INVESCO INTERMEDIATE GOVERNMENT BOND FUND
(A SERIES OF INVESCO VALUE TRUST)
March 23, 1999
Dear INVESCO Intermediate Government Bond Fund Shareholder:
The attached proxy materials describe a proposal that INVESCO Intermediate
Government Bond Fund ("Intermediate Bond Fund"), a series of INVESCO Value Trust
("Value Trust"), reorganize and become part of INVESCO U.S. Government
Securities Fund ("Government Securities Fund"), a series of INVESCO Bond Funds,
Inc., (formerly, INVESCO Income Funds, Inc.) ("Bond Funds"). If the proposal is
approved and implemented, each shareholder of Intermediate Bond Fund will
automatically become a shareholder of Government Securities Fund.
The attached proxy materials also seek your approval to convert
Intermediate Bond Fund to a series of Bond Funds and to make certain changes in
the fundamental investment restrictions of Intermediate Bond Fund (if the
reorganization is not approved or cannot be completed for some other reason), to
elect trustees, and to ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants of Intermediate Bond Fund.
YOUR BOARD OF TRUSTEES 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 substantially similar to that of Intermediate Bond Fund, that has a
similar investment strategy and that, before 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 the
conversion of Intermediate Bond Fund to a series of Bond Funds. You are also
being asked to approve certain changes to the fundamental investment
restrictions of Intermediate Bond Fund that will update and streamline the
Fund's restrictions. The attached proxy materials provide more information about
the proposed reorganization and the two Funds, the proposed conversion, the
proposed changes in fundamental investment restrictions, as well as the other
matters you are being asked to vote upon.
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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 telephone, by facsimile, through the Internet or in person.
Very truly yours,
/s/ Mark H. Williamson
Mark H. Williamson
President
INVESCO Intermediate Government Bond Fund
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WHAT YOU SHOULD KNOW ABOUT THIS PROPOSED FUND MERGER
March 23, 1999
INVESCO AND THE FUND'S BOARD OF TRUSTEES ENCOURAGE YOU TO READ THE ENCLOSED
PROXY STATEMENT CAREFULLY. THE FOLLOWING IS A BRIEF OVERVIEW OF THE KEY ISSUES.
WHY IS MY FUND HOLDING A SPECIAL SHAREHOLDER MEETING?
The main reason for the meeting is so that shareholders of INVESCO Intermediate
Government Bond Fund can decide whether or not to reorganize their fund. If
shareholders decide in favor of the proposal, INTERMEDIATE GOVERNMENT BOND FUND
will merge with another, similar mutual fund managed by INVESCO, and you will
become a shareholder of INVESCO U.S. GOVERNMENT SECURITIES 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 three key potential advantages:
. U.S. GOVERNMENT SECURITIES FUND IS MANAGED BY SEASONED EXPERTS. Under the
direction of Senior Vice President Donovan J. "Jerry" Paul, our Fixed-Income
Team uses a highly disciplined investment approach. Combined with their
expertise in fixed-income analysis, this strategy may result in stronger fund
performance over the long-term (although of course future results cannot be
guaranteed).
. 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.
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. 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 government and government agency
debt obligations. However, there are significant differences in investment
strategy:
. INTERMEDIATE GOVERNMENT BOND FUND invests in shorter-term debt obligations
typically maturing in three to five years.
. U.S. GOVERNMENT SECURITIES FUND, on the other hand, pursues higher income from
longer-term bonds, typically maturing in six to nine years. 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 U.S. Government Securities Fund equal in value to
the shares of Intermediate Government Bond Fund that they owned on the Closing
Date.
The net asset value per share of U.S. Government Securities Fund will not be
affected by the transaction. That means the reorganization will not result in a
dilution of any shareholder's interest.
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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, shareholders of the Fund may
receive a distribution of ordinary income and/or capital gains immediately prior
to the reorganization, to the extent that unpaid amounts of income and/or gains
remain in the Fund.)
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
Intermediate Government Bond Fund shares will be represented at this Fund's
special shareholder meeting.
WHERE DO I GET MORE INFORMATION ABOUT INVESCO U.S. GOVERNMENT SECURITIES FUND?
. Please visit our Web site at WWW.INVESCO.COM
. Or call Investor Services toll-free at 1-800-646-8372
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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 INVESCO.
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INVESCO INTERMEDIATE GOVERNMENT BOND FUND
(A SERIES OF INVESCO VALUE TRUST)
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
MAY 20, 1999
To The Shareholders:
A special meeting of shareholders of INVESCO Intermediate Government Bond
Fund ("Intermediate Bond Fund"), a series of INVESCO Value Trust ("Value
Trust"), will be held on May 20, 1999, at 10:00 a.m., Mountain Time, at the
offices of INVESCO Funds Group, Inc., 7800 E. Union Avenue, Denver, Colorado,
for the following purposes:
(1) To approve an Agreement and Plan of Reorganization and Termination under
which INVESCO U.S. Government Securities Fund ("Government Securities Fund"), a
series of INVESCO Bond Funds, Inc. (formerly INVESCO Income Funds, Inc.) ("Bond
Funds"), would acquire all of the assets of Intermediate Bond Fund in exchange
solely for shares of Government Securities Fund and the assumption by Government
Securities 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 Termination and Conversion providing for
the conversion of Intermediate Bond Fund from a separate series of Value Trust
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 trustees of Value Trust;
(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.
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You are entitled to vote at the meeting and any adjournment thereof if you
owned shares of 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 of directors,
/s/ Glen A. Payne
Glen A. Payne
Secretary
March 23, 1999
Denver, Colorado
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YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card, date and
sign the card, and return it in the envelope provided. IF YOU DATE, SIGN, 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 telephone, through the Internet, by facsimile machine or in person. To vote
by telephone, please call 1-800-690-6903. 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.proxyvote.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 1-800-733-1885. If we do not receive your completed proxy cards 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.
Unless proxy cards 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.
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<PAGE>
INVESCO U.S. GOVERNMENT SECURITIES FUND
(A SERIES OF INVESCO BOND FUNDS, INC.,
FORMERLY INVESCO INCOME FUNDS, INC.)
INVESCO INTERMEDIATE GOVERNMENT BOND FUND
(A SERIES OF INVESCO VALUE TRUST)
7800 EAST UNION AVENUE
DENVER, COLORADO 80237
(TOLL FREE) 1-800-646-8372
PROSPECTUS/PROXY STATEMENT
MARCH 23, 1999
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of INVESCO Intermediate Government Bond Fund ("Intermediate Bond
Fund"), a series of INVESCO Value Trust ("Value Trust"), in connection with the
solicitation of proxies by its board of trustees 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 U.S. Government Securities Fund ("Government Securities Fund"), a series
of INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.) ("Bond
Funds"), would acquire all of the assets of Intermediate Bond Fund, in exchange
solely for shares of Government Securities Fund and the assumption by Government
Securities Fund of all of the liabilities of Intermediate Bond Fund. Those
shares of Government Securities Fund would then be distributed to the
shareholders of Intermediate Bond Fund, so that each shareholder would receive a
number of full and fractional shares of Government Securities 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.
Government Securities Fund is a diversified series of Bond Funds, which is
an open-end management investment company. Government Securities Fund's
investment objective is to seek a high level of income by investing in bonds and
other debt obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities, and in repurchase agreements and futures contracts with
respect to such securities.
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about the reorganization and Government
Securities Fund that a shareholder should know before voting on the
reorganization. A Statement of Additional Information, dated March 23, 1999,
<PAGE>
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 Intermediate Bond Fund, each dated
January 1, 1999, and Intermediate Bond Fund's Annual Report to Shareholders for
the fiscal year ended August 31, 1998, have been filed with the SEC and are
incorporated herein by this reference. A Prospectus and a Statement of
Additional Information for Government Securities Fund, each dated January 1,
1999, have been filed with the SEC and also are incorporated herein by this
reference. A copy of Government Securities Fund's Prospectus and Annual Report
accompany this Proxy Statement. Copies of the other referenced documents, as
well as Government Securities Fund's Annual Report to Shareholders for the
fiscal year ended August 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 Government Securities Fund
and Intermediate Government Bond Fund.
THE SEC HAS NOT APPROVED OR DISAPPROVED THE SHARES OF INVESCO U.S. GOVERNMENT
SECURITIES FUND OR DETERMINED WHETHER THIS PROXY STATEMENT IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
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 Government Securities Fund would acquire all
of the assets of Intermediate Bond Fund in exchange solely for shares
of Government Securities Fund and the assumption by Government
Securities Fund of all of Intermediate Bond Fund's Liabilities,
followed by the distribution of those shares to the shareholders of
Intermediate Bond Fund.........................................................3
Synopsis..................................................................3
Comparison of Principal Risk Factors......................................9
The Proposed Transaction.................................................10
PART II: PROPOSED ORGANIZATIONAL MATTER......................................14
PROPOSAL 2: To approve an Agreement and Plan of Conversion and
Termination providing for the conversion of Intermediate Bond Fund
from a separate series of Value Trust to a separate series of Bond
Funds.........................................................................15
Reason for the Proposed Conversion.......................................15
Summary of the Plan of Conversion and Termination........................16
Continuation of Fund Shareholder Accounts................................17
Expenses.................................................................17
Temporary Waiver of Investment Restrictions..............................17
Form of Organization ....................................................17
Rights and Obligations of Shareholders...................................18
Tax Consequences of the Conversion.......................................18
Conclusion...............................................................18
PART III: PROPOSED MODIFICATIONS TO FUNDAMENTAL INVESTMENT
RESTRICTIONS AND ROUTINE CORPORATE GOVERNANCE MATTERS.........................19
PROPOSAL 3: To Approve Amendments to the Fundamental Investment
Restrictions of Intermediate Bond Fund........................................19
a. To modify the Fund's fundamental investment restriction on
industry concentration.............................................20
b. To modify the Fund's fundamental investment restriction on
issuer diversification.............................................20
c. To modify the Fund's fundamental investment restriction on
underwriting.......................................................21
<PAGE>
d. To eliminate the Fund's fundamental investment restriction on
investing in companies for the purpose of exercising control or
management........................................... ..............21
e. To modify the Fund's fundamental investment restriction on
borrowing and to adopt a non-fundamental restriction on
borrowing...........................................................22
f. To modify the Fund's fundamental investment restriction on
issuing senior securities...........................................22
g. To eliminate the Fund's fundamental investment restriction on
mortgaging, pledging, or hypothecating securities...................23
h. To eliminate the Fund's fundamental investment restriction on
short sales and margin Purchases and to adopt a
non-fundamental restriction on short sales and margin
purchases...........................................................23
i. To modify the Fund's fundamental investment restriction on
investing in real estate............................................24
j. To modify the Fund's fundamental investment restriction on
investing in commodities............................................24
k. To modify the Fund's fundamental investment restriction on
loans...............................................................25
l. To modify the Fund's fundamental investment restriction on
investing in another investment company and to adopt a
non-fundamental investment restriction on investing in another
investment company..................................................25
m. To eliminate the Fund's fundamental investment restriction on
investing in illiquid securities and to adopt a
non-fundamental investment restriction on investing in
illiquid securities.................................................26
PROPOSAL 4: To Elect the Trustees of Value Trust.............................27
PROPOSAL 5: To Ratify or Reject the Selection of
PricewaterhouseCoopers LLP as Independent Accountants of
Intermediate Bond Fund .......................................................34
OTHER BUSINESS................................................................35
INFORMATION CONCERNING ADVISER, SUB-ADVISER, DISTRIBUTOR,
AND AFFILIATED COMPANIES......................................................35
MISCELLANEOUS.................................................................36
Available Information....................................................36
Legal Matters............................................................36
Experts..................................................................36
APPENDIX A: PRINCIPAL SHAREHOLDERS..........................................A-1
APPENDIX B: PLAN OF REORGANIZATION AND TERMINATION.........................B-1
APPENDIX C: AGREEMENT AND PLAN OF CONVERSION AND
TERMINATION..................................................................C-1
<PAGE>
INVESCO INTERMEDIATE GOVERNMENT BOND FUND
(a series of INVESCO Value Trust)
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 Intermediate Government Bond Fund ("Intermediate Bond
Fund"), a series of INVESCO Value Trust ("Value Trust"), in connection with the
solicitation of proxies from Intermediate Bond Fund shareholders by the board of
trustees ("Board") of Value Trust 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.
A majority 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,
<PAGE>
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 Value Trust 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
2,715,728.984 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 U.S. Government Securities Fund ("Government Securities Fund"),
a series of INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
("Bond 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
Shareholders Communications Corporation, professional proxy solicitors, who will
be paid fees and expenses of up to approximately $2,138 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 A, INVESCO does not know of any person who
owns beneficially 5% or more of the shares of either Fund. Trustees and officers
of Value Trust own in the aggregate less than 1% of the shares of Intermediate
Bond Fund.
VOTE REQUIRED. Approval of Proposal 1 requires the affirmative vote of
two-thirds of the outstanding voting securities of Intermediate Bond Fund.
Approval of 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
2
<PAGE>
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. The affirmative vote of a majority
of the outstanding voting securities of Intermediate Bond Fund present at the
Meeting, in person or by proxy, and of a majority of the outstanding voting
securities of the other series of Value Trust taken at concurrent meetings of
those series, in the aggregate, is sufficient to approve Proposal 4. Approval of
Proposal 5 requires the affirmative vote of a majority of the outstanding voting
securities of Intermediate Bond Fund 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 GOVERNMENT SECURITIES FUND
WOULD ACQUIRE ALL OF THE ASSETS OF INTERMEDIATE BOND FUND IN EXCHANGE
SOLELY FOR SHARES OF GOVERNMENT SECURITIES FUND AND THE ASSUMPTION BY
GOVERNMENT SECURITIES FUND OF ALL 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 Prospectus and Statement of Additional Information of
Government Securities Fund (which are incorporated herein by reference), the
Prospectus and Statement of Additional Information of Intermediate Bond Fund
(which are incorporated herein by reference), and the Reorganization Plan (which
is attached as Appendix B to this Proxy Statement). As discussed more fully
below, the Board believes that the Reorganization will benefit Intermediate Bond
Fund's shareholders. Government Securities Fund has an investment objective that
is similar to the investment objective of Intermediate Bond Fund and has a
similar investment strategy. It is anticipated that, following the
Reorganization, the total operating expenses for the combined Fund, before
taking into account voluntary fee waivers and expense reimbursements, will be
less than those of Intermediate Bond Fund.
3
<PAGE>
THE PROPOSED REORGANIZATION
The Board considered and approved the Reorganization Plan at a meeting
held on August 5, 1998. The Reorganization Plan provides for the acquisition of
all the assets of Intermediate Bond Fund by Government Securities Fund, in
exchange solely for shares of common stock of Government Securities Fund and the
assumption by Government Securities Fund of all the liabilities of Intermediate
Bond Fund. Intermediate Bond Fund then will distribute those shares of
Government Securities 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 the 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.
The Reorganization will occur as of the close of business on June 4, 1999,
or at a later date when the Reorganization is approved and all contingencies
have been met ("Closing Date").
For the reasons set forth below under "The Proposed Transaction - Reasons
for the Reorganization," the Board, including its trustees who are not
"interested persons," as that term is defined in the 1940 Act, of Value Trust,
Bond Funds, INVESCO, or INVESCO Capital Management ("ICM") ("Independent
Trustees"), 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 of directors of
Bond Funds, including its directors who are not "interested persons," as that
term is defined in the 1940 Act, of Bond Funds, Value Trust, INVESCO, or ICM
("Independent Directors"), has determined that the Reorganization is in the best
interests of Government Securities Fund, that the terms of the Reorganization
are fair and reasonable and that the interests of Government Securities Fund's
shareholders will not be diluted as a result of the Reorganization.
COMPARATIVE FEE TABLE
As shown in the tables below, a shareholder pays no fees to purchase Fund
shares, to exchange to another INVESCO Fund, or to sell shares. The only Fund
costs a shareholder pays are annual Fund operating expenses that are deducted
from Fund assets. The current fees and expenses incurred by each Fund for the
12 months ended February 28, 1999, and PRO FORMA fees for Government Securities
Fund after the Reorganization are shown below.
4
<PAGE>
SHAREHOLDER FEES (fees paid directly from your investment)
GOVERNMENT INTERMEDIATE COMBINED FUND
SECURITIES FUND BOND FUND (PRO FORMA)
- ------------------------------------------ ----------- -------------
Sales charge (load) on None None None
purchases of shares
Sales charge (load) on None None None
reinvested dividends
Redemption fee or deferred None None None
sales charge (load)
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
GOVERNMENT INTERMEDIATE COMBINED FUND
SECURITIES FUND BOND FUND (PRO FORMA)
- ------------------------------------------ ----------- -------------
Management Fees 0.55% 0.60% 0.55%
Distribution (12b-1) Fees* 0.25% 0.25%(1) 0.25%
Other Expenses 0.61%(2), (3) 0.67%(2), (4) 0.55%
----- ----- -----
Total Fund Operating Expenses 1.41%(2), (3) 1.52%(2), (4) 1.35%(5)
----- ----- -----
* 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)Effective November 1, 1997, Intermediate Bond Fund was authorized to pay a
distribution (12b-1) fee of up to one quarter of one percent of new assets
(new sales of shares, exchanges into the Fund and reinvestments of dividends
and other distributions made on or after November 1, 1997). For the period
March 1, 1998 through February 28, 1999, actual distribution (12b-1) fees
were 0.20% of average net assets. Currently, Intermediate Bond Fund's
distribution (12b-1) fee is 0.25% of average net assets.
(2)Each Fund's actual Other Expenses and Total Fund Operating Expenses were
lower than the figures shown, because their custodian fees were reduced under
expense offset arrangements. Because of an SEC requirement, the figures shown
above do not reflect these reductions.
(3)Certain expenses of Government Securities Fund are being voluntarily
absorbed by INVESCO to ensure that the Fund's Total Operating Expenses do not
exceed 1.00% of the Fund's average net assets (excluding the expense offset
arrangements described above). Accordingly, the actual Other Expenses and
Total Fund Operating Expenses paid by Government Securities Fund were 0.20%
and 1.00%, respectively.
(4)Certain expenses of Intermediate Bond Fund are being absorbed voluntarily by
INVESCO to ensure that the Fund's annualized total operating expenses do not
exceed 1.00% of the Fund's average net assets (excluding the expense offset
arrangements described above). Accordingly, the Other Expenses and Total Fund
Operating Expenses paid by Intermediate Bond Fund were 0.15% and 1.00%,
respectively. INVESCO does not intend to continue absorbing the expenses of
Intermediate Bond Fund. Thus, if the Reorganization is not approved,
Intermediate Bond Fund's Other Expenses and Total Fund Operating Expenses
will likely increase.
5
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(5)INVESCO has voluntarily agreed to continue to reimburse Government
Securities Fund for expenses in excess of 1.00% of the Fund's average net
assets (excluding any applicable expense offset arrangements) for a period of
at least one year after the Reorganization.
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 Government Securities Fund
and the cost of investing in Government Securities 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
- ------------------------------------------------------------------------------
Government
Securities Fund $144 $446 $771 $1,691
Intermediate Bond
Fund $155 $480 $829 $1,813
Combined Fund $137 $428 $739 $1,624
FORM OF ORGANIZATION
Government Securities Fund is one of four series of Bond Funds, an
open-end, diversified investment management company. Bond Funds was incorporated
as "INVESCO Income Funds, Inc." on August 20, 1976 under the laws of Colorado
and was reorganized as a Maryland corporation on April 2, 1993. The name of Bond
Funds was changed from "INVESCO Income Funds, Inc." to "INVESCO Bond Funds,
Inc." on October 29, 1998. Bond Funds does not issue share certificates and it
is not required to (nor does it) hold annual shareholder meetings.
Intermediate Bond Fund is one of three series of Value Trust, an open-end,
diversified investment management company. Value Trust was organized on July 15,
1987, under the laws of the Commonwealth of Massachusetts as "Financial Series
Trust." On July 1, 1993, Financial Series Trust changed its name to "INVESCO
Value Trust." Value Trust does not issue share certificates and it is not
required to (nor does it) hold annual shareholder meetings.
6
<PAGE>
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 Government Securities Fund. ICM, Intermediate Bond
Fund's investment adviser prior to 1991, is the sub-adviser of Intermediate Bond
Fund and is primarily responsible for managing the Fund's investments.
INVESCO is currently paid (1) by Intermediate Bond Fund a monthly
management fee computed at the annual rate of 0.60% on the first $500 million of
the Fund's average net assets, 0.50% on the next $500 million of such assets and
0.40% of such assets in excess of $1 billion; and (2) by Government Securities
Fund a monthly management fee computed at the annual rate of 0.55% on the first
$300 million of the Fund's average daily net assets, 0.45% on the next $200
million of such assets, and 0.35% on such assets over $500 million. For the
fiscal year ended August 31, 1998, Intermediate Bond Fund paid an investment
management fee of 0.60% of its average daily net assets, and Government
Securities Fund paid an investment management fee of 0.55% of its average daily
net assets. Following the Reorganization, the initial management fee for the
combined Fund is expected to be 0.55% of average daily net assets, although this
fee will decrease in accordance with the fee schedule for Government Securities
Fund described above if the assets of the combined Fund increase. With respect
to Intermediate Bond Fund, INVESCO (not the Fund) pays ICM a fee for its
sub-advisory services in an amount equal to 30% of the advisory fee paid by the
Fund to INVESCO (0.30% on the first $500 million of the Fund's average net
assets, 0.26% on the next $500 million of such assets and 0.20% of such assets
in excess of $1 billion).
Following the Reorganization, INVESCO, in its capacity as investment
adviser to Government Securities Fund, will have sole responsibility for
managing the Funds' combined assets.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are set forth below.
The investment objectives of the Funds are similar in that each Fund seeks
current income through investment in various types of debt securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities ("U.S.
government obligations"). However, Intermediate Bond Fund seeks a high total
return on investment through capital appreciation and current income, while
capital appreciation is a secondary factor in the selection of investments for
Government Securities Fund. In addition, both Funds invest primarily in U.S.
government obligations maturing at least three years after they are issued.
Although Intermediate Bond Fund invests primarily in obligations with maturities
of three to five years, Government Securities Fund has no limitations on the
maturities of securities in which it invests. There can be no assurance that
either Fund will achieve its investment objective. An investment in either Fund
is neither insured nor guaranteed by the U.S. government.
7
<PAGE>
GOVERNMENT SECURITIES FUND. Government Securities Fund seeks a high level
of income by investing in U.S. government obligations and in repurchase
agreements and futures contracts with respect to such securities. Potential
capital appreciation is a secondary factor in the selection of investments for
the Fund. The Fund seeks to achieve its objective through the investment of
substantially all (and in no event less than 65%) of its assets in U.S.
government obligations, including mortgage-backed securities issued or
guaranteed by government agencies or government-sponsored enterprises. As a
matter of policy (which may be changed without a vote of shareholders), at least
65% of the Fund's total assets normally will be invested in debt securities
maturing at least three years after they are issued. If the reorganization is
approved, however, this policy will be changed. There will be no limitations on
the maturities of the securities held by the Fund, and the Fund's average
maturity will vary as INVESCO responds to changes in interest rates. In
addition, the Fund may purchase certain securities that are not registered for
sale to the general public but that can be resold to institutional investors
("Rule 144A Securities"), if a liquid trading market exists. The Fund also may
buy and sell futures contracts relating to U.S. government obligations with a
market value of up to 20% of the market value of the Fund's total assets in
order to hedge its investments in such securities.
INTERMEDIATE BOND FUND. Intermediate Bond Fund seeks to achieve a high
total return on investment through capital appreciation and current income. The
Fund seeks to achieve this objective through the investment of 65% or more of
its assets in U.S. government obligations maturing in three to five years. The
remaining 35% of the Fund's assets may be invested in corporate debt obligations
that are rated by Moody's Investors Service, Inc. in its four highest ratings of
corporate obligations or by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc., in its four highest ratings of corporate obligations or, if not
rated, have investment characteristics similar, in the opinion of the Fund's
investment adviser or sub-adviser, to those described in such ratings. The Fund
also may invest up to 25% of its total assets in foreign securities, although it
currently does not intend to invest more than 5% of its total assets in such
securities. The dollar weighted average maturity of the Fund's investments will
normally be from three to ten years.
OTHER POLICIES OF BOTH FUNDS. Each Fund may engage in repurchase
agreements with banks, registered broker-dealers and registered government
securities dealers that are deemed creditworthy under standards set by its
Board. However, Government Securities Fund may not invest more than 10% of its
total assets in repurchase agreements maturing in more than seven days, while
Intermediate Bond Fund limits the market value of securities subject to
repurchase agreements to 20% of its total assets. Each Fund may also make loans
of its portfolio securities, but these loans may not exceed 10% of Intermediate
Bond Fund's total assets.(1)
When market or economic conditions are unfavorable, each Fund may assume a
defensive position by temporarily investing up to 100% of its assets in
- ----------------------
(1) In Proposal 3 (below), shareholders are being asked to approve certain
amendments to the fundamental investment restrictions of Intermediate Bond Fund.
If approved, these amendments would increase Intermediate Bond Fund's existing
limits on repurchase agreements and loans of portfolio securities. However,
these amendments would take effect only if Intermediate Bond Fund shareholders
do NOT approve the Reorganization Plan (Proposal 1).
8
<PAGE>
high-quality money market instruments, such as short-term U.S. government
obligations, commercial paper or repurchase agreements, seeking to protect its
assets until conditions stabilize.
OPERATIONS OF GOVERNMENT SECURITIES FUND FOLLOWING THE REORGANIZATION
As indicated above, the investment objectives and policies of the two
Funds are similar, although Intermediate Bond Fund may invest up to 35% of its
total assets in securities, such as corporate bonds and foreign securities, in
which Government Securities Fund may not invest. Currently, Government
Securities Fund normally invests at least 65% of its total assets in debt
securities maturing at least three years after they are issued. If the
Reorganization is approved, this policy will be changed, so that there will be
no limitation on the maturities of securities held by Government Securities
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 Government Securities Fund and thus
can be transferred to and held by Government Securities Fund if the
Reorganization Plan is approved. If, however, Intermediate Bond Fund has any
assets that may not be held by Government Securities Fund, those assets will be
sold 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
Government Securities 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,
and ICM serves as sub-adviser to Intermediate Bond Fund. After the
Reorganization, INVESCO, in its capacity as investment adviser to Government
Securities Fund, will have sole responsibility for managing the Funds' combined
assets. In addition, the directors and officers of Government Securities Fund,
its distributor and other outside agents will continue to serve Government
Securities 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 ("Business Day") as of the close of regular trading on the Exchange, but
may also be computed at other times. For a more complete discussion of share
purchases, see "How Shares Can Be Purchased" in either the Government Securities
Fund Prospectus or the Intermediate Bond Fund Prospectus.
9
<PAGE>
REDEMPTIONS. Shares of each Fund may be redeemed by telephone or by mail.
Redemptions are made at the NAV per share next determined after a request in
proper form is received at the Fund's office. Normally, payments for shares
redeemed will be mailed within seven days following receipt of the required
documents. For a more complete discussion of share redemption procedures, see
"How to Redeem Shares" in either the Government Securities Fund Prospectus or
the Intermediate Bond Fund Prospectus.
Intermediate Bond Fund shares will no longer be available for purchase on
the Business Day following the Closing Date. Redemptions of Intermediate Bond
Fund shares may be effected through the Closing Date.
EXCHANGES
Shares of each Fund may be exchanged 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 Government Securities Fund will continue to be
exchangeable for shares of another INVESCO Fund. For a more complete discussion
of the Funds' exchange policies, see "How Shares Can Be Purchased" in either the
Government Securities Fund Prospectus or the Intermediate Bond Fund Prospectus.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund earns investment income in the form of interest and dividends on
investments. Dividends paid by each Fund are based solely on its net 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 each Fund's Board.
Dividends are automatically reinvested in additional shares of a Fund at the NAV
on the on the payable date (Intermediate Bond Fund) or the ex-dividend date
(Government Securities Fund) unless otherwise requested.
Each Fund also realizes capital gains and losses when it sells securities
or derivatives for more or less than it paid. If total gains on these sales
exceed total losses (including losses carried forward from previous years), the
Fund has capital gain net income. Net realized capital gains, if any, are
distributed to each Fund's shareholders at least annually, usually in December.
Capital gains distributions are automatically reinvested in shares of the
respective Fund at the NAV on the payable date (Intermediate Bond Fund) or the
ex-distribution date (Government Securities Fund) unless otherwise requested.
Dividends and other distributions are paid to holders of shares on the record
date of distribution regardless of how long a Fund's shares have been held by
the shareholder.
On or before the Closing Date, Intermediate Bond Fund will declare as a
distribution substantially all of its net investment income and realized net
10
<PAGE>
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
The Funds will receive an opinion of their 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 will
recognize any gain or loss as a result of the Reorganization. See "The Proposed
Transaction - Federal Income Tax Considerations," below. To the extent
Intermediate Bond Fund sells securities prior to the Closing Date, there may be
net recognized gains or losses to the Fund. Any net recognized gains would
increase the amount of any distribution made to shareholders of Intermediate
Bond Fund prior to the Closing Date.
COMPARISON OF PRINCIPAL RISK FACTORS
An investment in Government Securities Fund is subject to specific risks
arising from the types of securities in which the Fund invests and to general
risks arising from investing in any mutual fund. The principal specific risks
associated with investing in Government Securities Fund include:
U.S. GOVERNMENT OBLIGATIONS. Government Securities Fund's investments in
U.S. government obligations generally are subject to both credit risk (the
ability of an issuer to meet interest or principal payments, or both, as they
come due) and market risk (changes in market value as a result of changes in the
level of interest rates). While U.S. government obligations carry a low level of
credit risk compared to other types of debt securities, they are still subject
to market risk, which means that an increase in interest rates will tend to
reduce the market values of such securities, whereas a decline in interest rates
will tend to increase their values. In addition, obligations of certain U.S.
government agencies and instrumentalities may not be supported by the full faith
and credit of the United States. Some are backed by the right of the issuer to
borrow from the U.S. Treasury; others, such as the obligations of Fannie Mae, by
discretionary authority of the U.S. government to purchase the agencies'
obligations; while still others, such as obligations of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
In the case of securities not backed by the full faith and credit of the United
States, the Fund must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitments.
MORTGAGE-BACKED SECURITIES. Government Securities Fund may invest in
mortgage-backed securities issued or guaranteed as to principal and interest by
the U.S. government, federal agencies or instrumentalities such as GNMA, Fannie
Mae and Freddie Mac. Mortgage-backed securities represent interests in pools of
mortgages that have been purchased from loan institutions such as banks and
savings and loan associations, and packaged for resale in the secondary market.
Interest and principal are "passed through" to the holders of the securities.
The timely payment of interest and principal is guaranteed by a federal agency,
but the market value of the security is not guaranteed and will vary. When
interest rates drop, many home buyers choose to refinance their mortgages. These
prepayments may shorten the average weighted lives of mortgage-backed securities
and may lower their returns.
11
<PAGE>
RULE 144A SECURITIES. The marketability of any Rule 144A Securities owned
by Government Securities Fund may be affected by a lack of qualified
institutional buyers interested in purchasing such securities. Accordingly, the
Fund might be unable to dispose of a Rule 144A Security promptly or at a
reasonable price.
INTEREST RATE FUTURES CONTRACTS. Government Securities Fund may buy and
sell interest rate futures contracts relating to U.S. government obligations for
purposes of hedging the value of its portfolio. One risk of using futures
contracts for this purpose is the prospect that the prices of such contracts
will correlate imperfectly with the behavior of the cash (I.E., market value)
prices of the Fund's U.S. government obligations. Another risk is that INVESCO,
the Fund's adviser, would be incorrect in its expectations as to the extent of
various interest rate movements or of the time span within which the movements
take place. Upon the occurrence of either of these events, the Fund would lose
money on its futures contracts. For a more detailed discussion of the Fund's use
of interest rate futures contracts, see "Investment Policies and Restrictions"
in Government Securities Fund's Statement of Additional Information.
TURNOVER RATE. Government Securities Fund's investment portfolio is
actively traded. There are no fixed limitations regarding the Fund's portfolio
turnover. The rate of portfolio turnover has fluctuated under constantly
changing economic conditions and market circumstances. During the years ended
1998, 1997 and 1996, the Fund's portfolio turnover rates were 323%, 139% and
212%, respectively. This rate is higher than that of many other mutual funds and
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
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 Government Securities Fund, an investment in Intermediate
Bond Fund is subject to many of the same specific risks as an investment in
Government Securities Fund. In particular, Intermediate Bond Fund also is
subject to the risks inherent in investing in U.S. government obligations.
However, an investment in Intermediate Bond Fund also is subject to risks
arising from the Fund's investment in corporate debt securities, which carry a
greater credit risk than an investment in U.S. government obligations.
12
<PAGE>
Intermediate Bond Fund is subject to additional risks from its investment in
foreign securities, which involve certain additional risks not associated with
investments in domestic companies and markets, including the risks of
fluctuations in foreign currency exchange rates and of political or economic
instability, the difficulty of predicting international trade patterns and the
possibility of imposition of exchange controls or currency blockage.
Intermediate Bond Fund's portfolio turnover rate (which is generally lower than
100%) is lower than that of Government Securities Fund. As a result,
Intermediate Bond Fund may be expected to have lower brokerage fees and be less
likely to experience accelerated capital gains.
See "Investment Policies and Risks/Risk Factors" in the Prospectuses of
Government Securities Fund and Intermediate Bond Fund 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 Government
Securities Fund on the Closing Date of all of the assets of Intermediate Bond
Fund in exchange solely for Government Securities Fund shares and the assumption
by Government Securities Fund of all of Intermediate Bond Fund's liabilities and
(b) the distribution of those Government Securities Fund shares to the
shareholders of Intermediate Bond Fund.
The assets of Intermediate Bond Fund to be acquired by Government
Securities 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. Government Securities 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 liabilities before the
Closing Date. Government Securities Fund will deliver its shares to Intermediate
Bond Fund, which will distribute the shares to Intermediate Bond Fund's
shareholders.
The value of Intermediate Bond Fund's assets to be acquired by Government
Securities Fund and the NAV per share of the Government Securities Fund shares
to be 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 each Fund's 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 Government Securities Fund,
less the amount of Intermediate Bond Fund's liabilities, as of the Valuation
Time.
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<PAGE>
On, or as soon as practicable after, the Closing Date, Intermediate Bond
Fund will distribute the Government Securities Fund shares it receives PRO RATA
to its shareholders of record as of the effective time of the Reorganization, so
that each Intermediate Bond Fund shareholder will receive a number of full and
fractional Government Securities 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 Government Securities 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 Government Securities Fund will be rounded
to the third decimal place.
Because the Government Securities Fund shares will be issued at NAV in
exchange for the net assets of Intermediate Bond Fund, the aggregate value of
Government Securities Fund shares issued to Intermediate Bond Fund shareholders
will equal the aggregate value of Intermediate Bond Fund shares. The NAV per
share of Government Securities 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 the issuance of Government Securities Fund
shares in a name other than that of the registered Intermediate Bond Fund
shareholder will be paid by the person to whom those shares are to be issued as
a condition of the 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 Boards of Value Trust and Bond Funds each 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
its Fund.
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.
REASONS FOR THE REORGANIZATION
The Board of Value Trust, including a majority of its Independent
Trustees, 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. The Board of Bond Funds,
including a majority of its Independent Directors, has determined that the
Reorganization is in the best interests of Government Securities Fund, that the
terms of the Reorganization are fair and reasonable and that the interests of
14
<PAGE>
Government Securities Fund's shareholders will not be diluted as a result of the
Reorganization.
In approving the Reorganization, each Board, including a majority of its
Independent Directors or Trustees, considered a number of factors, including the
following:
(1) the compatibility of the Funds' investment objectives, policies and
restrictions;
(2) the effect of the Reorganization on the Funds' 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 of each Fund by INVESCO at
meetings of the Boards held on August 5, 1998. In recommending the
Reorganization, INVESCO advised the Boards that the investment advisory fee
schedule applicable to Government Securities Fund would be lower than that
currently in effect for Intermediate Bond Fund and that it is likely INVESCO
would cease to absorb expenses of Intermediate Bond Fund. The Boards considered
the fact that Government Securities Fund has a better performance record and
that Intermediate Bond Fund has had more difficulty in attracting assets than
Government Securities Fund. The Board also considered the similarity in
investment objective and portfolio composition between the two Funds. Further,
the Board of Value Trust was advised by INVESCO that, because Government
Securities Fund has greater net assets than Intermediate Bond Fund, combining
the two Funds could reduce the expenses borne by the shareholders of
Intermediate Bond Fund as a percentage of net assets, before taking into account
voluntary fee waivers and expense reimbursements. In addition, INVESCO advised
the Board that any reduction in the expense ratios of the Funds as a result of
the Reorganization could benefit INVESCO by reducing any reimbursements or
waivers of expenses resulting from INVESCO's obligation to limit the expenses of
each Fund. The Boards were also advised that following the Reorganization, the
expense ratio for Government Securities Fund may decrease because the investment
advisory fee paid by that Fund decreases as its size increases.
DESCRIPTION OF SECURITIES TO BE ISSUED
Bond Funds is registered with the SEC as an open-end management investment
company. It has an authorized capitalization of 600 million shares of common
stock (par value $0.01 per share), of which 100 million shares have been
allocated to Government Securities Fund. Shares of Government Securities Fund
entitle their holders to one vote per full share and fractional votes for
fractional shares held.
Government Securities Fund does not hold annual meetings of shareholders.
There normally will be no meetings of shareholders for the purpose of electing
15
<PAGE>
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 the Fund's Articles of Incorporation, or at their
discretion.
As noted above, Government Securities Fund is a series of an investment
company organized as a Maryland corporation, while Intermediate Bond Fund is a
series of a Massachusetts business trust. Nevertheless, the rights of the
shareholders of each Fund with respect to shareholder meetings, inspection of
shareholder lists, and distributions on liquidation of a Fund are substantially
similar. Although shareholders of a Massachusetts business trust may, under
certain circumstances, be held personally liable for its obligations, Value
Trust's Declaration of Trust, as amended, provides that no trustee, shareholder,
officer, employee or agent of Value Trust will have personal liability for Value
Trust's obligations. In addition, the Declaration of Trust states that only the
property of Value Trust, and not the private property of any trustee,
shareholder, officer, employee or agent of Value Trust, shall be used to satisfy
any obligation of or claim against Value Trust.
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
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 Government Securities
Fund shares and Government Securities 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. The Funds will
receive an opinion of their counsel, Kirkpatrick & Lockhart LLP, substantially
to the effect that--
(1) Government Securities Fund's acquisition of Intermediate Bond
Fund's assets in exchange solely for Government Securities Fund shares and
Government Securities 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 Government Securities Fund of its assets in exchange solely
for Government Securities Fund shares and Government Securities Fund's
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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) Government Securities Fund will recognize no gain or loss on
its receipt of the transferred assets in exchange solely for
Government Securities Fund shares and its assumption of Intermediate
Bond Fund's liabilities;
(4) Government Securities 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 Government Securities 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 Government Securities Fund shares pursuant to the
Reorganization; and
(6) An Intermediate Bond Fund shareholder's aggregate basis for the
Government Securities 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 Government Securities Fund shares, and its holding period for
those Government Securities 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.
CAPITALIZATION
The following table shows the capitalization of each Fund as of February
28, 1999 (audited), and on a pro forma combined basis (unaudited) as of February
28, 1999, giving effect to the Reorganization:
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GOVERNMENT INTERMEDIATE COMBINED FUND
SECURITIES BOND FUND (PRO FORMA)
FUND
Net Assets $64,296,505 $35,458,355 $ 99,754,860
Net Asset Value Per Share $7.22 $12.57 $7.22
Shares Outstanding 8,900,580 2,820,230 13,811,710
REQUIRED VOTE. Approval of the Reorganization Plan requires the
affirmative vote of two-thirds 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 GOVERNMENT SECURITIES FUND. IF PROPOSAL 1 IS APPROVED, SHAREHOLDERS WILL
RECEIVE FULL AND FRACTIONAL SHARES OF GOVERNMENT SECURITIES FUND EQUIVALENT IN
AGGREGATE VALUE TO THE SHARES OF INTERMEDIATE BOND FUND THAT THEY OWNED ON THE
CLOSING DATE AND PROPOSAL 2 WILL HAVE NO EFFECT. HOWEVER, WHETHER OR NOT
SHAREHOLDERS VOTE TO APPROVE THE REORGANIZATION PLAN 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 A SERIES OF VALUE
TRUST.
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 VALUE TRUST TO A
SEPARATE SERIES OF BOND FUNDS ("CONVERSION")
Intermediate Bond Fund is presently organized as one of three series of
Value Trust. Value Trust's Board, including a majority of its Independent
Trustees, has approved the Conversion Plan attached to this Proxy Statement as
Appendix C. The Conversion Plan provides for the conversion of Intermediate Bond
Fund from a separate series of Value Trust, a Massachusetts business trust, to a
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newly established separate series (the "New Series") of Bond Funds, 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
investment objectives, policies, and limitations identical to those of
Intermediate Bond Fund. The investment objectives, 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. The rights of shareholders of
Intermediate Bond Fund under state law and its governing documents are expected
to remain substantially unchanged after the Conversion. Shareholder voting
rights under both Value Trust and Bond Funds are currently based on the number
of shares owned. The same individuals serve as trustees of Value Trust and
directors of Bond Funds.
INVESCO, Intermediate Bond Fund's investment adviser, will be responsible
for providing the New Series with various administrative services and
supervising the New Series' daily business affairs, subject to the supervision
of Bond Funds' Board, under a management contract substantially identical to the
contract in effect between INVESCO and Intermediate Bond Fund immediately prior
to the Closing Date. ICM, Intermediate Bond Fund's sub-adviser, will have
primary responsibility for providing investment advice and research services to
the New Series under a Sub-Advisory Agreement substantially identical to the
agreement in effect between ICM and INVESCO 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
Value Trust's Board unanimously recommends conversion of Intermediate Bond
Fund to a separate series of Bond Funds (i.e., the New Series). The proposed
conversion is part of an overall plan that involves the conversion of other
INVESCO Funds as well. The goal of the conversions is to combine similar types
of Funds into a single corporate entity. Ultimately, if all of the conversions
are approved, the INVESCO Funds will be organized into a group of core
companies, with one core company for each major fund type for example, all
INVESCO Funds that invest internationally will be series of one core company,
all INVESCO Funds that invest solely in debt securities will be a series of one
core company, and all INVESCO Funds that invest in equity securities of domestic
issuers will be series of one core company. Moving Intermediate Bond Fund from
Value Trust to Bond Funds will also consolidate and streamline the production
and mailing of certain financial reports and legal documents, reducing expense
to Intermediate Bond Fund. Ultimately, it is expected that all INVESCO Funds
that invest solely in debt securities will become series of Bond Funds. THE
PROPOSED CHANGE WILL HAVE NO MATERIAL EFFECT ON THE SHAREHOLDERS, OFFICERS,
OPERATIONS, OR MANAGEMENT OF INTERMEDIATE BOND FUND.
The proposal to present the Conversion Plan to shareholders was approved
by the Board of Value Trust, including all of its Independent Trustees, 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 Government Securities Fund, and do not
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approve the alternative Conversion Plan set forth herein, the Intermediate Bond
Fund will continue to operate as a series of Value Trust.
SUMMARY OF THE CONVERSION PLAN
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 the Closing Date,
Intermediate Bond Fund will transfer all of its assets to the New Series in
exchange solely for 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 Intermediate Bond Fund shareholder one New
Series Share for each 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 Value Trust and will be wound up and liquidated. UPON COMPLETION OF
THE CONVERSION, EACH INTERMEDIATE BOND FUND SHAREHOLDER WILL OWN FULL AND
FRACTIONAL NEW SERIES SHARES EQUAL IN NUMBER AND AGGREGATE NAV TO HIS OR HER
FUND SHARES.
The Conversion Plan obligates Bond Funds, on behalf of the New Series, to
enter into: (i) a Management Contract with INVESCO with respect to the New
Series (the "New Management Contract"); (ii) a Sub-Advisory Agreement between
INVESCO and ICM with respect to the New Series (the "New Sub-Advisory
Agreement"); and (iii) 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 Value Trust (which
will be issued a single share of the New Series on a temporary basis) to approve
the New Agreements as sole initial shareholder of the New Series. Each New
Agreement will be identical to the corresponding contract, agreement, 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 May 15, 2000. Thereafter, the New Management Contract
and New Sub-Advisory Agreement will continue in effect only if their respective
continuances are approved at least annually: (i) by the vote of a majority of
Bond Funds' 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 Bond
Funds' directors or a majority of the outstanding voting shares of the New
Series. The New 12b-1 Plan will continue in effect only if approved annually by
a vote of Bond Funds' Independent Directors, cast in person at a meeting called
for that purpose. The New Management Contract and New Sub-Advisory Agreement
will be terminable without penalty on sixty days' written notice either by Bond
Funds, INVESCO, or ICM, as the case may be, and each 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 Bond Funds'
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Independent Directors or a majority of the outstanding voting shares of the New
Series.
The Bond Funds' Board will hold office without limit in time except that:
(i) any Director may resign; and (ii) any Director may be removed at any special
meeting of Bond Funds' 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 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 Plan 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 to which Value Trust and Bond Funds
may agree in writing.
The obligations of Value Trust 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, it may
be terminated or amended at any time prior to the Conversion by action of either
Board 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 Value Trust 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 Funds' transfer agent will establish accounts 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 Value Trust's transfer agent for Intermediate Bond Fund's shareholders.
EXPENSES
Half of the cost of the Conversion will be borne by INVESCO, Intermediate
Bond Fund's investment adviser, and the remaining half by Intermediate Bond Fund
and the New Series.
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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.
FORM OF ORGANIZATION
Intermediate Bond Fund is one of three series of Value Trust, an open-end,
diversified investment management company. Value Trust was organized on July 15,
1987, under the laws of the Commonwealth of Massachusetts as "Financial Series
Trust." On July 1, 1993, Financial Series Trust changed its name to "INVESCO
Value Trust." Value Trust does not issue share certificates and is not required
to (nor does it) hold annual shareholder meetings.
New Series will be a series of Bond Funds, an open-end, diversified
investment management company. Bond Funds was incorporated as "INVESCO Income
Funds, Inc." on August 20, 1976 under the laws of the State of Colorado and was
reorganized as a Maryland corporation on April 2, 1993. The name of Bond Funds
was changed from "INVESCO Income Funds, Inc." to "INVESCO Bond Funds, Inc." on
October 29, 1998. Bond Funds has authorized capital of six hundred million
shares of common stock, par value $0.01 per share, of which one hundred million
authorized and unissued shares of common stock have been allocated to the New
Series. Bond Funds does not issue share certificates and is not required to (nor
does it) hold annual shareholder meetings.
RIGHTS AND OBLIGATIONS OF SHAREHOLDERS
As noted above, New Series will be a series of an investment company
organized as a Maryland corporation, while Intermediate Bond Fund is organized
as a series of a Massachusetts business trust. Nevertheless, the rights of the
shareholders of Intermediate Bond Fund, including rights with respect to
shareholder meetings, inspection of shareholder lists, and distributions on
liquidation of the Fund, are substantially similar to the rights of shareholders
of a Maryland corporation. Although shareholders of a Massachusetts business
trust may, under certain circumstances, be held personally liable for its
obligations, Value Trust's Declaration of Trust, as amended, provides that no
trustee, shareholder, officer, employee or agent of Value Trust will have
personal liability for Value Trust's obligations. In addition, the Declaration
of Trust states that only the property of Value Trust, and not the private
property of any trustee, shareholder, officer, employee or agent of Value Trust,
shall be used to satisfy any obligation of or claim against Value Trust.
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TAX CONSEQUENCES OF THE CONVERSION
Both Value Trust 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: (a) 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 (b)
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
Value Trust's Board has concluded that the proposed Conversion Plan is in
the best interests of Intermediate Bond Fund's shareholders, provided the
Reorganization Plan 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 Value Trust, as sole initial shareholder of the New Series, to approve: (a) a
Management Contract with respect to the New Series between Bond Funds and
INVESCO; (b) a Sub-Advisory Agreement with respect to the New Series between
INVESCO and ICM; and (c) a Distribution and Service Plan under Rule 12b-1 with
respect to the New Series. Each of these New Agreements will be identical to the
corresponding contract, agreement, 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 Value Trust;
otherwise, Intermediate Bond Fund will be reorganized or converted consistent
with shareholder approval.
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
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PART III. PROPOSED MODIFICATIONS TO FUNDAMENTAL INVESTMENT RESTRICTIONS AND
ROUTINE CORPORATE GOVERNANCE MATTERS
THESE PROPOSALS MAKE CERTAIN ROUTINE CHANGES TO MODERNIZE SOME OF
INTERMEDIATE BOND FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS AND SEEK
SHAREHOLDER APPROVAL OF CERTAIN ROUTINE CORPORATE GOVERNANCE MATTERS. IF THE
REORGANIZATION DESCRIBED IN PROPOSAL 1 IS APPROVED BY SHAREHOLDERS AT THE
MEETING, THE PROPOSED FUNDAMENTAL RESTRICTION CHANGES WILL NOT BE IMPLEMENTED,
BECAUSE INTERMEDIATE BOND FUND SHAREHOLDERS WILL BECOME SHAREHOLDERS OF
GOVERNMENT SECURITIES FUND. WHETHER OR NOT SHAREHOLDERS VOTE TO APPROVE THE
REORGANIZATION DESCRIBED IN PROPOSAL 1, THE BOARD RECOMMENDS THAT SHAREHOLDERS
APPROVE THE PROPOSALS SET FORTH BELOW.
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 that
the Fund has not specifically designated as fundamental are considered to be
"non-fundamental" and may be changed by the Board of Value Trust 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, these Funds 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 Value Trust 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
Fund's assets efficiently and effectively in changing regulatory and investment
environments and permit the Board 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.
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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
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 Government Securities Fund, whose shareholders are being
asked to approve substantially similar changes in Government Securities Fund's
fundamental restrictions, and Intermediate Bond Fund will be terminated.
A. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INDUSTRY CONCENTRATION
Intermediate Bond Fund's current fundamental restriction on industry
concentration states:
Other than an investment by the Fund in obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, the Fund may not invest in the securities of
issuers conducting their principal business activities in the same
industry (investments in obligations issued by a foreign
government, including the agencies or instrumentalities of a
foreign government, are considered to be investments in a single
industry), if immediately after such investment the value of [the]
Fund's investments in such industry would exceed 25% of the value
of the Fund's total assets.
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.
If the proposed revision is approved, the Board would also adopt the
following non-fundamental policy:
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With respect to fundamental restriction ( ), investments in
obligations issued by a foreign government, including the agencies
or instrumentalities of a foreign government, are considered to be
investments in a single industry.
The primary 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. It is not expected that
this revision will lead to any changes in the Fund's practices with respect to
investment concentration.
B. MODIFICATION OF FUNDAMENTAL RESTRICTION ON ISSUER DIVERSIFICATION
Intermediate Bond Fund's current fundamental restriction concerning issuer
diversification states:
With respect to the total assets of the Intermediate Bond Fund, the
Fund may not purchase the securities of any one issuer (except cash
items and "government issuers" 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 proposed fundamental restriction concerning diversification is the
limitation imposed by the 1940 Act for diversified investment companies. The
amended fundamental restriction would allow the Fund, with respect to 25% of its
total assets, to invest more than 5% of its assets in the securities of one or
more issuers and to hold more than 10% of the voting securities of an issuer.
The Fund will continue to be required to invest 75% of its total assets so that
no more than 5% of total assets are invested in any one issuer, and so that the
Fund will not own more than 10% of the voting securities of an issuer.
The amended restriction would give the Fund greater investment flexibility
by permitting it to acquire larger positions in the securities of a particular
issuer, consistent with its investment objective and strategies. This increased
flexibility could provide opportunities to enhance the Fund's performance.
Investing a larger percentage of the Fund's assets in a single issuer's
securities, however, increases the Fund's exposure to credit and other risks
associated with that issuer's financial condition and operations, including the
risk of default on debt securities.
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The amended fundamental restriction also would permit the Fund to invest
without limit in the securities of other investment companies. The Fund has no
current intention of doing so, and, as noted below, the 1940 Act imposes
restrictions on the extent to which a fund may invest in the securities of other
investment companies. The revision would, however, give the Fund flexibility to
invest in other investment companies in the event legal and other regulatory
requirements change.
C. MODIFICATION OF FUNDAMENTAL RESTRICTION ON UNDERWRITING
Intermediate Bond Fund's current fundamental restriction on underwriting
is as follows:
The Fund may not underwrite securities of other issuers, except
insofar as it may technically be deemed an "underwriter" under the
Securities Act of 1933, as amended, in connection with the
disposition of the Fund's portfolio securities.
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
Securities Act of 1933, as amended, in connection with the
disposition of the Fund's portfolio securities.
The 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.
D. ELIMINATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN COMPANIES FOR THE
PURPOSE OF EXERCISING CONTROL OR MANAGEMENT
Intermediate Bond Fund's current fundamental restriction on investing in
companies for the purpose of exercising control or management states:
The Fund may not invest in companies for the purpose of exercising
control or management.
The Board recommends that shareholders vote to eliminate this restriction.
There is no legal requirement that a fund have an affirmative policy on
investment for the purpose of exercising control or management if it does NOT
intend to make investments for that purpose. The Fund has no intention of
investing in any company for the purpose of exercising control or management. By
eliminating this restriction, the Board may, however, be able to authorize such
a strategy in the future if it concludes that doing so would be in the best
interest of the Fund and its shareholders.
27
<PAGE>
E. MODIFICATION OF FUNDAMENTAL RESTRICTION ON BORROWING AND ADOPTION OF
NON-FUNDAMENTAL RESTRICTION ON BORROWING
Intermediate Bond Fund's current fundamental restriction on borrowing
states:
The Fund may not issue any class of senior securities or borrow
money, except borrowings from banks for temporary or emergency
purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of the value of the Fund's total assets at the
time the borrowing is made.
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 33 1/3% of its total assets (including
the amount borrowed) less liabilities (other than borrowings).
Currently, the Fund's fundamental restriction on borrowing is more
limiting than required by the 1940 Act. The proposal eliminates the fundamental
nature of the restrictions on the purposes for which the Fund may borrow money.
The proposed revision also separates the restriction on the issuance of senior
securities from the Fund's restriction on borrowing (see below).
If the proposal is approved, the Board will adopt a non-fundamental
restriction 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 non-fundamental restriction reflects the Fund's current policy that
borrowing by the Fund may only be done for temporary or emergency purposes. In
addition to borrowing from banks, as permitted in the Fund's current policy, the
non-fundamental restriction permits 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 the Fund's non-fundamental restriction, will maximize the Fund's flexibility
for future contingencies.
28
<PAGE>
F. MODIFICATION OF FUNDAMENTAL RESTRICTION ON THE ISSUANCE OF SENIOR
SECURITIES
Currently, Intermediate Bond Fund's fundamental restriction on the
issuance of senior securities is combined with its restriction on borrowing (see
above). To conform the Fund's restriction on the issuance of senior securities
(I.E., obligations that have a priority over the Fund's shares with respect to
the distribution of fund assets or the payment of dividends) with those of the
other INVESCO Funds, the Board recommends that shareholders vote to adopt the
following separate fundamental restriction:
The Fund may not issue senior securities, except as permitted under
the Investment Company Act of 1940.
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.
G. ELIMINATION OF FUNDAMENTAL RESTRICTION ON MORTGAGING, PLEDGING OR
HYPOTHECATING SECURITIES
Intermediate Bond Fund currently has the following fundamental restriction
on mortgaging, pledging or hypothecating securities:
The Fund may not mortgage, pledge, hypothecate or in any manner
transfer as security for indebtedness any securities owned or held
except to an extent not greater than 5% of the value of the Fund's
total assets.
This restriction is derived from a state "blue sky" requirement, which has
been preempted by recent amendments of the federal securities laws. Accordingly,
the Board recommends that shareholders vote to eliminate this restriction.
H. ELIMINATION OF FUNDAMENTAL RESTRICTION ON SHORT SALES AND MARGIN PURCHASES
AND ADOPTION OF NON-FUNDAMENTAL RESTRICTION ON SHORT SALES AND MARGIN
PURCHASES
The Intermediate Bond Fund currently has a fundamental restriction on
short sales stating that:
The Fund may not sell short.
In addition, the Fund has a fundamental restriction on margin transactions that
states:
The Fund may not buy on margin.
29
<PAGE>
The Board recommends that shareholders vote to eliminate these fundamental
restrictions. If the proposal is approved, the Board will adopt the following
non-fundamental restriction:
The Fund may not sell securities short (unless it owns or has the
right to obtain securities equivalent in kind and amount to the
securities sold short) or purchase securities on margin, except
that (i) this policy does not prevent the Fund from entering into
short positions in foreign currency, futures contracts, options,
forward contracts, swaps, caps, floors, collars and other financial
instruments, (ii) the Fund may obtain such short-term credits as
are necessary for the clearance of transactions, and (iii) the Fund
may make margin payments in connection with futures contracts,
options, forward contracts, swaps, caps, floors, collars and other
financial instruments.
The proposed changes clarify the wording of the restriction and expand the
restriction that generally prohibits the Fund from selling securities short or
buying on margin. Margin purchases involve the purchase of securities with money
borrowed from a broker. "Margin" is the cash or eligible securities that the
borrower places with a broker as collateral against the loan. In a short sale,
an investor sells a borrowed security and has a corresponding obligation to the
lender to return the identical security. In a "short sale against the box"
transaction, a Fund engages in a short sale of a security that it already owns
or has the right to own. The Fund's current restrictions prohibit the Fund from
purchasing securities on margin or selling short, but do not clearly provide for
an exception for transactions requiring margin payments and short positions such
as the sale and purchase of futures contracts and options on futures contracts.
With these exceptions, mutual funds are prohibited from entering into most types
of margin purchases and short sales by applicable SEC policies.
The Board believes that elimination of the fundamental restrictions and
adoption of the non-fundamental restriction will provide the Fund with greater
investment flexibility.
I. 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 purchase or sell real estate or interests in real
estate. The Fund may invest in securities secured by real estate or
interests therein or issued by companies, including real estate
investment trusts, which invest in real estate or interests
therein.
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
30
<PAGE>
instruments backed by real estate or securities of companies
engaged in the real estate business).
The primary purpose of the proposal is to eliminate minor differences in
the wording of the Fund's fundamental restriction in order to conform it to that
of the other INVESCO Funds. Adoption of the proposed fundamental restriction is
not expected to affect the securities in which the Fund invests.
J. 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 buy or sell commodities contracts. The Fund may
enter into interest rate futures contracts if immediately after
such a commitment the sum of the then aggregate futures market
prices of financial instruments required to be delivered under open
futures contract sales and the aggregate purchase prices under
futures contract purchases would not exceed 30% of the Fund's total
assets.
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 to ensure that
Intermediate Bond Fund will have the maximum flexibility to enter into hedging
or other transactions utilizing financial contracts 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.
K. MODIFICATION OF FUNDAMENTAL RESTRICTION ON LOANS
Intermediate Bond Fund's current fundamental restriction on loans is as
follows:
31
<PAGE>
The Fund may not make loans to other persons, provided that the
Fund may purchase debt obligations consistent with its investment
objectives and policies and the Fund may lend limited amounts (not
to exceed 10% of its total assets) of its portfolio securities to
broker-dealers or other institutional investors.
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 33 1/3% 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 expand the Fund's lending
limitation from 10% to 33 1/3% of its assets and conform the Fund's fundamental
restriction on loans to those of the other INVESCO Funds for greater uniformity.
The Fund's current investment restriction is considerably more limiting than
provisions in the 1940 Act governing lending. The proposed changes to this
investment restriction would maximize the Fund's lending flexibility for future
contingencies.
L. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN ANOTHER INVESTMENT
COMPANY AND ADOPTION OF A NON-FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
INVESTMENT IN SECURITIES ISSUED BY OTHER INVESTMENT COMPANIES
Intermediate Bond Fund's current fundamental restriction regarding
investments in other investment companies is as follows:
The Fund may not purchase securities of other investment companies
except (i) in connection with a merger, consolidation, acquisition
or reorganization, or (ii) by purchase in the open market of
securities of other investment companies involving only customary
brokers' commissions and only if immediately thereafter (i) no more
than 3% of the voting securities of any one investment company are
owned by the Fund, (ii) no more than 5% of the value of the total
assets of the Fund would be invested in any one investment company,
and (iii) no more than 10% of the value of the total assets of the
Fund would be invested in the securities of such investment
companies. Value Trust may invest from time to time a portion of
the Fund's cash in investment companies to which INVESCO serves as
investment adviser; provided that no management or distribution fee
will be charged by INVESCO with respect to any such assets so
invested and provided further that at no time will more than 3% of
the Fund's assets be so invested. Should the Fund purchase
securities of other investment companies, shareholders may incur
additional management and distribution fees.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
32
<PAGE>
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 proposed revision to Intermediate Bond Fund's current 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 any Fund in which the Fund may invest under a master/feeder
structure be advised by INVESCO or an affiliate.
If the proposed revision is approved, the Board will adopt a
non-fundamental restriction as follows:
The Fund may invest in securities issued by other investment
companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under
the 1940 Act.
The primary purpose of this non-fundamental restriction is to conform to
the other INVESCO Funds and to the 1940 Act requirements for investing in other
investment companies. Currently, the Fund's fundamental restriction is more
limiting than the restriction imposed by the 1940 Act. Adoption of this
non-fundamental restriction will enable the Fund to purchase the securities of
other investment companies to the extent permitted under the 1940 Act or under
an exemption granted by the SEC. If a Fund did purchase the securities of
another investment company, shareholders might incur additional expenses because
the Fund would have to pay its ratable share of the expenses of the other
investment company.
M. ELIMINATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN ILLIQUID SECURITIES
AND ADOPTION OF NON-FUNDAMENTAL RESTRICTION ON INVESTING IN ILLIQUID
SECURITIES
Intermediate Bond Fund currently has the following fundamental restriction
on investing in illiquid securities:
The Fund may not invest in securities for which there are legal or
contractual restrictions on resale, except that the Fund may invest
no more than 2% of the value of its total assets in such
securities; or invest in securities for which there is no readily
available market, except that the Fund may invest no more than 5%
of the value of its total assets in such securities.
The Board recommends that shareholders vote to eliminate this restriction.
If the proposal is approved, the Board will adopt the following non-fundamental
restriction:
33
<PAGE>
The Fund does not currently intend to purchase any security if, as
a result, more than 15% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject
to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
The primary purpose of the proposal is to conform to the federal
securities law requirements regarding investment in illiquid securities and to
conform the investment restrictions of the Fund to those of the other INVESCO
Funds. The Intermediate Bond Fund is currently limited in its ability to invest
in illiquid securities. The Board believes that the proposed elimination of the
fundamental restriction and subsequent adoption of the non-fundamental
restriction will make the restriction more accurately reflect market conditions
and will maximize the Fund's flexibility for future contingencies. The Board may
delegate to INVESCO, the Fund's investment adviser, the authority to determine
whether a security is liquid for the purposes of this investment limitation.
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 2 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 TRUSTEES OF VALUE TRUST
The Board of Value Trust has nominated the individuals identified below
for election to the Board at the Meeting. Value Trust currently has ten
trustees. Vacancies on the Board are generally filled by appointment by the
remaining trustees. However, the 1940 Act provides that vacancies may not be
filled by trustees unless thereafter at least two-thirds of the trustees 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 trustees
to hold office until the next meeting of shareholders. Consistent with the
provisions of Value Trust's by-laws, and as permitted by Massachusetts law,
Value Trust does not anticipate holding annual shareholder meetings. Thus, the
trustees 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
34
<PAGE>
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 Trustees now being proposed for election were
nominated and selected by Independent Trustees. Eight of the ten current
trustees are Independent Trustees.
The persons named as attorneys-in-fact in the enclosed proxy have advised
Value Trust 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 trustee, 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.
<TABLE>
<CAPTION>
NUMBER OF
TRUSTEE INTERMEDIATE
OR BOND FUND
EXECUTIVE SHARES
PRINCIPAL OCCUPATION AND OFFICER BENEFICIALLY
NAME, POSITION BUSINESS EXPERIENCE OF VALUE OWNED DIRECTLY OR MEMBER
WITH VALUE (DURING THE PAST FIVE TRUST INDIRECTLY ON OF
TRUST, AND AGE YEARS) SINCE DEC. 31, 1998 (1) COMMITTEES
- -------------- ---------------------- --------- ----------------- ----------
<S> <C> <C> <C> <C>
CHARLES W. Chief Executive Officer and 1993 0 (3),(5),(6)
BRADY, CHAIRMAN Director of AMVESCAP, PLC,
OF THE BOARD, London, England, and of
AGE 63* various subsidiaries
thereof. Chairman of the
Board of INVESCO Global
Health Sciences Fund.
FRED A. Trustee of INVESCO Global 1993 7.8850 (2),(3),(5)
DEERING, VICE Health Sciences Fund.
CHAIRMAN OF THE Formerly, Chairman of the
BOARD, AGE 71 Executive Committee and
Chairman of the Board of
Security Life of Denver
Insurance Company, Denver,
Colorado; Director of ING
American Holdings Company
and First ING Life
Insurance Company of New
York.
MARK H. President, Chief Executive 1998 0 (3),(5)
WILLIAMSON, Officer, and Director,
PRESIDENT, INVESCO Distributors Inc.;
CHIEF EXECUTIVE President, Chief Executive
OFFICER, AND Officer, and Director,
TRUSTEE, AGE 47* INVESCO; President, Chief
Operating Officer, and
Trustee, 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. Professor Emeritus, 1993 7.8850 (4),(6),(8)
ANDREWS, Chairman Emeritus and
TRUSTEE, Chairman of the CFO
AGE 68 Roundtable of the
Department of Finance of
Georgia State University,
Atlanta, Georgia and
President, Andrews
Financial Associates, Inc.
(consulting firm).
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 Sheffield
Funds, Inc.
35
<PAGE>
NUMBER OF
TRUSTEE INTERMEDIATE
OR BOND FUND
EXECUTIVE SHARES
PRINCIPAL OCCUPATION AND OFFICER BENEFICIALLY
NAME, POSITION BUSINESS EXPERIENCE OF VALUE OWNED DIRECTLY OR MEMBER
WITH VALUE (DURING THE PAST FIVE TRUST INDIRECTLY ON OF
TRUST, AND AGE YEARS) SINCE DEC. 31, 1998 (1) COMMITTEES
- -------------- ---------------------- --------- ----------------- ----------
BOB R. BAKER, President and Chief 1993 7.8850 (3),(4),(5)
TRUSTEE, AGE 62 Executive 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. Trust Consultant. Prior to 1993 7.8850 (2),(6),(7)
BUDNER, June 1987, Senior Vice
TRUSTEE, President and Senior Trust
AGE 68 Officer, InterFirst Bank,
Dallas, Texas.
DR. WENDY LEE Self-employed (since 1993). 1997 7.8850 (4),(8)
GRAMM, Professor of Economics and
TRUSTEE, Public Administration,
AGE 54 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's 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.
36
<PAGE>
NUMBER OF
TRUSTEE INTERMEDIATE
OR BOND FUND
EXECUTIVE SHARES
PRINCIPAL OCCUPATION AND OFFICER BENEFICIALLY
NAME, POSITION BUSINESS EXPERIENCE OF VALUE OWNED DIRECTLY OR MEMBER
WITH VALUE (DURING THE PAST FIVE TRUST INDIRECTLY ON OF
TRUST, AND AGE YEARS) SINCE DEC. 31, 1998 (1) COMMITTEES
- -------------- ---------------------- --------- ----------------- ----------
KENNETH T. Presently retired. 1993 7.8850 (2),(3),(5),(6),(7)
KING, TRUSTEE, Formerly, Chairman of the
AGE 73 Board of the Capitol Life
Insurance Company,
Providence Washington
Insurance Company, and
Director of numerous U.S.
subsidiaries thereof.
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. Presently retired. 1995 7.8850 (2),(3),(5),(7)
MCINTYRE, Formerly, Vice Chairman of
TRUSTEE, AGE 68 the Board, The Citizens
and Southern Corporation;
Chairman of the Board and
Chief Executive Officer,
The Citizens and Southern
Georgia Corporation;
Chairman of the Board and
Chief Executive Officer,
The Citizens and Southern
National Bank. Trustee of
INVESCO Global Health
Sciences Fund, Gables
Residential Trust,
Employee's Retirement
System of Georgia, Emory
University, and the J.M.
Tull Charitable Foundation;
Director of Kaiser
Foundation Health Plans of
Georgia, Inc.
<PAGE>
NUMBER OF
TRUSTEE INTERMEDIATE
OR BOND FUND
EXECUTIVE SHARES
PRINCIPAL OCCUPATION AND OFFICER BENEFICIALLY
NAME, POSITION BUSINESS EXPERIENCE OF VALUE OWNED DIRECTLY OR MEMBER
WITH VALUE (DURING THE PAST FIVE TRUST INDIRECTLY ON OF
TRUST, AND AGE YEARS) SINCE DEC. 31, 1998 (1) COMMITTEES
- -------------- ---------------------- --------- ----------------- ----------
DR. LARRY SOLL, Presently retired. 1998 7.8850 (4),(8)
TRUSTEE, AGE 56 Formerly, Chairman of the
Board (1987-1994), Chief
Executive Officer
(1982-1989 and 1993-1994)
and President (1982-1989)
of Synergen, Inc. Director
of Synergen, Inc. since
incorporation in 1982.
Director of Isis
Pharmaceuticals, Inc.
Trustee of INVESCO Global
Health Sciences Fund.
</TABLE>
*Because of his affiliation with INVESCO, Intermediate Bond Fund's investment
adviser, or with companies affiliated with INVESCO, this individual is deemed to
be an "interested person" of Value Trust 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
The Board has audit, management liaison, soft dollar brokerage and
derivatives committees, consisting of Independent Trustees, and compensation,
executive, management liaison and valuation committees, consisting of
Independent Trustees and non-independent trustees. The Board does not have a
nominating committee. The audit committee, consisting of four Independent
Trustees, meets quarterly with Value Trust's independent accountants and
executive officers of Value Trust. This committee reviews the accounting
principles being applied by Value Trust 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 Value Trust's business, except for
certain powers which, under applicable law and/or Value Trust's 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 Value Trust, 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
Value Trust, and to review policies and procedures of Value Trust's 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 Value Trust. The committee monitors
derivatives usage by Value Trust and the procedures utilized by Value Trust's
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.
Each Independent Trustee receives an annual retainer of $56,000 for their
service to the INVESCO Funds. Additionally, each Independent Trustee receives
$3,000 for in-person attendance at each Board meeting and $1,000 for in-person
attendance at each committee meeting. The Chairman of the audit and management
liaison committee each receive an annual fee of $4,000 for serving in such
capacity.
37
<PAGE>
During the past fiscal year, the Board met five times, the audit committee
met four times, the executive committee did not meet, the compensation committee
met once, the management liaison committee met four times, the soft dollar
brokerage committee met twice, and the derivatives committee met twice. The
executive committee did not meet. During Value Trust's last fiscal year, each
trustee nominee attended 75% or more of the Board meetings and meeting of the
committees of the Board on which he or she served.
The Independent Trustees nominate individuals to serve as Independent
Trustees, without any specific nominating committee. The Board ordinarily will
not consider unsolicited trustee nominations recommended by Value Trust
shareholders. The Board, including its Independent Trustees, unanimously
approved the nomination of the foregoing persons to serve as trustees and
directed that the election of these nominees be submitted to Value Trust's
shareholders.
The following table sets forth information relating to the compensation
paid to trustees during the last fiscal year:
COMPENSATION TABLE
AMOUNTS PAID DURING THE MOST RECENT
FISCAL YEAR BY VALUE TRUST TO TRUSTEES
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM VALUE
BENEFITS TRUST AND
AGGREGATE ACCRUED AS ESTIMATED THE OTHER 14
COMPENSATION PART OF VALUE ANNUAL INVESCO FUNDS
NAME OF PERSON, FROM VALUE TRUST BENEFITS UPON PAID TO
POSITION TRUST(1) EXPENSES(2) RETIREMENT(3) TRUSTEES(1)
- -------------- ----------- ----------- ------------- -------------
FRED A DEERING, $9,418 $5,735 $3,680 $103,700
VICE CHAIRMAN OF
THE BOARD AND
TRUSTEE
DR. VICTOR L. $9,004 $5,420 $4,260 $80,350
ANDREWS, TRUSTEE
BOB R. BAKER, $9,568 $4,840 $5,709 $84,000
TRUSTEE
LAWRENCE H. $8,697 $5,420 $4,260 $79,350
BUDNER, TRUSTEE
DANIEL D. $9,106 $5,858 $3,179 $70,000
CHABRIS(4), TRUSTEE
KENNETH T. KING, $8,085 $5,956 $3,338 $77,050
TRUSTEE
JOHN W. MCINTYRE, $8,486 $0 $0 $98,500
TRUSTEE
DR. WENDY L. $8,368 $0 $0 $79,000
GRAMM, TRUSTEE
DR. LARRY SOLL, $8,486 $0 $0 $96,000
TRUSTEE
--------- ---------- ---------- -----------
TOTAL $79,218 $33,229 $24,426 $767,950
========= ========== ========== ===========
AS A PERCENTAGE 0.0027%(5) 0.0011% 0.0035%(6)
OF NET ASSETS
- -----------------
(1) The Vice Chairman of the Board, the chairmen of the audit, management
liaison, derivatives, soft dollar brokerage and compensation committees, and
Independent Trustee members of the executive and valuation committees of each
Fund receive compensation for serving in such capacities in addition to the
compensation paid to all Independent Trustees.
(2) Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the election
of the trustees.
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(3) These figures represent Value Trust's 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 trustees'
retirement, calculated using the current method of allocating trustee
compensation among the INVESCO Funds. These estimated benefits assume retirement
at age 72 and that the basic retainer payable to the trustees 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 trustees. This results in lower
estimated benefits for trustees who are closer to retirement and higher
estimated benefits for trustees who are farther from retirement. With the
exception of Mr. McIntyre and Drs. Soll and Gramm, each of these trustees has
served as trustee or 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. Although Mr. McIntyre became eligible to
participate in the Defined Benefit Deferred Compensation Plan as of November 1,
1998, he will not be included in the calculation of retirement benefits until
November 1, 1999.
(4) Mr. Chabris retired as a trustee effective September 30, 1998.
(5) Total as a percentage of Value Trust's net assets as of August 31, 1998.
(6) Total as a percentage of the net assets of the 15 INVESCO Funds in the
INVESCO Complex as of December 31, 1998.
Value Trust pays its Independent Trustees, Board vice chairman, committee
chairmen and members the fees described above. Value Trust also reimburses its
Independent Trustees for travel expenses incurred in attending meetings. Charles
W. Brady, Chairman of the Board, and Mark H. Williamson, President, Chief
Executive Officer, and Trustee, as "interested persons" of Value Trust and of
other INVESCO Funds, receive compensation and are reimbursed for travel expenses
incurred in attending meetings as officers or employees of INVESCO or its
affiliated companies, but do not receive any trustee's fees or other
compensation from Value Trust or other INVESCO Funds for their services as
trustees.
The overall direction and supervision of Value Trust is the responsibility
of the Board, which has the primary duty of ensuring that Value Trust's general
investment policies and programs are adhered to and that Value Trust is properly
administered. The officers of Value Trust, all of whom are officers and
employees of and paid by INVESCO, are responsible for the day-to-day
administration of Value Trust. The investment adviser for Value Trust has the
primary responsibility for making investment decisions on behalf of Value Trust.
These investment decisions are reviewed by the investment committee of INVESCO.
All of the officers and trustees of Value Trust 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.),
INVESCO Tax-Free Income Funds, Inc., and INVESCO Variable Investment Funds, Inc.
All of the trustees of Value Trust also serve as trustees of INVESCO Treasurer's
Series Trust.
The Boards of the Funds managed by INVESCO 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") of the annual basic retainer
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and annualized board meeting fees payable by the Funds to the Qualified Director
at the time of his or her retirement (the "Basic Benefit"). 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 Benefit. These payments will continue for the
remainder of the Qualified Director's life or ten years, whichever is longer
(the "Reduced Benefit Payments"). 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 Benefit 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 Reduced Benefit 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 Funds in a manner determined to be fair and equitable by the
committee. Value Trust began making payments to Mr. Chabris as of October 1,
1998 under the Plan. Value Trust 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 Trustees 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 trustees/directors of certain of
the INVESCO Funds. The deferred amounts have been invested in shares of certain
INVESCO Funds. Each Independent Trustee may, therefore, be deemed to have an
indirect interest in shares of each such INVESCO Fund, in addition to any Fund
shares that they may own directly or beneficially.
REQUIRED VOTE. Election of each nominee as a trustee of Value Trust
requires the vote of a majority of the outstanding shares of Intermediate Bond
Fund present at the Meeting, and a majority of the outstanding shares of the
other series of Value Trust present at concurrent meetings of those series, in
person or by proxy, taken in the aggregate.
THE BOARD, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" EACH OF THE NOMINEES IN PROPOSAL 4
PROPOSAL 5. TO RATIFY OR REJECT THE SELECTION OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS OF
INTERMEDIATE BOND FUND
The Board of Value Trust, including all of its Independent Trustees, 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 trustees 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.
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REQUIRED VOTE. Ratification of the selection of PricewaterhouseCoopers LLP
as independent accountants requires the vote of a majority of the outstanding
shares of Intermediate Bond Fund present at the Meeting, provided a quorum is
present.
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, SUB-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
Value Trust. IDI, a Delaware corporation that serves as Intermediate Bond Fund's
distributor, is a wholly owned subsidiary of INVESCO. ICM serves as Intermediate
Bond Fund's sub-adviser. INVESCO is a wholly owned subsidiary of INVESCO North
American Holdings, Inc. ("INAH"). INAH is an indirect wholly owned subsidiary of
AMVESCAP PLC.(1) The corporate headquarters of AMVESCAP PLC are located at 11
Devonshire Square, London, EC2M 4YR, England. INVESCO's, INAH's and IDI's
offices are located at 7800 East Union Avenue, Denver, Colorado 80237. ICM's
offices are located at 1315 Peachtree Street, N.E., Atlanta, Georgia 30309.
INVESCO currently serves as investment adviser of 14 open-end investment
companies having 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; and Ronald L. Grooms, Director, Senior Vice
President and Treasurer, also, Director, Senior Vice President and Treasurer of
IDI; Richard W. Healey, Director and Senior Vice President, also, Director and
Senior Vice President of IDI; Timothy J. Miller, Director and Senior Vice
President, also, Director and Senior Vice President of IDI; and Glen A. Payne,
Senior Vice President, Secretary and General Counsel, also, Senior Vice
President, Secretary and General Counsel of IDI.
- ----------------------
(1) The intermediary companies between INAH and AMVESCAP PLC are as follows:
INVESCO, Inc., AMVESCAP Group Services, Inc., AVZ, Inc. and INVESCO North
American Group, Ltd., each of which is wholly owned by its immediate parent.
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The address of each of the foregoing officers and directors is 7800 East
Union Avenue, Denver, Colorado 80237.
ICM serves as the sub-adviser to Intermediate Bond Fund. ICM is an
indirect wholly owned subsidiary of AMVESCAP PLC. INVESCO, as investment
adviser, has contracted with ICM for providing portfolio investment advisory
services to Intermediate Bond Fund. The principal executive officers and
directors of ICM and their principal occupations are:
Frank M. Bishop, President, Chief Executive Officer and Director; Edward
C. Mitchell, Jr., Chairman of the Board; Terrence J. Miller, Deputy President
and Director; Timothy J. Culler, Chief Investment Officer, Vice President and
Director; David Hartley, Chief Financial Officer and Treasurer; Julie A. Skaggs,
Vice President and Secretary; Luis A. Aguilar, Vice President and Assistant
Secretary; Stephen A. Dana, Vice President and Director; Thomas W. Norwood, Vice
President and Director; Donald B. Saltee, Vice President and Director; Thomas L.
Shields, Vice President and Director; Wendell M. Starke, Vice President and
Director; A. D. Frazier, Director; and Deborah Lamb, Assistant Secretary.
The address of each of the foregoing officers and directors is 1315
Peachtree Street, N.W., Atlanta, Georgia 30309.
Pursuant to an Administrative Services Agreement between Value Trust and
INVESCO, INVESCO provides administrative services to Value Trust, including
sub-accounting and recordkeeping services and functions. During the fiscal year
ended August 31, 1998, Value Trust paid INVESCO total compensation of $455,075
for such services.
During the fiscal year ended August 31, 1998, Value Trust paid INVESCO,
which also serves as Value Trust's transfer agent and dividend disbursing agent,
total compensation of $4,890,325 for such services.
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 with those requirements
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. In addition,
reports and other information about each Fund are available on the SEC's web
site at http://www.sec.gov.
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LEGAL MATTERS
Certain legal matters in connection with the issuance of Government
Securities Fund shares as part of the Reorganization will be passed upon by
Government Securities Fund's counsel, Kirkpatrick & Lockhart LLP.
EXPERTS
The audited financial Statements of Government Securities 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 or period ended August 31, 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.
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APPENDIX A
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of each Fund's
outstanding equity securities as of March 12, 1999 by each beneficial owner of
5% or more of a Fund's outstanding equity securities.
AMOUNT AND NATURE
NAME AND ADDRESS OF OWNERSHIP PERCENTAGE
- -------------------------------- ----------------- ----------
INTERMEDIATE BOND FUND
- ----------------------
Charles Schwab & Co., Inc. 635,719.4230 23.39%
Special Custody Acct. for the Record
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Strafe & Co. F/A/O 145,224.4540 5.34%
MKC Hosp. Auth. Record
#70001852000
P.O. Box 160
Westerville, OH 43086-0160
U.S. GOVERNMENT SECURITIES FUND
- -------------------------------
Resources Trust Co. Cust. For The 1,302,323.3370 14.75%
Exclusive Benefit of the Various Record
Customers of IMS
P.O. Box 3865
Englewood, CO 80155
Charles Schwab & Co., Inc. 1,112,358.7730 12.60%
Special Custody Acct. for the Record
Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104-4122
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APPENDIX B
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of March 21, 1999, between INVESCO Value Trust, a Massachusetts
business trust ("Trust"), on behalf of INVESCO Intermediate Government Bond
Fund, a segregated portfolio of assets ("series") thereof ("Target"), and
INVESCO Bond Funds, Inc., a Maryland corporation ("Corporation"), on behalf of
its INVESCO U.S. Government Securities Fund series ("Acquiring Fund").
(Acquiring Fund and Target are sometimes referred to herein individually as a
"Fund" and collectively as the "Funds," and Corporation and Trust 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 Corporation on behalf of Acquiring
Fund and by Trust on behalf of Target.
This Agreement 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 beneficial interest 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")
(though Target Shares issued before November 1, 1997 are not subject to any such
fee), and (3) are subject to similar management fees (up to 0.60% of Target's
net assets and up to 0.55% of Acquiring Fund's net assets).
In consideration of the mutual promises contained herein, the parties
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION
1.1. Target agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. Acquiring
Fund agrees in exchange therefor --
(a) to 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
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(b) to 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).
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 Agreement.
Notwithstanding the foregoing, Target agrees to 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 Corporation'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 as a series of Trust 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
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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.
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 ("SAI") 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 SAI.
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 the Funds' principal office on
June 4, 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. Trust'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. Trust'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. Trust shall deliver to Corporation at the Closing a list of the names
and addresses of the Shareholders and the number of outstanding Target Shares
owned by each Shareholder, all as of the Effective Time, certified by the
Secretary or Assistant Secretary of Trust. 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. Corporation shall issue
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and deliver a confirmation to Trust evidencing the Acquiring Fund Shares to be
credited to Target at the Effective Time or provide evidence satisfactory to
Trust that such Acquiring Fund Shares have been credited to Target's account on
Acquiring Fund's 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.
3.4. 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.
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
4.1.1. Trust is a trust operating under a written declaration of
trust, the beneficial interest in which is divided into transferable
shares ("Business Trust"), that is duly organized and validly existing
under the laws of the Commonwealth of Massachusetts; and a copy of its
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts;
4.1.2. Trust 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;
4.1.3. Target is a duly established and designated series of Trust;
4.1.4. 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;
4.1.5. Target's current prospectus and SAI conform in all material
respects to the applicable requirements of the Securities Act of 1933, as
amended ("1933 Act"), and the 1940 Act and the rules and regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
4.1.6. Target is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated hereby
will not conflict with or violate, Massachusetts law or any provision of
Trust's Declaration of Trust or By-Laws or of any agreement, instrument,
lease, or other undertaking to which Target is a party or by which it is
bound or result in the acceleration of any obligation, or the imposition
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of any penalty, under any agreement, judgment, or decree to which Target
is a party or by which it is bound, except as previously disclosed in
writing to and accepted by Corporation;
4.1.7. Except as otherwise disclosed in writing to and accepted by
Corporation, all material contracts and other commitments of or applicable
to Target (other than this Agreement and investment contracts, including
options, futures, and forward contracts) will be terminated, or provision
for discharge of any liabilities of Target thereunder will be made, at or
prior to the Effective Time, without either Fund's incurring any liability
or penalty with respect thereto and without diminishing or releasing any
rights Target may have had with respect to actions taken or omitted or to
be taken by any other party thereto prior to the Closing;
4.1.8. Except as otherwise disclosed in writing to and accepted by
Corporation, no litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently pending or (to
Target's knowledge) threatened against Trust with respect to Target or any
of its properties or assets that, if adversely determined, would
materially and adversely affect Target's financial condition or the
conduct of its business; Target knows of no facts that might form the
basis for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially or adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.1.9. The execution, delivery, and performance of this Agreement
have been duly authorized as of the date hereof by all necessary action on
the part of Trust's board of trustees, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject to approval by
Target's shareholders, this Agreement constitutes a valid and legally
binding obligation of Target, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
4.1.10. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Target's
shareholders;
4.1.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities Exchange Act of
1934, as amended ("1934 Act"), or the 1940 Act for the execution or
performance of this Agreement by Trust, except for (a) the filing with the
Securities and Exchange Commission ("SEC") of a registration statement by
Corporation on Form N-14 relating to the Acquiring Fund Shares issuable
hereunder, and any supplement or amendment thereto ("Registration
Statement"), including therein a prospectus/proxy statement ("Proxy
Statement"), and (b) such consents, approvals, authorizations, and filings
as have been made or received or as may be required subsequent to the
Effective Time;
4.1.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
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Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by Corporation for use therein;
4.1.13. The Liabilities were incurred by Target in the ordinary
course of its business; and there are no Liabilities other than
liabilities disclosed or provided for in Trust's financial statements
referred to in paragraph 4.1.19 and liabilities incurred by Target in the
ordinary course of its business subsequent to August 31, 1998, or
otherwise previously disclosed to Corporation, none of which has been
materially adverse to the business, assets, or results of Target
operations;
4.1.14. 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
times through the Effective Time in a manner that ensures compliance with
the foregoing;
4.1.15. 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;
4.1.16. 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;
4.1.17. Target will be terminated as soon as reasonably practicable
after the Effective Time, but in all events within twelve months
thereafter;
4.1.18. Target's federal income tax returns, and all applicable
state and local tax returns, for all taxable years to and including the
taxable year ended August 31, 1997, have been timely filed and all taxes
payable pursuant to such returns have been timely paid; and
4.1.19. The financial statements of Trust for the year ended August
31, 1998, to be delivered to Corporation, fairly represent the financial
position of Target as of that date and the results of its operations and
changes in its net assets for the year then ended.
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4.2. Acquiring Fund represents and warrants as follows:
4.2.1. 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 the State of Maryland;
4.2.2. Corporation 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;
4.2.3. Corporation has 600,000,000 authorized shares of common
stock, par value $0.01 per share, 100,000,000 shares of which were
allocated to the Acquiring Fund, of which 9,950,826 shares were
outstanding as of August 31, 1998. Because Corporation is an open-end
investment company engaged in the continuous offering and redemption of
its shares, the number of outstanding Acquiring Fund Shares may change
prior to the Effective Time;
4.2.4. Acquiring Fund is a duly established and designated series of
Corporation;
4.2.5. 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;
4.2.6. 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;
4.2.7. Acquiring Fund's current prospectus and SAI conform in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations thereunder and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
4.2.8. Acquiring Fund is not in violation of, and the execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby will not conflict with or violate, Maryland law or any
provision of Corporation's Articles of Incorporation or By-Laws or of any
provision of any agreement, instrument, lease, or other undertaking to
which Acquiring Fund is a party or by which it is bound or result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Acquiring Fund is a party or
by which it is bound, except as previously disclosed in writing to and
accepted by Trust;
4.2.9. Except as otherwise disclosed in writing to and accepted by
Trust, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or (to
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Acquiring Fund's knowledge) threatened against Corporation with respect to
Acquiring Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect Acquiring Fund's
financial condition or the conduct of its business; Acquiring Fund knows
of no facts that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party to or subject
to the provisions of any order, decree, or judgment of any court or
governmental body that materially or adversely affects its business or its
ability to consummate the transactions contemplated hereby;
4.2.10. The execution, delivery, and performance of this Agreement
have been duly authorized as of the date hereof by all necessary action on
the part of Corporation's board of directors (together with Trust's board
of trustees, the "Boards"), which has made the determinations required by
Rule 17a-8(a) under the 1940 Act; and this Agreement constitutes a valid
and legally binding obligation of Acquiring Fund, enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium,
and similar laws relating to or affecting creditors' rights and by general
principles of equity;
4.2.11. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or the 1940 Act for
the execution or performance of this Agreement by Corporation, except for
(a) the filing with the SEC of the Registration Statement and a
post-effective amendment to Corporation's registration statement on Form
N1-A and (b) such consents, approvals, authorizations, and filings as have
been made or received or as may be required subsequent to the Effective
Time;
4.2.12. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the regulations thereunder and (b) not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements in or omissions
from the Proxy Statement made in reliance on and in conformity with
information furnished by Trust for use therein;
4.2.13. 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;
4.2.14. 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
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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;
4.2.15. 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 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;
4.2.16. 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;
4.2.17. 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;
4.2.18. Acquiring Fund does not own, directly or indirectly, nor at
the Effective Time will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares
of Target;
4.2.19. Acquiring Fund's federal income tax returns, and all
applicable state and local tax returns, for all taxable years to and
including the taxable year ended August 31, 1997, have been timely filed
and all taxes payable pursuant to such returns have been timely paid;
4.2.20. The financial statements of Corporation for the year ended
August 31, 1998, to be delivered to Trust, fairly represent the financial
position of Acquiring Fund as of that date and the results of its
operations and changes in its net assets for the year then ended; and
4.2.21. If the Reorganization is consummated, Acquiring Fund will
treat each Shareholder that receives Acquiring Fund Shares in connection
with the Reorganization as having made a minimum initial purchase of
Acquiring Fund Shares for the purpose of making additional investments in
Acquiring Fund Shares, regardless of the value of the Acquiring Fund
Shares so received.
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4.3. Each Fund represents and warrants as follows:
4.3.1. 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;
4.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of
their Target 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 Acquiring Fund
Shares to be received by them in the Reorganization to any person related
(as so defined) to Acquiring Fund, (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, (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 Acquiring Fund Shares immediately following the
Reorganization;
4.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
4.3.4. 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;
4.3.5. 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;
4.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.3.7. 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 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 held thereby
immediately before the Reorganization;
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4.3.8. 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;
4.3.9. 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; and
4.3.10. 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").
5. COVENANTS
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being understood
that:
(a) such ordinary course will include declaring and paying
customary dividends and other distributions and such changes
in operations as are contemplated by each Fund's normal
business activities and
(b) each Fund will retain exclusive control of the composition of
its portfolio until the Closing; provided that (1) Target
shall not dispose of more than an insignificant portion of its
historic business assets during such period without Acquiring
Fund's prior consent and (2) if Target's shareholders' approve
this Agreement (and the transactions contemplated hereby),
then between the date of such approval and the Closing, the
Investment Companies shall coordinate the Funds' respective
portfolios so that the transfer of the Assets to Acquiring
Fund will not cause it to fail to be in compliance with all of
its investment policies and restrictions immediately after the
Closing.
5.2. Target covenants to call a shareholders' meeting to consider and act
on this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated hereby.
5.3. Target covenants that the Acquiring Fund Shares to be delivered
hereunder are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof.
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5.4. Target covenants that it will assist Corporation in obtaining such
information as Corporation reasonably requests concerning the beneficial
ownership of Target Shares.
5.5. Target covenants that its books and records (including all books and
records required to be maintained under the 1940 Act and the rules and
regulations thereunder) will be turned over to Corporation at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the other Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take or cause to
be taken such further action, as the other Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession
of all the Assets, and (b) Target, title to and possession of the Acquiring Fund
Shares to be delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
5.8. Acquiring Fund covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such
state securities laws it may deem appropriate in order to continue its
operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things, reasonably
necessary, proper, or advisable to consummate and effectuate the transactions
contemplated hereby.
6. 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 at
and as of the Effective Time, and (c) the following further conditions that, at
or before the Effective Time:
6.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by the Boards and shall have been approved by
Target's shareholders in accordance with applicable law.
6.2. All necessary filings shall have been made with the 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. The Registration Statement shall have become
effective under the 1933 Act, no stop orders suspending the effectiveness
thereof shall have been issued, and the SEC shall not have issued an unfavorable
report with respect to the Reorganization under section 25(b) of the 1940 Act
nor instituted any proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the 1940 Act. All
consents, orders, and permits of federal, state, and local regulatory
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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.
6.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with,
the transactions contemplated hereby.
6.4. Trust shall have received an opinion of Kirkpatrick & Lockhart LLP
substantially to the effect that:
6.4.1. Acquiring Fund is a duly established series of Corporation, a
corporation duly organized, validly existing, and in good standing under
the laws of the State of Maryland with power under its Articles of
Incorporation to own all its properties and assets and, to the knowledge
of such counsel, to carry on its business as presently conducted;
6.4.2. This Agreement (a) has been duly authorized, executed, and
delivered by Corporation on behalf of Acquiring Fund and (b) assuming due
authorization, execution, and delivery of this Agreement by Trust on
behalf of Target, is a valid and legally binding obligation of Corporation
with respect to Acquiring Fund, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of equity;
6.4.3. The Acquiring Fund Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly issued
and outstanding and fully paid and non-assessable;
6.4.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate Corporation's Articles of Incorporation or By-Laws or any
provision of any agreement (known to such counsel, without any independent
inquiry or investigation) to which Corporation (with respect to Acquiring
Fund) is a party or by which it is bound or (to the knowledge of such
counsel, without any independent inquiry or investigation) result in the
acceleration of any obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Corporation (with respect to
Acquiring Fund) is a party or by which it is bound, except as set forth in
such opinion or as previously disclosed in writing to and accepted by
Trust;
6.4.5. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order
of any court or governmental authority is required for the consummation by
Corporation on behalf of Acquiring Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934
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Act, and the 1940 Act and such as may be required under state securities
laws;
6.4.6. Corporation is registered with the SEC as an investment
company, and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.4.7. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding,
or investigation of or before any court or governmental body is pending or
threatened as to Corporation (with respect to Acquiring Fund) or any of
its properties or assets attributable or allocable to Acquiring Fund and
(b) Corporation (with respect to Acquiring Fund) is not a party to or
subject to the provisions of any order, decree, or judgment of any court
or governmental body that materially and adversely affects Acquiring
Fund's business, except as set forth in such opinion or as otherwise
disclosed in writing to and accepted by Trust.
In rendering such opinion, such counsel may (1) rely, as to matters
governed by the laws of the State of Maryland, on an opinion of competent
Maryland counsel, (2) make assumptions regarding the authenticity, genuineness,
and/or conformity of documents and copies thereof without independent
verification thereof, (3) limit such opinion to applicable federal and state
law, and (4) define the word "knowledge" and related terms to mean the knowledge
of attorneys then with such firm who have devoted substantive attention to
matters directly related to this Agreement and the Reorganization.
6.5. Corporation shall have received an opinion of Kirkpatrick & Lockhart
LLP substantially to the effect that:
6.5.1. Target is a duly established series of Trust, a Business
Trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts with power under its Declaration of Trust to
own all its properties and assets and, to the knowledge of such counsel,
to carry on its business as presently conducted;
6.5.2. This Agreement (a) has been duly authorized, executed, and
delivered by Trust on behalf of Target and (b) assuming due authorization,
execution, and delivery of this Agreement by Corporation on behalf of
Acquiring Fund, is a valid and legally binding obligation of Trust with
respect to Target, enforceable in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
6.5.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, materially
violate Trust's Declaration of Trust or By-Laws or any provision of any
agreement (known to such counsel, without any independent inquiry or
investigation) to which Trust (with respect to Target) is a party or by
which it is bound or (to the knowledge of such counsel, without any
independent inquiry or investigation) result in the acceleration of any
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obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Trust (with respect to Target) is a party or
by which it is bound, except as set forth in such opinion or as previously
disclosed in writing to and accepted by Corporation;
6.5.4. To the knowledge of such counsel (without any independent
inquiry or investigation), no consent, approval, authorization, or order
of any court or governmental authority is required for the consummation by
Trust on behalf of Target of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act, and the 1940
Act and such as may be required under state securities laws;
6.5.5. Trust is registered with the SEC as an investment company,
and to the knowledge of such counsel no order has been issued or
proceeding instituted to suspend such registration; and
6.5.6. To the knowledge of such counsel (without any independent
inquiry or investigation), (a) no litigation, administrative proceeding,
or investigation of or before any court or governmental body is pending or
threatened as to Trust (with respect to Target) or any of its properties
or assets attributable or allocable to Target and (b) Trust (with respect
to Target) is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that materially and
adversely affects Target's business, except as set forth in such opinion
or as otherwise disclosed in writing to and accepted by Corporation.
In rendering such opinion, such counsel may (1) rely, as to matters
governed by the laws of the Commonwealth of Massachusetts, on an opinion of
competent Massachusetts counsel, (2) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies thereof
without independent verification thereof, (3) limit such opinion to applicable
federal and state law, and (4) define the word "knowledge" and related terms to
mean the knowledge of attorneys then with such firm who have devoted substantive
attention to matters directly related to this Agreement and the Reorganization.
6.6. 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 3.4. 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:
6.6.1. 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;
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6.6.2. 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;
6.6.3. 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;
6.6.4. 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;
6.6.5. 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
6.6.6. 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 6.6.2 and 6.6.4, 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.
At any time before the Closing, either Investment Company may waive any of
the foregoing conditions (except that set forth in paragraph 6.1) if, in the
judgment of its Board, such waiver will not have a material adverse effect on
its Fund's shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
7.1. 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.
7.2. 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.
8. 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.
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9. TERMINATION OF AGREEMENT
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Target's shareholders:
9.1. 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
9.2. By the parties' mutual agreement.
In the event of termination under paragraphs 9.1(c) or 9.2, there shall be
no liability for damages on the part of either Fund, or the trustees, directors,
or officers of either Investment Company, to the other Fund.
10. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Target'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.
11. MISCELLANEOUS
11.1. 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.
11.2. 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.
11.3. The parties acknowledge that Trust is a Business Trust. Notice is
hereby given that this instrument is executed on behalf of Trust's trustees
solely in their capacity as trustees, and not individually, and that Trust's
obligations under this instrument are not binding on or enforceable against any
of its trustees, officers, or shareholders, but are only binding on and
enforceable against Target's assets and property. Acquiring Fund agrees that, in
asserting any rights or claims under this Agreement, it shall look only to
Target's assets and property in settlement of such rights or claims and not to
such trustees or shareholders.
11.4. 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.
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<PAGE>
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 VALUE TRUST,
on behalf of its series,
INVESCO Intermediate Government Bond Fund
By:
- ------------------ ----------------------------
Secretary President
ATTEST: INVESCO BOND FUNDS, INC.,
on behalf of its series,
INVESCO U.S. Government Securities Fund
By:
- ------------------ ----------------------------
Secretary President
B-18
<PAGE>
APPENDIX C
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
This AGREEMENT AND PLAN OF CONVERSION AND TERMINATION ("Agreement") is
made as of March 21, 1999, between INVESCO Value Trust, a Massachusetts business
trust ("Trust"), on behalf of INVESCO Intermediate Government Bond Fund, a
segregated portfolio of assets ("series") thereof ("Old Fund"), and INVESCO Bond
Funds, Inc., a Maryland corporation ("Corporation"), on behalf of its INVESCO
Intermediate Government Bond Fund series ("New Fund"). (Old Fund and New Fund
are sometimes referred to herein individually as a "Fund" and collectively as
the "Funds"; and Trust and Corporation are sometimes referred to herein
individually as an "Investment Company.") 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 Trust on behalf of Old
Fund and by Corporation on behalf of New Fund.
Old Fund intends to change its form, identity, and place of organization
- -- by converting from a series of a Massachusetts business trust to a series of
a Maryland corporation -- 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 beneficial interest 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
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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 Corporation's 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 Trust 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 4, 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. Trust'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 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.
Trust's custodian shall deliver at the Closing a certificate of an authorized
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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.
2.3. Corporation's 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. Corporation shall issue and deliver a confirmation to
Trust evidencing the New Fund Shares to be credited to Old Fund at the Effective
Time or provide evidence satisfactory to Trust 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. Trust is a trust operating under a written declaration of
trust, the beneficial interest in which is divided into transferable
shares, that is duly organized and validly existing under the laws of the
Commonwealth of Massachusetts; and a copy of its Declaration of Trust is
on file with the Secretary of the Commonwealth of Massachusetts;
3.1.2. Trust 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
Trust;
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
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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;
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. 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;
3.2.2. Corporation 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 Corporation;
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;
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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
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 those regulations) 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
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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
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 Trust's board of trustees and Corporation's
board of directors (each, a "board") and shall have been approved by Old Fund's
shareholders in accordance with applicable law;
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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;
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
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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, Corporation's directors shall have authorized
the issuance of, and New Fund shall have issued, one New Fund Share to Trust in
consideration of the payment of $1.00 to vote on the matters referred to in
paragraph 4.5; and
4.5. Corporation (on behalf of and with respect to New Fund) shall have
entered into a management contract and such other agreements as are necessary
for New Fund's operation as a series of an open-end investment company. Each
such contract and agreement shall have been approved by Corporation's 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 Trust 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, 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 Funds Group, Inc. and the remaining 50% will
be borne one-half by each Fund.
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
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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 trustees/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.
9.4. The execution and delivery of this Agreement have been authorized by
Trust's trustees, and this Agreement has been executed and delivered by Trust's
authorized officers acting as such; neither such authorization by such trustees
nor such execution and delivery by such officers shall be deemed to have been
made by any of them individually or to impose any liability on any of them or
any shareholder of Trust personally, but shall bind only the assets and property
of Old Fund, as provided in Trust's Declaration of Trust.
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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 VALUE TRUST,
on behalf of its series,
INVESCO Intermediate Government Bond Fund
________________________ By: ______________________________
Secretary President
ATTEST: INVESCO BOND FUNDS, INC.,
on behalf of its series,
INVESCO Intermediate Government Bond Fund
_________________________ By: ______________________________
Secretary President
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INVESCO U.S. GOVERNMENT SECURITIES FUND
(a series of INVESCO Bond Funds, Inc.)
INVESCO INTERMEDIATE GOVERNMENT BOND FUND
(a series of INVESCO Value Trust)
7800 E. Union Avenue
Denver, Colorado 80237
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates specifically to the
proposed Reorganization whereby INVESCO U.S. Government Securities Fund
("Government Securities Fund") would acquire the assets of INVESCO Intermediate
Government Bond Fund ("Intermediate Bond Fund") in exchange solely for shares of
Government Securities Fund and the assumption by Government Securities 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 Government Securities Fund,
dated January 1, 1999.
(2) The Statement of Additional Information of Intermediate Bond Fund,
dated January 1, 1999.
(3) The Annual Report to Shareholders of Government Securities Fund for
the fiscal year ended August 31, 1998.
(4) The Annual Report to Shareholders of Intermediate Bond Fund for the
fiscal year ended August 31, 1998.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Prospectus/Proxy Statement dated March 23,
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 23, 1999.
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED February 28, 1999
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Intermediate U.S. Government Pro Forma Pro Forma
Government Securities Fund Adjustments Combined
Bond Fund
--------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Interest $ 1,966,864 $ 3,582,097 $ 5,548,961
- -----------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees (Note 3) 204,023 340,084 (15,787) (a) 528,320
Distribution Expenses (Note 3) 67,919 154,584 17,642 (a) 240,145
Transfer Agent Fees 153,130 235,967 (38,283) (b) 350,814
Administrative Fees (Note 3) 15,071 19,245 (9,907) (a) 24,409
Custodian Fees and Expenses 7,750 10,568 18,318
Directors'/Trustees' Fees and Expenses 10,326 11,411 (8,000) (b) 13,737
Professional Fees and Expenses 14,661 18,537 (13,073) (b) 20,125
Registration Fees and Expenses 25,885 48,800 (18,855) (b) 55,800
Reports to Shareholders 16,058 30,782 (4,015) (b) 42,825
Other Expenses 4,322 3,614 (3,000) (b) 4,936
- -----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 519,115 873,592 1,299,429
Fees and Expenses Absorbed by
Investment Adviser (177,317) (251,668) 96,347 (c) (332,638)
Fees and Expenses Paid Indirectly (2,902) (3,307) (6,209)
- -----------------------------------------------------------------------------------------------------------------------
NET EXPENSES 338,896 618,617 3,069 960,582
- -----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,627,968 2,963,480 (3,069) 4,588,379
- -----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on
Investment Securities 443,737 3,392,783 3,836,520
Change in Net Depreciation of
Investment Securities (319,499) (3,438,079) (3,757,578)
- -----------------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENT 124,238 (45,296) 78,942
SECURITIES
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,752,206 $ 2,918,184 $ (3,069) $ 4,667,321
=======================================================================================================================
(a) Reflects adjustments to Investment Advisory Fees, Distribution Expenses and Administrative Fees based on the
surviving Fund's contractual fee obligation.
(b) Reflects elimination of duplicate services or fees.
(c) Reflects adjustment to the level of the surviving Fund's voluntary expense reimbursement.
See Notes to Financial Statements
</TABLE>
<PAGE>
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
February 28, 1999
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INTERMEDIATE
GOVERNMENT U.S. GOVERNMENT PRO FORMA PRO FORMA
BOND FUND SECURITIES FUND ADJUSTMENTS COMBINED
------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 34,758,868 $ 66,386,384 $ 101,145,252
====================================================================================================================================
At Value(a) $ 34,910,494 $ 64,102,041 $ 99,012,535
Receivables:
Fund Shares Sold 192,165 149,449 341,614
Dividends and Interest 321,881 494,366 816,247
Prepaid Expenses and Other Assets 114,198 191,707 305,905
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 35,538,738 64,937,563 100,476,301
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Custodian 12,947 52,641 65,588
Distributions to Shareholders 6,118 15,225 21,343
Fund Shares Repurchased 46,308 549,490 595,798
Accrued Distribution Expenses 6,660 12,852 19,512
Accrued Expenses and Other Payables 8,350 10,850 19,200
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 80,383 641,058 721,441
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 35,458,355 $ 64,296,505 $ 99,754,860
====================================================================================================================================
NET ASSETS
Paid-in Capital $ 35,349,291 $ 66,026,480 $ 101,375,771
Accumulated Undistributed Net Investment Income 327 7,780 8,107
Accumulated Undistributed Net Realized Gain (Loss) (42,888) 546,588 503,700
on Investment Securities
Net Appreciation (Depreciation) of Investment Securities 151,625 (2,284,343) (2,132,718)
====================================================================================================================================
NET ASSETS AT VALUE $ 35,458,355 $ 64,296,505 $ 99,754,860
====================================================================================================================================
Shares Outstanding 2,820,230 8,900,580 2,090,900 (b) 13,811,710
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 12.57 $ 7.22 $ 7.22
====================================================================================================================================
</TABLE>
(a) Investment securities at cost and value at February 28, 1999 include
repurchase agreements of $2,656,000 and $2,825,000 for Intermediate
Government Bond and U.S. Government Securities Funds, respectively.
(b) Adjustment to reflect the exchange of shares of common stock outstanding
from Intermediate Government Bond Fund to U.S. Government Securities Fund.
See Notes to Financial Statements
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
PRO FORMA STATEMENT OF INVESTMENT SECURITIES
February 28, 1999
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL AMOUNT VALUE
- --------------------------------------- ------------------------------------------------
Intermediate Intermediate
Government U.S. Government Pro Forma Government U.S. Government Pro Forma
Bond Fund Securities Fund Combined DESCRIPTION Bond Fund Securities Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
FIXED INCOME SECURITIES 91.34%
US GOVERNMENT OBLIGATIONS 46.72%
US Treasury Bonds
$ 500,000 $ 500,000 9.250%, 2/15/2016 $ 684,219 $ 684,219
$ 10,000,000 10,000,000 7.500%, 11/15/2016 $ 11,834,379 11,834,379
10,000,000 10,000,000 8.125%, 8/15/2019 12,696,880 12,696,880
5,000,000 5,000,000 5.250%, 11/15/2028 4,732,815 4,732,815
US Treasury Notes
2,000,000 2,000,000 8.750%, 8/15/2000 2,100,626 2,100,626
1,450,000 1,450,000 7.500%, 5/15/2002 1,544,704 1,544,704
2,200,000 2,200,000 6.375%, 3/31/2001 2,252,250 2,252,250
850,000 850,000 6.375%, 9/30/2001 873,641 873,641
1,600,000 1,600,000 6.375%, 8/15/2002 1,654,501 1,654,501
2,000,000 2,000,000 6.250%, 1/31/2002 2,055,000 2,055,000
2,000,000 2,000,000 6.250%, 2/15/2003 2,066,876 2,066,876
1,500,000 1,500,000 5.750%, 11/30/2002 1,522,969 1,522,969
2,000,000 2,000,000 5.750%, 8/15/2003 2,033,750 2,033,750
200,000 200,000 5.500%, 2/15/2008 202,188 202,188
====================================================================================================================================
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $16,813,805, $31,163,982 46,254,798
and $47,977,787, respectively)
US GOVERNMENT AGENCY OBLIGATIONS
44.62% Fannie Mae, Gtd Mortgage
Pass-Through Certificates
831,506 831,506 7.000%, 1/1/2028 842,632 842,632
852,070 852,070 6.500%, 2/1/2028 846,566 846,566
2,000,000 2,000,000 6.000%, 5/15/2008 2,021,714 2,021,714
684,001 684,001 6.000%, 5/1/2009 681,805 681,805
Federal Farm Credit Bank, Medium-
Term Notes
500,000 500,000 6.320%, 10/12/2010 510,939 510,939
Federal Home Loan Bank
1,000,000 1,000,000 5.675%, 8/18/2003 997,977 997,977
Freddie Mac
Deb
2,000,000 2,000,000 6.950%, 4/1/2004 2,105,336 2,105,336
Gold Participation Certificates
524,315 524,315 8.000%, 10/1/2010 541,858 541,858
884,832 884,832 7.000%, 6/1/2028 896,485 896,485
470,921 470,921 6.500%, 7/1/2001 475,762 475,762
3,111,430 3,111,430 6.500%, 7/1/2008 3,149,887 3,149,887
9,657,348 9,657,348 6.000%, 4/1/2028 9,377,670 9,377,670
Government National Mortgage
Association I Pass-Through
Certificates
801,037 801,037 7.500%, 3/15/2026 824,692 824,692
440,709 440,709 7.000%, 10/15/2008 453,529 453,529
435,315 435,315 6.500%, 10/15/2008 442,202 442,202
524,550 524,550 6.000%, 11/15/2008 525,709 525,709
9,976,579 9,976,579 6.000%, 12/15/2028 9,683,765 9,683,765
10,100,000 10,100,000 6.000%, 2/15/2029 9,801,645 9,801,645
====================================================================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $12,203,776, $32,397,402 and 44,180,173
$44,601,178, respectively)
TOTAL FIXED INCOME SECURITIES
(Cost $29,017,581, $63,561,384 and 90,434,971
$92,578,965, respectively)
====================================================================================================================================
<PAGE>
PRINCIPAL AMOUNT VALUE
- -------------------------------------------- ------------------------------------------------
Intermediate Intermediate
Government U.S. Government Pro Forma Government U.S. Government Pro Forma
Bond Fund Securities Fund Combined DESCRIPTION Bond Fund Securities Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 8.66%
US GOVERNMENT OBLIGATIONS 3.13%
US Treasury Notes
3,000,000 $ 3,000,000 8.500%, 2/15/2000
(Cost $3,085,287, $0
and $3,085,287, respectively) $ 3,096,564 $ 3,096,564
====================================================================================================================================
REPURCHASE AGREEMENTS 5.53%
Repurchase Agreement with
State Street dated 2/26/1999 due
3/1/1999 at 4.720%, repurchased
at $2,657,045 (Collaterized
by U.S. Treasury Bonds due
1/15/2007 at 3.375%,
value $2,700,615)
2,656,000 2,656,000 (Cost $2,656,000, $0 and 2,656,000 2,656,000
$2,656,000, respectively)
Repurchase Agreement with State
Street dated 2/26/1999
due 3/1/1999 at 4.720%,
repurchased at $2,828,334
(Collaterized by US Treasury
Bonds due 1/15/2007
at 3.375%, value $2,870,257)
$ 2,825,000 2,825,000 (Cost $0, $2,825,000 and $ 2,825,000 2,825,000
$2,825,000, respectively)
====================================================================================================================================
TOTAL SHORT-TERM INVESTMENTS
(Cost $5,741,287, $2,825,000 8,577,564
and $8,566,287, respectively)
====================================================================================================================================
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $34,758,868, $66,386,384
and $101,145,252, respectively)(a) $ 34,910,494 $ 64,102,041 $ 99,012,535
====================================================================================================================================
</TABLE>
(a) Also represents cost for income tax purposes.
See Notes to Financial Statements
<PAGE>
PRO FORMA NOTES TO FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 -- BASIS OF COMBINATION. U.S. Government Securities Fund (the "Fund") is
a series of INVESCO Bond Funds, Inc. (formerly INVESCO Income Funds, Inc.),
which is incorporated in Maryland. The Fund is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Pro Forma Statement of Assets and Liabilities, including the Statement of
Investments at February 28, 1999, and the related Pro Forma Statements of
Operations ("Pro Forma Statements") for the twelve months ended February 28,
1999, reflect the combined operations of Intermediate Government Bond Fund, a
series of INVESCO Value Trust and U.S. Government Securities Fund.
The Pro Forma Statements give effect to the proposed transfer of all assets and
liabilities of Intermediate Government Bond Fund in exchange for shares in U.S.
Government Securities Fund. Under generally accepted accounting principles, the
historical cost of investment securities will be carried forward to the
surviving entity and the results of operations of the Intermediate Government
Bond Fund for pre-combination periods will not be restated. The Pro Forma
Statements do not reflect the expenses of either Fund in carrying out its
obligations under the proposed Agreement and Plan of Reorganization and
Termination. The Pro Forma Statements should be read in conjunction with the
historical financial statements of each Fund included in their respective
Statements of Additional Information.
NOTE 2 -- SHARES OUTSTANDING. Shareholders of Intermediate Government Bond Fund
would become shareholders of U.S. Government Securities Fund upon receiving
shares of U.S. Government Securities Fund equal to the value of their holdings
in Intermediate Government Bond Fund as of the date of the reorganization.
NOTE 3 -- PRO FORMA OPERATIONS. The Pro Forma Statement of Operations assumes
that the combined gross investment income is equal to the sum of each Fund's
actual gross investment income for the twelve months ended February 28, 1999.
Operating expenses combine the actual expenses of each Fund with certain
expenses adjusted to reflect the changes in expenses resulting from the
combination. The Investment Advisory, Distribution Expenses and Adminstrative
Fees have been calculated for the combined Fund based on contractual rates
expected to be in effect for the U.S. Government Securities Fund at the time of
reorganization based upon the combined level of average net assets for the
twelve months ended February 28, 1999.
<PAGE>
INVESCO FUNDS
INVESCO FUNDS GROUP, INC.
7800 E. UNION AVE.
DENVER, COLORADO 80237
INVESCO INTERMEDIATE GOVERNMENT BOND FUND
INVESCO VALUE TRUST
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
MAY 20, 1999
This proxy is being solicited on behalf of the Board of Trustees of
INVESCO Value Trust ("Trust") and relates to the proposals with respect to the
Trust and to INVESCO Intermediate Government Bond Fund, a series of the Trust
("Fund"). The undersigned hereby appoints as proxies Fred A. Deering and Mark H.
Williamson, and each of them (with power of substitution), to vote all shares of
common stock of the undersigned in the Fund at the Special Meeting of
Shareholders to be held at 10:00 a.m., Mountain Standard Time, on May 20, 1999,
at the offices of the Trust, 7800 E. Union Avenue, Denver, Colorado 80237, and
any adjournment thereof ("Meeting"), with all the power the undersigned would
have if personally present.
The shares represented by this proxy will be voted as instructed. Unless
indicated to the contrary, this proxy shall be deemed to grant authority to vote
"FOR" all proposals relating to the Trust and the Fund with discretionary power
to vote upon such other business as may properly come before the Meeting.
Please sign exactly as name appears hereon. If stock is held in the name
of joint owners, each should sign. Attorneys-in-fact, executors, administrators,
etc. should so indicate. If shareholder is a corporation or partnership, please
sign in full corporate or partnership name by authorized person
YOUR VOTE IS IMPORTANT. IF YOU ARE NOT VOTING BY PHONE, FACSIMILE, OR INTERNET,
PLEASE SIGN AND DATE THIS PROXY BELOW AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
TO VOTE BY TOUCH-TONE PHONE OR THE INTERNET, PLEASE CALL 1-800-690-6903 TOLL
FREE OR VISIT HTTP://WWW.PROXYVOTE.COM. TO VOTE BY FACSIMILE TRANSMISSION,
PLEASE FAX YOUR COMPLETED PROXY CARD TO 1-800-733-1885.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
[INVGOV] KEEP THIS PORTION FOR YOUR RECORDS
<PAGE>
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
INVESCO INTERMEDIATE GOVERNMENT BOND FUND
VOTE ON TRUSTEES FOR WITHHOLD FOR
ALL ALL ALL
4. Election of the Trust's Board of EXCEPT To withhold
Trustees; (1) Charles W. Brady; /__/ /__/ /__/ authority to vote,
(2) Fred A. Deering; (3) Mark H. mark "For All
Williamson; (4) Dr. Victor L. Except" and write
Andrews; (5) Bob R. Baker; the nominee's
(6) Lawrence H. Budner; number on the line
(7) Dr. Wendy Lee Gramm; below.
(8) Kenneth T. King; (9) John W. ------------------
McIntyre; and (10) Dr. Larry
Soll
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
/__/ /__/ /__/
1. Approval of an Agreement and
Plan of Reorganization and
termination under which INVESCO
U.S. Government Securities Fund
("Government Securities Fund"),
a series of INVESCO Bond Funds,
Inc., would acquire all of the
assets of the Fund in exchange
solely for shares of Government
Securities Fund and the
assumption by Government
Securities Fund of all of the
Fund's liabilities, followed by
the distribution of those shares
to the shareholders of the Fund,
all as described in the
accompanying Prospectus/Proxy
Statement;
2. Approval of an Agreement and /__/ /__/ /__/
Plan of Conversion and
Termination under which the Fund
would be converted from a series
of the Trust to a series of Bond
Funds, Inc., as described in the
accompanying Prospectus/Proxy
Statement;
3. Approval of changes to FOR AGAINST ABSTAIN
the fundamental investment ALL ALL ALL
restrictions; /__/ /__/ /__/
/_/ To vote against the proposed
changes to one or more of the
specific fundamental investment
restrictions, but to approve
others, PLACE AN "X" IN THE BOX
AT left and indicate the
letter(s) (as set forth in the
proxy statement) of the
investment restriction or
restrictions you do not want to
change on the line on the
reverse side. IF YOU CHOOSE
TO VOTE DIFFERENTLY ON
INDIVIDUAL RESTRICTIONS, YOU
MUST MAIL IN YOUR PROXY CARD.
IF YOU CHOOSE TO VOTE THE
SAME ON ALL RESTRICTIONS
PERTAINING TO YOUR FUND,
TELEPHONE AND INTERNET VOTING
ARE AVAILABLE.
<PAGE>
5. Ratification of the selection of FOR AGAINST ABSTAIN
PricewaterhouseCoopers LLP as /__/ /__/ /__/
the Fund's Independent Public
Accountants;
- ------------------------------------------------- ------------------------------
Signature (Please sign within box) Date
- ------------------------------------------------- ------------------------------
Signature (Joint Owners) Date
[BACK]
To vote against the proposed
changes to one or more of the
specific fundamental investment
restrictions, indicate the
letter(s) (as set forth in the
proxy statement) of the investment
restriction or restrictions you do
not want to change on the line at
the right. IF YOU CHOOSE TO VOTE
DIFFERENTLY ON INDIVIDUAL
RESTRICTIONS, YOU MUST MAIL IN YOUR
PROXY CARD. IF YOU CHOOSE TO VOTE
THE SAME ON ALL RESTRICTIONS
PERTAINING TO YOUR FUND, TELEPHONE
AND INTERNET VOTING ARE AVAILABLE.
3. _______________________________
