --------------------------------- ---------- ---------- ---------
Income Funds, and Age Experience (During the Past Five Income Indirectly On Committee
- --------------------- -------------------------------- ------ ------------- ---------
Years) Funds Since December 31, 1998(1)
------ ----------- --------------------
DR. WENDY LEE GRAMM, Self-employed (since 1993). 1997 _______ (4),(8)
DIRECTOR, AGE 53 Professor of Economics and Public
Administration, University of Texas
at Arlington. Formerly, Chairman,
Commodities Futures Trading
Commission (1988-1993);
Administrator for Information and
Regulatory Affairs, Office of
Management and Budget (1985-1988);
Executive Director, Presidential
Task Force on Regulatory Relief;
Director, Federal Trade Commission
Bureau of Economics; Director of
the Chicago Mercantile Exchange;
Enron Corporation; IBP, Inc.; State
Farm Insurance Company; Independent
Women's Forum; International
Republic Institute; and the
Republican Women's Federal Forum.
KENNETH T. KING, Formerly, Chairman of the Board of 1993 _______ (2),(3),(5),(6),(7)
DIRECTOR, AGE 73 the Capitol Life Insurance Company,
Providence Washington Insurance
Company, and Director of numerous
subsidiaries thereof in the United
States. Formerly, Chairman of the
Board of the Providence Capitol
Companies in the United Kingdom and
Guernsey. Until 1987, Chairman of
the Board, Symbion Corporation.
JOHN W. MCINTYRE, Retired. Formerly, Vice Chairman of 1995 _______ (2),(3),(5),(7)
DIRECTOR, AGE 68 the Board of The Citizens and
Southern Corporation; Chairman of
the Board and Chief Executive
Officer of The Citizens and Southern
Georgia Corporation; Chairman of the
Board and Chief Executive Officer of
Citizens and Southern National Bank.
Trustee of INVESCO Global Health
Sciences Fund and Gables Residential
Trust.
DR. LARRY SOLL, Retired. Formerly, Chairman of the 1997 _______ (4),(8)
DIRECTOR, AGE 56 Board (1987-1994), Chief Executive
Officer (1982-1989 and 1993-1994)
and President (1982-1989) of
Synergen Corporation. Director of
Synergen Corporation since
incorporation in 1982. Director of
ISI Pharmaceuticals, Inc. Trustee
of INVESCO Global Health Sciences
Fund.
*Because of his affiliation with INVESCO, with Intermediate Bond Fund's
investment adviser, or with companies affiliated with INVESCO, this individual
is deemed to be an "interested person" of Income Funds as that term is defined
in the 1940 Act.
(1) = As interpreted by the SEC, a security is beneficially owned by a person if
that person has or shares voting power or investment power with respect to that
security. The persons listed have partial or complete voting and investment
power with respect to their respective Fund shares.
(2) = Member of the Audit Committee
(3) = Member of the Executive Committee
(4) = Member of the Management Liaison Committee
(5) = Member of the Valuation Committee
(6) = Member of the Compensation Committee
(7) = Member of the Soft Dollar Brokerage Committee
(8) = Member of the Derivatives Committee
33
The Board has audit, management liaison, soft dollar brokerage, and
derivatives committees, consisting of Independent Directors, and compensation,
executive and valuation committees consisting of Independent Directors and
non-independent directors. The Board does not have a nominating committee. The
audit committee, consisting of four Independent Directors, meets quarterly with
Income Funds' independent accountants and executive officers of Income Funds.
This committee reviews the accounting principles being applied by Income Funds
in financial reporting, the scope and adequacy of internal controls, the
responsibilities and fees of the independent accountants, and other matters. All
of the recommendations of the audit committee are reported to the full Board.
During the intervals between the meetings of the Board, the executive committee
may exercise all powers and authority of the Board in the management of Income
Funds' business, except for certain powers which, under applicable law and/or
Income Funds' by-laws, may only be exercised by the full Board. All decisions
are subsequently submitted for ratification by the Board. The management liaison
committee meets quarterly with various management personnel of INVESCO in order
to facilitate better understanding of management and operations of Income Funds,
and to review legal and operational matters that have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The soft dollar brokerage committee meets periodically to review
soft dollar transactions by Income Funds, and to review policies and procedures
of Income Funds' adviser with respect to soft dollar brokerage transactions. The
committee then reports on these matters to the Board. The derivatives committee
meets periodically to review derivatives investments made by Income Funds. The
committee monitors derivatives usage by Income Funds and the procedures utilized
by Income Funds' adviser to ensure that the use of such instruments follows the
policies on such instruments adopted by the Board. The committee then reports on
these matters to the Board.
During the past fiscal year, the Board met five times, the audit committee
met four times, the compensation committee met twice, the management liaison
committee met four times, the soft dollar brokerage committee met twice, and the
derivatives committee met three times. The executive committee did not meet.
During Income Funds' last fiscal year, each director attended 75% or more of the
Board meetings and meetings of the committees of the Board on which he or she
served.
The Independent Directors nominate individuals to serve as Independent
Directors, without any specific nominating committee. The Board ordinarily will
not consider unsolicited director nominations recommended by Intermediate Bond
Fund shareholders. The Board, including its Independent Directors, unanimously
approved the nomination of the foregoing persons to serve as directors and
directed that the election of these nominees be submitted to Intermediate Bond
Fund's shareholders.
34
The following table sets forth information relating to the compensation
paid to directors during the last fiscal year:
COMPENSATION TABLE
AMOUNTS PAID DURING THE MOST RECENT
FISCAL YEAR BY INCOME FUNDS TO DIRECTORS
Aggregate Pension or Total Compensation
Compensation Retirement Benefits Estimated Annual From Income Funds
From Accrued as Part of Benefits Upon and Invesco Funds
Name of Person, Position Income Funds1 Income Funds Retirement3 Paid to Directors1
- ------------------------ ------------- Expenses2 ----------- ------------------
---------
FRED A DEERING, VICE CHAIRMAN OF
THE BOARD $2,550 $531 $340 $103,700
DR. VICTOR L. ANDREWS, DIRECTOR $2,520 $501 $394 $80,350
BOB R. BAKER, DIRECTOR $2,567 $448 $528 $84,000
LAWRENCE H. BUDNER, DIRECTOR $2,491 $501 $394 $79,350
DANIEL D. CHABRIS4, DIRECTOR $2,525 $542 $294 $70,000
DR. WENDY L. GRAMM, DIRECTOR $2,431 $0 $0 $79,000
KENNETH T. KING, DIRECTOR $2,451 $551 $309 $77,050
JOHN W. MCINTYRE, DIRECTOR $2,460 $0 $0 $98,500
DR. LARRY SOLL, DIRECTOR $2,460 $0 $0 $96,000
------------- ------------------ ---------------- ------------------
TOTAL $22,455 $3,074 $2,259 $767,950
- -----
AS A PERCENTAGE OF NET ASSETS 0.0103%(5) 0.0014%(5) 0.0035%(6)
- -----------------------------
Income Funds pays its Independent Directors, Board vice chairman, and
committee chairmen and members the fees described above. Income Funds also
reimburses its Independent Directors for travel expenses incurred in attending
meetings. Charles W. Brady, Chairman of the Board, and Mark H. Williamson,
President, Chief Executive Officer, and Director, as "interested persons" of
Income Funds and of other INVESCO Funds receive compensation and are reimbursed
- -----------------------------
1 The Vice Chairman of the Board, the chairmen of the audit, management liaison,
derivatives, soft dollar brokerage and compensation committees, and the
Independent Director members of the committees of each Fund receive compensation
for serving in such capacities in addition to the compensation paid to all
Independent Directors.
2 Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the election
of the directors.
3 These figures represent the Funds' share of the estimated annual benefits
payable by the INVESCO Complex (excluding INVESCO Global Health Sciences Fund
which does not participate in this retirement plan) upon the directors'
retirement, calculated using the current method of allocating director
compensation among the INVESCO Funds. These estimated benefits assume retirement
at age 72 and that the basic retainer payable to the directors will be adjusted
periodically for inflation, for increases in the number of funds in the INVESCO
Complex, and for other reasons during the period in which retirement benefits
are accrued on behalf of the respective directors. This results in lower
estimated benefits for directors who are closer to retirement and higher
estimated benefits for directors who are farther from retirement. With the
exception of Mr. McIntyre and Drs. Soll and Gramm, each of these directors has
served as director of one or more of the INVESCO Funds for the minimum five-year
period required to be eligible to participate in the Defined Benefit Deferred
Compensation Plan.
4 Mr. Chabris retired as a director effective September 30, 1998.
5 Total as a percentage of the Fund's net assets as of June 30, 1998.
6 Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1998.
35
for travel expenses incurred in attending meetings as officers or employees of
INVESCO or its affiliated companies, but do not receive any director's fees or
other compensation from Income Funds or other INVESCO Funds for their services
as directors.
The overall direction and supervision of Income Funds is the
responsibility of the Board, which has the primary duty of ensuring that Income
Funds' general investment policies and programs are adhered to and that the
Income Funds are properly administered. The officers of Income Funds, all of
whom are officers and employees of and paid by INVESCO, are responsible for the
day-to-day administration of Income Funds. The investment adviser for Income
Funds has the primary responsibility for making investment decisions on behalf
of Income Funds. These investment decisions are reviewed by the investment
committee of INVESCO.
All of the officers and directors of Income Funds hold comparable
positions with the following INVESCO Funds: INVESCO Bond Funds, Inc., (formerly,
INVESCO Income Funds, Inc.), INVESCO Combination Stock & Bond Funds, Inc.
(formerly, INVESCO Flexible Funds, Inc. and INVESCO Multiple Asset Funds, Inc.),
INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc.,
INVESCO Growth Funds, Inc. (formerly INVESCO Growth Fund, Inc.), INVESCO
Industrial Income Fund, Inc., INVESCO International Funds, Inc., INVESCO Money
Market Funds, Inc., INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic
Portfolios, Inc.), INVESCO Specialty Funds, Inc., INVESCO Stock Funds, Inc.
(formerly, INVESCO Equity Funds, Inc. and INVESCO Capital Appreciation Funds,
Inc.), and INVESCO Variable Investment Funds, Inc. All of the directors of
Income Funds also serve as trustees of INVESCO Value Trust and INVESCO
Treasurer's Series Trust.
The Boards of the funds managed by INVESCO, INVESCO Treasurer's Series
Trust, and INVESCO Value Trust have adopted a Defined Benefit Deferred
Compensation Plan (the "Plan") for the non-interested directors and trustees of
the Funds. Under the Plan, each director or trustee who is not an interested
person of the Funds (as defined in Section 2(a)(19) of the 1940 Act) and who has
served for at least five years (a "Qualified Director") is entitled to receive,
upon termination of service as director (normally at retirement age 72 or the
retirement age of 73 or 74, if the retirement date is extended by the Boards for
one or two years, but less than three years) continuation of payment for one
year (the "First Year Retirement Benefit") if the annual basic retainer and
annualized board meeting fees payable by the Funds to the Qualified Director at
the time of his or her retirement. Commencing with any such director's second
year of retirement, and commencing with the first year of retirement of any
director whose retirement has been extended by the Board for three years, a
Qualified Director shall receive quarterly payments at an annual rate equal to
50% of the basic retainer and annualized board meeting fees. These payments will
continue for the remainder of the Qualified Director's life or ten years,
whichever is longer. If a Qualified Director dies or becomes disabled after age
72 and before age 74 while still a director of the Funds, the First Year
Retirement Benefit and Reduced Retainer Payments will be made to him or her or
to his or her beneficiary or estate. If a Qualified Director becomes disabled or
dies either prior to age 72 or during his or her 74th year while still a
director of the Funds, the director will not be entitled to receive the First
Year Retirement Benefit; however, the retirement payments will be made to his or
her beneficiary or estate. The Plan is administered by a committee of three
directors who are also participants in the Plan and one director who is not a
Plan participant. The cost of the Plan will be allocated among the INVESCO,
36
Treasurer's Series Trust, and Value Trust Funds (the "INVESCO Funds") in a
manner determined to be fair and equitable by the committee. The Fund began
making payments to Mr. Chabris as of October 1, 1998 under the Plan. The Fund
has no stock options or other pension or retirement plans for management or
other personnel and pays no salary or compensation to any of its officers.
The Independent Directors have contributed to a deferred compensation
plan, pursuant to which they have deferred receipt of a portion of the
compensation which they would otherwise have been paid as directors of certain
of the INVESCO Funds. The deferred amounts, have been invested in shares of all
of the INVESCO Funds. Each Independent Director is, therefore, an indirect owner
of shares of each INVESCO fund, in addition to any Fund shares that may be owned
directly.
REQUIRED VOTE. Election of each nominee as a director of Income Funds
requires the vote of a plurality of all the outstanding shares of Intermediate
Bond Fund present in person or by proxy at the Meeting, and at a concurrent
meeting of the shareholders of Long-Term Bond Fund, in the aggregate.
THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS,
UNAMIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" EACH OF THE NOMINEES IN PROPOSAL 4
----------------------------------------------------------
PROPOSAL 5: RATIFICATION OR REJECTION OF SELECTION OF
INDEPENDENT ACCOUNTANTS.
The Board of Income Funds, including all of its Independent Directors, has
selected PricewaterhouseCoopers LLP to continue to serve as independent
accountants of Intermediate Bond Fund, subject to ratification by Intermediate
Bond Fund's shareholders. PricewaterhouseCoopers LLP has no direct financial
interest or material indirect financial interest in Intermediate Bond Fund.
Representatives of PricewaterhouseCoopers LLP are not expected to attend the
Meeting, but have been given the opportunity to make a statement if they so
desire, and will be available should any matter arise requiring their presence.
The independent accountants examine annual financial statements for
Intermediate Bond Fund and provide other audit and tax-related services. In
recommending the selection of PricewaterhouseCoopers LLP, the directors reviewed
the nature and scope of the services to be provided (including non-audit
services) and whether the performance of such services would affect the
accountants' independence.
REQUIRED VOTE. Ratification of the selection of PricewaterhouseCoopers
LLP as independent accountants requires the vote of a majority of the votes
present at the Meeting, provided a quorum is present.
37
THE BOARD UNANIMOUSLY RECOMMENDS
THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL 5
----------------------------------------------------------
OTHER BUSINESS
The Board knows of no other business to be brought before the Meeting. If,
however, any other matters properly come before the Meeting, it is the intention
that proxies that do not contain specific instructions to the contrary will be
voted on such matters in accordance with the judgment of the persons designated
in the proxies.
INFORMATION CONCERNING ADVISER, DISTRIBUTOR
AND AFFILIATED COMPANIES
INVESCO, a Delaware corporation, serves as Intermediate Bond Fund's
investment adviser and provides other services to Intermediate Bond Fund and
Income Funds. IDI, a Delaware corporation that serves as Intermediate Bond
Fund's distributor, is a wholly owned subsidiary of INVESCO. INVESCO is a wholly
owned subsidiary of INVESCO North American Holdings, Inc. ("INAH"), 1315
Peachtree Street, N.E., Atlanta, Georgia 30309. INAH is an indirect wholly owned
subsidiary of AMVESCAP PLC.(7) The corporate headquarters of AMVESCAP PLC are
located at 11 Devonshire Square, London, EC2M 4YR, England. INVESCO's and IDI's
offices are located at 7800 East Union Avenue, Denver, Colorado 80237. INVESCO
currently serves as investment adviser of 14 open-end investment companies
having approximate aggregate net assets in excess of $21.1 billion as of
December 31, 1998.
The principal executive officers and directors of INVESCO and their
principal occupations are:
Mark H. Williamson, Chairman of the Board, President, Chief Executive
Officer and Director, also, President and Chief Executive Officer of IDI; and
Charles P. Mayer, Director and Senior Vice President, also, Senior Vice
President and Director of IDI; Ronald L. Grooms, Senior Vice President and
Treasurer, also, Senior Vice President and Treasurer of IDI; and Glen A. Payne,
Senior Vice President, Secretary and General Counsel, also, Senior Vice
President, Secretary and General Counsel of IDI.
The address of each of the foregoing officers and directors is 7800 East
Union Avenue, Denver, Colorado 80237.
Pursuant to an Administrative Services Agreement between Income Funds and
INVESCO, INVESCO provides administrative services to Income Funds, including
sub-accounting and recordkeeping services and functions. INVESCO , also serves
as Income Funds' registrar, transfer agent and dividend disbursing agent. During
the year ended December 31, 1998, Income Funds paid INVESCO total compensation
of $304,439 for such services.
- -------------------
7 The intermediary companies between INAH and AMVESCAP PLC are as follows:
INVESCO, Inc., INVESCO Group Services, Inc. and INVESCO North American Group,
Ltd., each of which is wholly owned by its immediate parent.
38
MISCELLANEOUS
AVAILABLE INFORMATION
Each Fund is subject to the information requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith files reports,
proxy material and other information with the SEC. These reports, proxy material
and other information can be inspected and copied at the Public Reference Room
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, the
Midwest Regional office of the SEC, Northwest Atrium Center, 500 West Madison
Street, Suite 400, Chicago, Illinois 60611, and the Northeast Regional Office of
the SEC, Seven World Trade Center, Suite 1300, New York, New York 10048. Copies
of such material can also be obtained from the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20459 at prescribed rates.
LEGAL MATTERS
Certain legal matters in connection with the issuance of Long-Term Bond
Fund shares as part of the Reorganization will be passed upon by Long-Term Bond
Fund's counsel, Kirkpatrick & Lockhart LLP.
EXPERTS
The audited financial statements of Long-Term Bond Fund and Intermediate
Bond Fund, incorporated herein by reference and incorporated by reference or
included in their respective Statements of Additional Information, have been
audited by PricewaterhouseCoopers LLP, independent accountants for the Funds,
whose reports thereon are included in the Funds' Annual Reports to shareholders
for the fiscal year ended June 30, 1998. The financial statements audited by
PricewaterhouseCoopers LLP have been incorporated herein by reference in
reliance on their reports given on their authority as experts in auditing and
accounting matters.
39
APPENDIX A
PLAN OF REORGANIZATION AND TERMINATION
--------------------------------------
THIS PLAN OF REORGANIZATION AND TERMINATION ("Plan") is made by INVESCO
Tax-Free Income Funds, Inc., a Maryland corporation ("Corporation"), on behalf
of INVESCO Tax-Free Intermediate Bond Fund ("Target") and INVESCO Tax-Free
Long-Term Bond Fund ("Acquiring Fund"), and is effective as of the date of its
adoption by Corporation's board of directors. (Acquiring Fund and Target are
sometimes referred to herein individually as a "Fund" and collectively as the
"Funds.") Corporation is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Maryland; and a copy of its
Articles of Incorporation is on file with the Secretary of State of Maryland.
Each Fund is a duly established and designated segregated portfolio of assets
("series") of Corporation.
This Plan is intended to be, and is adopted as, a plan of a reorganization
described in section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended ("Code"). The reorganization will involve the transfer to Acquiring Fund
of Target's assets in exchange solely for voting shares of common stock in
Acquiring Fund, par value $0.01 per share ("Acquiring Fund Shares"), and the
assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of the Acquiring Fund Shares PRO RATA to the holders
of shares of common stock in Target ("Target Shares") in exchange therefor, all
on the terms and conditions set forth herein. The foregoing transactions are
referred to herein collectively as the "Reorganization."
Each Fund issues a single class of shares, which are substantially similar
to each other. Each Fund's shares (1) are offered at net asset value ("NAV"),
(2) are subject to a service fee at the annual rate of 0.25% of its net assets
imposed pursuant to a plan of distribution adopted in accordance with Rule 12b-1
promulgated under the Investment Company Act of 1940, as amended ("1940 Act"),
and (3) are subject to similar management fees (up to 0.50% of Target's net
assets and up to 0.55% of Acquiring Fund's net assets).
1. THE REORGANIZATION
------------------
1.1 Target shall assign, sell, convey, transfer, and deliver all of its
assets described in paragraph 1.2 ("Assets") to Acquiring Fund. In exchange
therefor, Acquiring Fund shall --
(a) issue and deliver to Target the number of full and fractional
(rounded to the third decimal place) Acquiring Fund Shares,
determined by dividing the net value of Target (computed as set
forth in paragraph 2.1) by the NAV of an Acquiring Fund Share
(computed as set forth in paragraph 2.2), and
(b) assume all of Target's liabilities described in paragraph 1.3
("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 3.1).
A-1
1.2 The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3 The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Plan.
Notwithstanding the foregoing, Target shall use its best efforts to discharge
all its known Liabilities before the Effective Time.
1.4 At or immediately before the Effective Time, Target shall declare and
pay to its shareholders a dividend and/or other distribution in an amount large
enough so that it will have distributed substantially all (and in any event not
less than 90%) of its investment company taxable income (computed without regard
to any deduction for dividends paid) and substantially all of its realized net
capital gain, if any, for the current taxable year through the Effective Time.
1.5 At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall distribute the Acquiring Fund Shares received by it
pursuant to paragraph 1.1 to Target's shareholders of record, determined as of
the Effective Time (each a "Shareholder" and collectively "Shareholders"), in
constructive exchange for their Target Shares. Such distribution shall be
accomplished by Acquiring Fund's transfer agent's opening accounts on Acquiring
Fund's share transfer books in the Shareholders' names and transferring such
Acquiring Fund Shares thereto. Each Shareholder's account shall be credited with
the respective pro rata number of full and fractional (rounded to the third
decimal place) Acquiring Fund Shares due that Shareholder. All outstanding
Target Shares, including any represented by certificates, shall simultaneously
be canceled on Target's share transfer books. Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares issued in connection with
the Reorganization.
1.6 As soon as reasonably practicable after distribution of the Acquiring
Fund Shares pursuant to paragraph 1.5, but in all events within twelve months
after the Effective Time, Target shall be terminated and any further actions
shall be taken in connection therewith as required by applicable law.
1.7 Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8 Any transfer taxes payable upon issuance of Acquiring Fund Shares in
a name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
A-2
2 VALUATION
---------
2.1 For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of the close of regular trading on the New York
Stock Exchange ("NYSE") on the date of the Closing ("Valuation Time"), using the
valuation procedures set forth in Target's then-current prospectus and statement
of additional information less (b) the amount of the Liabilities as of the
Valuation Time.
2.2 For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund Share
shall be computed as of the Valuation Time, using the valuation procedures set
forth in Acquiring Fund's then-current prospectus and statement of additional
information.
2.3 All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of INVESCO Funds Group, Inc. ("INVESCO").
3 CLOSING AND EFFECTIVE TIME
--------------------------
3.1 The Reorganization, together with related acts necessary to consummate
the same ("Closing"), shall occur at Corporation's principal office on June
[18?], 1999, or at such other place and/or on such other date as to which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the close of business on the date thereof or at such
other time as to which the parties may agree ("Effective Time"). If, immediately
before the Valuation Time, (a) the NYSE is closed to trading or trading thereon
is restricted or (b) trading or the reporting of trading on the NYSE or
elsewhere is disrupted, so that accurate appraisal of the net value of Target
and the NAV of an Acquiring Fund Share is impracticable, the Effective Time
shall be postponed until the first business day after the day when such trading
shall have been fully resumed and such reporting shall have been restored.
3.2 Corporation's fund accounting and pricing agent shall deliver at the
Closing a certificate of an authorized officer verifying that the information
(including adjusted basis and holding period, by lot) concerning the Assets,
including all portfolio securities, transferred by Target to Acquiring Fund, as
reflected on Acquiring Fund's books immediately following the Closing, does or
will conform to such information on Target's books immediately before the
Closing. Corporation's custodian shall deliver at the Closing a certificate of
an authorized officer stating that (a) the Assets held by the custodian will be
transferred to Acquiring Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3 Corporation's transfer agent shall deliver at the Closing a
certificate as to the opening on Acquiring Fund's share transfer books of
accounts in the Shareholders' names.
A-3
4 CONDITIONS
----------
Each Fund's obligations hereunder are subject to satisfaction of each
condition indicated in this section 4 as being applicable to it either at the
time stated therein or, if no time is so stated, at or before (and continuing
through) the Effective Time:
4.1 Conditions to Each Fund's Obligations:
-------------------------------------
4.1.1 This Plan and the transactions contemplated hereby shall have
been approved by Target's shareholders in accordance with applicable law;
4.1.2 The aggregate fair market value of the Acquiring Fund Shares,
when received by the Shareholders, will be approximately equal to the
aggregate fair market value of their Target Shares constructively
surrendered in exchange therefor;
4.1.3 Corporation's management (a) is unaware of any plan or
intention of Shareholders to redeem or otherwise dispose of any portion
of the Acquiring Fund Shares to be received by them in the Reorganization
and (b) does not anticipate dispositions of those Acquiring Fund Shares
at the time of or soon after the Reorganization to exceed the usual rate
and frequency of dispositions of shares of Target as a series of an
open-end investment company. Consequently, Corporation's management
expects that the percentage of Shareholder interests, if any, that will
be disposed of as a result of or at the time of the Reorganization will
be de minimis. Nor does Corporation's management anticipate that there
will be extraordinary redemptions of Acquiring Fund Shares immediately
following the Reorganization;
4.1.4 The Shareholders will pay their own expenses, if any, incurred
in connection with the Reorganization;
4.1.5 Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto (in addition to the assets and liabilities
Acquiring Fund then held or was subject to), plus any liabilities and
expenses of the parties incurred in connection with the Reorganization;
4.1.6 The fair market value of the Assets on a going concern basis
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.1.7 There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.1.8 Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the
Reorganization. For the purposes of this representation, any amounts used
by Target to pay its Reorganization expenses and to make redemptions and
A-4
distributions immediately before the Reorganization (except (a)
redemptions not made as part of the Reorganization and (b) distributions
made to conform to its policy of distributing all or substantially all of
its income and gains to avoid the obligation to pay federal income tax
and/or the excise tax under section 4982 of the Code) will be included as
assets thereof held immediately before the Reorganization;
4.1.9 None of the compensation received by any Shareholder who is an
employee of or service provider to Target will be separate consideration
for, or allocable to, any of the Target Shares held by such Shareholder;
none of the Acquiring Fund Shares received by any such Shareholder will
be separate consideration for, or allocable to, any employment agreement,
investment advisory agreement, or other service agreement; and the
consideration paid to any such Shareholder will be for services actually
rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services;
4.1.10 Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the
meaning of section 304(c) of the Code;
4.1.11 Neither Fund will be reimbursed for any expenses incurred by
it or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization
(determined in accordance with the guidelines set forth in Rev. Rul.
73-54, 1973-1 C.B. 187) ("Reorganization Expenses");
4.1.12 Corporation shall have received an opinion of Kirkpatrick &
Lockhart LLP ("Counsel"), addressed to and in form and substance
satisfactory to it, as to the federal income tax consequences mentioned
below ("Tax Opinion"). In rendering the Tax Opinion, Counsel may assume
satisfaction of all the conditions set forth in this section 4 (and treat
them as representations by Corporation to Counsel) and may rely as to any
factual matters, exclusively and without independent verification, on
such representations and any other representations made to Counsel by
responsible officers of Corporation. The Tax Opinion shall be
substantially to the effect that, based on the facts and assumptions
stated therein, for federal income tax purposes:
4.1.12.1 Acquiring Fund's acquisition of the Assets in exchange
solely for Acquiring Fund Shares and Acquiring Fund's assumption of
the Liabilities, followed by Target's distribution of those shares
pro rata to the Shareholders constructively in exchange for the
Shareholders' Target Shares, will constitute a reorganization within
the meaning of section 368(a)(1)(C) of the Code, and each Fund will
be "a party to a reorganization" within the meaning of section
368(b) of the Code;
4.1.12.2 Target will recognize no gain or loss on the transfer
to Acquiring Fund of the Assets in exchange solely for Acquiring
Fund Shares and Acquiring Fund's assumption of the Liabilities or on
the subsequent distribution of those shares to the Shareholders in
constructive exchange for their Target Shares;
A-5
4.1.12.3 Acquiring Fund will recognize no gain or loss on its
receipt of the Assets in exchange solely for Acquiring Fund Shares
and its assumption of the Liabilities;
4.1.12.4 Acquiring Fund's basis for the Assets will be the same
as the basis thereof in Target's hands immediately before the
Reorganization, and Acquiring Fund's holding period for the Assets
will include Target's holding period therefor;
4.1.12.5 A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring
Fund Shares pursuant to the Reorganization; and
4.1.12.6 A Shareholder's aggregate basis for the Acquiring Fund
Shares to be received by it in the Reorganization will be the same
as the aggregate basis for its Target Shares to be constructively
surrendered in exchange for those Acquiring Fund Shares, and its
holding period for those Acquiring Fund Shares will include its
holding period for those Target Shares, provided they are held as
capital assets by the Shareholder at the Effective Time.
Notwithstanding subparagraphs 4.1.12.2 and 4.1.12.4, the Tax Opinion may
state that no opinion is expressed as to the effect of the Reorganization
on the Funds or any Shareholder with respect to any 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.
4.2 Conditions to Acquiring Fund's Obligations:
------------------------------------------
4.2.1 At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign,
transfer, and deliver the Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, Acquiring Fund will acquire
good and marketable title thereto;
4.2.2 The Liabilities were incurred by Target in the ordinary course
of its business;
4.2.3 Target is a "fund" as defined in section 851(g)(2) of the Code;
it qualified for treatment as a regulated investment company under
Subchapter M of the Code ("RIC") for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings
and profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
A-6
times through the Effective Time in a manner that ensures compliance with
the foregoing;
4.2.4 Target is not under the jurisdiction of a court in a proceeding
under Title 11 of the United States Code or similar case within the
meaning of section 368(a)(3)(A) of the Code;
4.2.5 Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock and securities of any one issuer, and not more than 50% of
the value of such assets is invested in the stock and securities of five
or fewer issuers; and
4.2.6 Target will be terminated as soon as reasonably practicable
after the Effective Time, but in all events within twelve months
thereafter.
4.3 Conditions to Target's Obligations:
----------------------------------
4.3.1 No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in
exchange for the Assets in the Reorganization;
4.3.2 The Acquiring Fund Shares to be issued and delivered to Target
hereunder will, at the Effective Time, have been duly authorized and,
when issued and delivered as provided herein, will be duly and validly
issued and outstanding shares of Acquiring Fund, fully paid and
non-assessable;
4.3.3 Acquiring Fund is a "fund" as defined in section 851(g)(2) of
the Code; it qualified for treatment as a RIC for each past taxable year
since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year;
Acquiring Fund intends to continue to meet all such requirements for the
next taxable year; and it has no earnings and profits accumulated in any
taxable year in which the provisions of Subchapter M of the Code did not
apply to it;
4.3.4 Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, except to the extent it is
required by the 1940 Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of that business;
4.3.5 Following the Reorganization, Acquiring Fund (a) will continue
Target's "historic business" (within the meaning of section 1.368-1(d)(2)
of the Income Tax Regulations under the Code), (b) use a significant
portion of Target's historic business assets (within the meaning of
section 1.368-1(d)(3) of the Income Tax Regulations under the Code) in a
business, (c) has no plan or intention to sell or otherwise dispose of
any of the Assets, except for dispositions made in the ordinary course of
A-7
that business and dispositions necessary to maintain its status as a RIC,
and (d) expects to retain substantially all the Assets in the same form
as it receives them in the Reorganization, unless and until subsequent
investment circumstances suggest the desirability of change or it becomes
necessary to make dispositions thereof to maintain such status;
4.3.6 There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or a business trust or any
"fund" thereof (within the meaning of section 851(g)(2) of the Code)
following the Reorganization;
4.3.7 Immediately after the Reorganization, (a) not more than 25% of
the value of Acquiring Fund's total assets (excluding cash, cash items,
and U.S. government securities) will be invested in the stock and
securities of any one issuer and (b) not more than 50% of the value of
such assets will be invested in the stock and securities of five or fewer
issuers; and
4.3.8 Acquiring Fund does not directly or indirectly own, nor at the
Effective Time will it directly or indirectly own, nor has it at any time
during the past five years directly or indirectly owned, any shares of
Target.
5 EXPENSES
--------
Except as otherwise provided herein, 50% of the total Reorganization
Expenses will be borne by INVESCO and the remaining 50% will be borne partly by
each Fund.
6 TERMINATION
-----------
Corporation's board of directors may terminate this Plan and abandon the
Reorganization at any time prior to the Closing if circumstances develop that,
in its judgment, make proceeding with the Reorganization inadvisable for either
Fund.
7 GOVERNING LAW
-------------
This Plan shall be governed by and construed in accordance with the
internal laws of the State of Maryland; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
A-8
APPENDIX B
PRINCIPAL SHAREHOLDERS
----------------------
As of March 12, 1999 the following entities held more than 5% of each
Fund's outstanding equity securities:
NATURE OF COMBINED
OWNERSHIP % OWNED FUND%
--------- ------- --------
INVESCO TAX-FREE LONG-TERM BOND FUND
- ------------------------------------
INVESCO TAX-FREE INTERMEDIATE BOND FUND
- ---------------------------------------
Donaldson, Lufkin & Jenrette
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
Charles Schwab & Co., Inc.
Special Custody Account
For the Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104
B-1
APPENDIX C
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
------------------------------------------------
This AGREEMENT AND PLAN OF CONVERSION AND TERMINATION ("Agreement") is
made as of _____ __, 1999, between INVESCO Tax-Free Income Funds, Inc., a
Maryland corporation ("Tax-Free Income Funds"), on behalf of INVESCO Tax-Free
Intermediate Bond Fund, a segregated portfolio of assets ("series") thereof
("Old Fund"), and INVESCO Bond Funds, Inc., a Maryland corporation ("Bond
Funds"), on behalf of its INVESCO Tax-sree Intermediate Bond Fund series ("New
Fund"). (Old Fund and New Fund are sometimes referred to herein individually as
a "Fund" and collectively as the "Funds"; Tax-Free Income Funds and Bond Funds
are sometimes referred to herein individually as an "Investment Company" and
collectively as the "Investment Companies.") All agreements, representations,
actions, and obligations described herein made or to be taken or undertaken by
either Fund are made and shall be taken or undertaken by Tax-Free Income Funds
on behalf of Old Fund and by Bond Funds on behalf of New Fund.
Old Fund intends to change its identity -- by converting from a series of
Tax-Free Income Funds to a series of Bond Funds -- through a reorganization
within the meaning of section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended ("Code"). Old Fund desires to accomplish such conversion by
transferring all its assets to New Fund (which is being established solely for
the purpose of acquiring such assets and continuing Old Fund's business) in
exchange solely for voting shares of common stock in New Fund ("New Fund
Shares") and New Fund's assumption of Old Fund's liabilities, followed by the
constructive distribution of the New Fund Shares PRO RATA to the holders of
shares of common stock in Old Fund ("Old Fund Shares") in exchange therefor, all
on the terms and conditions set forth in this Agreement (which is intended to
be, and is adopted as, a "plan of reorganization" for federal income tax
purposes). All such transactions are referred to herein as the "Reorganization."
In consideration of the mutual promises herein contained, the parties
agree as follows:
1. PLAN OF CONVERSION AND TERMINATION
----------------------------------
1.1. Old Fund agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to New Fund. New Fund agrees in
exchange therefor --
(a) to issue and deliver to Old Fund the number of full and
fractional (rounded to the third decimal place) New Fund Shares equal to
the number of full and fractional Old Fund Shares then outstanding, and
(b) to assume all of Old Fund's liabilities described in paragraph
1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 2.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
C-1
shown as assets on Old Fund's books, and other property owned by Old Fund at the
Effective Time (as defined in paragraph 2.1).
1.3. The Liabilities shall include all of Old Fund's liabilities, debts,
obligations, and duties of whatever kind or nature, whether absolute, accrued,
contingent, or otherwise, whether or not arising in the ordinary course of
business, whether or not determinable at the Effective Time, and whether or not
specifically referred to in this Agreement.
1.4. At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Share issued pursuant to paragraph 4.4 shall be
redeemed by New Fund for $1.00 and (b) Old Fund shall distribute the New Fund
Shares it received pursuant to paragraph 1.1 to its shareholders of record,
determined as of the Effective Time (each a "Shareholder" and collectively
"Shareholders"), in constructive exchange for their Old Fund Shares. Such
distribution shall be accomplished by Bond Funds' transfer agent's opening
accounts on New Fund's share transfer books in the Shareholders' names and
transferring such New Fund Shares thereto. Each Shareholder's account shall be
credited with the respective PRO RATA number of full and fractional (rounded to
the third decimal place) New Fund Shares due that Shareholder. All outstanding
Old Fund Shares, including those represented by certificates, shall
simultaneously be canceled on Old Fund's share transfer books. New Fund shall
not issue certificates representing the New Fund Shares in connection with the
Reorganization.
1.5. As soon as reasonably practicable after distribution of the New Fund
Shares pursuant to paragraph 1.4, but in all events within twelve months after
the Effective Time, Old Fund shall be terminated as a series of Tax-Free Income
Funds and any further actions shall be taken in connection therewith as required
by applicable law.
1.6. Any reporting responsibility of Old Fund to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.7. Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder on Old Fund's books of the Old Fund
Shares constructively exchanged therefor shall be paid by the person to whom
such New Fund Shares are to be issued, as a condition of such transfer.
2. CLOSING AND EFFECTIVE TIME
--------------------------
2.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office on
June [18?], 1999, or at such other place and/or on such other date as to which
the parties may agree. All acts taking place at the Closing shall be deemed to
take place simultaneously as of the close of business on the date thereof or at
such other time as to which the parties may agree ("Effective Time").
2.2. Tax-Free Income Funds' fund accounting and pricing agent shall
deliver at the Closing a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by Old Fund to New Fund,
as reflected on New Fund's books immediately following the Closing, does or will
conform to such information on Old Fund's books immediately before the Closing.
Tax-Free Income Funds' custodian shall deliver at the Closing a certificate of
an authorized officer stating that (a) the Assets held by the custodian will be
transferred to New Fund at the Effective Time and (b) all necessary taxes in
conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
C-2
2.3. Bond Funds' transfer agent shall deliver at the Closing a certificate
as to the opening on New Fund's share transfer books of accounts in the
Shareholders' names. Bond Funds shall issue and deliver a confirmation to
Tax-Free Income Funds evidencing the New Fund Shares to be credited to Old Fund
at the Effective Time or provide evidence satisfactory to Tax-Free Income Funds
that such New Fund Shares have been credited to Old Fund's account on such
books. At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts, or other documents as the
other party or its counsel may reasonably request.
2.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES
------------------------------
3.1. Old Fund represents and warrants as follows:
3.1.1. Tax-Free Income Funds is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Maryland; and a copy of its Articles of Incorporation is on file with the
Secretary of State of Maryland;
3.1.2. Tax-Free Income Funds is duly registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended ("1940 Act"), and such registration will be in full force and
effect at the Effective Time;
3.1.3. Old Fund is a duly established and designated series of
Tax-Free Income Funds;
3.1.4. At the Closing, Old Fund will have good and marketable title
to the Assets and full right, power, and authority to sell, assign,
transfer, and deliver the Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, New Fund will acquire good
and marketable title thereto;
3.1.5. New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms hereof;
3.1.6. Old Fund is a "fund" as defined in section 851(g)(2) of the
Code; it qualified for treatment as a regulated investment company under
Subchapter M of the Code ("RIC") for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings
and profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
times through the Effective Time in a manner that ensures compliance with
the foregoing;
3.1.7. The Liabilities were incurred by Old Fund in the ordinary
course of its business and are associated with the Assets;
3.1.8. Old Fund is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
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3.1.9. Not more than 25% of the value of Old Fund's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock and securities of any one issuer, and not more than 50% of
the value of such assets is invested in the stock and securities of five
or fewer issuers;
3.1.10. As of the Effective Time, Old Fund will not have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Old Fund Shares;
3.1.11. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Old Fund's
shareholders; and
3.1.12. Old Fund will be terminated as soon as reasonably
practicable after the Effective Time, but in all events within twelve
months thereafter.
3.2. New Fund represents and warrants as follows:
3.2.1. Bond Funds is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Maryland; and a copy
of its Articles of Incorporation is on file with the Secretary of State of
Maryland;
3.2.2. Bond Funds is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
3.2.3. Before the Effective Time, New Fund will be a duly
established and designated series of Bond Funds;
3.2.4. New Fund has not commenced operations and will not do so
until after the Closing;
3.2.5. Prior to the Effective Time, there will be no issued and
outstanding shares in New Fund or any other securities issued by New Fund,
except as provided in paragraph 4.4;
3.2.6. No consideration other than New Fund Shares (and New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets
in the Reorganization;
3.2.7. The New Fund Shares to be issued and delivered to Old Fund
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, will be duly and validly issued
and outstanding shares of New Fund, fully paid and non-assessable;
3.2.8. New Fund will be a "fund" as defined in section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
3.2.9. New Fund has no plan or intention to issue additional New
Fund Shares following the Reorganization except for shares issued in the
ordinary course of its business as a series of an open-end investment
company; nor does New Fund have any plan or intention to redeem or
otherwise reacquire any New Fund Shares issued to the Shareholders
pursuant to the Reorganization, except to the extent it is required by the
C-4
1940 Act to redeem any of its shares presented for redemption at net asset
value in the ordinary course of that business;
3.2.10. Following the Reorganization, New Fund (a) will continue Old
Fund's "historic business" (within the meaning of section 1.368-1(d)(2) of
the Income Tax Regulations under the Code), (b) use a significant portion
of Old Fund's historic business assets (within the meaning of section
1.368-1(d)(3) of the Income Tax Regulations under the Code) in a business,
(c) has no plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of that
business and dispositions necessary to maintain its status as a RIC, and
(d) expects to retain substantially all the Assets in the same form as it
receives them in the Reorganization, unless and until subsequent
investment circumstances suggest the desirability of change or it becomes
necessary to make dispositions thereof to maintain such status;
3.2.11. There is no plan or intention for New Fund to be dissolved
or merged into another corporation or a business trust or any "fund"
thereof (within the meaning of section 851(g)(2) of the Code) following
the Reorganization; and
3.2.12. Immediately after the Reorganization, (a) not more than 25%
of the value of New Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities
of any one issuer and (b) not more than 50% of the value of such assets
will be invested in the stock and securities of five or fewer issuers.
3.3. Each Fund represents and warrants as follows:
3.3.1. The aggregate fair market value of the New Fund Shares, when
received by the Shareholders, will be approximately equal to the aggregate
fair market value of their Old Fund Shares constructively surrendered in
exchange therefor;
3.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of
their Old Fund Shares before the Reorganization to any person related
(within the meaning of section 1.368-1(e)(3) of the Income Tax Regulations
under the Code) to either Fund or (ii) any portion of the New Fund Shares
to be received by them in the Reorganization to any person related (as so
defined) to New Fund, (b) does not anticipate dispositions of those New
Fund Shares at the time of or soon after the Reorganization to exceed the
usual rate and frequency of dispositions of shares of Old Fund as a series
of an open-end investment company, (c) expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be DE MINIMIS, and (d) does not
anticipate that there will be extraordinary redemptions of New Fund Shares
immediately following the Reorganization;
3.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
3.3.4. Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares and will own such shares
solely by reason of their ownership of Old Fund Shares immediately before
the Reorganization;
3.3.5. Immediately following consummation of the Reorganization, New
Fund will hold the same assets -- except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization -- and be subject
to the same liabilities that Old Fund held or was subject to immediately
C-5
prior to the Reorganization, plus any liabilities for expenses of the
parties incurred in connection with the Reorganization. Such excepted
assets, together with the amount of all redemptions and distributions
(other than regular, normal dividends) made by Old Fund immediately
preceding the Reorganization, will, in the aggregate, constitute less than
1% of its net assets;
3.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount; and
3.3.7. Neither Fund will be reimbursed for any expenses incurred by
it or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1
C.B. 187) ("Reorganization Expenses").
4. CONDITIONS PRECEDENT
--------------------
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all its obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
4.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by the each Investment Company's board of
directors and shall have been approved by Old Fund's shareholders in accordance
with applicable law;
4.2. All necessary filings shall have been made with the Securities and
Exchange Commission ("SEC") and state securities authorities, and no order or
directive shall have been received that any other or further action is required
to permit the parties to carry out the transactions contemplated hereby. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Investment Company to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on the assets or properties of either Fund, provided that either
Investment Company may for itself waive any of such conditions;
4.3. Each Investment Company shall have received an opinion of Kirkpatrick
& Lockhart LLP, addressed to and in form and substance satisfactory to it, as to
the federal income tax consequences mentioned below ("Tax Opinion"). In
rendering the Tax Opinion, such counsel may rely as to factual matters,
exclusively and without independent verification, on the representations made in
this Agreement (or in separate letters addressed to such counsel) and the
certificates delivered pursuant to paragraph 2.4. The Tax Opinion shall be
substantially to the effect that, based on the facts and assumptions stated
therein and conditioned on consummation of the Reorganization in accordance with
this Agreement, for federal income tax purposes:
4.3.1. New Fund's acquisition of the Assets in exchange solely for
New Fund Shares and New Fund's assumption of the Liabilities, followed by
Old Fund's distribution of those shares PRO RATA to the Shareholders
constructively in exchange for the Shareholders' Old Fund Shares, will
constitute a reorganization within the meaning of section 368(a)(1)(F) of
the Code, and each Fund will be "a party to a reorganization" within the
meaning of section 368(b) of the Code;
C-6
4.3.2. Old Fund will recognize no gain or loss on the transfer to
New Fund of the Assets in exchange solely for New Fund Shares and New
Fund's assumption of the Liabilities or on the subsequent distribution of
those shares to the Shareholders in constructive exchange for their Old
Fund Shares;
4.3.3. New Fund will recognize no gain or loss on its receipt of the
Assets in exchange solely for New Fund Shares and its assumption of the
Liabilities;
4.3.4. New Fund's basis for the Assets will be the same as the basis
thereof in Old Fund's hands immediately before the Reorganization, and New
Fund's holding period for the Assets will include Old Fund's holding
period therefor;
4.3.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Old Fund Shares solely for New Fund
Shares pursuant to the Reorganization;
4.3.6. A Shareholder's aggregate basis for the New Fund Shares to be
received by it in the Reorganization will be the same as the aggregate
basis for its Old Fund Shares to be constructively surrendered in exchange
for those New Fund Shares, and its holding period for those New Fund
Shares will include its holding period for those Old Fund Shares, provided
they are held as capital assets by the Shareholder at the Effective Time;
and
4.3.7. For purposes of section 381 of the Code, New Fund will be
treated as if there had been no Reorganization. Accordingly, the
Reorganization will not result in the termination of Old Fund's taxable
year, Old Fund's tax attributes enumerated in section 381(c) of the Code
will be taken into account by New Fund as if there had been no
Reorganization, and the part of Old Fund's taxable year before the
Reorganization will be included in New Fund's taxable year after the
Reorganization;
4.4. Prior to the Closing, Bond Funds' directors shall have authorized the
issuance of, and New Fund shall have issued, one New Fund Share to Tax-Free
Income Funds in consideration of the payment of $1.00 to vote on the matters
referred to in paragraph 4.5; and
4.5. Bond Funds (on behalf of and with respect to New Fund) shall have
entered into a management contract, a distribution and service plan pursuant to
Rule 12b-1 under the 1940 Act, and such other agreements as are necessary for
New Fund's operation as a series of an open-end investment company. Each such
contract, plan, and agreement shall have been approved by Bond Funds' directors
and, to the extent required by law, by such of those directors who are not
"interested persons" thereof (as defined in the 1940 Act) and by Tax-Free Income
Funds as the sole shareholder of New Fund.
At any time before the Closing, either Investment Company may waive any of the
foregoing conditions (except that set forth in paragraph 4.1) if, in the
judgment of its board of directors, such waiver will not have a material adverse
effect on its Fund's shareholders' interests.
5. BROKERAGE FEES AND EXPENSES
---------------------------
5.1 Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
5.2 Except as otherwise provided herein, 50% of the total Reorganization
Expenses will be borne by INVESCO and the remaining 50% will be borne partly by
each Fund.
C-7
6. ENTIRE AGREEMENT; NO SURVIVAL
-----------------------------
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.
7. TERMINATION
-----------
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Old Fund's shareholders:
7.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before August 31, 1999; or
7.2. By the parties' mutual agreement.
In the event of termination under paragraphs 7.1(c) or 7.2, there shall be no
liability for damages on the part of either Fund, or the directors or officers
of either Investment Company, to the other Fund.
8. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Old Fund's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
9. MISCELLANEOUS
-------------
9.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Maryland; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
9.2. Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
9.3. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other party hereto. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
C-8
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officers as of the day and year first
written above.
ATTEST: INVESCO TAX-FREE INCOME FUNDS, INC.,
on behalf of its series,
INVESCO Tax-Free Intermediate Bond Fund
By:
- ------------------------ --------------------------
Assistant Secretary Vice President
ATTEST: INVESCO BOND FUNDS, INC.,
on behalf of its series,
INVESCO Tax-Free Intermediate Bond Fund
By:
- ------------------------ --------------------------
Assistant Secretary Vice President
C-9
INVESCO TAX-FREE LONG-TERM BOND FUND
(A SERIES OF INVESCO TAX-FREE INCOME FUNDS, INC.)
INVESCO TAX-FREE INTERMEDIATE BOND FUND
(A SERIES OF INVESCO TAX-FREE INCOME FUNDS, INC.)
7800 E. UNION AVENUE
DENVER, COLORADO 80237
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates specifically to the
proposed Reorganization whereby INVESCO Tax-Free Long-Term Bond Fund ("Long-Term
Bond Fund") would acquire the assets of INVESCO Tax-Free Intermediate Bond Fund
("Intermediate Bond Fund") in exchange solely for shares of Long-Term Bond Fund
and the assumption by Long-Term Bond Fund of Intermediate Bond Fund's
liabilities. This Statement of Additional Information consists of this cover
page and the following described documents, each of which is incorporated by
reference herein:
(1) The Statement of Additional Information of Long-Term Bond
Fund, dated November 1, 1998.
(2) The Statement of Additional Information of Intermediate Bond Fund,
dated November 1, 1998.
(3) The Annual Report to Shareholders of Long-Term Bond Fund for the
fiscal year ended June 30, 1998.
(4) The Annual Report to Shareholders of Intermediate Bond Fund for the
fiscal year ended June 30, 1998.
(5) The Semi-Annual Report to Shareholders of Long-Term Bond Fund for the
six-month period ended December 31, 1998, previously filed on EDGAR, Accession
Number
- -----------------------------.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Prospectus/Proxy Statement dated March __,
1999 relating to the above-referenced matter. A copy of the Prospectus/Proxy
Statement may be obtained by calling toll-free 1-800-646-8372. This Statement of
Additional Information is dated March __, 1999.
INVESCO TAX-FREE INCOME FUNDS, INC.
(INVESCO LONG-TERM BOND FUND)
PART C
OTHER INFORMATION
Item 15. INDEMNIFICATION
Indemnification provisions for officers and directors of Registrant are
set forth in Article VII, Section 2 of the Articles of Incorporation, and are
hereby incorporated by reference. See Item 16(1) below. Under this Article,
officers and directors will be indemnified to the fullest extent permitted to
directors by the Maryland General Corporation Law, subject only to such
limitations as may be required by the Investment Company Act of 1940, as amended
("1940 Act"), and the rules thereunder. Under the 1940 Act, directors and
officers of Registrant cannot be protected against liability to Registrant or
its shareholders to which they would be subject because of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties of their office.
Registrant also maintains liability insurance policies covering its directors
and officers.
Item 16. EXHIBITS
(1) Articles of Incorporation. (1)
(2) By-Laws. (1)
(3) Voting trust agreement - none.
(4) (a) Agreement and Plan of Reorganization and Termination is attached
hereto as Appendix A to the Prospectus/Proxy Statement.
(b) Agreement and Plan of Conversion and Termination is attached
hereto as Appendix C to the Prospectus/Proxy Statement.
(5) Provisions of instruments defining the rights of holders of securities
are contained in Articles III, IV, VI, VIII of the Registrant's
Articles of Incorporation as amended, and Articles I, II, V, VI, VII,
VIII, IX and X of the Registrant's Bylaws.
(6) (a) Investment Advisory Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997. (2)
(7) (a) General Distribution Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997. (2)
(b) Distribution Agreement between Registrant and INVESCO
Distributors, Inc. (3)
(8) (a) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees. (2)
(b) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees. (3)
(9) Custody Agreement between Registrant and State Street Bank and Trust
Company dated July 1, 1993. (2)
(a) Amendment to Custody Agreement dated October 25, 1995. (2)
(b) Data Access Service Addendum dated May 19, 1997. (2)
(10)Plan and Agreement of Distribution pursuant to Rule 12b-1 under
the Investment Company Act of 1940 dated April 30, 1993. (2)
(a) Amendment of Plan and Agreement of Distribution pursuant to 12b-1
under the Investment Company Act of 1940 dated July 19, 1995. (2)
(b) Amended Plan and Agreement of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated
January 1, 1997. (2)
(c) Amended Plan and Agreement of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated
September 30, 1997. (3)
(11)Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of securities being registered (filed herewith).
(12)(a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters in connection with INVESCO Tax-Free
Intermediate Bond Fund (to be filed).
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters in connection with INVESCO Tax-Free Long
Term Bond Fund (to be filed).
(13)(a) Transfer Agency Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997. (2)
(b) Administrative Services Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997. (2)
(14) Consent of PricewaterhouseCoopers LLP (filed herewith).
(15) Financial statements omitted from part B - none.
(16) Copies of manually signed Powers of Attorney - incorporated by
reference to Powers of Attorney previously filed with the Securities
and Exchange Commission on July 20, 1989, January 9, 1990, May 22,
1992, September 1, 1993, December 1, 1993, August 30, 1995, October
18, 1996, and August 29, 1997.
(17) Additional Exhibits.
(a) Form of Proxy Card (filed herewith).
- ----------------
(1) Incorporated by reference from Post-Effective Amendment No. 24 to the
registration statement, filed on October 18, 1996.
(2) Incorporated by reference from Post-Effective Amendment No. 25 to the
registration statement, filed on August 29, 1997.
(3) Incorporated by reference from Post-Effective Amendment No. 26 to the
registration statement, filed October 28, 1998.
Item 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public re-offering
of the securities registered through the use of the prospectus which is a part
of this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933
("1933 Act"), the re-offering prospectus will contain the information called for
by the applicable registration form for re-offering by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities 1933 Act, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of Registrant, in the City of Denver and the
State of Colorado, on this 26th day of January 1999.
Attest: INVESCO Tax-Free Income Funds, Inc.
/s/ Glen A. Payne By: /s/ Mark H. Williamson
- ----------------- -------------------
Glen A. Payne Mark H. Williamson
Secretary President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Mark H. Williamson President, Director and January 26, 1999
- ------------------------ Chief Executive Officer
Mark H. Williamson
/s/ Ronald L. Grooms Treasurer and January 26, 1999
- ----------------------- Chief Financial and
Ronald L. Grooms Accounting Officer
*
- ------------------ Director January 26, 1999
Victor L. Andrews
* Director January 26, 1999
- ------------------
Bob R. Baker
* Director January 26, 1999
- ------------------
Charles W. Brady
* Director January 26, 1999
- ------------------
Wendy L. Gramm
* Director January 26, 1999
- ------------------
Lawrence H. Budner
* Director January 26, 1999
- ------------------
Fred A. Deering
* Director January 26, 1999
- ------------------
Larry Soll
* Director January 26, 1999
- ------------------
Kenneth T. King
* Director January 26, 1999
- ------------------
John W. Mcintyre
By * January 26, 1999
--------------
Edward F. O'keefe
Attorney in Fact
By * /s/ Glen A. Payne January 26, 1999
-------------------
Glen A. Payne
Attorney in Fact
* Original Powers of Attorney authorizing Edward F. O'Keefe and Glen A.
Payne, and each of them, to execute this Registration Statement on Form N-14 of
the Registrant on behalf of the above-named directors and officers of the
Registrant have been filed with the Securities and Exchange Commission on July
20, 1989, January 9, 1990, May 22, 1992, September 1, 1993, December 1, 1993,
August 30, 1995, October 18, 1996 and August 29, 1997.
EXHIBIT INDEX
(1) Articles of Incorporation. (1)
(2) By-Laws. (1)
(3) Voting trust agreement - none.
(4) Agreement and Plan of Reorganization and Termination is attached hereto as
Appendix A to the Prospectus/Proxy Statement.
(5) Provisions of instruments defining the rights of holders of securities are
contained in Articles III, IV, VI, VIII of the Registrant's Articles of
Incorporation as amended, and Articles I, II, V, VI, VII, VIII, IX and X of
the Registrant's Bylaws.
(6) (a) Investment Advisory Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997. (2)
(7) (a) General Distribution Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997. (2)
(b) Distribution Agreement between Registrant and INVESCO Distributors,
Inc. (3)
(8) (a) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees. (2)
(b) Defined Benefit Deferred Compensation Plan for Non-Interested Directors
and Trustees. (3)
(9) Custody Agreement between Registrant and State Street Bank and Trust Company
dated July 1, 1993. (2)
(a) Amendment to Custody Agreement dated October 25, 1995. (2)
(b) Data Access Service Addendum dated May 19, 1997. (2)
(10)Plan and Agreement of Distribution pursuant to Rule 12b-1 under the
the Investment Company Act of 1940 dated April 30, 1993. (2)
(a) Amendment of Plan and Agreement of Distribution pursuant to 12b-1
under Investment Company Act of 1940 dated July 19, 1995. (2)
(b) Amended Plan and Agreement of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated
January 1, 1997. (2)
(c) Amended Plan and Agreement of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated
September 30, 1997. (3)
(11)Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of securities being registered (filed herewith).
(12)(a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters in connection with INVESCO Tax-Free Intermediate
Bond Fund (to be filed).
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters in connection with INVESCO Tax-Free Long
Term Bond Fund (to be filed).
(13)(a) Transfer Agency Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997. (2)
(b) Administrative Services Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997. (2)
(14)Consent of PricewaterhouseCoopers LLP (filed herewith).
(15)Financial statements omitted from part B - none.
(16)Copies of manually signed Powers of Attorney - incorporated by
reference to Powers of Attorney previously filed with the Securities
and Exchange Commission on July 20, 1989, January 9, 1990, May 22,
1992, September 1, 1993, December 1, 1993, August 30, 1995, October 18,
1996, and August 29, 1997.
(17)Additional Exhibits.
(a) Form of Proxy Card (filed herewith).
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(1) Incorporated by reference from Post-Effective Amendment No. 24 to the
registration statement, filed on October 18, 1996.
(2) Incorporated by reference from Post-Effective Amendment No. 25 to the
registration statement, filed on August 29, 1997.
(3) Incorporated by reference from Post-Effective Amendment No. 26 to the
registration statement, filed October 28, 1998.