KNOWLEDGE DISCIPLINE SERVICE CHOICE
- ---------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- ---------------------------------------
INVESCO BOND FUNDS
HIGH YIELD FUND
SELECT INCOME FUND
U.S. GOVERNMENT SECURITIES FUND
SHORT-TERM BOND FUND
SEMIANNUAL
[INVESCO ICON]
INVESCO
SEMIANNUAL REPORT / February 28, 1999
<PAGE>
[INVESCO ICON]
SHAREHOLDERS IN HIGH YIELD, SELECT INCOME, U.S. GOVERNMENT SECURITIES, AND
SHORT-TERM BOND FUNDS RECENTLY RECEIVED IMPORTANT PROXY INFORMATION. PLEASE
BE SURE TO READ THE PROXY CAREFULLY AND VOTE PROMPTLY ON ALL ISSUES.
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the High Yield Fund to the value of a $10,000 investment in
the Merrill Lynch High Yield Master Index, assuming in each case
reinvestment of all dividends and capital gain distributions, for the ten
year period ended 2/28/99.
HIGH YIELD FUND
AVERAGE ANNUAL TOTAL RETURN,
PERIODS ENDED 2/28/99(2)
1 year -1.69%
-------------------------------
5 years 8.47%
-------------------------------
10 years 9.23%
-------------------------------
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the Select Income Fund to the value of a $10,000 investment
in the Lehman Government/Corporate Bond Index, assuming in each case
reinvestment of all dividends and capital gain distributions, for the ten
year period ended 2/28/99.
SELECT INCOME FUND
AVERAGE ANNUAL TOTAL RETURN,
PERIODS ENDED 2/28/99(2)
1 year 4.39%
--------------------------------
5 years 8.06%
--------------------------------
10 years 9.23%
--------------------------------
"OUR GOAL IS TO PROVIDE CONSISTENTLY STRONG RESULTS TO INVESTORS
WITHOUT USING EXOTIC INSTRUMENTS TO 'JUICE UP' RETURNS AT THE PRICE
OF SUBSTANTIAL ADDITIONAL RISK." (PAGE 5)
<PAGE>
"THERE IS A PLACE FOR INTEREST RATE FORECASTING,
BUT I DON'T BELIEVE THAT PLACE SHOULD BE IN
FUNDS THAT SEEK TO PROVIDE INCOME FOR LONG-
TERM SHAREHOLDERS."
(PAGE 6)
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the Short-Term Bond Fund to the value of a $10,000
investment in the Lehman 1-3 Government/Corporate Bond Index, assuming in
each case reinvestment of all dividends and capital gain distributions,
for the ten year period ended 2/28/99.
SHORT-TERM BOND FUND
AVERAGE ANNUAL TOTAL RETURN,
PERIODS ENDED 2/28/99(2)
1 year 5.70%
--------------------------------
5 years 5.37%
--------------------------------
Since inception (9/93) 5.06%
--------------------------------
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the U.S. Government Securities Fund to the value of a
$10,000 investment in the Lehman Government Long Bond Index, assuming in
each case reinvestment of all dividends and capital gain distributions,
for the ten year period ended 2/28/99.
U.S. GOVERNMENT
SECURITIES FUND
AVERAGE ANNUALIZED TOTAL RETURN,
PERIODS ENDED 2/28/99(2)
1 year 6.14%
--------------------------------
5 years 6.74%
--------------------------------
10 years 8.23%
--------------------------------
The line graphs illustrate the value of a $10,000 investment, plus reinvested
dividends and capital gain distributions, for the 10-year period or from
inception through 2/28/99. The charts and other total return figures cited
reflect the funds' operating expenses, but the indexes do not have expenses,
which would, of course, have lowered their performance. (Of course, past
performance is not a guarantee of future results.) (1)(2)
<PAGE>
INVESCO'S BOND FUNDS
FUNDS' PERFORMANCES
- ------------------------------------------------------------------------------
Dear Shareholder:
Activity on the equity markers often has a dramatic--although not
parallel--effect on the fixed-income sector. In this vein, one might think of
the American fixed-income markets over the past six months as a set of dining
establishments outside a popular sports stadium--just after a home team's
crushing defeat. In the stampede out of the stadium following the game, some
markets were well-positioned to drown the sorrows of disappointed fans. Others,
however, remained nearly empty, as morose spectators were in little mood to
celebrate.
Similarly, the financial havoc in overseas markets late last summer
had vastly different effects on fixed-income funds, even though none of them has
substantial holdings of foreign securities. Some of our funds benefited from the
"flight to quality" as investors sought refuge in U.S. Treasury obligations and
other very low-risk bonds. Our funds that invest in higher-risk obligations,
however, fared less well as investors demanded a higher premium for that risk.
While all of our funds were helped by generally lower interest rates--let's
assume it was a pleasant night around the stadium, for example--that was not
always enough to offset other factors.
These factors were clearly present in our funds' performances. Short-Term
Bond Fund was INVESCO Bond Fund's top performer, gaining 2.68% over the
past six months. This can be compared to the return of the Lehman 1-3 Year
Government/Corporate Bond Index, which rose 2.16%. High Yield Fund rose
2.43%, compared to the Merrill Lynch High Yield Master Index, which rose
3.30%. Select Income Fund rose 1.64%, versus a return of 1.26% by the
Lehman Government Corporate Bond Index. U.S. Government Securities Fund declined
0.11%, less than the decline of the Lehman Government Long Bond Index, which
fell 1.39%. (Of course, past performance is not a guarantee of future
results.) (1)(2)
A RANGE OF EFFECTS: SHORT-TERM BOND FUND
As is often the case in the short-term, these results did not arrange
themselves along the long-term risk-return spectrum, which predicts that
higher-risk funds will generally enjoy greater returns. To understand why,
it is helpful to review each in detail. Short-Term Bond Fund invests in only
bonds with an average maturity of between two and three years. While all
funds include some degree of risk, these obligations are perceived as
relatively safe by investors, who often treat them as only slightly more risky
than money-market funds (and their yields are often only marginally higher).
As investors sought haven in these securities when fears of global financial
turmoil gripped the market, interest rates fell and the price of these bonds
climbed, helping our fund. Of course, as investors migrated back to the
equity markets, these same holdings rapidly became less attractive.
SELECT INCOME FUND
Because it invests mainly in corporate bonds, focusing on longer maturities,
Select Income Fund performed less well during the flight to quality. Although
the bonds in Select Income Fund enjoyed a higher average yield than those in
Short-Term Bond Fund, the income from the bonds was unable to compensate for
their decline in price due to investors' concerns that the bonds were less
secure given world credit problems. In our opinion, this concern ignored in many
ways the very solid financial position of the companies issuing the bonds.
HIGH YIELD BOND FUND
Indeed, our High Yield Bond Fund, which invests in corporations with generally
lower credit ratings, outperformed Select Income Fund. Both funds were hurt
by the flight to quality, but High Yield Fund's income component better
compensated for this factor. While the decline in the bonds' prices was
disappointing, we believe that high yield securities are currently inexpensive
in comparison to the rest of the fixed-income market--creating encouraging
conditions for the future. (Of course, past performance is not a guarantee of
future results.)
<PAGE>
U.S. GOVERNMENT SECURITIES FUND
Finally, U.S. Government Securities Fund declined the most, reflecting its
exceptional sensitivity to swings in interest rates. Even though this fund
invests in very secure U.S. government bonds, the duration of these bonds (a
measure of their sensitivity to interest rate changes) is quite long, usually
around 7.5 years. This would approximate a 10-year U.S. Treasury investment
position. The fund typically sees strong gains when longer-term interest rates
fall, but can experience substantial declines when they rise. When these
long-term rates fell last fall, the fund was up substantially; when they crept
back up early this year, however, the fund suffered.
We believe it is very important that all of our shareholders understand the
positioning of our funds and how they respond to changes in the environment.
Fixed-income funds of all types are subject to interest rate changes; but
these changes form only one part of the total return picture. If shareholders
are willing to endure bond price fluctuations, Select Income and High Yield
Funds offer healthy yields that provide current income. Our Short-Term Bond
Fund, on the other hand, might offer lower yields, but it is less likely to
suffer short-term losses in net asset value. Finally, U.S. Government
Securities Fund is most appropriate for those experienced investors who
foresee a downward trend in long bond interest rates.
"MEAT AND POTATOES BOND INVESTING"
We will continue with our established fixed-income investment themes
as we move forward. Our goal is to provide consistently strong results to
investors without using exotic instruments to "juice up" returns at the price
of substantial additional risk.
You might say that we believe in meat and potatoes bond investing, which
holds the best promise of keeping hungry fans coming back after the game.
We will look forward to reporting to you again soon.
/s/ Donovan J. Paul /s/ Richard Hinderlie
Donovan "Jerry" Paul Richard Hinderlie
Senior Vice President and Vice President
Director of Fixed-Income Manager of U.S. Government
Investments Securities Fund
Manager of Select Income Co-manager of Short-Term Bond
Fund and High Yield Fund Fund
Co-Manager of Short-Term
Bond Fund
-------------------------------------------------------------------
FUND MANAGERS
DONOVAN J. (JERRY) PAUL, CFA, CPA (Fixed-Income)
Jerry Paul is the Director of Fixed-Income Investments at INVESCO Funds Group.
He received his BBA from the University of Iowa, and an MBA from the University
of Northern Iowa. Before joining INVESCO, Jerry worked for Stein, Roe & Farnham
Inc., as well as Quixote Investment Management. He began his investment career
in 1976. He is a Chartered Financial Analyst and CPA.
RICHARD HINDERLIE
Dick Hinderlie received his BA in economics from Pacific Lutheran University
and his MBA from Arizona State University. He began his investment career in
1973, and has extensive experience in fixed-income analysis and portfolio
management.
<PAGE>
INVESCO/ SEMIANNUAL REPORT/ FEBRUARY 1999
MOVING FORWARD
- --------------------------------------------------------------------------------
MARKET HEADLINES:
SEPTEMBER 1998-FEBRUARY 1999
If the last few months of 1998 were a time of healing for financial markets, it
was indeed a dramatic recovery--at least for some indexes. The worldwide
financial crisis set off in the previous summer by the Russian loan default and
other factors persisted through September. Given October's notorious reputation
in financial circles, many feared for the worst as we entered that month. Yet
beginning in early October, investors began to return to select domestic and
overseas markets.
Leading the way back were the Federal Reserve Board and other
major central banks. A series of interest rate cuts by the banks of most of the
industrialized Western nations restored confidence and liquidity to the markets.
Many large-company stocks, led by those in sectors such as technology and health
care, vaulted back to exceed the highs of the previous spring. Even some Asian
markets, most notably South Korea, recovered as well.
But had the markets truly healed? Many small-company stocks continued to
languish well below their highs. Meanwhile, many foreign markets remained
unable to make a clean break upward. Indeed, after experimenting with a
recovery, Latin American markets plunged back to new lows following the currency
crisis in Brazil.
Other pockets of the market experienced nagging pain. The "flight to quality"
and interest rate cuts helped the prices of low-risk bonds such as Treasuries,
but the high-yield fixed-income market saw buyers evaporate. Commodity prices
continued to slide lower, which provided a boon to American consumers while
taking a toll on commodity producers such as energy firms.
By the beginning of 1999, however, most investors'
attention was focused on the remarkable performance of large technology stocks
and other favored names. Continuing strong growth in the United States, rapid
technological change, and the remarkable absence of inflation appeared an ideal
environment for the best-positioned firms. A cartoon in the Wall Street Journal
laid out the equation as many saw it: Alan Greenspan plus the personal computer
equals continuing prosperity.
A REVIEW & STRATEGY SESSION WITH JERRY PAUL
JERRY, YOU WERE QUOTED IN THE LOS ANGELES TIMES IN JANUARY AS PREDICTING THAT
THE SPREAD ON HIGH-YIELD BONDS COULD NARROW SIGNIFICANTLY. WHY?
Jerry Paul: This is based mostly on the history of the high-yield market. Except
for a couple of anomalous periods--one early in the decade, and the other late
last year--the difference between the Merrill Lynch High Yield Master Index and
10-year Treasury yields has hovered around 400 basis points, or four percent.
The market seems to have determined that this is a reasonable premium on
the risk of high-yield bonds. In December, this spread widened to over 600 basis
points, but if the economy remains stable and the global credit environment
calms down a bit, we might well return to the lower level. Of course,
that does not necessarily mean that the yields on these bonds will go down--the
general level of interest rates might well go up.
ANY SENSE ABOUT THE DIRECTION OF THOSE RATES?
Jerry Paul: While I may have a sense, I don't let my hunches guide my
management of Select Income and High Yield Bond Funds. Some of my competitors
may think they have insights into the future movement of interest rates, but I
think if you look at the long-term performance of bond managers, you can see we
really don't.
That's why I always describe myself as a value-oriented bond investor.
There is a place for interest rate forecasting, but I don't believe that
place should be in funds that seek to provide income for long-term
shareholders.
DICK MUST WORRY ABOUT SUCH THINGS, GIVEN THE HIGH INTEREST-RATE SENSITIVITY
OF THE BONDS IN HIS PORTFOLIO.
Jerry Paul: We try to position U.S. Government Securities Fund for changes in
interest rates, and Dick does so by tracking a number of macroeconomic
factors, such as economic growth, inflation indices and the like.
Ultimately, however, the fund typically performs best when long-term interest
rates are going down, and this is a function of the longer maturity of
our holdings.
<PAGE>
Let me also add that we view this as our responsibility to
shareholders who want a fund that allows them to profit directly from
declining interest rates. This is also why we were up strongly
early in the year, and then February was a tough month for us as interest rates
crept back upward.
WHAT ARE THOSE MACROECONOMIC FACTORS SAYING?
Jerry Paul: Undoubtedly, there has been some upward bias in rates lately.
The economy is continuing strong, and the question is again arising as to
whether the Federal Reserve Board will raise interest rates in order to head off
inflation. Another major factor, in my mind, is that the global financial
crisis is easing; if that was the real impulse behind the three interest rate
cuts last year, it is only logical to assume that the Fed might
reconsider them now.
SO IS A STRENGTHENING ECONOMY BAD FOR BOND INVESTORS?
Jerry Paul: Yes and no, you might say. Investors in higher-risk corporate bonds
generally benefit from a strengthening economy, because that lowers the
perceived risk that they will default. If we position a fund correctly,
price appreciation on the bonds due to credit quality adjustments
can help offset price deteriorations due to higher interest rates.
The icing on the cake is that yields can go up on these bonds, providing greater
current income. In other words, there are fixed income opportunities in almost
every economic environment--if one is able to seize them.
(1)The Lehman Government/Corporate Bond Index, Lehman 1-3 Year
Government/Corporate Bond Index, Lehman Long Government Bond Index, and
Merrill Lynch High Yield Master Index are unmanaged indexes of securities
considered to be representative of the overall domestic fixed-income,
shorter-term bond, longer-term government bond and high yield bond markets,
respectively.
(2)Total return assumes reinvestment of dividends and capital gain
distributions for the periods indicated. Past performance is not a
guarantee of future results. Investment return and principal value will
fluctuate so that, when redeemed, an investor's shares may be worth more or
less than when purchased.
YEAR 2000 COMPUTER ISSUE.
Many computer systems in use today may not be able to recognize any date after
December 31, 1999. If these systems are not fixed by that date, it is possible
that they could generate erroneous information or fail altogether. INVESCO has
committed substantial resources in an effort to make sure that its own major
computer systems will continue to function on and after January 1, 2000. Of
course, INVESCO cannot fix systems that are beyond its control. If INVESCO's own
systems, or the systems of third parties upon which it relies, do not perform
properly after December 31, 1999, the Funds could be adversely affected.
In addition, the markets for, or values of, securities in which the Funds invest
may possibly be hurt by computer failures affecting portfolio investments or
trading of securities beginning January 1, 2000. For example, improperly
functioning computer systems could result in securities trade settlement
problems and liquidity issues, production issues for individual companies and
overall economic uncertainties. Individual issuers may incur increased costs in
making their own systems Year 2000 compliant. The combination of market
uncertainty and increased costs means that there is a possibility that Year 2000
computer issues may adversely affect the Funds' investments.
<PAGE>
STATEMENT OF INVESTMENT SECURITIES
INVESCO BOND FUNDS, INC.
FEBRUARY 28, 1999
UNAUDITED
<TABLE>
<CAPTION>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
HIGH YIELD FUND
<S> <C> <C> <C>
93.75 FIXED INCOME SECURITIES
93.75 CORPORATE BONDS
0.26 AIR FREIGHT
TBS Shipping International Ltd, 1st Pfd Ship
Mortgage Notes, 10.000%, 5/1/2005 $5,750,000 $2,156,250
======================================================================================
0.96 BIOTECHNOLOGY
Packard BioScience, Sr Sub Notes, Series B
9.375%, 3/1/2007 $8,100,000 7,917,750
======================================================================================
3.15 BROADCASTING
Brill Media LLC/Brill Media Management
Appreciation Notes (Exp 2007) $107,143 3,214
Gtd Sr Step-Up Notes, Series B,
7.500%(a), 12/15/2007 $3,750,000 3,225,000
Capstar Broadcasting Partners, Sr Sub Notes
9.250%, 7/1/2007 $3,000,000 3,172,500
Chancellor Media, Gtd Sr Sub Notes, Series B
10.500%, 1/15/2007 $9,600,000 10,644,000
JCAC Inc, Gtd Sr Sub Notes, 10.125%, 6/15/2006 $5,500,000 6,077,500
Telemundo Holdings, Sr Discount Step-Up Notes
Zero Coupon(a)(b), 8/15/2008 $5,000,000 2,900,000
======================================================================================
26,022,214
0.94 CABLE
Bresnan Communications Group LLC/Bresnan Capital
Sr Discount Step-Up Notes, Zero Coupon(a)(b), $4,600,000 3,013,000
2/1/2009
EchoStar DBS, Sr Notes(b), 9.375%, 2/1/2009 $4,750,000 4,761,875
======================================================================================
7,774,875
2.40 CHEMICALS
Huntsman Corp, Sr Sub Notes(b), 9.500%, 7/1/2007 $8,500,000 8,563,750
Huntsman Polymers, Sr Notes, 11.750%, 12/1/2004 $10,491,000 11,277,825
======================================================================================
19,841,575
1.98 COMMUNICATIONS -- EQUIPMENT & MANUFACTURING
Metromedia Fiber Network, Sr Notes(b)
10.000%, 11/15/2008 $8,750,000 9,100,000
Worldwide Fiber, Sr Notes(b), 12.500%,
12/15/2005 CA $7,000,000 7,245,000
======================================================================================
16,345,000
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
2.76 COMPUTER RELATED
Rhythms NetConnections, Sr Discount Step-Up Notes
Series B, Zero Coupon(a), 5/15/2008 $14,500,000 $7,685,000
Verio Inc
Sr Notes, 13.500%, 6/15/2004 $6,350,000 7,175,500
Sr Notes(b), 11.250%, 12/1/2008 $4,750,000 5,106,250
WAM!NET, Gtd Sr Discount Step-Up Notes, Series B
Zero Coupon(a), 3/1/2005 $5,700,000 2,850,000
======================================================================================
22,816,750
0.80 CONTAINERS
Russell-Stanley Holdings, Sr Sub Notes(b)
10.875%, 2/15/2009 $6,750,000 6,615,000
======================================================================================
0.47 ELECTRICAL EQUIPMENT
Alpine Group, Gtd Sr Secured Notes, Series B
12.250%, 7/15/2003 $3,800,000 3,866,500
======================================================================================
0.66 ENGINEERING & CONSTRUCTION
Ryland Group, Sr Sub Notes, 8.250%, 4/1/2008 $5,750,000 5,476,875
======================================================================================
0.45 ENTERTAINMENT
Production Resource Group LLC/Program Finance
Sr Sub Notes, 11.500%, 1/15/2008 $3,750,000 3,675,000
======================================================================================
1.57 GAMING
Park Place Entertainment, Sr Sub Notes(b)
7.875%, 12/15/2005 $4,520,000 4,429,600
Players International, Sr Notes,
10.875%, 4/15/2005 $8,000,000 8,560,000
======================================================================================
12,989,600
2.71 HEALTH CARE RELATED
PharMerica Inc, Gtd Sr Sub Notes,
8.375%, 4/1/2008 $20,955,000 22,421,850
=======================================================================================
1.14 HOUSEHOLD PRODUCTS
Home Products International, Gtd Sr Sub Notes
9.625%, 5/15/2008 $9,600,000 9,408,000
=======================================================================================
2.38 IRON & STEEL
Inland Steel, 1st Mortgage, Series R,
7.900%, 1/15/2007 $10,000,000 9,725,000
National Steel, 1st Mortgage, 8.375%, 8/1/2006 $10,000,000 9,950,000
=======================================================================================
19,675,000
0.98 LEISURE TIME
Bally Total Fitness Holdings, Sr Sub Notes, Series B
9.875%, 10/15/2007 $8,200,000 8,056,500
=======================================================================================
1.01 LODGING -- HOTELS
CapStar Hotel, Sr Sub Notes, 8.750%, 8/15/2007 $2,480,000 2,393,200
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
Signature Resorts, Sr Sub Notes, 9.750%, 10/1/2007 $6,750,000 5,940,000
======================================================================================
8,333,200
1.39 MANUFACTURING
Haynes International, Sr Notes, 11.625%,
9/1/2004 $13,855,000 11,499,650
======================================================================================
0.81 METALS MINING
Glencore Nickel Property Ltd, Gtd Sr Secured Notes
9.000%, 12/1/2014 $7,750,000 6,703,750
======================================================================================
11.33 OIL & GAS RELATED
Belco Oil & Gas, Sr Sub Notes, Series B
8.875%, 9/15/2007 $5,825,000 5,417,250
Canadian Forest Oil Ltd, Gtd Sr Sub Notes
8.750%, 9/15/2007 $13,525,000 12,037,250
Chiles Offshore LLC/Chiles Offshore Finance
Gtd Sr Notes, 10.000%, 5/1/2008 $6,500,000 4,550,000
Cliffs Drilling, Gtd Sr Notes, Series B
10.250%, 5/15/2003 $11,400,000 11,628,000
Coda Energy, Gtd Sr Sub Notes, Series B
10.500%, 4/1/2006 $8,800,000 8,888,000
Continental Resources, Gtd Sr Sub Notes
10.250%, 8/1/2008 $7,100,000 5,538,000
GulfMark Offshore, Gtd Sr Notes
8.750%, 6/1/2008 $5,250,000 4,646,250
HS Resources, Gtd Sr Sub Notes
9.250%, 11/15/2006 $3,000,000 2,797,500
Houston Exploration, Sr Sub Notes, Series B
8.625%, 1/1/2008 $6,250,000 6,187,500
KCS Energy, Gtd Sr Sub Notes
8.875%, 1/15/2008 $6,650,000 1,862,000
Northern Offshore ASA, Gtd Sr Notes(b)
10.000%, 5/15/2005 $9,500,000 3,562,500
Nuevo Energy, Gtd Sr Sub Notes, Series B
8.875%, 6/1/2008 $1,800,000 1,656,000
Ocean Energy, Gtd Sr Sub Notes
10.375%, 10/15/2005 $7,059,000 7,200,180
Series B
8.875%, 7/15/2007 $3,200,000 2,992,000
8.375%, 7/1/2008 $5,100,000 4,806,750
Ocean Rig Norway A/S, Gtd Sr Secured Notes
10.250%, 6/1/2008 $1,000,000 760,000
Petsec Energy, Sr Sub Notes, Series B
9.500%, 6/15/2007 $4,750,000 2,256,250
Stone Energy, Gtd Sr Sub Notes
8.750%, 9/15/2007 $7,040,000 6,864,000
======================================================================================
93,649,430
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
2.53 PAPER & FOREST PRODUCTS
Ainsworth Lumber Ltd, Sr Secured Notes(c)
12.500%, 7/15/2007 $6,250,000 $6,281,250
Bear Island Paper LLC/Bear Island Finance II
Sr Secured Notes, Series B, 10.000%, 12/1/2007 $5,500,000 5,445,000
Doman Industries Ltd, Sr Notes, Series B
9.250%, 11/15/2007 $7,150,000 4,683,250
Riverwood International, Gtd Sr Sub Notes
10.875%, 4/1/2008 $5,000,000 4,537,500
=====================================================================================
20,947,000
0.32 PERSONAL CARE
Revlon Consumer Products, Sr Notes(b)
9.000%, 11/1/2006 $2,700,000 2,632,500
======================================================================================
1.97 PUBLISHING
Affiliated Newspaper Investments, Sr Discount
Step-Up Notes, Zero Coupon(a), 7/1/2006 $15,618,000 16,301,288
======================================================================================
0.84 RETAIL
Sonic Automotive, Gtd Sr Sub Notes, Series B
11.000%, 8/1/2008 $6,950,000 6,950,000
======================================================================================
0.79 SAVINGS & LOAN
Western Financial Savings Bank, Sub Capital Deb
8.875%, 8/1/2007 $1,775,000 1,303,373
8.500%, 7/1/2003 $6,390,000 5,225,096
======================================================================================
6,528,469
4.53 SERVICES
Heritage Media, Sr Sub Notes, 8.750%, 2/15/2006 $7,045,000 7,502,925
Integrated Electrical Services, Sr Sub Notes(b)
9.375%, 2/1/2009 $3,000,000 3,045,000
Loewen Group International, Gtd Sr Notes, Series 4
8.250%, 10/15/2003 $11,955,000 6,933,900
NationsRent Inc, Gtd Sr Sub Notes
10.375%, 12/15/2008 $11,500,000 12,017,500
United Rentals, Gtd Sr Sub Notes, Series B
9.500%, 6/1/2008 $2,800,000 2,898,000
8.800%, 8/15/2008 $5,000,000 5,012,500
======================================================================================
37,409,825
0.43 SHIPPING
Navigator Gas Transport PLC, 1st Priority Ship
Mortgage Notes(b), 10.500%, 6/30/2007 $4,750,000 3,562,500
======================================================================================
3.96 SPECIALTY PRINTING
MDC Communications, Sr Sub Notes
10.500%, 12/1/2006 $9,750,000 9,945,000
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
World Color Press, Sr Sub Notes(b)
7.750%, 2/15/2009 $23,500,000 $22,795,000
======================================================================================
32,740,000
6.96 TELECOMMUNICATIONS -- CELLULAR & WIRELESS
AMSC Acquisition, Gtd Sr Notes, Series B
12.250%, 4/1/2008 $5,500,000 2,695,000
Cencall Communications, Sr Discount Step-Up Notes
Zero Coupon(a), 1/15/2004 $17,000,000 17,212,500
Esat Holdings Ltd, Sr Deferred Step-Up Notes
Zero Coupon(a), 2/1/2007 $15,850,000 11,372,375
Nextel Communications, Sr Discount Step-Up Notes
Zero Coupon(a), 9/15/2007 $10,500,000 7,166,250
Teligent Inc
Sr Discount Step-Up Notes, Series B
Zero Coupon(a), 3/1/2008 $11,000,000 5,555,000
Sr Notes, 11.500%, 12/1/2007 $6,750,000 6,345,000
Triton PCS, Gtd Sr Sub Discount Step-Up Notes
Zero Coupon(a), 5/1/2008 $13,000,000 7,215,000
======================================================================================
57,561,125
15.83 TELECOMMUNICATIONS -- LONG DISTANCE
Call-Net Enterprises, Sr Discount Step-Up Notes,
Zero Coupon(a)
8/15/2007 $15,600,000 10,530,000
8/15/2008 $6,015,000 3,624,038
Covad Communications Group
Sr Discount Step-Up Notes, Series B
Zero Coupon(a), 3/15/2008 $4,750,000 2,517,500
Sr Notes(b), 12.500%, 2/15/2009 $9,500,000 9,072,500
DTI Holdings, Sr Discount Step-Up Notes
Zero Coupon(a), 3/1/2008 $9,450,000 2,126,250
Esat Telecom Group PLC, Sr Notes(b)
11.875%, 12/1/2008 $3,850,000 4,081,000
Esprit Telecom Group PLC, Sr Notes
11.500%, 12/15/2007 $4,250,000 4,526,250
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $7,600,000 7,619,000
GST Telecommunications/GST Network Funding
Sr Secured Discount Step-Up Notes
Zero Coupon(a)(b), 5/1/2008 $11,100,000 5,133,750
IDT Corp, Sr Notes, 8.750%, 2/15/2006 $7,250,000 6,307,500
Level 3 Communications
Sr Discount Step-Up Notes
Zero Coupon(a)(b), 12/1/2008 $62,000,000 36,115,000
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
Sr Notes, 9.125%, 5/1/2008 $5,475,000 5,379,188
Nextel Partners, Sr Discount Step-Up Notes
Zero Coupon(a)(b), 2/1/2009 $8,600,000 4,472,000
Primus Telecommunications Group, Sr Notes, Series B
9.875%, 5/15/2008 $6,000,000 5,685,000
RSL Communications PLC, Gtd Sr Discount Step-Up Notes
Zero Coupon(a), 3/1/2008 $14,750,000 8,370,625
STARTEC Global Communications, Sr Notes
12.000%, 5/15/2008 $3,850,000 3,484,250
US WEST Communications, Notes
5.650%, 11/1/2004 $11,975,000 11,804,224
======================================================================================
130,848,075
17.44 TELEPHONE
Diamond Cable Communications PLC
Sr Discount Step-Up Notes, Zero Coupon(a)
12/15/2005 $10,000,000 8,700,000
2/15/2007 $3,600,000 2,790,000
e.spire Communications, Sr Discount Step-Up Notes
Zero Coupon(a), 7/1/2008 $7,600,000 2,774,000
FaciliCom International, Sr Notes, Series B
10.500%, 1/15/2008 $6,750,000 5,197,500
Intermedia Communications,
Sr Discount Step-Up Notes, Zero Coupon(a)(b),
3/1/2009 $36,400,000 19,929,000
Sr Notes, Series B, 8.500%, 1/15/2008 $4,920,000 4,643,250
McLeodUSA Inc
Sr Notes, 9.250%, 7/15/2007 $4,000,000 4,220,000
Sr Notes(b), 8.125%, 2/15/2009 $8,000,000 7,950,000
MetroNet Communications
Sr Discount Step-Up Notes, Zero Coupon(a)
11/1/2007 $11,500,000 8,337,500
6/15/2008 $20,050,000 13,734,250
Sr Notes, 12.000%, 8/15/2007 $5,750,000 6,497,500
Sr Notes(b), 10.625%, 11/1/2008 $6,950,000 7,714,500
Netia Holdings BV, Gtd Sr Discount Step-Up Notes, Series B
Zero Coupon(a), 11/1/2007 $5,900,000 3,776,000
NEXTLINK Communications
Sr Discount Step-Up Notes, Zero Coupon(a), 4/15/2008 $14,550,000 8,511,750
Sr Notes, 9.625%, 10/1/2007 $5,950,000 5,831,000
NEXTLINK Communications LLC/NEXTLINK Capital
Sr Notes, 12.500%, 4/15/2006 $12,160,000 13,604,000
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
RCN Corp, Sr Discount Step-Up Notes, Zero Coupon(a)
7/1/2008 $11,900,000 6,426,000
Series B, 2/15/2008 $25,000,000 13,500,000
======================================================================================
144,136,250
TOTAL FIXED INCOME SECURITIES (Cost $837,339,932) 774,861,801
======================================================================================
6.25 PREFERRED STOCKS & WARRANTS
0.16 COMPUTER RELATED
Rhythms NetConnections Warrants(b)(d) (Exp 2008) 58,000 1,160,000
WAM!NET Warrants(d) (Exp 2005) 17,100 136,800
======================================================================================
1,296,800
1.06 PUBLISHING
PRIMEDIA Inc, Exchangeable Pfd, Series H, 8.625% 91,500 8,806,875
======================================================================================
1.12 TELECOMMUNICATIONS -- CELLULAR & WIRELESS
American Mobile Satellite Warrants(b)(d) (Exp 2008) 5,500 18,095
Nextel Communications, Exchangeable Pfd(c)
Series E, 11.125% 9,867 9,274,980
======================================================================================
9,293,075
3.85 TELECOMMUNICATIONS -- LONG DISTANCE
DTI Holding Warrants(b)(d) (Exp 2008) 47,250 2,363
Global Crossing Holdings Ltd, Sr Exchangeable Pfd(b)(c)(f)
10.500% 322,000 31,797,500
STARTEC Global Communications Warrants(b)(d)
(Exp 2008) 3,850 3,850
======================================================================================
31,803,713
0.06 TELEPHONE
MetroNet Communications Warrants(b)(d) (Exp 2007) 6,750 490,400
======================================================================================
TOTAL PREFERRED STOCKS & WARRANTS (Cost $50,753,639) 51,690,863
======================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $888,093,571)
(Cost for Income Tax Purposes $888,346,233) 826,552,664
======================================================================================
SELECT INCOME FUND
99.06 FIXED INCOME SECURITIES
1.97 US GOVERNMENT OBLIGATIONS
US Treasury Notes, 5.625%, 5/15/2008
(Cost $10,827,961) $10,300,000 10,499,563
======================================================================================
2.67 US GOVERNMENT AGENCY OBLIGATIONS
Freddie Mac Gold, Participation Certificates, 6.500%, 9/1/2011
(Cost $13,717,007) $14,107,730 14,248,807
======================================================================================
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
94.42 CORPORATE BONDS
1.45 AIRLINES
Delta Air Lines, Deb, 10.375%, 12/15/2022 $6,007,000 7,723,308
=======================================================================================
1.42 BROADCASTING
American Radio Systems, Gtd Sr Sub Notes
9.000%, 2/1/2006 $4,000,000 4,300,000
Jacor Communications, Gtd Sr Sub Notes
9.750%, 12/15/2006 $2,915,000 3,242,937
=======================================================================================
7,542,937
3.96 BUILDING MATERIALS
USG Corp, Sr Notes, 8.500%, 8/1/2005 $19,549,000 21,112,920
=======================================================================================
6.76 CABLE
CF Cable TV, 2nd Priority Sr Secured Notes
11.625%, 2/15/2005 $4,000,000 4,400,000
Continental Cablevision, Sr Deb, 9.500%, 8/1/2013 $10,030,000 11,936,161
TCI Communications, Sr Deb, 7.875%, 2/15/2026 $12,925,000 14,814,841
Tele-Communications Inc, Sr Deb, 9.800%, 2/1/2012 $3,718,000 4,846,353
=======================================================================================
35,997,355
1.77 CHEMICALS
Eastman Chemical, Deb, 7.625%, 6/15/2024 $5,700,000 5,881,994
Equistar Chemicals LP, Deb, 7.550%, 2/15/2026 $4,050,000 3,544,560
=======================================================================================
9,426,554
0.71 COMMUNICATIONS -- EQUIPMENT & MANUFACTURING
Worldwide Fiber, Sr Notes(b), 12.500%, 12/15/2005 $3,650,000 3,777,750
=======================================================================================
23.86 ELECTRIC UTILITIES
Boston Edison, Deb
8.250%, 9/15/2022 $3,000,000 3,179,952
7.800%, 3/15/2023 $6,000,000 6,166,331
CMS Energy, Sr Notes(b), 6.750%, 1/15/2004 $6,900,000 6,748,228
Cleveland Electric Illuminating
1st Mortgage, Series B, 9.500%, 5/15/2005 $477,000 517,090
Sr Secured Notes, Series D, 7.430%, 11/1/2009 $5,400,000 5,668,110
Commonwealth Edison, 1st Mortgage
Series 76, 8.250%, 10/1/2006 $500,000 558,127
Series 81, 8.625%, 2/1/2022 $365,000 390,109
Series 83, 8.000%, 5/15/2008 $6,100,000 6,826,912
Consumers Energy, 1st Mortgage, 7.375%, 9/15/2023 $9,425,000 9,577,260
DQU-II Funding, Collateral Lease, 8.700%, 6/1/2016 $7,955,000 8,796,320
Detroit Edison, Secured Medium-Term Notes, Series 92D
8.300%, 8/1/2022 $3,000,000 3,202,674
El Paso Electric, 1st Mortgage, Series C
8.250%, 2/1/2003 $3,375,000 3,542,258
Gulf States Utilities, 1st Mortgage, 8.700%, 4/1/2024 $6,200,000 6,675,868
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
Illinois Power, Mortgage, 7.500%, 7/15/2025 $4,350,000 4,318,088
Jersey Central Power & Light, 1st Mortgage
7.500%, 5/1/2023 $4,000,000 4,035,892
Metropolitan Edison, Secured Medium-Term
Notes, Series B
8.150%, 1/30/2023 $500,000 527,408
6.970%, 10/19/2023 $3,500,000 3,387,755
New York State Electic & Gas, 1st Mortgage
8.300%, 12/15/2022 $4,800,000 5,060,117
Niagara Mohawk Power, 1st Mortgage
9.750%, 11/1/2005 $3,000,000 3,567,963
8.500%, 7/1/2023 $4,045,000 4,398,670
Pacific Gas & Electric, 1st & Ref Mortgage
Series 91A, 8.800%, 5/1/2024 $3,600,000 4,490,399
Series 92B, 8.375%, 5/1/2025 $5,322,000 5,749,899
Series 92D, 8.250%, 11/1/2022 $2,223,000 2,383,685
Series 93D, 7.250%, 8/1/2026 $7,000,000 7,155,946
Pennsylvania Power, 1st Mortgage, 8.500%, 7/15/2022 $2,000,000 2,190,562
Pennsylvania Power & Light, 1st Mortgage
7.875%, 2/1/2023 $5,000,000 5,256,634
7.700%, 10/1/2009 $6,400,000 7,015,846
Philadelphia Electric, 1st & Ref Mortgage
7.250%, 11/1/2024 $4,740,000 4,652,072
Toledo Edison, Medium-Term Notes, Series A
9.220%, 12/15/2021 $975,000 1,021,831
=======================================================================================
127,062,006
0.54 ENGINEERING & CONSTRUCTION
Ryland Group, Sr Sub Notes, 8.250%, 4/1/2008 $3,000,000 2,857,500
======================================================================================
3.89 ENTERTAINMENT
Paramount Communications, Sr Deb
8.250%, 8/1/2022 $19,500,000 20,708,160
======================================================================================
0.46 GAMING
Park Place Entertainment, Sr Sub Notes(b)
7.875%, 12/15/2005 $2,500,000 2,450,000
======================================================================================
0.07 HEALTH CARE DRUGS -- PHARMACEUTICALS
McKesson Corp, Sub Deb, 4.500%, 3/1/2004 $430,000 400,483
======================================================================================
2.20 HEALTH CARE RELATED
FHP International, Sr Notes, 7.000%, 9/15/2003 $6,535,000 6,694,304
PharMerica Inc, Gtd Sr Sub Notes, 8.375%, 4/1/2008 $4,700,000 5,029,000
======================================================================================
11,723,304
5.88 INSURANCE
Equitable Cos, Sr Notes, 9.000%, 12/15/2004 $23,457,000 26,118,548
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
Veritas Holdings GmbH, Sr Notes, 9.625%, 12/15/2003 $5,115,000 5,217,300
======================================================================================
31,335,848
1.85 INVESTMENT BANK/BROKER FIRM
Lehman Brothers, Sr Sub Deb, 11.625%, 5/15/2005 $4,500,000 5,500,759
Lehman Brothers Holdings, Sr Notes, 8.800%, 3/1/2015 $4,000,00 4,334,740
======================================================================================
9,835,499
0.75 IRON & STEEL
National Steel, 1st Mortgage, 8.375%, 8/1/2006 $4,000,000 3,980,000
======================================================================================
1.84 LODGING -- HOTELS
Hilton Hotels, Sr Notes, 7.200%, 12/15/2009 $10,000,000 9,787,869
======================================================================================
0.49 METALS MINING
Glencore Nickel Property Ltd, Gtd Sr Secured Notes
9.000%, 12/1/2014 $3,000,000 2,595,000
======================================================================================
0.58 NATURAL GAS
Noram Energy, Conv Sub Deb, 6.000%, 3/15/2012 $3,240,000 3,094,200
======================================================================================
11.09 OIL & GAS RELATED
Atlantic Richfield, Deb
10.875%, 7/15/2005 $3,000,000 3,720,108
9.875%, 3/1/2016 $3,151,000 4,139,900
9.125%, 3/1/2011 $1,569,000 1,929,931
9.125%, 8/1/2031 $4,650,000 5,967,786
9.000%, 5/1/2031 $4,250,000 5,383,475
8.750%, 3/1/2032 $500,000 617,900
Belco Oil & Gas, Sr Sub Notes, Series B
8.875%, 9/15/2007 $3,750,000 3,487,500
Canadian Forest Oil Ltd, Gtd Sr Sub Notes
8.750%, 9/15/2007 $3,500,000 3,115,000
Gulf Canada Resources Ltd, Sr Notes
8.250%, 3/15/2017 $5,900,000 5,550,661
NRG Energy
Sr Notes, 7.500%, 6/15/2007 $3,000,000 3,097,827
Sr Notes(b), 7.625%, 2/1/2006 $6,500,000 6,761,215
Northern Offshore ASA, Gtd Sr Notes(b)
10.000%, 5/15/2005 $3,000,000 1,125,000
Ocean Energy, Gtd Sr Sub Notes, Series B
8.875%, 7/15/2007 $3,000,000 2,805,000
8.375%, 7/1/2008 $2,000,000 1,885,000
SEACOR SMIT, Sr Notes, 7.200%, 9/15/2009 $1,500,000 1,438,672
Sun Inc, Deb, 9.375%, 6/1/2016 $3,000,000 3,346,620
Texaco Capital, Gtd Notes, 5.500%, 1/15/2009 $4,900,000 4,680,666
======================================================================================
59,052,261
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
1.04 PAPER & FOREST PRODUCTS
Champion International, Deb, 6.400%, 2/15/2026 $3,500,000 3,389,155
Quno Corp, Sr Notes, 9.125%, 5/15/2005 $2,000,000 2,140,000
======================================================================================
5,529,155
0.59 PUBLISHING
Affiliated Newspaper Investments, Sr Discount
Step-Up Notes, Zero Coupon(a), 7/1/2006 $3,000,000 3,131,250
======================================================================================
0.83 REAL ESTATE INVESTMENT TRUST
Glenborough Properties LP, Sr Notes, Series B
7.625%, 3/15/2005 $4,740,000 4,427,349
======================================================================================
0.31 SAVINGS & LOAN
Western Financial Savings Bank, Sub Capital Deb
8.500%, 7/1/2003 $2,000,000 1,635,398
======================================================================================
1.20 SERVICES
Heritage Media, Sr Sub Notes, 8.750%, 2/15/2006 $3,000,000 3,195,000
Loewen Group International, Gtd Sr Notes, Series 4
8.250%, 10/15/2003 $5,500,000 3,190,000
======================================================================================
6,385,000
0.42 SHIPPING
Navigator Gas Transport PLC, 1st Priority Ship
Mortgage Notes(b), 10.500%, 6/30/2007 $3,000,000 2,250,000
======================================================================================
0.43 TELECOMMUNICATIONS -- CELLULAR & WIRELESS
Rogers Cantel, Sr Secured Deb, 9.750%, 6/1/2016 $2,000,000 2,280,000
======================================================================================
8.99 TELECOMMUNICATIONS -- LONG DISTANCE
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $3,000,000 3,007,500
Level 3 Communications
Sr Discount Step-Up Notes
Zero Coupon(a)(b), 12/1/2008 $14,650,000 8,533,625
Sr Notes, 9.125%, 5/1/2008 $4,300,000 4,224,750
Qwest Communications International, Sr Notes(b)
7.250%, 11/1/2008 $6,000,000 6,090,000
Sprint Capital, Gtd Sr Notes, 6.125%, 11/15/2008 $9,400,000 9,254,027
US WEST Communications, Notes
5.650%, 11/1/2004 $17,000,000 16,757,563
======================================================================================
47,867,465
11.04 TELEPHONE
BellSouth Telecommunications, Deb, 8.250%, 7/1/2032 $6,200,000 6,694,629
Centel Capital, Deb, 9.000%, 10/15/2019 $5,325,000 6,332,218
Citizens Utilities, Deb, 7.600%, 6/1/2006 $3,970,000 4,297,048
Diamond Cable Communications PLC, Sr Discount
Step-Up Notes, Zero Coupon(a), 12/15/2005 $2,900,000 2,523,000
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
GTE Corp, Deb
7.900%, 2/1/2027 $1,000,000 1,066,695
7.830%, 5/1/2023 $9,870,000 10,443,781
Intermedia Communications, Sr Notes(b),
9.500%, 3/1/2009 $8,450,000 8,428,875
McLeodUSA Inc, Sr Notes(b), 8.125%, 2/15/2009 $500,000 496,875
MetroNet Communications
Sr Discount Step-Up Notes, Zero Coupon(a)
11/1/2007 $3,000,000 2,175,000
6/15/2008 $6,375,000 4,366,875
Sr Notes, 12.000%, 8/15/2007 $4,525,000 5,113,250
NEXTLINK Communications LLC/NEXTLINK Capital
Sr Notes, 12.500%, 4/15/2006 $3,250,000 3,635,937
RCN Corp, Sr Discount Step-Up Notes, Series B, Zero
Coupon(a), 2/15/2008 $6,000,000 3,240,000
======================================================================================
58,814,183
TOTAL CORPORATE BONDS (Cost $516,969,634) 502,782,754
======================================================================================
TOTAL FIXED INCOME SECURITIES (Cost $541,514,602) 527,531,124
=======================================================================================
0.94 SHORT-TERM INVESTMENTS -- COMMERCIAL PAPER
0.94 OIL & GAS RELATED
Chevron USA, 4.872%, 3/1/1999 (Cost $4,983,000) $4,983,000 4,983,000
=======================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $546,497,602)
(Cost for Income Tax Purposes $546,506,508) $532,514,124
=======================================================================================
SHORT-TERM BOND FUND
65.42 FIXED INCOME SECURITIES
50.94 US GOVERNMENT AGENCY OBLIGATIONS
Freddie Mac, Gold, Participation Certificates
6.500%, 7/1/2008 $7,000,717 7,087,245
6.500%, 8/1/2008 $2,287,960 2,316,239
======================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS (Cost $9,352,593) 9,403,484
======================================================================================
14.48 CORPORATE BONDS
1.45 BROADCASTING
American Radio Systems, Gtd Sr Sub Notes
9.000%, 2/1/2006 $250,000 268,750
======================================================================================
1.19 CABLE
CF Cable TV, 2nd Priority Sr Secured Notes
11.625%, 2/15/2005 $200,000 220,000
======================================================================================
1.45 GAMING
Players International, Sr Notes, 10.875%, 4/15/2005 $250,000 267,500
======================================================================================
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
0.45 MANUFACTURING
Haynes International, Sr Notes, 11.625%, 9/1/2004 $100,000 83,000
======================================================================================
4.07 OIL & GAS RELATED
Atlantic Richfield, Deb, 10.875%, 7/15/2005 $400,000 496,014
Ocean Energy, Gtd Sr Sub Notes, 10.375%, 10/15/2005 $250,000 255,000
======================================================================================
751,014
2.83 PUBLISHING
Affiliated Newspaper Investments, Sr Discount
Step-Up Notes, Zero Coupon(a), 7/1/2006 $500,000 521,875
======================================================================================
3.04 TELEPHONE
MetroNet Communications, Sr Notes
12.000%, 8/15/2007 $250,000 282,500
NEXTLINK Communications LLC/NEXTLINK Capital
Sr Notes, 12.500%, 4/15/2006 $250,000 279,687
======================================================================================
562,187
TOTAL CORPORATE BONDS (Cost $2,712,775) 2,674,326
======================================================================================
TOTAL FIXED INCOME SECURITIES (Cost$12,065,368) 12,077,810
======================================================================================
34.58 SHORT-TERM INVESTMENTS
27.00 US GOVERNMENT AGENCY OBLIGATIONS
Freddie Mac, Discount Notes, 4.788, 3/26/1999
(Cost $4,983,431) $5,000,000 4,983,431
======================================================================================
7.58 Repurchase Agreements
Repurchase Agreement with State Street dated 2/26/1999
due 3/1/1999 at 4.720%, repurchased at $1,400,551
(Collateralized by US Treasury Bonds due 1/15/2007
at 3.375%, value $1,428,628) (Cost $1,400,000) $1,400,000 1,400,000
======================================================================================
TOTAL SHORT-TERM INVESTMENTS (Cost $6,383,431) 6,383,431
======================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $18,448,799)
(Cost for Income Tax Purposes $18,448,818) $18,461,241
======================================================================================
U.S. GOVERNMENT SECURITIES FUND
95.59 FIXED INCOME SECURITIES
45.65 US GOVERNMENT OBLIGATIONS
US Treasury Bonds
8.125%, 8/15/2019 $10,000,000 12,696,880
7.500%, 11/15/2016 $10,000,000 11,834,379
5.250%, 11/15/2028 $5,000,000 4,732,815
======================================================================================
TOTAL US GOVERNMENT OBLIGATIONS (Cost $31,163,982) 29,264,074
======================================================================================
<PAGE>
SHARES OR
% DESCRIPTION PRINCIPAL AMOUNT VALUE
======================================================================================
49.94 US GOVERNMENT AGENCY OBLIGATIONS
Freddie Mac, Gold, Participation Certificates
6.500%, 7/1/2008 $3,111,430 3,149,887
6.000%, 4/1/2028 $9,657,348 9,377,670
Government National Mortgage Association I
Pass-Through Certificates
6.000%, 12/15/2028 $9,976,579 9,683,765
6.000%, 2/15/2029 $10,100,000 9,801,645
======================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS (Cost $32,397,402) 32,012,967
======================================================================================
TOTAL FIXED INCOME SECURITIES (Cost $63,561,384) 61,277,041
======================================================================================
4.41 SHORT-TERM INVESTMENTS--REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated 2/26/1999
due 3/1/1999 at 4.720%, repurchased at $2,828,334
(Collateralized by US Treasury Notes due 1/15/2007
at 3.375%, value $2,882,319) (Cost $2,825,000) $2,825,000 2,825,000
======================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $66,386,384)(f) $64,102,041
======================================================================================
</TABLE>
(a) Step-up bonds are obligations which increase the interest payment rate at a
specified point in time. Rate shown reflects current rate which may step up
at a future date.
(b) Securities aquired pursuant to Rule 144A. The Fund deems such securities to
be "liquid" because an institutional market exists.
(c) Security is a payment-in-kind (PIK) security. PIK securities may make
interest payments in additional securities.
(d) Security is non-income producing.
(e) Security is an affiliated company (See Notes).
(f) Also represents cost for income tax purposes.
See Notes to Financial Statements
<PAGE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
INVESCO BOND FUNDS, INC.
FEBRUARY 28, 1999
UNAUDITED
<CAPTION>
High Select
Yield Income
Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment Securities:
At Cost $888,093,571 $546,497,602
==============================================================================
At Value $826,552,664 $532,514,124
Receivables:
Investment Securities Sold 30,739,483 13,007,516
Fund Shares Sold 2,827,110 1,960,006
Dividends and Interest 13,974,324 8,879,481
Prepaid Expenses and Other Assets 174,532 308,768
================================================================================
TOTAL ASSETS 874,268,113 556,669,895
================================================================================
LIABILITIES
Payables:
Custodian 339,385 33,426
Distributions to Shareholders 820,202 188,561
Investment Securities Purchased 3,000,000 11,347,013
Fund Shares Repurchased 18,315,877 1,578,058
Borrowings on Line of Credit 31,023,257 0
Accrued Distribution Expenses 169,889 104,200
Accrued Expenses and Other Payables 56,777 38,165
================================================================================
TOTAL LIABILITIES 53,725,387 13,289,423
================================================================================
NET ASSETS AT VALUE $820,542,726 $543,380,472
================================================================================
NET ASSETS
Paid-in Capital(a) $896,496,562 $554,037,973
Accumulated Undistributed
Net Investment Income 18,665 69,972
Accumulated Undistributed Net Realized Gain
(Loss) on Investment Securities (14,431,594) 3,256,005
Net Depreciation of Investment Securities (61,540,907) (13,983,478)
================================================================================
NET ASSETS AT VALUE $820,542,726 $543,380,472
================================================================================
Shares Outstanding 127,575,786 84,286,090
NET ASSET VALUE, Offering and Redemption
Price per Share $6.43 $6.45
================================================================================
(a) The Fund has 600 million authorized shares of common stock, par value of
$0.01 per share. Of such shares, 300 million have been allocated to High
Yield Fund and 100 million each have been allocated to Select Income,
Short-Term Bond and U.S. Government Securities Funds.
See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
INVESCO BOND FUNDS, INC.
FEBRUARY 28, 1999
UNAUDITED
U.S.
Short-Term Government
Bond Securities
Fund Fund
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $18,448,799 $66,386,384
================================================================================
At Value(a) $18,461,241 $64,102,041
Cash 4,581 0
Receivables:
Fund Shares Sold 184,214 149,449
Dividends and Interest 98,352 494,535
Prepaid Expenses 119,175 191,707
================================================================================
TOTAL ASSETS 18,867,563 64,937,732
================================================================================
LIABILITIES
Payables:
Custodian 0 52,641
Distributions to Shareholders 5,312 15,225
Fund Shares Repurchased 81,534 549,659
Accrued Distribution Expenses 3,293 12,852
Accrued Expenses and Other Payables 10,244 10,850
================================================================================
TOTAL LIABILITIES 100,383 641,227
================================================================================
NET ASSETS AT VALUE $18,767,180 $64,296,505
================================================================================
NET ASSETS
Paid-in Capital(b) $19,017,276 $66,026,480
Accumulated Undistributed (Distributions
in Excess of) NetInvestment Income (332) 7,780
Accumulated Undistributed Net Realized Gain
(Loss) on Investment Securities (262,206) 546,588
Net Appreciation (Depreciation) of
Investment Securities 12,442 (2,284,343)
================================================================================
NET ASSETS AT VALUE $18,767,180 $64,296,505
================================================================================
Shares Outstanding 1,957,294 8,900,580
NET ASSET VALUE, Offering and Redemption
Price per Share $9.59 $7.22
================================================================================
(a) Investment securities at cost and value at February 28, 1999 include
repurchase agreements of $1,400,000 and $2,825,000 for Short-Term Bond and
U.S. Government Securities Funds, respectively.
(b) The Fund has 600 million authorized shares of common stock, par value of
$0.01 per share. Of such shares, 300 million have been allocated to High
Yield Fund and 100 million each have been allocated to Select Income,
Short-Term Bond and U.S. Government Securities Funds.
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
INVESCO BOND FUNDS, INC.
SIX MONTHS ENDED FEBRUARY 28, 1999
UNAUDITED
High Select
Yield Income
Fund Fund
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $661,548 $0
Interest 40,634,833 19,673,096
================================================================================
TOTAL INCOME 41,296,381 19,673,096
================================================================================
EXPENSES
Investment Advisory Fees 1,573,074 1,293,196
Distribution Expenses 980,302 640,646
Transfer Agent Fees 711,118 657,594
Administrative Fees 63,818 43,439
Custodian Fees and Expenses 46,049 38,448
Directors' Fees and Expenses 22,630 16,511
Professional Fees and Expenses 20,906 17,474
Registration Fees and Expenses 72,203 72,100
Reports to Shareholders 86,119 55,051
Other Expenses 190,748 15,469
================================================================================
TOTAL EXPENSES 3,766,967 2,849,928
Fees and Expenses Absorbed by
Investment Adviser 0 (139,296)
Fees and Expenses Paid Indirectly (22,566) (20,821)
================================================================================
NET EXPENSES 3,744,401 2,689,811
================================================================================
NET INVESTMENT INCOME 37,551,980 16,983,285
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on
Investment Securities (14,344,311) 4,491,970
Change in Net Depreciation of
Investment Securites 4,884,141 (13,973,873)
================================================================================
NET LOSS ON INVESTMENT SECURITIES (9,460,170) (9,481,903)
================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS $28,091,810 $7,501,382
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO BOND FUNDS, INC.
SIX MONTHS ENDED FEBRUARY 28, 1999
UNAUDITED
U.S.
Short-Term Government
Bond Securities
Fund Fund
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INTEREST INCOME $590,557 $2,026,594
================================================================================
EXPENSES
Investment Advisory Fees 47,804 198,192
Distribution Expenses 23,902 90,088
Transfer Agent Fees 44,161 138,121
Administrative Fees 6,434 10,405
Custodian Fees and Expenses 3,204 6,543
Directors' Fees and Expenses 4,577 5,983
Professional Fees and Expenses 6,987 9,464
Registration Fees and Expenses 21,842 26,427
Reports to Shareholders 8,987 20,883
Other Expenses 1,212 1,871
================================================================================
TOTAL EXPENSES 169,110 507,977
Fees and Expenses Absorbed by
Investment Adviser (85,718) (143,185)
Fees and Expenses Paid Indirectly (2,150) (3,307)
================================================================================
NET EXPENSES 81,242 361,485
================================================================================
NET INVESTMENT INCOME 509,315 1,665,109
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities 27,096 964,620
Change in Net Appreciation (Depreciation) of
Investment Securities (35,294) (2,994,931)
================================================================================
NET LOSS ON INVESTMENT SECURITIES (8,198) (2,030,311)
================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $501,117 $(365,202)
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
INVESCO BOND FUNDS, INC.
HIGH YIELD FUND
Six Months Year
Ended Ended
February 28 August 31
- --------------------------------------------------------------------------------
1999 1998
UNAUDITED
OPERATIONS
Net Investment Income $37,551,980 $59,460,048
Net Realized Gain (Loss) on
Investment Securities (14,344,311) 32,888,835
Change in Net Depreciation of
Investment Securities 4,884,141 (75,240,209)
================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS 28,091,810 17,108,674
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (37,551,980) (59,476,726)
Net Realized Gain on Investment Securities (24,618,193) (30,288,153)
================================================================================
TOTAL DISTRIBUTIONS (62,170,173) (89,764,879)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 923,146,391 1,042,691,975
Reinvestment of Distributions 53,985,412 76,691,873
================================================================================
977,131,803 1,119,383,848
Amounts Paid for Repurchases of Shares (763,904,725) (876,298,646)
================================================================================
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 213,227,078 243,085,202
================================================================================
TOTAL INCREASE IN NET ASSETS 179,148,715 170,428,997
NET ASSETS
Beginning of Period 641,394,011 470,965,014
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income
of $18,665 and $18,665, respectively) $820,542,726 $641,394,011
================================================================================
-------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 141,628,389 140,608,922
Shares Issued from Reinvestment
of Distributions 8,298,049 10,496,776
================================================================================
149,926,438 151,105,698
Shares Repurchased (117,294,429) (119,368,526)
================================================================================
NET INCREASE IN FUND SHARES 32,632,009 31,737,172
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
INVESCO BOND FUNDS, INC.
SELECT INCOME FUND
Six Months Year
Ended Ended
February 28 August 31
- --------------------------------------------------------------------------------
1999 1998
UNAUDITED
OPERATIONS
Net Investment Income $16,983,285 $24,383,685
Net Realized Gain on Investment Securities 4,491,970 9,584,731
Change in Net Depreciation of
Investment Securities (13,973,873) (2,723,693)
================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS 7,501,382 31,244,723
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (16,983,285) (24,420,934)
Net Realized Gain on Investment Securities (9,520,793) (8,101,485)
================================================================================
TOTAL DISTRIBUTIONS (26,504,078) (32,522,419)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 240,645,468 447,676,089
Reinvestment of Distributions 24,930,921 29,357,565
================================================================================
265,576,389 477,033,654
Amounts Paid for Repurchases of Shares (205,817,501) (260,749,761)
================================================================================
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 59,758,888 216,283,893
================================================================================
TOTAL INCREASE IN NET ASSETS 40,756,192 215,006,197
NET ASSETS
Beginning of Period 502,624,280 287,618,083
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income
of $69,972 and $69,972, respectively) $543,380,472 $502,624,280
================================================================================
------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 36,308,749 66,530,497
Shares Issued from Reinvestment
of Distributions 3,768,818 4,376,447
================================================================================
40,077,567 70,906,944
Shares Repurchased (31,091,488) (38,783,681)
================================================================================
NET INCREASE IN FUND SHARES 8,986,079 32,123,263
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
INVESCO BOND FUNDS, INC.
SHORT-TERM BOND FUND
Six Months Year
Ended Ended
February 28 August 31
- --------------------------------------------------------------------------------
1999 1998
UNAUDITED
OPERATIONS
Net Investment Income $509,315 $782,028
Net Realized Gain on Investment Securities 27,096 89,145
Change in Net Appreciation of
Investment Securities (35,294) 36,669
================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS 501,117 907,842
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (509,046) (782,028)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 68,875,989 48,037,682
Reinvestment of Distributions 426,905 699,014
================================================================================
69,302,894 48,736,696
Amounts Paid for Repurchases of Shares (74,994,949) (36,739,699)
================================================================================
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (5,692,055) 11,996,997
================================================================================
TOTAL INCREASE (DECREASE) IN NET ASSETS (5,699,984) 12,122,811
NET ASSETS
Beginning of Period 24,467,164 12,344,353
================================================================================
End of Period (Including Accumulated
Undistributed (Distributions in Excess
of) Net Investment Income of ($332)
and ($601), respectively) $18,767,180 $24,467,164
================================================================================
----------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 7,167,976 5,013,098
Shares Issued from Reinvestment
of Distributions 44,412 73,017
================================================================================
7,212,388 5,086,115
Shares Repurchased (7,805,847) (3,833,157)
================================================================================
NET INCREASE (DECREASE) IN FUND SHARES (593,459) 1,252,958
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
INVESCO BOND FUNDS, INC.
U.S. GOVERNMENT SECURITIES FUND
Six Months Year
Ended Ended
February 28 August 31
- --------------------------------------------------------------------------------
1999 1998
UNAUDITED
OPERATIONS
Net Investment Income $1,665,109 $2,700,296
Net Realized Gain on Investment Securities 964,620 5,191,748
Change in Net Appreciation (Depreciation)
of Investment Securities (2,994,931) (685,916)
================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS (365,202) 7,206,128
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (1,664,868) (2,700,296)
Net Realized Gain on Investment Securities (5,171,040) (1,103,906)
================================================================================
TOTAL DISTRIBUTIONS (6,835,908) (3,804,202)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 131,851,560 161,798,727
Reinvestment of Distributions 6,412,517 3,423,772
================================================================================
138,264,077 165,222,499
Amounts Paid for Repurchases of Shares (146,251,302) (140,720,399)
================================================================================
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (7,987,225) 24,502,100
================================================================================
TOTAL INCREASE (DECREASE) IN NET ASSETS (15,188,335) 27,904,026
NET ASSETS
Beginning of Period 79,484,840 51,580,814
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income
of $7,780 and $7,539, respectively) $64,296,505 $79,484,840
================================================================================
--------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 16,738,797 20,773,244
Shares Issued from Reinvestment
of Distributions 849,365 441,618
================================================================================
17,588,162 21,214,862
Shares Repurchased (18,638,408) (18,146,732)
================================================================================
NET INCREASE (DECREASE) IN FUND SHARES (1,050,246) 3,068,130
================================================================================
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO NOTES TO FINANCIAL STATEMENT - INVSCO BOND FUNDS, INC.
UNAUDITED
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Bond Funds,
Inc. (formerly known as INVESCO Income Funds, Inc.) (the "Fund") is incorporated
in Maryland and presently consists of four separate Funds: High Yield Fund,
Select Income Fund, Short-Term Bond Fund and U.S. Government Securities Fund. On
August 4, 1998, the board of directors of the Fund approved a name change to
INVESCO Bond Funds, Inc. The investment objectives of each Fund are: to seek a
high level of current income for High Yield and Select Income Funds; to seek a
high level of current income with minimum fluctuation in principal value while
maintaining liquidity for Short-Term Bond Fund; and to seek a high level of
current income by investing in debt obligations issued by the U.S. Government or
its agencies for U.S. Government Securities Fund. The Fund is registered under
the Investment Company Act of 1940 (the "Act") as a diversified, open-end
management investment company.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
A. SECURITY VALUATION -- Debt securities are valued at evaluated bid prices as
determined by a pricing service approved by the Fund's board of directors. If
evaluated bid prices are not available, debt securities are valued by averaging
the bid prices obtained from one or more dealers making a market for such
securities.
Equity securities traded on national securities exchanges or in the
over-the-counter market are valued at the last sales price in the market where
such securities are primarily traded. If last sales prices are not available,
securities are valued at the highest closing bid price obtained from one or more
dealers making a market for such securities or by a pricing service approved by
the Fund's board of directors.
If market quotations or pricing service valuations are not readily available,
securities are valued at fair value as determined in good faith under procedures
established by the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates market
value) if maturity is 60 days or less at the time of purchase, or market value
if maturity is greater than 60 days.
B. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by U.S. Government securities and such collateral is in the
possession of the Fund's custodian. The collateral is evaluated daily to ensure
its market value exceeds the current market value of the repurchase agreements
including accrued interest. In the event of default on the obligation to
repurchase, the Fund has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. In the event of default or
bankruptcy by the other party to the agreement, realization and/or retention of
the collateral or proceeds may be subject to legal proceedings.
<PAGE>
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date and dividend income is recorded on the ex
dividend date. Interest income, which may be comprised of stated coupon rate,
market discount, original issue discount and amortized premium, is recorded on
the accrual basis. Interest on payment-in-kind debt securities is accrued based
on the yield to maturity at purchased date method. Discounts and premiums on
debt securities purchased are amortized over the life of the respective security
as adjustments to interest income. Cost is determined on the specific
identification basis.
Mortgage paydown gain/loss is treated as ordinary income for tax purposes and is
included in interest income on the Statement of Operations.
High Yield Fund invests primarily in high yield bonds, some of which may be
rated below investment grade. These high yield bonds may be more susceptible
than higher grade bonds to real or perceived adverse economic or industry
conditions. The secondary market, on which high yield bonds are traded, may also
be less liquid than the market for higher grade bonds.
High Yield Fund may have elements of risk due to concentrated investments in
specific industries or foreign issuers located in a specific country. Such
concentrations may subject the Fund to additional risks resulting from future
political or economic conditions and/or possible impositions of adverse foreign
governmental laws or currency exchange restrictions.
Investments in securities of governmental agencies may only be guaranteed by
the respective agency's limited authority to borrow from the U.S. Government
and may not be guaranteed by the full faith and credit of the U.S. Government.
D. FEDERAL AND STATE TAXES -- The Fund has complied, and continues to comply,
with the provisions of the Internal Revenue Code applicable to regulated
investment companies and, accordingly, has made or intends to make sufficient
distributions of net investment income and net realized capital gains, if any,
to relieve it from all federal and state income taxes and federal excise taxes.
At August 31, 1998, Short-Term Bond Fund had $252,513, $17,095 and $19,676 in
net capital loss carryovers which expire in the years 2002, 2003, 2004 and 2005,
respectively.
To the extent future capital gains are offset by capital loss carryovers, such
gains will not be distributed to shareholders.
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- All of the Fund's net
investment income is distributed to shareholders by dividends declared daily and
paid monthly. Income dividends are reinvested at the month-end net asset value.
The Fund distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for mortgage-backed
securities, market discounts, amortized premiums, nontaxable dividends, net
operating losses and expired capital loss carryforwards.
F. EXPENSES -- Each of the Funds bears expenses incurred specifically on its
behalf and, in addition, each Fund bears a portion of general expenses, based on
the relative net assets of each Fund.
Under an agreement between each Fund and the Fund's Custodian, agreed upon
Custodian Fees and Expenses are reduced by credits granted by the Custodian from
any temporarily uninvested cash. Such credits are included in Fees and Expenses
Paid Indirectly in the Statement of Operations.
<PAGE>
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group, Inc.
("IFG") serves as the Funds' investment adviser. As compensation for its
services to the Funds, IFG receives an investment advisory fee which is accrued
daily at the applicable rate and paid monthly. The fee is based on the annual
rate of each Fund's average net assets as follows:
AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
$0 to $300 Million Over
$300 to $500 $500
Fund Million Million Million
- --------------------------------------------------------------------------------
High Yield Fund 0.50% 0.40% 0.30%
Select Income Fund 0.55% 0.45% 0.35%
Short-Term Bond Fund 0.50% 0.40% 0.30%
U.S. Government Securities Fund 0.55% 0.45% 0.35%
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to INVESCO Distributors,
Inc. ("IDI" or the "Distributor"), a wholly owned subsidiary of IFG, to a
maximum of 0.25% of annual average net assets. For the six months ended February
28, 1999, High Yield, Select Income, Short-Term Bond and U.S. Government
Securities Funds paid the Distributor $963,799, $634,356, $23,879 and $89,256,
respectively, under the plan of distribution.
IFG receives a transfer agent fee from each Fund at an annual rate of $26.00 per
shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month.
In accordance with an Administrative Agreement, each Fund pays IFG an annual fee
of $10,000, plus an additional amount computed at an annual rate of 0.015% of
average net assets to provide administrative, accounting and clerical services.
The fee is accrued daily and paid monthly.
IFG has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by Select Income, Short-Term Bond and U.S. Government
Securities Funds.
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the six months ended
February 28, 1999, the aggregate cost of purchases and proceeds from sales of
investment securities (excluding all U.S. Government securities and short-term
securities) were as follows:
FUND PURCHASES SALES
- --------------------------------------------------------------------------------
High Yield Fund $834,570,692 $631,204,306
Select Income Fund 395,542,816 351,746,104
Short-Term Bond Fund 1,013,750 1,779,415
<PAGE>
For the six months ended February 28, 1999, the aggregate cost of purchases and
proceeds from sales of U.S. Government securities were as follows:
FUND PURCHASES SALES
- --------------------------------------------------------------------------------
Select Income Fund $28,791,688 $28,744,588
Short-Term Bond Fund 871,766 3,687,483
U.S. Government Securities Fund 44,259,524 48,846,849
NOTE 4 -- APPRECIATION AND DEPRECIATION. At February 28, 1999, the gross
appreciation of securities in which there was an excess of value over tax cost,
the gross depreciation of securities in which there was an excess of tax cost
over value and the resulting net appreciation (depreciation) by Fund were as
follows:
NET
GROSS GROSS APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
- --------------------------------------------------------------------------------
High Yield Fund $10,686,984 $72,480,553 $(61,793,569)
Select Income Fund 3,522,210 17,514,594 (13,992,384)
Short-Term Bond Fund 67,427 55,004 12,423
U.S. Government Securities Fund 30,788 2,315,131 (2,284,343)
NOTE 5 -- TRANSACTIONS WITH AFFILIATES. Certain of the Funds' officers and
directors are also officers and directors of IFG or IDI.
The Fund has adopted an unfunded defined benefit deferred compensation plan
covering all independent directors of the Fund who will have served as an
independent director for at least five years at the time of retirement. Benefits
under this plan are based on an annual rate equal to 50% of the sum of the
retainer fee at the time of retirement plus the annual meeting fee.
Pension expenses for the six months ended February 28, 1999, included in
Directors' Fees and Expenses in the Statement of Operations, and unfunded
accrued pension costs and pension liability included in Prepaid Expenses and
Accrued Expenses, respectively, in the Statement of Assets and Liabilities were
as follows:
UNFUNDED
PENSION ACCRUED PENSION
FUND EXPENSES PENSION COSTS LIABILITY
- --------------------------------------------------------------------------------
High Yield Fund $7,802 $23,348 $53,420
Select Income Fund 5,278 15,707 35,009
Short-Term Bond Fund 227 781 1,634
U.S. Government Securities Fund 866 3,124 6,850
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 selected INVESCO
Funds. The deferred amounts may be invested in the shares of any of the INVESCO
or Treasurer's Series Trust Funds.
<PAGE>
An affiliated company represents ownership by the Fund of at least 5% of the
voting securities of the issuer during the period, as defined in the Act. A
summary of the transactions during the six months ended February 28, 1999, in
which the issuer was an affilate of the Funds, is as follows:
<TABLE>
<CAPTION>
REALIZED
PURCHASES SALES GAIN (LOSS)
---------------------------------------- ON INVESTMENT VALUE AT
AFFILIATE SHARES COST SHARES COST SECURITIES 2/28/99
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HIGH YIELD FUND
Global Crossing
Holdings Ltd
Sr Exchangable
Pfd, 10.500% 322,000 $31,969,500 -- -- -- $31,797,500
</TABLE>
No dividend was received from the affiliated company.
NOTE 6 -- LINE OF CREDIT. The Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the Net Assets at Value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. At
February 28, 1999, High Yield Fund had an outstanding line of credit at an
interest rate of 5.180%. The amount of the borrowing and the related accrued
interest are presented in the Statement of Assets and Liabilities. On March 10,
1999, High Yield Fund paid the line of credit in full, including interest. There
were no such borrowings in any other Fund.
<PAGE>
FINANCIAL HIGHLIGHTS
HIGH YIELD FUND
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28 YEAR ENDED AUGUST 31
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995 1994
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning
of Period $6.76 $7.45 $6.84 $6.73 $6.73 $7.32
=========================================================================================
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.31 0.64 0.62 0.63 0.66 0.62
Net Gains or (Losses)on
Securities (Both Realized
and Unrealized) (0.16) (0.29) 0.64 0.11 0.03 (0.59)
==========================================================================================
TOTAL FROM INVESTMENT
OPERATIONS 0.15 0.35 1.26 0.74 0.69 0.03
==========================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income(a) 0.31 0.64 0.62 0.63 0.66 0.62
Distributions from Capital Gains 0.17 0.40 0.03 0.00 0.00 0.00
In Excess of Capital Gains 0.00 0.00 0.00 0.00 0.03 0.00
=========================================================================================
TOTAL DISTRIBUTIONS 0.48 1.04 0.65 0.63 0.69 0.62
=========================================================================================
Net Asset Value-- End of Period $6.43 $6.76 $7.45 $6.84 $6.73 $6.73
TOTAL RETURN 2.43%(b) 4.44% 19.27% 11.38% 11.12% 0.37%
RATIOS
Net Assets -- End of Period
($000 Omitted) $820,543 $641,394 $470,965 $375,201 $288,959 $243,773
Ratio of Expenses to Average
Net Assets(c) 0.48%(b)(d) 0.86%(d) 1.00%(d) 0.99%(d) 1.00% 0.97%
Ratio of Net Investment
Income to Average
Net Assets(c) 4.75%(b) 8.72% 8.71% 9.13% 10.01% 8.70%
Portfolio Turnover Rate 84%(b) 282% 129% 266% 201% 195%
(a) Distributions in excess of net investment income for the year ended August
31, 1996, aggregated less than $0.01 on a per share basis.
(b) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(c) Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended August 31, 1996, 1995 and 1994. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have
been 0.99%, 1.07%, and 0.98%, respectively, and ratio of net investment
income to average net assets would have been 9.13%, 9.94%, and 8.69%,
respectively.
(d) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements.
<PAGE>
FINANCIAL HIGHLIGHTS
SELECT INCOME FUND
(For a Fund Share Outstanding Throughout Each Period)
SIX MONTHS
ENDED
FEBRUARY 28 YEAR ENDED AUGUST 31
- -----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning
of Period $6.68 $6.66 $6.35 $6.54 $6.18 $6.80
=========================================================================================
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.22 0.43 0.45 0.47 0.47 0.47
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.11) 0.19 0.34 (0.17) 0.36 (0.43)
=========================================================================================
TOTAL FROM INVESTMENT
OPERATIONS 0.11 0.62 0.79 0.30 0.83 0.04
=========================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.22 0.43 0.45 0.46 0.47 0.47
In Excess of Net Investment
Income(a) 0.00 0.00 0.00 0.01 0.00 0.00
Distributions from Capital Gains 0.12 0.17 0.03 0.02 0.00 0.09
In Excess of Capital Gains 0.00 0.00 0.00 0.00 0.00 0.10
=========================================================================================
TOTAL DISTRIBUTIONS 0.34 0.60 0.48 0.49 0.47 0.66
=========================================================================================
Net Asset Value-- End of Period $6.45 $6.68 $6.66 $6.35 $6.54 $6.18
=========================================================================================
TOTAL RETURN 1.64%(b) 9.58% 12.89% 4.78% 14.01% 0.47%
RATIOS
Net Assets -- End of Period
($000 Omitted) $543,380 $502,624 $287,618 $258,093 $216,597 $138,337
Ratio of Expenses to Average
Net Assets(c) 0.52%(b)(d) 1.06%(d) 1.03%(d) 1.01%(d) 1.00% 1.11%
Ratio of Net Investment
Income to Average
Net Assets(b) 3.29%(b)(d) 6.36% 6.98% 7.14% 7.38% 7.22%
Portfolio Turnover Rate 75%(b) 140% 263% 210% 181% 135%
(a) Distributions in excess of net investment income for the year ended August
31, 1995, aggregated less than $0.01 on a per share basis.
(b) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(c) Various expenses of the Fund were voluntarily absorbed by IFG for the six
months ended February 28, 1999 and for the years ended August 31, 1998,
1997, 1996, 1995 and 1994. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 0.55%
(not annualized), 1.10%, 1.21%, 1.16%, 1.22% and 1.15%, respectively,
and ratio of net investment income to average net assets would
have been 3.26% (not annualized), 6.32%, 6.80%, 6.99%, 7.16% and 7.18%,
respectively.
(d) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
<PAGE>
FINANCIAL HIGHLIGHTS
SHORT-TERM BOND FUND
(For a Fund Share Outstanding Throughout Each Period)
SIX MONTHS PERIOD
ENDED ENDED
FEBRUARY 28 YEAR ENDED AUGUST 31 AUGUST 31
- --------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994(a)
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning
of Period $9.59 $9.51 $9.41 $9.54 $9.46 $10.00
=========================================================================================
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.25 0.55 0.50 0.56 0.57 0.47
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.00 0.08 0.15 (0.13) 0.08 (0.54)
=========================================================================================
TOTAL FROM INVESTMENT
OPERATIONS 0.25 0.63 0.65 0.43 0.65 (0.07)
=========================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income(b) 0.25 0.55 0.55 0.56 0.57 0.47
=========================================================================================
Net Asset Value-- End of Period $9.59 $9.59 $9.51 $9.41 $9.54 $9.46
=========================================================================================
TOTAL RETURN 2.68%(c) 6.76% 7.08% 4.63% 7.16% (0.72%)(c)
RATIOS
Net Assets -- End of Period
($000 Omitted) $18,767 $24,467 $12,344 $10,735 $8,979 $7,878
Ratio of Expenses to Average
Net Assets(d) 0.44%(c)(e) 0.88%(e) 0.83%(e) 0.80%(e) 0.46% 0.46%(f)
Ratio of Net Investment Income
to Average Net Assets(d) 2.64%(c) 5.74% 5.82% 5.85% 6.05% 5.50%(f)
Portfolio Turnover Rate 14%(c) 135% 331% 103% 68% 169%(c)
(a) From September 30, 1993, commencement of investment operations, to August
31, 1994.
(b) Distributions in excess of net investment income for the years ended
August 31, 1996 and 1995, aggregated less than $0.01 on a per share basis.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(d) Various expenses of the Fund were voluntarily absorbed by IFG for the six
months ended February 28, 1999, for the years ended August 31, 1998, 1997,
1996, 1995 and for the period ended August 31, 1994. If such expenses had
not been voluntarily absorbed, ratio of expenses to average net assets
would have been 0.88% (not annualized), 1.86%, 1.84%, 2.17%, 2.09% and
2.04%(annualized), respectively, and ratio of net investment income to
average net assets would have been 2.20%(not annualized), 4.76%,
4.81%, 4.48%, 4.42% and 3.92%(annualized), respectively.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
(f) Annualized
<PAGE>
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT SECURITIES FUND
(For a Fund Share Outstanding Throughout Each Period)
SIX MONTHS
ENDED
FEBRUARY 28 YEAR ENDED AUGUST 31
- -----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
UNAUDITED
PER SHARE DATA
Net Asset Value -- Beginning
of Period $7.99 $7.49 $7.15 $7.49 $7.10 $8.19
==========================================================================================
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.18 0.40 0.43 0.44 0.45 0.41
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.17) 0.67 0.34 (0.34) 0.39 (0.93)
==========================================================================================
TOTAL FROM INVESTMENT
OPERATIONS 0.01 1.07 0.77 0.10 0.84 (0.52)
==========================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.18 0.40 0.43 0.43 0.45 0.41
In Excess of Net
Investment Income(a) 0.00 0.00 0.00 0.01 0.00 0.00
Distributions from Capital Gains 0.60 0.17 0.00 0.00 0.00 0.16
==========================================================================================
TOTAL DISTRIBUTIONS 0.78 0.57 0.43 0.44 0.45 0.57
==========================================================================================
Net Asset Value-- End of Period $7.22 $7.99 $7.49 $7.15 $7.49 $7.10
==========================================================================================
TOTAL RETURN (0.11%)(b) 14.75% 11.01% 1.31% 12.37% (6.53%)
RATIOS
Net Assets -- End of Period
($000 Omitted) $64,297 $79,485 $51,581 $54,614 $38,087 $36,740
Ratio of Expenses to Average
Net Assets(c) 0.50%(b)(d) 1.01%(d) 1.01%(d) 1.02%(d) 1.00% 1.32%
Ratio of Net Investment
Income to Average
Net Assets(c) 2.29%(b) 5.22% 5.78% 5.76% 6.24% 5.46%
Portfolio Turnover Rate 66%(b) 323% 139% 212% 99% 95%
</TABLE>
(a) Distributions in excess of net investment income for the year ended August
31, 1995, aggregated less than $0.01 on a per share basis.
(b) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(c) Various expenses of the Fund were voluntarily absorbed by IFG for the six
months ended February 28, 1999 and for the years ended August 31, 1998,
1997, 1996, 1995 and 1994. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 0.70%
(not annualized), 1.41%, 1.32%, 1.48%, 1.51% and 1.42%, respectively,
and ratio of net investment income to average net assets would
have been 2.09% (not annualized), 4.82%, 5.47%, 5.30%, 5.73% and 5.36%,
respectively.
(d) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
<PAGE>
INVESCO FAMILY OF FUNDS
Newspaper
Fund Name Fund Code Ticker Symbol Abbreviation
- --------------------------------------------------------------------------
INTERNATIONAL
International Blue Chip 09 IIBCX ItlBlChp
International Growth 49 FSIGX IntlGr
Emerging Markets 43 * *
Asian Growth 41 IVAGX AsianGr
Pacific Basin 54 FPBSX PcBas
European 56 FEURX Europ
European Small Company 37 IVECX EuroSmCo
Latin American Growth 34 IVSLX LtnAmerGr
- --------------------------------------------------------------------------
SECTOR
Energy 50 FSTEX Enrgy
Environmental Services 59 FSEVX Envirn
Financial Services 57 FSFSX FinSvc
Gold 51 FGLDX Gold
Health Sciences 52 FHLSX HlthSc
Leisure 53 FLISX Leisur
Realty 42 IVSRX Realty
Technology-Class II 55 FTCHX Tech
Utilities 58 FSTUX Util
Worldwide Capital Goods 38 ISWGX WldCap
Worldwide Communications 39 ISWCX WldCom
- ----------------------------------------------------------------------------
STOCK
Growth & Income 21 IVGIX Gro&Inc
Blue Chip Growth 10 FLRFX Grwth
Dynamics 20 FIDYX Dynm
Small Company Growth 60 FIEGX SmCoGth
INVESCO Endevor 61 IVENX Endeavor
Value Equity 46 FSEQX ValEq
Small Company Value 74 IDSCX SmCoVal
S&P 500 Index Fund-Class II 23 ISPIX SP500II
- ----------------------------------------------------------------------------
COMBINATION STOCK & BOND
Industrial Income 15 FIIIX IndInc
Multi-Asset Allocation 70 IMAAX MulAstAl
Total Return 48 FSFLX TotRtn
Balanced 71 IMABX Bal
- ----------------------------------------------------------------------------
BOND
Short-Term Bond 33 INIBX ShTrBd
Intermediate Government Bond 47 FIGBX IntGov
U.S. Government Securities 32 FBDGX USGvt
Select Income 30 FBDSX SelInc
High Yield 31 FHYPX HiYld
Tax-Free Intermediate Bond 36 IVTIX *
Tax-Free Long-Term Bond 35 FTIFX TxFre
- ----------------------------------------------------------------------------
MONEY MARKET
U.S. Government Money Fund 44 FUGXX InvGvtMF
Cash Reserves 25 FDSXX InvCshR
Tax-Free Money Fund 40 FFRXX InvTaxFree
* This fund does not yet meet size requirements to be assigned a newspaper
listing and/or ticker symbol.
For more information about any of the INVESCO Funds, including management fees
and expenses, please call us at 1-800-525-8085 for a prospectus. Read it
carefully before you invest or send money.
<PAGE>
[INVESCO ICON]
INVESCO
YOU SHOULD
KNOW WHAT
INVESCO KNOWS (TM)
WE'RE EASY TO STAY IN TOUCH WITH:
Investor Services: 1-800-525-8085
PAL(R), your Personal Account Line: 1-800-424-8085
On the World Wide Web: www.invesco.com
In Denver, visit one of our convenient Investor Centers:
Cherry Creek, 155-B Fillmore Street
Denver Tech Center, 7800 East Union Avenue, Lobby Level
INVESCO Distributors, Inc.,(SM) Distributor
Post Office Box 173706
Denver, CO 80217-3706
This information must be preceded or accompanied
by a current prospectus.
