As filed with the Securities and Exchange Commission on March 17, 1999
Registration No. 333-71547
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 1 [ ] Post-Effective Amendment No.___
INVESCO TAX-FREE INCOME FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
7800 East Union Avenue
Denver, Colorado 80237
(Address of Principal Executive Offices)
P.O. Box 173706, Denver, Colorado 80217-3706
(Mailing Address)
(303) 930-6300
(Registrant's Area Code and Telephone Number)
Glen A. Payne, Esq.
7800 E. Union Avenue
Denver, Colorado 80237
(Name and Address of Agent for Service)
Copies to:
Susan M. Casey, Esq.
Judith A. Caesar-Brown, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9036
Approximate Date of Proposed Public Offering: as soon as practicable after
this Registration Statement becomes effective under the Securities Act of 1933.
Title of securities being registered: Common stock, par value $0.01 per
share.
<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 TAX-FREE INCOME FUNDS, INC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheets
Letter to Shareholders
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
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INVESCO TAX-FREE INCOME FUNDS, INC.
FORM N-14 CROSS REFERENCE SHEET
Part A Item No. Prospectus/Proxy
and Caption Statement Caption
- ----------- -----------------
1. Beginning of Registration Cover Page
Statement and Outside Front Cover
Page of Prospectus
2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus
3. Synopsis Information and Risk Synopsis; Comparison of Principal Risk
Factors Factors
4. Information About the Transaction Synopsis; The Proposed Transaction
5. Information About the Registrant Synopsis; Comparison of Principal Risk
Factors; Miscellaneous; See also, the
Prospectus for INVESCO Tax-Free
Long-Term Bond Fund, dated November 1,
1998, previously filed on EDGAR,
Accession Number 0000352662-98-000008.
6. Information About the Company Synopsis; Comparison of Principal Risk
Being Acquired Factors; Miscellaneous; See also, the
Prospectus for INVESCO Tax-Free
Intermediate Bond Fund, dated November
1, 1998, previously filed on EDGAR,
Accession Number 0000352662-98-000008
7. Voting Information Voting Information
8. Interest of Certain Persons and Not Applicable
Experts
9. Additional Information Required Not Applicable
for Re-offering by Persons Deemed
to be Underwriters
<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 Statement of Additional Information of
Registrant INVESCO Tax-Free Long-Term Bond Fund,
dated November 1, 1998, previously
filed on EDGAR, Accession Number
0000352662-98-000008.
13. Additional Information About the Statement of Additional Information of
Company Being Acquired INVESCO Tax-Free Intermediate Bond
Fund, dated November 1, 1998,
previously filed on EDGAR, Accession
Number 0000352662-98-000008.
14. Financial Statements Annual Report of INVESCO Tax-Free
Long-Term Bond Fund for Fiscal Year
Ended June 30, 1998, previously filed
on EDGAR, Accession Number
0000352662-98-000005; Annual Report of
INVESCO Tax-Free Intermediate Bond Fund
for Fiscal Year Ended June 30, 1998,
previously filed on EDGAR, Accession
Number 0000352662-98-000005.
Semi-Annual Report of INVESCO Tax-Free
Long-Term Bond Fund for six months
ended December 31, 1998, previously
filed on EDGAR, Accession Number
0000352662-99-000005.
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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 TAX-FREE INCOME FUNDS, INC.
PART A
<PAGE>
INVESCO TAX-FREE INTERMEDIATE BOND FUND
(a series of INVESCO Tax-Free Income Funds, Inc.)
March 23, 1999
Dear INVESCO Tax-Free Intermediate Bond Fund Shareholder:
The attached proxy materials describe a proposal that INVESCO Tax-Free
Intermediate Bond Fund ("Intermediate Bond Fund") reorganize and become part of
INVESCO Tax-Free Long-Term Bond Fund ("Long-Term Bond Fund"). If the proposal is
approved and implemented, each shareholder of Intermediate Bond Fund will
automatically become a shareholder of Long-Term Bond Fund.
The attached proxy materials also seek your approval to convert
Intermediate Bond Fund to a series of INVESCO Bond Funds, Inc. (formerly INVESCO
Income Funds, Inc.) ("Bond Funds") and to make certain changes in the
fundamental investment restrictions of Intermediate Bond Fund (if the
reorganization is not approved or cannot be completed for some other reason), to
elect directors, and to ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants of Intermediate Bond Fund.
YOUR BOARD RECOMMENDS A VOTE FOR ALL PROPOSALS. The board believes that
combining the two Funds will benefit Intermediate Bond Fund's shareholders by
providing them with a portfolio that has an investment objective that is
identical to that of Intermediate Bond Fund, that has a substantially similar
investment strategy and that, before and after taking into account voluntary fee
waivers and expense reimbursements, will have lower operating expenses as a
percentage of net assets. If, however, the reorganization is not approved or
cannot be completed for some other reason, you are being asked to approve the
conversion of Intermediate Bond Fund to a series of Bond Funds. You are also
being asked to approve changes to the fundamental investment restrictions of
Intermediate Bond Fund that will update and streamline the Fund's restrictions.
The attached proxy materials provide more information about the proposed
reorganization and the two Funds, the proposed conversion, and the proposed
changes in fundamental investment restrictions, as well as the other matters you
are being asked to vote upon.
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YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
shares early will permit Intermediate Bond Fund to avoid costly follow-up mail
and telephone solicitation. After reviewing the attached materials, please
complete, sign and date your proxy card and mail it in the enclosed return
envelope today. As an alternative to using the paper proxy card to vote, you may
vote by mail, by telephone, by facsimile, through the Internet, or in person.
Very truly yours,
Mark H. Williamson
President
INVESCO Tax-Free Intermediate Bond Fund
<PAGE>
WHAT YOU SHOULD KNOW ABOUT THIS PROPOSED FUND MERGER
March 23, 1999
INVESCO and the Fund's Board of Directors encourage you to read the enclosed
proxy statement carefully. The following is a brief quick overview of the key
issue.
WHY IS MY FUND HOLDING A SPECIAL SHAREHOLDERS MEETING?
The main reason for the meeting is so that shareholders of INVESCO Tax-Free
Intermediate Bond Fund can decide whether or not to reorganize their fund. If
shareholders decide in favor of the proposal, TAX-FREE INTERMEDIATE BOND FUND
will merge with another, similar mutual fund managed by INVESCO, and you will
become a shareholder of INVESCO TAX-FREE LONG-TERM BOND FUND.
Whether or not shareholders decide they wish to merge the Funds, there are other
matters of business to be considered. So, no matter how you choose to vote on
the proposed merger, please do review all of the other proposals and vote on
them as well.
WHAT ARE THE ADVANTAGES OF MERGING THE FUNDS?
There are two key potential advantages:
o By combining the Funds, SHAREHOLDERS MAY ENJOY LOWER EXPENSE RATIOS over
time. Larger funds tend to enjoy economies of scale not available to funds
with smaller assets under management.
o These lower costs may lead to stronger performance, since total return
to a fund's shareholders is net of fund expenses.
The potential benefits and possible disadvantages are explained in more detail
in the enclosed proxy statement.
<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 municipal debt obligations free
from federal income tax. However, there are significant differences in
investment strategy:
o Tax-Free Intermediate Bond Fund invests in shorter-term debt obligations
typically maturing in three to five years.
o Tax-Free Long-Term Bond Fund, on the other hand, pursues higher income
from longer-term bonds. So this fund may offer higher income levels, but
its price may also be more volatile than an intermediate-term fund.
WHAT HAPPENS IF SHAREHOLDERS DECIDE IN FAVOR OF A MERGER?
A Closing Date will be set for the reorganization. Shareholders will receive
full and fractional shares of Tax-Free Long-Term Bond Fund equal in value to the
shares of Tax-Free Intermediate Bond Fund that they owned on the Closing Date.
The net asset value per share of Tax-Free Long-Term Bond Fund will not be
affected by the transaction. That means the reorganization will not result in a
dilution of any shareholder's interest.
IF THE FUNDS MERGE, WILL THERE BE TAX CONSEQUENCES FOR ME?
Unlike a transaction where you direct INVESCO to sell shares of one fund in
order to buy shares of another, the reorganization WILL NOT BE CONSIDERED A
TAXABLE EVENT. The Funds themselves will recognize no gains or losses on assets
as a result of a reorganization. So you will not have reportable capital gains
or losses due to the reorganization. However, you should consult your own tax
advisor regarding any possible effect a reorganization might have on you, given
your personal circumstances -- particularly regarding state and local taxes.
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WHO WILL PAY FOR THIS REORGANIZATION?
The expenses of the reorganization, including legal expenses, printing,
packaging and postage, plus the costs of any supplementary solicitation, will be
borne partly by INVESCO and partly by the two Funds.
WHAT DOES THE FUND'S BOARD OF DIRECTORS RECOMMEND?
The Board believes you should vote in favor of the reorganization. More
important, though, the directors recommend that you study the issues involved,
call us with any questions, and vote promptly to ensure that a quorum of
Tax-Free Intermediate Bond Fund shares will be represented at this Fund's
special shareholder meeting.
Where do I get more information about INVESCO Tax-Free Long-Term Bond Fund?
o Please visit our Web site at WWW.INVESCO.COM
o Or call Investor Services toll-free at 1-800-646-8372
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[BACK COVER]
YOU SHOULD KNOW WHAT INVESCO KNOWS
At INVESCO, we've built a global reputation on professional investment
management. Some of the world's largest institutions and more than a million
individuals rely on our knowledgeable investment specialists for effective
management of their portfolios. INVESCO provides investors the perspective
gained from more than 65 years of helping clients seek their financial goals.
The heart of INVESCO's business is to provide strong core mutual fund portfolios
designed as solid foundations for our clients' investments. We draw on the
resources of affiliates worldwide, so we have seasoned experts in the investment
strategies you want to pursue -- both for your core investments as well as to
meet special needs. And we offer award-winning service to help you better take
advantage of our investment expertise. Call us to learn more about your choices
at INVESCO.
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INVESCO TAX-FREE INTERMEDIATE BOND FUND
(a series of INVESCO Tax-Free Income Funds, Inc.)
__________________________________________________________
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
May 20, 1999
__________________________________________________________
To the Shareholders:
A special meeting of shareholders of INVESCO Tax-Free Intermediate Bond
Fund ("Intermediate Bond Fund"), a series of INVESCO Tax-Free Income Funds, Inc.
("Income Funds"), will be held on May 20, 1999, at 10:00 a.m., Mountain Time, at
the offices of INVESCO Funds Group Inc., 7800 East Union Avenue, Denver,
Colorado 80237, for the following purposes:
(1) To approve a Plan of Reorganization and Termination under which
INVESCO Tax-Free Long-Term Bond Fund ("Long-Term Bond Fund"), also a
series of Income Funds, would acquire all of the assets of Intermediate
Bond Fund in exchange solely for shares of Long-Term Bond Fund and the
assumption by Long-Term Bond Fund of all of Intermediate Bond Fund's
liabilities, followed by the distribution of those shares to the
shareholders of Intermediate Bond Fund, all as described in the
accompanying Prospectus/Proxy Statement;
(2) To approve an Agreement and Plan of Conversion and Termination
providing for the conversion of Intermediate Bond Fund from a separate
series of Income Funds to a separate series of INVESCO Bond Funds, Inc.
(formerly INVESCO Income Funds, Inc.);
(3) To approve certain changes to the fundamental investment restrictions
of Intermediate Bond Fund;
(4) To elect a board of directors of Income Funds;
(5) To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of Intermediate Bond Fund; and
(6) To transact such other business as may properly come before the
meeting or any adjournment thereof.
<PAGE>
You are entitled to vote at the meeting and any adjournment thereof if you
owned shares of the Intermediate Bond Fund at the close of business on March 12,
1999. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF YOU DO
NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE, AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
By order of the Board,
Glen A. Payne
Secretary
March 23, 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.
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 http://www.proxyvote.com on the
World Wide Web. In addition, shares that are registered in your name may be
voted by faxing your completed proxy card(s) to 1-800-733-1885. If we do not
receive your completed proxy card(s) after several weeks, you may be contacted
by our proxy solicitor, Shareholder Communications Corporation. Our proxy
solicitor will remind you to vote your shares or will record your vote over the
phone if you choose to vote in that manner. You may also call 1-800-690-6903 and
vote by phone.
Unless proxy card(s) submitted by corporations and partnerships are signed by
the appropriate persons as indicated in the voting instructions on the proxy
card, they will not be voted.
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2
<PAGE>
INVESCO TAX-FREE LONG-TERM BOND FUND
(A SERIES OF INVESCO TAX-FREE INCOME FUNDS, INC.)
INVESCO TAX-FREE INTERMEDIATE BOND FUND
(A SERIES OF INVESCO TAX-FREE INCOME FUNDS, INC.)
7800 EAST UNION AVENUE
DENVER, COLORADO 80237
(TOLL FREE) 1-800-646-8372
PROSPECTUS/PROXY STATEMENT
March 23, 1999
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of INVESCO Tax-Free Intermediate Bond Fund ("Intermediate Bond
Fund"), a series of INVESCO Tax-Free Income Funds, Inc. ("Income Funds"), in
connection with the solicitation of proxies by its board of directors for use at
a special meeting of its shareholders to be held on May 20, 1999, at 10:00 a.m.,
Mountain Time, and at any adjournment of the meeting, if the meeting is
adjourned for any reason.
As more fully described in this Proxy Statement, one of the main purposes
of the meeting is to vote on a proposed reorganization. In the reorganization,
INVESCO Tax-Free Long-Term Bond Fund ("Long-Term Bond Fund"), also a series of
Income Funds, would acquire all of the assets of Intermediate Bond Fund in
exchange solely for shares of Long-Term Bond Fund and the assumption by
Long-Term Bond Fund of all of the liabilities of Intermediate Bond Fund. Those
shares of Long-Term Bond Fund would then be distributed to the shareholders of
Intermediate Bond Fund, so that each shareholder of Intermediate Bond Fund would
receive a number of full and fractional shares of Long-Term Bond Fund having an
aggregate value that, on the effective date of the reorganization, is equal to
the aggregate net asset value of the shareholder's shares of Intermediate Bond
Fund. As soon as practicable following the distribution of shares, Intermediate
Bond Fund will be terminated.
Long-Term Bond Fund is a diversified series of Income Funds, which is an
open-end management investment company. Long-Term Bond Fund seeks as high a
level of current income exempt from federal income tax as is consistent with the
preservation of capital.
This Proxy Statement, which should be retained for future reference, sets
forth concisely the information about the reorganization and Long-Term Bond Fund
that a shareholder should know before voting on the reorganization. A Statement
of Additional Information, dated March 23, 1999, relating to the reorganization
and including historical financial statements, has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated herein by
reference (that is, the Statement of Additional Information is legally a part of
this Proxy Statement). A Prospectus and a Statement of Additional Information
for Long-Term Bond Fund, each dated November 1, 1998, Long-Term Bond Fund's
<PAGE>
Annual Report to Shareholders for the fiscal year ended June 30, 1998, and
Long-Term Bond Fund's Semi-Annual Report to Shareholders for the Six Months
Ended December 31, 1998, have been filed with the SEC and are incorporated
herein by reference. A Prospectus and a Statement of Additional Information for
Intermediate Bond Fund, each dated November 1, 1998, have been filed with the
SEC and also are incorporated herein by this reference. A copy of Long-Term Bond
Fund's Prospectus and Annual Report accompany this Proxy Statement. Copies of
the referenced documents, as well as Intermediate Bond Fund's Annual Report to
Shareholders for the fiscal year ended june 30, 1998 and Long-Term Bond Fund's
Semi-Annual Report to Shareholders for the Six Months Ended December 31, 1998
may be obtained without charge, and further inquiries may be made, by writing to
INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado 80217-3706, or by
calling toll-free 1-800-646-8372.
The SEC maintains a Website (http://www.sec.gov) that contains the
Statement of Additional Information and other material incorporated by
reference, together with other information regarding Long-Term Bond Fund and
Intermediate Bond Fund.
THE SEC HAS NOT APPROVED OR DISAPPROVED THE SHARES OF LONG-TERM BOND FUND OR
DETERMINED WHETHER THIS PROXY STATEMENT IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
<PAGE>
TABLE OF CONTENTS
VOTING INFORMATION.............................................................1
PART I: THE REORGANIZATION.....................................................3
PROPOSAL 1. To approve a Plan of Reorganization and Termination
under which Long-Term Bond Fund would acquire all of the assets
of Intermediate Bond Fund in exchange solely for shares of
Long-Term Bond Fund and the assumption by Long-Term Bond Fund of
all of Intermediate Bond Fund's liabilities, followed by the
distribution of those shares to the shareholders of Intermediate
Bond Fund.................................................................3
Synopsis..............................................................3
Comparison Of Principal Risk Factors.................................10
The Proposed Transaction.............................................13
PART II: PROPOSED ORGANIZATIONAL MATTER......................................19
PROPOSAL 2. To approve an Agreement and Plan of Conversion and
Termination providing for the conversion of Intermediate Bond
Fund from a separate series of Income Funds to a separate series
of InvescoBond Funds, Inc. (formerly invescoIncome Funds,
Inc.)...................................................................20
Reason for the Proposed Conversion...................................20
Summary of the Plan of Conversion and Termination....................21
Continuation of Shareholder Accounts.................................22
Expenses.............................................................23
Temporary Waiver of Investment Restrictions..........................23
Tax Consequences of the Conversion...................................23
Conclusion...........................................................23
PART III: PROPOSED MODIFICATIONS TO FUNDAMENTAL INVESTMENT RESTRICTIONS
AND ROUTINE CORPORATE GOVERNANCE MATTERS......................................24
PROPOSAL 3. To approve amendments to the fundamental investment
restrictions of Intermediate Bond Fund...................................24
a. To Modify the Funds's Fundamental Investment
Restriction on Issuer Diversification.............................25
iii
<PAGE>
b. To Modify the Funds's Fundamental Investment
Restriction on Borrowing and Adoption of
Non-Fundamental Policy on Borrowing...............................26
c. To Modify the Funds's Fundamental Investment
Restriction on Industry Concentration.............................27
d. To Modify the Funds's Fundamental Investment
Restriction on Real Estate Investment............................28
e. To Modify the Funds's Fundamental Investment
Restriction on Investing In Commodities.......................... 28
f. To Modify the Funds's Fundamental Investment
Restriction on Loans..............................................29
g. To Modify the Funds's Fundamental Investment
Restriction on Underwriting....................................30
h. To Adopt A Fundamental Investment Restriction on the
Issuance of Senior Securities.....................................30
i. To Adopt A Fundamental Investment Restriction on
Investing in Another Investment Company.........................30
PROPOSAL 4. To elect the board of directors..............................32
PROPOSAL 5: to ratify or reject the selection of independent
accountants..............................................................38
OTHER BUSINESS................................................................39
INFORMATION CONCERNING ADVISER, DISTRIBUTOR AND AFFILIATED COMPANIES..........39
MISCELLANEOUS.................................................................40
Available Information....................................................40
Legal Matters............................................................40
Experts..................................................................40
APPENDIX A: PRINCIPAL SHAREHOLDERS...........................................A-1
APPENDIX B: PLAN OF REORGANIZATION AND
TERMINATION..................................................................B-1
APPENDIX C: PLAN OF CONVERSION AND TERMINATION...............................C-1
iv
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INVESCO TAX-FREE INTERMEDIATE BOND FUND
(a series of INVESCO Tax-Free Income Funds, Inc.)
-----------
PROSPECTUS/PROXY STATEMENT
Special Meeting of Shareholders
May 20, 1999
-----------
VOTING INFORMATION
This Prospectus/Proxy Statement ("Proxy Statement") is being furnished to
shareholders of INVESCO Tax-Free Intermediate Bond Fund ("Intermediate Bond
Fund"), a series of INVESCO Tax-Free Income Funds, Inc. ("Income Funds"), in
connection with the solicitation of proxies from Intermediate Bond Fund
shareholders by the board of directors of Income Funds ("Board") for use at a
special meeting of shareholders to be held on May 20, 1999 ("Meeting"), and at
any adjournment of the Meeting. This Proxy Statement will first be mailed to
shareholders on or about March 23, 1999.
One-third of Intermediate Bond Fund's shares outstanding on March 12,
1999, represented in person or by proxy, shall constitute a quorum and must be
present for the transaction of business at the Meeting. If a quorum is not
present at the Meeting or a quorum is present but sufficient votes to approve
one or more of the proposals are not received, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies. Any such adjournment will require the affirmative vote of a majority
of those shares represented at the Meeting in person or by proxy. The persons
named as proxies will vote those proxies that they are entitled to vote FOR any
proposal in favor of such an adjournment and will vote those proxies required to
be voted AGAINST a proposal against such adjournment. A shareholder vote may be
taken on one or more of the proposals in this Proxy Statement prior to any such
adjournment if sufficient votes have been received and it is otherwise
appropriate.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and for which the broker does not have
discretionary voting authority. Abstentions and broker non-votes will be counted
as shares present for purposes of determining whether a quorum is present but
will not be voted for or against any adjournment or proposal. Accordingly,
abstentions and broker non-votes effectively will be a vote against adjournment
or against any proposal where the required vote is a percentage of the shares
present or outstanding. Abstentions and broker non-votes will not be counted,
however, as votes cast for purposes of determining whether sufficient votes have
been received to approve a proposal.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your directions as indicated on the proxy card, if your proxy
card is received properly executed by you or by your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval of each of
the proposals, and the duly appointed proxies may, in their discretion, vote
upon such other matters as may come before the Meeting. The proxy card may be
revoked by giving another proxy or by letter or telegram revoking the initial
proxy. To be effective, revocation must be received by Income Funds prior to the
Meeting and must indicate your name and account number. If you attend the
Meeting in person you may, if you wish, vote by ballot at the Meeting, thereby
canceling any proxy previously given.
In order to reduce costs, the notices to a shareholder having more than
one account in Intermediate Bond Fund listed under the same Social Security
number at a single address have been combined. The proxy cards have been coded
so that a shareholder's votes will be counted for each such account.
As of March 12, 1999 ("Record Date"), Intermediate Bond Fund had
683,199.876 shares of common stock outstanding. The solicitation of proxies, the
cost of which will be borne half by INVESCO Funds Group, Inc., the investment
adviser and transfer agent of Intermediate Bond Fund ("INVESCO"), and half by
INVESCO Tax-Free Long-Term Bond Fund ("Long-Term Bond Fund"), also a series of
Income Funds, and Intermediate Bond Fund (each, a "Fund"), will be made
primarily by mail but also may be made by telephone or oral communications by
representatives of INVESCO and INVESCO Distributors, Inc. ("IDI"), the
distributor of the INVESCO group of investment companies ("INVESCO Funds"), who
will not receive any compensation for these activities from either Fund, or by
Shareholder Communications Corporation, professional proxy solicitors, who will
be paid fees and expenses of up to approximately $471 for soliciting services.
If votes are recorded by telephone, Shareholder Communications Corporation will
use procedures designed to authenticate shareholders' identities, to allow
shareholders to authorize the voting of their shares in accordance with their
instructions, and to confirm that a shareholder's instructions have been
properly recorded. You may also vote by mail, by facsimile, or through a secure
Internet site. Proxies voted by telephone, facsimile, or Internet may be revoked
at any time before they are voted in the same manner that proxies voted by mail
may be revoked.
Except as set forth in Appendix A, INVESCO does not know of any person who
owns beneficially 5% or more of the shares of either Fund. Directors and
officers of Income Funds own in the aggregate less than 1% of the shares of
Intermediate Bond Fund.
VOTE REQUIRED. Approval of Proposals 1 and 2 requires the affirmative vote
of a majority of the outstanding voting securities of Intermediate Bond Fund.
Approval of Proposal 3 requires the affirmative vote of a "majority of the
outstanding voting securities" of Intermediate Bond Fund, as defined in the
Investment Company Act of 1940, as amended ("1940 Act"). This means that
Proposal 3 must be approved by the lesser of (1) 67% of Intermediate Bond Fund's
shares present at a meeting of shareholders if the owners of more than 50% of
Intermediate Bond Fund's shares then outstanding are present in person or by
proxy or (2) more than 50% of Intermediate Bond Fund's outstanding shares. A
plurality of the votes cast at the Meeting, and at a concurrent meeting of the
2
<PAGE>
shareholders of Long-Term Bond Fund, taken in the aggregate, is sufficient to
approve Proposal 4. Approval of Proposal 5 requires the affirmative vote of a
majority of the votes present at the Meeting, provided a quorum is present. Each
outstanding full share of Intermediate Bond Fund is entitled to one vote, and
each outstanding fractional share thereof is entitled to a proportionate
fractional share of one vote. If any Proposal is not approved by the requisite
vote of shareholders of Intermediate Bond Fund, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies.
PART I: THE REORGANIZATION
PROPOSAL 1. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION AND
TERMINATION ("REORGANIZATION PLAN") UNDER WHICH LONG-TERM BOND FUND
WOULD ACQUIRE ALL OF THE ASSETS OF INTERMEDIATE BOND FUND IN EXCHANGE
SOLELY FOR SHARES OF LONG-TERM BOND FUND AND THE ASSUMPTION BY
LONG-TERM BOND FUND OF ALL OF INTERMEDIATE BOND FUND'S LIABILITIES,
FOLLOWED BY THE DISTRIBUTION OF THOSE SHARES TO THE SHAREHOLDERS OF
INTERMEDIATE BOND FUND ("REORGANIZATION")
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement, Income Funds' Prospectus and Statement of Additional
Information (which are incorporated herein by reference), and the Reorganization
Plan (which is attached as Appendix B to this Proxy Statement). As discussed
more fully below, the Board believes that the Reorganization will benefit each
Fund's shareholders. The Funds have an identical investment objective, although
the focus of the Funds' investment strategies differ in that Intermediate Bond
Fund's investments are primarily intermediate-term obligations. Intermediate
Bond Fund maintains a diversified portfolio of obligations with a
dollar-weighted average maturity from five to ten years. Long-Term Bond Fund
invests primarily in long-term obligations with a dollar-weighted average
maturity of ten years or longer. The Board has determined that if the
Reorganization is approved, Long-Term Bond Fund will change its name to "INVESCO
Tax-Free Bond Fund" and will be permitted to invest in both intermediate-term
and long-term obligations. It is anticipated that following the Reorganization,
the former shareholders of Intermediate Bond Fund will, as shareholders of
Long-Term Bond Fund, be subject to slightly lower total operating expenses as a
percentage of net assets.
THE PROPOSED REORGANIZATION
The Board considered and unanimously approved the Reorganization Plan at a
meeting held on February 3, 1999. The Reorganization Plan provides for the
acquisition of all the assets of Intermediate Bond Fund by Long-Term Bond Fund,
in exchange solely for shares of common stock of Long-Term Bond Fund and the
assumption by Long-Term Bond Fund of all the liabilities of Intermediate Bond
Fund. Intermediate Bond Fund will distribute those shares of Long-Term Bond Fund
to its shareholders, so that each Intermediate Bond Fund shareholder will
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receive the number of full and fractional shares that is equal in aggregate
value to the value of such shareholder's holdings in Intermediate Bond Fund as
of the day the Reorganization is completed. Intermediate Bond Fund then will be
terminated as soon as practicable thereafter, and Long-Term Bond Fund will be
renamed "INVESCO Tax-Free Bond Fund."
The Reorganization will occur as of the close of business on June 4, 1999,
or at a later date when the Reorganization is approved and all contingencies
have been met (the "Closing Date").
For the reasons set forth below under "The Proposed Transaction - Reasons
for the Reorganization," the Board, including its directors who are not
"interested persons," as that term is defined in the 1940 Act, of Tax-Free
Income Funds or INVESCO (collectively "Independent Directors"), has determined
that the Reorganization is in the best interests of Intermediate Bond Fund, that
the terms of the Reorganization are fair and reasonable and that the interests
of Intermediate Bond Fund's shareholders will not be diluted as a result of the
Reorganization. Accordingly, the Board recommends approval of the transaction.
In addition, the Board, including its Independent Directors, has determined that
the Reorganization is in the best interests of Long-Term Bond Fund, that the
terms of the Reorganization are fair and reasonable and that the interests of
Long-Term Bond Fund's shareholders will not be diluted as a result of the
Reorganization.
COMPARATIVE FEE TABLE
Certain fees and expenses that Intermediate Bond Fund's shareholders pay,
directly or indirectly, are slightly higher than those incurred by Long-Term
Bond Fund's shareholders, although neither Fund's shares are subject to any
shareholder transaction expenses, i.e., there are no sales charges on shares
purchased or deferred sales charges for shares redeemed. The following tables
show (1) fees currently incurred by shareholders of each Fund and fees that each
shareholder will incur after giving effect to the Reorganization, and (2) the
current fees and expenses incurred by each Fund for the year ended December 31,
1998, and pro forma fees for Long-Term Bond Fund after the Reorganization.
SHAREHOLDER FEES (fees paid directly from your investment)
Long-Term Intermediate
Bond Fund Bond Fund Combined Fund
--------- --------- -------------
Sales charge (load) on purchases None None None
of shares
Sales charge (load) on reinvested None None None
dividends
Redemption fee or deferred sales None None None
charge (load)
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ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
Long-Term Intermediate Combined Fund
Bond Fund Bond Fund (Pro Forma)
--------- --------- -----------
Management Fees 0.55% 0.50% 0.55%
Distribution (12b-1) Fees* 0.25% 0.25% 0.25%
Other Expenses 0.23%(1)(2) 1.35%(1)(2) 0.23%
----- ----- -----
Total Fund Operating Expenses 1.03%(1)(2) 2.10%(1)(2) 1.03%
===== ===== =====
* Because each Fund pays distribution fees, long-term shareholders could pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
(1) Certain expenses of each Fund are being voluntarily absorbed by INVESCO.
Accordingly, "Other Expenses" and "Total Fund Operating Expenses" after
absorption for the year ended December 31, 1998 were 0.10% and 0.90%,
respectively, for Long-Term Bond Fund, and 0.16% and 0.91%, respectively, for
Intermediate Bond Fund. Intermediate Bond Fund's expenses are more than those of
Long-Term Bond Fund and INVESCO does not intend to continue absorbing the
expenses of Intermediate Bond Fund. INVESCO will, however, continue to absorb
the expenses of Long-Term Bond Fund for a period of at least one year, so that
Total Fund Operating Expenses will not exceed 0.90%. Thus, if the Reorganization
is not approved, the Other Expenses and Total Fund Operating Expenses paid by
Intermediate Bond Fund will likely increase.
(2) Each Fund's Total Fund Other Expenses and Operating Expenses were lower than
the figures shown, because their transfer agent fees and/or custodian fees were
reduced under expense offset arrangements. Because of an SEC requirement, the
figures shown above do not reflect these reductions.
EXAMPLE OF EFFECT ON FUND EXPENSES
This Example is intended to help you compare the cost of investing in
Intermediate Bond Fund with the cost of investing in Long-Term Bond Fund and the
cost of investing in Long-Term Bond Fund assuming the Reorganization has been
completed.
The Example assumes that you invest $10,000 in the specified Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year, that all dividends and other distributions are reinvested and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Long-Term Bond Fund......... $105 $328 $569 $1,259
Intermediate Bond Fund...... $213 $658 $1,129 $2,431
Combined Fund (Pro Forma)... $105 $328 $569 $1,259
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.
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FORM OF ORGANIZATION
Each Fund is a series of Income Funds, an open-end, diversified management
investment company that was organized as a Maryland corporation on April 2,
1993. Income Funds' Articles of Incorporation authorize the directors to issue
up to five hundred million shares, par value $0.01 per share. Neither Fund is
required to (nor does it) hold annual shareholder meetings. Neither Fund issues
share certificates.
INVESTMENT ADVISER
INVESCO is the investment adviser of each Fund. In this capacity, INVESCO
supervises all aspects of each Fund's operations and makes and implements all
investment decisions for the Funds.
INVESCO is currently paid a monthly management fee, which is based upon a
percentage of each Fund's average net assets determined daily. The management
fee is computed (1) by Intermediate Bond Fund, at the annual rate of 0.50% on
the first $300 million of the Fund's average net assets; 0.40% on the next $200
million of the Fund's average net assets; and 0.30% of the Fund's average net
assets over $500 million, and (2) by Long-Term Bond Fund, at the annual rate of
0.55% on the first $300 million of the Fund's average net assets; 0.45% on the
next $200 million of the Fund's average net assets; and 0.35% on the Fund's
average net assets over $500 million. Based on Long-Term Bond Fund's average net
assets of $214,220,657 for the year ended December 31, 1998, Long-Term Bond Fund
paid management fees at the effective annual rate of 0.55% of average daily net
assets, which is more than the current fee paid by Intermediate Bond Fund.
Following the Reorganization, the initial management fee for the combined Fund
is expected to be 0.55% of the average net assets, although this fee will
decrease in accordance with the fee schedule for Long-Term Bond Fund described
above if the assets of the combined Fund increase.
Following the Reorganization, INVESCO, in its capacity as investment
adviser to Long-Term Bond Fund, will have sole responsibility for managing the
Funds' combined assets.
INVESTMENT OBJECTIVES AND POLICIES
BOTH FUNDS. Long-Term Bond Fund has an identical investment objective to
that of Intermediate Bond Fund in that each Fund seeks as high a level of
current income exempt from federal income tax as is consistent with the
preservation of capital. Both Funds pursue this investment objective by
investing in a diversified portfolio of obligations issued by states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the interest
on which is, in the opinion of counsel to the issuer, exempt from federal income
tax ("municipal bonds"). Under ordinary circumstances, no more than 20% of each
Fund's total assets may consist of bonds the interest on which is a tax
preference item for purposes of the federal alternative minimum tax ("AMT
Bonds"), short-term or temporary taxable securities (the income from which may
be subject to federal income tax), debt obligations rated below investment grade
and cash.
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The Funds may invest in temporary and/or short-term taxable investments.
Short-term taxable investments, if any, normally will consist of notes having
quality ratings within the two highest grades of Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"), Fitch Investors Services, Inc. ("Fitch") or Duff & Phelps, Inc.
("D&P"), obligations of the U.S. government, its agencies or instrumentalities;
commercial paper rated at least P-2 by Moody's or A-2 by S&P; certificates of
deposit of U.S. domestic banks, including foreign branches of domestic banks,
with assets of $1 billion or more; time deposits; bankers' acceptances and other
short-term bank obligations; and repurchase agreements. Temporary taxable
investments, if any, normally will consist of corporate bonds and other debt
obligations. Dividends paid by a Fund attributable to income from such
investments will be taxable to investors.
Under normal circumstances, at least 80% of each Fund's assets are
invested in a combination of municipal bonds rated investment grade -- those
rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P and short-term
municipal notes rated within the two highest rating categories. No more than 10%
of a Fund's total assets may be invested in issues rated below investment grade
quality (i.e., "junk bonds," rated BB or lower by S&P or Ba or lower by Moody's
or, if unrated, judged by INVESCO to be of equivalent quality).
There can be no assurance that either Fund will achieve its investment
objective.
LONG-TERM BOND FUND. As a matter of policy, the dollar-weighted average
maturity of Long-Term Bond Fund's portfolio normally will be at least ten years
and will vary as INVESCO responds to changes in interest rates.
Long Term Bond Fund's investment portfolio is actively traded --
securities may be bought and sold relatively quickly under certain market or
economic conditions. The Fund's portfolio turnover rates generally exceed 100%,
resulting in greater brokerage commissions and acceleration of capital gains,
which are taxable when distributed to shareholders. Intermediate Bond Fund's
turnover rates have been considerably lower.
Long-Term Bond Fund may not borrow in excess of 10% of its net assets.
Long-Term Bond Fund is not permitted, under any circumstances, to invest
in bonds that are rated below B by Moody's or B- by S&P.
INTERMEDIATE BOND FUND. The dollar-weighted average maturity of
Intermediate Bond Fund's obligations normally will range from five to ten years
and will also vary as INVESCO responds to changes in interest rates.
Intermediate Bond Fund may seek to earn additional income by purchasing
"tender option bonds," municipal bonds that have relatively long maturities and
offer fixed income at a substantially higher rate than other short-term
tax-exempt bonds.
Intermediate Bond Fund may invest up to 10% of its total assets in
illiquid securities, including securities that are subject to restrictions on
resale and securities that are not readily marketable. Intermediate Bond Fund is
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authorized to invest in securities that are not registered for sale to the
general public but may be sold to institutional investors.
Intermediate Bond Fund may not borrow more than 33 1/3% of its net assets.
Intermediate Bond Fund does not, under any circumstances, invest in bonds
that are rated below CCC or Caa by S&P or Moody's, respectively.
OTHER POLICIES OF BOTH FUNDS. Each Fund may purchase securities on a
when-issued or delayed delivery basis -- that is, with settlement taking place
in the future. Each Fund is authorized to lend up to 33 1/3% of the total value
of its portfolio securities to qualified brokers, dealers, banks or other
financial institutions that INVESCO deems qualified.
Each Fund is authorized to invest in zero-coupon securities. Of the 10% of
Intermediate Bond Fund's total assets that may be invested in debt obligations
rated below investment grade, no more than 5% of its total assets may be
invested in zero-coupon bonds having such ratings. Both Funds may also enter
into repurchase agreements with banks of the Federal Reserve System, registered
broker-dealers and registered U.S. government securities dealers that are deemed
creditworthy by the Board.
Each Fund is authorized to invest in futures contracts and options on
futures contracts to hedge against price changes in the value of its current or
intended investments in securities. The aggregate market value of the futures
contracts Long-Term Bond Fund holds cannot exceed 30% of the market value of its
total assets.
When INVESCO believes market or economic conditions are unfavorable, the
Funds may assume a defensive position by temporarily investing up to 100% of
their assets in short-term taxable investments or cash, seeking to protect their
assets until conditions stabilize.
Each Fund may borrow money for temporary or emergency purposes.
OPERATIONS OF LONG-TERM BOND FUND FOLLOWING THE REORGANIZATION
As indicated above, the investment objectives and policies of the two
Funds are the same, although the focus of Intermediate Bond Fund is on
investments in intermediate-term obligations, and its authority to invest in
lower-rated debt securities is less limited than the authority of Long-Term Bond
Fund to do so. In addition, Intermediate Bond Fund has the authority to purchase
tender option bonds and illiquid securities while Long-Term Bond Fund currently
has no such authority. As indicated above, if the Reorganization is approved,
Long-Term Bond Fund will change its policy as to the average dollar-weighted
maturity of its investments, so that it will have the ability to invest in
intermediate-term and long-term obligations. At the same time, it will change
its name to "INVESCO Tax-Free Bond Fund." Based on its review of the investment
portfolios of each Fund, INVESCO believes that most of the assets held by
Intermediate Bond Fund will be consistent with the amended investment policies
of Long-Term Bond Fund and thus can be transferred to and held by Long-Term Bond
Fund if the Reorganization is approved. If, however, Intermediate Bond Fund has
any assets that may not be held by Long-Term Bond Fund, those assets will be
sold prior to the Reorganization. The proceeds of such sales will be held in
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temporary investments or reinvested in assets that qualify to be held by
Long-Term Bond Fund. The possible need for Intermediate Bond Fund to dispose of
assets prior to the Reorganization could result in selling securities at a
disadvantageous time and could result in Intermediate Bond Fund's realizing
losses that would not otherwise have been realized. Alternatively, these sales
could result in Intermediate Bond Fund's realizing gains that would not
otherwise have been realized, the net proceeds of which would be included in a
distribution to its shareholders prior to the Reorganization.
As discussed above, INVESCO serves as investment adviser to both Funds.
After the Reorganization, INVESCO, the directors and officers of Long-Term Bond
Fund, and its distributor and other outside agents will continue to serve
Long-Term Bond Fund in their current capacities.
PURCHASES AND REDEMPTIONS
PURCHASES. Shares of each Fund may be purchased by wire, telephone, mail
or direct payroll purchase. The shares of each Fund are sold on a continuous
basis at the net asset value ("NAV") per share next calculated after receipt of
a purchase order in good form. The NAV per share for each Fund is computed
separately and is determined once each day that the New York Stock Exchange is
open ("Business Day"), as of the close of regular trading on the Exchange but
may also be computed at other times. For a more complete discussion of share
purchases, see "How to Buy Shares" in the Income Funds Prospectus and "How
Shares Can Be Purchased" in the Income Funds Statement of Additional
Information.
REDEMPTIONS. Shares of each Fund may be redeemed by telephone, by mail, by
exchange, by periodic withdrawal plan, or by payment to a third party. Such
redemptions are made at the NAV per share of each Fund next determined after a
request in proper form is received at the Fund's office. Normally, payments will
be mailed within seven days following receipt of the required documents. For a
more complete discussion of share redemption procedures, see "How to Sell
Shares" in the Income Funds Prospectus.
Intermediate Bond Fund shares will no longer be available for purchase
beginning on the Business Day following the Closing Date. Redemptions of
Intermediate Bond Fund shares may be effected through the Closing Date.
EXCHANGES
Shares of the Funds are exchangeable for shares of another INVESCO Fund,
on the basis of their respective NAVs per share at the time of the exchange.
After the Reorganization, shares of Long-Term Bond Fund will continue to be
exchangeable for shares of another INVESCO Fund. For a more complete discussion
of the Funds' exchange policies, see "How to Buy Shares" in the Income Funds
Prospectus.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund earns investment income in the form of interest on investments.
Dividends paid by each Fund are based solely on its net investment income. Each
Fund's policy is to distribute substantially all of its investment income, less
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expenses, to shareholders. Dividends from net investment income are declared
daily and paid monthly at the discretion of the Board. Dividends are
automatically reinvested in additional shares of a Fund at the NAV on the
ex-dividend date unless otherwise requested.
Exempt-interest dividends paid by each Fund are normally free of federal
income tax to shareholders, although they may be subject to state and local
income taxes. Shareholders must include all other distributions, including any
dividends earned on a Fund's short-term taxable investments and any
distributions of recognized capital gains, as taxable income for federal, state
and local income tax purposes. These distributions are taxable whether they are
received in cash or automatically reinvested in shares of a Fund or another fund
in the INVESCO group.
Each Fund also realizes capital gains and losses when it sells securities
or engages in futures transactions for more or less than it paid. If total gains
on these sales exceed total losses (including losses carried forward from
previous years), a Fund has capital gain net income. Net realized capital gains,
if any, are distributed to shareholders at least annually, usually in December.
Capital gains distributions are automatically reinvested in shares of the
respective Fund at the NAV on the ex-distribution date unless otherwise
requested. Dividends and other distributions are paid to holders of shares on
the record date of distribution regardless of how long a Fund's shares have been
held by the shareholder.
On or before the Closing Date, Intermediate Bond Fund will declare as a
distribution substantially all of its net investment income and realized net
capital gain, if any, and distribute that amount plus any previously declared
but unpaid dividends, in order to continue to maintain its tax status as a
regulated investment company.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
Income Funds will receive an opinion of its counsel, Kirkpatrick &
Lockhart LLP, to the effect that the Reorganization will constitute a tax-free
reorganization within the meaning of section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended ("Code"). Accordingly, neither Fund will
recognize any gain or loss as a result of the Reorganization. See "The Proposed
Transaction - Federal Income Tax Considerations," below. To the extent
Intermediate Bond Fund sells securities prior to the Closing Date, there may be
net recognized gains or losses to the Fund. Any net recognized gains would
increase the amount of any distribution made to shareholders of Intermediate
Bond Fund prior to the Closing Date.
COMPARISON OF PRINCIPAL RISK FACTORS
An investment in Long-Term Bond Fund is subject to specific risks arising
from the types of securities in which the Fund invests and general risks arising
from investing in any mutual fund. The principal specific risks associated with
investing in Long-Term Bond Fund include:
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MUNICIPAL SECURITIES. Long-Term Bond Fund's investments in municipal
securities generally are subject to both credit risk and market risk. Credit
risk relates to the ability of the issuer to meet interest or principal
payments, or both, as they come due. Overall, the municipal securities purchased
by Long-Term Bond Fund enjoy strong to adequate capacity to pay principal and
interest. Market risk relates to sensitivity to changes in interest rates. An
increase in interest rates will tend to reduce the market values of outstanding
debt securities, whereas a decline in interest rates will tend to increase their
values. Municipal securities with longer maturities (such as those that may be
held by Long-Term Bond Fund) are more sensitive to interest rate movements.
RISK OF LOWER RATED BONDS. Long-Term Bond Fund may invest in issues rated
below investment grade quality (junk bonds), that are rated Ba or lower by
Moody's or BB or lower by S&P, or if unrated, are judged by INVESCO to be of
equivalent quality. These include issues which are of poorer quality and may
have some speculative characteristics according to the ratings services.
The lower a bond's quality, the more it is believed by the rating service
to be subject to credit risk and the more speculative it becomes; this is also
true of most unrated securities. To reduce these risks, at least 80% of
Long-Term Bond Fund's assets normally are invested in debt securities rated Baa
or above by Moody's or BBB or above by S&P. In addition, Long-Term Bond Fund may
invest in temporary and/or short-term taxable investments. Overall, such bonds
and notes enjoy strong to adequate capacity to pay principal and interest. No
more than 10% of the Fund's total assets may be invested in junk bonds or in
unrated securities. Never, under any circumstances, is Long-Term Bond Fund
permitted to invest in bonds which are rated below B by Moody's or B- by S&P.
Bonds rated below B or B- generally lack characteristics of a desirable
investment and are deemed speculative with respect to the issuer's capacity to
pay interest and repay principal over a long period of time.
FUTURES AND OPTIONS. Long-Term Bond Fund will enter into futures contracts
and options on futures contracts and securities solely for hedging or other
non-speculative purposes. The use of futures and options, however, involves
certain risks. For example, a lack of correlation between the value of an
instrument underlying an option or futures contract and the assets being hedged,
or unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful and could result in losses. In addition, there can be no assurance
that a liquid secondary market will exist for any contract purchased or sold,
and the Fund might be required to maintain a position until exercise or
expiration, which could result in losses. Transactions in futures contracts and
options are subject to other risks as well, which are set forth in greater
detail in the Statement of Additional Information for Income Funds.
ZERO-COUPON BONDS. Long-Term Bond Fund may invest in zero coupon bonds if
INVESCO determines that the risk of a default on the security, which could
result in adverse tax consequences, is not significant. Zero-coupon bonds make
no periodic interest payments. Instead, they are sold at a discount from their
face value. The buyer of the security receives the rate of return by the gradual
appreciation in the price of the security, which is redeemed at face value at
maturity. Zero-coupon bonds are more sensitive to changes in interest rates than
bonds that pay interest on a current basis in cash. When interest rates fall,
the value of these types of bonds will increase more rapidly, and when interest
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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.
DELAYED DELIVERY OR WHEN-ISSUED SECURITIES. Long-Term Bond Fund may invest
in when-issued or delayed delivery with respect to municipal obligations, that
is, purchase those obligations with settlement taking place up to 90 days in the
future. The payment obligation and the interest rate received on the securities
generally are fixed at the time the Fund enters into the commitment. Between the
date of purchase and the settlement date, the market value of the securities may
vary, and no interest is payable to the Fund prior to settlement.
SECURITIES LENDING. Long-Term Bond Fund may seek to earn additional income
by lending securities to qualified brokers, dealers, banks or other financial
institutions on a fully collateralized basis. Lending securities involves
certain risks, the most significant of which is the risk that a borrower may
fail to return a portfolio security. INVESCO monitors the creditworthiness of
borrowers in order to minimize such risks.
REPURCHASE AGREEMENTS. Long-Term Bond Fund may invest money, for as short
a time as overnight, using repurchase agreements ("repos"). With a repo, the
Fund buys a debt instrument, agreeing simultaneously to sell it back to the
prior owner at an agreed-upon price and date. The Fund could incur costs or
delays in seeking to sell the security if the prior owner defaults on its
repurchase obligation. To reduce that risk, the securities that are the subject
of the repurchase agreement will be maintained with the Fund's custodian in an
amount at least equal to the repurchase price under the agreement (including
accrued interest). These agreements are entered into only with member banks of
the Federal Reserve System, registered brokers and dealers, and registered U.S.
government securities dealers that are deemed creditworthy under standards set
by the Board.
TURNOVER RATE. Long-Term Bond Fund's investment portfolio is actively
traded. There are no fixed limitations regarding turnover for the Fund;
securities may be sold without regard to the time they have been held when
investment considerations warrant such action. The Fund's portfolio turnover
rate may be higher than that of many other mutual funds, sometimes approaching
200%. This turnover may result in greater brokerage commissions and acceleration
of capital gains, which are taxable when distributed to shareholders.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own computer systems will continue to function on and after
January 1, 2000. In addition the markets for or value of securities, in which
the Fund invests may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000. For example,
improperly functioning systems could result in securities trade settlement
problems and liquidity issues, production issues for individual companies and
overall economic uncertainties. Individual issuers may incur increased costs in
making their own systems Year 2000 compliant. The combination of market
uncertainty and increased costs means that there is a possibility that Year 2000
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issues may adversely affect the Fund's investments.
Because Intermediate Bond Fund's investment objective and policies are
similar to those of Long-Term Bond Fund, an investment in Intermediate Bond Fund
is also subject to many of the same specific risks as an investment in Long-Term
Bond Fund. In particular, Intermediate Bond Fund is also subject to the risk of
lower-rated securities and market risk, although in the case of market risk, its
risk would normally be lower than the market risk in that area for Long-Term
Bond Fund. As indicated above, Long-Term Bond Fund's dollar-weighted average
maturity is normally at least ten years, while Intermediate Bond Fund typically
invests in debt securities with shorter maturities. Intermediate Bond Fund also
engages in futures and options transactions, lends its portfolio securities, and
purchases zero-coupon bonds. Although Intermediate Bond Fund's investment
portfolio is also actively traded, its portfolio turnover rate is substantially
lower than that of Long-Term Bond Fund.
See "Investment Policies and Risks" in the Income Funds Prospectus for a
more complete description of investment risks.
THE PROPOSED TRANSACTION
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction will be
consummated are set forth in the Reorganization Plan. Significant provisions of
the Reorganization Plan are summarized below; however, this summary is qualified
in its entirety by reference to the Reorganization Plan, which is attached as
Appendix B to this Proxy Statement.
The Reorganization Plan provides for (a) the acquisition by Long-Term Bond
Fund on the Closing Date of all of the assets of Intermediate Bond Fund in
exchange solely for Long-Term Bond Fund shares and the assumption by Long-Term
Bond Fund of all of Intermediate Bond Fund's liabilities and (b) the
distribution of those Long-Term Bond Fund shares to the shareholders of
Intermediate Bond Fund.
The assets of Intermediate Bond Fund to be acquired by Long-Term Bond Fund
include all cash, cash equivalents, securities, receivables, claims and rights
of action, rights to register shares under applicable securities laws, books and
records, deferred and prepaid expenses shown as assets on Intermediate Bond
Fund's books and all other property owned by Intermediate Bond Fund. Long-Term
Bond Fund will assume from Intermediate Bond Fund all liabilities, debts,
obligations and duties of Intermediate Bond Fund of whatever kind or nature;
provided, however, that Intermediate Bond Fund will use its best efforts to
discharge all of its known debts, liabilities, obligations and duties before the
Closing Date. Long-Term Bond Fund will deliver its shares to Intermediate Bond
Fund, which then will be constructively distributed to Intermediate Bond Fund's
shareholders.
The value of Intermediate Bond Fund's assets to be acquired by Long-Term
Bond Fund and the NAV per share of the Long-Term Bond Fund shares to be
exchanged for those assets will be determined as of the close of regular trading
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on the New York Stock Exchange on the Closing Date ("Valuation Time"), using the
valuation procedures described in Income Funds' then-current Prospectus and
Statement of Additional Information. Intermediate Bond Fund's net value shall be
the value of its assets to be acquired by Long-Term Bond Fund, less the amount
of Intermediate Bond Fund's liabilities, as of the Valuation Time.
On, or as soon as practicable after, the Closing Date, Intermediate Bond
Fund will distribute the Long-Term Bond Fund shares it receives pro rata to its
shareholders of record as of the effective time of the Reorganization, so that
each Intermediate Bond Fund shareholder will receive a number of full and
fractional Long-Term Bond Fund shares equal in aggregate value to the
shareholder's holdings in Intermediate Bond Fund. Intermediate Bond Fund will be
terminated as soon as practicable after the share distribution. The shares will
be distributed by opening accounts on the books of Long-Term Bond Fund in the
names of Intermediate Bond Fund shareholders and by transferring to those
accounts the shares previously credited to the account of Intermediate Bond Fund
on those books. Fractional shares in Long-Term Bond Fund will be rounded to the
third decimal place.
Because Long-Term Bond Fund shares will be issued at NAV in exchange for
the net assets of Intermediate Bond Fund, the aggregate value of Long-Term Bond
Fund shares issued to Intermediate Bond Fund shareholders will equal the
aggregate value of Intermediate Bond Fund shares. The NAV per share of Long-Term
Bond Fund will be unchanged by the transaction. Thus, the Reorganization will
not result in a dilution of any shareholder's interest.
Any transfer taxes payable upon issuance of Long-Term Bond Fund shares in
a name other than that of the registered Intermediate Bond Fund shall be paid by
the person to whom shareholder those shares are to be issued as a condition of
such transfer. Any reporting responsibility of Intermediate Bond Fund to a
public authority will continue to be its responsibility until it is dissolved.
Half of the cost of the Reorganization, including professional fees and
the cost of soliciting proxies for the Meeting, consisting principally of
printing and mailing expenses, together with the cost of any supplementary
solicitation, will be borne by INVESCO, the investment adviser to each Fund, and
half by the Funds. The Board considered the fact that INVESCO will pay half of
these expenses in approving the Reorganization and finding that the
Reorganization is in the best interests of the Funds.
The consummation of the Reorganization is subject to a number of
conditions set forth in the Reorganization Plan, some of which may be waived by
either Fund. In addition, the Reorganization Plan may be amended in any mutually
agreeable manner, except that no amendment may be made subsequent to the Meeting
that has a material adverse effect on the interests of Intermediate Bond Fund's
shareholders.
REASONS FOR THE REORGANIZATION
The Board, including a majority of its 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
14
<PAGE>
of each Fund's shareholders will not be diluted as a result of the
Reorganization.
In approving the Reorganization, the Board, including a majority of its
Independent Directors, considered a number of factors, including the following:
(1) the compatibility of the Fund's investment objectives, policies
and restrictions;
(2) the effect of the Reorganization on the Fund's expected
investment performance;
(3) the effect of the Reorganization on the expense ratio of each
Fund relative to its current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) possible alternatives to the Reorganization, including whether
Intermediate Bond Fund could continue to operate on a
stand-alone basis or should be liquidated; and
(7) the potential benefits of the Reorganization to INVESCO and to
other persons.
The Reorganization was recommended to the Board by INVESCO at a Board
meeting held on February 3, 1999. In recommending the Reorganization, INVESCO
advised the Board that the investment management fee schedule applicable to
Long-Term Bond Fund would be slightly higher than that currently in effect for
Intermediate Bond Fund, but that the "Other Expenses" and "Total Expenses" of
Intermediate Bond Fund are higher than those of Long-Term Bond Fund. (See "Other
Expenses" on page 5.) INVESCO also advised the Board that, if the Reorganization
is not approved, INVESCO will no longer continue to absorb expenses for
Intermediate Bond Fund, as it has done since the Fund commenced operations in
1994, because the Fund has failed to attract significant assets. The Board was
advised by INVESCO that because Long-Term Bond Fund has greater net assets than
Intermediate Bond Fund, combining the two Funds should reduce the expenses borne
by the shareholders of Intermediate Bond Fund as a percentage of net assets. In
addition, INVESCO advised the Board that any reduction in the expense ratios of
the Funds as a result of the Reorganization could benefit INVESCO by reducing
any reimbursements or waivers of expenses resulting from INVESCO's obligation to
limit the expenses of Long-Term Bond Fund to 0.90%. The Board was also advised
that following the Reorganization, the expense ratio for Long-Term Bond Fund may
possibly decrease because the investment management fee paid by that Fund
decreases as its size increases.
15
<PAGE>
DESCRIPTION OF SECURITIES TO BE ISSUED
Income Funds is registered with the SEC as an open-end management
investment company. It has an authorized capitalization of 500 million shares of
common stock (par value $0.01 per share). Of which 100 million are allocated to
Long-Term Bond Fund. Shares of Long-Term Bond Fund entitle their holders to one
vote per full share and fractional votes for fractional shares held.
Long-Term Bond Fund does not hold annual meetings of shareholders. There
normally will be no meetings of shareholders for the purpose of electing
directors unless fewer than a majority of the directors holding office have been
elected by shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. The directors will call
annual or special meetings of shareholders for action by shareholder vote as may
be required by the 1940 Act or Income Funds' Articles of Incorporation, or at
their discretion.
Both Funds are series of Income Funds. Thus, the rights of shareholders of
each Fund with respect to shareholder meetings, inspection of shareholder lists,
and distributions on liquidation of a Fund are identical.
At a meeting to be held concurrently with the Meeting, shareholders of
Long-Term Bond Fund are being asked to approve a proposal that would convert
Long-Term Bond Fund to a series of INVESCO Bond Funds, Inc. (formerly, INVESCO
Income Funds, Inc.) ("Bond Funds"). If approved, that conversion would have no
material effect on the shareholders, operations, directors and officers,
operations or management of Long-Term Bond Fund. The sole purpose of the change
is to combine all of the INVESCO Funds that invest in debt securities of U.S.
issuers into a single overall corporate entity.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of Intermediate Bond Fund,
which prohibit it from acquiring more than a stated percentage of ownership of
another company, might be construed as restricting its ability to carry out the
Reorganization. By approving the Reorganization Plan, Intermediate Bond Fund's
shareholders will be agreeing to waive, only for the purpose of the
Reorganization, those fundamental investment restrictions that could prohibit or
otherwise impede the transaction.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Intermediate Bond Fund's assets for Long-Term Bond Fund
shares and Long-Term Bond Fund's assumption of Intermediate Bond Fund's
liabilities is intended to qualify for federal income tax purposes as a tax-free
reorganization under section 368(a)(1)(C) of the Code. Income Funds will receive
an opinion of its counsel, Kirkpatrick & Lockhart LLP, substantially to the
effect that:
(1) Long-Term Bond Fund's acquisition of Intermediate Bond Fund's
assets in exchange solely for Long-Term Bond Fund shares and
Long-Term Bond Fund's assumption of Intermediate Bond Fund's
16
<PAGE>
liabilities, followed by Intermediate Bond Fund's distribution
of those shares pro rata to its shareholders constructively in
exchange for their Intermediate Bond Fund shares, will
constitute a "reorganization" within the meaning of section
368(a)(1)(C) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of section 368(b) of the
Code;
(2) Intermediate Bond Fund will recognize no gain or loss on the
transfer to Long-Term Bond Fund of its assets in exchange solely
for Long-Term Bond Fund shares and Long-Term Bond Fund's
assumption of Intermediate Bond Fund's liabilities or on the
subsequent distribution of those shares to Intermediate Bond
Fund's shareholders in constructive exchange for their
Intermediate Bond Fund shares;
(3) Long-Term Bond Fund will recognize no gain or loss on its
receipt of the transferred assets in exchange solely for
Long-Term Bond Fund shares and its assumption of Intermediate
Bond Fund's liabilities;
(4) Long-Term Bond Fund's basis for the transferred assets will be
the same as the basis thereof in Intermediate Bond Fund's hands
immediately before the Reorganization, and Long-Term Bond Fund's
holding period for those assets will include Intermediate Bond
Fund's holding period therefor;
(5) An Intermediate Bond Fund shareholder will recognize no gain or
loss on the constructive exchange of all its Intermediate Bond
Fund shares solely for Long-Term Bond Fund shares pursuant to
the Reorganization; and
(6) An Intermediate Bond Fund shareholder's aggregate basis for the
Long-Term Bond Fund shares to be received by it in the
Reorganization will be the same as the aggregate basis for its
Intermediate Bond Fund shares to be constructively surrendered
in exchange for those Long-Term Bond Fund shares, and its
holding period for those Long-Term Bond Fund shares will include
its holding period for those Intermediate Bond Fund shares,
provided they are held as capital assets by the shareholder on
the Closing Date.
The tax opinion may state that no opinion is expressed as to the effect of
the Reorganization on the Funds or any shareholder with respect to any asset as
to which any unrealized gain or loss is required to be recognized for federal
income tax purposes at the end of a taxable year (or on the termination or
transfer thereof) under a mark-to-market system of accounting.
Shareholders of Intermediate Bond Fund should consult their tax advisers
regarding the effect, if any, of the Reorganization in light of their individual
circumstances. Because the foregoing discussion only relates to federal income
tax consequences of the Reorganization, those shareholders also should consult
their tax advisers about state and local tax consequences, if any, of the
Reorganization.
17
<PAGE>
CAPITALIZATION
The following table shows the capitalization of each Fund as of December
31, 1998 (unaudited), and on a pro forma combined basis (unaudited) as of
December 31, 1998, giving effect to the Reorganization:
LONG-TERM INTERMEDIATE COMBINED FUND
BOND FUND BOND FUND (PRO FORMA)
--------- --------- -----------
Net Assets.................. 208,808,929 7,529,649 216,338,578
Net Asset Value Per Share... 15.29 10.22 15.29
Shares Outstanding.......... 13,660,042 736,463 14,152,498
ADDITIONAL INFORMATION ABOUT LONG-TERM BOND FUND
FINANCIAL HIGHLIGHTS
The table below provides selected per share data and ratios for one share
of Long-Term Bond Fund for each of the periods shown. This information is
supplemented by the financial statements and accompanying notes in Long-Term
Bond Fund's Annual Report to Shareholders for the fiscal year ended June 30,
1998, and the unaudited financial statements and accompanying notes in Long-Term
Bond Fund's Semi-Annual Report to Shareholders for the six month period ended
December 31, 1998, which are incorporated by reference into the Statement of
Additional Information. The financial statements and notes for the fiscal years
ended June 30, 1998 and earlier shown below have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report is included in
the Annual Report to Shareholders.
<TABLE>
<CAPTION>
Six months
Ended Year Ended
December 31 June 30
----------- ----------------------------------------
1998 1998 1997 1996 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period 15.57 $15.34 $15.20 $15.07 $15.29 $16.35
----------- ---------------------------------------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.32 0.63 0.66 0.73 0.80 0.83
Net Gains or (Losses) on
Securities (Both
Realized 0.18 0.40 0.38 0.32 0.09 (1.00)
and Unrealized)
----------- ---------------------------------------
Total from Investment 0.50 1.03 1.04 1.05 0.89 (0.17)
Operations ----------- ---------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.32 0.63 0.66 0.73 0.80 0.83
In Excess of Net Invested 0.00 0.00 0.01 0.00 0.00 0.00
Income
18
<PAGE>
Six months
Ended Year Ended
December 31 June 30
----------- ---------------------------------------------------------
1998 1998 1997 1996 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Distribution from Capital 0.46 0.17 0.23 0.19 0.31 0.06
Gains ----------- ---------------------------------------------------------
Total Distributions 0.78 0.80 0.90 0.92 1.11 0.89
----------- ---------------------------------------------------------
Net Asset Value - End of 15.29 $15.57 $15.34 $15.20 $15.07 $15.29
Period ----------- ---------------------------------------------------------
Total Return 3.23(a) 6.87% 7.05% 7.01% 6.16% (1.16%)
===== ======
RATIOS
Net Assets - End of
Period ($000 Omitted) 208,809 $211,471 $220,410 $250,890 $254,584 $282,407
Ratio of Expenses to
Average 0.46%(a)(c) 0.91%(c) 0.90%(c) 0.91%(c) 0.92% 1.00%
Net Assets (b)
Ratio of Net Investment
Income (Loss) to Average
Net Assets (b) 2.02%(a) 4.06% 4.36% 4.76% 5.31% 5.14%
Portfolio Turnover Rate 44%(a) 173% 123% 146% 99% 28%
</TABLE>
(a) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(b) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
six months ended December 31, 1998 and the years ended June 30, 1998, 1997, 1996
and 1995. If such expenses had not been voluntarily absorbed, ratio of expenses
to average net assets would have been 0.52% (not annualized), 1.04%, 1.05%,
1.04% and 1.05%, respectively, and ratio of net investment income to average net
assets would have been 1.96% (not annualized), 3.93%, 4.21%, 4.63% and 5.18%,
respectively.
(c) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements.
REQUIRED VOTE. Approval of the Reorganization Plan requires the
affirmative vote of a majority of the outstanding voting securities of
Intermediate Bond Fund.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" PROPOSAL 1
----------------------------------------------------------
PART II. PROPOSED ORGANIZATIONAL MATTER
PROPOSAL 1 SEEKS SHAREHOLDER APPROVAL TO REORGANIZE INTERMEDIATE BOND FUND
INTO LONG-TERM BOND FUND. IF PROPOSAL 1 IS APPROVED, SHAREHOLDERS WILL RECEIVE
FULL AND FRACTIONAL SHARES OF LONG-TERM BOND FUND EQUIVALENT IN AGGREGATE VALUE
TO THE SHARES OF THE INTERMEDIATE BOND FUND THAT THEY OWNED ON THE CLOSING DATE
AND PROPOSAL 2 WILL HAVE NO EFFECT. HOWEVER, WHETHER OR NOT SHAREHOLDERS VOTE TO
APPROVE THE REORGANIZATION PLAN AS SET FORTH IN PROPOSAL 1, THE BOARD RECOMMENDS
THAT SHAREHOLDERS APPROVE PROPOSAL 2, SET FORTH BELOW. THIS PROPOSAL IS INTENDED
TO RATIONALIZE THE OPERATIONS OF INTERMEDIATE BOND FUND BY RESTRUCTURING THAT
FUND AS A SERIES OF BOND FUNDS, RATHER THAN A SERIES OF INCOME FUNDS.
19
<PAGE>
PROPOSAL 2. TO APPROVE AN AGREEMENT AND PLAN OF CONVERSION AND
TERMINATION ("CONVERSION PLAN") PROVIDING FOR THE CONVERSION OF
INTERMEDIATE BOND FUND FROM A SEPARATE SERIES OF INCOME FUNDS TO A
SEPARATE SERIES OF BOND FUNDS ("CONVERSION")
Intermediate Bond Fund is presently organized as one of two series of
Income Funds. The Board, including a majority of its Independent Directors, has
approved the Conversion Plan attached to this Proxy Statement as Appendix C. The
Conversion Plan provides for the conversion of Intermediate Bond Fund from a
separate series of Income Funds, a Maryland corporation, to a newly established
separate series (the "New Series") of Bond Funds, also a Maryland corporation.
THE PROPOSED CHANGE WILL HAVE NO MATERIAL EFFECT ON THE SHAREHOLDERS, OFFICERS,
OPERATIONS OR MANAGEMENT OF INTERMEDIATE BOND FUND.
The New Series, which has not yet commenced business operations and was
established for the purpose of effecting the Conversion, will carry on the
business of Intermediate Bond Fund following the Conversion and will have an
investment objective, policies and limitations similar to those of Intermediate
Bond Fund. The investment objective, policies and limitations of Intermediate
Bond Fund will not change except as approved by shareholders and as described in
Proposal 3 of this Proxy Statement. Since both Income Funds and Bond Funds are
Maryland corporations organized under substantially similar Articles of
Incorporation, the rights of the security holders of Intermediate Bond Fund
under state law and its governing documents are expected to remain unchanged
after the Conversion. Shareholder voting rights under both Income Funds and Bond
Funds are currently based on the number of shares owned. The same individuals
serve as Directors of both Income Funds and Bond Funds.
INVESCO, Intermediate Bond Fund's investment adviser and administrator,
will be responsible for providing the New Series with various investment and
administrative services and supervising the New Series' daily business affairs,
subject to the supervision of Bond Funds' board, under a management contract
substantially identical to the contract in effect between INVESCO and
Intermediate Bond Fund immediately prior to the Closing Date. Intermediate Bond
Fund's distribution agent, IDI, will distribute shares of the New Series under a
General Distribution Agreement substantially identical to the contract in effect
between IDI and Intermediate Bond Fund immediately prior to the Closing Date.
REASON FOR THE PROPOSED CONVERSION
The Board unanimously recommends conversion of Intermediate Bond Fund to a
separate series of Bond Funds (i.e., the New Series). These proposed conversions
are part of an overall plan that involves the conversion of other INVESCO Funds
as well. The goal of the conversions is to combine similar types of funds into a
single corporate entity. Ultimately, if all of the conversions are approved, the
INVESCO Funds will be organized into a group of core companies, with one core
company for each major fund type-for example, all INVESCO Funds that invest
internationally will be a series of one core company, all INVESCO Funds that
invest solely in debt securities will be a series of one core company, and all
INVESCO Funds that invest in equity securities of domestic issuers will be a
20
<PAGE>
series of one core company. Moving Intermediate Bond Fund from Income Funds to
Bond Funds will consolidate and streamline the production and mailing of certain
financial reports and legal documents, reducing expense to Intermediate Bond
Fund. THE PROPOSED CHANGE WILL HAVE NO MATERIAL EFFECT ON THE SHAREHOLDERS,
OFFICERS, OPERATIONS OR MANAGEMENT OF INTERMEDIATE BOND FUND.
The proposal to present the Conversion Plan to shareholders was approved
by the Board, including all of its Independent Directors, on February 3, 1999.
The Board recommends that Intermediate Bond Fund shareholders vote FOR the
approval of the Conversion Plan. Such a vote encompasses approval of both (i)
the conversion of Intermediate Bond Fund to a separate series of Bond Funds and
(ii) a temporary waiver of certain investment limitations of Intermediate Bond
Fund to permit the Conversion (see "Temporary Waiver of Investment
Restrictions," below). If shareholders of Intermediate Bond Fund do not approve
the Reorganization Plan set forth in Proposal 1, which provides for combining
Intermediate Bond Fund with Long-Term Bond Fund, and do not approve the
alternative Conversion Plan set forth herein, Intermediate Bond Fund will
continue to operate as a series of Income Funds.
SUMMARY OF THE CONVERSION PLAN
The following discussion summarizes the important terms of the Conversion
Plan. This summary is qualified in its entirety by reference to the Conversion
Plan itself, which is attached as Appendix C to this Proxy Statement.
If this Proposal is approved by shareholders, then on the Closing Date,
Intermediate Bond Fund will transfer all of its assets to the New Series in
exchange solely for shares of the New Series ("New Series Shares") equal to the
number of Intermediate Bond Fund shares outstanding on the Closing Date ("Fund
Shares") and the assumption by the New Series of all of the liabilities of
Intermediate Bond Fund. Immediately thereafter, Intermediate Bond Fund will
constructively distribute to each Intermediate Bond Fund shareholder one New
Series Share for each Fund Share held by the shareholder on the Closing Date, in
liquidation of such Fund Shares. As soon as is practicable after this
distribution of New Series Shares, Intermediate Bond Fund will be terminated as
a series of Income Funds and will be liquidated. UPON COMPLETION OF THE
CONVERSION, EACH INTERMEDIATE BOND FUND SHAREHOLDER WILL OWN FULL AND FRACTIONAL
NEW SERIES SHARES EQUAL IN NUMBER AND AGGREGATE NAV TO HIS OR HER FUND SHARES.
The Conversion Plan obligates Bond Funds, on behalf of the New Series, to
enter into (i) a Management Contract with INVESCO with respect to the New Series
(the "New Management Contract") and (ii) a Distribution and Service Plan under
Rule 12b-1 (the "New 12b-1 Plan") with respect to the New Series (collectively,
the "New Agreements"). Approval of the Conversion Plan will authorize Income
Funds (which will be issued a single share of the New Series on a temporary
basis) to approve the New Agreements as the sole initial shareholder of the New
Series. Each New Agreement will be identical to the corresponding contract or
plan in effect with respect to Intermediate Bond Fund immediately prior to the
Closing Date.
The New Agreements will take effect on the Closing Date, and each will
continue in effect until May 15, 2000. Thereafter, the New Management Contract
will continue in effect only if its continuance is approved at least annually
21
<PAGE>
(i) by the vote of a majority of Bond Funds' Independent Directors cast in
person at a meeting called for the purpose of voting on such approval and (ii)
by the vote of a majority of Bond Funds' directors or a majority of the
outstanding voting shares of the New Series. The New 12b-1 Plan will continue in
effect only if approved annually by a vote of Bond Funds' Independent Directors,
cast in person at a meeting called for that purpose. The New Management Contract
will be terminable without penalty on sixty days' written notice either by Bond
Funds or INVESCO and will terminate automatically in the event of its
assignment. The New 12b-1 Plan will be terminable at any time without penalty by
a vote of a majority of Bond Funds' Independent Directors or a majority of the
outstanding voting shares of the New Series.
Bond Funds' Board will hold office without limit in time except that (i)
any Director may resign and (ii) a Director may be removed at any special
meeting of Bond Funds' shareholders at which a quorum is present by the
affirmative vote of a majority of the outstanding voting shares of Bond Funds.
In case a vacancy shall for any reason exist, a majority of the remaining
Directors, though less than a quorum, will vote to fill such vacancy by
appointing another Director, so long as, immediately after such appointment, at
least two-thirds of the Directors have been elected by shareholders. If, at any
time, less than a majority of the Directors holding office have been elected by
shareholders, the Directors then in office will promptly call a shareholders'
meeting for the purpose of electing Directors. Otherwise, there need normally be
no meetings of shareholders for the purpose of electing Directors.
Assuming the Conversion Plan is approved and the Reorganization Plan set
forth in Proposal 1 is not approved, it is currently contemplated that the
Conversion will become effective on the Closing Date. However, the Conversion
may become effective at such other date as to which Income Funds and Bond Funds
may agree in writing.
The obligations of Income Funds and Bond Funds under the Conversion Plan
are subject to various conditions as stated therein. Notwithstanding the
approval of the Conversion Plan by Intermediate Bond Fund shareholders, it may
be terminated or amended at any time prior to the Conversion by action of either
Board to provide against unforeseen events, if (i) there is a material breach by
the other party of any representation, warranty or agreement contained in the
Conversion Plan to be performed at or prior to the Closing Date or (ii) it
reasonably appears that a party will not or cannot meet a condition of the
Conversion Plan. Either Income Funds or Bond Funds may at any time waive
compliance with any of the covenants and conditions contained in, or may amend,
the Conversion Plan, provided that the waiver or amendment does not materially
adversely affect the interests of Intermediate Bond Fund shareholders.
CONTINUATION OF FUND SHAREHOLDER ACCOUNTS
Bond Funds' transfer agent will establish accounts for the New Series
shareholders containing the appropriate number of New Series Shares to be
received by each holder of Fund Shares under the Conversion Plan. Such accounts
will be identical in all material respects to the accounts currently maintained
by Bond Funds' transfer agent for Intermediate Bond Fund's shareholders.
22
<PAGE>
EXPENSES
Half of the cost of the Conversion will be borne by INVESCO, Intermediate
Bond Fund's investment adviser, and the remaining half by Intermediate Bond Fund
and the New Series.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of Intermediate Bond Fund,
which prohibit it from acquiring more than a stated percentage of ownership of
another company, might be construed as restricting its ability to carry out the
Conversion. By approving the Conversion Plan, Intermediate Bond Fund
shareholders will be agreeing to waive, only for the purpose of the Conversion,
those fundamental investment restrictions that could prohibit or otherwise
impede the transaction.
TAX CONSEQUENCES OF THE CONVERSION
Both Income Funds and Bond Funds will receive an opinion from their
counsel, Kirkpatrick & Lockhart LLP, that the Conversion will constitute a
tax-free reorganization within the meaning of section 368(a)(1)(F) of the Code.
Accordingly, Intermediate Bond Fund, the New Series, and Intermediate Bond
Fund's shareholders will recognize no gain or loss for federal income tax
purposes upon (i) the transfer of Intermediate Bond Fund's assets in exchange
solely for New Series Shares and the assumption by the New Series of
Intermediate Bond Fund's liabilities or (ii) the distribution of the New Series
Shares to Intermediate Bond Fund's shareholders in liquidation of their Fund
Shares. The opinion will further provide, among other things, that (a) an
Intermediate Bond Fund shareholder's aggregate basis for federal income tax
purposes of the New Series Shares to be received by the shareholder in the
Conversion will be the same as the aggregate basis of his or her Fund Shares to
be constructively surrendered in exchange for those New Series Shares and (b) an
Intermediate Bond Fund shareholder's holding period for his or her New Series
Shares will include the shareholder's holding period for his or her Fund Shares,
provided that those Fund Shares were held as capital assets at the time of the
Conversion.
CONCLUSION
Income Funds' Board has concluded that the proposed Conversion Plan is in
the best interests of Intermediate Bond Fund's shareholders, provided the
Reorganization Plan set forth in Proposal 1 is not approved. A vote in favor of
the Conversion Plan encompasses (i) approval of the conversion of Intermediate
Bond Fund to the New Series, (ii) approval of the temporary waiver of certain
investment limitations of Intermediate Bond Fund to permit the Conversion (see
"Temporary Waiver of Investment Restrictions," above) and (iii) authorization of
Income Funds, as the sole initial shareholder of the New Series, to approve (a)
a Management Contract with respect to the New Series between Bond Funds and
INVESCO and (b) a Distribution and Service Plan under Rule 12b-1 with respect to
the New Series. Each of these New Agreements will be identical to the
corresponding contract or plan in effect with Intermediate Bond Fund immediately
prior to the Closing Date. If approved, the Conversion Plan will take effect on
the Closing Date. If neither the Conversion Plan nor the Reorganization of
23
<PAGE>
Intermediate Bond Fund under Proposal 1 is approved, Intermediate Bond Fund will
continue to operate as a series of Income Funds; otherwise, Intermediate Bond
Fund will be reorganized or converted consistent with shareholder approval.
REQUIRED VOTE. Approval of the Conversion Plan requires the affirmative
vote of a majority of the outstanding voting securities of Intermediate Bond
Fund.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" PROPOSAL 2
----------------------------------------------------
PART III: PROPOSED MODIFICATIONS TO FUNDAMENTAL INVESTMENT
RESTRICTIONS AND ROUTINE CORPORATE GOVERNANCE MATTERS
THESE PROPOSALS MAKE CERTAIN ROUTINE CHANGES TO MODERNIZE SOME OF
INTERMEDIATE BOND FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS AND SEEK
SHAREHOLDER APPROVAL OF CERTAIN ROUTINE CORPORATE GOVERNANCE MATTERS. IF THE
REORGANIZATION DESCRIBED IN PROPOSAL 1 IS APPROVED BY SHAREHOLDERS AT THE
MEETING, THE PROPOSED FUNDAMENTAL RESTRICTION CHANGES WILL NOT BE IMPLEMENTED,
BECAUSE INTERMEDIATE BOND FUND SHAREHOLDERS WILL BECOME SHAREHOLDERS OF
LONG-TERM BOND FUND. WHETHER OR NOT SHAREHOLDERS VOTE TO APPROVE THE
REORGANIZATION DESCRIBED IN PROPOSAL 1, THE BOARD RECOMMENDS THAT SHAREHOLDERS
APPROVE THE PROPOSALS SET FORTH BELOW.
PROPOSAL 3. TO APPROVE AMENDMENTS TO THE FUNDAMENTAL INVESTMENT
RESTRICTIONS OF INTERMEDIATE BOND FUND
As required by the 1940 Act, Intermediate Bond Fund has adopted certain
fundamental investment restrictions ("fundamental restrictions"), which are set
forth in the Fund's Statement of Additional Information. These fundamental
restrictions may be changed only with shareholder approval. Restrictions and
policies that the Fund has not specifically designated as fundamental are
considered to be "non-fundamental" and may be changed by the Board of Income
Funds without shareholder approval.
Some of Intermediate Bond Fund's fundamental restrictions reflect past
regulatory, business or industry conditions, practices or requirements that are
no longer in effect. Also, as other INVESCO Funds have been created over the
years, they have adopted substantially similar fundamental restrictions that
often have been phrased in slightly different ways, resulting in minor but
unintended differences in effect or potentially giving rise to unintended
differences in interpretation. Accordingly, the Board of Income Funds has
approved revisions to Intermediate Bond Fund's fundamental restrictions in order
to simplify, modernize and make the Fund's fundamental restrictions more uniform
with those of the other INVESCO Funds.
24
<PAGE>
The Board believes that eliminating the disparities among the INVESCO
Funds' fundamental restrictions will enhance management's ability to manage the
funds' assets efficiently and effectively in changing regulatory and investment
environments and permit directors to review and monitor investment policies more
easily. In addition, standardizing the fundamental restrictions of the INVESCO
Funds will assist the INVESCO Funds in making required regulatory filings in a
more efficient and cost-effective way. Although the proposed changes in
fundamental restrictions will allow Intermediate Bond Fund greater investment
flexibility to respond to future investment opportunities, the Board does not
anticipate that the changes, individually or in the aggregate, will result at
this time in a material change in the level of investment risk associated with
an investment in the Fund. The text and a summary description of each proposed
change to Intermediate Bond Fund's fundamental restrictions are set forth below,
together with the text of each current corresponding fundamental restriction.
The text below also describes any non-fundamental restrictions that would be
adopted by the Board in conjunction with the revision of certain fundamental
restrictions. Any non-fundamental restriction may be modified or eliminated by
the Board at any future date without further shareholder approval.
If approved by Intermediate Bond Fund shareholders at the Meeting, the
proposed changes in Intermediate Bond Fund's fundamental restrictions will be
adopted by the Fund only if the Reorganization is not approved by Intermediate
Bond Fund shareholders. In that event, Intermediate Bond Fund's Statement of
Additional Information will be revised to reflect those changes as soon as
practicable following the Meeting. If the Reorganization is approved, the
proposed changes in the Fund's fundamental restrictions will not be implemented.
Instead, as described in Proposal 1, Intermediate Bond Fund shareholders will
become shareholders of Long-Term Bond Fund, whose shareholders are being asked
to approve substantially similar changes in Long-Term Bond Fund's fundamental
restrictions, and Intermediate Bond Fund will be terminated.
A. MODIFICATION OF FUNDAMENTAL RESTRICTION ON ISSUER DIVERSIFICATION
Intermediate Bond Fund's current fundamental restriction on issuer
diversification is as follows:
The Fund may not, with respect to seventy-five percent
(75%) of the value of its total assets, purchase the
securities of any one issuer (except cash items and
"Government securities" as defined under the 1940 Act), if
the purchase would cause the Fund to have more than 5% of
the value of its total assets invested in the securities
of such issuer or to own more than 10% of the outstanding
voting securities of such issuer.
The Board recommends that this restriction be replaced with the following
fundamental restriction:
The Fund may not, with respect to 75% of the Fund's total
assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or
25
<PAGE>
any of its agencies or instrumentalities, or securities of
other investment companies) if, as a result, (i) more than
5% of the Fund's total assets would be invested in the
securities of that issuer, or (ii) the Fund would hold
more than 10% of the outstanding voting securities of that
issuer.
The primary purpose of the proposal is to revise the Fund's fundamental
restriction on issuer diversification to conform to a restriction that is
expected to become standard for all INVESCO Funds. If the proposed revision is
approved, Intermediate Bond Fund could invest without limit in other investment
companies to the extent permitted by the 1940 Act.
b. Modification of fundamental restriction on borrowing and adoption of
non-fundamental restriction on borrowing
Intermediate Bond Fund's current fundamental restriction on borrowing is
as follows:
The Fund may not borrow money, except that the Fund may
borrow money for temporary or emergency purposes (not for
leveraging or investment) and may enter into reverse
repurchase agreements in an aggregate amount not exceeding
33 1/3% of the value of its total assets (including the
amount borrowed) less liabilities (other than borrowings).
Any borrowings that come to exceed 33(1/3%) of the value of
the Fund's total assets by reason of a decline in net
assets will be reduced within three business days to the
extent necessary to comply with the 331/3% limitation. This
restriction shall not prohibit deposits of assets to margin
or guarantee positions in futures, options, swaps, or
forward contracts, or the segregation of assets in
connection with such contracts.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not borrow money, except that the Fund may
borrow money in an amount not exceeding 331/3% of its
total assets (including the amount borrowed) less
liabilities (other than borrowings).
The primary purpose of the proposal is to eliminate minor differences in
the wording of the INVESCO Funds' current restrictions on borrowing for greater
uniformity and to conform to the 1940 Act requirements for borrowing. Currently,
the Fund's fundamental restriction is significantly more limiting than the
restrictions imposed by the 1940 Act in that it limits the purposes for which
Interm
ediate Bond Fund may borrow money. The proposed revision would eliminate
the restrictions on the purposes for which the Fund may borrow money and the
explicit requirement that any borrowings that come to exceed 33 1/3% of the
Fund's net assets by reason of a decline in net assets be reduced within three
business days.
26
<PAGE>
If the proposal is approved, the Board will adopt a non-fundamental
restriction with respect to borrowing as follows:
The Fund may borrow money only from a bank or from an
open-end management investment company managed by INVESCO
Funds Group, Inc. or an affiliate or a successor thereof
for temporary or emergency purposes (not for leveraging or
investing) or by engaging in reverse repurchase agreements
with any party (reverse repurchase agreements will be
treated as borrowings for purposes of fundamental
limitation (_)).
The non-fundamental restriction reflects the Fund's current policy that
borrowing by the Fund may only be for temporary or emergency purposes. In
addition to borrowing from banks, as permitted in the Fund's current policy, the
non-fundamental restriction would permit the Fund to borrow from open-end funds
managed by INVESCO or an affiliate or successor thereof. The Fund would not be
able to do so, however, unless it obtains permission for such borrowings from
the SEC. The non-fundamental restriction also clarifies that reverse repurchase
agreements will be treated as borrowings.
The Board believes that this approach, making the Fund's fundamental
restriction on borrowing no more limiting than is required under the 1940 Act,
while incorporating more strict limits on borrowing in a non-fundamental
restriction, will maximize the Fund's flexibility for future contingencies.
C. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INDUSTRY CONCENTRATION
Intermediate Bond Fund's current fundamental restriction on industry
concentration is as follows:
The Fund may not invest more than 25% of the value of its
total assets in any particular industry (other than
municipal securities or U.S. Government securities).
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not purchase the securities of any issuer
(other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities or
municipal securities) if, as a result, more than 25% of
the Fund's total assets would be invested in the
securities of companies whose principal business
activities are in the same industry.
The purpose of the modification is to eliminate minor differences in the
wording of the INVESCO Funds' current restrictions on concentration for greater
uniformity and to avoid unintended limitations. The proposed changes to
Intermediate Bond Fund's fundamental concentration restriction clarifies that
the concentration restriction does not apply to securities issued or guaranteed
27
<PAGE>
by the U.S. government, its agencies or instrumentalities. This clarification is
important because a failure to except government securities of all types from
the concentration restriction could hinder the Fund's ability to purchase such
securities in conjunction with taking temporary defensive positions. In total,
the proposed changes will enhance the ability of Intermediate Bond Fund's
management to adapt to changing market conditions.
D. MODIFICATION OF FUNDAMENTAL RESTRICTION ON REAL ESTATE INVESTMENT
Intermediate Bond Fund's current fundamental restriction on real estate
investment is as follows:
The Fund may not invest directly in real estate or
interests in real estate; however, the Fund may own debt
or equity securities issued by companies engaged in those
businesses.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not purchase or sell real estate unless
acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by
real estate or securities of companies engaged in the real
estate business.)
In addition to conforming Intermediate Bond Fund's fundamental restriction
to that of the other INVESCO Funds, the proposed amendment of the Fund's
fundamental restriction on investment in real estate would more completely
describe the types of real estate-related securities investments that are
permissible for the Fund. The Board believes that this clarification will make
it easier for decisions to be made concerning the Fund's investments in real
estate-related securities.
E. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN COMMODITIES
Intermediate Bond Fund's current fundamental restriction on the purchase
of commodities is as follows:
The Fund may not purchase or sell physical commodities
other than foreign currencies unless acquired as a result
of ownership of securities (but this shall not prevent the
Fund from purchasing or selling options, futures, and
forward contracts or from investing in securities or other
instruments backed by physical commodities).
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not purchase or sell physical commodities;
however, this policy shall not prevent the Fund from
purchasing and selling foreign currency, futures
28
<PAGE>
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
Intermediate Bond Fund will have the maximum flexibility to enter into hedging
or other transactions utilizing financial instruments and derivative products
when doing so is permitted by operating policies established for the Fund by the
Board. Due to the rapid and continuing development of derivative products and
the possibility of changes in the definition of "commodities," particularly in
the context of the jurisdiction of the Commodities Futures Trading Commission,
it is important for the Fund's policy to be flexible enough to allow it to enter
into hedging and other transactions using these products when doing so is deemed
appropriate by INVESCO and is within the investment parameters established by
the Board. To maximize that flexibility, the Board recommends that the Fund's
fundamental restriction on commodities investments be clear in permitting the
use of derivative products, even if the current non-fundamental investment
policies of the Fund would not permit investment in one or more of the permitted
transactions.
F. MODIFICATION OF FUNDAMENTAL RESTRICTION ON LOANS
Intermediate Bond Fund's current fundamental restriction on loans is as
follows:
The Fund may not lend any security or make any other loan
if, as a result, more than 33(1/3%) of its total assets
would be lent to other parties (but this limitation does
not apply to purchases of commercial paper, debt
securities or to repurchase agreements.)
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not lend any security or make any loan if, as
a result, more than 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 minor differences in
the wording of the INVESCO Funds' current restrictions on loans for greater
uniformity. The proposed changes to this fundamental restriction are relatively
minor and would have no substantive effect on Intermediate Bond Fund's lending
activities or other investments.
G. MODIFICATION OF FUNDAMENTAL RESTRICTION ON UNDERWRITING
Intermediate Bond Fund's current fundamental restriction on underwriting
is as follows:
The Fund may not act as an underwriter of securities
issued by others, except to the extent that it may be
deemed an underwriter in connection with the disposition
of portfolio securities of the Fund.
29
<PAGE>
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 Fund's current fundamental restriction on underwriting for
greater uniformity with the fundamental restrictions of the other INVESCO Funds.
H. ADOPTION OF FUNDAMENTAL RESTRICTION ON THE ISSUANCE OF SENIOR SECURITIES
Currently, Intermediate Bond Fund has no fundamental restriction on the
issuance of senior securities. The Board recommends that shareholders vote to
adopt the following fundamental restriction:
The Fund will not issue senior securities, except as
permitted under the Investment Company Act of 1940.
The primary purpose of the proposal is to adopt a fundamental restriction
indicating the extent to which the Fund may issue "senior securities," a term
that is generally defined to refer to fund obligations that have a priority over
a fund's shares with respect to the distribution of fund assets or the payment
of dividends. The Board believes that the adoption of the proposed fundamental
restriction, which does not specify the manner in which senior securities may be
issued and is no more limiting than is required under the 1940 Act, would
maximize the Fund's borrowing flexibility for future contingencies and would
conform to the fundamental restrictions of the other INVESCO Funds on the
issuance of senior securities.
I. ADOPTION OF FUNDAMENTAL RESTRICTION ON INVESTING IN ANOTHER INVESTMENT
COMPANY
Currently, Intermediate Bond Fund has no fundamental policy regarding
investment in another investment company. The Board recommends that shareholders
vote to adopt the following fundamental restriction:
The Fund may, notwithstanding any other fundamental
investment policy or limitation, invest all of its assets
in the securities of a single open-end management
investment company managed by INVESCO Funds Group, Inc. or
an affiliate or a successor thereof, with substantially
the same fundamental investment objective, policies and
limitations as the Fund.
The adoption of the proposed fundamental restriction would ensure that the
INVESCO Funds have uniform policies permitting each fund to adopt a
"master/feeder" structure whereby one or more funds invest all of their assets
in another fund. The master/feeder structure has the potential, under certain
30
<PAGE>
circumstances, to minimize administration costs and maximize the possibility of
gaining a broader investor base. Currently, none of the INVESCO Funds intend to
establish a master/feeder structure; however, the Board recommends that
Intermediate Bond Fund shareholders adopt a policy that would permit this
structure in the event that the Board determines to recommend the adoption of a
master/feeder structure by the Fund. The proposed revision would require that
any fund in which the Fund may invest under a master/feeder structure be advised
by INVESCO or an affiliate.
If the proposal is approved, the Board will adopt a non-fundamental
restriction for each Fund 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. Adoption of this non-fundamental policy will enable each
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. If
a Fund did purchase the securities of another investment company, shareholders
might incur additional expenses because the Fund would have to pay its ratable
share of expenses of the other investment company.
REQUIRED VOTE. Approval of Proposal 3 requires the affirmative vote of a
"majority of the outstanding voting securities" of Intermediate Bond Fund, which
for this purpose means the affirmative vote of the lesser of (1) 67% or more of
the shares of the Fund present at the Meeting or represented by proxy if more
than 50% of the outstanding shares of the Fund are so present or represented, or
(2) more than 50% of the outstanding shares of the Fund. SHAREHOLDERS WHO VOTE
"FOR" PROPOSAL 3 WILL VOTE "FOR" EACH PROPOSED CHANGE DESCRIBED ABOVE. THOSE
SHAREHOLDERS WHO WISH TO VOTE AGAINST ANY OF THE SPECIFIC PROPOSED CHANGES
DESCRIBED ABOVE MAY DO SO ON THE PROXY PROVIDED.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" PROPOSAL 3
----------------------------------------------------
PROPOSAL 4. TO ELECT THE DIRECTORS OF INCOME FUNDS
The Board of Income Funds has nominated the individuals identified below
for election to the Board at the Meeting. Income Funds currently has ten
directors. Vacancies on the Board are generally filled by appointment by the
remaining directors. However, the 1940 Act provides that vacancies may not be
filled by directors unless thereafter at least two-thirds of the directors shall
have been elected by shareholders. To ensure continued compliance with this rule
without incurring the expense of calling additional shareholder meetings,
shareholders are being asked at this meeting to elect the current ten directors.
31
<PAGE>
Consistent with the provisions of Income Funds' by-laws, and as permitted by
Maryland law, Income Funds does not anticipate holding annual shareholder
meetings. Thus, the directors will be elected for indefinite terms, subject to
termination or resignation. Each nominee has indicated a willingness to serve if
elected. If any of the nominees should not be available for election, the
persons named as proxies (or their substitutes) may vote for other persons in
their discretion. Management has no reason to believe that any nominee will be
unavailable for election.
All of the Independent Directors now being proposed for election were
nominated and selected by Independent Directors. Eight of the ten current
directors are Independent Directors.
The persons named as attorneys-in-fact in the enclosed proxy have advised
Income Funds that unless a proxy instructs them to withhold authority to vote
for all listed nominees or for any individual nominee, they will vote all
validly executed proxies for the election of the nominees named below.
The nominees for director, their ages, a description of their principal
occupations, the number of Intermediate Bond Fund shares owned by each, and
their respective memberships on Board committees are listed in the table below.
<TABLE>
<CAPTION>
NUMBER OF
---------
INTERMEDIATE INCOME
-------------------
DIRECTOR OR FUND SHARES
----------- -----------
EXECUTIVE OFFICER BENEFICIALLY OWNED
----------------- ------------------
NAME, POSITION WITH PRINCIPAL OCCUPATION AND BUSINESS OF INCOME DIRECTLY OR INDIRECTLY MEMBER OF
- ------------------- --------------------------------- --------- ----------------------- ---------
INCOME FUNDS, AND AGE EXPERIENCE (DURING THE PAST FIVE YEARS) FUNDS SINCE ON DECEMBER 31, 1998(1) COMMITTEE
- --------------------- --------------------------------------- ----------- ----------------------- ---------
<S> <C> <C> <C> <C>
CHARLES W. BRADY, Chief Executive Officer and 1993 0 (3),(5),(6)
CHAIRMAN OF THE BOARD, Director of AMVESCAP, PLC, London,
AGE 63* England, and of various
subsidiaries thereof. Chairman of
the Board of INVESCO Global Health
Sciences Fund.
FRED A. DEERING, VICE Trustee of INVESCO Global Health 1993 9.8730 (2),(3),(5)
CHAIRMAN OF THE BOARD, Sciences Fund. Formerly, Chairman
AGE 70 of the Executive Committee and
Chairman of the Board of Security
Life of Denver Insurance Company,
Denver, Colorado; Director of ING
American Holdings company and First
ING Life Insurance Company of New
York.
MARK H. WILLIAMSON, President, Chief Executive Officer, 1998 0 (3),(5)
PRESIDENT, CHIEF and Director, INVESCO Distributors
EXECUTIVE OFFICER, AND Inc.; President, Chief Executive
DIRECTOR, AGE 47* Officer, and Director, INVESCO;
President, Chief Operating Officer,
and Trustee INVESCO Global Health
Sciences Fund. Formerly, Chairman
of the Board and Chief Executive
Officer, NationsBanc Advisors, Inc.
(1995-1997); Chairman of the Board,
NationsBanc Investments, Inc.
(1997-1998).
32
<PAGE>
NUMBER OF
---------
INTERMEDIATE INCOME
-------------------
DIRECTOR OR FUND SHARES
----------- -----------
EXECUTIVE OFFICER BENEFICIALLY OWNED
----------------- ------------------
NAME, POSITION WITH PRINCIPAL OCCUPATION AND BUSINESS OF INCOME DIRECTLY OR INDIRECTLY MEMBER OF
- ------------------- --------------------------------- --------- ----------------------- ---------
INCOME FUNDS, AND AGE EXPERIENCE (DURING THE PAST FIVE YEARS) FUNDS SINCE ON DECEMBER 31, 1998(1) COMMITTEE
- --------------------- --------------------------------------- ----------- ----------------------- ---------
DR. VICTOR L. ANDREWS, Professor Emeritus, Chairman 1993 9.8730 (4),(6),(8)
DIRECTOR, AGE 68 Emeritus and Chairman of the CFO
Roundtable of the Department of
Finance of Georgia State
University, Atlanta, Georgia and
President, Andrews Financial
Associates, Inc. (consulting
firm). Formerly, member of the
faculties of the Harvard Business
School and the Sloan School of
Management of MIT. Dr. Andrews is
also a director, Sheffield Funds,
Inc.
BOB R. BAKER, DIRECTOR, President and Chief Executive 1993 9.8730 (3),(4),(5)
AGE 62 Officer of AMC Cancer Research
Center, Denver, Colorado, since
January 1989; until December 1988,
Vice Chairman of the Board, First
Columbia Financial Corporation,
Englewood, Colorado. Formerly,
Chairman of the Board and Chief
Executive Officer of First Columbia
Financial Corporation.
LAWRENCE H. BUDNER, Trust Consultant; Prior to June 1993 9.8730 (2),(6),(7)
DIRECTOR, AGE 68 1987, Senior Vice President and
Senior Trust Officer, InterFirst
Bank, Dallas, Texas.
DR. WENDY LEE GRAMM, Self-employed (since 1993). 1997 9.8730 (4),(8)
DIRECTOR, AGE 54 Professor of Economics and Public
Administration, University of Texas
at Arlington. Formerly, Chairman,
Commodities Futures Trading
Commission (1988-1993);
Administrator for Information and
Regulatory Affairs, Office of
Management and Budget (1985-1988);
Executive Director, Presidential
Task Force on Regulatory Relief;
Director, Federal Trade
Commission's Bureau of Economics;
Director of the Chicago Mercantile
Exchange; Enron Corporation; IBP,
Inc.; State Farm Insurance Company;
Independent Women's Forum;
International Republic Institute;
and the Republican Women's Federal
Forum.
KENNETH T. KING, Presently retired, Formerly, 1993 9.8730 (2),(3),(5),
DIRECTOR, AGE 73 Chairman of the Board, The Capitol (6),(7)
Life Insurance Company, Providence
Washington Insurance Company, and
Director of numerous U.S.
subsidiaries thereof. Formerly,
Chairman of the Board of the
Providence Capitol Companies in the
United Kingdom and Guernsey. Until
1987, Chairman of the Board,
Symbion Corporation.
33
<PAGE>
NUMBER OF
---------
INTERMEDIATE INCOME
-------------------
DIRECTOR OR FUND SHARES
----------- -----------
EXECUTIVE OFFICER BENEFICIALLY OWNED
----------------- ------------------
NAME, POSITION WITH PRINCIPAL OCCUPATION AND BUSINESS OF INCOME DIRECTLY OR INDIRECTLY MEMBER OF
- ------------------- --------------------------------- --------- ----------------------- ---------
INCOME FUNDS, AND AGE EXPERIENCE (DURING THE PAST FIVE YEARS) FUNDS SINCE ON DECEMBER 31, 1998(1) COMMITTEE
- --------------------- --------------------------------------- ----------- ----------------------- ---------
JOHN W. MCINTYRE, Presently retired. Formerly, Vice 1995 9.8730 (2),(3),(5),
DIRECTOR, AGE 68 Chairman of the Board, The Citizens (7)
and Southern Corporation; Chairman
of the Board and Chief Executive
Officer, The Citizens and Southern
Georgia Corporation; Chairman of
the Board and Chief Executive
Officer of Citizens and Southern
National Bank. Trustee of INVESCO
Global Health Sciences Fund and
Gables Residential Trust,
Employee's Retirement System of
Georgia, Emory University, and J.M.
Tull Charitables Foundation
Director of Kaiser Foundation
Health Plans of Georgia, Inc.
DR. LARRY SOLL, Presently retired. Formerly, 1997 9.8730 (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 Inc.
Director of Synergen Inc. since
incorporation in 1982. Director of
Isis Pharmaceuticals, Inc. Trustee
of INVESCO Global Health Sciences
Fund.
</TABLE>
*Because of his affiliation with INVESCO, with Intermediate Bond Fund's
investment adviser, or with companies affiliated with INVESCO, this individual
is deemed to be an "interested person" of Income Funds as that term is defined
in the 1940 Act.
(1) = As interpreted by the SEC, a security is beneficially owned by a person if
that person has or shares voting power or investment power with respect to that
security. The persons listed have partial or complete voting and investment
power with respect to their respective Fund shares.
(2) = Member of the Audit Committee
(3) = Member of the Executive Committee
(4) = Member of the Management Liaison Committee
(5) = Member of the Valuation Committee
(6) = Member of the Compensation Committee
(7) = Member of the Soft Dollar Brokerage Committee
(8) = Member of the Derivatives Committee
The Board has audit, management liaison, soft dollar brokerage, and
derivatives committees, consisting of Independent Directors, and compensation,
executive and valuation committees consisting of Independent Directors and
non-independent directors. The Board does not have a nominating committee. The
audit committee, consisting of four Independent Directors, meets quarterly with
Income Funds' independent accountants and executive officers of Income Funds.
This committee reviews the accounting principles being applied by Income Funds
in financial reporting, the scope and adequacy of internal controls, the
responsibilities and fees of the independent accountants, and other matters. All
of the recommendations of the audit committee are reported to the full Board.
During the intervals between the meetings of the Board, the executive committee
may exercise all powers and authority of the Board in the management of Income
Funds' business, except for certain powers which, under applicable law and/or
Income Funds' by-laws, may only be exercised by the full Board. All decisions
are subsequently submitted for ratification by the Board. The management liaison
committee meets quarterly with various management personnel of INVESCO in order
to facilitate better understanding of management and operations of Income Funds,
34
<PAGE>
and to review legal and operational matters that have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The soft dollar brokerage committee meets periodically to review
soft dollar transactions by Income Funds, and to review policies and procedures
of Income Funds' adviser with respect to soft dollar brokerage transactions. The
committee then reports on these matters to the Board. The derivatives committee
meets periodically to review derivatives investments made by Income Funds. The
committee monitors derivatives usage by Income Funds and the procedures utilized
by Income Funds' adviser to ensure that the use of such instruments follows the
policies on such instruments adopted by the Board. The committee then reports on
these matters to the Board.
Each independent director receives an annual retainer of $56,000 for their
service to the INVESCO Funds. Additionally, each independent director receives
$3,000 for in-person attendance at each board meeting and $1,000 for in-person
attendance at each committee meeting. The chairmen of the audit and management
liaison committee receive an annual fee of $4,000 for serving in such capacity.
During the past fiscal year, the Board met five times, the audit committee
met four times, the compensation committee met twice, the management liaison
committee met four times, the soft dollar brokerage committee met twice, and the
derivatives committee met three times. The executive committee did not meet.
During Income Funds' last fiscal year, each director attended 75% or more of the
Board meetings and meetings of the committees of the Board on which he or she
served.
The Independent Directors nominate individuals to serve as Independent
Directors, without any specific nominating committee. The Board ordinarily will
not consider unsolicited director nominations recommended by Intermediate Bond
Fund shareholders. The Board, including its Independent Directors, unanimously
approved the nomination of the foregoing persons to serve as directors and
directed that the election of these nominees be submitted to Intermediate Bond
Fund's shareholders.
35
<PAGE>
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 INCOME FUNDS TO DIRECTORS
AGGREGATE PENSION OR RETIREMENT TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS ESTIMATED ANNUAL FROM INCOME FUNDS
FROM PART OF INCOME FUNDS BENEFITS UPON AND THE OTHER 14
NAME OF PERSON, POSITION INCOME FUNDS(1) EXPENSES(2) RETIREMENT(3) INVESCO FUNDS PAID
------------------------ ------------- --------- ----------- TO DIRECTORS(1)
-------------
<S> <C> <C> <C> <C>
FRED A DEERING, VICE CHAIRMAN OF $2,550 $531 $340 $103,700
THE BOARD
DR. VICTOR L. ANDREWS, DIRECTOR $2,520 $501 $394 $80,350
BOB R. BAKER, DIRECTOR $2,567 $448 $528 $84,000
LAWRENCE H. BUDNER, DIRECTOR $2,491 $501 $394 $79,350
DANIEL D. CHABRIS(4), DIRECTOR $2,525 $542 $294 $70,000
DR. WENDY L. GRAMM, DIRECTOR $2,431 $0 $0 $79,000
KENNETH T. KING, DIRECTOR $2,451 $551 $309 $77,050
JOHN W. MCINTYRE, DIRECTOR $2,460 $0 $0 $98,500
DR. LARRY SOLL, DIRECTOR $2,460 $0 $0 $96,000
------------- ------------------ ---------------- ------------------
TOTAL $22,455 $3,074 $2,259 $767,950
- -----
AS A PERCENTAGE OF NET ASSETS 0.0103%(5) 0.0014%(5) 0.0035%(6)
- -----------------------------
</TABLE>
- ----------------------------
1 The Vice Chairman of the Board, the chairmen of the audit, management liaison,
derivatives, soft dollar brokerage and compensation committees, and the
Independent Director members of the committees of each Fund receive compensation
for serving in such capacities in addition to the compensation paid to all
Independent Directors.
2 Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the election
of the directors.
3 These figures represent Income Funds' share of the estimated annual benefits
payable by the INVESCO Complex (excluding INVESCO Global Health Sciences Fund
which does not participate in this retirement plan) upon the directors'
retirement, calculated using the current method of allocating director
compensation among the INVESCO Funds. These estimated benefits assume retirement
at age 72 and that the basic retainer payable to the directors will be adjusted
periodically for inflation, for increases in the number of funds in the INVESCO
Complex, and for other reasons during the period in which retirement benefits
are accrued on behalf of the respective directors. This results in lower
estimated benefits for directors who are closer to retirement and higher
estimated benefits for directors who are farther from retirement. With the
exception of 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.
Although Mr. McIntyre became eligible to participate in the defined Benefit
Deferred Compensation Planas of November 1, 1998, he will not be included in the
calculation of retirement benefits until November 1, 1999.
4 Mr. Chabris retired as a director effective September 30, 1998.
5 Total as a percentage of the Fund's net assets as of June 30, 1998.
6 Total as a percentage of the net assets of the 15 Funds in the INVESCO Complex
as of December 31, 1998.
36
<PAGE>
Income Funds pays its Independent Directors, Board vice chairman, and
committee chairmen and members the fees described above. Income Funds also
reimburses its Independent Directors for travel expenses incurred in attending
meetings. Charles W. Brady, Chairman of the Board, and Mark H. Williamson,
President, Chief Executive Officer, and Director, as "interested persons" of
Income Funds and of other INVESCO Funds receive compensation and are reimbursed
for travel expenses incurred in attending meetings as officers or employees of
INVESCO or its affiliated companies, but do not receive any director's fees or
other compensation from Income Funds or other INVESCO Funds for their services
as directors.
The overall direction and supervision of Income Funds is the
responsibility of the Board, which has the primary duty of ensuring that Income
Funds' general investment policies and programs are adhered to and that the
Income Funds are properly administered. The officers of Income Funds, all of
whom are officers and employees of and paid by INVESCO, are responsible for the
day-to-day administration of Income Funds. The investment adviser for Income
Funds has the primary responsibility for making investment decisions on behalf
of Income Funds. These investment decisions are reviewed by the investment
committee of INVESCO.
All of the officers and directors of Income Funds hold comparable
positions with the following INVESCO Funds: INVESCO Bond Funds, Inc., (formerly,
INVESCO Income Funds, Inc.), INVESCO Combination Stock & Bond Funds, Inc.
(formerly, INVESCO Flexible Funds, Inc. and INVESCO Multiple Asset Funds, Inc.),
INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc.,
INVESCO Growth Funds, Inc. (formerly INVESCO Growth Fund, Inc.), INVESCO
Industrial Income Fund, Inc., INVESCO International Funds, Inc., INVESCO Money
Market Funds, Inc., INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic
Portfolios, Inc.), INVESCO Specialty Funds, Inc., INVESCO Stock Funds, Inc.
(formerly, INVESCO Equity Funds, Inc. and INVESCO Capital Appreciation Funds,
Inc.), and INVESCO Variable Investment Funds, Inc. All of the directors of
Income Funds also serve as trustees of INVESCO Value Trust and INVESCO
Treasurer's Series Trust.
The Boards of the funds managed by INVESCO, have adopted a Defined Benefit
Deferred Compensation Plan (the "Plan") for the non-interested directors and
trustees of the Funds. Under the Plan, each director or trustee who is not an
interested person of the Funds (as defined in Section 2(a)(19) of the 1940 Act)
and who has served for at least five years (a "Qualified Director") is entitled
to receive, upon termination of service as director (normally at retirement age
72 or the retirement age of 73 or 74, if the retirement date is extended by the
Boards for one or two years, but less than three years) continuation of payment
for one year (the "First Year Retirement Benefit") of the annual basic retainer
and annualized board meeting fees payable by the Funds to the Qualified Director
at the time of his or her retirement (the "Basic Benefit"). Commencing with any
such director's second year of retirement, and commencing with the first year of
retirement of any director whose retirement has been extended by the Board for
three years, a Qualified Director shall receive quarterly payments at an annual
rate equal to 50% of the Basic Benefit. These payments will continue for the
remainder of the Qualified Director's life or ten years, whichever is longer
(the "Reduced Benefit Payments"). If a Qualified Director dies or becomes
disabled after age 72 and before age 74 while still a director of the Funds, the
First Year Retirement Benefit and Reduced Benefit Payments will be made to him
or her or to his or her beneficiary or estate. If a Qualified Director becomes
37
<PAGE>
disabled or dies either prior to age 72 or during his or her 74th year while
still a director of the Funds, the director will not be entitled to receive the
First Year Retirement Benefit; however, the Reduced Benefit Payments will be
made to his or her beneficiary or estate. The Plan is administered by a
committee of three directors who are also participants in the Plan and one
director who is not a Plan participant. The cost of the Plan will be allocated
among the INVESCO Funds in a manner determined to be fair and equitable by the
committee. Income Funds began making payments to Mr. Chabris as of October 1,
1998 under the Plan. Income Funds has no stock options or other pension or
retirement plans for management or other personnel and pays no salary or
compensation to any of its officers.
The Independent Directors have contributed to a deferred compensation
plan, pursuant to which they have deferred receipt of a portion of the
compensation which they would otherwise have been paid as directors of certain
of the INVESCO Funds. The deferred amounts have been invested in shares of
certain of the INVESCO Funds. Each Independent Director may, therefore, be
deemed to have an indirect interest in shares of each such INVESCO Fund, in
addition to any Fund shares they may own directly or beneficially.
REQUIRED VOTE. Election of each nominee as a director of Income Funds
requires the vote of a plurality of all shares of Intermediate Bond Fund cast at
the Meeting, in person or by proxy, and at a concurrent meeting of the
shareholders of Long-Term Bond Fund, in the aggregate.
THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS,
UNAMIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" EACH OF THE NOMINEES IN PROPOSAL 4
----------------------------------------------------------
PROPOSAL 5: RATIFICATION OR REJECTION OF SELECTION OF
INDEPENDENT ACCOUNTANTS.
The Board of Income Funds, including all of its Independent Directors, has
selected PricewaterhouseCoopers LLP to continue to serve as independent
accountants of Intermediate Bond Fund, subject to ratification by Intermediate
Bond Fund's shareholders. PricewaterhouseCoopers LLP has no direct financial
interest or material indirect financial interest in Intermediate Bond Fund.
Representatives of PricewaterhouseCoopers LLP are not expected to attend the
Meeting, but have been given the opportunity to make a statement if they so
desire, and will be available should any matter arise requiring their presence.
The independent accountants examine annual financial statements for
Intermediate Bond Fund and provide other audit and tax-related services. In
recommending the selection of PricewaterhouseCoopers LLP, the directors reviewed
the nature and scope of the services to be provided (including non-audit
services) and whether the performance of such services would affect the
accountants' independence.
38
<PAGE>
REQUIRED VOTE. Ratification of the selection of PricewaterhouseCoopers LLP
as independent accountants requires the vote of a majority of the votes present
at the Meeting, provided a quorum is present.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" PROPOSAL 5
----------------------------------------------------------
OTHER BUSINESS
The Board knows of no other business to be brought before the Meeting. If,
however, any other matters properly come before the Meeting, it is the intention
that proxies that do not contain specific instructions to the contrary will be
voted on such matters in accordance with the judgment of the persons designated
in the proxies.
INFORMATION CONCERNING ADVISER, DISTRIBUTOR
AND AFFILIATED COMPANIES
INVESCO, a Delaware corporation, serves as Intermediate Bond Fund's
investment adviser and provides other services to Intermediate Bond Fund and
Income Funds. IDI, a Delaware corporation that serves as Intermediate Bond
Fund's distributor, is a wholly owned subsidiary of INVESCO. INVESCO is a wholly
owned subsidiary of INVESCO North American Holdings, Inc. ("INAH"). 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, INAH 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, Director of IDI;
Ronald L. Grooms, Director, Senior Vice President and Treasurer, also, Director,
Senior Vice President and Treasurer of IDI; Richard W. Healey, Director and
Senior Vice President, also, Senior Vice President and Director of IDI; Timothy
J. Miller, Director and Senior Vice President, also, Director of IDI; and Glen
A. Payne, Senior Vice President, Secretary and General Counsel, also, Senior
Vice President, Secretary and General Counsel of IDI.
- --------------------------
7 The intermediary companies between INAH and AMVESCAP PLC are as follows:
INVESCO, Inc., AMVESCAP Group Services, Inc., AVZ, Inc. and INVESCO North
American Group, Ltd., each of which is wholly owned by its immediate parent.
39
<PAGE>
The address of each of the foregoing officers and directors is 7800 East
Union Avenue, Denver, Colorado 80237.
Pursuant to an Administrative Services Agreement between Income Funds and
INVESCO, INVESCO provides administrative services to Income Funds, including
sub-accounting and record keeping services and functions. INVESCO, also serves
as Income Funds' registrar, transfer agent and dividend disbursing agent. During
the year ended December 31, 1998, Income Funds paid INVESCO total compensation
of $156,829 for such services.
MISCELLANEOUS
AVAILABLE INFORMATION
Each Fund is subject to the information requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith files reports,
proxy material and other information with the SEC. These reports, proxy material
and other information can be inspected and copied at the Public Reference Room
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, the
Midwest Regional office of the SEC, Northwest Atrium Center, 500 West Madison
Street, Suite 400, Chicago, Illinois 60611, and the Northeast Regional Office of
the SEC, Seven World Trade Center, Suite 1300, New York, New York 10048. Copies
of such material can also be obtained from the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20459 at prescribed rates.
LEGAL MATTERS
Certain legal matters in connection with the issuance of Long-Term Bond
Fund shares as part of the Reorganization will be passed upon by Long-Term Bond
Fund's counsel, Kirkpatrick & Lockhart LLP.
EXPERTS
The audited financial statements of Long-Term Bond Fund and Intermediate
Bond Fund, incorporated herein by reference and incorporated by reference or
included in their respective Statements of Additional Information, have been
audited by PricewaterhouseCoopers LLP, independent accountants for the Funds,
whose reports thereon are included in the Funds' Annual Reports to shareholders
for the fiscal year ended June 30, 1998. The financial statements audited by
PricewaterhouseCoopers LLP have been incorporated herein by reference in
reliance on their reports given on their authority as experts in auditing and
accounting matters.
40
<PAGE>
APPENDIX A
----------
PRINCIPAL SHAREHOLDERS
----------------------
The following table sets forth the beneficial ownership of each fund's
outstanding equity securities as of March 12, 1999 by each beneficial owner of
5% or more of a Fund's outstanding securities.
AMOUNT OF
NATURE PERCENTAGE
------ ----------
BENEFICIAL OWNERS OF 5% OR MORE OF THE
- --------------------------------------
INTERMEDIATE BOND FUND
- ----------------------
BENEFICIAL OWNERS OF 5% OR MORE OF
- ----------------------------------
LONG-TERM BOND FUND
- -------------------
Charles Schwab & Co., Inc. 56,954,1960 8.32%
Special Custody Account
For the Exclusive Benefit of Customers Record
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
John Cannady 37,892,9570 5.53%
745 Pine Street
Boulder, CO 80302-4741 Beneficial
Isabel S. Taylor 37,388,8720 5.46%
1358 Wastaugou Street
Kingsport, TN 37660-4530 Beneficial
David C. Billue 37,039,5370 5.41%
Mary E. Billue Jr. Tenant
P.O. Box 979
Guntersville, AL 35976-0979
A-1
<PAGE>
APPENDIX B
PLAN OF REORGANIZATION AND TERMINATION
THIS PLAN OF REORGANIZATION AND TERMINATION ("Plan") is made by INVESCO
Tax-Free Income Funds, Inc., a Maryland corporation ("Corporation"), on behalf
of INVESCO Tax-Free Intermediate Bond Fund ("Target") and INVESCO Tax-Free
Long-Term Bond Fund ("Acquiring Fund"), and is effective as of the date of its
adoption by Corporation's board of directors. (Acquiring Fund and Target are
sometimes referred to herein individually as a "Fund" and collectively as the
"Funds.") Corporation is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Maryland; and a copy of its
Articles of Incorporation is on file with the Secretary of State of Maryland.
Each Fund is a duly established and designated segregated portfolio of assets
("series") of Corporation.
This Plan is intended to be, and is adopted as, a plan of a reorganization
described in section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended ("Code"). The reorganization will involve the transfer to Acquiring Fund
of Target's assets in exchange solely for voting shares of common stock in
Acquiring Fund, par value $0.01 per share ("Acquiring Fund Shares"), and the
assumption by Acquiring Fund of Target's liabilities, followed by the
constructive distribution of the Acquiring Fund Shares PRO RATA to the holders
of shares of common stock in Target ("Target Shares") in exchange therefor, all
on the terms and conditions set forth herein. The foregoing transactions are
referred to herein collectively as the "Reorganization."
Each Fund issues a single class of shares, which are substantially similar
to each other. Each Fund's shares (1) are offered at net asset value ("NAV"),
(2) are subject to a service fee at the annual rate of 0.25% of its net assets
imposed pursuant to a plan of distribution adopted in accordance with Rule 12b-1
promulgated under the Investment Company Act of 1940, as amended ("1940 Act"),
and (3) are subject to similar management fees (up to 0.50% of Target's net
assets and up to 0.55% of Acquiring Fund's net assets).
1. THE REORGANIZATION
------------------
1.1 Target shall assign, sell, convey, transfer, and deliver all of its
assets described in paragraph 1.2 ("Assets") to Acquiring Fund. In exchange
therefor, Acquiring Fund shall --
(a) issue and deliver to Target the number of full and fractional
(rounded to the third decimal place) Acquiring Fund Shares,
determined by dividing the net value of Target (computed as set
forth in paragraph 2.1) by the NAV of an Acquiring Fund Share
(computed as set forth in paragraph 2.2), and
(b) assume all of Target's liabilities described in paragraph 1.3
("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 3.1).
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
<PAGE>
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Target's books, and other property owned by Target at the
Effective Time (as defined in paragraph 3.1).
1.3 The Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
arising in the ordinary course of business, whether or not determinable at the
Effective Time, and whether or not specifically referred to in this Plan.
Notwithstanding the foregoing, Target shall use its best efforts to discharge
all its known Liabilities before the Effective Time.
1.4 At or immediately before the Effective Time, Target shall declare and
pay to its shareholders a dividend and/or other distribution in an amount large
enough so that it will have distributed substantially all (and in any event not
less than 90%) of its investment company taxable income (computed without regard
to any deduction for dividends paid) and substantially all of its realized net
capital gain, if any, for the current taxable year through the Effective Time.
1.5 At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall distribute the Acquiring Fund Shares received by it
pursuant to paragraph 1.1 to Target's shareholders of record, determined as of
the Effective Time (each a "Shareholder" and collectively "Shareholders"), in
constructive exchange for their Target Shares. Such distribution shall be
accomplished by Acquiring Fund's transfer agent's opening accounts on Acquiring
Fund's share transfer books in the Shareholders' names and transferring such
Acquiring Fund Shares thereto. Each Shareholder's account shall be credited with
the respective PRO RATA number of full and fractional (rounded to the third
decimal place) Acquiring Fund Shares due that Shareholder. All outstanding
Target Shares, including any represented by certificates, shall simultaneously
be canceled on Target's share transfer books. Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares issued in connection with
the Reorganization.
1.6 As soon as reasonably practicable after distribution of the Acquiring
Fund Shares pursuant to paragraph 1.5, but in all events within twelve months
after the Effective Time, Target shall be terminated and any further actions
shall be taken in connection therewith as required by applicable law.
1.7 Any reporting responsibility of Target to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.8 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than that of the registered holder on Target's books of the Target
Shares constructively exchanged therefor shall be paid by the person to whom
such Acquiring Fund Shares are to be issued, as a condition of such transfer.
B-2
<PAGE>
2. VALUATION
---------
2.1 For purposes of paragraph 1.1(a), Target's net value shall be (a) the
value of the Assets computed as of the close of regular trading on the New York
Stock Exchange ("NYSE") on the date of the Closing ("Valuation Time"), using the
valuation procedures set forth in Target's then-current prospectus and statement
of additional information less (b) the amount of the Liabilities as of the
Valuation Time.
2.2 For purposes of paragraph 1.1(a), the NAV of an Acquiring Fund Share
shall be computed as of the Valuation Time, using the valuation procedures set
forth in Acquiring Fund's then-current prospectus and statement of additional
information.
2.3 All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of INVESCO Funds Group, Inc. ("INVESCO").
3. CLOSING AND EFFECTIVE TIME
--------------------------
3.1 The Reorganization, together with related acts necessary to consummate
the same ("Closing"), shall occur at Corporation's principal office on June 4,
1999, or at such other place and/or on such other date as to which the parties
may agree. All acts taking place at the Closing shall be deemed to take place
simultaneously as of the close of business on the date thereof or at such other
time as to which the parties may agree ("Effective Time"). If, immediately
before the Valuation Time, (a) the NYSE is closed to trading or trading thereon
is restricted or (b) trading or the reporting of trading on the NYSE or
elsewhere is disrupted, so that accurate appraisal of the net value of Target
and the NAV of an Acquiring Fund Share is impracticable, the Effective Time
shall be postponed until the first business day after the day when such trading
shall have been fully resumed and such reporting shall have been restored.
3.2 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.
B-3
<PAGE>
4 CONDITIONS
----------
Each Fund's obligations hereunder are subject to satisfaction of each
condition indicated in this section 4 as being applicable to it either at the
time stated therein or, if no time is so stated, at or before (and continuing
through) the Effective Time:
4.1 Conditions to Each Fund's Obligations:
-------------------------------------
4.1.1 This Plan and the transactions contemplated hereby shall have
been approved by Target's shareholders in accordance with applicable law;
4.1.2 The aggregate fair market value of the Acquiring Fund Shares,
when received by the Shareholders, will be approximately equal to the
aggregate fair market value of their Target Shares constructively
surrendered in exchange therefor;
4.1.3 Corporation's management (a) is unaware of any plan or intention
of Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and (b)
does not anticipate dispositions of those Acquiring Fund Shares at the
time of or soon after the Reorganization to exceed the usual rate and
frequency of dispositions of shares of Target as a series of an open-end
investment company. Consequently, Corporation's management expects that
the percentage of Shareholder interests, if any, that will be disposed of
as a result of or at the time of the Reorganization will be DE MINIMIS.
Nor does Corporation's management anticipate that there will be
extraordinary redemptions of Acquiring Fund Shares immediately following
the Reorganization;
4.1.4 The Shareholders will pay their own expenses, if any, incurred
in connection with the Reorganization;
4.1.5 Immediately following consummation of the Reorganization,
Acquiring Fund will hold substantially the same assets and be subject to
substantially the same liabilities that Target held or was subject to
immediately prior thereto (in addition to the assets and liabilities
Acquiring Fund then held or was subject to), plus any liabilities and
expenses of the parties incurred in connection with the Reorganization;
4.1.6 The fair market value of the Assets on a going concern basis
will equal or exceed the Liabilities to be assumed by Acquiring Fund and
those to which the Assets are subject;
4.1.7 There is no intercompany indebtedness between the Funds that was
issued or acquired, or will be settled, at a discount;
4.1.8 Pursuant to the Reorganization, Target will transfer to
Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair
market value of the net assets, and at least 70% of the fair market value
of the gross assets, held by Target immediately before the Reorganization.
For the purposes of this representation, any amounts used by Target to pay
B-4
<PAGE>
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
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;
B-5
<PAGE>
4.1.12.3 Acquiring Fund will recognize no gain or loss on its
receipt of the Assets in exchange solely for Acquiring Fund Shares and
its assumption of the Liabilities;
4.1.12.4 Acquiring Fund's basis for the Assets will be the same
as the basis thereof in Target's hands immediately before the
Reorganization, and Acquiring Fund's holding period for the Assets will
include Target's holding period therefor;
4.1.12.5 A Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring
Fund Shares pursuant to the Reorganization; and
4.1.12.6 A Shareholder's aggregate basis for the Acquiring Fund
Shares to be received by it in the Reorganization will be the same as
the aggregate basis for its Target Shares to be constructively
surrendered in exchange for those Acquiring Fund Shares, and its
holding period for those Acquiring Fund Shares will include its holding
period for those Target Shares, provided they are held as capital
assets by the Shareholder at the Effective Time.
Notwithstanding subparagraphs 4.1.12.2 and 4.1.12.4, the Tax Opinion may state
that no opinion is expressed as to the effect of the Reorganization on the Funds
or any Shareholder with respect to any asset as to which any unrealized gain or
loss is required to be recognized for federal income tax purposes at the end of
a taxable year (or on the termination or transfer thereof) under a
mark-to-market system of accounting.
4.2 Conditions to Acquiring Fund's Obligations:
------------------------------------------
4.2.1 At the Closing, Target will have good and marketable title to
the Assets and full right, power, and authority to sell, assign, transfer,
and deliver the Assets free of any liens or other encumbrances; and upon
delivery and payment for the Assets, Acquiring Fund will acquire good and
marketable title thereto;
4.2.2 The Liabilities were incurred by Target in the ordinary course
of its business;
4.2.3 Target is a "fund" as defined in section 851(g)(2) of the Code;
it qualified for treatment as a regulated investment company under
Subchapter M of the Code ("RIC") for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings
and profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
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;
B-6
<PAGE>
4.2.5 Not more than 25% of the value of Target's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock and securities of any one issuer, and not more than 50% of
the value of such assets is invested in the stock and securities of five
or fewer issuers; and
4.2.6 Target will be terminated as soon as reasonably practicable
after the Effective Time, but in all events within twelve months
thereafter.
4.3 Conditions to Target's Obligations:
----------------------------------
4.3.1 No consideration other than Acquiring Fund Shares (and Acquiring
Fund's assumption of the Liabilities) will be issued in exchange for the
Assets in the Reorganization;
4.3.2 The Acquiring Fund Shares to be issued and delivered to Target
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, will be duly and validly issued
and outstanding shares of Acquiring Fund, fully paid and non-assessable;
4.3.3 Acquiring Fund is a "fund" as defined in section 851(g)(2) of
the Code; it qualified for treatment as a RIC for each past taxable year
since it commenced operations and will continue to meet all the
requirements for such qualification for its current taxable year;
Acquiring Fund intends to continue to meet all such requirements for the
next taxable year; and it has no earnings and profits accumulated in any
taxable year in which the provisions of Subchapter M of the Code did not
apply to it;
4.3.4 Acquiring Fund has no plan or intention to issue additional
Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as a series of an open-end
investment company; nor does Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the
Shareholders pursuant to the Reorganization, except to the extent it is
required by the 1940 Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of that business;
4.3.5 Following the Reorganization, Acquiring Fund (a) will continue
Target's "historic business" (within the meaning of section 1.368-1(d)(2)
of the Income Tax Regulations under the Code), (b) use a significant
portion of Target's historic business assets (within the meaning of
section 1.368-1(d)(3) of the Income Tax Regulations under the Code) in a
business, (c) has no plan or intention to sell or otherwise dispose of any
of the Assets, except for dispositions made in the ordinary course of 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;
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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.
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<PAGE>
APPENDIX C
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
This AGREEMENT AND PLAN OF CONVERSION AND TERMINATION ("Agreement") is made
as of March 21, 1999, between INVESCO Tax-Free Income Funds, Inc., a Maryland
corporation ("Tax-Free Income Funds"), on behalf of INVESCO Tax-Free
Intermediate Bond Fund, a segregated portfolio of assets ("series") thereof
("Old Fund"), and INVESCO Bond Funds, Inc., a Maryland corporation ("Bond
Funds"), on behalf of its INVESCO Tax-Free Intermediate Bond Fund series ("New
Fund"). (Old Fund and New Fund are sometimes referred to herein individually as
a "Fund" and collectively as the "Funds"; Tax-Free Income Funds and Bond Funds
are sometimes referred to herein individually as an "Investment Company" and
collectively as the "Investment Companies.") All agreements, representations,
actions, and obligations described herein made or to be taken or undertaken by
either Fund are made and shall be taken or undertaken by Tax-Free Income Funds
on behalf of Old Fund and by Bond Funds on behalf of New Fund.
Old Fund intends to change its identity -- by converting from a series of
Tax-Free Income Funds to a series of Bond Funds -- through a reorganization
within the meaning of section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended ("Code"). Old Fund desires to accomplish such conversion by
transferring all its assets to New Fund (which is being established solely for
the purpose of acquiring such assets and continuing Old Fund's business) in
exchange solely for voting shares of common stock in New Fund ("New Fund
Shares") and New Fund's assumption of Old Fund's liabilities, followed by the
constructive distribution of the New Fund Shares PRO RATA to the holders of
shares of common stock in Old Fund ("Old Fund Shares") in exchange therefor, all
on the terms and conditions set forth in this Agreement (which is intended to
be, and is adopted as, a "plan of reorganization" for federal income tax
purposes). All such transactions are referred to herein as the "Reorganization."
In consideration of the mutual promises herein contained, the parties
agree as follows:
1. PLAN OF CONVERSION AND TERMINATION
----------------------------------
1.1. Old Fund agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to New Fund. New Fund agrees in
exchange therefor --
(a) to issue and deliver to Old Fund the number of full and
fractional (rounded to the third decimal place) New Fund Shares equal to
the number of full and fractional Old Fund Shares then outstanding, and
(b) to assume all of Old Fund's liabilities described in paragraph
1.3 ("Liabilities").
Such transactions shall take place at the Closing (as defined in paragraph 2.1).
1.2. The Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on Old Fund's books, and other property owned by Old Fund at the
Effective Time (as defined in paragraph 2.1).
<PAGE>
1.3. The Liabilities shall include all of Old Fund's liabilities, debts,
obligations, and duties of whatever kind or nature, whether absolute, accrued,
contingent, or otherwise, whether or not arising in the ordinary course of
business, whether or not determinable at the Effective Time, and whether or not
specifically referred to in this Agreement.
1.4. At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Share issued pursuant to paragraph 4.4 shall be
redeemed by New Fund for $1.00 and (b) Old Fund shall distribute the New Fund
Shares it received pursuant to paragraph 1.1 to its shareholders of record,
determined as of the Effective Time (each a "Shareholder" and collectively
"Shareholders"), in constructive exchange for their Old Fund Shares. Such
distribution shall be accomplished by Bond Funds' transfer agent's opening
accounts on New Fund's share transfer books in the Shareholders' names and
transferring such New Fund Shares thereto. Each Shareholder's account shall be
credited with the respective PRO RATA number of full and fractional (rounded to
the third decimal place) New Fund Shares due that Shareholder. All outstanding
Old Fund Shares, including those represented by certificates, shall
simultaneously be canceled on Old Fund's share transfer books. New Fund shall
not issue certificates representing the New Fund Shares in connection with the
Reorganization.
1.5. As soon as reasonably practicable after distribution of the New Fund
Shares pursuant to paragraph 1.4, but in all events within twelve months after
the Effective Time, Old Fund shall be terminated as a series of Tax-Free Income
Funds and any further actions shall be taken in connection therewith as required
by applicable law.
1.6. Any reporting responsibility of Old Fund to a public authority is and
shall remain its responsibility up to and including the date on which it is
terminated.
1.7. Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder on Old Fund's books of the Old Fund
Shares constructively exchanged therefor shall be paid by the person to whom
such New Fund Shares are to be issued, as a condition of such transfer.
2. CLOSING AND EFFECTIVE TIME
--------------------------
2.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal office on
June 4, 1999, or at such other place and/or on such other date as to which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the close of business on the date thereof or at such
other time as to which the parties may agree ("Effective Time").
2.2. Tax-Free Income Funds' fund accounting and pricing agent shall
deliver at the Closing a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by Old Fund to New Fund,
as reflected on New Fund's books immediately following the Closing, does or will
conform to such information on Old Fund's books immediately before the Closing.
Tax-Free Income Funds' custodian shall deliver at the Closing a certificate of
an authorized officer stating that (a) the Assets held by the custodian will be
transferred to New Fund at the Effective Time and (b) all necessary taxes in
conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
2.3. Bond Funds' transfer agent shall deliver at the Closing a certificate
as to the opening on New Fund's share transfer books of accounts in the
Shareholders' names. Bond Funds shall issue and deliver a confirmation to
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Tax-Free Income Funds evidencing the New Fund Shares to be credited to Old Fund
at the Effective Time or provide evidence satisfactory to Tax-Free Income Funds
that such New Fund Shares have been credited to Old Fund's account on such
books. At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts, or other documents as the
other party or its counsel may reasonably request.
2.4. Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES
------------------------------
3.1. Old Fund represents and warrants as follows:
3.1.1. Tax-Free Income Funds is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Maryland; and a copy of its Articles of Incorporation is on file with the
Secretary of State of Maryland;
3.1.2. Tax-Free Income Funds is duly registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended ("1940 Act"), and such registration will be in full force and
effect at the Effective Time;
3.1.3. Old Fund is a duly established and designated series of
Tax-Free Income Funds;
3.1.4. At the Closing, Old Fund will have good and marketable title
to the Assets and full right, power, and authority to sell, assign,
transfer, and deliver the Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, New Fund will acquire good
and marketable title thereto;
3.1.5. New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms
hereof;
3.1.6. Old Fund is a "fund" as defined in section 851(g)(2) of the
Code; it qualified for treatment as a regulated investment company under
Subchapter M of the Code ("RIC") for each past taxable year since it
commenced operations and will continue to meet all the requirements for
such qualification for its current taxable year; and it has no earnings
and profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Assets shall be invested at all
times through the Effective Time in a manner that ensures compliance with
the foregoing;
3.1.7. The Liabilities were incurred by Old Fund in the ordinary
course of its business and are associated with the Assets;
3.1.8. Old Fund is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of section 368(a)(3)(A) of the Code;
3.1.9. Not more than 25% of the value of Old Fund's total assets
(excluding cash, cash items, and U.S. government securities) is invested
in the stock and securities of any one issuer, and not more than 50% of
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the value of such assets is invested in the stock and securities of five
or fewer issuers;
3.1.10. As of the Effective Time, Old Fund will not have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Old Fund Shares;
3.1.11. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by Old Fund's
shareholders; and
3.1.12. Old Fund will be terminated as soon as reasonably
practicable after the Effective Time, but in all events within twelve
months thereafter.
3.2. New Fund represents and warrants as follows:
3.2.1. Bond Funds is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Maryland; and a copy
of its Articles of Incorporation is on file with the Secretary of State of
Maryland;
3.2.2. Bond Funds is duly registered as an open-end management
investment company under the 1940 Act, and such registration will be in
full force and effect at the Effective Time;
3.2.3. Before the Effective Time, New Fund will be a duly
established and designated series of Bond Funds;
3.2.4. New Fund has not commenced operations and will not do so
until after the Closing;
3.2.5. Prior to the Effective Time, there will be no issued and
outstanding shares in New Fund or any other securities issued by New Fund,
except as provided in paragraph 4.4;
3.2.6. No consideration other than New Fund Shares (and New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets
in the Reorganization;
3.2.7. The New Fund Shares to be issued and delivered to Old Fund
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, will be duly and validly issued
and outstanding shares of New Fund, fully paid and non-assessable;
3.2.8. New Fund will be a "fund" as defined in section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
3.2.9. New Fund has no plan or intention to issue additional New
Fund Shares following the Reorganization except for shares issued in the
ordinary course of its business as a series of an open-end investment
company; nor does New Fund have any plan or intention to redeem or
otherwise reacquire any New Fund Shares issued to the Shareholders
pursuant to the Reorganization, except to the extent it is required by the
1940 Act to redeem any of its shares presented for redemption at net asset
value in the ordinary course of that business;
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<PAGE>
3.2.10. Following the Reorganization, New Fund (a) will continue Old
Fund's "historic business" (within the meaning of section 1.368-1(d)(2) of
the Income Tax Regulations under the Code), (b) use a significant portion
of Old Fund's historic business assets (within the meaning of section
1.368-1(d)(3) of the Income Tax Regulations under the Code) in a business,
(c) has no plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of that
business and dispositions necessary to maintain its status as a RIC, and
(d) expects to retain substantially all the Assets in the same form as it
receives them in the Reorganization, unless and until subsequent
investment circumstances suggest the desirability of change or it becomes
necessary to make dispositions thereof to maintain such status;
3.2.11. There is no plan or intention for New Fund to be dissolved
or merged into another corporation or a business trust or any "fund"
thereof (within the meaning of section 851(g)(2) of the Code) following
the Reorganization; and
3.2.12. Immediately after the Reorganization, (a) not more than 25%
of the value of New Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities
of any one issuer and (b) not more than 50% of the value of such assets
will be invested in the stock and securities of five or fewer issuers.
3.3. Each Fund represents and warrants as follows:
3.3.1. The aggregate fair market value of the New Fund Shares, when
received by the Shareholders, will be approximately equal to the aggregate
fair market value of their Old Fund Shares constructively surrendered in
exchange therefor;
3.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of
their Old Fund Shares before the Reorganization to any person related
(within the meaning of section 1.368-1(e)(3) of the Income Tax Regulations
under the Code) to either Fund or (ii) any portion of the New Fund Shares
to be received by them in the Reorganization to any person related (as so
defined) to New Fund, (b) does not anticipate dispositions of those New
Fund Shares at the time of or soon after the Reorganization to exceed the
usual rate and frequency of dispositions of shares of Old Fund as a series
of an open-end investment company, (c) expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be DE MINIMIS, and (d) does not
anticipate that there will be extraordinary redemptions of New Fund Shares
immediately following the Reorganization;
3.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
3.3.4. Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares and will own such shares
solely by reason of their ownership of Old Fund Shares immediately before
the Reorganization;
3.3.5. Immediately following consummation of the Reorganization, New
Fund will hold the same assets -- except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization -- and be subject
to the same liabilities that Old Fund held or was subject to immediately
prior to the Reorganization, plus any liabilities for expenses of the
parties incurred in connection with the Reorganization. Such excepted
assets, together with the amount of all redemptions and distributions
(other than regular, normal dividends) made by Old Fund immediately
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<PAGE>
preceding the Reorganization, will, in the aggregate, constitute less than
1% of its net assets;
3.3.6. There is no intercompany indebtedness between the Funds that
was issued or acquired, or will be settled, at a discount; and
3.3.7. Neither Fund will be reimbursed for any expenses incurred by
it or on its behalf in connection with the Reorganization unless those
expenses are solely and directly related to the Reorganization (determined
in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1
C.B. 187) ("Reorganization Expenses").
4. CONDITIONS PRECEDENT
--------------------
Each Fund's obligations hereunder shall be subject to (a) performance by
the other Fund of all its obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
4.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by the each Investment Company's board of
directors and shall have been approved by Old Fund's shareholders in accordance
with applicable law;
4.2. All necessary filings shall have been made with the Securities and
Exchange Commission ("SEC") and state securities authorities, and no order or
directive shall have been received that any other or further action is required
to permit the parties to carry out the transactions contemplated hereby. All
consents, orders, and permits of federal, state, and local regulatory
authorities (including the SEC and state securities authorities) deemed
necessary by either Investment Company to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain same would not involve a risk of a material
adverse effect on the assets or properties of either Fund, provided that either
Investment Company may for itself waive any of such conditions;
4.3. Each Investment Company shall have received an opinion of Kirkpatrick
& Lockhart LLP, addressed to and in form and substance satisfactory to it, as to
the federal income tax consequences mentioned below ("Tax Opinion"). In
rendering the Tax Opinion, such counsel may rely as to factual matters,
exclusively and without independent verification, on the representations made in
this Agreement (or in separate letters addressed to such counsel) and the
certificates delivered pursuant to paragraph 2.4. The Tax Opinion shall be
substantially to the effect that, based on the facts and assumptions stated
therein and conditioned on consummation of the Reorganization in accordance with
this Agreement, for federal income tax purposes:
4.3.1. New Fund's acquisition of the Assets in exchange solely for
New Fund Shares and New Fund's assumption of the Liabilities, followed by
Old Fund's distribution of those shares PRO RATA to the Shareholders
constructively in exchange for the Shareholders' Old Fund Shares, will
constitute a reorganization within the meaning of section 368(a)(1)(F) of
the Code, and each Fund will be "a party to a reorganization" within the
meaning of section 368(b) of the Code;
4.3.2. Old Fund will recognize no gain or loss on the transfer to
New Fund of the Assets in exchange solely for New Fund Shares and New
Fund's assumption of the Liabilities or on the subsequent distribution of
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<PAGE>
those shares to the Shareholders in constructive exchange for their Old
Fund Shares;
4.3.3. New Fund will recognize no gain or loss on its receipt of the
Assets in exchange solely for New Fund Shares and its assumption of the
Liabilities;
4.3.4. New Fund's basis for the Assets will be the same as the basis
thereof in Old Fund's hands immediately before the Reorganization, and New
Fund's holding period for the Assets will include Old Fund's holding
period therefor;
4.3.5. A Shareholder will recognize no gain or loss on the
constructive exchange of all its Old Fund Shares solely for New Fund
Shares pursuant to the Reorganization;
4.3.6. A Shareholder's aggregate basis for the New Fund Shares to be
received by it in the Reorganization will be the same as the aggregate
basis for its Old Fund Shares to be constructively surrendered in exchange
for those New Fund Shares, and its holding period for those New Fund
Shares will include its holding period for those Old Fund Shares, provided
they are held as capital assets by the Shareholder at the Effective Time;
and
4.3.7. For purposes of section 381 of the Code, New Fund will be
treated as if there had been no Reorganization. Accordingly, the
Reorganization will not result in the termination of Old Fund's taxable
year, Old Fund's tax attributes enumerated in section 381(c) of the Code
will be taken into account by New Fund as if there had been no
Reorganization, and the part of Old Fund's taxable year before the
Reorganization will be included in New Fund's taxable year after the
Reorganization;
4.4. Prior to the Closing, Bond Funds' directors shall have authorized the
issuance of, and New Fund shall have issued, one New Fund Share to Tax-Free
Income Funds in consideration of the payment of $1.00 to vote on the matters
referred to in paragraph 4.5; and
4.5. Bond Funds (on behalf of and with respect to New Fund) shall have
entered into a management contract, a distribution and service plan pursuant to
Rule 12b-1 under the 1940 Act, and such other agreements as are necessary for
New Fund's operation as a series of an open-end investment company. Each such
contract, plan, and agreement shall have been approved by Bond Funds' directors
and, to the extent required by law, by such of those directors who are not
"interested persons" thereof (as defined in the 1940 Act) and by Tax-Free Income
Funds as the sole shareholder of New Fund.
At any time before the Closing, either Investment Company may waive any of the
foregoing conditions (except that set forth in paragraph 4.1) if, in the
judgment of its board of directors, such waiver will not have a material adverse
effect on its Fund's shareholders' interests.
5. BROKERAGE FEES AND EXPENSES
---------------------------
5.1 Each Investment Company represents and warrants to the other that
there are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
5.2 Except as otherwise provided herein, 50% of the total Reorganization
Expenses will be borne by INVESCO and the remaining 50% will be borne partly by
each Fund.
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6. ENTIRE AGREEMENT; NO SURVIVAL
-----------------------------
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.
7. TERMINATION
-----------
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Old Fund's shareholders:
7.1. By either Fund (a) in the event of the other Fund's material breach
of any representation, warranty, or covenant contained herein to be performed at
or prior to the Effective Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such condition will not or cannot be
met, or (c) if the Closing has not occurred on or before August 31, 1999; or
7.2. By the parties' mutual agreement.
In the event of termination under paragraphs 7.1(c) or 7.2, there shall be no
liability for damages on the part of either Fund, or the directors or officers
of either Investment Company, to the other Fund.
8. AMENDMENT
---------
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Old Fund's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
Shareholders' interests.
9. MISCELLANEOUS
-------------
9.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Maryland; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
9.2. Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
9.3. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more counterparts have been executed by each Investment Company and
delivered to the other party hereto. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
and delivered by its duly authorized officers as of the day and year first
written above.
ATTEST: INVESCO TAX-FREE INCOME FUNDS, INC.,
on behalf of its series,
INVESCO Tax-Free Intermediate Bond Fund
______________________ By: _________________________________
Secretary President
ATTEST: INVESCO BOND FUNDS, INC.,
on behalf of its series,
INVESCO Tax-Free Intermediate Bond Fund
______________________ By: _________________________________
Secretary President
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<PAGE>
INVESCO TAX-FREE INCOME FUNDS, INC.
(INVESCO Long-Term Bond Fund)
PART C
OTHER INFORMATION
Item 15. Indemnification
---------------
Indemnification provisions for officers and directors of Registrant are
set forth in Article VII, Section 2 of the Articles of Incorporation, and are
hereby incorporated by reference. See Item 16(1) below. Under this Article,
officers and directors will be indemnified to the fullest extent permitted to
directors by the Maryland General Corporation Law, subject only to such
limitations as may be required by the Investment Company Act of 1940, as amended
("1940 Act"), and the rules thereunder. Under the 1940 Act, directors and
officers of Registrant cannot be protected against liability to Registrant or
its shareholders to which they would be subject because of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties of their office.
Registrant also maintains liability insurance policies covering its directors
and officers.
Item 16. Exhibits
--------
(1) Articles of Incorporation.(1)
(2) By-Laws.(1)
(3) Voting trust agreement - none.
(4) (a) Agreement and Plan of Reorganization and Termination is attached
hereto as Appendix B to the Prospectus/Proxy Statement.
(b) Agreement and Plan of Conversion and Termination is attached
hereto as Appendix C to the Prospective/Proxy Statement.
(5) Provisions of instruments defining the rights of holders of securities
are contained in Articles III, IV, VI, VIII of the Registrant's
Articles of Incorporation as amended, and Articles I, II, V, VI, VII,
VIII, IX and X of the Registrant's Bylaws.
(6) (a) Investment Advisory Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997.(2)
(7) (a) General Distribution Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997.(2)
(b) Distribution Agreement between Registrant and INVESCO
Distributors, Inc.(3)
(8) (a) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees.(2)
(b) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees.(3)
<PAGE>
(9) Custody Agreement between Registrant and State Street Bank and Trust
Company dated July 1, 1993.(2)
(a) Amendment to Custody Agreement dated October 25, 1995.(2)
(b) Data Access Service Addendum dated May 19, 1997.(2)
(10)Plan and Agreement of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 dated April 30, 1993.(2)
(a) Amendment of Plan and Agreement of Distribution pursuant to 12b-1
under the Investment Company Act of 1940 dated July 19, 1995.(2)
(b) Amended Plan and Agreement of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated
January 1, 1997.(2)
(c) Amended Plan and Agreement of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated
September 30, 1997.(3)
(11)Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of securities being registered(4).
(12)(a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters in connection with INVESCO Tax-Free
Intermediate Bond Fund (to be filed).
(b) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters in connection with INVESCO Tax-Free Long
Term Bond Fund (to be filed).
(13)(a) Transfer Agency Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997.(2)
(b) Administrative Services Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997.(2)
(14)Consent of PricewaterhouseCoopers LLP (filed herewith).
(15)Financial statements omitted from part B - none.
(16)Copies of manually signed Powers of Attorney - incorporated by
reference to Powers of Attorney previously filed with the Securities
and Exchange Commission on July 20, 1989, January 9, 1990, May 22,
1992, September 1, 1993, December 1, 1993, August 30, 1995, October
18, 1996, and August 29, 1997.
(17)Additional Exhibits.
(a) Amended Form of Proxy Card (filed herewith).
- ----------------
(1) Incorporated by reference from Post-Effective Amendment No. 24 to the
registration statement, filed on October 18, 1996.
(2) Incorporated by reference from Post-Effective Amendment No. 25 to the
registration statement, filed on August 29, 1997.
(3) Incorporated by reference from Post-Effective Amendment No. 26 to the
registration statement, filed October 28, 1998.
(4) Incorporated by reference from the Registration Statement on Form N-14
filed January 22, 1999.
<PAGE>
Item 17. Undertakings
------------
(1) The undersigned Registrant agrees that prior to any public re-offering
of the securities registered through the use of the prospectus which is a part
of this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the
re-offering prospectus will contain the information called for by the applicable
registration form for re-offering by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this Pre-Effective
Amendment No. 1 to this Registration Statement on Form N-14 has been signed on
behalf of the Registrant, in the City of Denver and the State of Colorado, on
this 17th day of March 1999.
Attest: INVESCO Tax-Free Income Funds, Inc.
/s/ Glen A. Payne By: /s/ Mark H. Williamson
- ---------------------- ----------------------
Glen A. Payne Mark H. Williamson
Secretary President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 1 to this Registration Statement on Form N-14
has been signed below by the following persons in the capacities and on the
dates indicated:
Signature Title Date
- --------- ----- ----
President, Director and
/s/ Mark H. Williamson Chief Executive Officer March 17, 1999
- ------------------------------
Mark H. Williamson
/s/ Ronald L. Grooms Treasurer and March 17, 1999
- ------------------------------- Chief Financial and
Ronald L. Grooms Accounting Officer
Director March 17, 1999
- ------------------------
Victor L. Andrews
* Director March 17, 1999
- ------------------------
Bob R. Baker
* Director March 17, 1999
- ------------------------
Charles W. Brady
<PAGE>
* Director March 17, 1999
- ------------------------
Wendy L. Gramm
* Director March 17, 1999
- ------------------------
Lawrence H. Budner
* Director March 17, 1999
- ------------------------
Fred A. Deering
* Director March 17, 1999
- ------------------------
Larry Soll
* Director March 17, 1999
- ------------------------
Kenneth T. King
* Director March 17, 1999
- ------------------------
John W. McIntyre
By * March 17, 1999
-------------------
Edward F. O'Keefe
Attorney in Fact
By */s/ Glen A. Payne March 17, 1999
--------------------------
Glen A. Payne
Attorney in Fact
<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 July 20, 1989,
January 9, 1990, May 22, 1992, September 1, 1993, December 1, 1993, August 30,
1995, October 18, 1996 and August 29, 1997.
<PAGE>
EXHIBIT INDEX
(1) Articles of Incorporation.(1)
(2) By-Laws.(1)
(3) Voting trust agreement - none.
(4) (a) Agreement and Plan of Reorganization and Termination is attached
hereto as Appendix B to the Prospectus/Proxy Statement.
(b) Agreement and Plan of Conversion and ermination is attached
hereto as Appendix C to the Prospectus/proxy Statement.
(5) Provisions of instruments defining the rights of holders of securities
are contained in Articles III, IV, VI, VIII of the Registrant's
Articles of Incorporation as amended, and Articles I, II, V, VI, VII,
VIII, IX and X of the Registrant's Bylaws.
(6) (a) Investment Advisory Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997.(2)
(7) (a) General Distribution Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997.(2)
(b) Distribution Agreement between Registrant and INVESCO
Distributors, Inc.(3)
(8) (a) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees.(2)
(b) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees.(3)
(9) Custody Agreement between Registrant and State Street Bank and Trust
Company dated July 1, 1993.(2)
(a) Amendment to Custody Agreement dated October 25, 1995.(2)
(b) Data Access Service Addendum dated May 19, 1997.(2)
(10)Plan and Agreement of Distribution pursuant to Rule 12b-1 under the
the Investment Company Act of 1940 dated April 30, 1993.(2)
(a) Amendment of Plan and Agreement of Distribution pursuant to 12b-1
under the Investment Company Act of 1940 dated July 19, 1995.(2)
(b) Amended Plan and Agreement of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated
January 1, 1997.(2)
(c) Amended Plan and Agreement of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated
September 30, 1997.(3)
(11)Opinion and consent of Kirkpatrick & Lockhart LLP regarding the
legality of securities being registered(4).
(12)(a) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters in connection with INVESCO Tax-Free
Intermediate Bond Fund (to be filed).
(b) Opinion and consent of Kirkpatrick & Lockhart LLP regarding
certain tax matters in connection with INVESCO Tax-Free Long
Term Bond Fund (to be filed).
(13)(a) Transfer Agency Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997.(2)
(b) Administrative Services Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997.(2)
<PAGE>
(14)Consent of PricewaterhouseCoopers LLP (filed herewith).
(15)Financial statements omitted from part B - none.
(16)Copies of manually signed Powers of Attorney - incorporated by
reference to Powers of Attorney previously filed with the Securities
and Exchange Commission on July 20, 1989, January 9, 1990, May 22,
1992, September 1, 1993, December 1, 1993, August 30, 1995, October
18, 1996, and August 29, 1997.
(17)Additional Exhibits.
(a) Amended Form of Proxy Card (filed herewith).
- ----------------
(1) Incorporated by reference from Post-Effective Amendment No. 24 to the
registration statement, filed on October 18, 1996.
(2) Incorporated by reference from Post-Effective Amendment No. 25 to the
registration statement, filed on August 29, 1997.
(3) Incorporated by reference from Post-Effective Amendment No. 26 to the
registration statement, filed October 28, 1998.
(4) Incorporated by reference from the Registration Statement on Form N-14
filed on January 22, 1999.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this registration statement on Form
N-14 (the "Registration Statement") of our report dated July 31, 1998 relating
to the financial statements and financial highlights appearing in the June 30,
1998 Annual Report to Shareholders of INVESCO Tax-Free Long Term Bond Fund (one
of the portfolios constituting INVESCO Tax-Free Income Funds, Inc.) and our
report dated July 31, 1998 relating to the financial statements and financial
highlights appearing in the June 30, 1998 Annual Report to Shareholders of
INVESCO Tax-Free Intermediate Bond Fund (one of the portfolios constituting
INVESCO Tax-Free Income Funds, Inc.), which are also incorporated by reference
into Statement of Additional Information.
We also consent to the incorporation by reference to our report into the
Prospectus of INVESCO Tax-Free Long Term Bond Fund dated November 1, 1998, and
the incorporation by reference of our report in the Prospectus of INVESCO
Tax-Free Intermediate Bond Fund dated November 1, 1998, 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 Tax-Free Long Term Bond Fund and
to the reference to us under the heading "Financial Highlights" in the
Prospectus of INVESCO Tax-Free Long Term Bond Fund both dated November 1, 1998.
We also consent to the references to us under the headings "Independent
Accountants" and Financial Statements" in the Statement of Additional
Information of INVESCO Tax-Free Intermediate Bond Fund and to the reference to
us under the heading "Financial Highlights" in the Prospectus of INVESCO
Tax-Free Intermediate Bond Fund both dated November 1, 1998.
We also consent to the references to us under the headings "Financial
Highlights" and "Experts" in the combined Prospectus/Proxy Statement,
constituting part of this Registration Statement.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Denver, Colorado
March 16, 1999
[Name and Address of Proxy Solicitor]
INVESCO TAX-FREE INTERMEDIATE BOND FUND
INVESCO Tax-Free Income 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
Tax-Free Income Funds, Inc. ("Company") and relates to the proposals with
respect to the Company and to INVESCO Tax-Free Intermediate Bond Fund, a series
of the Company ("Fund"). The undersigned hereby appoints as proxies Fred A.
Deering and Mark H. Williamson, and each of them (with power of substitution),
to vote all shares of common stock of the undersigned in the Fund at the Special
Meeting of Shareholders to be held at 10:00 a.m., Mountain Standard Time, on May
20, 1999, at the offices of the Company, 7800 East 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 the Fund with discretionary
power to vote upon such other business as may properly come before the Meeting.
YOUR VOTE IS IMPORTANT. IF YOU ARE NOT VOTING BY PHONE, FACSIMILE OR INTERNET,
PLEASE DATE AND SIGN THIS PROXY BELOW AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
TO VOTE BY TOUCH-TONE PHONE OR THE INTERNET, PLEASE CALL 1-800-690-6903 TOLL
FREE OR VISIT WWW.PROXYOTE.COM. TO VOTE BY FACSIMILE TRANSMISSION, PLEASE FAX
YOUR COMPLETED PROXY CARD TO 1-800-733-1885.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
[X] KEEP THIS PORTION FOR YOUR RECORDS
<PAGE>
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
INVESCO TAX-FREE INTERMEDIATE BOND FUND
INVESCO TAX-FREE INCOME FUNDS, INC.
<TABLE>
<CAPTION>
VOTE ON DIRECTORS FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
<S> <C> <C> <C> <C> <C>
4. 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 nominee's
Gramm; (8) Kenneth T. King; (9) John W. number on the line
McIntyre; and (10) Dr. Larry Soll. below.
------------------------
</TABLE>
<TABLE>
<CAPTION>
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. Approval of an Agreement and Plan of Reorganization and / / / / / /
Termination under which INVESCO Long-Term Bond Fund ("Long-
Term Bond Fund"), also a series of the Company, would acquire all
of the assets of the Fund in exchange solely for shares of
Long-Term Bond Fund and the assumption by Long-Term Bond Fund of
all of the Fund's liabilities, followed by the distribution of
those shares to the shareholders of the Fund.
2. Approval of an Agreement and Plan of Conversion and Termination / / / / / /
providing for the conversion of the Fund from a separate series
of the Company to a separate series of INVESCO Bond Funds, Inc.
3. 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 letter(s) (as
set forth in the proxy statement) of the investment policy or
policies you do not want to change on the line on the reverse
side. IF YOU CHOOSE TO VOTE DIFFERENTLY ON INDIVIDUAL
RESTRICTIONS, YOU MUST MAIL IN YOUR PROXY CARD. IF YOU CHOOSE TO
VOTE THE SAME ON ALL RESTRICTIONS PERTAINING TO YOUR FUND,
TELEPHONE AND INTERNET VOTING ARE AVAILABLE.
5. Ratification of the selection of PricewaterhouseCoopers LLP as / / / / / /
the Fund's Independent Public Accountants.
YOUR VOTE IS IMPORTANT. IF YOU ARE NOT VOTING BY PHONE, FACSILIME OR INTERNET, PLEASE SIGN AND DATE THIS PROXY BELOW AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
TO VOTE BY TOUCH-TONE PHONE OR THE INTERNET, PLEASE CALL 1-800-690-6903 TOLL FREE OR VISIT WWW.PROXYVOTE.COM. TO VOTE BY
FACSIMILE TRANSMISSION, PLEASE FAX YOUR COMPLETED PROXY CARD TO 1-800-733-1885.
<PAGE>
Please sign exactly as name appears hereon. If stock is held in the name of joint owners, each should sign.
Attorneys-in-fact, executors, administrators, etc. should so indicate. If shareholder is a corporation or partnership,
please sign in full corporate or partnership name by authorized person
_________________________________________________ ______________________________________
Signature Date
_________________________________________________ ______________________________________
Signature (Joint Owners) Date
[Back]
To vote against the proposed changes to one or more of the specific fundamental
investment policies, indicate the letter(s) (as set forth in the proxy
statement) of the investment policy or policies you do not want to change on the
line at the right. IF YOU CHOOSE TO VOTE DIFFERENTLY ON INDIVIDUAL RESTRICTIONS,
YOU MUST MAIL IN YOUR PROXY CARD. IF YOU CHOOSE TO VOTE THE SAME ON ALL
RESTRICTIONS PERTAINING TO YOUR FUND, TELEPHONE AND INTERNET VOTING ARE 3. ________________________
AVAILABLE.
</TABLE>
