As filed with the Securities and Exchange Commission on July 19, 1999
Registration No. 333-71009
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.__ [X] Post-Effective Amendment No. 1
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
(formerly INVESCO Flexible Funds, Inc., formerly INVESCO Multiple
Asset Funds, Inc.)
(Exact Name of Registrant as Specified in Charter)
7800 E. Union Avenue
Denver, Colorado 80237
(Address of Principal Executive Offices)
P.O. Box 173706, Denver, Colorado 80217-3706
(Mailing Address)
(303) 930-6300
(Registrant's Area Code and Telephone Number)
Glen A. Payne, Esq.
7800 E. Union Avenue
Denver, Colorado 80237
(Name and Address of Agent for Service)
Copies to:
Clifford J. Alexander, Esq.
Susan M. Casey, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9036
Approximate Date of Proposed Public Offering: as soon as practicable after
this Registration Statement becomes effective under the Securities Act of 1933.
<PAGE>
It is proposed that this filing will become effective immediately upon
filing pursuant to Rule 485(b).
Title of securities being registered: Common stock, par value $0.01 per
share.
No filing fee is required because of reliance on Section 24(f) of the Investment
Company Act of 1940, as amended.
2
<PAGE>
Parts A and B were previously filed.
INVESCO COMBINATION STOCK & BOND FUNDS, INC.
PART C
OTHER INFORMATION
Item 15. Indemnification.
Indemnification provisions for officers and directors of Registrant are
set forth in Article VII, Section 2 of the Articles of Incorporation, and are
hereby incorporated by reference. See Item 16 (1) below. Under these Articles,
officers and directors will be indemnified to the fullest extent permitted to
directors by the Maryland General Corporation Law, subject only to such
limitations as may be required by the Investment Company Act of 1940, as
amended, and the rules thereunder. Under the Investment Company Act of 1940,
Fund directors and officers cannot be protected against liability to the Company
or its shareholders to which they would be subject because of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties of
their office. The Company also maintains liability insurance policies covering
its directors and officers.
Item 16. Exhibits
Exhibit
Number Description
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(1) (a) Articles of Incorporation (Charter).(1)
(b) Articles of Amendment of Articles of Incorporation dated
September 8, 1998.(3)
(c) Articles of Amendment of Articles of Incorporation dated
October 28, 1998.(4)
(2) Bylaws dated August 19, 1993.(1)
(3) Not applicable.
(4) Plan of Reorganization and Termination. (5)
(5) Provisions of instruments defining the rights of holders of
Registrant's securities are contained in Articles III, IV, VI and
VIII of the Articles of Incorporation and Articles I, II, V, VI,
VII, VIII, IX and X of the By-laws.
(6) (a) Investment Advisory Agreement between Registrant and INVESCO
and INVESCO Funds Group, Inc. dated February 28, 1997.(2)
(b) Sub-Advisory Agreement between INVESCO Funds Group, Inc. and
INVESCO Management & Research, Inc. dated February 28, 1997.(2)
<PAGE>
Exhibit
Number Description
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(7) (a) General Distribution Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997.(2)
(b) General Distribution Agreement between Registrant and INVESCO
Distributors, Inc. dated September 30, 1997.(2)
(8) (a) Defined Benefit Deferred Compensation Plan for Non-Interested
Directors and Trustees.(3)
(b) Form of Amended Defined Compensation Plan for Non-Interested
Directors and Trustees.(3)
(9) (a) Custody Agreement between Registrant and State Street Bank
and Trust Company dated October 20, 1993.(1)
(b) Amendment to Custody Agreement dated October 25, 1995.(1)
(c) Data Access Services Addendum dated May 19, 1997.(2)
(10) (a) Plan and Agreement of Distribution pursuant to Rule 12b-1 under
the Investment Company Act of 1940 dated October 20, 1993.(1)
(b) Amendment of Plan and Agreement of Distribution pursuant to
12b-1 under the Investment Company Act of 1940 dated July 19,
1995.(2)
(c) Amended Plan and Agreement of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated
January 1, 1997.(2)
(d) Amended Plan and Agreement of Distribution adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated
September 30, 1997.(2)
(11) Opinion and Consent of Kirkpatrick & Lockhart LLP as to the
the legality of the securities being registered.(4)
(12) Opinion and Consent of Kirkpatrick & Lockhart LLP regarding certain
tax matters in connection with INVESCO Multi-Asset Allocation Fund
and INVESCO Balanced Fund (filed herewith).
(13) (a) Administrative Services Agreement between Registrant
and INVESCO Funds Group, Inc. dated February 28, 1997.(2)
(b) Transfer Agency Agreement between Registrant and INVESCO Funds
Group, Inc. dated February 28, 1997.(2)
<PAGE>
Exhibit
Number Description
------ -----------
(14) Consent of PricewaterhouseCoopers LLP.(5)
(15) Financial Statements omitted from Part B - None.
(16) Powers of Attorney - incorporated by reference to Powers of
Attorney filed with the Securities and Exchange Commission on
October 4, 1993, November 24, 1993, September 20, 1995, November 27,
1996 and November 24, 1997.
(17) Additional Exhibits. Form of Amended Proxy. (5)
(1) Incorporated herein by reference to Post-Effective Amendment No. 4 filed on
November 27, 1996.
(2) Incorporated herein by reference to Post-Effective Amendment No. 5 filed on
November 24, 1997.
(3) Incorporated herein by reference to Post-Effective Amendment No. 6 filed on
September 29, 1998.
(4) Incorporated herein by reference to the Registration Statement on Form N-14
filed on January 22, 1999.
(5) Incorporated herein by reference to the Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-14 filed on March 17, 1999.
Item 17. Undertakings.
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new registration statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this Post-Effective
Amendment No. 1 to this Registration Statement on Form N-14 has been signed on
behalf of the Registrant, in the City of Denver and the State of Colorado, on
this 24th day of June 1999.
Attest: INVESCO Combination Stock & Bond Funds, Inc.
(formerly INVESCO Flexible Funds, Inc.,
formerly INVESCO Multiple Asset Funds, Inc.)
/s/ Glen A. Payne By: /s/ Mark H. Williamson
- ----------------- ----------------------
Glen A. Payne Mark H. Williamson
Secretary President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 1 to this Registration Statement on Form N-14
has been signed below by the following persons in the capacities and on the
dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Mark H. Williamson President, Director June 24, 1999
- ----------------------------- and Chief Executive
Mark H. Williamson Officer
/s/ Ronald L. Grooms Treasurer and Chief June 24, 1999
- ----------------------------- Financial and
Ronald L. Grooms Accounting Officer
* Director June 24, 1999
- ---------------------
Victor L. Andrews
* Director June 24, 1999
- ---------------------
Bob R. Baker
* Director June 24, 1999
- ---------------------
Charles W. Brady
* Director June 24, 1999
- ---------------------
Wendy L. Gramm
* Director June 24, 1999
- ---------------------
Lawrence H. Budner
<PAGE>
Signature Title Date
- --------- ----- ----
* Director June 24, 1999
- ---------------------
Fred A. Deering
* Director June 24, 1999
- ---------------------
Larry Soll
* Director June 24, 1999
- ---------------------
Kenneth T. King
* Director June 24, 1999
- ---------------------
John W. McIntyre
By
---------------------------
Edward F. O'Keefe
Attorney in Fact
By */s/ Glen A. Payne June 24, 1999
--------------------------
Glen A. Payne
Attorney in Fact
* Original Powers of Attorney authorizing Edward F. O'Keefe and Glen A.
Payne, and each of them, to execute this Registration Statement of the
Registrant on behalf of the above-named directors and officers of the Registrant
have been filed with the Securities and Exchange Commission on October 4, 1993,
November 24, 1993, September 20, 1995, November 27, 1996 and November 24, 1997,
respectively.
<PAGE>
EXHIBIT INDEX
Exhibit 12 Opinion and Consent of Kirkpatrick & Lockhart LLP regarding certain
tax matters in connection with INVESCO Multi-Asset Allocation Fund
and INVESCO Balanced Fund (filed herewith).
Exhibit 12
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KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
Washington, D. C. 20036-1800
Telephone (202) 778-9000
June 11, 1999
INVESCO Combination Stock
& Bond Funds, Inc.
7800 East Union Avenue
Denver, Colorado 80237
Re: Reorganization to Combine Two Series of a Maryland Corporation
--------------------------------------------------------------
Ladies and Gentleman:
INVESCO Combination Stock & Bond Funds, Inc., a Maryland corporation
("Corporation"), on behalf of INVESCO Multi-Asset Allocation Fund ("Target") and
INVESCO Balanced Fund ("Acquiring Fund"), each a segregated portfolio of assets
("series") of Corporation, has requested our opinion as to certain federal
income tax consequences of the proposed acquisition of Target by Acquiring Fund
pursuant to a Plan of Reorganization and Termination duly approved by
Corporation's board of directors ("Board") and dated as of March 21, 1999
("Plan").(1) Specifically, Corporation has requested our opinion --
(1) that Acquiring Fund's acquisition of Target's assets in exchange
solely for voting shares of common stock of Acquiring Fund ("Acquiring
Fund Shares") and Acquiring Fund's assumption of Target's liabilities,
followed by Target's distribution of those shares PRO RATA to its
shareholders of record determined as of the Effective Time (as herein
defined) ("Shareholders") constructively in exchange for the Shareholders'
shares of common stock of Target ("Target Shares") (such transactions
sometimes being referred to herein collectively as the "Reorganization"),
will qualify as a reorganization within the meaning of section
- ---------------------
(1) Target and Acquiring Fund are sometimes referred to herein individually as
a "Fund" and collectively as the "Funds."
<PAGE>
INVESCO Combination Stock
& Bond Funds, Inc.
June 11, 1999
Page 2
368(a)(1)(C),(2) and each Fund will be "a party to a reorganization"
within the meaning of section 368(b);
(2) that neither the Funds nor the Shareholders will recognize gain
or loss on the Reorganization; and
(3) regarding the basis and holding period after the Reorganization
of the transferred assets and the Acquiring Fund Shares issued pursuant
thereto.
In rendering this opinion, we have examined (1) the Plan, (2) the
Prospectus/Proxy Statement dated March 23, 1999 ("Proxy Statement"), that was
furnished in connection with the solicitation of proxies by the Board for use at
a special meeting of Target's shareholders held on May 20, 1999 ("Shareholders'
Meeting"), (3) each Fund's currently effective prospectus and their combined
statement of additional information ("SAI"), and (4) other documents we have
deemed necessary or appropriate for the purposes hereof. As to various matters
of fact material to this opinion, we have relied, exclusively and without
independent verification, on statements of responsible officers of Corporation
and the representations described below and made in the Plan (as contemplated in
paragraph 4.1.12 thereof) (collectively, "Representations").
FACTS
Corporation is a Maryland corporation registered with the Securities and
Exchange Commission ("SEC") as open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act"). Each Fund is a series
thereof and issues a single class of shares, which are identical to each other.
The Reorganization, together with related acts necessary to consummate the
same ("Closing"), will take place on June 11, 1999, or such other date
determined by Corporation. 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 determined by Corporation ("Effective Time").
The Funds' investment objectives, policies, and restrictions (which are
described in the Proxy Statement and the Funds' prospectuses and SAI) are
substantially similar, and they have the same investment adviser, INVESCO Funds
Group, Inc. ("INVESCO"). At the Shareholders' Meeting, Target's shareholders
approved amendments to certain of its fundamental investment restrictions to
- -----------------
(2) All "section" references are to the Internal Revenue Code of 1986, as
amended ("Code"), unless otherwise noted, and all "Treas. Reg. Section"
references are to the regulations under the Code ("Regulations").
<PAGE>
INVESCO Combination Stock
& Bond Funds, Inc.
June 11, 1999
Page 3
simplify and modernize them and make them more uniform with those of the other
funds in the INVESCO group of investment companies; similar restrictions apply
to Acquiring Fund as well.
For the reasons, and after consideration of the factors, described in the
Proxy Statement, the Board approved the Plan, subject to approval of Target's
shareholders. In doing so, the Board, including a majority of its members who
are not "interested persons" (as that term is defined in the 1940 Act) of
Corporation, INVESCO, or INVESCO Management & Research, Inc. ("Target's
investment sub-adviser), determined that (1) the Reorganization is in each
Fund's best interests, (2) the terms of the Reorganization are fair and
reasonable, and (3) the interests of each Fund's shareholders will not be
diluted as a result of the Reorganization.
The Plan, which specifies that it is intended to be a "plan of
reorganization" for federal income tax purposes, provides in relevant part for
the following:
1. The acquisition by Acquiring Fund of all assets, including all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to register
shares under applicable securities laws, books and records, deferred and
prepaid expenses shown as assets on Target's books, and other property,
owned by Target at the Effective Time (collectively "Assets"), in exchange
solely for the following:
(a) the number of full and fractional (rounded to the third
decimal place) Acquiring Fund Shares determined by dividing the net
value of Target (computed as set forth in paragraph 2.1 of the Plan)
by the net asset value of an Acquiring Fund Share (computed as set
forth in paragraph 2.2 of the Plan), and
(b) Acquiring Fund's assumption of all of Target's
liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether
or not arising in the ordinary course of business, whether or not
determinable at the Effective Time, and whether or not specifically
referred to in the Plan (collectively "Liabilities"),
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INVESCO Combination Stock
& Bond Funds, Inc.
June 11, 1999
Page 4
2. The constructive distribution of such Acquiring Fund Shares to
the Shareholders,(3) and
3. The subsequent termination of Target.
The distribution described in 2. will be accomplished by Acquiring Fund's
transfer agent's opening accounts on Acquiring Fund's share transfer books in
the Shareholders' names and transferring such Acquiring Fund Shares thereto.
Each Shareholder's account will be credited with the respective PRO RATA number
of full and fractional (rounded to the third decimal place) Acquiring Fund
Shares due that Shareholder. All outstanding Target Shares, including those
represented by certificates, simultaneously will be canceled on Target's share
transfer books.
REPRESENTATIONS
Corporation has represented and warranted to us as follows:(4)
1. Corporation is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Maryland, and a copy of its
Articles of Incorporation is on file with the Secretary of State of
Maryland. It 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. Each Fund is a duly established and
designated series thereof;
2. Each Fund is a "fund" as defined in section 851(g)(2); 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
- ---------------------
(3) The Plan provides that, at the time of the Reorganization, the Target Shares
will in effect be constructively exchanged for Acquiring Fund Shares,
certificates for which will not be issued. Accordingly, Shareholders will not be
required to and will not make physical delivery of their Target Shares, nor will
they receive certificates for Acquiring Fund Shares, pursuant to the
Reorganization. Target Shares nevertheless will be treated as having been
exchanged for Acquiring Fund Shares, and the tax consequences to the
Shareholders will be unaffected by the absence of Acquiring Fund Share
certificates. SEE discussion at V. under "Analysis," below.
(4) Virtually all of the following Representations actually are set forth in the
Plan as conditions to the obligations of one or the other Fund or both Funds.
Paragraph 4.1.12 of the Plan expressly provides, however, that in rendering this
opinion, we may assume satisfaction of all those conditions "and treat them as
representations by Corporation to" us.
<PAGE>
INVESCO Combination Stock
& Bond Funds, Inc.
June 11, 1999
Page 5
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 will be invested at all times through the Effective Time in
a manner that ensures compliance with the foregoing;
3. The Liabilities were incurred by Target in the ordinary course of its
business;
4. Target is not under the jurisdiction of a court in a proceeding under
Title 11 of the United States Code or similar case within the meaning of section
368(a)(3)(A);
5. Not more than 25% of the value of Target's total assets (excluding
cash, cash items, and U.S. government securities) is invested in the stock and
securities of any one issuer, and not more than 50% of the value of such assets
is invested in the stock and securities of five or fewer issuers; and
immediately after the Reorganization, (a) not more than 25% of the value of
Acquiring Fund's total assets (excluding cash, cash items, and U.S. government
securities) will be invested in the stock and securities of any one issuer and
(b) not more than 50% of the value of such assets will be invested in the stock
and securities of five or fewer issuers;
6. Target will be terminated as soon as reasonably practicable after the
Effective Time, but in all events within twelve months thereafter;
7. No consideration other than Acquiring Fund Shares (and Acquiring Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in the
Reorganization;
8. Acquiring Fund has no plan or intention to issue additional Acquiring
Fund Shares following the Reorganization except for shares issued in the
ordinary course of its business as a series of an open-end investment company;
nor does Acquiring Fund have any plan or intention to redeem or otherwise
reacquire any Acquiring Fund Shares issued to the Shareholders pursuant to the
Reorganization, except to the extent it is required by the 1940 Act to redeem
any of its shares presented for redemption at net asset value in the ordinary
course of that business;
9. Following the Reorganization, Acquiring Fund (a) will continue Target's
"historic business" (within the meaning of Treas. Reg. Section 1.368-1(d)(2)),
(b) use a significant portion of Target's historic business assets (within the
meaning of Treas. Reg. Section 1.368-1(d)(3)) 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
<PAGE>
INVESCO Combination Stock
& Bond Funds, Inc.
June 11, 1999
Page 6
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;
10. There is no plan or intention for Acquiring Fund to be dissolved or
merged into another corporation or a business trust or any "fund" thereof
(within the meaning of section 851(g)(2)) following the Reorganization;
11. Acquiring Fund does not directly or indirectly own, nor at the
Effective Time will it directly or indirectly own, nor has it at any time during
the past five years directly or indirectly owned, any shares of Target;
12. The aggregate fair market value of the Acquiring Fund Shares, when
received by the Shareholders, will be approximately equal to the aggregate fair
market value of their Target Shares constructively surrendered in exchange
therefor;
13. Its management (a) is unaware of any plan or intention of Shareholders
to redeem or otherwise dispose of any portion of the Acquiring Fund Shares to be
received by them in the Reorganization, (b) does not anticipate dispositions of
those Acquiring Fund Shares at the time of or soon after the Reorganization to
exceed the usual rate and frequency of dispositions of shares of Target as a
series of an open-end investment company, (c) expects that the percentage of
Shareholder interests, if any, that will be disposed of as a result of or at the
time of the Reorganization will be DE MINIMIS, and (d) does not anticipate that
there will be extraordinary redemptions of Acquiring Fund Shares immediately
following the Reorganization;
14. The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
15. Immediately following consummation of the Reorganization, Acquiring
Fund will hold substantially the same assets and be subject to the same
liabilities that Target held or was subject to immediately prior thereto (in
addition to the assets and liabilities Acquiring Fund held or was subject to),
plus any liabilities and expenses of the Funds incurred in connection with the
Reorganization;
16. The fair market value of the Assets on a going concern basis will
equal or exceed the Liabilities to be assumed by Acquiring Fund and those to
which the Assets are subject;
<PAGE>
INVESCO Combination Stock
& Bond Funds, Inc.
June 11, 1999
Page 7
17. There is no intercompany indebtedness between the Funds that was
issued or acquired, or will be settled, at a discount;
18. Pursuant to the Reorganization, Target will transfer to Acquiring
Fund, and Acquiring Fund will acquire, at least 90% of the fair market value of
the net assets, and at least 70% of the fair market value of the gross assets,
held by Target immediately before the Reorganization. For purposes of this
representation, any amounts used by Target to pay its Reorganization expenses
and to make redemptions and distributions immediately before the Reorganization
(except (a) redemptions not made as part of the Reorganization and (b)
distributions made to conform to its policy of distributing all or substantially
all of its income and gains to avoid the obligation to pay federal income tax
and/or the excise tax under section 4982) will be included as assets thereof
held immediately before the Reorganization;
19. None of the compensation received by any Shareholder who is an
employee of or service provider to Target will be separate consideration for, or
allocable to, any of the Target Shares held by such Shareholder; none of the
Acquiring Fund Shares received by any such Shareholder will be separate
consideration for, or allocable to, any employment agreement, investment
advisory agreement, or other service agreement; and the consideration paid to
any such Shareholder will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length for
similar services;
20. Immediately after the Reorganization, the Shareholders will not own
shares constituting "control" of Acquiring Fund within the meaning of section
304(c); and
21. 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).
OPINION
Based solely on the facts set forth above, and (1) assuming satisfaction
of all the conditions set forth in section 4 of the Plan by the Effective Time
(as permitted by paragraph 4.1.12 of the Plan), and (2) conditioned on the
Representations being true at the time of the Closing and the Reorganization
being consummated in accordance with the Plan, our opinion (as explained more
fully in the next section of this letter) is as follows:
<PAGE>
INVESCO Combination Stock
& Bond Funds, Inc.
June 11, 1999
Page 8
1. Acquiring Fund's acquisition of the Assets in exchange solely for
Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities,
followed by Target's distribution of those shares PRO RATA to the
Shareholders constructively in exchange for their Target Shares, will
qualify as a reorganization within the meaning of section 368(a)(1)(C),
and each Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
2. Target will recognize no gain or loss on the transfer of the
Assets to Acquiring Fund in exchange solely for Acquiring Fund Shares and
Acquiring Fund's assumption of the Liabilities or on the subsequent
distribution of those shares to the Shareholders in constructive exchange
for their Target Shares;
3. Acquiring Fund will recognize no gain or loss on its receipt of
the Assets in exchange solely for Acquiring Fund Shares and its assumption
of the Liabilities;
4. Acquiring Fund's basis for the Assets will be the same as
Target's basis therefor immediately before the Reorganization, and
Acquiring Fund's holding period for the Assets will include Target's
holding period therefor;
5. A Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares
pursuant to the Reorganization; and
6. A Shareholder's aggregate basis for the Acquiring Fund Shares to
be received by it in the Reorganization will be the same as the aggregate
basis for its Target Shares to be constructively surrendered in exchange
for those Acquiring Fund Shares, and its holding period for those
Acquiring Fund Shares will include its holding period for those Target
Shares, provided they are held as capital assets by the Shareholder at the
Effective Time.
The foregoing opinion (1) is based on, and is conditioned on the continued
applicability of, the provisions of the Code and the Regulations, judicial
decisions, and rulings and other pronouncements of the Internal Revenue Service
("Service") in existence on the date hereof and (2) is applicable only to the
extent each Fund is solvent. We express no opinion about the tax treatment of
the transactions described herein if either Fund is insolvent.
<PAGE>
INVESCO Combination Stock
& Bond Funds, Inc.
June 11, 1999
Page 9
ANALYSIS
I. THE REORGANIZATION WILL QUALIFY AS A C REORGANIZATION, AND EACH FUND WILL
BE A PARTY TO A REORGANIZATION.
A. EACH FUND IS A SEPARATE CORPORATION.
A reorganization under section 368(a)(1)(C) (a "C Reorganization")
involves the acquisition by one corporation, in exchange solely for all or a
part of its voting stock, of substantially all of the properties of another
corporation. For a transaction to qualify under that section, therefore, both
entities involved therein must be corporations. Although Corporation is a
corporation, it is not participating as such in the Reorganization, but rather
separate series thereof (the Funds) are the participants. Ordinarily, a
transaction involving segregated pools of assets such as the Funds could not
qualify as a reorganization, because the pools would not be separate taxable
entities that constitute corporations. Under section 851(g), however, each Fund
is treated as a separate corporation for all purposes of the Code save the
definitional requirement of section 851(a) (which is satisfied by Corporation).
Accordingly, we believe that each Fund is a separate corporation, and their
shares are treated as shares of corporate stock, for purposes of section
368(a)(1)(C).
B. TRANSFER OF "SUBSTANTIALLY ALL" OF TARGET'S PROPERTIES.
For an acquisition to qualify as a C Reorganization, the acquiring
corporation must acquire "substantially all of the properties" of the transferor
corporation in exchange solely for all or part of the acquiring corporation's
stock. For purposes of issuing private letter rulings, the Service considers the
transfer of at least 90% of the fair market value of the transferor's net
assets, and at least 70% of the fair market value of its gross assets, held
immediately before the reorganization to satisfy the "substantially all"
requirement. Rev. Proc. 77-37, 1977-2 C.B. 568. The Reorganization will involve
such a transfer. Accordingly, we believe that the Reorganization will involve
the transfer to Acquiring Fund of substantially all of Target's properties.
C. QUALIFYING CONSIDERATION.
The acquiring corporation in an acquisition intended to qualify as a C
Reorganization must acquire at least 80% (by fair market value) of the
transferor's property solely for voting stock. Section 368(a)(2)(B)(iii). The
assumption of liabilities by the acquiring corporation or its acquisition of
property subject to liabilities normally are disregarded (section 368(a)(1)(C)),
but the amount of any such liabilities will be treated as money paid for the
transferor's property if the acquiring corporation exchanges any money or
property (other than its voting stock) therefor. Section 368(a)(2)(B). Because
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INVESCO Combination Stock
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Acquiring Fund will exchange only Acquiring Fund Shares, and no money or other
property, for the Assets, we believe that the Reorganization will satisfy the
solely-for-voting-stock requirement to qualify as a C Reorganization.
D. DISTRIBUTION BY TARGET.
Section 368(a)(2)(G)(i) provides that a transaction will not qualify as a
C Reorganization unless the corporation whose properties are acquired
distributes the stock it receives and its other property in pursuance of the
plan of reorganization. Under the Plan -- which we believe constitutes a "plan
of reorganization" within the meaning of Treas. Reg. Section 1.368-2(g) --
Target will distribute all the Acquiring Fund Shares it receives to its
Shareholders in constructive exchange for their Target Shares; as soon as is
reasonably practicable thereafter, Target will be terminated. Accordingly, we
believe that the requirements of section 368(a)(2)(G)(i) will be satisfied.
E. REQUIREMENTS OF CONTINUITY.
Treasury Regulation section 1.368-1(b) sets forth two prerequisites to a
valid reorganization: (1) a continuity of the business enterprise through the
issuing corporation -- defined in the Regulation as "the acquiring corporation
(as that term is used in section 368(a))," with an exception not relevant here
- -- under the modified corporate form as described in Treas. Reg. Section
1.368-1(d) ("continuity of business enterprise") and (2) a continuity of
interest as described in Treas. Reg. Section 1.368-1(e) ("continuity of
interest").
1. CONTINUITY OF BUSINESS ENTERPRISE.
To satisfy the continuity of business enterprise requirement of Treas.
Reg. Section 1.368-1(d)(1), the issuing corporation must either (i) continue the
target corporation's historic business ("business continuity") or (ii) use a
significant portion of the target corporation's historic business assets in a
business ("asset continuity").
While there is no authority that deals directly with the continuity of
business enterprise requirement in the context of a transaction such as the
Reorganization, Rev. Rul. 87-76, 1987-2 C.B. 84, deals with a somewhat similar
situation. In that ruling, P was a RIC that invested exclusively in municipal
bonds. P acquired the assets of T in exchange for P common stock in a
transaction that was intended to qualify as a C Reorganization. Prior to the
exchange, T sold its entire portfolio of corporate stocks and bonds and
purchased a portfolio of municipal bonds. The Service held that this transaction
did not qualify as a reorganization for the following reasons: (1) because T had
sold its historic assets prior to the exchange, there was no asset continuity;
and (2) the failure of P to engage in the business of investing in corporate
stocks and bonds after the exchange caused the transaction to lack business
continuity as well.
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The Funds' investment objectives, policies, and restrictions (including
amended fundamental restrictions approved at the Shareholders' Meeting) are
substantially similar, and they have the same investment adviser. Moreover,
after the Reorganization Acquiring Fund will continue Target's historic business
(within the meaning of Treas. Reg. Section 1.368-1(d)(2)). Accordingly, there
will be business continuity.
Acquiring Fund not only will continue Target's historic business, but it
also will use in that business a significant portion of Target's historic
business assets (within the meaning of Treas. Reg. Section 1.368-1(d)(3)).
Accordingly, there will be asset continuity as well.
For all the foregoing reasons, we believe that the Reorganization will
satisfy the continuity of business enterprise requirement.
2. CONTINUITY OF INTEREST.
Treasury Regulation section 1.368-1(e)(1)(i) provides that "[c]ontinuity
of interest requires that in substance a substantial part of the value of the
proprietary interests in the target corporation be preserved in the
reorganization. A proprietary interest in the target corporation is preserved
if, in a potential reorganization, it is exchanged for a proprietary interest in
the issuing corporation . . . ." That section of the Regulations goes on to
provide that "[h]owever, a proprietary interest in the target corporation is not
preserved if, in connection with the potential reorganization, . . . stock of
the issuing corporation furnished in exchange for a proprietary interest in the
target corporation in the potential reorganization is redeemed. All facts and
circumstances must be considered in determining whether, in substance, a
proprietary interest in the target corporation is preserved."
For purposes of issuing private letter rulings, the Service considers the
continuity of interest requirement satisfied if ownership in an acquiring
corporation on the part of a transferor corporation's former shareholders is
equal in value to at least 50% of the value of all the formerly outstanding
shares of the transferor corporation. Rev. Proc. 77-37, SUPRA; BUT SEE Rev. Rul.
56-345, 1956-2 C.B. 206 (continuity of interest was held to exist in a
reorganization of two RICs where immediately after the reorganization 26% of the
shares were redeemed to allow investment in a third RIC); SEE ALSO REEF CORP. V.
COMMISSIONER, 368 F.2d 125 (5th Cir. 1966), CERT. DENIED, 386 U.S. 1018 (1967)
(a redemption of 48% of a transferor corporation's stock was not a sufficient
shift in proprietary interest to disqualify a transaction as a reorganization
under section 368(a)(1)(F) ("F Reorganization"), even though only 52% of the
transferor's shareholders would hold all the transferee's stock); AETNA CASUALTY
AND SURETY CO. V. U.S., 568 F.2d 811, 822-23 (2d Cir. 1976) (redemption of a
38.39% minority interest did not prevent a transaction from qualifying as an F
Reorganization); Rev. Rul. 61-156, 1961-2 C.B. 62 (a transaction qualified as an
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F Reorganization even though the transferor's shareholders acquired only 45% of
the transferee's stock, while the remaining 55% of that stock was issued to new
shareholders in a public underwriting immediately after the transfer). Although
shares of both Funds held by Shareholders that are disposed of before or after
the Reorganization will be considered in determining satisfaction of the 50%
standard, the Service has recently issued private letter rulings that excepted
from that determination "shares which are required to be redeemed at the demand
of shareholders by . . . Target or by Acquiring in the ordinary course of their
businesses as open-end investment companies (or series thereof) pursuant to
Section 22(e) of the 1940 Act." Priv. Ltr. Ruls. 9823018 (Mar. 5, 1998) and
9822053 (Mar. 3, 1998).(5)
No minimum holding period for shares of an acquiring corporation is
imposed under the Code on the acquired corporation's shareholders. Rev. Rul.
66-23, 1966-1 C.B. 67, provides generally that "unrestricted rights of ownership
for a period of time sufficient to warrant the conclusion that such ownership is
definite and substantial" will suffice and that "ordinarily, the Service will
treat five years of unrestricted . . . ownership as a sufficient period" for
continuity of interest purposes. A preconceived plan or arrangement by or among
an acquired corporation's shareholders to dispose of more than 50% of an
acquiring corporation's shares could be problematic. Shareholders with no such
preconceived plan or arrangement, however, are basically free to sell any part
of the shares received by them in the reorganization without fear of breaking
continuity of interest, because the subsequent sale will be treated as an
independent transaction from the reorganization.
There is no plan or intention of Shareholders to redeem or otherwise
dispose of any portion of the Acquiring Fund Shares to be received by them in
the Reorganization. Moreover, Corporation anticipates that (a) dispositions of
those Acquiring Fund Shares at the time of or soon after the Reorganization will
not exceed the usual rate and frequency of dispositions of shares of Target as a
series of an open-end investment company, (b) 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 (c) there will not be extraordinary
redemptions of Acquiring Fund Shares immediately following the Reorganization.
Although Acquiring Fund's shares will be offered for sale to the public on an
ongoing basis after the Reorganization, sales of those shares will arise out of
a public offering separate and unrelated to the Reorganization and not as a
result thereof. SEE REEF CORP. V. COMMISSIONER, 368 F.2d at 134; Rev. Rul.
61-156, SUPRA. Similarly, although Shareholders may redeem Acquiring Fund Shares
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(5) Although, under section 6110(j)(3), a private letter ruling may not be cited
as precedent, tax practitioners look to such rulings as generally indicative of
the Service's views on the proper interpretation of the Code and the
Regulations. CF. ROWAN COMPANIES, INC. V. COMMISSIONER, 452 U.S. 247 (1981).
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pursuant to their rights as shareholders of a series of an open-end investment
company (SEE Priv. Ltr. Ruls. 9823018 and 9822053, SUPRA, and 8816064 (Jan. 28,
1988)), those redemptions will result from the exercise of those rights in the
course of Acquiring Fund's business as an open-end series and not from the C
Reorganization as such.
Accordingly, we believe that the Reorganization will satisfy the
continuity of interest requirement of Treas. Reg. Section 1.368-1(b).
F. BUSINESS PURPOSE.
All reorganizations must meet the judicially imposed requirements of the
"business purpose doctrine," which was established in GREGORY V. HELVERING, 293
U.S. 465 (1935), and is now set forth in Treas. Reg. Sections 1.368-1(b), -1(c),
and -2(g) (the last of which provides that, to qualify as a reorganization, a
transaction must be "undertaken for reasons germane to the continuance of the
business of a corporation a party to the reorganization"). Under that doctrine,
a transaction must have a BONA FIDE business purpose (and not a purpose to avoid
federal income tax) to qualify as a valid reorganization. The substantial
business purposes of the Reorganization are described in the Proxy Statement.
Accordingly, we believe that the Reorganization is being undertaken for BONA
FIDE business purposes (and not a purpose to avoid federal income tax) and
therefore meets the requirements of the business purpose doctrine.
G. SATISFACTION OF SECTION 368(A)(2)(F).
Under section 368(a)(2)(F), if two or more parties to a transaction
described in section 368(a)(1) (with an exception not relevant here) were
"investment companies" immediately before the transaction, then the transaction
shall not be considered a reorganization with respect to any such investment
company and its shareholders. But that section does not apply to a participating
investment company if, among other things, it is a RIC or --
(1) not more than 25% of the value of its total assets is invested in
the stock and securities of any one issuer and
(2) not more than 50% of the value of its total assets is invested in
the stock and securities of five or fewer issuers.
In determining total assets for these purposes, cash and cash items (including
receivables) and U.S. government securities are excluded. Section
368(a)(2)(F)(iv). Each Fund will meet the requirements to qualify for treatment
as a RIC for its respective current taxable year and will satisfy the foregoing
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percentage tests. Accordingly, we believe that section 368(a)(2)(F) will not
cause the Reorganization to fail to qualify as a C Reorganization with respect
to either Fund.
For all the foregoing reasons, we believe that the Reorganization will
qualify as a C Reorganization.
H. EACH FUND WILL BE A PARTY TO A REORGANIZATION.
Section 368(b)(2) provides, in pertinent part, that in the case of a
reorganization involving the acquisition by one corporation of properties of
another -- and Treas. Reg. Section 1.368-2(f) further provides that if one
corporation transfers substantially all its properties to a second corporation
in exchange for all or a part of the latter's voting stock (I.E., a C
Reorganization) -- the term "a party to a reorganization" includes each
corporation. Pursuant to the Reorganization, Target is transferring all its
properties to Acquiring Fund in exchange for Acquiring Fund Shares. Accordingly,
we believe that each Fund will be "a party to a reorganization."
II. TARGET WILL RECOGNIZE NO GAIN OR LOSS.
Under sections 361(a) and (c), no gain or loss shall be recognized to a
corporation that is a party to a reorganization if, pursuant to the plan of
reorganization, (1) it exchanges property solely for stock or securities in
another corporate party to the reorganization and (2) distributes that stock or
securities to its shareholders. (Such a distribution is required by section
368(a)(2)(G)(i) for a reorganization to qualify as a C Reorganization.) Section
361(c)(4) provides that sections 311 and 336 (which require recognition of gain
on certain distributions of appreciated property) shall not apply to such a
distribution.
Section 357(a) provides in pertinent part that, except as provided in
section 357(b), if a taxpayer receives property that would be permitted to be
received under section 361 without recognition of gain if it were the sole
consideration and, as part of the consideration, another party to the exchange
assumes a liability of the taxpayer or acquires from the taxpayer property
subject to a liability, then that assumption or acquisition shall not be treated
as money or other property and shall not prevent the exchange from being within
section 361. Section 357(b) applies where the principal purpose of the
assumption or acquisition was a tax avoidance purpose or not a BONA FIDE
business purpose.
As noted above, it is our opinion that the Reorganization will qualify as
a C Reorganization, each Fund will be a party to a reorganization, and the Plan
constitutes a plan of reorganization. Target will exchange the Assets solely for
Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities and
then will be terminated pursuant to the Plan, distributing those shares to its
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shareholders in constructive exchange for their Target Shares. As also noted
above, it is our opinion that the Reorganization is being undertaken for BONA
FIDE business purposes (and not a purpose to avoid federal income tax); we also
do not believe that the principal purpose of Acquiring Fund's assumption of the
Liabilities is avoidance of federal income tax on the proposed transaction.
Accordingly, we believe that Target will recognize no gain or loss on the
Reorganization.(6)
III. ACQUIRING FUND WILL RECOGNIZE NO GAIN OR LOSS.
Section 1032(a) provides that no gain or loss shall be recognized to a
corporation on the receipt by it of money or other property in exchange for its
stock. Acquiring Fund will issue Acquiring Fund Shares to Target in exchange for
the Assets, which consist of money and securities. Accordingly, we believe that
Acquiring Fund will recognize no gain or loss on the Reorganization.
IV. ACQUIRING FUND'S BASIS FOR THE ASSETS WILL BE A CARRYOVER BASIS, AND ITS
HOLDING PERIOD WILL INCLUDE TARGET'S HOLDING PERIOD.
Section 362(b) provides, in pertinent part, that the basis of property
acquired by a corporation in connection with a reorganization to which section
368 applies shall be the same as it would be in the hands of the transferor,
increased by the amount of gain recognized to the transferor on the transfer (a
"carryover basis"). As noted above, it is our opinion that the Reorganization
will qualify as such a reorganization and that Target will recognize no gain on
the Reorganization. Accordingly, we believe that Acquiring Fund's basis for the
Assets will be the same as Target's basis therefor immediately before the
Reorganization.
Section 1223(2) provides in general that the period for which a taxpayer
has held acquired property that has a carryover basis shall include the period
for which the property was held by the transferor. As noted above, it is our
opinion that Acquiring Fund's basis for the Assets will be a carryover basis.
Accordingly, we believe that Acquiring Fund's holding period for the Assets will
include Target's holding period therefor.
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(6) Notwithstanding anything herein to the contrary, we express no opinion as to
the effect of the Reorganization on either Fund or any Shareholder with respect
to any Asset as to which any unrealized gain or loss is required to be
recognized for federal income tax purposes at the end of a taxable year (or on
the termination or transfer thereof) under a mark-to-market system of
accounting.
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V. A SHAREHOLDER WILL RECOGNIZE NO GAIN OR LOSS.
Under section 354(a)(1), no gain or loss shall be recognized if stock in a
corporation that is a party to a reorganization is exchanged pursuant to a plan
of reorganization solely for stock in that corporation or another corporate
party to the reorganization. Pursuant to the Plan, the Shareholders will receive
solely Acquiring Fund Shares for their Target Shares. As noted above, it is our
opinion that the Reorganization will qualify as a C Reorganization, each Fund
will be a party to a reorganization, and the Plan constitutes a plan of
reorganization. Although section 354(a)(1) requires that the transferor
corporation's shareholders exchange their shares therein for shares of the
acquiring corporation, the courts and the Service have recognized that the Code
does not require taxpayers to perform useless gestures to come within the
statutory provisions. See, E.G., EASTERN COLOR PRINTING CO., 63 T.C. 27, 36
(1974); DAVANT V. COMMISSIONER, 366 F.2d 874 (5th Cir. 1966). Therefore,
although Shareholders will not actually surrender Target Share certificates in
exchange for Acquiring Fund Shares, their Target Shares will be canceled on the
issuance of Acquiring Fund Shares to them (all of which will be reflected on
Acquiring Fund's books) and will be treated as having been exchanged therefor.
SEE Rev. Rul. 81-3, 1981-1 C.B. 125; Rev. Rul. 79-257, 1979-2 C.B. 136.
Accordingly, we believe that a Shareholder will recognize no gain or loss on the
constructive exchange of all its Target Shares solely for Acquiring Fund Shares
pursuant to the Reorganization.
VI. A SHAREHOLDER'S BASIS FOR ACQUIRING FUND SHARES WILL BE A SUBSTITUTED
BASIS, AND ITS HOLDING PERIOD THEREFOR WILL INCLUDE ITS HOLDING PERIOD FOR
ITS TARGET SHARES.
Section 358(a)(1) provides, in pertinent part, that in the case of an
exchange to which section 354 applies, the basis of the property permitted to be
received thereunder without the recognition of gain or loss shall be the same as
the basis of the property exchanged therefor, decreased by, among other things,
the fair market value of any other property and the amount of any money received
in the exchange and increased by the amount of any gain recognized on the
exchange by the shareholder ( a "substituted basis"). As noted above, it is our
opinion that the Reorganization will qualify as a C Reorganization and, under
section 354, a Shareholder will recognize no gain or loss on the constructive
exchange of all its Target Shares solely for Acquiring Fund Shares in the
Reorganization. No property will be distributed to the Shareholders other than
Acquiring Fund Shares, and no money will be distributed to them pursuant to the
Reorganization. Accordingly, we believe that a Shareholder's basis for the
Acquiring Fund Shares it receives in the Reorganization will be the same as the
basis for its Target Shares to be constructively surrendered in exchange for
those Acquiring Fund Shares.
Section 1223(1) provides in general that the period for which a taxpayer
has held property received in an exchange that has a substituted basis shall
include the period for which the taxpayer held the property exchanged therefor
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if the latter property was a capital asset (as defined in section 1221) at the
time of the exchange. As noted above, it is our opinion that a Shareholder will
have a substituted basis for the Acquiring Fund Shares it receives in the
Reorganization. Accordingly, we believe that a Shareholder's holding period for
the Acquiring Fund Shares it receives in the Reorganization will include its
holding period for the Target Shares constructively surrendered in exchange
therefor, provided those Target Shares were capital assets on the Closing Date.
We hereby consent to the references to our firm in "Part I: The
Reorganization" of the Proxy Statement in (1) the section entitled "Synopsis"
under the caption "Federal Income Tax Consequences of the Reorganization" and
(2) the section entitled "The Proposed Transaction" under the caption "Federal
Income Tax Considerations."
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By: /s/ Theodore L. Press
Theodore L. Press
