As filed with the Securities and Exchange Commission on January 21, 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:
Susan M. Casey, Esq.
Judith A. Caesar-Brown, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9036
Approximate Date of Proposed Public Offering: as soon as practicable
after this Registration Statement becomes effective under the Securities Act of
1933.
Title of securities being registered: Common stock, par value $0.01 per
share.
<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
<TABLE>
<CAPTION>
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
- ----------- -----------------
<S> <C> <C>
1. Beginning of Registration Statement and Cover Page
Outside Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Synopsis Information and Risk Factors Synopsis; Comparison of 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 Select Income Fund, dated January 1,
1999, previously filed on EDGAR, Accession Number
0000201815-99-000001
6. Information About the Company Being Synopsis; Comparison of Principal Risk Factors;
Acquired Miscellaneous; See also, the Prospectus for
INVESCO Short-Term Bond Fund, dated January 1,
1999, previously filed on EDGAR, Accession
Number 0000201815-99-000001
7. Voting Information Voting Information
8. Interest of Certain Persons and Experts Not Applicable
9. Additional Information Required for Re- Not Applicable
offering by Persons Deemed to be
Underwriters
<PAGE>
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 Registrant Statement of Additional Information of INVESCO
Select Income Fund, dated January 1, 1999,
previously filed on EDGAR, Accession Number
0000201815-99-000001.
13. Additional Information About the Company Statement of Additional Information of
Being Acquired INVESCO Short-Term Bond Fund, dated
January 1, 1999, previously EDGAR,
Accession Number 0000201815-99-000001.
14. Financial Statements Annual Report of INVESCO Select Income Fund for
Fiscal Year Ended August 31, 1998, previously
filed on EDGAR, Accession Number
0000201815-98-000008; Annual Report of INVESCO
Short-Term Bond Fund for Fiscal Year Ended August
31, 1998, previously filed on EDGAR, Accession
Number 0000201815-98-000008.
</TABLE>
<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 SHORT-TERM BOND FUND
(a series of INVESCO Bond Funds, Inc.)
March __, 1999
Dear INVESCO Short-Term Bond Fund Shareholder:
The attached proxy materials describe a proposal that INVESCO
Short-Term Bond Fund ("Short-Term Bond Fund") reorganize and become part of
INVESCO Select Income Fund ("Select Income Fund"). If the proposal is approved
and implemented, each shareholder of Short-Term Bond Fund will automatically
become a shareholder of Select Income Fund.
The attached proxy materials also seek your approval of certain changes
in the fundamental investment restrictions of Short-Term Bond Fund (if the
reorganization is not approved, or cannot be completed for some other reason),
to elect directors, and to ratify the appointment of PricewaterhouseCoopers LLP
as independent accountants of Short-Term Bond Fund.
YOUR BOARD RECOMMENDS A VOTE FOR ALL PROPOSALS. The board believes that
combining the two Funds will benefit Short-Term Bond Fund's shareholders by
providing them with a portfolio that has an investment objective that is
substantially similar to that of Short-Term 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 Short-Term Bond Fund that
will update and streamline the restrictions. The attached proxy materials
provide more information about the proposed reorganization and the two Funds, as
well as the proposed changes in fundamental investment restrictions and the
other matters you are being asked to vote upon.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
shares early will permit Short-Term Bond Fund to avoid costly follow-up mail and
telephone solicitation. After reviewing the attached materials, please complete,
date and sign your proxy card and mail it in the enclosed return envelope today.
As an alternative to using the paper proxy card to vote, you may vote by mail,
by telephone, by facsimile, through the Internet, or in person.
Very truly yours,
Mark H. Williamson
President
INVESCO Short-Term 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 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 Short-Term
Bond Fund can decide whether or not to reorganize their fund. If shareholders
decide in favor of the proposal, SHORT-TERM BOND FUND WILL MERGE with another,
similar mutual fund managed by INVESCO, and you will become a shareholder of
INVESCO SELECT INCOME FUND.
Whether or not shareholders decide they wish to merge the Funds, there are other
matters of business to be considered. So, no matter how you choose to vote on
the proposed merger, please do review all of the other proposals and vote on
them as well.
WHAT ARE THE ADVANTAGES OF MERGING THE FUNDS?
There are two key potential advantages:
. 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.
. 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.
<PAGE>
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 debt obligations, including
government, government agency, and corporate bonds. However, there are
significant differences in investment strategy:
. SHORT-TERM BOND FUND invests in shorter-term debt obligations issued by the
federal government, government agencies, and corporations maturing in three
years or less.
. SELECT INCOME FUND, on the other hand, enjoys greater flexibility in pursuing
higher income from government, government agency, and corporate bonds without
fixed maturity levels. So Select Income may offer higher income levels, with
only moderately more price volatility than a shorter-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 Select Income Fund equal in value to the shares of
Short-Term Bond Fund that they owned on the Closing Date.
The net asset value per share of Select Income Fund will not be affected by the
transaction. That means the reorganization will not result in a dilution of any
shareholder's interest.
IF THE FUNDS MERGE, WILL THERE BE TAX CONSEQUENCES FOR ME?
Unlike a transaction where you direct INVESCO to sell shares of one fund in
order to buy shares of another, the reorganization WILL NOT BE CONSIDERED A
TAXABLE EVENT. The Funds themselves will recognize no gains or losses on assets
as a result of a reorganization. So you will not have reportable capital gains
or losses due to the reorganization.
<PAGE>
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
Short-Term Bond Fund shares will be represented at this Fund's special
shareholders meeting.
WHERE DO I GET MORE INFORMATION ABOUT INVESCO SELECT INCOME FUND?
. Please visit our Web site at WWW.INVESCO.COM
. Or call Investor Services toll-free at 1-800-646-8372
[BACK COVER] YOU SHOULD KNOW WHAT INVESCO KNOWS
At INVESCO, we've built a global reputation on professional investment
management. Some of the world's largest institutions and more than a million
individuals rely on our knowledgeable investment specialists for effective
management of their portfolios.
INVESCO provides investors the perspective gained from more than 65 years of
helping clients seek their financial goals.
The heart of INVESCO's business is to provide strong core mutual fund portfolios
designed as solid foundations for our clients' investments. We draw on the
<PAGE>
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 SHORT-TERM BOND FUND
(a series of INVESCO Bond Funds, Inc.)
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
May 20, 1999
To The Shareholders:
A special meeting of shareholders of INVESCO Short-Term Bond Fund
("Short-Term Bond Fund"), a series of INVESCO Bond Funds, Inc. (formerly,
INVESCO Income Funds, Inc.) ("Bond Funds"), will be held on May 20, 1999, at
10:00 a.m., Mountain Time, at the office of INVESCO Funds Group Inc., 7800 E.
Union Avenue, Denver, Colorado, for the following purposes:
(1) To approve a Plan of Reorganization and Termination under which
INVESCO Select Income Fund ("Select Income Fund"), a series of Bond Funds, would
acquire all of the assets of Short-Term Bond Fund in exchange solely for shares
of Select Income Fund and the assumption by Select Income Fund of Short-Term
Bond Fund's liabilities, followed by the distribution of those shares to the
shareholders of Short-Term Bond Fund, all as described in the accompanying
Prospectus/Proxy Statement;
(2) To approve certain changes to the fundamental investment
restrictions of Short-Term Bond Fund;
(3) To elect a board of directors of Bond Funds;
(4) To ratify the selection of PricewaterhouseCoopers LLP as
independent accountants of Short-Term 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 the Short-Term Bond Fund at the close of business on March
12, 1999. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF YOU
DO NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE, AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
By order of the Board,
Glen A. Payne
Secretary
March ___, 1999
Denver, Colorado
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card,
sign, and date the card, and return it in the envelope provided. IF YOU SIGN,
DATE AND RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL
BE VOTED "FOR" THE PROPOSALS DESCRIBED ABOVE. In order to avoid the additional
expense of further solicitation, we ask your cooperation in mailing your proxy
card promptly. As an alternative to using the paper proxy card to vote, you may
vote by mail, telephone, through the Internet, by facsimile machine, or in
person. To vote by telephone, please call the toll-free number listed on the
enclosed proxy card(s). Shares that are registered in your name, as well as
shares held in "street name" through a broker, may be voted via the Internet or
by telephone. To vote in this manner, you will need the 12-digit "control"
number(s) that appear on your proxy card(s). To vote via the Internet, please
access www.______.com on the World Wide Web. In addition, shares that are
registered in your name may be voted by faxing your completed proxy card(s) to
1-800-_______. If we do not receive your completed proxy 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.
- --------------------------------------------------------------------------------
2
<PAGE>
INVESCO SELECT INCOME FUND
(a series of INVESCO Bond Funds, Inc.)
INVESCO SHORT-TERM BOND FUND
(a series of INVESCO Bond Funds, Inc.)
7800 East Union Avenue
Denver, Colorado 80237
(Toll Free) 1-800-646-8372
PROSPECTUS/PROXY STATEMENT
March __, 1999
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished
to shareholders of the INVESCO Short-Term Bond Fund ("Short-Term Bond Fund"), a
series of INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.) ("Bond
Funds"), in connection with the solicitation of proxies by its Board 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, the INVESCO Select Income Fund ("Select Income Fund"), a series
of Bond Funds, would acquire all of the assets of Short-Term Bond Fund in
exchange solely for shares of Select Income Fund and the assumption by Select
Income Fund of all of the liabilities of Short-Term Bond Fund. Those shares of
Select Income Fund would then be distributed to the shareholders of Short-Term
Bond Fund, so that each shareholder of Short-Term Bond Fund would receive a
number of full and fractional shares of Select Income 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 Short-Term Bond Fund.
As soon as practicable following the distribution of shares, Short-Term Bond
Fund will be terminated.
Select Income Fund is a diversified series of Bond Funds, which is an
open-end management investment company. Select Income Fund's investment
objective is to provide investors with a high level of current income through
the investment of most of its assets in bonds or other debt securities.
Select Income Fund may invest up to 50% of its total assets in lower
rated bonds, commonly known as "high yield" or "junk bonds." These investments
are subject to greater risks, including the risk of default, than higher rated
securities. You should carefully assess the risks associated with an investment
in this Fund.
This Proxy Statement, which should be retained for future reference,
sets forth concisely the information about the reorganization and Select Income
<PAGE>
Fund that a shareholder should know before voting on the reorganization. A
Statement of Additional Information, dated March __, 1999, relating to the
reorganization and including historical financial statements, has been filed
with the Securities and Exchange Commission ("SEC") and is incorporated herein
by reference (that is, the Statement of Additional Information is legally a part
of this Proxy Statement). A Prospectus and a Statement of Additional Information
for Select Income Fund, each dated January 1, 1999, and Select Income 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 reference. A Prospectus
and a Statement of Additional Information for Short-Term Bond Fund, each dated
January 1, 1999, have been filed with the SEC and also are incorporated herein
by this reference. A copy of Select Income Fund's Prospectus and Annual Report
accompany this Proxy Statement. Copies of the other referenced documents, as
well as Short-Term Bond 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 SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES OF SELECT INCOME FUND, OR DETERMINED WHETHER THIS PROXY STATEMENT IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
TABLE OF CONTENTS
VOTING INFORMATION.............................................................1
PART I: THE REORGANIZATION....................................................3
PROPOSAL 1. To Approve A Plan of Reorganization and Termination
("Reorganization Plan") Under Which Select Income Fund Would Acquire
The Assets Of Short-Term Bond Fund In Exchange Solely For Shares Of
Select Income Fund And To The Assumption By Select Income Fund Of
Short-Term Bond Fund's Liabilities ( "Reorganization").........................3
Synopsis..............................................................3
The Proposed Reorganization...........................................3
Comparative Fee Table.................................................4
Shareholder Fees .....................................................4
Annual Fund Operating Expenses .......................................4
Example of Effect on Fund Expenses....................................5
Forms of Organization.................................................5
Investment Adviser....................................................6
Investment Objectives and Policies....................................6
Operations of Select Income Fund Following the Reorganization.........8
Purchases and Redemptions.............................................9
Exchanges.............................................................9
Dividends and Other Distributions.....................................9
Federal Income Tax Consequences of the Reorganization................10
Comparison Of Principal Risk Factors.................................10
The Proposed Transaction.............................................13
Reorganization Plan..................................................13
Reasons for the Reorganization.......................................14
Description of Securities to be Issued...............................15
Temporary Waiver of Investment Restrictions..........................16
Federal Income Tax Considerations....................................16
Capitalization.......................................................17
PART II: PROPOSED ROUTINE ORGANIZATIONAL MATTERS AND
MODIFICATIONS TO FUNDAMENTAL INVESTMENT RESTRICTIONS..........................18
PROPOSAL 2. To Approve Amendments To The Fundamental Investment
Restrictions of Short-Term Bond Fund..........................................18
a. Elimination of fundamental restriction on short sales and margin
purchases and adoption of non-fundamental restriction on short sales
and margin purchases.......................................................19
b. Modification of fundamental restriction on borrowing and adoption
of non-fundamental restriction on borrowing................................20
c. Adoption of a fundamental restriction on issuance of senior securities..21
<PAGE>
d. Modification of fundamental restriction on investing in another
investment company and adoption of a non-fundamental restriction
regarding investment in securities issued by other investment companies....21
e. Modification of fundamental restriction on issuer diversification.......22
f. Modification of fundamental restriction on loans........................23
g. Modification of fundamental restriction on investing in commodities.....24
h. Adoption of a fundamental restriction on real estate investments........25
i. Elimination of fundamental restriction on investing in companies
for the purpose of exercising control or management........................25
j. Elimination of fundamental restrictions on investments in securities
that are not "readily marketable," elimination of fundamental
restriction on entering into repurchase agreements and adoption of
non-fundamental restriction on investing in illiquid securities............25
k. Modification of fundamental restriction on underwriting.................27
l. Elimination of fundamental restriction on Fund ownership of
securities also owned by directors and officers of the Fund or its
investment adviser.........................................................27
m. Elimination of fundamental restriction on purchase of equity
securities.................................................................28
n. Elimination of fundamental restriction prohibiting investment in the
securities of newly formed issuers.........................................28
o. Elimination of fundamental restriction on investments in oil, gas
and other mineral exploration programs.....................................28
p. Elimination of fundamental restriction on joint participation in
securities trading accounts and on investing in warrants...................29
q. Modification of fundamental restriction on industry concentration.......29
PROPOSAL 3. To Elect The Directors Of Bond Funds.............................30
PROPOSAL 4. Ratification Or Rejection Of Selection Of Independent
Accountants...................................................................36
Other Business................................................................36
Information Concerning Adviser, Distributor And Affiliated Companies..........37
Miscellaneous.................................................................38
Available Information.........................................................38
Legal Matters.................................................................38
Experts.......................................................................38
APPENDIX A: PLAN OF REORGANIZATION AND TERMINATION...........................A-1
APPENDIX B: PRINCIPAL SHAREHOLDERS...........................................B-1
4
<PAGE>
INVESCO SHORT-TERM BOND FUND (a
series of INVESCO Bond Funds, Inc.)
-----------
PROSPECTUS/PROXY STATEMENT
Special Meeting of Shareholders
May 20, 1999
-----------
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished
to shareholders of INVESCO Short-Term Bond Fund ("Short-Term Bond Fund"), a
series of INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.) ("Bond
Funds"), in connection with the solicitation of proxies from Short-Term Bond
Fund shareholders by the Board of Bond Funds ("Board") for use at a special
meeting of shareholders to be held on May 20, 1999 ("Meeting"), and at any
adjournment of the Meeting. This Proxy Statement will first be mailed to
shareholders on or about March 23, 1999.
One-third of Short-Term Bond Fund's shares outstanding on March 12,
1999, represented in person or by proxy, shall constitute a quorum and must be
present for the transaction of business at the Meeting. If a quorum is not
present at the Meeting or a quorum is present but sufficient votes to approve
one or more of the proposals are not received, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies. Any such adjournment will require the affirmative vote of a majority
of those shares represented at the Meeting in person or by proxy. The persons
named as proxies will vote those proxies that they are entitled to vote FOR any
proposal in favor of such an adjournment and will vote those proxies required to
be voted AGAINST a proposal against such adjournment. A shareholder vote may be
taken on one or more of the proposals in this Proxy Statement prior to any such
adjournment if sufficient votes have been received and it is otherwise
appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and for which the broker does not have
discretionary voting authority. Abstentions and broker non-votes will be counted
as shares present for purposes of determining whether a quorum is present but
will not be voted for or against any adjournment or proposal. Accordingly,
abstentions and broker non-votes effectively will be a vote against adjournment
or against any proposal where the required vote is a percentage of the shares
present or outstanding. Abstentions and broker non-votes will not be counted,
however, as votes cast for purposes of determining whether sufficient votes have
been received to approve a proposal.
<PAGE>
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. In addition, if you sign, date and return the proxy card, but
give no voting instructions, 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 Bond
Funds prior to the Meeting and must indicate your name and account number. If
you attend the Meeting in person you may, if you wish, vote by ballot at the
Meeting, thereby canceling any proxy previously given.
In order to reduce costs, the notices to a shareholder having more than
one account in Short-Term 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"), Short-Term 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 Short-Term Bond Fund ("INVESCO"), and half by INVESCO
Select Income Fund ("Select Income Fund"), also a series of Bonds Funds, and
Short-Term 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 Short-Term Bond Fund or Select Income 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 Short-Term Bond Fund or Select
Income Fund (each a "Fund," collectively, the "Funds"). Directors and officers
of Bond Funds own in the aggregate less than 1% of the shares of Short-Term Bond
Fund.
Vote Required. Approval of Proposal 1 requires the affirmative vote of
a majority of the outstanding voting securities of Short-Term Bond Fund.
Approval of Proposal 2 requires the affirmative vote of a "majority of the
outstanding voting securities" of Short-Term Bond Fund, as defined in the
Investment Company Act of 1940, as amended ("1940 Act"). This means that
Proposal 2 must be approved by the lesser of (1) 67% of Short-Term Bond Fund's
2
<PAGE>
shares present at a meeting of shareholders if the owners of more than 50% of
Short-Term Bond Fund's shares then outstanding are present in person or by proxy
or (2) more than 50% of Short-Term Bond Fund's outstanding shares. A plurality
of the votes cast at the Meeting, and at concurrent meetings of the Shareholders
of the other series of Bond Funds, in the aggregate is sufficient to approve
Proposal 3. Approval of Proposal 4 requires the affirmative vote of a majority
of the votes present at the Meeting, provided a quorum is present. Each
outstanding full share of Short-Term 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 Short-Term 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 A PLAN OF REORGANIZATION AND REORGANIZATION
("REORGANIZATION PLAN") UNDER WHICH SELECT INCOME FUND WOULD ACQUIRE
THE ASSETS OF SHORT-TERM BOND FUND IN EXCHANGE SOLELY FOR SHARES OF
SELECT INCOME FUND AND THE ASSUMPTION BY SELECT INCOME FUND OF
SHORT-TERM BOND FUND'S LIABILITIES ("REORGANIZATION")
SYNOPSIS
The following is a summary of certain information contained elsewhere
in this Proxy Statement, the Prospectuses of the Funds (which are incorporated
herein by reference), and the Reorganization Plan (which is attached as Appendix
A to this Proxy Statement). Shareholders should read this Proxy Statement and
the Prospectus of Select Income Fund carefully. As discussed more fully below,
Bond Fund's Board believes that the Reorganization will benefit Short-Term Bond
Fund's shareholders. The Funds have similar investment objectives, although the
focus of the Funds' investment policies differ in that Short-Term Bond Fund's
investments are primarily in short-term debt securities (having maturities of 3
years or less) and intermediate-term debt securities (having maturities of 3 to
10 years) and maintains a diversified portfolio with a dollar-weighted average
maturity of not more than three years. Select Income Fund invests in securities
whose maturities will vary with interest rates. It is anticipated that,
following the Reorganization, the former shareholders of Short-Term Bond Fund
will, as shareholders of Select Income Fund, be subject to lower actual total
operating expenses as a percentage of net assets.
THE PROPOSED REORGANIZATION
Bond Fund's Board considered and approved the Reorganization Plan at a
meeting held on August 5, 1998. The Reorganization Plan provides for the
acquisition of all the assets of Short-Term Bond Fund by Select Income Fund, in
exchange solely for shares of common stock of Select Income Fund and the
assumption by Select Income Fund of all of the liabilities of Short-Term Bond
Fund. Short-Term Bond Fund then will distribute those shares to its
shareholders, so that each Short-Term Bond Fund shareholder will receive the
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number of full and fractional shares that is equal to the value of such
shareholder's holdings in Short-Term Bond Fund as of the Closing Date (defined
below). Short-Term Bond Fund then 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 (the
"Closing Date").
For the reasons set forth below under "The Proposed Transaction -
Reasons for the Reorganization," Bond Funds' Board, including its directors who
are not "interested persons," as that term is defined in the 1940 Act,
("Independent Directors"), of Bond Funds has determined that the Reorganization
is in the best interests of Short-Term Bond Fund, that the terms of the
Reorganization are fair and reasonable and that the interests of Short-Term Bond
Fund's shareholders will not be diluted as a result of the Reorganization.
Accordingly, Bond Fund's Board recommends approval of the transaction. In
addition, Bond Funds' Board, including its Independent Directors, has determined
that the Reorganization is in the best interests of Select Income Fund, that the
terms of the Reorganization are fair and reasonable and that the interests of
Select Income Fund's shareholders will not be diluted as a result of the
Reorganization.
COMPARATIVE FEE TABLE
Certain fees and expenses that Select Income Fund's shareholders pay,
directly or indirectly, are slightly higher than those incurred by Short-Term
Bond Fund's shareholders; however, the actual fund expenses of Short-Term Bond
Fund are higher than those of Select Income Fund. 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 for the fiscal
year ended August 31, 1998 by Select Income Fund and by Short-Term Bond Fund and
PRO FORMA fees for Select Income Fund after the Reorganization.
SHAREHOLDER FEES (fees paid directly from your investment)
<TABLE>
<CAPTION>
Select Income Fund Short-Term Bond Fund Combined Fund
------------------ -------------------- -------------
<S> <C> <C> <C>
Sales charge (load) on purchases of shares None None None
Sales charge (load) on reinvested dividends None None None
Redemption fee or deferred sales charge (load) None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Select Income Fund Short-Term Bond Fund Combined Fund
------------------ -------------------- (Pro Forma)
-----------
<S> <C> <C> <C>
Management Fees 0.53% 0.50% 0.53%
Distribution (12b-1) Fees* 0.25% 0.25% 0.25%
Other Expenses 0.32%(1)(2) 1.11%(1)(2) 0.33%
----- ----- -----
Total Fund Operating Expenses 1.10%(1)(2) 1.86%(1)(2) 1.11%
===== ===== =====
</TABLE>
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* Because each Fund pays distribution fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(1) Certain expenses of each Fund are being voluntarily absorbed by INVESCO.
Accordingly, "Other Expenses" and "Total Fund Operating Expenses" after adoption
for the fiscal year ended August 31, 1998 were 0.28% and 1.06%, respectively,
for the Select Income Fund, and 0.13% and 0.88%, respectively, for Short-Term
Bond Fund. Short-Term Bond Fund's actual expenses are more than those of Select
Income Fund. INVESCO does not intend to continue absorbing the expenses of
Short-Term Bond Fund. INVESCO will, however, continue to absorb the expenses of
Select Income Fund for a period of at least one year, so that Total Fund
Operating Expenses will not exceed 1.05%. Thus, if the Reorganization is not
approved, Short-Term Bond Fund's actual Other Expenses and Total Fund Operating
Expenses will likely increase.
(2) Each Fund's actual Total Fund Operating Expenses were lower than the figures
shown, because their transfer agent fees and/or custodian fees were reduced
under expense offset arrangements. Because of an SEC requirement, the figures
shown above do not reflect these reductions.
EXAMPLE OF EFFECT ON FUND EXPENSES
This Example is intended to help you compare the cost of investing in
Short-Term Bond Fund with the cost of investing in Select Income Fund and the
cost of investing in Select Income Fund assuming the Reorganization has been
completed.
The Example assumes that you invest $10,000 in the specified Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year, that all dividends and other distributions are reinvested and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Select Income Fund............. $113 $352 $ 609 $1,346
Short-Term Bond Fund........... $191 $590 $1,014 $2,195
Combined Fund (PRO FORMA)...... $114 $355 $ 615 $1,357
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
Select Income Fund and Short-Term Bond Fund are each a series of Bond
Funds, an open-end, diversified management investment company organized as a
Maryland corporation on April 2, 1993. Bond Funds' Articles of Incorporation
authorize the directors to issue up to six hundred million shares, par value
$0.01 per share. [Neither Fund issues share certificates]. Neither Fund is
required to (nor do they) hold annual shareholder meetings.
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<PAGE>
INVESTMENT ADVISER
INVESCO is the investment adviser of each Fund. In this capacity,
INVESCO supervises all aspects of each Fund's operations and makes and
implements all investment decisions for the Funds.
INVESCO, the investment adviser of each Fund, is currently paid a
monthly management fee, which is based upon a percentage of each Fund's average
net assets determined daily. The management fee is computed (1) by Short-Term
Bond Fund, at the annual rate of 0.50% on the first $300 million of the Fund's
average net assets; 0.40% on the next $200 million of the Fund's average net
assets; and 0.30% of the Fund's average net assets over $500 million, and (2) by
Select Income Fund, at the annual rate of 0.55% on the first $300 million of the
Fund's average net assets; 0.45% on the next $200 million of the Fund's average
net assets; and 0.35% on the Fund's average net assets over $500 million. Based
on Select Income Fund's average net assets of $383,433,955 for the year ended
August 31, 1998, Select Income Fund paid a management fee at the effective
annual rate of 0.53% of average daily net assets, which is more than the current
fee paid by Short-Term Bond Fund. Following the Reorganization, the initial
management fee for the combined Fund is expected to be 0.53% of the average net
assets, although this fee will decrease in accordance with the fee schedule for
Select Income Fund described above if the assets of the combined Fund increase.
Following the Reorganization, INVESCO, in its capacity as investment
adviser to Select Income 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.
Select Income Fund has an investment objective generally similar to that of
Short-Term Bond Fund in that each Fund seeks to provide investors with a high
level of current income. Potential capital appreciation is a secondary factor in
the selection of investments for Select Income Fund. Both Funds seek to achieve
their investment objective through investment in bonds and other debt
securities. Short-Term Bond Fund seeks to achieve the highest level of current
income as is consistent with minimum fluctuation in principal value and with
liquidity.
There can be no assurance that either Fund will achieve its investment
objective.
SELECT INCOME FUND. The investment objective of Select Income Fund is
to provide investors with as high a level of current income as is consistent
with the risk involved in investing in the types of securities in which the Fund
invests. Potential capital appreciation is a factor in the selection of
investments, but is secondary to the Fund's primary objective. Select Income
Fund normally invests at least 90% of its assets in bonds and marketable debt
securities (including convertible issues) of established companies which INVESCO
believes may provide high current income and which, consistent with its
objective, may have the potential to provide capital appreciation. Under normal
circumstances, at least 50% of the Fund's assets are invested in investment
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<PAGE>
grade debt securities -- those rated Baa or higher by Moody's Investors Service,
Inc. ("Moody's") or BBB or higher by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. ("S&P"). No more than 50% of the Fund's assets may
consist of bonds rated below investment grade (i.e., "junk bonds"), and
investments in unrated securities may not exceed 25% of the Fund's total assets.
Never, under any circumstances, is the Fund permitted to invest in bonds that
are rated below B by Moody's or B- by S&P.
Select Income Fund also may invest in securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities (which may or may not
be backed by the full faith and credit of the United States) and bank
certificates of deposit. In addition, Select Income Fund may invest in municipal
obligations when INVESCO believes that their potential returns are better than
those that might be achieved by investing in securities of corporate or U.S.
governmental issuers.
As a matter of policy, 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. However, there are no limitations on the maturities of the securities
held by Select Income Fund, and its average maturity will vary as INVESCO
responds to changes in interest rates.
SHORT-TERM BOND FUND. Short-Term Bond Fund seeks to achieve the highest
level of current income as is consistent with minimum fluctuation in principal
value and with maintaining liquidity.
The Fund normally invests at least 65% of its total assets in bonds and
debentures. The Fund may invest in all types of variable and fixed rate
corporate, government and government agency debt securities. The government and
government agency securities in which the Fund invests may or may not be backed
by the full faith and credit of the United States.
Holdings are selected primarily from two maturity ranges: short-term
(obligations maturing in under three years) and intermediate-term (obligations
maturing in three to 10 years). The Fund maintains a diversified portfolio with
a dollar-weighted average maturity of three years or less. This average is based
on the actual stated maturity dates of the debt securities in the Fund's
portfolio, except for debt securities having special features that give them the
characteristics of shorter-term obligations. For example, variable rate
securities, on which coupon rates of interest are adjusted on specified dates in
response to changes in interest rates, are deemed to mature at their next
interest rate adjustment date. In addition, debt securities with "put" features
entitling the Fund to repayment of principal on specified dates are deemed to
mature at the next put exercise date. When INVESCO deems it appropriate, the
Fund may invest in debt securities having maturities in excess of 10 years.
Debt securities will be selected based on INVESCO's assessment of
interest rate trends and the liquidity of various instruments under prevailing
market conditions. The potential for capital appreciation is an incidental
factor that also may be considered.
The Fund may buy and sell interest rate futures contracts relating to
the debt securities in which the Fund invests for the purpose of hedging the
value of its securities portfolio.
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<PAGE>
OTHER POLICIES OF BOTH FUNDS. Each Fund may invest up to 25% of its
total assets in securities of foreign issuers. Each Fund may purchase securities
on a when-issued or delayed delivery basis -- that is, with settlement taking
place up to 90 days in the future. Each Fund is authorized to lend up to 33 1/3%
of the total value of its portfolio securities to qualified brokers, dealers,
banks or other financial institutions that INVESCO deems qualified.
Neither Fund may purchase illiquid securities, but each Fund is
authorized to invest in restricted securities that may be sold to institutional
investors. Each Fund is authorized to invest in zero-coupon securities. Both
Funds may also enter into repurchase agreements with commercial banks,
registered broker-dealers, and registered U.S. government securities dealers
that are deemed creditworthy by the Funds' board of directors.
Each Fund's investment portfolio is actively traded -- securities may
be bought and sold relatively quickly during certain market or economic
conditions. The Funds' portfolio turnover rates generally exceed 100%, and may
exceed 200%, resulting in greater brokerage commissions and acceleration of
capital gains, which are taxable when distributed to shareholders.
When INVESCO believes market or economic conditions are adverse, Select
Income Fund may assume a defensive position by temporarily investing up to 100%
of its assets in cash and debt securities having maturities of less than three
years at the time of issuance, seeking to protect its assets until conditions
stabilize. Similarly, when INVESCO believes market or economic conditions are
adverse, Short-Term Bond Fund may seek to protect its assets by investing to a
greater extent in cash securities and shorter-term securities such as commercial
paper and notes, bank certificates of deposit and other financial institution
obligations and repurchase agreements.
Each Fund may borrow money for temporary or emergency purposes; neither
Fund may borrow in excess of 10% of net assets.
OPERATIONS OF SELECT INCOME FUND FOLLOWING THE REORGANIZATION
As indicated above, the investment objectives and policies of the two
Funds are similar, although the focus of Short-Term Bond Fund is on investments
in short- and intermediate-term debt instruments, and its authority to invest in
lower-rated debt securities is much more limited than the authority of Select
Income Fund to do so. In addition, Short-Term Bond Fund has the authority to buy
and sell interest rate futures contracts relating to the securities in which it
invests, while Select Income Fund currently has no such authority. It is not
expected, however, that Select Income Fund will revise its investment policies
following the Reorganization to reflect those of Short-Term Bond Fund. Based on
its review of the investment portfolios of each Fund, INVESCO believes that all
of the assets held by Short-Term Bond Fund will be consistent with the
investment policies of Select Income Fund and thus can be transferred to and
held by Select Income Fund if the Reorganization is approved. If the
Reorganization Plan is approved, however, and Short-Term Bond Fund has assets
that may not be held by Select Income Fund, Short-Term Bond Fund will sell any
8
<PAGE>
assets that are not consistent with Select Income 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 Select
Income Fund. The possible need for Short-Term Bond Fund to dispose of assets
prior to the Reorganization could result in selling securities at a
disadvantageous time and could result in Short-Term Bond Fund's realizing losses
that would not otherwise have been realized. Alternatively, these sales could
result in Short-Term Bond Fund's realizing gains that would not otherwise have
been realized, the net proceeds of which would be included in a distribution to
its shareholders prior to the Reorganization.
As discussed above, INVESCO serves as investment adviser to both Funds.
After the Reorganization, INVESCO, the directors and officers of Select Income
Fund and its distributor and other outside agents will continue to serve Select
Income 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 to Buy Shares" in either the Select
Income Fund Prospectus or the Short-Term Bond Fund Prospectus.
REDEMPTIONS. Shares of each Fund may be redeemed by telephone, by mail,
by exchange, by periodic withdrawal plan, or by payment to a third party. Such
redemptions are made at the NAV per share of each Fund next determined after a
request in proper form is received at the Fund's office. Normally, payments of
redemption proceeds will be mailed within seven days following receipt of the
required documents. For a more complete discussion of share redemption
procedures, see "How to Sell Shares" in either the Select Income Fund Prospectus
or the Short-Term Bond Fund Prospectus.
Short-Term Bond Fund shares will no longer be available for purchase
beginning on the Business Day following the date on which the Reorganization is
approved and all contingencies have been met (the Closing Date). Redemptions of
Short-Term Bond Fund's shares may be effected through the Closing Date.
EXCHANGES
Shares of the Funds are exchangeable for shares of another INVESCO
Fund, on the basis of their respective NAVs at the time of the exchange. After
the Reorganization, shares of Select Income Fund will continue to be
exchangeable for shares of another INVESCO Fund. For a more complete discussion
of the Funds' exchange policies, see "How to Sell Shares" in either the Select
Income Fund Prospectus or the Short-Term Bond Fund Prospectus.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund earns investment income in the form of interest and dividends
on investments. Dividends paid by each Fund will be based solely on its
9
<PAGE>
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 the Bond Funds'
Board. Dividends are automatically reinvested in additional shares of a Fund at
the net asset value on the ex-dividend date unless otherwise requested.
Each Fund also realizes capital gains and losses when it sells
securities or derivatives for more or less than it paid. If total gains on these
sales exceed total losses (including losses carried forward from previous
years), a Fund has capital gain net income. Net realized capital gains, if any,
together with net gains realized on certain foreign currency transactions, if
any, are distributed to shareholders at least annually, usually in December.
On or before the Closing Date, Short-Term 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
Bond Funds will receive an opinion of its counsel, Kirkpatrick &
Lockhart LLP, to the effect that the Reorganization will constitute a tax-free
reorganization within the meaning of section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended ("Code"). Accordingly, neither Fund nor any of
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 Select Income Fund is subject to specific risks
arising from the types of securities in which the Fund invests and general risks
arising from investing in any mutual fund. The principal specific risks
associated with investing in Select Income Fund include:
DEBT SECURITIES. Select Income Fund's investments in debt securities
generally are subject to both credit risk and market risk. Credit risk relates
to the ability of the issuer to meet interest or principal payments, or both, as
they come due. Market risk relates to the fact that the market values of the
debt securities generally will be affected by changes in the level of interest
rates. An increase in interest rates will tend to reduce the market values of
outstanding debt securities, whereas a decline in interest rates will tend to
increase their values. Debt securities with longer maturities (such as those
that may be held by Select Income Fund) are more sensitive to interest rate
movements.
RISK OF LOWER RATED BONDS. Select Income Fund may invest in issues
rated below investment grade quality (commonly called "junk bonds"), that are
rated Ba or lower by Moody's or BB or lower by S&P, or if unrated, are judged by
INVESCO to be of equivalent quality. These include issues which are of poorer
quality and may have some speculative characteristics according to the ratings
services.
10
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The lower a bond's quality, the more it is believed by the rating
service to be subject to credit risk and market risk and the more speculative it
becomes; this is also true of most unrated securities. To reduce these risks, at
least 50% of Select Income Fund's assets normally are invested in debt
securities rated Baa or above by Moody's or BBB or above by S&P. In addition,
Select Income Fund may invest in corporate short-term notes rated at least
Prime-1 by Moody's or A-1 by S&P. Overall, these bonds and notes enjoy strong to
adequate capacity to pay principal and interest. No more than 50% of Select
Income Fund's assets nor 15% of Short-Term Bond Fund's total assets may be
invested in junk bonds. Investments in unrated securities may not exceed 25% of
Select Income Fund's total assets. Never, under any circumstances, is Select
Income Fund permitted to invest in bonds which are rated below B by Moody's or
B- by S&P. Bonds rated below B or B- generally lack characteristics of a
desirable investment and are deemed speculative with respect to the issuer's
capacity to pay interest and repay principal over a long period of time.
FOREIGN SECURITIES. Select Income Fund may invest up to 25% of its
assets in foreign securities. Investments in foreign securities are influenced
not only by the returns on the foreign investments themselves, but also by
currency fluctuations. In addition, there is generally less publicly available
information, reports and ratings about foreign companies and other foreign
issuers than that which is available about companies and issuers in the United
States. Foreign issuers are also generally subject to fewer uniform accounting,
auditing and financial reporting standards, practices and requirements as
compared to those applicable to U.S. issuers. The Fund's adviser normally
purchases foreign securities in over-the-counter markets or on foreign
exchanges, which are generally not as developed or efficient as those in the
United States and are subject to less government supervision and regulation.
Moreover, with respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of a
fund, political or social instability, or diplomatic developments that could
affect U.S. investments in those countries. Investments in American Depository
Receipts ("ADRs") are subject to some of the same risks as direct investments in
foreign securities, including the risk that material information about the
issuer may not be disclosed in the United States and the risk that currency
fluctuations may adversely affect the value of the ADR.
DELAYED DELIVERY OR WHEN-ISSUED SECURITIES. Select Income Fund may
invest in when-issued or delayed delivery securities, that is, with settlement
taking place up to 90 days in the future. The payment obligation and the
interest rate received on the securities generally are fixed at the time the
Fund enters into the commitment. Between the date of purchase and the settlement
date, the market value of the securities may vary, and no interest is payable to
the Fund prior to settlement.
REPURCHASE AGREEMENTS. Select Income Fund may invest money, for as
short a time as overnight, using repurchase agreements ("repos"). With a repo,
the Fund buys a debt instrument, agreeing simultaneously to sell it back to the
prior owner at an agreed-upon price and date. The Fund could incur costs or
delays in seeking to sell the security if the prior owner defaults on its
repurchase obligation. To reduce that risk, the securities that are the subject
of the repurchase agreement will be maintained with the Fund's custodian in an
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<PAGE>
amount at least equal to the repurchase price under the agreement (including
accrued interest). These agreements are entered into only with member banks of
the Federal Reserve System, registered brokers and dealers, and registered U.S.
government securities dealers that are deemed creditworthy under standards set
by the Company's Board.
ZERO COUPON AND PAYMENT-IN-KIND BONDS. Select Income Fund may invest in
zero coupon bonds and payment-in-kind ("PIK") bonds if INVESCO determines that
the risk of a default on the security, which could result in adverse tax
consequences, is not significant. Zero coupon bonds make no periodic interest
payments. Instead, they are sold at a discount from their face value. The buyer
of the security receives the rate of return by the gradual appreciation in the
price of the security, which is redeemed at face value at maturity. PIK bonds
pay interest in cash or additional securities, at the issuer's option, for a
specified period. Zero coupon and PIK bonds are more sensitive to changes in
interest rates than bonds that pay interest on a current basis in cash. When
interest rates fall, the value of these types of bonds will increase more
rapidly, and when interest rates rise, their value falls more dramatically, than
the value of other types of bonds. The Fund may be required to distribute income
recognized on these bonds, even though no cash interest payments are received,
which could reduce the amount of cash available for investment by the Fund.
TURNOVER RATE. Select Income Fund's investment portfolio is actively
traded. There are no fixed limitations regarding turnover for the Fund;
securities may be sold without regard to the time they have been held when
investment considerations warrant such action. The Fund's portfolio turnover
rate may be higher than that of many other mutual funds, sometimes exceeding
200%. This turnover may result in greater brokerage commissions and acceleration
of capital gains, which are taxable when distributed to shareholders.
YEAR 2000. Many computer systems in use today may not be able to
recognize any date after December 31, 1999. If these systems are not fixed by
that date, it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own computer systems will continue to function on and after
January 1, 2000. In addition, the markets for, or value of securities in which
the Fund invests may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000. For example,
improperly functioning systems could result in securities trade settlement
problems and liquidity issues, production issues for individual companies and
overall economic uncertainties. Individual issuers may incur increased costs in
making their own systems Year 2000 compliant. The combination of market
uncertainty and increased costs means that there is a possibility that Year 2000
issues may adversely affect the Fund's investments.
Because Short-Term Bond Fund's investment objective and policies are
similar to those of Select Income Fund, an investment in Short-Term Bond Fund is
also subject to many of the same specific risks as an investment in Select
Income Fund. In particular, Short-Term Bond Fund is also subject to the risk of
lower-rated securities and market risk, although in each case, its risk is
considerably lower than the risk in that area for Select Income Fund. Select
Income Fund has a greater exposure to the risk of lower-rated securities, as it
has a far greater authority (i.e., up to 50% of assets, compared to only 15% for
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Short-Term Bond Fund) to invest in such securities than Short-Term Bond Fund
does. As indicated above, Select Income Fund invests at least 65% of its total
assets in debt securities maturing at least three years after they are issued,
while Short-Term Bond Fund typically invests in debt securities with shorter
maturities. Select Income Fund, therefore, is more subject to market risk.
Although Short-Term Bond Fund's investment portfolio is also actively traded,
its portfolio turnover rate is generally lower than that of Select Income Fund
(although it exceeded 300% in 1997).
See "Investment Policies and Risks" in the Prospectuses of Select
Income Fund and Short-Term Bond Fund for a more complete description of
investment risks.
THE PROPOSED TRANSACTION
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction will be
consummated are set forth in the Reorganization Plan. Significant provisions of
the Reorganization Plan are summarized below; however, this summary is qualified
in its entirety by reference to the Reorganization Plan, which is attached as
Appendix A to this Proxy Statement.
The Reorganization Plan contemplates (a) the acquisition by Select
Income Fund on the Closing Date of the assets of Short-Term Bond Fund in
exchange solely for Select Income Fund shares and the assumption by Select
Income Fund of Short-Term Bond Fund's liabilities and (b) the distribution of
Select Income Fund shares to the shareholders of Short-Term Bond Fund.
The assets of Short-Term Bond Fund to be acquired by Select Income 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 Short-Term Bond Fund's
books and all other property owned by Short-Term Bond Fund. Select Income Fund
will assume from Short-Term Bond Fund all liabilities, debts, obligations and
duties of Short-Term Bond Fund of whatever kind or nature; provided, however,
that Short-Term Bond Fund will use its best efforts to discharge all of its
known debts, liabilities, obligations and duties before the Closing Date. Select
Income Fund will deliver its shares to Short-Term Bond Fund, which then will be
constructively distributed to Short-Term Bond Fund's shareholders.
The value of Short-Term Bond Fund's assets to be acquired by Select
Income Fund and the net asset value of a share of Select Income Fund 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. Short-Term Bond Fund's net value shall be
the value of its assets to be acquired by Select Income Fund, less the amount of
Short-Term Bond Fund's liabilities, as of the Valuation Time.
On, or as soon as practicable after, the Closing Date, Short-Term Bond
Fund will distribute the Select Income Fund shares it receives PRO RATA to its
shareholders of record as of the effective time of the Reorganization, so that
each Short-Term Bond Fund shareholder will receive a number of full and
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<PAGE>
fractional Select Income Fund shares equal in value to the shareholder's
holdings in Short-Term Bond Fund. Short-Term Bond Fund will be terminated as
soon as practicable thereafter. The shares will be distributed by opening
accounts on the books of Select Income Fund in the names of Short-Term Bond Fund
shareholders and by transferring to those accounts the shares previously
credited to the account of Short-Term Bond Fund on those books. Fractional
shares in Select Income Fund will be rounded to the third decimal place.
Accordingly, immediately after the Reorganization, each former
shareholder of Short-Term Bond Fund will own Select Income Fund shares that will
be equal in value to that shareholder's Short-Term Bond Fund shares immediately
prior to the Reorganization. Moreover, because Select Income Fund shares will be
issued at net asset value in exchange for the net assets of Short-Term Bond
Fund, the aggregate value of Select Income Fund shares issued to Short-Term Bond
Fund shareholders will equal the aggregate value of Short-Term Bond Fund shares.
The net asset value per share of Select Income Fund will be unchanged by the
transaction. Thus, the Reorganization will not result in a dilution of any
shareholder's interest.
Any transfer taxes payable upon issuance of Select Income Fund shares
in a name other than that of the registered holder of the shares on the books of
Short-Term Bond Fund shall be paid by the person to whom those shares are to be
issued as a condition of such transfer. Any reporting responsibility of
Short-Term 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 Select Income Fund and Short-Term Bond Fund. The Board of Bond Funds
considered the fact that INVESCO will pay half of these expenses in approving
the Reorganization and finding that the Reorganization is in the best interests
of the Funds.
The consummation of the Reorganization is subject to a number of
conditions set forth in the Reorganization Plan, some of which may be waived by
either Fund. In addition, the Reorganization Plan may be amended in any mutually
agreeable manner, except that no amendment may be made subsequent to the Meeting
that has a material adverse effect on the interests of Short-Term Bond Fund's
shareholders.
REASONS FOR THE REORGANIZATION
Bond Funds' Board, including a majority of the Independent Directors,
has determined that the Reorganization is in the best interests of each Fund,
that the terms of the Reorganization are fair and reasonable and that the
interests of each Fund's shareholders will not be diluted as a result of the
Reorganization.
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<PAGE>
In approving the Reorganization, Bond Funds' Board, including a
majority of the Independent Directors, considered a number of factors, including
the following:
(1) the compatibility of the investment objectives, policies
and restrictions of the Funds;
(2) the effect of the Reorganization on expected investment
performance of the Funds;
(3) the effect of the Reorganization on the expense ratio of
Select Income 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;
(6) possible alternatives to the Reorganization, including whether
Short-Term 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 Bond Funds' Board by INVESCO at
a Board meeting held on August 5, 1998. In recommending the Reorganization,
INVESCO advised the Board that the investment management fee schedule applicable
to Select Income Fund would be slightly higher than that currently in effect for
Short-Term Bond Fund, but that the actual "Other Expenses" and "Total Expenses"
of Short-Term Bond Fund are higher than those of Select Income Fund. (See "Other
Expenses" on page 4.) INVESCO also advised the Board that, if the Reorganization
is not approved, INVESCO will no longer continue to absorb expenses for
Short-Term Bond Fund, as it has done over the past 5 years, because the Fund
has failed to attract significant assets. The directors were advised by INVESCO
that, because Select Income Fund has greater net assets than Short-Term Bond
Fund, combining the two Funds should reduce the expenses borne by the
shareholders of Short-Term Bond Fund as a percentage of net assets. The Board
was also advised that following the Reorganization, the expense ratio for Select
Income Fund may possibly decrease because the investment management fee paid by
that Fund decreases as its size increases.
DESCRIPTION OF SECURITIES TO BE ISSUED
Select Income Fund is registered with the SEC as a series of Bond
Funds, an open-end management investment company. It has an authorized
capitalization of one hundred million shares of common stock (par value $0.01
per share). Shares of Select Income Fund entitle their holders to one vote per
full share and fractional votes for fractional shares held.
Select Income 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
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<PAGE>
annual or special meetings of shareholders for action by shareholder vote as may
be required by the 1940 Act or Bond Funds' Articles of Incorporation, or at
their discretion.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of Short-Term 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, Short-Term Bond Fund's
shareholders will be agreeing to waive, only for the purpose of the
Reorganization, those fundamental investment restrictions that could prohibit or
otherwise impede the transaction.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Short-Term Bond Fund's assets for Select Income Fund
shares and Select Income Fund's assumption of Short-Term 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. Bond Funds will receive
an opinion of its counsel, Kirkpatrick & Lockhart LLP, substantially to the
effect that:
(1) Select Income Fund's acquisition of Short-Term Bond Fund's
assets in exchange solely for Select Income Fund shares and
Select Income Fund's assumption of Short-Term Bond Fund's
liabilities, followed by Short-Term Bond Fund's distribution
of those shares pro rata to its shareholders constructively
in exchange for their Short-Term 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) Short-Term Bond Fund will recognize no gain or loss on the
transfer to Select Income Fund of its assets in exchange
solely for Select Income Fund shares and Select Income Fund's
assumption of Short-Term Bond Fund's liabilities or on the
subsequent distribution of those shares to Short-Term Bond
Fund's shareholders in constructive exchange for their
Short-Term Bond Fund shares;
(3) Select Income Fund will recognize no gain or loss on its
receipt of the transferred assets in exchange solely for
Select Income Fund shares and its assumption of Short-Term
Bond Fund's liabilities;
(4) Select Income Fund's basis for the transferred assets will be
the same as the basis thereof in Short-Term Bond Fund's hands
immediately before the Reorganization, and Select Income
Fund's holding period for those assets will include Short-Term
Bond Fund's holding period therefor;
(5) A Short-Term Bond Fund shareholder will recognize no gain or
loss on the constructive exchange of all its Short-Term Bond
Fund shares solely for Select Income Fund shares pursuant to
the Reorganization; and
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<PAGE>
(6) A Short-Term Bond Fund shareholder's aggregate basis for the
Select Income Fund shares to be received by it in the
Reorganization will be the same as the aggregate basis for its
Short-Term Bond Fund shares to be constructively surrendered
in exchange for those Select Income Fund shares, and its
holding period for those Select Income Fund shares will
include its holding period for those Short-Term 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 Short-Term 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, and on a pro forma combined basis (unaudited) as of August 31, 1998,
giving effect to the Reorganization:
<TABLE>
<CAPTION>
Combined Fund
Select Income Fund Short-Term Bond Fund (Pro Forma)
------------------ -------------------- ---------
<S> <C> <C> <C>
Net Assets............................. $502,624,280 $24,467,164 $527,091,444
Net Asset Value Per Share.............. $6.68 $9.59 $6.68
Shares Outstanding..................... 75,300,011 2,550,753 78,962,760
</TABLE>
REQUIRED VOTE. Approval of the Reorganization requires the affirmative
vote of a majority of the outstanding voting securities of Short-Term 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
RESTRICTIONS OF SHORT-TERM BOND FUND
As required by the 1940 Act, Short-Term Bond Fund has adopted certain
fundamental investment restrictions ("fundamental restrictions"), which are set
forth in the Fund's Statement of Additional Information. These fundamental
restrictions may be changed only with shareholder approval. Restrictions and
policies that the Fund has not specifically designated as fundamental are
considered to be "non-fundamental" and may be changed by the Board of Bond Funds
without shareholder approval.
Some of Short-Term Bond Fund's fundamental restrictions reflect past
regulatory, business or industry conditions, practices or requirements that are
no longer in effect. Also, as other INVESCO Funds have been created over the
years, they have adopted substantially similar fundamental restrictions that
often have been phrased in slightly different ways, resulting in minor but
unintended differences in effect or potentially giving rise to unintended
differences in interpretation. Accordingly, the Board of Bond Funds has approved
revisions to Short-Term Bond Fund's fundamental restrictions in order to
simplify, modernize and make the Fund's fundamental restrictions more uniform
with those of the other INVESCO Funds.
The Board believes that eliminating the disparities among the INVESCO
Funds' fundamental restrictions will enhance management's ability to manage the
funds' assets efficiently and effectively in changing regulatory and investment
environments and permit directors to review and monitor investment policies more
easily. In addition, standardizing the fundamental restrictions of the INVESCO
Funds will assist the INVESCO Funds in making required regulatory filings in a
more efficient and cost-effective way. Although the proposed changes in
fundamental restrictions will allow Short-Term 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
Short-Term 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 Short-Term Bond Fund shareholders at the Meeting, the
proposed changes in Short-Term Bond Fund's fundamental restrictions will be
adopted by the Fund only if the Reorganization is not approved by Short-Term
Bond Fund shareholders. In that event, Short-Term Bond Fund's Statement of
Additional Information will be revised to reflect those changes as soon as
practicable following the Meeting. If the Reorganization is approved, the
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<PAGE>
proposed changes in the Fund's fundamental restrictions will not be implemented.
Instead, as described in Proposal 1, Short-Term Bond Fund shareholders will
become shareholders of Select Income Fund, whose shareholders are being asked to
approve substantially similar changes in Select Income Fund's fundamental
restrictions, and Short-Term Bond Fund will be terminated.
a. ELIMINATION OF FUNDAMENTAL RESTRICTION ON SHORT SALES AND
MARGIN PURCHASES AND ADOPTION OF NON-FUNDAMENTAL RESTRICTION
ON SHORT SALES AND MARGIN PURCHASES
Short-Term Bond Fund's current fundamental restriction on selling short
and buying on margin is as follows:
The Fund may not sell short or buy on margin.
The Board recommends that shareholders vote to eliminate this
fundamental restriction. If the proposal is approved by shareholders, 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 restriction does not prevent
the Fund from entering into short positions in foreign
currency, futures contracts, options, forward contracts,
swaps, caps, floors, collars and other financial
instruments, (ii) the Fund may obtain such short-term
credits as are necessary for the clearance of transactions,
and (iii) the Fund may make margin payments in connection
with futures contracts, options, forward contracts, swaps,
caps, floors, collars and other financial instruments.
The proposed changes clarify the wording of the restriction and expand
the restriction, which generally prohibits the Fund from selling securities
short or buying securities 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 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
restriction prohibits the Fund from purchasing securities on margin or selling
short but does 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 of Directors believes that elimination of the fundamental
restriction and the adoption of the non-fundamental restrictions will provide
the Fund with greater investment flexibility.
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<PAGE>
b. MODIFICATION OF FUNDAMENTAL RESTRICTION ON BORROWING AND
ADOPTION OF NON-FUNDAMENTAL RESTRICTION ON BORROWING
Short-Term Bond Fund's current fundamental restriction concerning
borrowing states:
The Fund may not mortgage, pledge or hypothecate portfolio
securities or borrow money, except from banks for temporary or
emergency purposes (but not for investment) and then in an
amount not exceeding 10% of the value of its total net assets.
The Fund will not purchase additional securities while any
borrowings on behalf of such Fund exist; provided, however,
that this restriction shall not be deemed to affect Short-Term
Bond Fund's entering into futures contracts or options
transactions in accordance with the Fund's investment
policies.
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 is significantly more
limiting than the restrictions imposed by the 1940 Act in that it limits the
purposes for which Short-Term Bond Fund may borrow money, and limits all
borrowings to 10% of the Fund's assets. The proposal eliminates the fundamental
nature of the restrictions on the purposes for which the Fund may borrow money
and increases the Fund's fundamental borrowing authority from 10% to 331/3% of
the Fund's total assets. The proposed revision also eliminates the prohibition
on mortgaging, pledging or hypothecating Fund securities.
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 (2) (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
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<PAGE>
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.
c. ADOPTION OF A FUNDAMENTAL RESTRICTION ON ISSUANCE OF SENIOR
SECURITIES
Short-Term Bond Fund currently has no fundamental restriction regarding
the issuance of senior securities. The Board recommends that shareholders vote
to adopt the following fundamental restriction:
The Fund may not issue senior securities, except as permitted
under the Investment Company Act of 1940.
The primary purpose of the proposal is to adopt a fundamental
restriction indicating the extent to which the Fund may issue "senior
securities," a term that is generally defined to refer to fund obligations that
have a priority over the fund's shares with respect to the distribution of fund
assets or the payment of dividends. The Board believes that the adoption of the
proposed fundamental restriction, which does not specify the manner in which
senior securities may be issued and is no more limiting than is required under
the 1940 Act, would maximize the Fund's borrowing flexibility for future
contingencies and would conform to the fundamental restrictions of the other
INVESCO Funds on the issuance of senior securities.
d. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN
ANOTHER INVESTMENT COMPANY AND ADOPTION OF A NON-FUNDAMENTAL
RESTRICTION REGARDING INVESTMENT IN SECURITIES ISSUED BY OTHER
INVESTMENT COMPANIES
Short-Term Bond Fund's current fundamental restriction concerning
investments in other investment companies states:
The Fund may not invest in the securities of any other
investment company except for a purchase or acquisition in
accordance with a plan of reorganization, merger or
consolidation.
The Board recommends that shareholders vote to replace this fundamental
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 Short-Term Bond Fund's current fundamental
restriction would ensure that the INVESCO Funds have uniform policies permitting
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<PAGE>
each Fund to adopt a "master/feeder" structure whereby one or more Funds invest
all of their assets in another Fund. The master/feeder structure has the
potential, under certain circumstances, to minimize administration costs and
maximize the possibility of gaining a broader investor base. Currently, none of
the INVESCO Funds intend to establish a master/feeder structure; however, the
Board recommends that Short-Term Bond Fund shareholders adopt a restriction 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
much 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
pursuant to an exemption granted by the SEC.
e. MODIFICATION OF FUNDAMENTAL RESTRICTION ON ISSUER
DIVERSIFICATION
Short-Term Bond Fund's current fundamental restriction on issuer
diversification states:
The Fund may not purchase securities if the purchase would
cause the Fund to have at the time more than 5% of the value
of its total assets invested in securities of any one issuer
or to own more than 10% of the outstanding voting securities
of any one issuer (except obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities). For
this purpose, all indebtedness of an issuer shall be deemed a
single class of security.
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.
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<PAGE>
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. INVESCO may use the increased
flexibility and will only invest more than 5% of the Fund's total assets in an
issuer's securities when it believes the securities' potential return justifies
the risks associated with the higher level of investment.
The amended fundamental restriction would also 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 above, 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.
f. MODIFICATION OF FUNDAMENTAL RESTRICTION ON LOANS
Short-Term Bond Fund's current fundamental restriction concerning
lending is as follows:
The Fund may not make loans to any person, except through the
purchase of debt securities in accordance with the investment
policies of the Fund, or the lending of portfolio securities
to broker-dealers or other institutional investors, or the
entering into repurchase agreements with member banks of the
Federal Reserve System, registered broker-dealers and
registered government securities dealers. The aggregate value
of all portfolio securities loaned may not exceed 33-1/3% of
the Fund's total net assets (taken at current value). [No more
than 10% of the Fund's total net assets may be invested in
repurchase agreements maturing in more than seven days;]
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<PAGE>
The Board recommends that the shareholders of the Fund vote to replace
this restriction with the following fundamental restriction:
The Fund may not lend any security or make any loan if, as a
result, more than 33 1/3% of its total assets would be lent to
other parties, but this limitation does not apply to the
purchase of debt securities or to repurchase agreements.
The primary purpose of the proposal is to eliminate the restriction
regarding repurchase agreements and to conform to the 1940 Act requirements
regarding the lending of securities. The Board believes that the adoption of the
proposed fundamental restriction is no more limiting than is required under the
1940 Act. In addition, the Board believes the proposal will provide greater
flexibility, maximize the Fund's lending capabilities and conform to the
fundamental restrictions of other INVESCO Funds on the lending of Fund
securities.
g. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN
COMMODITIES
Short-Term Bond Fund's current fundamental restriction concerning
commodities investments is as follows:
The Fund may not, other than entering into future contracts or
options transactions, in accordance with the Fund's investment
policies, buy or sell commodities, commodity contracts or real
estate (however, securities of companies investing in real
estate may be purchased).
The Board recommends that the shareholders vote to replace this
restriction with the following fundamental restriction:
The Fund may not purchase or sell physical commodities;
however, this policy shall not prevent the Fund from
purchasing and selling foreign currency, futures contracts,
options, forward contracts, swaps, caps, floors, collars and
other financial instruments.
The proposed changes to this investment restriction are intended to
conform the restriction to those of the other INVESCO Funds and ensure that
Short-Term 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
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<PAGE>
use of derivative products, even if the current non-fundamental restrictions of
the Fund would not permit investment in one or more of the permitted
transactions.
h. ADOPTION OF A FUNDAMENTAL RESTRICTION ON REAL ESTATE
INVESTMENTS
Short-Term Bond Fund currently has no fundamental restriction
concerning investment in real estate, although its fundamental restriction with
respect to commodities investments, as noted above, currently states:
The Fund may not buy or sell commodities, commodity contracts
or real estate (however, securities of companies investing in
real estate may be purchased).
The Board recommends that the shareholders vote to replace this
restriction with the following fundamental restriction:
The Fund may not purchase or sell real estate unless acquired
as a result of ownership of securities or other instruments
(but this shall not prevent the Fund from investing in
securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
In addition to conforming Short-Term Bond Fund's fundamental
restriction to that of the other INVESCO Funds, the proposed amendment of the
Fund's fundamental restriction on investment in real estate more completely
describes the types of real estate-related securities investments that are
permissible for the Fund. Adoption of the proposed fundamental restriction is
not expected to affect the securities in which the Fund invests.
i. ELIMINATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN
COMPANIES FOR THE PURPOSE OF EXERCISING CONTROL OR MANAGEMENT
Short-Term Bond Fund's current fundamental restriction regarding
investing in companies for the purpose of exercising control or management is as
follows:
The Fund may not invest in any company for the purpose of
exercising control or management.
The Board recommends that shareholders of the Fund 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.
j. ELIMINATION OF FUNDAMENTAL RESTRICTIONS ON INVESTMENTS IN
SECURITIES THAT ARE NOT "READILY MARKETABLE," ELIMINATION OF
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FUNDAMENTAL RESTRICTION ON ENTERING INTO REPURCHASE
AGREEMENTS, AND ADOPTION OF NON-FUNDAMENTAL RESTRICTION ON
INVESTING IN ILLIQUID SECURITIES
Short-Term Bond Fund's current fundamental restriction concerning
illiquid securities is as follows:
The Fund may not buy other than readily marketable securities.
In addition, the Fund's current fundamental restriction regarding
repurchase agreements is as follows:
The Fund may not enter into repurchase agreements maturing in
more than seven days if, as a result, such repurchase
agreements, together with securities for which there are
readily available market quotations, would constitute more
than 10% of the Fund's total net assets.
The Board recommends that shareholders vote to eliminate these
restrictions. 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. Currently, the Fund's fundamental restriction limits investment in
securities that are not "readily marketable," including illiquid securities. The
proposed non-fundamental restriction would clarify that the Fund may invest in
illiquid securities and it would restrict investment in such securities to 15%
of the Fund's net assets, as under the 1940 Act. The proposal also eliminates
the specific limitation regarding entering into repurchase agreements maturing
in more than seven days because such agreements are routinely treated as
illiquid securities by the SEC. The Board believes that the proposed elimination
of the fundamental restrictions and subsequent adoption of the non-fundamental
restriction will make the restriction more accurately reflect market conditions
and will maximize the Fund's flexibility for future contingencies. The Board may
delegate to INVESCO, the Fund's investment adviser, the authority to determine
whether a security is liquid for the purposes of this fundamental restriction.
26
<PAGE>
k. MODIFICATION OF FUNDAMENTAL RESTRICTION ON UNDERWRITING
Short-Term Bond Fund's current fundamental restriction concerning
underwriting securities is as follows:
The Fund may not engage in the underwriting of any 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 primary purpose of the proposal is to eliminate minor differences
in the wording of the Funds' current fundamental restriction on underwriting for
greater uniformity with the fundamental restrictions of other INVESCO Funds.
l. ELIMINATION OF FUNDAMENTAL RESTRICTION ON FUND OWNERSHIP OF
SECURITIES ALSO OWNED BY DIRECTORS AND OFFICERS OF THE FUND OR
ITS INVESTMENT ADVISER
Short-Term Bond Fund's current fundamental restriction concerning Fund
ownership of securities also owned by directors and officers of the Fund or its
investment adviser is as follows:
The Fund may not purchase securities of any company in which
any officer or director of the Fund or of its investment
adviser beneficially owns more than 1/2 of 1% of the
outstanding securities or in which all of the officers or
directors of the Fund and its investment adviser, as a group,
own more than 5% of such securities.
The Board recommends that shareholders vote to eliminate this
restriction.
There is no legal requirement that a fund have a fundamental
restriction limiting or prohibiting the purchase of securities of companies that
are also owned by affiliated parties of the fund. This restriction was derived
from state laws that are no longer applicable. The concerns that this
restriction was designed to address are sufficiently safeguarded against by
provisions of the 1940 Act applicable to the Fund, as well as by the Fund's
other investment policies. Specifically, to the extent that this restriction
seeks to limit possible conflicts of interest arising out of transactions with
affiliated parties, the restriction is unnecessary and unduly burdensome since
the Fund is subject to the extensive affiliated transaction provisions of the
1940 Act. Because this restriction does not provide any additional protections
to shareholders and may hinder the Board in pursuing investment strategies that
may be advantageous to the Fund, the Board recommends that this investment
restriction be eliminated.
27
<PAGE>
m. ELIMINATION OF FUNDAMENTAL RESTRICTION ON PURCHASE OF EQUITY
SECURITIES
Short-Term Bond Fund's current fundamental restriction concerning the
purchase of equity securities is as follows:
The Fund may not purchase equity securities. This shall not be
deemed to prohibit the acquisition of equity securities
resulting from the ownership of debt securities, as, for
example, the conversion of convertible bonds or an exchange in
connection with a corporate reorganization.
The Board recommends that shareholders vote to eliminate this
restriction. This is an outdated restriction that fulfills no legal or
regulatory requirements. It is not necessary for the Fund to state affirmatively
the type of investments it does not intend to make. In addition, elimination of
this restriction would aid in standardizing the fundamental restrictions of the
INVESCO Funds, as few of the INVESCO Funds currently have such a restriction. It
is not expected that elimination of this restriction will have any impact on how
the Fund is managed or the securities in which it invests.
n. ELIMINATION OF FUNDAMENTAL RESTRICTION PROHIBITING INVESTMENT
IN THE SECURITIES OF NEWLY FORMED ISSUERS
Short-Term Bond Fund's current fundamental restriction concerning
investments in the securities of newly formed issuers is as follows:
The Fund may not purchase the securities of any issuer having
a record, together with predecessors, of less than three years
continuous operations.
The Board recommends that shareholders vote to eliminate this
fundamental investment restriction. This restriction is derived from a state
"blue sky" requirement that is no longer applicable. Because newly formed
companies have no proven track record in business, their prospects may be
uncertain. Their securities may fluctuate in price more widely than the
securities of established companies. The Board has concluded that the proposed
elimination would benefit the Fund by providing more investment flexibility.
Elimination of the restriction will give the Fund the ability to invest in newly
formed or unseasoned issuers. INVESCO may use this ability.
o. ELIMINATION OF FUNDAMENTAL RESTRICTION ON INVESTMENTS IN OIL,
GAS AND OTHER MINERAL EXPLORATION PROGRAMS
Short-Term Bond Fund has a fundamental restriction specifying that the
Fund may not "buy or sell oil, gas or other mineral interests or exploration
programs." Investment in oil, gas, or other mineral exploration programs is not
prohibited under federal standards for mutual funds, but was prohibited in the
past by some state regulations. Because these state law restrictions are no
longer applicable, the Board recommends that shareholders vote to eliminate this
fundamental restriction to provide for greater investment flexibility.
28
<PAGE>
p. ELIMINATION OF FUNDAMENTAL RESTRICTION ON JOINT PARTICIPATION
IN SECURITIES TRADING ACCOUNTS AND ON INVESTING IN WARRANTS
Short-Term Bond Fund's current fundamental restriction concerning joint
participation in securities trading accounts and the purchase of warrants
states:
The Fund may not participate on a joint or joint and several
basis in any securities trading account, or purchase warrants.
The Board recommends that shareholders of the Fund vote to eliminate
this restriction. This restriction is derived from a 1940 Act requirement, which
makes it unlawful for a registered investment company to participate on a joint
or a joint and several basis in any trading account in securities, except in
connection with an underwriting in which such registered investment company is a
participant. The 1940 Act does not, however, require that this limitation be
stated as a fundamental restriction. Accordingly, the Board recommends that this
restriction be eliminated.
The Board also recommends that shareholders vote to eliminate this
restriction because it prohibits the purchase of warrants. This restriction also
was derived from state laws that are no longer applicable. The concerns that
this restriction was designed to address are sufficiently safeguarded against by
provisions of the 1940 Act applicable to the Fund, as well as by the Fund's
other investment policies. Accordingly, the Board recommends the elimination of
this restriction to provide for greater investment flexibility.
q. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INDUSTRY
CONCENTRATION
Short-Term Bond Fund's current fundamental restriction concerning the
concentration of investments primarily in one industry is as follows:
The Fund may not invest more than 25% of the Fund's total
assets in any one industry, excluding government securities.
Telephone utilities, water, gas, and electric utilities shall
be considered separate industries.
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 restriction:
29
<PAGE>
With respect to fundamental limitation [16], domestic and
foreign banking will be considered to be different industries.
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.
REQUIRED VOTE. Approval of Proposal 2 requires the affirmative vote of
a "majority of the outstanding voting securities" of Short-Term 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 DIRECTORS OF BOND FUNDS
The Board of Bond Funds has nominated the individuals identified below
for election to the Board at the Meeting. Bond Funds currently has ten
directors. Vacancies on the Board are generally filled by appointment by the
remaining directors. However, the 1940 Act provides that vacancies may not be
filled by directors unless thereafter at least two-thirds of the directors shall
have been elected by shareholders. To ensure continued compliance with this rule
without incurring the expense of calling additional shareholder meetings,
shareholders are being asked at this meeting to elect the current ten directors.
Consistent with the provisions of Bond Funds' by-laws, and as permitted by
Maryland law, Bond Funds does not anticipate holding annual shareholder
meetings. Thus, the directors will be elected for indefinite terms, subject to
termination or resignation. Each nominee has indicated a willingness to serve if
elected. If any of the nominees should not be available for election, the
persons named as proxies (or their substitutes) may vote for other persons in
their discretion. Management has no reason to believe that any nominee will be
unavailable for election.
All of the Independent Directors now being proposed for election were
nominated and selected by Independent Directors. Eight of the ten current
directors are Independent Directors.
The persons named as attorneys-in-fact in the enclosed proxy have
advised Bond Funds that unless a proxy instructs them to withhold authority to
vote for all listed nominees or for any individual nominee, they will vote all
validly executed proxies for the election of the nominees named below.
30
<PAGE>
The nominees for director, their ages, a description of their principal
occupations, the number of Short-Term Bond Fund shares owned by each, and their
respective memberships on Board committees are listed in the table below.
NUMBER OF
DIRECTOR SHORT-TERM
NAME, POSITION PRINCIPAL OCCUPATION AND OR BOND FUND MEMBER OF
WITH BOND BUSINESS EXPERIENCE EXECUTIVE SHARES COMMITTEE
FUNDS, AND AGE (DURING THE PAST FIVE OFFICER OF BENEFICIALLY ---------
- -------------- YEARS) BOND OWNED DIRECTLY
------------------------ FUNDS SINCE 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 10.5070 (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
DIRECTOR, AGE Executive Officer, and
47* 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 10.5070 (4),
ANDREWS, Chairman Emeritus and (6),(8)
DIRECTOR, AGE 68 Chairman of the CFO
Roundtable of the
Department of Finance at
Georgia State University,
Atlanta, Georgia;
President, Andrews
Financial Associates,
Inc. (consulting firm);
since October 1984,
Director of the Center
for the Study of
Regulated Industry at
Georgia State University;
formerly, member of the
faculties of the Harvard
Business School and the
Sloan School of
Management of MIT. Dr.
Andrews is also a
director of the
Southeastern Thrift and
Bank Fund, Inc. and the
Sheffield Funds, Inc.
BOB R. BAKER, President and Chief 1993 10.5070 (3),
DIRECTOR, 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 10.5070 (2),
BUDNER, to June 1987, Senior Vice (6),(7)
DIRECTOR, AGE 68 President and Senior
Trust Officer, InterFirst
Bank, Dallas, Texas.
31
<PAGE>
NUMBER OF
DIRECTOR SHORT-TERM
NAME, POSITION PRINCIPAL OCCUPATION AND OR BOND FUND MEMBER OF
WITH BOND BUSINESS EXPERIENCE EXECUTIVE SHARES COMMITTEE
FUNDS, AND AGE (DURING THE PAST FIVE OFFICER OF BENEFICIALLY ---------
- -------------- YEARS) BOND OWNED DIRECTLY
------------------------ FUNDS SINCE OR INDIRECTLY
----------- ON DEC. 31,
1998(1)
-------------
DR. WENDY LEE Self-employed (since 1993). 1998 10.5070 (4),(8)
GRAMM, Professor of Economics and
DIRECTOR, Public Administration,
AGE 53 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. Formerly, Chairman of the 1993 10.5070 (2),(3),
KING, Director, Board of the Capitol Life (5),(6),
Age 73 Insurance Company, (7)
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. Retired. Formerly, Vice 1995 10.5070 (2),(3),
MCINTYRE, Chairman of the Board of (5),(7)
DIRECTOR, AGE 68 The Citizens and Southern
Corporation; Chairman of the
Board and Chief Executive
Officer of The Citizens and
Southern Georgia Corporation;
Chairman of the Board and Chief
Executive Officer of Citizens
and Southern National Bank.
Trustee of INVESCO Global
Health Sciences Fund and
Gables Residential Trust.
DR. LARRY SOLL, Retired, Formerly, 1998 10.5070 (4),(8)
DIRECTOR, AGE 56 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, with Short-Term Bond Fund's investment
adviser, or with companies affiliated with INVESCO, this individual is deemed to
be an "interested person" of Bond Funds as that term is defined in the 1940 Act.
(1) = As interpreted by the SEC, a security is beneficially owned by a person if
that person has or shares voting power or investment power with respect to that
security. The persons listed have partial or complete voting and investment
power with respect to their respective Fund shares.
(2) = Member of the Audit Committee
(3) = Member of the Executive Committee
(4) = Member of the Management Liaison Committee
(5) = Member of the Valuation Committee
(6) = Member of the Compensation Committee
(7) = Member of the Soft Dollar Brokerage Committee
(8) = Member of the Derivatives Committee
32
<PAGE>
The Board has audit, management liaison, soft dollar brokerage, and
derivatives committees, consisting of Independent Directors, and compensation,
executive and valuation committees consisting of both Independent Directors and
non-independent directors. The Board does not have a nominating committee. The
audit committee, consisting of four Independent Directors, meets quarterly with
Bond Funds' independent accountants and executive officers of Bond Funds. This
committee reviews the accounting principles being applied by Bond Funds in
financial reporting, the scope and adequacy of internal controls, the
responsibilities and fees of the independent accountants, and other matters. All
of the recommendations of the audit committee are reported to the full Board.
During the intervals between the meetings of the Board, the executive committee
may exercise all powers and authority of the Board in the management of Bond
Funds' business, except for certain powers which, under applicable law and/or
Bond Funds' by-laws, may only be exercised by the full Board. All decisions are
subsequently submitted for ratification by the Board. The management liaison
committee meets quarterly with various management personnel of INVESCO in order
to facilitate better understanding of management and operations of Bond Funds,
and to review legal and operational matters that have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The soft dollar brokerage committee meets periodically to review
soft dollar transactions by Short-Term Bond Fund, and to review policies and
procedures of Short-Term Bond Fund'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 Short-Term Bond Fund. The committee monitors derivatives
usage by Short-Term Bond Fund and the procedures utilized by Short-Term Bond
Fund'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 four times, the audit
committee met three times, the compensation committee met once, the management
liaison committee met three times, the soft dollar brokerage committee met once,
and the derivatives committee met twice. The executive committee did not meet.
During Bond Funds' last fiscal year, each director attended 75% or more of the
Board meetings and meeting of the committees of the Board on which he or she
served.
33
<PAGE>
The Independent Directors nominate individuals to serve as Independent
Directors, without any specific nominating committee. The Board ordinarily will
not consider unsolicited director nominations recommended by Short-Term Bond
Fund shareholders. The Board, including its Independent Directors, unanimously
approved the nomination of the foregoing persons to serve as directors and
directed that the election of these nominees be submitted to Short-Term Bond
Fund's shareholders.
The following table sets forth information relating to the compensation
paid to directors during the last fiscal year:
<TABLE>
<CAPTION>
COMPENSATION TABLE
AMOUNTS PAID DURING THE MOST RECENT
FISCAL YEAR BY BOND FUNDS TO DIRECTORS
AGGREGATE PENSION OR TOTAL COMPENSATION
COMPENSATION RETIREMENT BENEFITS ESTIMATED ANNUAL FROM BOND FUNDS AND
FROM ACCRUED AS PART OF BENEFITS UPON INVESCO FUNDS PAID
NAME OF PERSON, POSITION BOND FUNDS1 BOND FUNDS RETIREMENT3 TO DIRECTORS1
------------------------ ----------- EXPENSES2 ----------- -------------
---------
<S> <C> <C> <C> <C>
FRED A DEERING, Vice Chairman of
the Board $6,464 $2,112 $1,356 $103,700
DR. VICTOR L. ANDREWS, Director $6,305 $1,996 $1,569 $80,350
BOB R. BAKER, Director $6,518 $1,783 $2,103 $84,000
LAWRENCE H. BUDNER, Director $6,189 $1,996 $1,569 $79,350
DANIEL D. CHABRIS4, Director $6,344 $2,158 $1,171 $70,000
KENNETH T. KING, Director $5,957 $2,194 $1,230 $77,050
JOHN W. MCINTYRE, Director $6,108 $0 $0 $98,500
DR. WENDY L. GRAMM, Director $6,067 $0 $0 $79,000
DR. LARRY SOLL, Director $6,108 $0 $0 $96,000
------------- ------------------ ---------------- ------------------
Total $56,060 $12,239 $8, 998 $767,950
- -----
As a Percentage of Net Assets 0.0044%5 0.0010%5 0.0046%6
- -----------------------------
</TABLE>
Bond Funds pays its Independent Directors, Board vice chairman, and
committee chairmen and members the fees described above. Bond Funds also
reimburses its Independent Directors for travel expenses incurred in attending
meetings. Charles W. Brady, Chairman of the Board, and Mark H. Williamson,
President, Chief Executive Officer, and Director, as "interested persons" of
Bond Funds and of other INVESCO Funds receive compensation and are reimbursed
1 The Vice Chairman of the Board, the chairmen of the audit, management liaison,
derivatives, soft dollar brokerage and compensation committees, and the
Independent Directors 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 directors'
retirement, calculated using the current method of allocating director
compensation among the INVESCO Funds. These estimated benefits assume retirement
at age 72 and that the basic retainer payable to the directors will be adjusted
periodically for inflation, for increases in the number of funds in the INVESCO
Complex, and for other reasons during the period in which retirement benefits
are accrued on behalf of the respective directors. This results in lower
estimated benefits for directors who are closer to retirement and higher
estimated benefits for directors who are farther from retirement. With the
exception of Drs. Soll and Gramm, each of these directors has served as director
of one or more of the INVESCO Funds for the minimum five-year period required to
be eligible to participate in the Defined Benefit Deferred Compensation Plan.
4 Mr. Chabris retired as a director effective September 30, 1998.
5 Total as a percentage of the Fund's net assets as of August 31, 1998.
6 Total as a percentage of the net assets of the INVESCO Complex as of December
31, 1998.
34
<PAGE>
for travel expenses incurred in attending meetings as officers or employees of
INVESCO or its affiliated companies, but do not receive any director's fees or
other compensation from Bond Funds or other INVESCO Funds for their services as
directors.
The overall direction and supervision of Short-Term Bond Fund is the
responsibility of the Board, which has the primary duty of ensuring that
Short-Term Bond Fund's general investment policies and programs are adhered to
and that Short-Term Bond Fund is properly administered. The officers of
Short-Term Bond Fund, all of whom are officers and employees of and paid by
INVESCO, are responsible for the day-to-day administration of Short-Term Bond
Fund. The investment adviser for Short-Term Bond Fund has the primary
responsibility for making investment decisions on behalf of Short-Term Bond
Fund. These investment decisions are reviewed by the investment committee of
INVESCO.
All of the officers and directors of Bond Funds hold comparable
positions with the following INVESCO Funds: INVESCO Growth Funds, Inc. (formerly
INVESCO Growth Fund, 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 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 directors of Bond Funds also serve as trustees
of INVESCO Value Trust and INVESCO Treasurer's Series Trust.
The Boards of the funds managed by INVESCO, INVESCO Treasurer's Series
Trust, and INVESCO Value Trust have adopted a Defined Benefit Deferred
Compensation Plan (the "Plan") for the non-interested directors and trustees of
the Funds. Under the Plan, each director or trustee who is not an interested
person of the Funds (as defined in Section 2(a)(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") if the annual basic retainer and
annualized board meeting fees payable by the Funds to the Qualified Director at
the time of his or her retirement. Commencing with any such director's second
year of retirement, and commencing with the first year of retirement of any
director whose retirement has been extended by the Board for three years, a
Qualified Director shall receive quarterly payments at an annual rate equal to
50% of the basic retainer and annualized board meeting fees. These payments will
continue for the remainder of the Qualified Director's life or ten years,
whichever is longer. If a Qualified Director dies or becomes disabled after age
72 and before age 74 while still a director of the Funds, the First Year
Retirement Benefit and Reduced Retainer Payments will be made to him or her or
to his or her beneficiary or estate. If a Qualified Director becomes disabled or
dies either prior to age 72 or during his or her 74th year while still a
director of the Funds, the director will not be entitled to receive the First
Year Retirement Benefit; however, the retirement payments will be made to his or
her beneficiary or estate. The Plan is administered by a committee of three
directors who are also participants in the Plan and one director who is not a
Plan participant. The cost of the Plan will be allocated among the INVESCO,
35
<PAGE>
Treasurer's Series Trust, and Value Trust Funds (the "INVESCO Funds") in a
manner determined to be fair and equitable by the committee. The Fund began
making payments to Mr. Chabris as of October 1, 1998 under the Plan. The Fund
has no stock options or other pension or retirement plans for management or
other personnel and pays no salary or compensation to any of its officers.
The Independent Directors have contributed to a deferred compensation
plan, pursuant to which they have deferred receipt of a portion of the
compensation which they would otherwise have been paid as directors of certain
of the INVESCO Funds. The deferred amounts, once the amount that has been
deferred totals at least $100, are invested in shares of all of the INVESCO
Funds. Each Independent Director is, therefore, an indirect owner of shares of
each INVESCO fund, in addition to any Fund shares that may be owned directly.
REQUIRED VOTE. Election of each nominee as a director of Bond Funds
requires the vote of a plurality of all the outstanding shares of Short-Term
Bond Fund present at the Meeting, and at concurrent meetings of the shareholders
of the other series of Bond Funds, in the aggregate, in person or by proxy.
THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS, UNAMIMOUSLY
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 Bond Funds, including all of its Independent Directors,
has selected PricewaterhouseCoopers LLP to continue to serve as independent
accountants of Short-Term Bond Fund, subject to ratification by Short-Term Bond
Fund's shareholders. PricewaterhouseCoopers LLP has no direct financial interest
or material indirect financial interest in Short-Term 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
Short-Term Bond Fund and provide other audit and tax-related services. In
recommending the selection of PricewaterhouseCoopers LLP, the directors reviewed
the nature and scope of the services to be provided (including non-audit
services) and whether the performance of such services would affect the
accountants' independence.
REQUIRED VOTE. Ratification of the selection of PricewaterhouseCoopers
LLP as independent accountants requires the vote of a majroity of the votes
present at the Meeting.
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
36
<PAGE>
intention that proxies that do not contain specific instructions to the contrary
will be voted on such matters in accordance with the judgment of the persons
designated in the proxies.
INFORMATION CONCERNING ADVISER, DISTRIBUTOR
AND AFFILIATED COMPANIES
INVESCO, a Delaware corporation, serves as Short-Term Bond Fund's
investment adviser, and provides other services to Short-Term Bond Fund and Bond
Funds. IDI, a Delaware corporation that serves as Short-Term Bond Fund's
distributor, is a wholly owned subsidiary of INVESCO. INVESCO is a wholly owned
subsidiary of INVESCO North American Holdings, Inc. ("INAH"), 1315 Peachtree
Street, N.E., Atlanta, Georgia 30309. INAH is an indirect wholly owned
subsidiary of AMVESCAP PLC.7 The corporate headquarters of AMVESCAP PLC are
located at 11 Devonshire Square, London, EC2M 4YR, England. INVESCO's and IDI's
offices are located at 7800 East Union Avenue, Denver, Colorado 80237. INVESCO
currently serves as investment adviser of 14 open-end investment companies
having approximate aggregate net assets in excess of $21.1 billion as of
December 31, 1998.
The principal executive officers and directors of INVESCO and their
principal occupations are:
Mark H. Williamson, Chairman of the Board, President, Chief Executive
Officer and Director, also, President and Chief Executive Officer of IDI; and
Charles P. Mayer, Director and Senior Vice President, also, Senior Vice
President and Director of IDI; Ronald L. Grooms, Senior Vice President and
Treasurer, also, Senior Vice President and Treasurer of IDI; and Glen A. Payne,
Senior Vice President, Secretary and General Counsel, also, Senior Vice
President, Secretary and General Counsel of IDI.
The address of each of the foregoing officers and directors is 7800
East Union Avenue, Denver, Colorado 80237.
Pursuant to an Administrative Services Agreement between Bond Funds and
INVESCO, INVESCO provides administrative services to Bond Funds, including
sub-accounting and recordkeeping services and functions. During the fiscal year
ended August 31, 1998, Bond Funds paid INVESCO, which also serves as Bond Funds'
registrar, transfer agent and dividend disbursing agent, total compensation of
$1,016,182 for such services.
7 The intermediary companies between INAH and AMVESCAP PLC are as follows:
INVESCO, Inc., INVESCO Group Services, Inc. and INVESCO North American Group,
Ltd., each of which is wholly owned by its immediate parent.
37
<PAGE>
MISCELLANEOUS
AVAILABLE INFORMATION
Each Fund is subject to the information requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith files reports,
proxy material and other information with the SEC. These reports, proxy material
and other information can be inspected and copied at the Public Reference Room
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, the
Midwest Regional office of the SEC, Northwest Atrium Center, 500 West Madison
Street, Suite 400, Chicago, Illinois 60611, and the Northeast Regional Office of
the SEC, Seven World Trade Center, Suite 1300, New York, New York 10048. Copies
of such material can also be obtained from the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20459 at prescribed rates.
LEGAL MATTERS
Certain legal matters in connection with the issuance of Select Income
Fund shares as part of the Reorganization will be passed upon by Select Income
Fund's counsel, Kirkpatrick & Lockhart LLP.
EXPERTS
The audited financial statements of Select Income Fund and Short-Term
Bond Fund, incorporated herein by reference and incorporated by reference or
included in their respective Statements of Additional Information, have been
audited by PricewaterhouseCoopers LLP, independent accountants for the Funds,
whose reports thereon are included in the Funds' Annual Reports to shareholders
for the fiscal year ended August 31, 1998. The financial statements audited by
PricewaterhouseCoopers LLP have been incorporated herein by reference in
reliance on their reports given on their authority as experts in auditing and
accounting matters.
<PAGE>
APPENDIX A
PLAN OF REORGANIZATION AND TERMINATION
THIS PLAN OF REORGANIZATION AND TERMINATION ("Plan") is made by INVESCO
Bond Funds, Inc., a Maryland corporation ("Corporation"), on behalf of INVESCO
Short-Term Bond Fund ("Target") and INVESCO Select Income Fund ("Acquiring
Fund"), and is effective as of the date of its adoption by Corporation's board
of directors. (Acquiring Fund and Target are sometimes referred to herein
individually as a "Fund" and collectively as the "Funds.") Corporation is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Maryland; and a copy of its Articles of Incorporation is on
file with the Secretary of State of Maryland. Each Fund is a duly established
and designated segregated portfolio of assets ("series") of Corporation.
This Plan is intended to be, and is adopted as, a plan of a reorganization
described in section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended ("Code"). The reorganization will involve the transfer to Acquiring Fund
of Target's assets in exchange solely for voting shares of common stock in
Acquiring Fund, par value $0.01 per share ("Acquiring Fund Shares"), and the
assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of the Acquiring Fund Shares PRO RATA to the holders
of shares of common stock in Target ("Target Shares") in exchange therefor, all
on the terms and conditions set forth herein. The foregoing transactions are
referred to herein collectively as the "Reorganization."
Each Fund issues a single class of shares, which are substantially similar
to each other. Each Fund's shares (1) are offered at net asset value ("NAV")
without the imposition of a front-end sales charge and (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"); in addition, they are
subject to maximum management fees of similar amounts (I.E., Target is subject
to a management fee of up to 0.50% of its net assets, while Acquiring Fund's
management fee is up to 0.55% of its net assets).
1. THE REORGANIZATION
1.1. Target shall assign, sell, convey, transfer, and deliver all of its
assets described in paragraph 1.2 ("Assets") to Acquiring Fund. In exchange
therefor, Acquiring Fund shall --
(a) issue and deliver to Target the number of full and fractional
rounded to the third decimal place) Acquiring Fund Shares,
determined by dividing the net value of Target (computed as set
forth in paragraph 2.1) by the NAV of an Acquiring Fund Share
(computed as set forth in paragraph 2.2), and
(b) assume all of Target's liabilities described in paragraph 1.3
("Liabilities").
Such transactions shall take place at the Closing (as defined in
paragraph 3.1).
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).
<PAGE>
1.3. The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Plan.
Notwithstanding the foregoing, Target shall use its best efforts to discharge
all its known Liabilities before the Effective Time.
1.4. At or immediately before the Effective Time, Target shall declare and
pay to its shareholders a dividend and/or other distribution in an amount large
enough so that it will have distributed substantially all (and in any event not
less than 90%) of its investment company taxable income (computed without regard
to any deduction for dividends paid) and substantially all of its realized net
capital gain, if any, for the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall distribute the Acquiring Fund Shares received by it
pursuant to paragraph 1.1 to Target's shareholders of record, determined as of
the Effective Time (each a "Shareholder" and collectively "Shareholders"), in
constructive exchange for their Target Shares. Such distribution shall be
accomplished by Acquiring Fund's transfer agent's opening accounts on Acquiring
Fund's share transfer books in the Shareholders' names and transferring such
Acquiring Fund Shares thereto. Each Shareholder's account shall be credited with
the respective PRO RATA number of full and fractional (rounded to the third
decimal place) Acquiring Fund Shares due that Shareholder. All outstanding
Target Shares, including any represented by certificates, shall simultaneously
be canceled on Target's share transfer books. Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares issued in connection with
the Reorganization.
1.6. As soon as reasonably practicable after distribution of the Acquiring
Fund Shares pursuant to paragraph 1.5, but in all events within twelve months
after the Effective Time, Target shall be terminated and any further actions
shall be taken in connection therewith as required by applicable law.
1.7. Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8. Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of the close of regular trading on the New York
Stock Exchange ("NYSE") on the date of the Closing ("Valuation Time"), using the
valuation procedures set forth in Target's then-current prospectus and statement
of additional information less (b) the amount of the Liabilities as of the
Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund Share
shall be computed as of the Valuation Time, using the valuation procedures set
forth in Acquiring Fund's then-current prospectus and statement of additional
information.
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<PAGE>
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 Corporation's principal office on June
__, 1999, or at such other place and/or on such other date as to which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the close of business on the date thereof or at such
other time as to which the parties may agree ("Effective Time"). If, immediately
before the Valuation Time, (a) the NYSE is closed to trading or trading thereon
is restricted or (b) trading or the reporting of trading on the NYSE or
elsewhere is disrupted, so that accurate appraisal of the net value of Target
and the NAV of an Acquiring Fund Share is impracticable, the Effective Time
shall be postponed until the first business day after the day when such trading
shall have been fully resumed and such reporting shall have been restored.
3.2. Corporation's fund accounting and pricing agent shall deliver at the
Closing a certificate of an authorized officer verifying that the information
(including adjusted basis and holding period, by lot) concerning the Assets,
including all portfolio securities, transferred by Target to Acquiring Fund, as
reflected on Acquiring Fund's books immediately following the Closing, does or
will conform to such information on Target's books immediately before the
Closing. Corporation's custodian shall deliver at the Closing a certificate of
an authorized officer stating that (a) the Assets held by the custodian will be
transferred to Acquiring Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3. Corporation's transfer agent shall deliver at the Closing a
certificate as to the opening on Acquiring Fund's share transfer books of
accounts in the Shareholders' names.
4. CONDITIONS
Each Fund's obligations hereunder are subject to satisfaction of each
condition indicated in this section 4 as being applicable to it either at the
time stated therein or, if no time is so stated, at or before (and continuing
through) the Effective Time:
4.1. CONDITIONS TO EACH FUND'S OBLIGATIONS:
4.1.1. This Plan and the transactions contemplated hereby shall have
been approved by Target's shareholders in accordance with applicable law;
4.1.2. The aggregate fair market value of the Acquiring Fund Shares,
when received by the Shareholders, will be approximately equal to the
aggregate fair market value of their Target Shares constructively
surrendered in exchange therefor;
4.1.3. Corporation's management (a) is unaware of any plan or
intention of Shareholders to redeem or otherwise dispose of any portion of
the Acquiring Fund Shares to be received by them in the Reorganization and
(b) does not anticipate dispositions of those Acquiring Fund Shares at the
time of or soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as a series of an open-end
investment company. Consequently, Corporation's management expects that the
percentage of Shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be DE MINIMIS. Nor does
A-3
<PAGE>
Corporation's management anticipate that there will be extraordinary
redemptions of Acquiring Fund Shares immediately following the
Reorganization;
4.1.4. The Shareholders will pay their own expenses, if any, incurred
in connection with the Reorganization;
4.1.5. Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto (in addition to the assets and liabilities
Acquiring Fund then held or was subject to), plus any liabilities and
expenses of the parties incurred in connection with the Reorganization;
4.1.6. The fair market value of the Assets on a going concern basis
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.1.7. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount;
4.1.8. Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
its Reorganization expenses and to make redemptions and distributions
immediately before the Reorganization (except (a) redemptions not made as
part of the Reorganization and (b) distributions made to conform to its
policy of distributing all or substantially all of its income and gains to
avoid the obligation to pay federal income tax and/or the excise tax under
section 4982 of the Code) will be included as assets thereof held
immediately before the Reorganization;
4.1.9. None of the compensation received by any Shareholder who is an
employee of or service provider to Target will be separate consideration
for, or allocable to, any of the Target Shares held by such Shareholder;
none of the Acquiring Fund Shares received by any such Shareholder will be
separate consideration for, or allocable to, any employment agreement,
investment advisory agreement, or other service agreement; and the
consideration paid to any such Shareholder will be for services actually
rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services;
4.1.10. Immediately after the Reorganization, the Shareholders will
not own shares constituting "control" of Acquiring Fund within the meaning
of section 304(c)of the Code;
4.1.11. Neither Fund will be reimbursed for any expenses incurred by
it or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1 C.B.
187)("Reorganization Expenses"); and
4.1.12. Corporation shall have received an opinion of Kirkpatrick &
Lockhart LLP ("Counsel"), addressed to and in form and substance
satisfactory to it, as to the federal income tax consequences mentioned
below ("Tax Opinion"). In rendering the Tax Opinion, Counsel may assume
A-4
<PAGE>
satisfaction of all the conditions set forth in this section 4 (and treat
them as representations by Corporation to Counsel) and may rely as to any
factual matters, exclusively and without independent verification, on such
representations and any other representations made to Counsel by
responsible officers of Corporation. The Tax Opinion shall be substantially
to the effect that, based on the facts and assumptions stated therein, for
federal income tax purposes:
4.1.12.1. Acquiring Fund's acquisition of the Assets in exchange
solely for Acquiring Fund Shares and Acquiring Fund's assumption of the
Liabilities, followed by Target's distribution of those shares PRO RATA to
the Shareholders constructively in exchange for the Shareholders' Target
Shares, will constitute a reorganization within the meaning of section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
4.1.12.2. Target will recognize no gain or loss on the transfer to
Acquiring Fund of the Assets in exchange solely for Acquiring Fund Shares
and Acquiring Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to the Shareholders in constructive exchange
for their Target Shares;
4.1.12.3. Acquiring Fund will recognize no gain or loss on its receipt
of the Assets in exchange solely for Acquiring Fund Shares and its
assumption of the Liabilities;
4.1.12.4. Acquiring Fund's basis for the Assets will be the same as
the basis thereof in Target's hands immediately before the Reorganization,
and Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
4.1.12.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund
Shares pursuant to the Reorganization; and
4.1.12.6. A Shareholder's aggregate basis for the Acquiring Fund
Shares to be received by it in the Reorganization will be the same as the
aggregate basis for its Target Shares to be constructively surrendered in
exchange for those Acquiring Fund Shares, and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at the
Effective Time.
Notwithstanding subparagraphs 4.1.12.2 and 4.1.12.4, the Tax Opinion may
state that no opinion is expressed as to the effect of the Reorganization
on the Funds or any Shareholder with respect to any asset as to which any
unrealized gain or loss is required to be recognized for federal income
tax purposes at the end of a taxable year (or on the termination or
transfer thereof) under a mark-to-market system of accounting.
4.2. CONDITIONS TO ACQUIRING FUND'S OBLIGATIONS:
4.2.1. At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, Acquiring Fund will acquire good and
marketable title thereto;
A-5
<PAGE>
4.2.2. The Liabilities were incurred by Target in the ordinary course
of its business;
4.2.3. Target is a "fund" as defined in section 851(g)(2)of the Code;
it qualified for treatment as a regulated investment company under
Subchapter M of the Code ("RIC") for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
times through the Effective Time in a manner that ensures compliance with
the foregoing;
4.2.4. Target is not under the jurisdiction of a court in a proceeding
under Title 11 of the United States Code or similar case within the meaning
of section 368(a)(3)(A) of the Code;
4.2.5. Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested in
the stock and securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and securities of five or
fewer issuers; and
4.2.6. Target will be terminated as soon as reasonably practicable
after the Effective Time, but in all events within twelve months
thereafter.
4.3. CONDITIONS TO TARGET'S OBLIGATIONS:
4.3.1. No consideration other than Acquiring Fund Shares (and
Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization;
4.3.2. The Acquiring Fund Shares to be issued and delivered to Target
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, will be duly and validly issued
and outstanding shares of Acquiring Fund, fully paid and non-assess- able;
4.3.3. Acquiring Fund is a "fund" as defined in section 851(g)(2) of
the Code; it qualified for treatment as a RIC for each past taxable year
since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year; Acquiring
Fund intends to continue to meet all such requirements for the next taxable
year; and it has no earnings and profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it;
4.3.4. Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares issued
in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, except to the extent it is
required by the 1940 Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of that business;
4.3.5. Following the Reorganization, Acquiring Fund (a) will continue
Target's "historic business" (within the meaning of section 1.368-1(d)(2)
of the Income Tax Regulations under the Code), (b) use a significant
portion of Target's historic business assets (within the meaning of section
A-6
<PAGE>
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;
4.3.6. There is no plan or intention for Acquiring Fund to be
dissolved or merged into another corporation or a business trust or any
"fund" thereof (within the meaning of section 851(g)(2) of the Code)
following the Reorganization;
4.3.7. Immediately after the Reorganization, (a) not more than 25% of
the value of Acquiring Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities of
any one issuer and (b) not more than 50% of the value of such assets will
be invested in the stock and securities of five or fewer issuers; and
4.3.8. Acquiring Fund does not directly or indirectly own, nor at the
Effective Time will it directly or indirectly own, nor has it at any time
during the past five years directly or indirectly owned, any shares of
Target.
5. EXPENSES
Except as otherwise provided herein, 50% of the total Reorganization
Expenses will be borne by INVESCO and the remaining 50% will be borne partly by
each Fund.
6. TERMINATION
Corporation's board of directors may terminate this Plan and abandon the
Reorganization at any time prior to the Closing if circumstances develop that,
in its judgment, make proceeding with the Reorganization inadvisable for either
Fund.
7. GOVERNING LAW
This Plan shall be governed by and construed in accordance with the
internal laws of the State of Maryland; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
A-7
<PAGE>
APPENDIX B
----------
PRINCIPAL SHAREHOLDERS
----------------------
As of January 21, 1999, the following entities held more than 5% of each
Fund's outstanding equity securities:
Nature of Combined
Ownership $ Owned Fund %
--------- ------- --------
Select Income Fund
- ------------------
Charles Schwab & Co. Inc. Common 16.51%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104-4122
INVESCO Trust Company Common 7.56%
Morris Communications Corporation
Employees' Profit Sharing Retirement
Plan
725 Broad Street
Augusta, GA 30901-1336
National Financial Services Common 5.54%
Corporation
Special Custody Account for the
Exclusive Benefit of Customers
One World Financial Center
200 Liberty Street, 5th Floor
New York, NY 10281
Short-Term Bond Fund
- --------------------
Charles Schwab & Co., Inc. Common 9.45%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104-4122
INVESCO Trust Company Common 6.73%
Special Custody Account
SEC 403B Plan
Christian-Jew Foundation
4105 Shady Oak Drive
San Antonio, Texas 78229-4721
<PAGE>
INVESCO SELECT INCOME FUND
INVESCO SHORT-TERM BOND FUND
(each, a series of INVESCO Bond Funds, Inc.)
7800 E. UNION AVENUE
DENVER, COLORADO 80237
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates specifically to the
proposed Reorganization whereby INVESCO Select Income Fund ("Select Income
Fund") would acquire the assets of INVESCO Short-Term Bond Fund ("Short-Term
Bond Fund") in exchange solely for shares of common stock of Select Income Fund
and the assumption by Select Income Fund of Short-Term 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 Select Income Fund, dated
January 1, 1999.
(2) The Statement of Additional Information of Short-Term Bond Fund, dated
January 1, 1999.
(3) The Annual Report to Shareholders of Select Income Fund for the fiscal
year ended August 31, 1998.
(4) The Annual Report to Shareholders of Short-Term 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>
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 these Articles,
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, and the rules thereunder. Under the Investment Company Act of 1940,
Fund directors and officers cannot be protected against liability to the Company
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. The Company also maintains liability insurance policies covering
its directors and officers.
Item 16. Exhibits
Exhibit
Number Description
- ------ -----------
(1) (a) Articles of Incorporation (Charter).1
(b) Articles of Amendment dated October 28, 1998.3
(2) Bylaws as amended July 21, 1993.1
(3) Not applicable.
(4) A copy of the form of the Plan of Reorganization is included in
the Prospectus/Proxy Statement as Appendix A and is incorporated
by reference herein.
(5) Provisions of instruments defining the rights of holders of
Registrants securities are contained in the Articles of
Incorporation Articles III, IV, VI and VII and By-laws Articles
I, II, V, VI, VII, VIII, IX and XII.
(6) Investment Advisory Agreement between Registrant and INVESCO
FundsGroup, Inc. dated February 28, 1997.2
(7) (a) General Distribution Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997.2
(b) General Distribution Agreement between Registrant and INVESCO
Distributors, Inc. dated September 30, 1997.2
<PAGE>
Exhibit
Number Description
- ------ -----------
(8) (a) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees.2
(b) Amended Defined Compensation Plan for Non-Interested
Directors and Trustees.3
(9) Custody Agreement between Registrant and State Street Bank and
Trust Company dated July 1, 1994.1
(a) Amendment to Custody Agreement dated October 25, 1995.1
(b) Data Access Addendum dated May 19, 1997.2
(10) Plan and Agreement of Distribution pursuant to Rule 12b-1 under
the Investment Company Act of 1940 dated April 30, 1993.2
(a) Amendment of Plan and Agreement of Distribution pursuant
to 12b-1 under the Investment Company Act of 1940 dated
July 19, 1995.1
(b) Amended Plan and Agreement of Distribution adopted
pursuant to Rule 12b-1 under the Investment Company Act of
1940 dated January 1, 1997.2
(c) Amended Plan and Agreement of Distribution adopted
pursuant to Rule 12b-1 under the Investment Company Act of
1940 dated September 30, 1997.2
(11) Opinion and Consent of Kirkpatrick & Lockhart LLP as to the
legality of the securities being registered (filed herewith).
(12) (a) Opinion and Consent of Kirkpatrick & Lockhart LLP
regarding certain tax matters in connection with
Short-Term Bond Fund (to be filed).
(b) Opinion and Consent of Kirkpatrick & Lockhart LLP
regarding certain tax matters in connection with Select
Income Fund (to be filed).
(13) (a) Administrative Services Agreement between Registrant
and INVESCO Funds Group, Inc. dated February 28, 1997.2
(b) Transfer Agency Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997.2
(14) Consent of PricewaterhouseCoopers LLP (filed herewith).
(15) Financial Statements - None
2
<PAGE>
Exhibit
Number Description
- ------ -----------
(16) Powers of Attorney - incorporated herein by reference to Powers
of Attorney 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) Form of Proxy (filed herewith)
- ---------------------------------
1 Previously filed on EDGAR with Post-Effective Amendment No. 36 to the
Registrant's Registration Statement on October 30, 1996 and incorporated herein
by reference.
2 Previously filed on EDGAR with Post-Effective Amendment No. 37 on October 30,
1997 and incorporated by reference herein.
3 Previously filed on EDGAR with Post-Effective Amendment No. 38 to the
Registrant's Registration Statement on October 29, 1998 and incorporated herein
by reference.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
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
(33 Act), the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings 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 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Denver, the County of Denver, and State of Colorado on the 19th day of January,
1999.
INVESCO Bond Funds, Inc.
Attest: (formerly INVESCO Income Funds, Inc.)
By: /s/ Glen A. Payne By: /s/ Mark H. Williamson
------------------------------ ----------------------------------
Glen A. Payne Mark H. Williamson
Secretary President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities indicated on the 19th day of January, 1999.
/s/ Mark H. Williamson *
- ---------------------------------------- -----------------------------------
Mark H. Williamson, President & Director Lawrence H. Budner, Director
(Chief Executive Officer)
* *
- ---------------------------------------- -----------------------------------
Ronald L. Grooms, Treasurer (Chief Fred A. Deering, Director
Financial and Accounting Officer)
* *
- ---------------------------------------- -----------------------------------
Victor L. Andrews, Director Larry Soll, Director
* *
- ---------------------------------------- -----------------------------------
Bob R. Baker, Director Kenneth T. King, Director
* *
- ---------------------------------------- -----------------------------------
Charles W. Brady, Director John W. McIntyre, Director
*
- ----------------------------------------
Wendy L. Gramm, Director
By: By: /s/ Glen A. Payne
----------------------------------- -------------------------------
Edward F. O'Keefe Glen A. Payne
Attorney in Fact Attorney in Fact
4
<PAGE>
*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 January 9, 1990,
January 16, 1990, May 22, 1992, March 31, 1994, October 23, 1995, October 30,
1996 and October 30, 1997.
5
<PAGE>
INVESCO BOND FUNDS, INC.
EXHIBIT LIST
------------
Exhibit
Number
-------
(11) Opinion and Consent of Kirkpatrick & Lockhart LLP as to the
legality of the securities being registered
(14) Consent of PricewaterhouseCoopers LLP
(17) Form of Proxy
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE (202) 778-9000
FACSIMILE (202) 778-9100
www.kl.com
January 19, 1999
INVESCO Bond Funds, Inc.
(formerly, INVESCO Income 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. (formerly, INVESCO Income Funds, Inc.) ("Company"),
a corporation organized under the laws of the State of Maryland, of shares of
common stock (the "Shares") of INVESCO Select Income Fund ("Select Income
Fund"), a series of the Company, pursuant to a Plan of Reorganization ("Plan")
approved by the Company's board of directors ("Board") on behalf of Select
Income Fund and INVESCO Short-Term Bond Fund, also a series of the Company
("Short-Term Bond Fund"). Under the Plan, Select Income Fund would acquire the
assets of Short-Term Bond Fund in exchange for the Shares and the assumption by
Select Income Fund of Short-Term 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, the form of the 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.
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
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 on Form N-14 (the
"Registration Statement") of 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 Short Term Bond Fund (one of the
portfolios constituting INVESCO Bond Funds, Inc., formerly known as INVESCO
Income Funds, Inc.) 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 Select Income Fund (one of the
portfolios constituting INVESCO Bond Funds, Inc., formerly known as 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 Short Term Bond Fund dated January 1, 1999, and the
incorporation by reference of our report in the Prospectus of INVESCO Select
Income 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 Short Term Bond Fund and to the reference to
us under the heading "Financial Highlights" in the Prospectus of INVESCO Short
Term 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 Select Income Fund and to the
reference to us under the heading "Financial Highlights" in the Prospectus of
INVESCO Select Income Fund both dated January 1, 1999.
We also consent to the references to us under the heading "Experts" in the
combined Prospectus/Proxy Statement, constituting part of this Registration
Statement.
/s/ PricewatershouseCoopers LLP
PricewaterhouseCoopers LLP
Denver, Colorado
January 19, 1999
[Name and Address]
INVESCO SHORT-TERM BOND FUND
INVESCO BOND FUNDS, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
MAY 20, 1999
This proxy is being solicited on behalf of the Board of Directors of
INVESCO Bond Funds, Inc. ("Company") and relates to the proposals with respect
to the Company and to INVESCO Short-Term Bond Fund, a series of the Company
("Short-Term Bond 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 Short-Term Bond 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 Company, 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 Company and Short-Term Bond 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>
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
INVESCO SHORT-TERM BOND FUND
INVESCO BOND FUNDS, INC.
<TABLE>
<CAPTION>
VOTE ON DIRECTORS FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
<S> <C> <C> <C> <C>
3. Election of the Company's Board of / / / / / / To withhold authority
Directors; (1) Charles W. Brady; (2) Fred A. to vote for any
Deering; (3) Mark H. Williamson; individual nominee(s),
(4) Dr. Victor L. Andrews; (5) Bob R. Baker; mark "For All Except"
(6) Lawrence H. Budner; (7) Dr. Wendy Lee and write the
Gramm; (8) Kenneth T. King; (9) John W. nominee's number on
McIntyre; and (10) Dr. Larry Soll the line below.
----------------------
</TABLE>
<TABLE>
<CAPTION>
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Approval of a plan of reorganization and termination under which / / / / / /
INVESCO Select Income Fund ("Select Income Fund"), also a
series of the Company, would acquire all of the assets of
Short-Term Bond Fund in exchange solely for shares of Select
Income Fund and the assumption by Select Income Fund of
all of Short-Term Bond Fund's liabilities, followed by the
distribution of those shares to the shareholders of Short-Term
Bond 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 Company'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-[ ].
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.
<PAGE>
- ------------------------------------------------- ------------------------------
Signature Date
- ------------------------------------------------- ------------------------------
Signature (Joint Owners) Date
