SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)or Section 240.14a-12
INVESCO Tax-Free Funds, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
___________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
___________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
___________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
___________________________________________________________________________
5) Total fee paid:
___________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:_______________________________________________
2) Form, Schedule or Registration Statement No.:________________________
3) Filing Party:___________________________________________________________
4) Date Filed:_____________________________________________________________
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INVESCO TAX-FREE LONG-TERM BOND FUND
(A SERIES OF INVESCO TAX-FREE INCOME FUNDS, INC.)
March 23, 1999
Dear Shareholder:
The attached proxy materials seek your approval to convert INVESCO
Tax-Free Long-Term Bond Fund ("Fund"), a separate series of INVESCO Tax-Free
Income Funds, Inc. ("Income Funds"),to a separate series of INVESCO Bond Funds,
Inc. ("Bond Funds"), to make certain changes in the fundamental policies of the
Fund, to elect directors of Income Funds, and to ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants of the Fund.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ALL PROPOSALS.
The conversion of the Fund to a separate series of Bond Funds, which is part of
a proposed conversion of other INVESCO funds that invest in debt securities to
series of Bond Funds, will streamline and render more efficient the
administration of the Fund. The changes to the fundamental policies of the Fund
have been approved by Income Fund's board of directors in order to simplify and
modernize the Fund's fundamental investment restrictions and make them more
uniform with those of the other INVESCO funds. The attached proxy materials
provide more information about the proposed conversion, as well as the proposed
changes in fundamental policies and the other matters you are being asked to
vote upon.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN. Voting your
shares early will permit the 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 promptly. As an
alternative to using the paper proxy card to vote, you may vote, by telephone,
by facsimile, through the Internet, or in person.
Very truly yours,
Mark H. Williamson
President
INVESCO Tax-Free Income Funds, Inc.
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INVESCO TAX-FREE LONG-TERM 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 the shareholders of INVESCO Tax-Free Long-Term Bond
Fund ("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 office of
INVESCO Funds Group, 7800 East Union Avenue, Denver, Colorado, for the following
purposes:
1) To approve an Agreement and Plan of Conversion and Termination
providing for the conversion of the Fund from a separate series of
Income Funds to a separate series of INVESCO Bond Funds, Inc.;
2) To approve certain changes to the Fund's fundamental investment
restrictions;
3) To elect directors of Income Funds;
4) To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the Fund; and
5) To transact such other business as may properly come before the
meeting or any adjournment thereof.
You are entitled to vote at the meeting and any adjournment thereof if
you owned shares of the Fund at the close of business on March 12, 1999. IF YOU
ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON. IF YOU DO NOT EXPECT TO
ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
By order of the Board of Directors,
/s/ Glen A. Payne
Glen A. Payne
Secretary
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March 23, 1999
Denver, Colorado
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YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card, 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(s)
promptly. As an alternative to using the paper proxy card(s) to vote, you may
vote by mail, by telephone, through the Internet, by facsimile machine or in
person. To vote by telephone, please call the toll-free number listed on the
enclosed proxy card(s). Shares that are registered in your name, as well as
shares held in "street name" through a broker, may be voted via the Internet or
by telephone. To vote in this manner, you will need the 12-digit "control"
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 (516) 254-7564. If we do not receive your completed proxy card(s) after
several weeks, you may be contacted by our proxy solicitor, Shareholder
Communications Corporation. Our proxy solicitor will remind you to vote your
shares or will record your vote over the phone if you choose to vote in that
manner. You may also call Shareholder Communications Corporation directly at
1-800-690-6903, 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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INVESCO TAX-FREE LONG-TERM BOND FUND (A
SERIES OF INVESCO TAX-FREE INCOME FUNDS, INC.)
7800 EAST UNION AVENUE
DENVER, COLORADO 80237
(TOLL FREE) 1-800-646-8372
___________
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
MAY 20, 1999
___________
VOTING INFORMATION
This Proxy Statement is being furnished to shareholders of INVESCO
Tax-Free Long-Term Bond Fund ("Fund"), a separate series of INVESCO Tax-Free
Income Funds, Inc. ("Income Funds"), in connection with the solicitation of
proxies from 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 the Fund's shares outstanding on March 12, 1999, ("Record
Date") 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 set forth in this Proxy Statement 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 a quorum is present with
respect to such proposal, sufficient votes have been received with respect to
such proposal 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.
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The individuals named as proxies on the enclosed proxy card will vote in
accordance with your directions as indicated on that proxy card, if it is
received properly executed by you or by your duly appointed agent or
attorney-in-fact. If you sign, date and return the proxy card, but give no
voting instructions, your shares will be voted in favor of approval of each of
the proposals. In addition, if you sign, date and return the proxy card, but
give no voting instructions, the duly appointed proxies may, in their
discretion, vote upon such other matters as may come before the Meeting. The
proxy card may be revoked by giving another proxy or by letter or telegram
revoking the initial proxy. To be effective, revocation must be received by the
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, notices to a shareholder having more than one
account in the 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 the Record Date, the Fund had __________ shares of common stock
outstanding. The solicitation of proxies, the cost of which will be borne half
by INVESCO Funds Group, Inc. ("INVESCO"), the investment adviser and transfer
agent of the Fund, and half by the 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"), none of whom will receive any
compensation for these activities from the Fund, or by Shareholder
Communications Corporation, professional proxy solicitors, which will be paid
fees and expenses of up to approximately $25,900 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 at the Meeting in the same manner that proxies
voted by mail may be revoked.
Copies of the Income Fund's most recent annual and semi-annual reports,
including financial statements, have previously been delivered to shareholders.
Shareholders may request copies of these reports, without charge, by writing to
INVESCO Distributors Inc., P.O. Box 173706, Denver, Colorado 80217-3706, or by
calling toll-free 1-800-646-8372.
EXCEPT AS SET FORTH IN APPENDIX A, INVESCO DOES NOT KNOW OF ANY PERSON
WHO OWNS BENEFICIALLY 5% OR MORE OF THE SHARES OF THE FUND. DIRECTORS AND
OFFICERS OF THE INCOME FUNDS OWN IN THE AGGREGATE LESS THAN 1% OF THE SHARES OF
THE FUND.
VOTE REQUIRED. Approval of Proposals 1 and 2 require the affirmative
vote of a "majority of the outstanding voting securities" of the Fund, as
defined in the Investment Company Act of 1940, as amended ("1940 Act"). This
means that for the Fund, Proposal 2 must be approved by the lesser of (i) 67% of
the Fund's shares present at a meeting of
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shareholders if the owners of more than 50% of the Fund's shares then
outstanding are present in person or by proxy or (ii) more than 50% of the
Fund's outstanding shares. A plurality of the votes cast at the Meeting, and at
a concurrent Meeting of the shareholders' of INVESCO Tax-Free Intermediate Bond
Fund ("Intermediate Bond Fund"), taken in the aggregate is sufficient to approve
Proposal 3. Approval of Proposal 4 requires the affirmative vote of a majority
of the votes present at the Meeting, provided a quorum is present. Each
outstanding full share of the 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, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies.
PROPOSAL 1. TO APPROVE AN AGREEMENT AND PLAN OF CONVERSION AND
TERMINATION ("CONVERSION PLAN") PROVIDING FOR THE CONVERSION OF THE FUND
FROM A SEPARATE SERIES OF INCOME FUNDS TO A SEPARATE SERIES OF INVESCO
BOND FUNDS, INC., (`BOND FUNDS")
The Fund is presently organized as one of two series of Income Funds.
The Board, including a majority of its directors who are not "interested
persons," as that term is defined in the 1940 Act, of either the Income Funds or
INVESCO ("Independent Directors"), has approved the Conversion Plan in the form
attached to this Proxy Statement as Appendix B. The Conversion Plan provides for
the conversion of the Fund from a separate series of Income Funds, a Maryland
corporation, into a newly established separate series ("New Series") of Bond
Funds, also a Maryland corporation ("Conversion"). THE PROPOSED CONVERSION WILL
HAVE NO MATERIAL EFFECT ON SHAREHOLDERS, OFFICERS, OPERATIONS OR MANAGEMENT OF
THE 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 the Fund, following the Conversion and will have investment
objectives, policies and limitations identical to those of the Fund. The
investment objectives, policies and limitations of the Fund will not change
except as approved by the shareholders of the Fund as described in Proposal 2 of
this Proxy Statement. Since both the Income Funds and Bond Funds are Maryland
corporations organized under substantially similar Articles of Incorporation,
the rights of the security holders of the 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 the
Income Funds and Bond Funds.
INVESCO, the Fund's investment adviser, will be responsible for
providing the New Series with various administrative services and supervising
the daily business affairs of the New Series, subject to the supervision of the
board of directors of Bond Funds ("New Board"), under a management contract
substantially identical to the contract in effect between INVESCO and Income
Funds immediately prior to the Conversion. The 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 Income Funds
immediately prior to the proposed Conversion.
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REASONS FOR THE PROPOSED CONVERSION
The Board unanimously recommends converting the Fund to a separate
series of Bond Funds (i.e., to the New Series). Moving the Fund from Income
Funds to Bond Funds will consolidate and streamline the production and mailing
of certain financial reports and legal documents, reducing the expenses to the
Fund. THE PROPOSED CONVERSION WILL HAVE NO MATERIAL EFFECT ON THE SHAREHOLDERS,
OFFICERS, OPERATIONS OR MANAGEMENT OF THE 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 Fund shareholders vote FOR the approval of the
Conversion Plan described below. Such a vote encompasses approval of both: (i)
the conversion of the Fund to a separate series of Bond Funds; and (ii) a
temporary waiver of certain investment limitations of the Fund to permit the
Conversion (see "Temporary Waiver of Investment Restrictions," below). If
shareholders of the Fund do not approve the Conversion as set forth herein, the
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 B to this Proxy Statement.
If this Proposal is approved by shareholders, on June 1, 1999 or such
later date on which Income Funds and Bond Funds agree (the "Closing Date"), the
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 Fund
shares ("Fund Shares") outstanding on the Closing Date and the assumption by the
New Series of all of the liabilities of the Fund. Immediately thereafter, the
Fund will constructively distribute to each Fund shareholder one New Series
Share for each share of the Fund held by a shareholder on the Closing Date, in
liquidation of such Fund Shares. As soon as is practicable after this
distribution of New Series Shares, the Fund will be terminated as a series of
Income Funds and will be wound up and liquidated. UPON COMPLETION OF THE
CONVERSION, EACH FUND SHAREHOLDER WILL BE THE OWNER OF FULL AND FRACTIONAL NEW
SERIES SHARES EQUAL IN NUMBER, DENOMINATION AND AGGREGATE NET ASSET VALUE 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 ("New Management Contract"); and (ii) a Distribution and Service Plan
under Rule 12b-1 promulgated under the 1940 Act ("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 sole
initial shareholder of the New Series. Each New Agreement will be virtually
identical to the corresponding contract or plan in effect with respect to Income
Funds immediately prior to the Closing Date.
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The New Agreements will take effect on the Closing Date and each will
continue in effect until June 1, 2000. Thereafter, the New Management Contract
will continue in effect only if its continuance is approved at least annually:
(i) by the vote of a majority of the Independent Directors cast in person at a
Meeting called for the purpose of voting on such approval; and (ii) by the vote
of a majority of the directors or a majority of the outstanding voting shares of
the New Series. The New 12b-1 Plan will continue in effect only if approved
annually by a vote of the Independent Directors, cast in person at a meeting
called for that purpose. The New Management Contract will be terminable without
penalty on sixty days' written notice either by Bond Funds or INVESCO, and will
terminate automatically in the event of its assignment. The New 12b-1 Plan will
be terminable at any time without penalty by a vote of a majority of the
Independent Directors or a majority of the outstanding voting shares of the New
Series.
The New 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 the shareholders at which a quorum is present by the affirmative vote
of a majority of the outstanding voting shares of Bond Funds. In case a vacancy
shall for any reason exist, a majority of the remaining directors, though less
than a quorum, will vote to fill such vacancy by appointing another director, so
long as, immediately after such appointment, at least two-thirds of the
directors have been elected by shareholders. If, at any time, less than a
majority of the directors holding office have been elected by shareholders, the
directors then in office will promptly call a shareholders' meeting for the
purpose of electing directors. Otherwise, there need normally be no meetings of
shareholders for the purpose of electing directors.
Assuming the Conversion Plan is approved, it is currently contemplated
that the Conversion will become effective on the Closing Date. However, the
Conversion may become effective at such other date as Income Funds and Bond
Funds may agree in writing.
The obligations of Income Funds and Bond Funds under the Conversion Plan
are subject to various conditions as stated therein. Notwithstanding the
approval of the Conversion Plan by Fund shareholders, the Conversion Plan may be
terminated or amended at any time prior to the Conversion by action of the
directors to provide against unforeseen events, if: (i) there is a material
breach by the other party of any representation, warranty, or agreement
contained in the Conversion Plan to be performed at or prior to the Closing
Date; or (ii) it reasonably appears that the other 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 Fund shareholders.
CONTINUATION OF FUND SHAREHOLDER ACCOUNTS
Bond Funds' transfer agent will establish accounts for the New Series
shareholders containing the appropriate number and denominations of New Series
Shares to be received by each shareholder of Fund Shares under the Conversion
Plan. Such accounts will be identical in all material respects to the accounts
currently maintained by the Fund's transfer agent for its shareholders.
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EXPENSES
The expenses of the Conversion, estimated at $________ in the aggregate,
will be borne half by INVESCO and half by the Fund and the New Series.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of the Fund, which prohibit
it from acquiring more than a stated percentage of ownership of another company,
might be construed as restricting the Fund's ability to carry out the
Conversion. By approving the Conversion Plan, 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 CONVERSIONS
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
Internal Revenue Code of 1986 (the "Code"), as amended. Accordingly, no gain or
loss will be recognized for federal income tax purposes by the Fund, the New
Series, or the Fund's shareholders upon: (i) the transfer of the Fund's assets
in exchange solely for New Series Shares and the assumption by the New Series of
the Fund's liabilities; or (ii) the distribution of the New Series Shares to the
Fund's shareholders in liquidation of their Fund Shares. The opinion will
further provide, among other things, that: (1) a Fund shareholder's aggregate
basis for federal income tax purposes of the New Series Shares to be received by
the Fund shareholder in the Conversion will be the same as the aggregate basis
of his or her Fund Shares to be constructively surrendered in exchange for those
New Series Shares; and (2) a Fund shareholder's holding period for his or her
New Series Shares will include the shareholder's holding period for his or her
Fund Shares provided that those Fund Shares were held as capital assets at the
time of the Conversion.
CONCLUSION
The Board has concluded that the proposed Conversion Plan is in the best
interests of the Fund's shareholders. A vote in favor of the Conversion Plan
encompasses: (i) approval of the conversion of the Fund into the New Series;
(ii) approval of the temporary waiver of certain investment limitations of the
Fund to permit the Conversion (see "Temporary Waiver of Investment
Restrictions," above); and (iii) authorization of Income Funds, as sole initial
shareholder of the New Series, to approve: (a) a Management Contract with
respect to the New Series between Bond Funds and INVESCO; and (b) a Distribution
and Service Plan under Rule 12b-1 with respect to the New Series. Each of the
New Agreements is identical to the corresponding contract or plan in effect with
the Fund immediately prior to the Closing Date. If approved, the Conversion Plan
will take effect on the Closing Date. If the Conversion Plan is not approved,
the Fund will continue to operate as a series of Income Funds.
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REQUIRED VOTE. Approval of the Conversion Plan requires the affirmative
vote of a majority of the "outstanding voting securities" of the Fund, as
defined in the 1940 Act, 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.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" PROPOSAL 1
___________________________________________________
PROPOSAL 2. TO APPROVE AMENDMENTS TO THE
FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUND
As required by the 1940 Act, the 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 without shareholder approval.
Some of the 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 has approved revisions to the Fund's
fundamental restrictions in order to simplify and modernize the Fund's
fundamental restrictions and make them more uniform with those of the other
INVESCO Funds.
The Board believes that eliminating the disparities among the INVESCO
Funds' fundamental restrictions will enhance management's ability to manage the
Funds' assets efficiently and effectively in changing regulatory and investment
environments and permit the Board to review and monitor investment policies more
easily. In addition, standardizing the fundamental restrictions of 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 the 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 the Funds'
fundamental restrictions are set forth below, together with the text of the
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.
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If approved by Fund shareholders at the Meeting, the proposed changes to
the Fund's fundamental restrictions will be adopted by the Fund. The Fund's
Statement of Additional Information will be revised to reflect those changes as
soon as practicable following the Meeting.
A. MODIFICATION OF FUNDAMENTAL RESTRICTION ON THE ISSUANCE OF SENIOR
SECURITIES
Long-Term Bond Fund's current fundamental restriction on the issuance of
senior securities is combined with its restriction on borrowings (see below). In
addition, the Fund has a fundamental restriction on issuing preference shares
and creating funded debt as follows:
The Fund may not issue preference shares or create any funded debt.
To conform the Fund's restriction on the issuance of senior securities
(I.E., obligations that have a priority over the fund's shares with respect to
the distribution of Fund assets or the payment of dividends) with those of the
other INVESCO Funds, the Board recommends that shareholders vote to adopt the
following separate fundamental restriction with respect to the issuance of
senior securities:
The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940.
The Board believes that replacing the current fundamental restrictions
on senior securities, and on issuing preference shares and creating funded debt,
with 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.
B. ELIMINATION OF FUNDAMENTAL RESTRICTION ON SHORT SALES AND MARGIN
PURCHASES AND ADOPTION OF NON-FUNDAMENTAL RESTRICTION ON SHORT SALES AND
MARGIN PURCHASES
Long-Term Bond Fund's current fundamental restriction on selling short
and buying on margin is as follows:
The Fund may not sell short or buy on margin except as discussed in
restriction (7).(1)
The Board recommends that shareholders vote to eliminate this
fundamental restriction. If the proposal is approved by shareholders, the Board
will adopt the following non-fundamental restriction for the Fund:
The Fund may not sell securities short (unless it owns or has the
right to obtain securities equivalent in kind and amount to the
securities sold short) or purchase securities on margin, except
that (i) this policy does not prevent the Fund from entering into
short positions in foreign currency, futures contracts, options,
- -------------------------
(1) The referenced restriction (7) is the Fund's fundamental restriction on
investment in physical commodities. See Proposal 2.h, below.
8
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forward contracts, swaps, caps, floors, collars and other financial
instruments, (ii) the Fund may obtain such short-term credits as
are necessary for the clearance of transactions, and (iii) the Fund
may make margin payments in connection with futures contracts,
options, forward contracts, swaps, caps, floors, collars and other
financial instruments.
The proposed changes clarify the wording of the restriction and expands
the exceptions to the policy, which generally prohibits the Fund from selling
securities short or buying securities on margin. The proposed non-fundamental
policy permits short sales against the box, when an investor sells securities
short while owning the same securities in the same amount or having the right to
obtain equivalent securities. It also permits the Fund to borrow a security on a
short-term basis and to enter into short positions and make margin payments in a
variety of financial instruments. The Board believes that elimination of the
fundamental policy and adoption of the non-fundamental policy will provide the
Fund with greater investment flexibility.
C. MODIFICATION OF FUNDAMENTAL RESTRICTION ON BORROWING AND ADOPTION OF
NON-FUNDAMENTAL RESTRICTION ON BORROWING
Long-Term Bond Fund's current fundamental restriction on borrowing is as
follows:
The Fund may not mortgage, pledge or hypothecate its portfolio
securities or borrow money, except from banks for temporary or
emergency purposes (but not for investment) and then in an amount
not exceeding 10% of the value of the Fund's net assets. The Fund
will not purchase additional securities while any such borrowings
exist.
The Fund may not issue preference shares or create any funded debt.
The Board recommends that shareholders vote to replace these
restrictions with the following fundamental restriction:
The Fund may not borrow money, except that the Fund may borrow
money in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings).
Currently, the Fund's fundamental restriction is significantly more
limiting than the restrictions imposed by the 1940 Act in that it limits the
purposes for which the Fund may borrow money and it limits all borrowings to 10%
of the Fund's assets. The proposal eliminates the fundamental nature of the
restrictions on the purposes which the Fund may borrow money and increases the
Fund's fundamental borrowing authority from 10% to 33 1/3% of the Fund's total
assets. The proposed revision also separates the restriction on the issuance of
senior securities from the Fund's restriction on borrowing. (See above.)
If the proposal is approved, the Board will adopt a non-fundamental
restriction as follows:
9
<PAGE>
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 the
fundamental limitation on borrowing above).
The non-fundamental restriction reflects the Fund's current policy that
borrowing by a Fund may only be done for temporary or emergency purposes. In
addition to borrowing from banks, as permitted by the Fund's current policy, the
non-fundamental restriction permits the Fund to borrow from open-end funds
managed by INVESCO or an affiliate or successor thereof. The Fund would not be
able to do so, however, unless it obtains permission for such borrowings from
the SEC. The non-fundamental restriction also clarifies that reverse repurchase
agreements will be treated as borrowings. The Board believes that this approach,
making the Fund's fundamental restriction on borrowing no more limiting than is
required under the 1940 Act, while incorporating more strict limits on borrowing
in the Fund's non-fundamental restrictions, will maximize the Fund's flexibility
for future contingencies.
D. ELIMINATION OF FUNDAMENTAL RESTRICTION ON MORTGAGING, PLEDGING OR
HYPOTHECATING SECURITIES
Long-Term Bond Fund's current fundamental restriction on mortgaging,
pledging or hypothecating securities is contained in the Fund's current
fundamental restriction on borrowing and discussed above. This restriction
prohibits the Fund from mortgaging, pledging or hypothecating its securities.
This restriction is derived from a state "blue sky" requirement, which has been
preempted by recent amendments to the federal securities laws. Accordingly, the
Board recommends that shareholders vote to eliminate this restriction.
E. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN ANOTHER
INVESTMENT COMPANY AND ADOPTION OF NON-FUNDAMENTAL INVESTMENT
RESTRICTION REGARDING INVESTMENT IN SECURITIES ISSUED BY OTHER
INVESTMENT COMPANIES
Long-Term Bond Fund's current fundamental restriction regarding
investment in another investment company is as follows:
The Fund may not invest in the securities of any other investment
company except for a purchase or acquisition in accordance with a
plan of reorganization, merger or consolidation.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of
a single open-end management investment company managed by INVESCO
10
<PAGE>
Funds Group, Inc. or an affiliate or a successor thereof, with
substantially the same fundamental investment objective, policies
and limitations as the Fund.
The proposed revision of the fundamental restriction regarding investing
in another investment company would ensure that INVESCO Funds have uniform
policies permitting each Fund to adopt a "master/feeder" structure whereby one
or more Funds invest all of their assets in another Fund. The master/feeder
structure has the potential, under certain circumstances, to minimize
administration costs and maximize the possibility of gaining a broader investor
base. Currently, none of the INVESCO Funds intends to establish a master/feeder
structure; however, the Board recommends that Fund shareholders adopt a
restriction that would permit this structure in the event that the Board
determines to recommend the adoption of a master/feeder structure by the Fund.
The proposed revision would require that any Fund in which the Fund may invest
under a master/feeder structure be advised by INVESCO or an affiliate thereof.
If the proposed revision is approved, the Board will adopt a
non-fundamental restriction as follows:
The Fund may invest in securities issued by other investment
companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under
the 1940 Act.
The primary purpose of this non-fundamental restriction is to conform to
the other INVESCO Funds and to the 1940 Act requirements for investing in other
investment companies. Currently, the Fund's fundamental restriction is more
limiting than the restriction imposed by the 1940 Act. Adoption of this
non-fundamental restriction will enable the Fund to purchase the securities of
other investment companies to the extent permitted under the 1940 Act or under
an exemption granted by the SEC.
F. MODIFICATION OF FUNDAMENTAL RESTRICTION ON ISSUER DIVERSIFICATION
Long-Term Bond Fund's current fundamental restriction on issuer
diversification is as follows:
The Fund may not purchase securities (except obligations issued or
guaranteed by the U.S. Government) if the purchase would cause the
Fund, at the time, to have more than 5% of the value of its total
assets invested in securities of any one issuer or to own more than
10% of the outstanding securities of any one issuer.
The Board recommends that shareholders of Long-Term Bond Fund vote to
replace this restriction with the following fundamental restriction:
The Fund may not, with respect to 75% of the Fund's total assets,
purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or securities of other investment companies) if,
as a result, (i) more than 5% of the Fund's total assets would be
invested in the securities of that issuer, or (ii) the Fund would
hold more than 10% of the outstanding voting securities of that
issuer.
11
<PAGE>
The proposed fundamental restriction concerning diversification is the
limitation imposed by the 1940 Act for diversified investment companies. The
amended fundamental investment restriction would allow the Fund, with respect to
25% of its total assets, to invest more than 5% of its assets in securities of
one or more issuers and to hold more than 10% of the voting securities of an
issuer.
The amended restriction would give the Fund greater investment
flexibility by permitting it to acquire larger positions in the securities of a
particular issuer, consistent with its investment objectives and strategies.
This increased flexibility could provide opportunities to enhance the Fund's
performance. Investing a larger percentage of the Fund's assets in a single
issuer's securities, however, increases the Fund's exposure to credit and other
risks associated with that issuer's financial condition and operations,
including the risk of default on debt securities.
The amended fundamental restriction also would permit the Fund to invest
without limit in the securities of other investment companies. The Fund has no
intention of doing so, and, as noted below, the 1940 Act imposes a restriction
on the extent to which a fund may invest in the securities of other investment
companies in the event legal and other regulatory requirements change.
If the proposal is approved, the Board will also adopt a non-fundamental
policy with respect to investments in municipal securities for the Fund, and
amend the current non-fundamental policy with respect to investments in
municipal securities for the Fund to read, as follows:
Each state (including the District of Columbia and Puerto Rico),
territory and possession of the United States, each political
subdivision, agency, instrumentality and authority thereof, and
each multistate agency of which a state is a member is a separate
'issuer.' When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from
the government creating the subdivision and the security is backed
only by assets and revenues of the subdivision, such subdivision
would be deemed to be the sole issuer. Similarly, in the case of an
Industrial Development Bond or Private Activity Bond, if that bond
is backed only by the assets and revenues of the non-governmental
user, then that non-governmental user would be deemed to be the
sole issuer. However, if the creating government or another entity
guarantees a security, then to the extent that the value of all
securities issued or guaranteed by that government or entity and
owned by the Fund exceeds 10% of the Fund's total assets, the
guarantee would be considered a separate security and would be
treated as issued by that government or entity.
G. MODIFICATION OF FUNDAMENTAL RESTRICTION ON LOANS
Long-Term Bond Fund's current fundamental restriction on loans is as
follows:
The Fund may not make loans to any person, except through the
purchase of debt securities in accordance with the Fund's
investment policies, or the lending of portfolio securities to
12
<PAGE>
broker-dealers or other institutional investors, or the entering
into of repurchase agreements with member banks of the Federal
Reserve System, registered broker-dealers and registered government
securities dealers. The aggregate value of all portfolio securities
loaned may not exceed 33 1/3% of the Fund's net assets (taken at
current value). No more than 10% of the Fund's net assets may be
invested in repurchase agreements maturing in more than seven days.
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 this proposal is to eliminate minor differences
in the wording of the INVESCO Funds' current restrictions on loans to achieve
greater uniformity. The revision would also eliminate the limitation on
investment in repurchase agreements maturing in more than seven days. The Fund's
investment in such repurchase agreements, however, would be limited by its
fundamental restriction on investment in illiquid securities (see below). The
proposed changes to this fundamental restriction is relatively minor and would
have no substantial effect on the lending activities or other investments of the
Fund.
H. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN COMMODITIES
Long-Term Bond Fund's current fundamental restriction on investing in
commodities is as follows:
The Fund may not buy or sell commodities or commodity contracts,
oil, gas, or other mineral interest or exploration programs, or
real estate or interests therein. However, the fund may purchase
municipal bonds or other permitted securities secured by real
estate or which may represent indirect interest therein and may buy
and sell options and futures contracts for the purpose of hedging
the value of its securities portfolio, provided that the Fund will
not enter into options or futures contracts for which the aggregate
initial margins exceed 5% of the fair market value of the Fund's
assets.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not purchase or sell physical commodities; however,
this policy shall not prevent the Fund from purchasing and selling
foreign currency, futures contracts, options, forward contracts,
swaps, caps, floors, collars and other financial instruments.
The proposed changes in this investment restriction are intended to
conform the restriction to those of the other INVESCO Funds and to ensure that
the Fund will have the maximum flexibility to enter into hedging or other
13
<PAGE>
transactions utilizing financial contracts and derivative products when doing so
is permitted by operating policies established for the Funds 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 each 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 that Fund would not permit investment in one or more of the
permitted transactions. The proposed revision also separates the fund's
restriction on commodity investments from the restriction on real estate
investments (see below).
I. MODIFICATION OF FUNDAMENTAL RESTRICTION ON REAL ESTATE INVESTMENTS
Long-Term Bond Fund's current fundamental restriction on real estate
investments (contained in the Fund's current fundamental restriction on
investing in commodities and discussed above) prohibits investments by the Fund
in real estate or interests in real estate, other than municipal bonds or other
permitted securities secured by real estate or which may represent indirect
interests therein.
Currently, Long-Term Bond Fund's fundamental restriction on real estate
investment is combined with its restriction on investing in commodities (see
above). To conform the Fund's restriction on real estate investment with those
of the other INVESCO Funds, the Board recommends that shareholders vote to
replace the applicable restriction set forth above 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 the Fund's fundamental restriction on real
estate, the proposal would more completely describe the types of real
estate-related securities investments that are permissible for the Fund and
would permit the Fund to purchase or sell real estate acquired as a result of
ownership of securities or other instruments (e.g., through foreclosure on a
mortgage in which the Fund directly or indirectly holds an interest). 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 without
materially altering the general restriction on direct investments in real estate
or interests in real estate. The proposed change would also give the Fund the
ability to invest in assets secured by real estate.
14
<PAGE>
J. ELIMINATION OF FUNDAMENTAL RESTRICTION REGARDING INVESTMENTS FOR THE
PURPOSE OF EXERCISING CONTROL
Long-Term Bond Fund's current fundamental restriction on investments for
the purpose of exercising control is as follows:
The Fund may not invest in any issuer for the purpose of exercising
control or management.
The Board recommends that shareholders vote to eliminate this
restriction. There is no legal requirement that a fund have an affirmative
policy on investment for the purpose of exercising control or management if it
does NOT intend to make investments for that purpose. The Fund has no intention
of investing in any company for the purpose of exercising control or management.
By eliminating this restriction, the Board may, however, be able to authorize
such a strategy in the future if it concludes that doing so would be in the best
interest of the Fund and its shareholders.
K. ELIMINATION OF FUNDAMENTAL RESTRICTION ON ILLIQUID SECURITIES
Long-Term Bond Fund's current fundamental restriction on investment in
restricted securities is as follows:
The Fund may not purchase securities which have legal or
contractual restrictions on resale or purchase securities for
which, at the time of purchase, there is no readily available
market.
The Board recommends that shareholders vote to eliminate this
restriction. If the proposal is approved, the Board will adopt the following
non-fundamental policy:
The Fund does not currently intend to purchase any security if, as
a result, more than 15% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject
to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
The primary purpose of the proposal is to conform to the federal
securities law requirements regarding investment in illiquid securities and to
conform the investment restrictions of the Fund to those of the other INVESCO
Funds. Currently, the Fund's fundamental restriction prohibits investment in
restricted securities. The proposed non-fundamental policy would permit the Fund
to invest in illiquid securities, but would restrict investment in such
securities to 15% of the Fund's net assets. The Board believes that the proposed
elimination of the fundamental restriction and subsequent adoption of the
non-fundamental restriction will make the policy more accurately reflect market
conditions and will maximize the Fund's flexibility for future contingencies.
The Board may delegate to INVESCO, the Fund's investment advisor, the authority
to determine whether a security is liquid for the purposes of this investment
limitation.
15
<PAGE>
L. MODIFICATION OF FUNDAMENTAL RESTRICTION ON UNDERWRITING SECURITIES
Long-Term Bond Fund's current fundamental restriction on underwriting
securities is as follows:
The Fund may not engage in the underwriting of any securities of
other issuers except to the extent that the purchase of municipal
bonds or other permitted investments directly from the issuer
thereof and the subsequent disposition of such investments may be
deemed to be an underwriting.
The Board recommends that shareholders vote to replace this restriction
with the following fundamental restriction:
The Fund may not underwrite securities of other issuers, except
insofar as it may be deemed to be an underwriter under the
Securities Act of 1933, as amended, in connection with the
disposition of the Fund's portfolio securities.
The purpose of this proposal is to eliminate minor differences in the
wording of the INVESCO Funds' current restrictions on underwriting for greater
uniformity with the fundamental restrictions of the other INVESCO Funds.
M. ELIMINATION OF FUNDAMENTAL RESTRICTION ON FUND OWNERSHIP OF SECURITIES
ALSO OWNED BY DIRECTORS AND OFFICERS OF THE FUND OR ITS INVESTMENT
ADVISOR
Long-Term Bond Fund's current fundamental restriction on ownership of
securities also owned by directors and officers of the Fund or its investment
advisor is as follows:
The Fund may not purchase or retain securities of any issuer in
which any officer or director of the Fund or its investment adviser
beneficially owns more than 1/2 of 1% of the outstanding
securities, or in which all of the officers and directors of the
company and its investment adviser, as a group, beneficially own
more than 5% of such securities.
The Board recommends that shareholders vote to eliminate this
fundamental restriction. Funds are not legally required to have a fundamental
restriction limiting or prohibiting the purchase of securities of companies that
are also owned by affiliated parties of the fund. This restriction was derived
from state laws that are no longer applicable. The concerns that this
restriction was designed to address are sufficiently safeguarded against by
provisions of the 1940 Act applicable to the Fund, as well as by the Fund's
other investment restrictions. Specifically, to the extent that this restriction
seeks to limit possible conflicts of interest arising out of transactions with
affiliated parties, the restriction is unnecessary and unduly burdensome because
the Fund is subject to the extensive affiliated transaction provisions of the
1940 Act. Because this restriction provides no additional protection to
shareholders and may hinder the Board in pursuing investment strategies that may
be advantageous to the Fund, the Board recommends that this investment
restriction be eliminated.
16
<PAGE>
N. ELIMINATION OF FUNDAMENTAL RESTRICTION ON PURCHASING EQUITY SECURITIES
AND SECURITIES CONVERTIBLE INTO EQUITY SECURITIES
Long-Term Bond Fund's current fundamental restriction on purchasing
equity securities is as follows:
The Fund may not purchase equity securities or securities
convertible into equity securities.
The Board recommends that the shareholders vote to eliminate this
fundamental restriction.
The Board recommends the elimination of these fundamental restrictions.
This is an outdated restriction that fulfills no legal or regulatory
requirements. It is not necessary for the funds to state affirmatively the type
of investments they do not intend to make. In addition, elimination of this
restriction would aid in standardizing the fundamental restrictions of the
INVESCO Funds, as few of the INVESCO Funds currently have such a restriction. It
is not expected that elimination of this restriction will have any impact on how
the Funds are managed or the securities in which they invest.
O. ELIMINATION OF FUNDAMENTAL RESTRICTION ON JOINT TRADING ACTIVITIES AND
PURCHASE OF WARRANTS
Long-Term Bond Fund's current fundamental restriction on joint trading
activities and purchase of warrants is as follows:
The Fund may not participate on a joint or a joint and several
basis in any securities trading account or purchase warrants.
The Board recommends that shareholders vote to eliminate this
fundamental restriction.
The Board recommends the elimination of this fundamental restriction.
This restriction is derived from a 1940 Act requirement, which makes it unlawful
for a registered investment company to participate on a joint or a joint and
several basis in any trading account in securities, except in connection with an
underwriting in which such registered investment company is a participant. The
1940 Act does not, however, require that this limitation be stated as a
fundamental restriction. Accordingly, the board recommends that this restriction
be eliminated.
The Board also recommends the elimination of this fundamental
restriction because it prohibits the purchase of warrants. This restriction also
was derived from state laws that are no longer applicable. The concerns that
this restriction was designed to address are sufficiently safeguarded against by
provisions of the 1940 Act applicable to the funds, as well as by the Funds.
P. MODIFICATION OF FUNDAMENTAL RESTRICTION ON INDUSTRY CONCENTRATION
Long-Term Bond Fund's current fundamental restriction on industry
concentration is as follows:
17
<PAGE>
The Fund may not invest more than 25% of its total assets in any
particular industry or industries, except municipal securities, or
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities. (Industrial development bonds are
grouped into an "industry" where the payment of principal and
interest is the ultimate responsibility of companies within the
same industry).
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 primary purpose of the modification is to eliminate minor
differences in the wording of the INVESCO Funds' current restrictions on
concentration for greater uniformity and to avoid unintended limitations without
materially altering the restriction.
REQUIRED VOTE. Approval of Proposal 2 with respect to the Fund requires
the affirmative vote of a "majority of the outstanding voting securities" of
Long-Term Bond Fund, as defined in the 1940 Act, which for this purpose means
the affirmative vote of the lesser of (1) 67% or more of the shares of the Fund
present at the Meeting or represented by proxy if more than 50% of the
outstanding shares of the Fund are so present or represented, or (2) more than
50% of the outstanding shares of the Fund. SHAREHOLDERS WHO VOTE "FOR" PROPOSAL
2 WILL VOTE "FOR" EACH PROPOSED CHANGE DESCRIBED ABOVE. THOSE SHAREHOLDERS WHO
WISH TO VOTE AGAINST ANY OF THE SPECIFIC PROPOSED CHANGES DESCRIBED ABOVE MAY DO
SO ON THE PROXY PROVIDED. IF PROPOSAL 1 SET FORTH IN THIS PROXY STATEMENT IS
APPROVED, THE POLICIES APPROVED UNDER PROPOSAL 2 OF THIS PROXY STATEMENT WILL
APPLY TO THE NEW SERIES.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" PROPOSAL 2.
PROPOSAL 3. TO ELECT THE DIRECTORS OF INCOME FUNDS
The Board has nominated the individuals identified below for election to
the Board at the Meeting. Income Funds currently has ten directors. Vacancies on
the Board are generally filled by appointment by the remaining directors.
However, the 1940 Act provides that vacancies may not be filled by directors
unless thereafter at least two-thirds of the directors shall have been elected
by shareholders. To ensure continued compliance with this rule without incurring
the expense of calling additional shareholder meetings, shareholders are being
asked at this meeting to elect the current ten directors. Consistent with the
provisions of Income Fund's by-laws, and as permitted by Maryland law, Income
Funds does not anticipate holding annual shareholder meetings. Thus, the
18
<PAGE>
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 Income Funds shares owned by each, and their
respective memberships on Board committees are listed in the table below.
<TABLE>
<CAPTION>
Number of Company
Director or Shares Beneficially
Executive Owned Directly or
Name, Position with Principal Occupation and Business Officer of Indirectly on Member of
Company, and Age Experience (during the past five years) Company Since Dec. 31, 1998 (1) Committee
- ---------------- --------------------------------------- ------------- ----------------- ---------
<S> <C> <C> <C> <C>
CHARLES W. BRADY, Chief Executive Officer and Director 1993 0 (3), (5), (6)
Chairman of the Board, of AMVESCAP PLC, London, England,
Age 63* and of various subsidiaries
thereof. Chairman of the Board of
INVESCO Global Health Sciences Fund.
FRED A. DEERING, Trustee of INVESCO Global Health 1993 17.0240 (2), (3), (5)
Vice Chairman of the Sciences Fund. Formerly, Chairman
Board, Age 71 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
Life Insurance Company of New York.
MARK H. WILLIAMSON, President, Chief Executive Officer, 1998 17.0240 (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).
DR. VICTOR L. ANDREWS, Professor Emeritus, Chairman 1993 17.0240 (4), (6), (8)
Director, Age 68 Emeritus and Chairman of the CFO
Roundtable of the Department of
Finance at Georgia State University,
Atlanta, Georgia; and President,
Andrews Financial Associates, Inc.
(consulting firm). Formerly, member
of the faculties of the Harvard
Business School and the Sloan School
of Management of MIT. Dr. Andrews is
also a director of the Sheffield
Funds, Inc.
19
<PAGE>
Number of Company
Director or Shares Beneficially
Executive Owned Directly or
Name, Position with Principal Occupation and Business Officer of Indirectly on Member of
Company, and Age Experience (during the past five years) Company Since Dec. 31, 1998 (1) Committee
- ---------------- --------------------------------------- ------------- ----------------- ---------
BOB R. BAKER, President and Chief Executive 1993 17.0240 (3), (4), (5)
Director, 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 17.0420 (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 17.0240 (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
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 2587.6160 (2), (3), (5),(6),(7)
Director, Age 73 Chairman of the Board of the Capitol
Life Insurance Company, Providence
Washington Insurance Company, and
Director of numerous U.S.
subsidiaries thereof. Formerly,
Chairman of the Board of the
Providence Capitol Companies in the
United Kingdom and Guernsey. Until
1987, Chairman of the Board, Symbion
Corporation.
JOHN W. MCINTYRE, Presently retired. Formerly, Vice 1995 17.0240 (2), (3), (5), (7)
Director, Age 68 Chairman of the Board of The
Citizens and Southern Corporation;
Chairman of the Board and Chief
Executive Officer of The Citizens
and Southern Georgia Corporation;
Chairman of the Board and Chief
Executive Officer of The Citizens
and Southern National Bank. Trustee
of INVESCO Global Health Sciences
Fund, Gables Residential Trust,
Employee's Retirement System of
Georgia, Emory University, and J. M.
Tull Charitable Foundation; Director
of Kaiser Foundation Health Plans of
Georgia, Inc.
DR. LARRY SOLL, Presently retired. Formerly, 1997 17.0240 (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>
20
<PAGE>
*Because of his affiliation with INVESCO, with the Fund's investment adviser, or
with companies affiliated with INVESCO, this individual is deemed to be an
"interested person" of Combination Stock & Bond Funds as that term is defined in
the 1940 Act.
(1) = As interpreted by the SEC, a security is beneficially owned by a person if
that person has or shares voting power or investment power with respect to that
security. The persons listed have partial or complete voting and investment
power with respect to their respective Fund shares.
(2) = Member of the Audit Committee
(3) = Member of the Executive Committee
(4) = Member of the Management Liaison Committee
(5) = Member of the Valuation Committee
(6) = Member of the Compensation Committee
(7) = Member of the Soft Dollar Brokerage Committee
(8) = Member of the Derivatives Committee
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
the 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 the
business of Income Funds, except for certain powers which, under applicable law
and/or the 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 the management and
operations of the Income Funds, and to review legal and operational matters that
have been assigned to the committee by the Board, in furtherance of the Board's
overall duty of supervision. The soft dollar brokerage committee meets
periodically to review soft dollar transactions by Income Funds, and to review
policies and procedures of the Funds' adviser with respect to soft dollar
brokerage transactions. The committee then reports on these matters to the
Board. The derivatives committee meets periodically to review derivatives
investments made by Income Funds. The committee monitors derivatives usage by
Income Funds and the procedures utilized by income Funds' adviser to ensure that
the use of such instruments follows the policies on such instruments adopted by
the Board. The committee then reports on these matters to the Board.
During the past fiscal year, the Board met five times, the audit
committee met four times, the compensation committee met twice, the management
liaison committee met four times, the soft dollar brokerage committee met twice,
and the derivatives committee met three times and the executive committee did
not meet. During Income Funds' last fiscal year, each Director nominee 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 the Funds'
shareholders. The Board, including its Independent Directors, unanimously
approved the nomination of the foregoing persons to serve as directors and
21
<PAGE>
directed that the election of these nominees be submitted to the Funds'
shareholders.
The following table sets forth information relating to the compensation
paid to directors during the last fiscal year:
<TABLE>
<CAPTION>
COMPENSATION TABLE
AMOUNTS PAID DURING THE MOST RECENT
FISCAL YEAR BY COMBINATION STOCK & BOND FUNDS TO DIRECTORS
PENSION OR TOTAL
RETIREMENT COMPENSATION
BENEFITS ESTIMATED FROM
AGGREGATE ACCRUED AS ANNUAL INCOME FUNDS
COMPENSATION PART OF BENEFITS AND INVESCO
NAME OF PERSON, FROM INCOME INCOME FUNDS' UPON FUNDS PAID TO
POSITION FUNDS(1) EXPENSES(2) RETIREMENT DIRECTORS(1)
-------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
FRED A DEERING, VICE $2,550 $531 $340 $103,700
CHAIRMAN OF THE BOARD
AND DIRECTOR
DR. VICTOR L. ANDREWS, $2,520 $501 $394 $80,350
DIRECTOR
BOB R. BAKER, $2,567 $448 $528 $84,000
DIRECTOR
LAWRENCE H. BUDNER $2,491 $501 $394 $79,350
DIRECTOR
DANIEL D. CHABRIS4 $2,525 $542 $294 $70,000
DIRECTOR
DR. WENDY L. GRAMM $2,431 $0 $0 $79,000
DIRECTOR
KENNETH T. KING, $2,451 $551 $309 $77,050
DIRECTOR
JOHN W. MCINTYRE, $2,460 $0 $0 $98,500
DIRECTOR
DR. LARRY SOLL, $2,460 $0 $0 $96,000
DIRECTOR
___________ ___________ ___________ ___________
TOTAL $22,455 $3,074 $2,259 $767,950
AS A PERCENTAGE 0.0103%(5) 0.0014%(5) 0.0035%(6)
OF NET ASSETS
-------------
</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.
22
<PAGE>
(3) These figures represent the Funds' share of the estimated annual benefits
payable by the INVESCO Complex (excluding INVESCO Global Health Sciences Fund
which does not participate in this retirement plan) upon the directors'
retirement, calculated using the current method of allocating director
compensation among the INVESCO Funds. These estimated benefits assume retirement
at age 72 and that the basic retainer payable to the directors will be adjusted
periodically for inflation, for increases in the number of funds in the INVESCO
Complex, and for other reasons during the period in which retirement benefits
are accrued on behalf of the respective directors. This results in lower
estimated benefits for directors who are closer to retirement and higher
estimated benefits for directors who are farther from retirement. With the
exception of Mr. McIntyre and Drs. Soll and Gramm, each of these directors has
served as director of one or more of the INVESCO Funds for the minimum five-year
period required to be eligible to participate in the Defined Benefit Deferred
Compensation Plan.
(4) Mr. Chabris retired as a director effective September 30, 1998.
(5) Total as a percentage of the Fund's net assets as of June 30, 1998.
(6) Total as a percentage of the INVESCO Complex's net assets as of December 31,
1998.
Income Funds pays its Independent Directors, Board vice chairman,
committee chairmen and Committee 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 the Income Funds or other INVESCO
Funds for their services as directors.
The overall direction and supervision of each Fund is the responsibility
of the Board, which has the primary duty of ensuring that each Fund's general
investment policies and programs are adhered to and that each Funds is properly
administered. The officers of each Fund, all of whom are officers and employees
of and paid by INVESCO, are responsible for the day-to-day administration of the
Funds. The investment adviser for a Fund has the primary responsibility for
making investment decisions on behalf of that Fund. These investment decisions
are reviewed by the investment committee of INVESCO.
23
<PAGE>
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
of the time of his or her retirement (the "Basic benefit"). Commencing with any
such director's second year of retirement, and commencing with the first year of
retirement of any director whose retirement has been extended by the Board for
three years, a Qualified Director shall receive quarterly payments at an annual
rate equal to 50% of the Basic Benefit. These payments will continue for the
remainder of the Qualified Director's life or ten years, whichever is longer
(the "Reduced Benefit Payments"). If a Qualified Director dies or becomes
disabled after age 72 and before age 74 while still a director of the Funds, the
First Year Retirement Benefit and Reduced Benefit Payments will be made to him
or her or to his or her beneficiary or estate. If a Qualified Director becomes
disabled or dies either prior to age 72 or during his or her 74th year while
still a director of the Funds, the director will not be entitled to receive the
First Year Retirement Benefit; however, the Reduced Benefit Payments will be
made to his or her beneficiary or estate. The Plan is administered by a
committee of three directors who are also participants in the Plan and one
director who is not a Plan participant. The cost of the Plan will be allocated
among the INVESCO, INVESCO Treasurer's Series Trust, and INVESCO Value Trust
24
<PAGE>
Funds in a manner determined to be fair and equitable by the committee. The Fund
began making payments to Mr. Chabris as of October 1, 1998 under the Plan. The
Fund has no stock options or other pension or retirement plans for management or
other personnel and pays no salary or compensation to any of its officers.
The Independent Directors have contributed to a deferred compensation
plan, pursuant to which they have deferred receipt of a portion of the
compensation which they would otherwise have been paid as directors of certain
INVESCO Funds. The deferred amounts have been invested in shares of certain
INVESCO Funds. Each Independent Director is, therefore, an indirect owner of
shares of each such INVESCO fund, in addition to any fund shares that may be
owned directly.
REQUIRED VOTE. Election of each nominee as a director of Income Funds
requires the affirmative vote of a plurality of all the outstanding shares of
the Fund cast at the Meeting, in person or by proxy, and at a concurrent meeting
of the shareholders of Intermediate Bond Fund, taken in the aggregate.
THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS,
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" EACH OF THE NOMINEES IN PROPOSAL 3.
PROPOSAL 4. TO RATIFY OR REJECT THE SELECTION OF
INDEPENDENT ACCOUNTANTS
The Board, including all of its Independent Directors, has selected
PricewaterhouseCoopers LLP to continue to serve as independent accountants of
Income Funds, subject to ratification by the Funds' shareholders.
PricewaterhouseCoopers LLP has no direct financial interest or material indirect
financial interest in any 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 the
Funds and provide other audit and tax-related services. In recommending the
selection of PricewaterhouseCoopers LLP, the Board reviewed the nature and scope
of the services to be provided (including non-audit services) and whether the
performance of such services would affect the accountants' independence.
REQUIRED VOTE. Approval of Proposal 4 requires the affirmative vote
of a majority of the votes present at the Meeting, provided a quorum
is present.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" PROPOSAL 4.
25
<PAGE>
INFORMATION CONCERNING ADVISER,
DISTRIBUTOR AND AFFILIATED COMPANIES
INVESCO, a Delaware corporation, serves as the Fund's investment
adviser, and provides other services to the Fund and Income Funds. IDI, a
Delaware corporation serves as the Fund's distributor. INVESCO is a wholly owned
subsidiary of INVESCO North American Holdings, Inc. ("INAH"), 1315 Peachtree
Street, N.E., Atlanta, Georgia 30309. INAH is an indirect wholly owned
subsidiary of AMVESCAP PLC.(1) The corporate headquarters of AMVESCAP PLC are
located at 11 Devonshire Square, London, EC2M 4YR, England. INVESCO's and IDI's
offices are located at 7800 East Union Avenue, Denver, Colorado 80237. INVESCO
currently serves as investment adviser of 14 open-end investment companies
having aggregate net assets 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;
Charles P. Mayer, Director and Senior Vice President, also, Director and Senior
Vice President of IDI; Ronald L. Grooms, Senior Vice-President and Treasurer,
also, Senior Vice-President and Treasurer of IDI; and Glen A. Payne, Senior
Vice-President, Secretary and General Counsel, also Senior Vice-President,
Secretary and General Counsel of IDI.
The address of each of the foregoing officers and directors is 7800 East
Union Avenue, Denver, Colorado 80237.
Pursuant to an Administrative Services Agreement between the Income
Funds and INVESCO, INVESCO provides administrative services to the Income Funds,
including sub-accounting and recordkeeping services and functions. During the
fiscal year ended June 30, 1998, the Income Funds paid INVESCO total
compensation of $53,344 for such services.
During the fiscal year ended June 30, 1998, Income Funds paid INVESCO,
which also serves as Income Fund's transfer agent and dividend disbursing agent,
total compensation of $279,732 for such services.
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.
- -------------------------
(1) The intermediary companies between INAH and AMVESCAP PLC are as follows:
INVESCO, Inc., INVESCO Group Services, Inc. and INVESCO North American Group,
Ltd., each of which is wholly owned by its immediate parent.
26
<PAGE>
SHAREHOLDER PROPOSALS
Income Funds does not hold annual meetings of shareholders. Shareholders
wishing to submit proposals for inclusion in a proxy statement and form of proxy
for a subsequent shareholders' meeting should send their written proposals to
the Secretary of Income Funds, 7800 East Union Avenue, Denver, Colorado 80237.
Income funds has not received any shareholder proposals to be presented at this
meeting.
By Order of the Board of Directors
Glen A. Payne
Secretary
March 23, 1999
27
<PAGE>
APPENDIX A
----------
PRINCIPAL SHAREHOLDERS
----------------------
The following table sets forth the beneficial ownership of the Fund's
outstanding equity securities as of March 12, 1999 by each beneficial owner of
5% or more of the Fund's outstanding equity securities:
Shares of Equity Securities Beneficially Owned
Name and Address Amount Percent
- ---------------- ------ -------
<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
------------------------------------------------
This AGREEMENT AND PLAN OF CONVERSION AND TERMINATION ("Agreement") is
made as of _____ __, 1999, between INVESCO Tax-Free Income Funds, Inc., a
Maryland corporation ("Income Funds"), on behalf of INVESCO Tax-Free Long-Term
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 Long-Term Bond Fund series ("New Fund"). (Old Fund and New
Fund are sometimes referred to herein individually as a "Fund" and collectively
as the "Funds"; and 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 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
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).
1.3. The Liabilities shall include all of Old Fund's liabilities, debts,
obligations, and duties of whatever kind or nature, whether absolute, accrued,
<PAGE>
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 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
______ ___, 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. 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.
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 Income
Funds evidencing the New Fund Shares to be credited to Old Fund at the Effective
B-2
<PAGE>
Time or provide evidence satisfactory to 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. 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. 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 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
the value of such assets is invested in the stock and securities of five
or fewer issuers;
B-3
<PAGE>
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;
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
B-4
<PAGE>
of Old Fund's historic business assets (within the meaning of section
1.368-1(d)(3) of those regulations) in a business, (c) has no plan or
intention to sell or otherwise dispose of any of the Assets, except for
dispositions made in the ordinary course of that business and dispositions
necessary to maintain its status as a RIC, and (d) expects to retain
substantially all the Assets in the same form as it receives them in the
Reorganization, unless and until subsequent investment circumstances
suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
3.2.11. There is no plan or intention for New Fund to be dissolved
or merged into another corporation or a business trust or any "fund"
thereof (within the meaning of section 851(g)(2) of the Code) following
the Reorganization; and
3.2.12. Immediately after the Reorganization, (a) not more than 25%
of the value of New Fund's total assets (excluding cash, cash items, and
U.S. government securities) will be invested in the stock and securities
of any one issuer and (b) not more than 50% of the value of such assets
will be invested in the stock and securities of five or fewer issuers.
3.3. Each Fund represents and warrants as follows:
3.3.1. The aggregate fair market value of the New Fund Shares, when
received by the Shareholders, will be approximately equal to the aggregate
fair market value of their Old Fund Shares constructively surrendered in
exchange therefor;
3.3.2. Its management (a) is unaware of any plan or intention of
Shareholders to redeem, sell, or otherwise dispose of (i) any portion of
their Old Fund Shares before the Reorganization to any person related
(within the meaning of section 1.368-1(e)(3) of the Income Tax Regulations
under the Code) to either Fund or (ii) any portion of the New Fund Shares
to be received by them in the Reorganization to any person related (as so
defined) to New Fund, (b) does not anticipate dispositions of those New
Fund Shares at the time of or soon after the Reorganization to exceed the
usual rate and frequency of dispositions of shares of Old Fund as a series
of an open-end investment company, (c) expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or
at the time of the Reorganization will be DE MINIMIS, and (d) does not
anticipate that there will be extraordinary redemptions of New Fund Shares
immediately following the Reorganization;
3.3.3. The Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
3.3.4. Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares and will own such shares
solely by reason of their ownership of Old Fund Shares immediately before
the Reorganization;
3.3.5. Immediately following consummation of the Reorganization, New
Fund will hold the same assets -- except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization -- and be subject
to the same liabilities that Old Fund held or was subject to immediately
prior to the Reorganization, plus any liabilities for expenses of the
parties incurred in connection with the Reorganization. Such excepted
assets, together with the amount of all redemptions and distributions
(other than regular, normal dividends) made by Old Fund immediately
preceding the Reorganization, will, in the aggregate, constitute less than
1% of its net assets;
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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 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
those shares to the Shareholders in constructive exchange for their Old
Fund Shares;
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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 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 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 Funds Group, Inc. and the remaining 50% will
be borne one-half 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.
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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.
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 Long-Term Bond Fund
By:
- ------------------- ----------------------
Assistant Secretary Vice President
ATTEST: INVESCO BOND FUNDS, INC.,
on behalf of its series,
INVESCO Tax-Free Long-Term Bond Fund
By:
- ------------------- ----------------------
Assistant Secretary Vice President
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