As filed with the Securities and Exchange Commission on January 26, 1999
Registration No. 33-____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.___ [ ] Post-Effective Amendment No.___
INVESCO BOND FUNDS, INC.
(formerly INVESCO Income Funds, Inc.)
(Exact Name of Registrant as Specified in Charter)
7800 E. Union Avenue
Denver, Colorado 80237
(Address of Principal Executive Offices)
P.O. Box 173706, Denver, Colorado 80217-3706
(Mailing Address)
(303) 930-6300
(Registrant's Area Code and Telephone Number)
Glen A. Payne, Esq.
7800 E. Union Avenue
Denver, Colorado 80237
(Name and Address of Agent for Service)
Copies to:
Clifford J. Alexander, Esq.
Susan M. Casey, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9036
Approximate Date of Proposed Public Offering: as soon as practicable
after this Registration Statement becomes effective under the Securities Act of
1933.
Title of securities being registered: Common stock, par value $0.01
per share.
<PAGE>
No filing fee is required because of reliance on Section 24(f) under
the Investment Company Act of 1940, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE>
INVESCO BOND FUNDS, INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheets
Letter to Shareholders
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
INVESCO BOND FUNDS, INC.
FORM N-14 CROSS REFERENCE SHEET
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
- ----------- -----------------
1. Beginning of Registration Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus
3. Synopsis Information and Risk Synopsis; Comparison of
Factors Principal Risk Factors
4. Information About the Transaction Synopsis; The Proposed
Transaction
5. Information About the Registrant Synopsis; Comparison of
Principal Risk Factors;
Miscellaneous; See also,
the Prospectus for
INVESCO U.S. Government
Securities Fund, dated
January 1, 1999,
previously filed on
EDGAR, Accession Number
0000201815-99-000001
6. Information About the Company Synopsis; Comparison of
Being Acquired Principal Risk Factors;
Miscellaneous; See also, the
Prospectus for INVESCO Intermediate
Government Bond Fund, dated January
1, 1999, previously filed on EDGAR,
Accession Number
0000789940-99-000001
7. Voting Information Voting Information
8. Interest of Certain Persons and Voting Information; Appendix B
Experts
<PAGE>
INVESCO BOND FUNDS, INC.
FORM N-14 CROSS REFERENCE SHEET
9. Additional Information Required Not Applicable
for Re-offering by Persons
Deemed to be Underwriters
Part B Item No. Statement of Additional
And Caption Information Caption
- ----------- -------------------
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information About the Statement of Additional
Registrant Information of INVESCO
U.S. Government
Securities Fund, dated
January 1, 1999,
previously filed on
EDGAR, Accession Number
0000201815-99-000001
13. Additional Information About the Statement of Additional
Company Being Acquired Information of INVESCO
Intermediate Government
Bond Fund, dated
January 1, 1999,
previously filed on
EDGAR, Accession Number
0000789940-99-000001
14. Financial Statements Annual Report of
INVESCO U.S. Government
Securities Fund for
Fiscal Year Ended
August 31, 1998,
previously filed on
EDGAR, Accession Number
0000201815-98-000008;
Annual Report of
INVESCO Intermediate
Govern-ment Bond Fund
for Fiscal Year Ended
August 31, 1998,
previously filed on
EDGAR, Accession Number
0000789940-98-000013.
<PAGE>
Part C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
INVESCO BOND FUNDS, INC.
PART A
<PAGE>
INVESCO INTERMEDIATE GOVERNMENT BOND FUND
(a series of INVESCO Value Trust)
March __, 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.). 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 of 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 approve
certain changes to the fundamental investment restrictions of Intermediate Bond
Fund that will update and streamline the Fund's investment restrictions. The
attached proxy materials provide more information about the proposed
reorganization and the two Funds, as well as the proposed changes in fundamental
investment restrictions and the other matters you are being asked to vote upon.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
shares early will permit Intermediate Bond Fund to avoid costly follow-up mail
and telephone solicitation. After reviewing the attached materials, please
complete, date and sign your proxy card and mail it in the enclosed return
envelope today. As an alternative to using the paper proxy card to vote, you may
vote by telephone, by facsimile, through the Internet or in person.
Very truly yours,
Mark H. Williamson
President
INVESCO Intermediate Government Bond Fund
<PAGE>
[HEADLINE] WHAT YOU SHOULD KNOW ABOUT
THIS PROPOSED FUND MERGER
March 23, 1999
INVESCO AND THE FUND'S BOARD OF DIRECTORS ENCOURAGE YOU TO READ THE ENCLOSED
PROXY STATEMENT CAREFULLY. THE FOLLOWING IS A BRIEF QUICK OVERVIEW OF THE
KEY ISSUE.
WHY IS MY FUND HOLDING A SPECIAL SHAREHOLDERS MEETING?
The main reason for the meeting is so that shareholders of INVESCO
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:
o 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).
o By combining the Funds, SHAREHOLDERS MAY ENJOY LOWER EXPENSE RATIOS
over time. Larger funds tend to enjoy economies of scale not available
to funds with smaller assets under management.
<PAGE>
o These LOWER COSTS MAY LEAD TO STRONGER PERFORMANCE, since total
return to a fund's shareholders is net of fund expenses.
The potential benefits and possible disadvantages are explained in more
detail in the enclosed proxy statement.
HOW ARE THESE TWO FUNDS ALIKE?
The investment goals of the Funds are similar: They both seek current
income (paid monthly) from a diversified portfolio of government and
government agency debt obligations. However, there are significant
differences in investment strategy:
o INTERMEDIATE GOVERNMENT BOND FUND invests in shorter-term debt
obligations typically maturing in three to five years.
o 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.
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
<PAGE>
gains or losses on assets as a result of a reorganization. So you will
not have reportable capital gains or losses due to the reorganization.
However, you should consult your own tax advisor regarding any possible
effect a reorganization might have on you, given your personal
circumstances -- particularly regarding state and local taxes.
WHO WILL PAY FOR THIS REORGANIZATION?
The expenses of the reorganization, including legal expenses, printing,
packaging and postage, plus the costs of any supplementary
solicitation, will be borne partly by INVESCO and partly by the two
Funds.
WHAT DOES THE FUND'S BOARD OF DIRECTORS RECOMMEND?
The Board believes you should vote in favor of the reorganization. More
important, though, the directors recommend that you study the issues
involved, call us with any questions, and vote promptly to ensure that a
quorum of 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?
o Please visit our Web site at WWW.INVESCO.COM
o Or call Investor Services toll-free at 1-800-646-8372
[BACK COVER] YOU SHOULD KNOW WHAT INVESCO KNOWS
At INVESCO, we've built a global reputation on professional investment
management. Some of the world's largest institutions and more than a
million individuals rely on our knowledgeable investment specialists
for effective management of their portfolios. INVESCO provides
<PAGE>
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.
<PAGE>
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.), 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 certain changes to the fundamental investment restrictions
of Intermediate Bond Fund;
(3) To elect a board of trustees of Value Trust;
(4) To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of Intermediate Bond Fund; and
(5) To transact such other business as may properly come before the
meeting or any adjournment thereof.
<PAGE>
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,
Glen A. Payne
Secretary
March ___, 1999
Denver, Colorado
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card, sign
and date the card, and return it in the envelope provided. IF YOU SIGN,
DATE AND RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES
WILL BE VOTED "FOR" THE PROPOSALS DESCRIBED ABOVE. In order to avoid the
additional expense of further solicitation, we ask your cooperation in
mailing your proxy card promptly. As an alternative to using the paper
proxy card to vote, you may vote by mail, by telephone, through the
Internet, by facsimile machine or in person. To vote by telephone, please
call the toll-free number listed on the enclosed proxy card(s). Shares that
are registered in your name, as well as shares held in "street" name"
through a broker, may be voted via the Internet or by telephone. To vote in
this manner, you will need the 12-digit "control" numbers) that appear on
your proxy card(s). To vote via the Internet, please access www._______.com
on the World Wide Web. In addition, shares that are registered in your name
may be voted by faxing your completed proxy card(s) to 1-800-___-____. If
we do not receive your completed proxy cards after several weeks, you may
be contacted by our proxy solicitor, [name of proxy solicitor company]. Our
proxy solicitor will remind you to vote your shares or will record your
vote over the phone if you choose to vote in that manner. You may also call
[name of proxy solicitor company] directly at [1-800-___-____, extension
___,] and vote by phone.
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.
- -------------------------------------------------------------------------------
<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 __, 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 __,
<PAGE>
1999, relating to the reorganization and including historical financial
statements, has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference (that is, the Statement of
Additional Information is legally a part of this Proxy Statement). A
Prospectus and a Statement of Additional Information for 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
PART I: THE REORGANIZATION
PROPOSAL 1: To Approve an Agreement and Plan of Reorganization and
Termination under which Government Securities Fund would acquire the assets
of 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..........................................
Synopsis......................................................................
Comparison of Principal Risk Factors..........................................
The Proposed Transaction......................................................
Miscellaneous.................................................................
PART II: PROPOSED ROUTINE ORGANIZATIONAL MATTERS AND
MODIFICATIONS TO FUNDAMENTAL INVESTMENT LIMITATIONS
PROPOSAL 2: To approve amendments to the fundamental investment policies of
Intermediate Bond Fund........................................................
a. Modification of fundamental restriction on industry concentration..........
b. Modification of fundamental restriction on issuer diversification..........
c. Modification of fundamental restriction on underwriting....................
d. Elimination of fundamental restriction on investing in companies for the
purpose of exercising control or management................................
e. Modification of fundamental restriction on borrowing and adoption of
non-fundamental restriction on borrowing...................................
f. Modification of fundamental restriction on the issuance of senior
securities.................................................................
g. Elimination of fundamental restriction on mortgaging, pledging or
hypothecating securities...................................................
h. Elimination of fundamental restriction on short sales and margin
purchases and adoption of non-fundamental restriction on short sales
and margin purchases.......................................................
i. Modification of fundamental restriction on real estate investment..........
j. Modification of fundamental restriction on investing in commodities........
k. Modification of fundamental restriction on loans...........................
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.......................................................
m. Elimination of fundamental restriction on investing in illiquid
securities and adoption of non-fundamental restriction on investing
in illiquid securities.....................................................
PROPOSAL 3: To Elect a Board of Trustees.....................................
<PAGE>
PROPOSAL 4: To Ratify the Selection of PricewaterhouseCoopers LLP as
Independent Accountants of the Fund...........................................
OTHER BUSINESS................................................................
INFORMATION CONCERNING ADVISER, SUB-ADVISER, DISTRIBUTOR, AND
AFFILIATED COMPANIES..........................................................
MISCELLANEOUS.................................................................
Available Information.........................................................
Legal Matters.................................................................
Experts.......................................................................
APPENDIX A: AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION..........A-1
APPENDIX B: PRINCIPAL SHAREHOLDERS........................................B-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 _______
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")
(each a "Fund"), and Intermediate Bond 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 [name of proxy
solicitor company], professional proxy solicitors, who will be paid fees and
expenses of up to approximately $_______ for soliciting services. If votes are
recorded by telephone, [name of proxy solicitor company] will use procedures
designed to authenticate shareholders' identities, to allow shareholders to
authorize the voting of their shares in accordance with their instructions, and
to confirm that a shareholder's instructions have been properly recorded. You
may also vote by mail, by facsimile or through a secure Internet site. Proxies
voted by telephone, facsimile or Internet may be revoked at any time before they
are voted in the same manner that proxies voted by mail may be revoked.
Except as set forth in Appendix B, INVESCO does not know of any person who
owns beneficially 5% or more of the shares of either Fund. 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, as defined in the
Investment Company Act of 1940, as amended ("1940 Act"). This means that
2
<PAGE>
Proposal 2 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 3. Approval of Proposal 4 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 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 A 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.
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
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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 conditions to the closing are satisfied ("Closing
Date").
For the reasons set forth below under "The Proposed Transaction - Reasons
for the Reorganization," Value Trust's Board, including its trustees who are not
"interested persons," as that term is defined in the 1940 Act, of Value Trust or
of Bond Funds ("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, Value Trust's 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 Value
Trust or of Bond Funds ("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
Certain fees and expenses that Intermediate Bond Fund's shareholders pay,
directly or indirectly, are slightly different from those incurred by Government
Securities Fund's shareholders, although neither Fund's shares are subject to
any shareholder transaction expenses, I.E., there are no sales charges on shares
purchased or deferred sales charges for shares redeemed. The following tables
show (1) fees currently incurred by shareholders of each Fund and fees that each
shareholder will incur after giving effect to the Reorganization, and (2) the
current fees and expenses incurred by each Fund for the fiscal year ended August
31, 1998, and PRO FORMA fees for Government Securities Fund after the
Reorganization.
SHAREHOLDER FEES (fees paid directly from your investment)
GOVERNMENT INTERMEDIATE
SECURITIES FUND BOND FUND COMBINED FUND
--------------- --------- -------------
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)
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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) 0.63%(2),(4) 0.58%
----- ----- -----
Total Fund Operating Expenses 1.41%(2),(3) 1.48%(2),(4) 1.38%(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
November 1, 1997 through August 31, 1998, actual distribution (12b-1) fees
were 0.08% 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 0.21%
and 1.01%, 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 0.16% and 1.01%,
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)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.
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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 $145 $449 $776 $1,700
Intermediate Bond
Fund $152 $471 $813 $1,778
Combined Fund $141 $440 $760 $1,666
- --------------------
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND EACH FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The actual expenses of each Fund will depend upon, among other things, the level
of its average net assets and the extent to which it incurs variable expenses,
such as transfer agency costs.
FORMS OF ORGANIZATION
Government Securities Fund is one of three series of Bond Funds, an
open-end, diversified investment management company that was incorporated on
August 20, 1976 under the laws of Colorado and was reorganized as a Maryland
corporation on April 2, 1993. Government Securities Fund 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." Intermediate Bond Fund does not issue share certificates and it is
not required to (nor does it) hold annual shareholder meetings.
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. INVESCO Capital Management,
Inc. ("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.
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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.
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
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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, in the opinion of the Fund's investment adviser or sub-adviser have
investment characteristics similar 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
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
- --------
1 In Proposal 2 (below), shareholders are being asked to approve certain
amendments to the fundamental investment restrictions of Intermediate Bond Fund.
If approved, these amendments would increase the 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
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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 the Reorganization Plan is approved,
however, and Intermediate Bond Fund has assets that may not be held by
Government Securities Fund, Intermediate Bond Fund will sell any assets that are
not consistent with Government Securities Fund's investment policies prior to
the Reorganization. The proceeds of such sales will be held in temporary
investments or reinvested in assets that qualify to be held by 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 of the Fund next calculated after
receipt of a purchase order in good form. The NAV per share for each Fund is
computed separately and is determined once each day that the New York Stock
Exchange is open as of the close of regular trading on the Exchange ("Business
Day"), but may also be computed at other times. For a more complete discussion
of share purchases, see "How Shares Can Be Purchased" in either the Government
Securities Fund Prospectus or the Intermediate Bond Fund Prospectus.
REDEMPTIONS. Shares of each Fund may be redeemed by telephone or by mail.
Redemptions are made at the NAV per share of each Fund next determined after a
request in proper form is received at the Fund's office. Normally, payments 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 date on which the Reorganization is approved and
all contingencies have been met (the "Closing Date"). Redemptions of
Intermediate Bond Fund shares may be effected through the Closing Date.
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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 net investment income in the form of interest and
dividends on investments. Dividends paid by each Fund are based solely on its
investment income. Each Fund's policy is to distribute substantially all of this
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.
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, together
with net gains realized on foreign currency transactions, if any, are
distributed to each Fund's shareholders at least annually, usually in December.
On or before the Closing Date, Intermediate Bond Fund will declare as a
distribution substantially all of its net investment income and realized net
capital gain, if any, and distribute that amount plus any previously declared
but unpaid dividends, in order to continue to maintain its tax status as a
regulated investment company.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
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 nor any of
their shareholders will recognize any gain or loss as a result of the
Reorganization. See "The Proposed Transaction - Federal Income Tax
Considerations," page 16.
COMPARISON OF PRINCIPAL RISK FACTORS
An investment in 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:
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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.
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.
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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.
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
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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 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.
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 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.
Accordingly, immediately after the Reorganization, each former shareholder
of Intermediate Bond Fund will own Government Securities Fund shares that will
be equal in aggregate value to that shareholder's Intermediate Bond Fund shares
immediately prior to the Reorganization. Moreover, because Government Securities
Fund shares will be issued at net asset value 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
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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
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 Government
Securities Fund relative to each Fund's 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;
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(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 Board 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 would reduce the expenses borne by the shareholders of
Intermediate Bond Fund as a percentage of net assets. 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
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 the Trust shall be held to any personal liability
for the Trust's obligations. In addition, the Declaration states that only the
property of Value Trust, and not the private property of any trustee,
shareholder, officer, employee or agent of the Trust, shall be used to satisfy
any obligation or claim of the Trust.
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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
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
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
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(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 August 31,
1998 (audited), and on a pro forma combined basis (unaudited) as of August 31,
1998, giving effect to the Reorganization:
GOVERNMENT INTERMEDIATE COMBINED FUND
---------- ------------ -------------
SECURITIES BOND FUND (PRO FORMA)
---------- --------- -----------
FUND
----
Net Assets.................. $79,484,840 $37,280,575 $116,765,415
Net Asset Value Per Share... $7.99 $12.76 $7.99
Shares Outstanding.......... 9,950,826 2,922,427 14,616,430
REQUIRED VOTE. Approval of the Reorganization 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
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PART II: PROPOSED ROUTINE ORGANIZATIONAL MATTERS AND MODIFICATIONS TO
FUNDAMENTAL INVESTMENT RESTRICTIONS.
PROPOSAL 2. TO APPROVE AMENDMENTS TO THE FUNDAMENTAL INVESTMENT
LIMITATIONS OF INTERMEDIATE BOND FUND
As required by the 1940 Act, Intermediate Bond Fund has adopted certain
fundamental investment restrictions and policies ("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 trustees to review and monitor investment policies
more easily. In addition, standardizing the fundamental restrictions of the
INVESCO Funds will assist the INVESCO Funds in making required regulatory
filings in a more efficient and cost-effective way. Although the proposed
changes in fundamental restrictions will allow Intermediate Bond Fund greater
investment flexibility to respond to future investment opportunities, the Board
does not anticipate that the changes, individually or in the aggregate, will
result at this time in a material change in the level of investment risk
associated with an investment in the Fund.
The text and a summary description of each proposed change to Intermediate
Bond Fund's fundamental restrictions are set forth below, together with the text
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
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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:
With respect to fundamental restriction 1, 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.
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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.
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.
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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.
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 331/3% of the value
of the Fund's total assets at the time the borrowing is made.
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The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not borrow money, except that the Fund may borrow money in an
amount not exceeding 331/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings).
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 5 (above)).
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.
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.
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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.
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.
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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 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:
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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:
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 thirty-three and one-third percent (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.
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The primary purpose of the proposal is to expand the Fund's lending
limitation from 10% to thirty-three and one-third percent (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:
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
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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.
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:
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
27
<PAGE>
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 2 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 2.
PROPOSAL 3. 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
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.
28
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NAME, POSITION PRINCIPAL OCCUPATION AND TRUSTEE NUMBER OF MEMBER
WITH VALUE BUSINESS EXPERIENCE OR INTERMEDIATE OF
TRUST, AND AGE (DURING THE PAST FIVE EXECUTIVE BOND FUND COMMITTEE
YEARS) OFFICER SHARES
OF VALUE BENEFICIALLY
TRUST OWNED
SINCE DIRECTLY OR
INDIRECTLY ON
DEC. 31, 1998
- ------------- ------------------------ -------- ------------- ----------
(1)
CHARLES W. Chief Executive Officer 1993 0 (3),
BRADY, CHAIRMAN and Director of AMVESCAP, (5),(6)
OF THE BOARD, PLC, London, England, and
AGE 63* of various subsidiaries
thereof. Chairman of the
Board of INVESCO Global
Health Sciences Fund.
FRED A. Trustee of INVESCO Global 1993 7.8850 (2),
DEERING, VICE Health Sciences Fund. (3),(5)
CHAIRMAN OF THE Formerly, Chairman of the
BOARD, AGE 70 Executive Committee and
Chairman of the Board of
Security Life of Denver
Insurance Company,
Denver, Colorado;
Director of ING America
Life Insurance Company.
MARK H. President, Chief 1998 0 (3),(5)
WILLIAMSON, Executive Officer, and
PRESIDENT, Director, INVESCO
CHIEF EXECUTIVE Distributors Inc.;
OFFICER, AND President, Chief
TRUSTEE, AGE 47* Executive Officer, and
Director, INVESCO;
President, INVESCO Global
Health Sciences Fund.
Formerly, Chairman of the
Board and Chief Executive
Officer, NationsBanc
Advisors, Inc.
(1995-1997); Chairman of
the Board, NationsBanc
Investments, Inc.
(1997-1998).
DR. VICTOR L. Professor Emeritus, 1993 7.8850 (4),
ANDREWS, Chairman Emeritus and (6),(8)
TRUSTEE, Chairman of the CFO
AGE 68 Roundtable of the
Department of Finance at
Georgia State University,
Atlanta, Georgia;
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
Southeastern Thrift and
Bank Fund, Inc. and the
Sheffield Funds, Inc.
BOB R. BAKER, President and Chief 1993 7.8850 (3),
TRUSTEE, AGE 62 Executive Officer of AMC (4),(5)
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 1993 7.8850 (2),
BUDNER, to June 1987, Senior Vice (6),(7)
TRUSTEE, President and Senior
AGE 68 Trust Officer, InterFirst
Bank, Dallas, Texas.
29
<PAGE>
DR. WENDY LEE Self-employed (since 1997 7.8850 (4),(8)
GRAMM, 1993). Professor of
TRUSTEE, Economics and Public
AGE 53 Administration,
University of Texas at
Arlington. Formerly,
Chairman, Commodities
Futures Trading
Commission (1988-1993);
Administrator for
Information and
Regulatory Affairs,
Office of Management and
Budget (1985-1988);
Executive Director,
Presidential Task Force
on Regulatory Relief;
Director, Federal Trade
Commission Bureau of
Economics. Director of
the Chicago Mercantile
Exchange; Enron
Corporation; IBP, Inc.;
State Farm Insurance
Company; Independent
Women's Forum;
International Republic
Institute; and the
Republican Women's
Federal Forum.
KENNETH T. Presently retired. 1993 7.8850 (2),(3)
KING, TRUSTEE, Formerly, Chairman of the (5),(6)
AGE 73 Board of the Capitol Life (7),
Insurance Company,
Providence Washington
Insurance Company, and
Director of numerous
subsidiaries thereof in
the United States.
Formerly, Chairman of the
Board of the Providence
Capitol Companies in the
United Kingdom and
Guernsey. Until 1987,
Chairman of the Board,
Symbion Corporation.
JOHN W. Presently retired. 1995 7.8850 (2),(3)
MCINTYRE, Formerly, Vice Chairman (5),(7)
TRUSTEE, AGE 68 of the Board of the
Citizens and Southern
Corporation; Chairman of
the Board and Chief
Executive Officer of the
Citizens and Southern
Georgia Corporation;
Chairman of the Board and
Chief Executive Officer
of Citizens and Southern
National Bank. Trustee of
INVESCO Global Health
Sciences Fund and Gables
Residential Trust.
DR. LARRY SOLL, 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 Corporation.
Director of Synergen
Corporation since
incorporation in 1982.
Director of ISI
Pharmaceuticals, Inc.
Trustee of INVESCO Global
Health Sciences Fund.
*Because of his affiliation with INVESCO, 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 theManagement 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
30
<PAGE>
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.
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:
31
<PAGE>
COMPENSATION TABLE
AMOUNTS PAID DURING THE MOST RECENT
FISCAL YEAR BY VALUE TRUST TO TRUSTEES
NAME OF PERSON, AGGREGATE PENSION OR ESTIMATED TOTAL
POSITION COMPENSATION RETIREMENT ANNUAL COMPENSATION
FROM VALUE BENEFITS BENEFITS UPON FROM VALUE
TRUST1 ACCRUED AS RETIREMENT3 TRUST AND
PART OF VALUE INVESCO FUNDS
TRUST PAID TO
EXPENSES2 TRUSTEES1
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 $77,350
BUDNER, TRUSTEE
DANIEL D. $9,106 $5,858 $3,179 $70,000
CHABRIS4, 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 Directors.
2 Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the election
of the directors.
3 These figures represent the Fund'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.
4 Mr. Chabris retired as a trustee effective September 30, 1998.
5 Total as a percentage of the Fund's net assets as of August 31, 1998.
6 Total as a percentage of the INVESCO Complex's net assets 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
32
<PAGE>
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, INVESCO Treasurer's Series
Trust, and INVESCO Value Trust have adopted a Defined Benefit Deferred
Compensation Plan (the "Plan") for the non-interested directors and trustees of
the Funds. Under the Plan, each director or trustee who is not an interested
person of the Funds (as defined in Section 2(a)(47) 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 and
annualized board meeting fees payable by the Funds to the Qualified Director.
Commencing with any such director's second year of retirement, and commencing
with the first year of retirement of any director whose retirement has been
extended by the Board for three years, a Qualified Director shall receive
quarterly payments at an annual rate equal to 50% of the basic retainer and
annualized board meeting fees. These payments will continue for the remainder of
the Qualified Director's life or ten years, whichever is longer. If a Qualified
Director dies or becomes disabled after age 72 and before age 74 while still a
director of the Funds, the First Year Retirement Benefit and retirement payments
will be made to him or her or to his or her beneficiary or estate. If a
Qualified Director becomes disabled or dies either prior to age 72 or during his
or her 74th year while still a director of the Funds, the director will not be
entitled to receive the First Year Retirement Benefit; however, the retirement
payments will be made to his or her beneficiary or estate. The Plan is
administered by a committee of three directors who are also participants in the
Plan and one director who is not a Plan participant. The cost of the Plan will
be allocated among the INVESCO Funds, Treasurer's Series Trust, and Value Trust
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.
33
<PAGE>
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, once he amount that has been deferred
totals at least $100 are invested in shares of all of the INVESCO Funds. Each
Independent Trustee is, therefore, an indirect owner of shares of each INVESCO
Fund, in addition to any Fund shares that may be owned directly.
REQUIRED VOTE. Election of each nominee as a 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 3
PROPOSAL 4. RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT
ACCOUNTANTS.
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.
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 4
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
34
<PAGE>
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"), 1315 Peachtree Street, N.E., Atlanta, Georgia
30309. INAH is an indirect wholly owned subsidiary of AMVESCAP PLC.(2) The
corporate headquarters of AMVESCAP PLC are located at 11 Devonshire Square,
London, EC2M 4YR, England. INVESCO's and IDI's offices are located at 7800 East
Union Avenue, Denver, Colorado 80237. 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 appropriate
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, Senior Vice-President and
Treasurer, also, Senior Vice-President and Treasurer of IDI; and Glen A. Payne,
Senior Vice-President, Secretary and General Counsel, also Senior
Vice-President, Secretary and General Counsel of IDI.
The address of each of the foregoing officers and directors is 7800 East
Union Avenue, Denver, Colorado 80237.
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. Skagge,
Vice President and Secretary; Luis A.
- ----------
2 The intermediary companies between INAH and AMVESCAP PLC are as follows:
INVESCO, Inc., INVESCO Group Services, Inc. and INVESCO North American Group,
Ltd., each of which is wholly owned by its immediate parent.
35
<PAGE>
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 $23,431
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 $339,815 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.
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
36
<PAGE>
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.
37
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement")
is made as of _______ __, 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
(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).
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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 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.
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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
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.
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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 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
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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 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;
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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.
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
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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
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
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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 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
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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.
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;
4.3.8. None of the compensation received by any Shareholder who is
an employee of or service provider to Target will be separate
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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.
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.
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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
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:
A-11
<PAGE>
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 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
A-12
<PAGE>
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 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.
A-13
<PAGE>
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;
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.
A-14
<PAGE>
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.
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 greement.
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.
A-15
<PAGE>
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.
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:____________________
Assistant Secretary Vice President
ATTEST: INVESCO BOND FUNDS, INC.,
on behalf of its series,
INVESCO U.S. Government Securities Fund
_________________________ By:____________________
Assistant Secretary Vice President
A-16
+
<PAGE>
APPENDIX B
PRINCIPAL SHAREHOLDERS
As of March 12, 1999, the following entities held more than 5% of each
Fund's outstanding equity securities:
Nature of Combined
Ownership % Owned Fund %
--------- ------- ---------
Intermediate Bond Fund
- ----------------------
Charles Schwab & Co. Inc.
Special Custody Acct. for the
Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104
GOVERNMENT SECURITIES FUND
- --------------------------
Charles Schwab & Co., Inc.
Special Custody Acct. for the
Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104
Resources Trust Co. Cust. For the
Exclusive Benefit of the Various
Customers of IMS
P.O. Box 3865
Englewood, CO 80155
38
<PAGE>
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 __,
1999 relating to the above-referenced matter. A copy of the Prospectus/Proxy
Statement may be obtained by calling toll-free 1-800-646-8372. This Statement of
Additional Information is dated March __, 1999.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Statement of Operations
Twelve Months Ended August 31, 1998
UNAUDITED
Intermediate
Government U.S. Government Pro Forma Pro Forma
Bond Fund Securities Fund Adjustments Combined
-------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
<S> <C> <C> <C> <C>
Interest $ 2,309,958 $ 3,219,001 $ 5,528,959
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees (Note 3) 226,874 284,609 $ (19,010) (a) 492,473
Distribution Expenses (Note 3) 29,217 129,368 65,266 (a) 223,851
Transfer Agent Fees 204,187 186,705 (51,047) (b) 339,845
Administrative Fees (Note 3) 15,672 17,762 (10,003) (a) 23,431
Custodian Fees and Expenses 10,567 11,946 22,513
Directors'/Trustees' Fees and Expenses 11,280 11,844 (8,000) (b) 15,124
Professional Fees and Expenses 15,662 18,095 (12,525) (b) 21,232
Registration Fees and Expenses 26,402 48,471 (19,376) (b) 55,497
Reports to Shareholders 7,910 18,858 (1,978) (b) 24,790
Other Expenses 11,814 3,291 (2,494) (b) 12,611
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 559,585 730,949 1,231,367
Fees and Expenses Absorbed by Investment Adviser (176,551) (207,740) 57,710 (c) (326,581)
Fees and Expenses Paid Indirectly (4,877) (4,504) (9,381)
- -----------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 378,157 518,705 (1,457) 895,405
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,931,801 2,700,296 1,457 4,633,554
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities 440,515 5,191,748 5,632,263
Change in Net Appreciation (Depreciation) of
Investment Securities 519,048 (685,916) (166,868)
- -----------------------------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENT SECURITIES 959,563 4,505,832 5,465,395
===================================================================================================================================
Net Increase in Net Assets from Operations $ 2,891,364 $ 7,206,128 $ 1,457 $ 10,098,949
===================================================================================================================================
(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
August 31, 1998
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) $ 36,340,016 $ 72,180,907 $ 108,520,923
====================================================================================================================================
At Value(a) $ 37,166,278 $ 72,891,495 $ 110,057,773
Cash 292,024 322,275 614,299
Receivables:
Fund Shares Sold 2,208,169 6,659,278 8,867,447
Dividends and Interest 328,671 259,947 588,618
Prepaid Expenses and Other Assets 14,374 16,985 31,359
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 40,009,516 80,149,980 120,159,496
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Distributions to Shareholders 4,780 10,736 15,516
Investment Securities Purchased 2,092,707 0 2,092,707
Fund Shares Repurchased 619,014 634,169 1,253,183
Accrued Distribution Expenses 4,814 12,020 16,834
Accrued Expenses and Other Payables 7,626 8,215 15,841
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,728,941 665,140 3,394,081
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS AT VALUE $ 37,280,575 $ 79,484,840 $ 116,765,415
====================================================================================================================================
NET ASSETS
Paid-in Capital $ 36,592,934 $ 74,013,705 $ 110,606,639
Accumulated Undistributed Net Investment Income 327 7,539 7,866
Accumulated Undistributed Net Realized Gain (Loss) (138,948) 4,753,008 4,614,060
on Investment Securities
Net Appreciation of Investment Securities and 826,262 710,588 1,536,850
Foreign Currency Transactions
====================================================================================================================================
NET ASSETS AT VALUE $ 37,280,575 $ 79,484,840 $ 116,765,415
====================================================================================================================================
Shares Outstanding 2,922,427 9,950,826 1,743,477 (b) 14,616,730
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 12.76 $ 7.99 $ 7.99
====================================================================================================================================
</TABLE>
(a) Investment securities at cost and value at August 31, 1998 include
repurchase agreements of $3,429,000 and $3,450,000 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
August 31, 1998
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 91.84%
US GOVERNMENT OBLIGATIONS 53.87%
US Treasury Bonds
$ 500,000 $ 500,000 9.250%, 2/15/2016 $ 715,312 $ 715,312
$20,000,000 20,000,000 8.125%, 8/15/2019 $26,606,259 26,606,259
500,000 500,000 7.625%, 2/15/2025 651,406 651,406
12,000,000 12,000,000 5.500%, 8/15/2028 12,360,000 12,360,000
US Treasury Notes
2,000,000 2,000,000 8.750%, 8/15/2000 2,139,376 2,139,376
1,000,000 1,000,000 8.500%, 2/15/2000 1,047,500 1,047,500
1,900,000 1,900,000 7.500%, 11/15/2001 2,038,345 2,038,345
1,450,000 1,450,000 7.500%, 5/15/2002 1,568,266 1,568,266
2,500,000 2,500,000 6.375%, 9/30/2001 2,595,313 2,595,313
1,750,000 1,750,000 6.375%, 8/15/2002 1,833,125 1,833,125
2,000,000 2,000,000 6.250%, 1/31/2002 2,075,000 2,075,000
1,000,000 1,000,000 6.250%, 2/15/2003 1,048,438 1,048,438
1,000,000 1,000,000 6.000%, 10/15/1999 1,009,063 1,009,063
1,500,000 1,500,000 5.750%, 11/30/2002 1,540,312 1,540,312
1,000,000 1,000,000 5.750%, 8/15/2003 1,030,938 1,030,938
1,000,000 1,000,000 5.500%, 2/15/2008 1,030,938 1,030,938
====================================================================================================================================
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $19,625,486, $38,635,832 59,289,591
and $$58,261,318, respectively)
US GOVERNMENT AGENCY OBLIGATIONS 37.97%
Fannie Mae, Gtd Mortgage Pass-Through
Certificates
980,110 980,110 7.000%, 1/1/2028 998,114 998,114
977,822 977,822 6.500%, 2/1/2028 981,694 981,694
2,000,000 2,000,000 6.000%, 5/15/2008 2,056,344 2,056,344
766,708 766,708 6.000%, 5/1/2009 768,901 768,901
Federal Farm Credit Bank, Medium-Term Notes
500,000 500,000 6.320%, 10/12/2010 529,173 529,173
Federal Home Loan Bank
1,000,000 1,000,000 5.675%, 8/18/2003 1,013,298 1,013,298
Freddie Mac, Gold Participation Certificates
666,543 666,543 8.000%, 10/1/2010 687,899 687,899
992,632 992,632 7.000%, 6/1/2028 1,010,936 1,010,936
661,277 661,277 6.500%, 7/1/2001 667,506 667,506
929,247 929,247 6.500%, 7/1/2008 943,678 943,678
9,868,095 9,868,095 6.000%, 5/1/2013 9,853,687 9,853,687
4,982,230 4,982,230 6.000%, 7/1/2013 4,974,955 4,974,955
9,928,008 9,928,008 6.000%, 4/1/2028 9,789,412 9,789,412
4,983,068 4,983,068 6.000%, 6/1/2028 4,913,504 4,913,504
Government National Mortgage Association I
Pass-Through Certificates
959,898 959,898 7.500%, 3/15/2026 988,368 988,368
505,470 505,470 7.000%, 10/15/2008 519,542 519,542
504,442 504,442 6.500%, 10/15/2008 513,800 513,800
572,061 572,061 6.000%, 11/15/2008 575,979 575,979
====================================================================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $11,198,303, $30,095,075 and 41,786,790
$41,293,378, respectively)
TOTAL FIXED INCOME SECURITIES
(Cost $30,823,789, $68,730,907 and 101,076,381
$99,554,696, 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 8.16%
US GOVERNMENT OBLIGATIONS 1.91%
US Treasury Notes
2,000,000 $ 2,000,000 8.000%, 8/15/1999 2,051,876 $ 2,051,876
50,000 50,000 6.375%, 7/15/1999 50,516 50,516
====================================================================================================================================
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $2,087,227, $0 and 2,102,392
$2,087,227, respectively)
REPURCHASE AGREEMENTS 6.25%
Repurchase Agreements with
State Street dated 8/31/1998 due 9/1/1998
at 5.730%, repurchased at $3,429,546
(Collaterized by US
Treasury Bonds due
8/15/2026 at 6.750%,
value $3,533,809)
3,429,000 3,429,000 (Cost $3,429,000, $0 and 3,429,000 3,429,000
$3,429,000, respectively)
Repurchase Agreements with State
Street dated 8/31/1998
due 9/1/1998 at 5.730%,
repurchased at $3,450,549
(Collaterized by US Treasury
Bonds due 8/15/2021
at 8.125%, value $3,553,965)
$ 3,450,000 3,450,000 (Cost $0, $3,450,000 and $ 3,450,000 3,450,000
$3,450,000, respectively)
====================================================================================================================================
TOTAL SHORT-TERM INVESTMENTS
(Cost $5,516,227, $3,450,000 8,981,392
and $8,966,227, respectively)
====================================================================================================================================
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $36,340,016, $72,180,907
and $108,520,923, respectively)
(Cost for Income Tax Purposes
$36,426,802, $72,180,907
and $108,607,709, respectively) 37,166,278 72,891,495 $110,057,773
====================================================================================================================================
</TABLE>
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 August 31, 1998, and the related Pro Forma Statements of
Operations ("Pro Forma Statements") for the twelve months ended August 31, 1998,
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 August 31, 1998.
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 August 31, 1998.
<PAGE>
INVESCO BOND FUNDS, INC.
PART C
OTHER INFORMATION
Item 15. INDEMNIFICATION
---------------
Indemnification provisions for officers and directors of Registrant are
set forth in Article VII, Section 2 of the Articles of Incorporation, and are
hereby incorporated by reference. See Item 16(1) below. Under this Article,
officers and directors will be indemnified to the fullest extent permitted to
directors by the Maryland General Corporation Law, subject only to such
limitations as may be required by the Investment Company Act of 1940, as amended
("1940 Act"), and the rules thereunder. Under the 1940 Act, directors and
officers of Registrant cannot be protected against liability to Registrant or
its shareholders to which they would be subject because of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties of their office.
Registrant also maintains liability insurance policies covering its directors
and officers.
Item 16. EXHIBITS
--------
(1) Articles of Incorporation (Charter), filed April 2, 1993. (1)
(a) Articles Supplementary to Articles of Incorporation, dated October
28, 1998. (3)
(2) By-Laws, as amended July 21, 1993. (1)
(3) Voting trust agreement - none.
(4) Agreement and Plan of Reorganization and Termination is attached
hereto as Appendix A.
(5) Provisions of instruments defining the rights of holders of securities
are contained in Articles III, IV, VI, VIII of Registrant's Articles of
Incorporation as amended, and Articles I, V, VII, VIII, IX and X of
Registrant's By-Laws.
(6) Investment Advisory Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997. (2)
(7) (a) General Distribution Agreement with INVESCO Funds Group, Inc. dated
February 28, 1997. (2)
(b) General Distribution Agreement with INVESCO Distributors, Inc.
dated September 30, 1997. (2)
(8) (a) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees. (3)
(b) Amended Defined Compensation Plan for Non-Interested Directors and
Trustees. (3)
(9) (a) Custody Agreement between Registrant and State Street Bank and
Trust Company dated July 1, 1994. (1)
<PAGE>
(b) Amendment to Custody Agreement dated October 25, 1995. (1)
(c) Data Access Service Addendum dated May 19, 1997. (2)
(10) (a) Plan and Agreement of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 dated April 30, 1993. (2)
(b) Amendment of Plan and Agreement of Distribution pursuant to
Rule 12b-1 dated July 19, 1995. (1)
(c) Amended Plan and Agreement of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated January 1,
1997. (2)
(d) Amended Plan and Agreement of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated September
30, 1997. (2)
(11) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of securities being registered (filed herewith).
(12) (a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding certain
tax matters in connection with INVESCO U. S. Government Securities
Fund (to be filed).
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP regarding certain
tax m atters in connection with INVESCO Intermediate Government Bond
Fund (to be filed).
(13) (a) Transfer Agency Agreement between Registrant and INVESCO Funds Group,
Inc. dated February 28, 1997. (2)
(b) Administrative Services Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997. (2)
(14) Consent of PricewaterhouseCoopers LLP (filed herewith).
(15) Financial statements omitted from part B - none.
(16) Copies of manually signed Powers of Attorney - incorporated by
reference to Powers of Attorney previously filed with the Securities
and Exchange Commission on January 9, 1990, January 16, 1990, May 22,
1992, March 31, 1994, October 23, 1995, October 30, 1996 and
October 30, 1997.
(17) Additional Exhibits.
(a) Form of Proxy Cards (filed herewith).
- ----------------
(1) Incorporated by reference from Post-Effective Amendment No. 36 to the
registration statement, filed October 30, 1996.
(2) Incorporated by reference from Post-Effective Amendment No. 37 to the
registration statement, filed October 30, 1997.
(3) Incorporated by reference from Post-Effective Amendment No. 38 to the
registration statement, filed October 29, 1998.
<PAGE>
Item 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public re-offering
of the securities registered through the use of the prospectus which is a part
of this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the
re-offering prospectus will contain the information called for by the applicable
registration form for re-offering by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of Registrant, in the City of Denver and the
State of Colorado, on this 26th day of January, 1999.
ATTEST: INVESCO Bond Funds, Inc.
(formerly INVESCO Income Funds, Inc.)
/s/ Glen A. Payne By: /s/ Mark H. Williamson
- -------------------------- --------------------------------
Glen A. Payne, Secretary Mark H. Williamson, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/S/ Mark H. Williamson President, Director and January 26, 1999
- ----------------------- Chief Executive Officer
Mark H. Williamson
/S/ Ronald L. Grooms Treasurer and Chief January 26, 1999
- -------------------- Financial and Accounting
Ronald L. Grooms Officer
- -------------------- Director January 26, 1999
Victor L. Andrews*
- -------------------- Director January 26, 1999
Bob R. Baker*
- -------------------- Director January 26, 1999
Charles W. Brady*
<PAGE>
- -------------------- Director January 26, 1999
Wendy L. Gramm*
- --------------------
Lawrence H. Budner* Director January 26, 1999
- -------------------- Director January 26, 1999
Fred A. Deering*
- --------------------
Larry Soll* Director January 26, 1999
- -------------------- Director January 26, 1999
Kenneth T. King*
- -------------------- Director January 26, 1999
John W. McIntyre*
By: * -------------------- January 26, 1999
Edward F. O'Keefe
Attorney in Fact
By: */s/ Glen A. Payne January 26, 1999
-----------------
Glen A. Payne
Attorney in Fact
* Original Powers of Attorney authorizing Edward F. O'Keefe and Glen A. Payne,
and each of them, to execute this Registration Statement on Form N-14 of the
Registrant on behalf of the above-named directors and officers of the Registrant
have been filed with the Securities and Exchange Commission on May 22, 1992,
<PAGE>
June 9, 1992, October 13, 1992, July 26, 1994, June 27, 1995, July 12, 1995,
September 5, 1995, July 23, 1996 and September 26, 1997, respectively.
<PAGE>
INVESCO BOND FUNDS, INC.
INDEX OF EXHIBITS
(1) Articles of Incorporation (Charter), filed April 2, 1993; (1)
(a) Articles Supplementary to Articles of Incorporation, dated October
28, 1998; (3)
(2) By-Laws, as amended July 21, 1993; (1)
(3) Voting trust agreement - none.
(4) Agreement and Plan of Reorganization and Termination is attached
hereto as Appendix A.
(5) Provisions of instruments defining the rights of holders of securities
are contained in Articles III, IV, VI, VIII of Registrant's Articles of
Incorporation as amended, and Articles I, V, VII, VIII, IX and X of
Registrant's By-Laws.
(6) Investment Advisory Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997.(2)
(7) (a) General Distribution Agreement with INVESCO Funds Group, Inc. dated
February 28, 1997.(2)
(b) General Distribution Agreement with INVESCO Distributors, Inc. dated
September 30, 1997.(2)
(8) (a) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees.(3)
(b) Amended Defined Compensation Plan for Non-Interested Directors and
Trustees.(3)
(9) (a) Custody Agreement between Registrant and State Street Bank and
Trust Company dated July 1, 1994.(1)
(b) Amendment to Custody Agreement dated October 25, 1995.(1)
(c) Data Access Service Addendum dated May 19, 1997.(2)
(10) (a) Plan and Agreement of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 dated April 30, 1993.(2)
(b) Amendment of Plan and Agreement of Distribution pursuant to Rule 12b-1
dated July 19, 1995.(1)
(c) Amended Plan and Agreement of Distribution adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 dated January 1,
1997.(2)
(d) Amended Plan and Agreement of Distribution adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 dated September 30,
1997.(2)
(11) Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of securities being registered (filed herewith).
(12) (a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding certain
tax matters in connection with INVESCO U.S. Government Securities Fund
(to be filed).
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP regarding certain
<PAGE>
tax matters in connection with INVESCO Intermediate Government Bond
Fund (to be filed).
(13) (a) Transfer Agency Agreement between Registrant and INVESCO Funds Group,
Inc. dated February 28, 1997.(2)
(b) Administrative Services Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997.(2)
(14) Consent of PricewaterhouseCoopers LLP (filed herewith).
(15) Financial statements omitted from part B - none.
(16) Copies of manually signed Powers of Attorney - incorporated by
reference to Powers of Attorney previously filed with the Securities
and Exchange Commission on January 9, 1990, January 16, 1990, May 22, 1992,
March 31, 1994, October 23, 1995, October 30, 1996 and October 30, 1997.
(17) Additional Exhibits.
(a) Form of Proxy Cards (filed herewith).
- ----------------
(1) Incorporated by reference from Post-Effective Amendment No. 36 to the
registration statement, filed October 30, 1996.
(2) Incorporated by reference from Post-Effective Amendment No. 37 to the
registration statement, filed October 30, 1997.
(3) Incorporated by reference from Post-Effective Amendment No. 38 to the
registration statement, filed October 29, 1998.
Exhibit 11
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE (202) 778-9000
FACSIMILE (202) 778-9100
January 26, 1999
INVESCO Bond Funds, Inc.
7800 E. Union Avenue
Denver, Colorado 80237
Ladies and Gentlemen:
You have requested our opinion as to certain matters regarding the
issuance by INVESCO Bond Funds, Inc. ("Company"), a corporation organized under
the laws of the State of Maryland, of shares of common stock (the "Shares") of
INVESCO U.S.Government Securities Fund ("Government Securities Fund"), a series
of the Company, pursuant to an Agreement and Plan of Reorganization and
Termination ("Plan") between the Company, on behalf of Government Securities
Fund, and INVESCO Value Trust, on behalf of its series, INVESCO Intermediate
Government Bond Fund ("Intermediate Bond Fund"). Under the Plan, Government
Securities Fund would acquire the assets of Intermediate Bond Fund in exchange
for the Shares and the assumption by Government Securities Fund of Intermediate
Bond Fund's liabilities. In connection with the Plan, the Company is about to
file a Registration Statement on Form N-14 (the "N-14") for the purpose of
registering the Shares under the Securities Act of 1933, as amended ("1933
Act"), to be issued pursuant to the Plan.
We have examined originals or copies believed by us to be genuine of the
Company's Articles of Incorporation and By-Laws, minutes of meetings of the
Company's board of directors, the form of Plan, and such other documents
relating to the authorization and issuance of the Shares as we have deemed
relevant. Based upon that examination, we are of the opinion that the Shares
being registered by the N-14 may be issued in accordance with the Plan and the
Company's Articles of Incorporation and By-Laws, subject to compliance with the
1933 Act, as amended, the Investment Company Act of 1940, as amended, and
applicable state laws regulating the distribution of securities, and when so
issued, those Shares will be legally issued, fully paid and non-assessable.
<PAGE>
We hereby consent to this opinion accompanying the Form N-14 that the
Company plans to file with the Securities and Exchange Commission and to the
reference to our firm under the caption "Miscellaneous -- Legal Matters" in the
Prospectus/Proxy Statement filed as part of the Form N-14.
Sincerely yours,
/s/ KIRKPATRICK & LOCKHART LLP
KIRKPATRICK & LOCKHART LLP
Exhibit 14
PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
950 Seventeenth Street
Suite 2500
Denver CO 80202
Telephone (303) 893-8100
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this registration statement on Form
N-14 (the "Registration Statement") of our report dated September 30, 1998
relating to the financial statements and financial highlights appearing in the
August 31, 1998 Annual Report to Shareholders of INVESCO Intermediate Government
Bond Fund (one of the portfolios constituting INVESCO Value Trust) and our
report dated October 2, 1998 relating to the financial statements and financial
highlights appearing in the August 31, 1998 Annual Report to Shareholders of
INVESCO U.S. Government Securities Fund (one of the portfolios constituting
INVESCO Income Funds, Inc.), which are also incorporated by reference into the
Statement of Additional Information.
We also consent to the incorporation by reference of our report into the
Prospectus of INVESCO Intermediate Government Bond Fund dated January 1, 1999,
and the incorporation by reference of our report in the Prospectus of INVESCO
U.S. Government Securities Fund dated January 1, 1999, which constitute parts of
this Registration Statement. We also consent to the references to us under the
headings "Independent Accountants" and Financial Statements" in the Statement of
Additional Information of INVESCO Intermediate Government Bond Fund and to the
reference to us under the heading "Financial Highlights" in the Prospectus of
INVESCO Intermediate Government Bond Fund both dated January 1, 1999. We also
consent to the references to us under the headings "Independent Accountants" and
"Financial Statements" in the Statement of Additional Information of INVESCO
U.S. Government Securities Fund and to the reference to us under the heading
"Financial Highlights" in the Prospectus of INVESCO U.S. Government Securities
Fund both dated January 1, 1999.
We also consent to the reference to us under the heading "Experts" in the
combined Prospectus/Proxy Statement, constituting part of this Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Denver, Colorado
January 26, 1999
[Name and Address] Exhibit 17(a)
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 [ ] and [ ], 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.
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-[_________] TOLL
FREE OR VISIT WWW.[___].COM. TO VOTE BY FACSIMILE TRANSMISSION, PLEASE FAX YOUR
COMPLETED PROXY CARD TO 1-800-[________].
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
[INVXXX] KEEP THIS PORTION FOR YOUR RECORDS
<PAGE>
<TABLE>
<CAPTION>
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
INVESCO INTERMEDIATE GOVERNMENT BOND FUND
INVESCO VALUE TRUST
<S> <C> <C> <C> <C>
VOTE ON TRUSTEES FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
3. Election of the Trust's Board of / / / / / / To withhold authority
Trustees; (1) Charles W. Brady; (2) to vote for any
Fred A. Deering; (3) Mark H. individual nominee(s),
Williamson; (4) Dr. Victor L. Andrews; mark "For All Except"
(5) Bob R. Baker; (6) Lawrence H. and write the
Budner; (7) Dr. Wendy Lee Gramm; nominee's number
(8) Kenneth T. King; (9) John W. on the line below.
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 changes to the fundamental investment policies; / / / / / /
/ / To vote against the proposed changes to one or more of
the specific fundamental investment policies, but to
approve others, PLACE AN "X" IN THE BOX AT left and
indicate the number(s) (as set forth in the proxy
statement) of the investment policy or policies you do
not want to change on the line below.
----------------------------------------------------------
4. Ratification of the selection of PricewaterhouseCoopers LLP / / / / / /
as the Fund's Independent Public Accountants;
</TABLE>
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-[ ] TOLL
FREE OR VISIT WWW.[ ].COM. TO VOTE BY FACSIMILE TRANSMISSION, PLEASE FAX YOUR
COMPLETED PROXY CARD TO 1-800-[ ].
<PAGE>
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
- ------------------------------------------------- ------------------------------
Signature Date
- ------------------------------------------------- ------------------------------
Signature (Joint Owners) Date
