KNOWLEDGE o DISCIPLINE o SERVICE o CHOICE
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO Bond Funds
HIGH YIELD FUND
SELECT INCOME FUND
TAX-FREE BOND FUND
(FORMERLY, TAX-FREE LONG-TERM BOND FUND)
U.S. GOVERNMENT SECURITIES FUND
ANNUAL
ANNUAL REPORT | August 31, 1999 (INVESCO Icon) INVESCO
<PAGE>
"WE CANNOT SAY THE ONLY WAY IS UP, BUT THE GOOD NEWS, IN OUR OPINION, IS
THAT THE BOND MARKETS APPEAR TO HAVE TAKEN MOST OF THE PUNCHES COMING AT THEM."
(PAGE 3)
Graph: High Yield Fund vs. Merrill Lynch High Yield Master Index
This line graph compares the value of a $10,000 investment in INVESCO
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
08/31/99.
Graph: Select Income Fund vs. Lehman Government/Corporate Bond Index
This line graph compares the value of a $10,000 investment in INVESCO
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 distribution, for the ten year period ended
08/31/99.
Graph: Tax-Free Bond Fund vs. Lehman Municipal Bond Index
This line graph compares the value of a $10,000 investment in INVESCO
Tax-Free Bond Fund to the value of a $10,000 investment in the Lehman
Municipal Bond Index, assuming in each case reinvestment of all dividends
and capital gain distribution, for the ten year period ended 08/31/99.
Graph: U.S. Government Securities Fund vs. Lehman Government Long Bond Index
This line graph compares the value of a $10,000 investment in INVESCO 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 distribution, for the ten year period ended
08/31/99.
The line graphs illustrate the value of a $10,000 investment, plus reinvested
dividends and capital gain distributions, for the 10 year period ended 8/31/99.
The charts and other total return figures cited reflect the funds' operating
expensed, 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)
TOTAL RETURN
PERIODS ENDED 8/31/99(1)
CUMULATIVE AVERAGE ANNUALIZED
6 MONTHS 1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
High Yield Fund 4.01% 6.53% 10.43% 9.10%
Select Income Fund (1.46%) 0.15% 8.15% 8.55%
Tax-Free Bond Fund (2.89%) (1.00%) 5.12% 6.59%
U.S. Government Securities Fund (3.29%) (3.40%) 6.98% 7.08%
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<PAGE>
YOUR FUND'S PERFORMANCE: A REPORT FROM THE MANAGERS
- --------------------------------------------------------------------------------
Dear Shareholder:
To be sure, the 12 months ended August 31, 1999 have been difficult ones for
bond investors. The corporate bond markets were first hurt by fears caused last
year by the Asian financial crisis--fears that proved largely unfounded as the
U.S. economy remained healthy. Later, a heavy volume of new issuance weighed
down the price of corporate bonds and municipal securities. Subsequently, all
categories of bond investors suffered this spring as interest rates crept
upward, in response to worries that the Federal Reserve Board would tighten the
money supply in order to cool down the economy.
SOLID FUNDAMENTALS
It is interesting, in this light, that many of the fundamentals of the
fixed-income markets have become more solid over the past year. Overseas
economies are recovering, meaning that U.S. exporters should see their
businesses improve. The domestic economy remains strong, but growth appears to
be slowing to levels more in line with a moderate, sustainable expansion. Above
all, perhaps, the majority of measures suggest that inflation is well in check.
Of course, interest rates could move higher, and much press attention has
focused on the possibility of further rate hikes by the Federal Reserve Board.
Partially in anticipation, however, the bond markets have already significantly
restricted the flow of credit. This may well accomplish the Federal Reserve
Board's goal of eliminating any lurking inflationary pressures.
Thus, it is important for investors to realize that the bond markets are not
"near their highs" as are most of the equity markets. Indeed, we believe that
many areas of the fixed-income markets offer very attractive valuations. We
cannot say the only way is up, but the good news, in our opinion, is that the
bond markets appear to have taken most of the punches coming at them.
HIGH YIELD FUND
For the one-year period ended August 31, 1999, the value of your shares in High
Yield Fund increased 6.53%. This return exceeded that of the Merrill Lynch High
Yield Master Trust Index, which rose 4.02% over the same period. (Of course,
past performance is no guarantee of future results.)(1),(2)
Managing High Yield Fund this past year was somewhat akin to walking through a
minefield. Fortunately, we were able to avoid virtually all of the large
explosions, which helped our returns exceed those of the Index. Indeed, we are
optimistic that our performance will continue to improve relative to high yield
indexes as the year progresses.
AVOIDING DEFAULTS
Many of the mines we avoided came in the form of corporate defaults, which have
risen lately in the high yield arena. While we did experience one default--that
of the shipping company TBS Shipping International Ltd.--we were able to avoid
many others that have plagued high yield investors. In large part, these
defaults have resulted from the depression in world commodities prices, but they
have also been typical of the later stages of a bull market cycle, which has
seen too much financing result in overcapacity in some industries.
Two factors have helped us in this regard. First, our thematic style of
investing--in other words, our focus on particular industries and trends--has
kept us away from many of the industries where defaults are growing. Because we
look for consolidation, deregulation, and other factors in selecting industries,
we generally do not invest simply to finance growth in otherwise stable sectors.
This thematic approach has thus allowed us to steer clear of the growing number
of defaults in the theater and restaurant industries, for example.
<PAGE>
Second, our management experience has helped us avoid several issues that are
currently suffering from default worries. Our faith--or lack of it--in
particular management teams, for example, has helped guide us away from several
high yield issuers that are in danger of default.
Indeed, this should help us build on our relative performance so far, which has
been quite rewarding. For the one-year period ended August 31, 1999, our fund's
return of 6.46% handily exceeded the 4.68% return of the average high current
yield fund tracked by Lipper Analytical Services. (Of course, past performance
is no guarantee of future results.)(2)
Nevertheless, we could not avoid all of the problems facing the high yield
market, and our returns over this past year have not matched our historical
performance. Investors may wish to keep in mind, however, that yields are now at
quite high levels, especially relative to inflation and Treasury interest rates.
Should conditions in the high yield market improve--and we are optimistic they
will--high current income paired with stable or improving bond prices may well
reward investors.
SELECT INCOME FUND
For the one-year period ended August 31, 1999, the value of your shares in
Select Income Fund rose 0.15%. This return lagged that of the Lehman
Government/Corporate Bond Index, which rose 0.29% over the same period. (Of
course, past performance is no guarantee of future results.)(1),(2)
This was a very challenging year for Select Income Fund. Given the fund's
relatively long average duration of more than six years (duration is a measure
of a bond's sensitivity to interest rates), creeping interest rates this spring
took a toll on the price of our holdings.
A TROUBLESOME YIELD SPREAD
The technical problems plaguing the corporate debt markets were also made
especially clear in the area of higher-quality corporate issues. Clearly, the
majority of established companies issuing such debt face little danger of
default. Yet the "yield spread" between these issues and similar U.S. Treasury
issues widened considerably as a function of heavy new issuance. Supply simply
outstripped demand.
Many corporations remain eager to take out new debt, and we are not optimistic
that these conditions will reverse themselves in the near-term. Still, the
longer-term outlook for corporate bonds rests on the underlying fundamentals of
the issuers--fundamentals that appear to us quite strong.
TAX-FREE BOND FUND
For the one-year period ended August 31, 1999, the value of your shares in
Tax-Free Bond Fund declined 1.00%. This return was below that of the Lehman
Municipal Bond Index, which was up 0.50% over the same period. Our return
exceeded the -1.63% average return of the general municipal debt funds tracked
by Lipper Analytical Services, however. (Of course, past performance is no
guarantee of future results.)(1),(2)
Due to a change in our reporting schedule, it was only recently that we last
reported to you. As we noted, our earlier hopes that municipal securities would
regain their attraction relative to U.S. Treasury bonds did in fact materialize
this spring. Unfortunately, however, rising interest rates outweighed this
positive factor, resulting in poor performance for municipal bond investors.
AS YOU MAY KNOW, AT THE SHAREHOLDER MEETING ON MAY 20, 1999, SHAREHOLDERS
APPROVED REORGANIZING SEVERAL INVESCO FUNDS. AS A RESULT, THE FISCAL YEAR-END
FOR INVESCO TAX-FREE BOND FUND IS NOW AUGUST 31.
<PAGE>
OUR RELATIVE PEFORMANCE
This bad news about the general patterns in the municipal bond markets is
partially balanced, perhaps, by the good news about our fund's relative
performance. Our new strategy, implemented last year, has seen us lower the cash
position of the fund and adjust the duration to neutral relative to its mutual
fund peer group--simply put, a strategy that means we are not attempting to
forecast the direction of interest rates. Instead, we seek to exploit supply and
demand imbalances in the market. This approach has helped us minimize our loss
compared to our peer group.(2)
As with corporate bonds, the poor conditions in the fixed-income market over the
last year have left many municipal bonds attractively valued based on historical
comparisons.
U.S. GOVERNMENT SECURITIES FUND
For the one-year period ended August 31, 1999, the value of your shares in U.S.
Government Securities Fund fell 3.40%. This return did, however, outperform the
Lehman Government Long Bond Index, which fell 4.99% over the same period. (Of
course, past performance is no guarantee of future results.)(1),(2)
To understand the poor performance of long-term government bonds this year, it
is helpful to reflect on the very different economic conditions that governed a
year ago. With the world economy in disarray, investors flocked to the safest
investments possible, U.S. Treasury Bonds. A rising dollar also attracted
foreign capital and limited the yields on American bonds by increasing demand.
Finally, inflation seemed a distant memory to some, as many economists worried
that excess global capacity would bring about the opposite problem--deflation.
Most of these conditions have reversed themselves since the spring. Growth
overseas has surprised many observers by its strength; indeed, recent figures
suggest that even Japan may be pulling itself out of recession. Meanwhile,
slowing but still strong growth in the United States is resulting in a pullback
in the strength of the dollar. Although the overall inflation level has remained
surprisingly tame, certain sectors, such as energy, have seen price increases.
Comparing the two periods, it is clear that it is the former that is
anomalous--and that we have, in a sense, returned to a period of economic
normalcy. Thus, it seems unlikely that the unique confluence of events that made
for such strong gains in the government bond market last year will soon repeat
themselves.
Still, it is worth acknowledging that bonds have fared quite well in such
"normal" periods over the past 15 years--and little evidence suggests that we
are entering a new inflationary era. With an average duration of more than eight
years, U.S. Government Securities Fund is our most interest rate-sensitive
offering. Should stability return to the interest rate environment, investors
should experience some welcome relief.
<TABLE>
<S> <C> <C>
/s/ Donovan J. Paul /s/ Dawn Daggy-Mangerson /s/ Richard Hinderlie
Donovan "Jerry" Paul Dawn Daggy-Mangerson Richard Hinderlie
Senior Vice President and Vice President and Manager Vice President and Manager of
Director of Fixed-Income Investments of Tax-Free Bond Fund U.S. Government Securities Fund
Manager of High Yield
and Select-Income Funds
</TABLE>
<PAGE>
INVESCO | Annual Report | August 1999
MOVING FORWARD
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MARKET HEADLINES: SEPTEMBER 1998 TO AUGUST 1999
September 1998 witnessed the U.S. stock market begin its near-miraculous
turnaround, one that saw the Dow Jones Industrial Average smash through the
10,000 mark for the first time--a feat it soon topped by breaking 11,000.
Throughout the following months, the largest, fastest-growing companies led U.S.
stock market advances as investors kept one eye on the continuing problems
overseas and another on the blossoming technological promise of the American
economy. The firms most directly tied to technological innovations, such as
telecommunications companies and Internet providers, outdistanced the pack.
Meanwhile, cyclical issues suffered, as did many small or slower-growing company
stocks.
By spring, however, the threat of economic overheating rather than worldwide
depression loomed largest in many investors' minds. Signs of renewed economic
strength abroad and remarkable growth figures at home led many to believe that
the Federal Reserve Board would soon reverse course and tighten the money supply
to cool down the economy--and indeed, market interest rates crept upward. Too
much growth rather than too little encouraged many to head for cyclical
industries poised to benefit from improving markets.
As the "cyclical rotation" continued, the market averages seemed to bounce
against a ceiling, putting an end to their dizzying ascent since the fall. The
markets became exceptionally sensitive to interest rate concerns, with most
investors peering over the shoulders of the Federal Reserve Board at any
economic data that might point to a resurgence in inflation. Benign data or
neutral pronouncements from the Fed sent the markets higher, while worrisome
signals caused stocks to fall.
By late summer, the markets seemed to be stuck in a horizontal "trading range."
Optimists welcomed the break and predicted a strong end to the year, while
pessimists insisted that stocks remained overvalued. More surprisingly, some
noted, the national fascination with the daily market moves seemed to wane as
people paid more attention to their vacations than to their portfolios.
- --------------------------------------------------------------------------------
FUND MANAGERS
DONOVAN J. (JERRY) PAUL, CFA, CPA
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.
DAWN DAGGY-MANGERSON
DAWN DAGGY-MANGERSON RECEIVED HER BS FROM DEPAUL UNIVERSITY AND BEGAN HER
INVESTMENT CAREER IN 1986. BEFORE JOINING INVESCO IN 1998, DAWN WAS VICE
PRESIDENT AND FIXED-INCOME PORTFOLIO MANAGER FOR NATIONSBANK/TRADESTREET
INVESTMENT ASSOCIATES, INC.
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>
YEAR 2000 COMPUTER ISSUE
(UNAUDITED)
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. At this time, it is
generally believed that foreign issuers, particularly those in emerging and
other markets, may be more vulnerable to Year 2000 problems than will be issuers
in the U.S.
SINCE THE FUNDS ARE ACTIVELY MANAGED, HOLDINGS WILL CHANGE OVER TIME.
(1) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN INVESTOR'S
SHARES MAY BE WORTH MORE OR LESS THAN WHEN PURCHASED.
(2) THE MERRILL LYNCH HIGH YIELD MASTER TRUST, LEHMAN GOVERNMENT/CORPORATE BOND,
LEHMAN GOVERNMENT LONG BOND, AND LEHMAN MUNICIPAL BOND INDEXES ARE UNMANAGED
INDEXES INDICATIVE OF THE HIGH YIELD BOND, OVERALL DOMESTIC FIXED-INCOME,
LONGER-TERM GOVERNMENT BOND, AND BROAD TAX-EXEMPT BOND MARKETS, RESPECTIVELY.
LIPPER ANALYTICAL SERVICES IS AN INDEPENDENT MUTUAL FUND ANALYST.
<PAGE>
STATEMENT OF INVESTMENT SECURITIES
INVESCO Bond Funds, Inc.
August 31, 1999
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
High Yield Fund
88.61 FIXED INCOME SECURITIES
88.61 CORPORATE BONDS
0.97 BIOTECHNOLOGY
Packard BioScience, Sr Sub Notes,
Series B 9.375%, 3/1/2007 $ 8,100,000 $ 7,573,500
================================================================================
6.33 BROADCASTING
Brill Media LLC/Brill Media Management,
Gtd Sr Step-Up
Notes, 7.500%(a), 12/15/2007 $ 3,750,000 2,625,000
Chancellor Media of Los Angeles, Gtd Sr
Sub Notes 9.000%, 10/1/2008 $ 8,600,000 8,557,000
Series B, 10.500%, 1/15/2007 $ 9,600,000 10,176,000
Jacor Communications, Gtd Sr Sub Notes
9.750%, 12/15/2006 $ 1,500,000 1,605,000
LIN Holdings, Sr Discount Step-Up Notes
Zero Coupon(a), 3/1/2008 $ 14,785,000 9,610,250
LIN Television, Gtd Sr Sub Notes, 8.375%,
3/1/2008 $ 9,925,000 9,304,687
Spectrasite Holdings, Sr Discount Step-Up
Notes(b) Zero Coupon(a), 4/15/2009 $ 5,000,000 2,525,000
Young Broadcasting, Gtd Sr Sub Notes,
Series B 9.000%, 1/15/2006 $ 5,200,000 5,135,000
================================================================================
49,537,937
4.06 CABLE
Charter Communications Holdings,
Sr Notes(b) 8.625%, 4/1/2009 $ 9,000,000 8,437,500
Comcast Cable Partners Ltd, Sr Discount
Step-Up Deb Zero Coupon(a), 11/15/2007 $ 14,614,000 13,189,135
Mediacom LLC/Mediacom Capital,
Sr Notes(b)7.875%, 2/15/2011 $ 1,750,000 1,553,125
Renaissance Media Group LLC/Renaissance
Media Capital Gtd Sr Discount Step-Up
Notes Zero Coupon(a), 4/15/2008 $ 12,000,000 8,550,480
================================================================================
31,730,240
2.65 CHEMICALS
Huntsman Corp, Sr Sub Notes(b), 9.500%,
7/1/2007 $ 8,500,000 7,905,000
Huntsman Polymers, Sr Notes, 11.750%,
12/1/2004 $ 12,291,000 12,844,095
================================================================================
20,749,095
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
2.81 COMMUNICATIONS -- EQUIPMENT & MANUFACTURING
Metromedia Fiber Network, Sr Notes,
Series B 10.000%, 11/15/2008 $ 8,750,000 $ 8,662,500
Worldwide Fiber
Sr Notes, 12.500%, 12/15/2005 $ 6,200,000 6,324,000
Sr Notes(b), 12.000%, 8/1/2009 $ 7,000,000 7,017,500
================================================================================
22,004,000
4.27 COMPUTER RELATED
PSINet, Sr Notes(b), 11.000%, 8/1/2009 $ 18,500,000 18,315,000
Verio Inc, Sr Notes
13.500%, 6/15/2004 $ 6,350,000 6,873,875
11.250%, 12/1/2008 $ 4,750,000 4,821,250
WAM!NET, Gtd Sr Discount Step-Up Notes,
Series B Zero Coupon(a), 3/1/2005 $ 5,700,000 3,377,250
================================================================================
33,387,375
0.88 ELECTRIC UTILITIES
Niagara Mohawk Power, Sr Discount
Step-Up Notes Series H, Zero
Coupon(a), 7/1/2010 $ 9,500,000 6,899,459
================================================================================
0.50 ELECTRICAL EQUIPMENT
Alpine Group, Gtd Sr Secured Notes,
Series B 12.250%, 7/15/2003 $ 3,800,000 3,914,000
================================================================================
0.69 ENGINEERING & CONSTRUCTION
Ryland Group, Sr Sub Notes,
8.250%, 4/1/2008 $ 5,750,000 5,376,250
================================================================================
3.89 GAMING
Aztar Corp, Sr Sub Notes, 8.875%, 5/15/2007 $ 12,250,000 11,606,875
Hollywood Casino, Gtd Sr Secured Notes(b)
11.250%, 5/1/2007 $ 3,500,000 3,535,000
Horseshoe Gaming LLC, Sr Sub Notes(b)
8.625%, 5/15/2009 $ 3,250,000 3,103,750
Isle of Capri Casinos, Sr Sub Notes(b)
8.750%, 4/15/2009 $ 5,500,000 5,060,000
Station Casinos, Sr Sub Notes, 9.750%,
4/15/2007 $ 7,040,000 7,145,600
================================================================================
30,451,225
2.60 HEALTH CARE RELATED
PharMerica Inc, Gtd Sr Sub Notes, 8.375%,
4/1/2008 $ 20,955,000 20,326,350
================================================================================
1.08 HOUSEHOLD PRODUCTS
Home Products International, Gtd Sr
Sub Notes 9.625%, 5/15/2008 $ 9,600,000 8,448,000
================================================================================
1.96 IRON & STEEL
Inland Steel, 1st Mortgage, Series R,
7.900%, 1/15/2007 $ 9,980,000 9,580,800
National Steel, 1st Mortgage, 8.375%,
8/1/2006 $ 5,636,000 5,706,450
================================================================================
15,287,250
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
0.21 LEISURE TIME
Bally Total Fitness Holdings, Sr Sub
Notes, Series D 9.875%, 10/15/2007 $ 1,700,000 $ 1,625,625
================================================================================
0.44 LODGING -- HOTELS
Signature Resorts, Sr Sub Notes, 9.750%,
10/1/2007 $ 3,750,000 3,412,500
================================================================================
0.72 METALS MINING
Bulong Operations Property Ltd, Sr
Secured Notes 12.500%, 12/15/2008 $ 5,515,000 5,625,300
================================================================================
9.72 OIL & GAS RELATED
Belco Oil & Gas, Sr Sub Notes, Series B
8.875%, 9/15/2007 $ 4,825,000 4,632,000
Canadian Forest Oil Ltd, Gtd Sr Sub Notes
8.750%, 9/15/2007 $ 14,400,000 14,004,000
Cliffs Drilling, Gtd Sr Notes, Series B
10.250%, 5/15/2003 $ 11,400,000 11,143,500
Coda Energy, Gtd Sr Sub Notes, Series B
10.500%, 4/1/2006 $ 8,800,000 8,987,000
Continental Resources, Gtd Sr Sub Notes
10.250%, 8/1/2008 $ 7,100,000 5,360,500
Forest Oil, Gtd Sr Sub Notes, 10.500%,
1/15/2006 $ 5,150,000 5,304,500
GulfMark Offshore, Gtd Sr Notes, 8.750%,
6/1/2008 $ 5,250,000 4,987,500
Houston Exploration, Sr Sub Notes, Series B
8.625%, 1/1/2008 $ 6,250,000 6,093,750
Ocean Energy, Gtd Sr Sub Notes
10.375%, 10/15/2005 $ 7,059,000 7,376,655
Series B
8.875%, 7/15/2007 $ 3,200,000 3,208,000
8.375%, 7/1/2008 $ 5,100,000 4,959,750
================================================================================
76,057,155
2.01 PAPER & FOREST PRODUCTS
Bear Island Paper LLC/Bear Island Finance
II, Sr Secured Notes, Series B, 10.000%,
12/1/2007 $ 4,500,000 4,387,500
Doman Industries Ltd, Sr Notes, Series B
9.250%, 11/15/2007 $ 7,150,000 4,683,250
SD Warren, Sub Exchangeable Deb(c)
14.000%, 12/15/2006 $ 5,827,445 6,614,150
================================================================================
15,684,900
0.37 POLLUTION CONTROL
Allied Waste North America, Sr Sub
Notes(b) 10.000%, 8/1/2009 $ 3,000,000 2,895,000
================================================================================
4.55 SERVICES
Heritage Media, Sr Sub Notes, 8.750%,
2/15/2006 $ 7,045,000 7,150,675
NationsRent Inc, Gtd Sr Sub Notes,
10.375%,12/15/2008 $ 6,250,000 6,234,375
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
United Rentals, Gtd Sr Sub Notes, Series B
9.500%, 6/1/2008 $ 2,800,000 $ 2,758,000
9.250%, 1/15/2009 $ 5,000,000 4,850,000
9.000%, 4/1/2009 $ 10,250,000 9,814,375
8.800%, 8/15/2008 $ 5,000,000 4,775,000
================================================================================
35,582,425
0.28 SHIPPING
TBS Shipping International Ltd, 1st Pfd
Shipping Mortgage Notes(d), 10.000%,
5/1/2005 $ 5,750,000 2,213,750
================================================================================
1.78 SPECIALTY PRINTING
MDC Communications, Sr Sub Notes,
10.500%, 12/1/2006 $ 6,250,000 6,250,000
World Color Press, Sr Sub Notes, 7.750%,
2/15/2009 $ 7,950,000 7,671,750
================================================================================
13,921,750
5.76 TELECOMMUNICATIONS -- CELLULAR & WIRELESS
Cencall Communications, Sr Discount Notes
10.125%, 1/15/2004 $ 19,000,000 19,023,750
Esat Holdings Ltd, Sr Deferred Step-Up
Notes, Series B Zero Coupon(a), 2/1/2007 $ 15,850,000 11,412,000
Nextel Communications, Sr Discount Notes
9.750%, 8/15/2004 $ 2,000,000 2,000,000
Telecorp PCS, Sr Discount Step-Up Notes(b)
Zero Coupon(a), 4/15/2009 $ 18,750,000 10,781,250
Teligent Inc, Sr Discount Step-Up Notes,
Series B Zero Coupon(a), 3/1/2008 $ 3,330,000 1,831,500
================================================================================
45,048,500
10.70 TELECOMMUNICATIONS -- LONG DISTANCE
Call-Net Enterprises, Sr Discount Step-Up
Notes Zero Coupon(a), 8/15/2007 $ 1,900,000 1,225,500
Esprit Telecom Group PLC, Sr Notes,
11.500%, 12/15/2007 $ 5,600,000 5,838,000
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $ 7,850,000 7,575,250
GST Telecommunications/GST Network
Funding, Sr Discount Step-Up Notes(b),
Zero Coupon(a), 5/1/2008 $ 7,100,000 3,976,000
GlobeNet Communications Group, Sr
Notes(b) 13.000%, 7/15/2007 $ 7,750,000 7,595,000
Level 3 Communications
Sr Discount Step-Up Notes, Zero
Coupon(a), 12/1/2008 $ 56,700,000 32,602,500
Sr Notes, 9.125%, 5/1/2008 $ 2,475,000 2,301,750
Primus Telecommunications Group, Sr
Notes, Series B 9.875%, 5/15/2008 $ 6,000,000 5,280,000
Qwest Communications International, Sr
Discount Step-Up Notes, Series B,
Zero Coupon(a), 2/1/2008 $ 3,750,000 2,737,500
Startec Global Communications, Sr Notes
12.000%, 5/15/2008 $ 3,850,000 3,426,500
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
Viatel Inc, Sr Dollar Notes(b), 11.500%,
3/15/2009 $ 11,250,000 $ 11,165,625
================================================================================
83,723,625
19.38 TELEPHONE
Diamond Cable Communications PLC, Sr
Discount Step-Up Notes, Zero Coupon(a)
12/15/2005 $ 10,000,000 9,012,500
2/15/2007 $ 3,600,000 2,790,000
FaciliCom International, Sr Notes,
Series B 10.500%, 1/15/2008 $ 6,750,000 5,670,000
Intermedia Communications,
Sr Discount Step-Up Notes, Series B,
Zero Coupon(a), 3/1/2009 $ 28,650,000 15,685,875
Sr Notes, Series B, 8.500%, 1/15/2008 $ 4,920,000 4,354,200
McLeodUSA Inc, Sr Notes, 8.125%, 2/15/2009 $ 15,750,000 14,490,000
MetroNet Communications
Sr Discount Step-Up Notes Zero Coupon(a)
11/1/2007 $ 10,500,000 8,452,500
6/15/2008 $ 26,650,000 20,254,000
Netia Holdings BV, Gtd Sr Discount Step-Up
Notes Series B, Zero Coupon(a), 11/1/2007 $ 5,900,000 3,658,000
NEXTLINK Communications
Sr Discount Step-Up Notes, Zero Coupon(a)
4/15/2008 $ 9,600,000 5,760,000
6/1/2009 $ 4,600,000 2,691,000
Sr Notes
10.750%, 11/15/2008 $ 7,750,000 7,827,500
9.625%, 10/1/2007 $ 5,950,000 5,593,000
NEXTLINK Communications LLC/NEXTLINK
Capital Sr Notes, 12.500%, 4/15/2006 $ 15,160,000 15,766,400
RCN Corp, Sr Discount Step-Up Notes,
Series B Zero Coupon(a), 2/15/2008 $ 21,000,000 13,230,000
Rhythms NetConnections, Sr Discount
Step-Up Notes Zero Coupon(a), 5/15/2008 $ 10,750,000 5,267,500
United Pan-Europe Communications NV, Sr
Discount Step-Up Notes(b), Zero
Coupon(a), 8/1/2009 $ 14,250,000 7,837,500
US WEST Communications, Notes, 5.650%,
11/1/2004 $ 3,475,000 3,274,180
================================================================================
151,614,155
TOTAL FIXED INCOME SECURITIES (Cost $735,322,120) 693,089,366
================================================================================
5.83 PREFERRED STOCKS & WARRANTS
0.05 COMPUTER RELATED
WAM!NET Warrants(b)(e) (Exp 2005) 17,100 389,025
================================================================================
1.06 PUBLISHING
PRIMEDIA Inc, Exchangeable Pfd,
Series H, 8.625% 91,500 8,326,500
================================================================================
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
1.36 TELECOMMUNICATIONS -- CELLULAR & WIRELESS
Nextel Communications, Exchangeable Pfd(c),
Series E, 11.125% 10,423 $ 10,605,402
================================================================================
2.62 TELECOMMUNICATIONS -- LONG DISTANCE
Global Crossing Holdings Ltd, Sr
Exchangeable Pfd(c)(f), 10.500% 205,000 20,500,000
Startec Global Communications,
Warrants(b)(e) (Exp 2008) 3,850 3,850
================================================================================
20,503,850
0.74 TELEPHONE
Intermedia Communications, Depository Shr
Representing 1/100 Conv Jr Pfd, Series F,
7.000% 93,500 2,033,625
Pfd(c), Series B, 13.500% 3,928 3,731,600
================================================================================
5,765,225
TOTAL PREFERRED STOCKS & WARRANTS (Cost $45,730,447) 45,590,002
================================================================================
5.56 SHORT-TERM INVESTMENTS
4.99 COMMERCIAL PAPER
4.99 FINANCIAL
Associates Corp of North America, 5.560%,
9/1/1999 (Cost $39,000,000) $ 39,000,000 39,000,000
================================================================================
0.57 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated
8/31/1999 due 9/1/1999 at 5.300%,
repurchased at $4,500,663 (Collateralized
by US Treasury Inflationary Index Bonds
due 4/15/2028 at 3.625%, value $4,579,883)
(Cost $4,500,000) $ 4,500,000 4,500,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS (Cost $43,500,000) 43,500,000
================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $824,552,567)
(Cost for Income Tax Purposes $824,558,843) $ 782,179,368
================================================================================
Select Income Fund
98.08 FIXED INCOME SECURITIES
1.38 US GOVERNMENT OBLIGATIONS
US Treasury Notes
5.625%, 5/15/2008 $ 4,800,000 $ 4,635,000
5.500%, 5/15/2009 $ 3,000,000 2,881,875
================================================================================
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $7,851,323) 7,516,875
================================================================================
2.27 US GOVERNMENT AGENCY OBLIGATIONS
Freddie Mac, Gold, Participation
Certificates 6.500%, 9/1/2011
(Cost $12,245,608) $ 12,583,553 12,289,726
================================================================================
94.43 CORPORATE BONDS
1.35 AIRLINES
Delta Air Lines, Deb, 10.375%, 12/15/2022 $ 6,007,000 7,330,930
================================================================================
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
2.09 BROADCASTING
Chancellor Media of Los Angeles, Gtd Sr
Sub Notes 9.000%, 10/1/2008 $ 2,000,000 $ 1,990,000
Series B, 8.750%, 6/15/2007 $ 3,500,000 3,416,875
Jacor Communications, Gtd Sr Sub Notes
9.750%, 12/15/2006 $ 2,915,000 3,119,050
LIN Television, Gtd Sr Sub Notes, 8.375%,
3/1/2008 $ 3,000,000 2,812,500
================================================================================
11,338,425
3.77 BUILDING MATERIALS
USG Corp, Sr Notes, 8.500%, 8/1/2005 $ 19,549,000 20,431,947
================================================================================
4.46 CABLE
CF Cable TV, 2nd Priority Sr Secured Notes
11.625%, 2/15/2005 $ 700,000 756,615
Charter Communications Holdings,
Sr Notes(b) 8.625%, 4/1/2009 $ 1,000,000 937,500
Comcast Cable Partners Ltd, Sr Discount
Step-Up Deb, Zero Coupon(a), 11/15/2007 $ 5,750,000 5,189,375
Continental Cablevision, Sr Deb, 9.500%,
8/1/2013 $ 10,030,000 11,169,567
Tele-Communications Inc, Sr Deb, 9.800%,
2/1/2012 $ 3,718,000 4,455,893
TeleWest PLC, Sr Discount Step-Up Deb
Zero Coupon(a), 10/1/2007 $ 1,910,000 1,683,188
================================================================================
24,192,138
1.82 CHEMICALS
Equistar Chemicals LP, Deb, 7.550%,
2/15/2026 $ 5,050,000 4,144,606
Huntsman ICI Chemicals, Sr Sub Notes(b)
10.125%, 7/1/2009 $ 3,700,000 3,681,500
Lyondell Chemical, Gtd Sr Secured Notes
Series A, 9.625%, 5/1/2007 $ 2,000,000 2,030,000
================================================================================
9,856,106
1.24 COMMUNICATIONS -- EQUIPMENT & MANUFACTURING
Worldwide Fiber
Sr Notes, 12.500%, 12/15/2005 $ 3,650,000 3,723,000
Sr Notes(b), 12.000%, 8/1/2009 $ 3,000,000 3,007,500
================================================================================
6,730,500
0.36 COMPUTER RELATED
PSINet, Sr Notes(b), 11.000%, 8/1/2009 $ 2,000,000 1,980,000
================================================================================
25.05 ELECTRIC UTILITIES
Central Power & Light, 1st Mortgage,
Series II 7.500%, 4/1/2023 $ 3,551,000 3,380,669
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
Cleveland Electric Illuminating
1st Mortgage
Series B, 9.500%, 5/15/2005 $ 4,477,000 $ 4,709,414
Series E, 9.000%, 7/1/2023 $ 2,750,000 2,845,804
Sr Secured Notes, Series D
7.880%, 11/1/2017 $ 3,500,000 3,430,973
7.430%, 11/1/2009 $ 8,275,000 8,045,955
CMS Energy, Sr Notes, Series B, 6.750%,
1/15/2004 $ 6,900,000 6,438,583
Commonwealth Edison, 1st Mortgage
Series 76, 8.250%, 10/1/2006 $ 500,000 522,288
Series 81, 8.625%, 2/1/2022 $ 365,000 367,711
Series 83, 8.000%, 5/15/2008 $ 6,100,000 6,334,166
Connecticut Light & Power, 1st Refunding
Mortgage Series C, 8.500%, 6/1/2024 $ 7,500,000 7,468,357
Consumers Energy, 1st Mortgage, 7.375%,
9/15/2023 $ 9,425,000 8,697,889
Detroit Edison, Secured Medium-Term
Notes, Series 92D 8.300%, 8/1/2022 $ 3,000,000 2,977,500
DQU-II Funding, Collateral Lease,
8.700%, 6/1/2016 $ 7,955,000 8,551,068
El Paso Electric, 1st Mortgage
Series C, 8.250%, 2/1/2003 $ 3,375,000 3,456,465
Series D, 8.900%, 2/1/2006 $ 9,100,000 9,606,879
Series E, 9.400%, 5/1/2011 $ 2,625,000 2,847,545
Metropolitan Edison, Secured Medium-Term
Notes Series B 8.150%, 1/30/2023 $ 500,000 490,000
6.970%, 10/19/2023 $ 3,500,000 3,112,255
New York State Electric & Gas, 1st
Mortgage 8.300%, 12/15/2022 $ 4,800,000 4,714,262
Niagara Mohawk Power
1st Mortgage, 8.500%, 7/1/2023 $ 11,400,000 11,828,319
Sr Discount Step-Up Notes, Series H
Zero Coupon(a), 7/1/2010 $ 15,000,000 10,893,883
Pacific Gas & Electric, 1st Refunding
Mortgage Series 92D, 8.250%, 11/1/2022 $ 2,223,000 2,218,014
Pennsylvania Power, 1st Mortgage, 8.500%,
7/15/2022 $ 2,000,000 1,993,464
Public Service Electric & Gas, 1st
Mortgage 6.375%, 5/1/2008 $ 2,000,000 1,890,474
Public Service of New Mexico, Sr Notes
Series A, 7.100%, 8/1/2005 $ 10,825,000 10,509,310
Series B, 7.500%, 8/1/2018 $ 6,715,000 6,396,427
Toledo Edison, Medium-Term Notes,
Series A 9.220%, 12/15/2021 $ 1,975,000 2,047,245
================================================================================
135,774,919
0.52 ENGINEERING & CONSTRUCTION
Ryland Group, Sr Sub Notes, 8.250%,
4/1/2008 $ 3,000,000 2,805,000
================================================================================
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
3.58 ENTERTAINMENT
Paramount Communications, Sr Deb, 8.250%,
8/1/2022 $ 19,500,000 $ 19,388,126
================================================================================
0.66 GAMING
Aztar Corp, Sr Sub Notes, 8.875%, 5/15/2007 $ 3,750,000 3,553,125
================================================================================
0.07 HEALTH CARE DRUGS -- PHARMACEUTICALS
McKesson HBOC Corp, Sub Deb, 4.500%,
3/1/2004 $ 430,000 386,618
================================================================================
2.05 HEALTH CARE RELATED
FHP International, Sr Notes, 7.000%,
9/15/2003 $ 6,535,000 6,528,170
PharMerica Inc, Gtd Sr Sub Notes, 8.375%,
4/1/2008 $ 4,700,000 4,559,000
================================================================================
11,087,170
5.06 INSURANCE
Equitable Cos, Sr Notes, 9.000%, 12/15/2004 $ 23,457,000 25,383,498
Veritas Holdings GmbH, Sr Notes, 9.625%,
12/15/2003 $ 2,115,000 2,040,975
================================================================================
27,424,473
0.28 IRON & STEEL
National Steel, 1st Mortgage, 8.375%,
8/1/2006 $ 1,500,000 1,518,750
================================================================================
1.73 LODGING -- HOTELS
Hilton Hotels, Sr Notes, 7.200%, 12/15/2009 $ 10,000,000 9,354,610
================================================================================
0.29 NATURAL GAS
NorAm Energy, Conv Sub Deb, 6.000%,
3/15/2012 $ 1,613,000 1,588,805
================================================================================
11.52 OIL & GAS RELATED
Atlantic Richfield, Deb
10.875%, 7/15/2005 $ 3,400,000 4,007,876
9.125%, 3/1/2011 $ 1,569,000 1,796,723
9.125%, 8/1/2031 $ 4,650,000 5,444,703
9.000%, 5/1/2031 $ 4,250,000 4,911,342
8.750%, 3/1/2032 $ 500,000 565,289
Belco Oil & Gas, Sr Sub Notes, Series B
8.875%, 9/15/2007 $ 3,750,000 3,600,000
Canadian Forest Oil Ltd, Gtd Sr Sub Notes
8.750%, 9/15/2007 $ 3,500,000 3,403,750
CMS Panhandle Holding, Sr Notes(b)
7.000%, 7/15/2029 $ 6,000,000 5,400,456
6.500%, 7/15/2009 $ 11,400,000 10,533,554
Gulf Canada Resources Ltd, Sr Notes
8.250%, 3/15/2017 $ 5,900,000 5,289,350
Ocean Energy, Gtd Sr Sub Notes
10.375%, 10/15/2005 $ 250,000 261,250
Series B
8.875%, 7/15/2007 $ 3,000,000 3,007,500
8.375%, 7/1/2008 $ 2,000,000 1,945,000
Sun Inc, Deb, 9.375%, 6/1/2016 $ 3,000,000 3,169,650
Texaco Capital, Gtd Notes, 5.500%,
1/15/2009 $ 4,900,000 4,347,442
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
Vastar Resources, Notes, 6.500%,
4/1/2009 $ 5,000,000 $ 4,754,755
================================================================================
62,438,640
1.20 PAPER & FOREST PRODUCTS
Chesapeake Corp, Deb, 7.200%, 3/15/2005 $ 4,400,000 4,383,178
Quno Corp, Sr Notes, 9.125%, 5/15/2005 $ 2,000,000 2,120,134
================================================================================
6,503,312
1.33 POLLUTION CONTROL
Allied Waste North America, Sr Sub
Notes(b) 10.000%, 8/1/2009 $ 7,500,000 7,237,500
================================================================================
0.77 REAL ESTATE INVESTMENT TRUST
Glenborough Properties LP, Sr Notes,
Series B 7.625%, 3/15/2005 $ 4,740,000 4,191,212
================================================================================
1.27 SERVICES
Heritage Media, Sr Sub Notes, 8.750%,
2/15/2006 $ 3,000,000 3,045,000
United Rentals, Gtd Sr Sub Notes,
Series B 9.000%, 4/1/2009 $ 4,000,000 3,830,000
================================================================================
6,875,000
3.32 TELECOMMUNICATIONS -- CELLULAR & WIRELESS
Cencall Communications, Sr Discount Notes
10.125%, 1/15/2004 $ 2,750,000 2,753,437
Nextel Communications, Sr Discount Notes
9.750%, 8/15/2004 $ 5,500,000 5,500,000
Rogers Cantel
Sr Secured Deb
9.750%, 6/1/2016 $ 3,000,000 3,330,000
9.375%, 6/1/2008 $ 4,150,000 4,378,250
Sr Secured Notes
8.300%, 10/1/2007 $ 2,000,000 2,027,500
================================================================================
17,989,187
5.49 TELECOMMUNICATIONS -- LONG DISTANCE
AT&T Corp
Deb, 8.125%, 7/15/2024 $ 3,950,000 3,892,314
Notes, 6.000%, 3/15/2009 $ 10,000,000 9,250,648
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $ 3,000,000 2,895,000
Level 3 Communications
Sr Discount Step-Up Notes, Zero
Coupon(a), 12/1/2008 $ 10,650,000 6,123,750
Sr Notes, 9.125%, 5/1/2008 $ 2,300,000 2,139,000
Qwest Communications International, Sr
Discount Step-Up Notes, Series B, Zero
Coupon(a)
10/15/2007 $ 3,000,000 2,317,500
2/1/2008 $ 3,000,000 2,190,000
Sr Notes, Series B, 7.250%, 11/1/2008 $ 1,000,000 970,000
================================================================================
29,778,212
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
15.15 TELEPHONE
BellSouth Telecommunications, Deb,
8.250%, 7/1/2032 $ 6,200,000 $ 6,155,081
Centel Capital, Deb, 9.000%, 10/15/2019 $ 5,325,000 5,944,910
Citizens Utilities, Deb, 7.600%, 6/1/2006 $ 3,970,000 4,034,643
Diamond Cable Communications PLC, Sr
Discount Step-Up Notes, Zero
Coupon(a), 12/15/2005 $ 2,900,000 2,613,625
GTE Corp, Deb
7.900%, 2/1/2027 $ 2,000,000 1,971,522
7.830%, 5/1/2023 $ 9,870,000 9,651,497
Intermedia Communications, Sr Notes,
Series B 9.500%, 3/1/2009 $ 4,950,000 4,640,625
McLeodUSA Inc, Sr Notes, 8.125%, 2/15/2009 $ 2,500,000 2,300,000
MetroNet Communications
Sr Discount Step-Up Notes, Zero Coupon(a)
11/1/2007 $ 3,000,000 2,415,000
6/15/2008 $ 19,375,000 14,725,000
NEXTLINK Communications
Sr Discount Step-Up Notes, Zero Coupon(a)
4/15/2008 $ 9,000,000 5,400,000
6/1/2009 $ 7,000,000 4,095,000
Sr Notes
10.750%, 11/15/2008 $ 5,000,000 5,050,000
9.625%, 10/1/2007 $ 3,000,000 2,820,000
NEXTLINK Communications LLC/NEXTLINK
Capital Sr Notes, 12.500%, 4/15/2006 $ 3,500,000 3,640,000
US WEST Communications, Notes, 5.650%,
11/1/2004 $ 7,100,000 6,689,691
================================================================================
82,146,594
TOTAL CORPORATE BONDS (Cost $540,957,896) 511,901,299
================================================================================
TOTAL FIXED INCOME SECURITIES (Cost $561,054,827) 531,707,900
================================================================================
1.92 SHORT-TERM INVESTMENTS
1.66 COMMERCIAL PAPER
1.66 ELECTRICAL EQUIPMENT
General Electric, 5.560%, 9/1/1999 (Cost
$9,000,000) $ 9,000,000 9,000,000
================================================================================
0.26 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 8/31/1999 due 9/1/1999 at
5.300%, repurchased at $1,389,204
(Collateralized by US Treasury
Inflationary Index Bonds due 4/15/2028
at 3.625%, value $1,413,304)
(Cost $1,389,000) $ 1,389,000 1,389,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS (Cost $10,389,000) 10,389,000
================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $571,443,827)
(Cost for Income Tax Purposes $571,450,233) $ 542,096,900
================================================================================
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
Tax-Free Bond Fund
93.32 MUNICIPAL BONDS
0.18 ALASKA
Alaska Hsg Fin (Veterans Mtg Prog) (GNMA/
FNMA Insured), Collateralized Rev, 1990
First Series, 7.500%, 12/1/2030 $ 130,000 $ 133,849
Alaska Indl Dev & Export Auth, Ref
Revolving Fund, Series 1994A, Lots 1-29,
5.700%, 4/1/2004 $ 170,000 177,492
Municipality of Anchorage, Alaska (MBIA
Insured), Gen Oblig Ref, Gen Purpose,
1993 Series B, 4.900%, 8/1/2003 $ 25,000 25,345
================================================================================
336,686
0.55 ARIZONA
Arizona Edl Ln Mktng (Student Lns Insured),
Edl Ln Rev, Series 1992B, 7.000%,
3/1/2005 $ 1,000,000 1,050,880
================================================================================
1.25 CALIFORNIA
Big Bear Lake Dept of Wtr & Pwr, California
(MBIA Insured), Wtr Rev Ref, Series
1996, 6.000%, 4/1/2022 $ 2,000,000 2,123,120
California, (MBIA Insured), Various
Purpose Gen Oblig, Series 1992,
6.300%, 9/1/2008 $ 150,000 167,136
Monterey Cnty Pub Wrks Brd, California
(Dept of Corrections (Soledad II)),
Lease Rev Ref, 1996 Series D, 5.375%,
11/1/2011 $ 100,000 102,081
================================================================================
2,392,337
3.41 COLORADO
Arapahoe Cnty Pub Hwy Auth, Colorado
(E-470 Proj) (MBIA Insured), Cap Impt
Trust Fund, Hwy Rev, Veh Regn Fee,
Series 1986, 5.300%, 8/31/2006 $ 200,000 205,990
Denver City & Cnty, Colorado, Gen Oblig
Ref, Series 1998A, 5.250%, 8/1/2006 $ 3,500,000 3,607,940
Denver Hlth & Hosp Auth, Colorado,
Hlthcare Rev, Series 1998A, 5.125%,
12/1/2005 $ 1,205,000 1,197,360
Fountain Valley Auth, Colorado, Wtr
Treatment Ref Rev, Series 1991,
6.800%, 12/1/2019 $ 1,140,000 1,189,841
Montrose Cnty Bldg Auth, Colorado,
Ctfs of Participation, Series 1994,
6.350%, 6/15/2006 $ 300,000 316,518
================================================================================
6,517,649
0.01 DISTRICT OF COLUMBIA
District of Columbia, Gen Oblig Ref,
Series 1994 A-3, 5.200%, 6/1/2003 $ 25,000 25,569
================================================================================
4.42 FLORIDA
Broward Cnty, Florida (AMBAC Insured),
Airport System Rev, Series G, 4.200%,
10/1/2008 $ 200,000 189,022
Dade Cnty, Florida (AMBAC Insured), Solid
Waste System Rev Ref, Special Ltd Oblig,
Series 1996, 6.000%, 10/1/2006 $ 200,000 214,868
Miami Beach Redev Agency, Florida (City
Ctr/Historic Convention Village), Tax
Increment Rev, Series 1993, 5.100%,
12/1/2003 $ 80,000 80,562
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
Miami-Dade Cnty School Dist, Florida (FSA
Insured), Gen Oblig Ref, Series 1998,
5.375%, 8/1/2015 $ 3,000,000 $ 3,010,470
Sunrise, Florida (AMBAC Insured), Util
System Ref Rev, Series 1998, 5.500%,
10/1/2018 5,000,000 4,958,500
================================================================================
8,453,422
1.16 GEORGIA
Atlanta, Georgia (MBIA Insured), Airport
Facils Rev, Series 1990, 7.250%, 1/1/2017 $ 2,000,000 2,094,380
Fulton Cnty School Dist, Georgia, Gen
Oblig Ref, Series 1998, 5.250%, 1/1/2013 $ 100,000 99,867
Georgia Muni Elec Auth, Pwr Rev, Series
CC, 4.500%, 1/1/2002 $ 30,000 30,011
================================================================================
2,224,258
4.34 HAWAII
Hawaii (MBIA Insured), Gen Oblig, 1998
Series CR, 5.500%, 4/1/2007 $ 8,000,000 8,305,840
================================================================================
6.52 ILLINOIS
Boone, McHenry & DeKalb Cntys, Illinois
(Cmnty Unit School Dist #100 (Belvidere))
(FSA Insured), Gen Oblig, Series 1997,
Cap Appreciation,
12/1/2008 $ 1,005,000 626,266
12/1/2009 $ 1,000,000 588,000
12/1/2010 $ 2,995,000 1,654,019
Chicago, Illinois (AMBAC Insured), Gen
Oblig, Ref, Series 1993B, 5.125%,
1/1/2022 $ 2,465,000 2,266,444
Chicago, Illinois (Peoples Gas Light &
Coke), Gas Supply Rev, 1st & Ref Mtg,
Medium-Term Notes, Series CC, 6.875%,
3/1/2015 $ 2,875,000 3,074,582
Chicago Pub Bldg Commn, Illinois (Chicago
School Reform) (FGIC Insured), Rev Ref,
Series B, 5.250%, 12/1/2018 $ 2,500,000 2,394,375
Illinois Dev Fin Auth (Catholic Charities
Hsg Dev Proj), Rev, Series 1995, 6.350%,
1/1/2025 $ 1,500,000 1,504,800
Illinois Hsg Dev Auth, Hsg Dev Rev, 1993
Series A, 5.000%, 1/1/2001 $ 15,000 15,061
Illinois Toll Hwy Auth, Toll Hwy Ref Rev,
1993 Series A, 4.700%, 1/1/2001 $ 60,000 60,288
McCormick Place Receipts-Metro Pier &
Exposition Auth, Illinois (50% McCormick
Place Expansion Proj #3) (FGIC Insured),
Dedicated State Tax Rev, Series 1998B,
Cap Appreciation, 6/15/2009 $ 500,000 299,665
================================================================================
12,483,500
8.51 INDIANA
DeKalb Cnty Redev Auth, Indiana (Mini-Mill
Loc Pub Impt Proj), Rev, Series A 1995,
6.500%, 1/15/2014 $ 900,000 955,512
Indiana Transn Fin Auth, Airport Facils
Lease Rev, Series A, 6.750%, 11/1/2011 $ 1,500,000 1,632,721
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
Indianapolis Loc Pub Impt Bank, Indiana,
Rev, Series 1991C, 6.700%, 1/1/2017 $ 3,750,000 $ 4,013,250
Petersburg, Indiana (Indianapolis Pwr &
Light Proj) (MBIA Insured), PCR Ref,
Series 1993B, 5.400%, 8/1/2017 $ 9,850,000 9,681,762
================================================================================
16,283,245
0.09 LOUISIANA
Louisiana Pub Facils Auth (Student Lns
Insured), Student Ln Rev, Series 1992
A-1, 6.200%, 3/1/2001 $ 165,000 168,747
================================================================================
1.82 MARYLAND
Maryland Transn Dept, Cons Transn Ref,
Series 1998, 5.500%, 9/1/2006 $ 3,315,000 3,473,424
================================================================================
8.72 MASSACHUSETTS
Boston Wtr & Swr Commn, Massachusetts
(MBIA Insured), Gen Rev, 1993 Sr Series
A, 5.250%, 11/1/2019 $ 5,385,000 5,189,633
Commonwealth of Massachusetts (MBIA
Insured), Gen Oblig, Cons Ln, Series
1992 D, 8.000%, 5/1/2006 $ 5,000,000 5,869,050
Massachusetts Dev Fin Agency (Boston
Univ Issue) (Institution Insured), Rev,
Series P,
6.000%, 05/15/2059 $ 2,000,000 1,994,060
5.450%, 05/15/2059 $ 4,000,000 3,603,360
Massachusetts Muni Wholesale Elec, Pwr
Supply System Rev, 1992 Series B,
6.375%, 7/1/2001 $ 20,000 20,607
================================================================================
16,676,710
2.67 MICHIGAN
Michigan, Comprehensive Transn Ref, Series
1992B, 5.750%, 5/15/2011 $ 200,000 202,670
Michigan Trunk Line Fund (MBIA Insured),
Ref, Series 1998A, 5.250%, 11/1/2015 $ 5,000,000 4,897,350
================================================================================
5,100,020
2.33 MINNESOTA
Minneapolis-St Paul Metro Airports Commn,
Minnesota, Gen Oblig Rev Ref, Series 13,
5.000%, 1/1/2009 $ 2,000,000 1,976,820
Univ of Minnesota Regents, Minnesota
(University Insured), Gen Oblig, Series
1996A, 5.500%, 7/1/2021 $ 2,500,000 2,480,950
================================================================================
4,457,770
3.18 MISSISSIPPI
Mississippi (Mississippi Gaming Cntys Hwy
Impts Proj), Gen Oblig, Series A,
5.500%, 7/1/2008 $ 5,865,000 6,094,204
================================================================================
2.47 MISSOURI
Missouri Hlth & Edl Facils Auth (Christian
Hlth Svcs Dev-Christian Hosp Northeast-
Northwest), FRD Rev, Series A 1989,
5.000%, 6/1/2005 $ 4,670,000 4,726,600
================================================================================
4.70 MONTANA
Forsyth, Montana (Portland Gen Elec Proj),
VR, PCR Ref, Series 1998B, 4.750%,
5/1/2033 $ 9,000,000 8,990,460
================================================================================
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
0.16 NEBRASKA
Nebraska Pub Power Dist (MBIA Insured),
Gen Rev, 1998 Series B, 5.250%, 1/1/2008 $ 300,000 $ 306,300
================================================================================
3.20 NEVADA
Nevada Hsg Div (Single Family Prog), Sr
Rev, 1994 Issue B-1, 5.900%, 4/1/2003 $ 95,000 97,859
Nevada (Nevada Muni Bank Projs #65 & R-6)
(MBIA Insured), Gen Oblig Ltd Tax,
Series 1998, 6.750%, 5/15/2008 $ 200,000 224,478
Nevada (Nevada Muni Bank Projs #66 & 67)
(FGIC Insured), Gen Oblig Ltd Tax,
Series July 1, 1998A, 5.500%, 5/15/2007 $ 5,580,000 5,796,057
================================================================================
6,118,394
0.42 NEW HAMPSHIRE
New Hampshire Hsg Fin Auth, Single Family
Residential Mtg, 1994 Series D,
6.850%, 7/1/2006 $ 610,000 629,178
5.850%, 1/1/2001 $ 170,000 172,278
================================================================================
801,456
0.55 NEW JERSEY
New Jersey Hlth Care Facils Fing Auth
(Kennedy Hlth System Obligated Group)
(MBIA Insured), Rev & Ref, Series 1997B,
5.750%, 7/1/2008 $ 1,000,000 1,057,530
================================================================================
2.79 NEW MEXICO
Los Alamos Cnty, New Mexico (FSA Insured),
Util System Rev, Series 1994A, 6.000%,
7/1/2009 $ 5,000,000 5,335,450
================================================================================
9.84 NEW YORK
New York Dorm Auth, New York (Muni Hlth
Facils Impt Prog) (FSA Insured), Lease
Rev, 1998 Series 1, 5.000%, 1/15/2010 $ 5,000,000 4,941,700
New York Dorm Auth, New York, State Univ
Edl Facils Rev, Series 1997, 6.000%,
5/15/2008 $ 2,500,000 2,658,575
New York & New Jersey Port Auth,
Consolidated Gen Oblig, Rev, Ninety-
Third Series, 6.125%, 6/1/2094 $ 5,250,000 5,544,105
New York Transitional Fin Auth, New York,
Future Tax Secured Rev, Fiscal 1999
Series A, 5.250%, 11/15/2013 $ 1,000,000 986,850
Triborough Bridge & Tunnel Auth, New York,
Gen Purpose Rev,
Series 1993B, 5.000%, 1/1/2020 $ 1,935,000 1,777,162
Series Y, 5.500%, 1/1/2017 $ 2,900,000 2,908,004
================================================================================
18,816,396
3.85 OHIO
Ohio Bldg Auth (Admin Bldg Fund Proj),
State Facils, 1995 Series A, 6.000%,
10/1/2006 $ 150,000 160,686
Ohio Bldg Auth (AMBAC Insured), State
Correctional Facils Ref, 1994 Series A,
4.600%, 10/1/2003 $ 50,000 50,305
Ohio (Major New State Infrastructure
Proj), Rev, Series 1998-1, 5.000%,
12/15/2006 $ 5,060,000 5,127,298
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
Ohio Tpk Commn, Tpk Rev Ref, 1998
Series A, 5.500%, 2/15/2016 $ 2,000,000 $ 2,027,800
================================================================================
7,366,089
0.09 PENNSYLVANIA
Philadelphia, Pennsylvania (MBIA Insured),
Wtr & Wastewtr Rev, Series 1995, 6.750%,
8/1/2005 $ 150,000 165,759
================================================================================
0.85 RHODE ISLAND
Rhode Island Depositors Econ Protection,
Special Oblig, 1992 Series A, 6.950%,
8/1/2022 $ 1,500,000 1,633,245
================================================================================
2.20 TENNESSEE
Shelby Cnty Hlth, Edl & Hsg Facil Brd,
Tennessee (Methodist Hlthcare) (MBIA
Insured), Hosp Rev, Series 1998,
5.500%, 4/1/2008 $ 4,075,000 4,210,453
================================================================================
3.91 TEXAS
Austin, Texas (AMBAC Insured), Combined
Util Systems Rev Ref, Series 1992, Cap
Appreciation, 11/15/2011 $ 1,400,000 729,932
Austin, Texas, Wtr Swr & Elec Ref Rev,
Series 1982, 14.000%, 11/15/2001
Prerefunded 1995 $ 5,000 5,324
Refunded 1998 $ 35,000 38,674
Unrefunded Balance 1998 $ 305,000 340,196
Galena Park Indpt School Dist, Texas
(Harris Cnty) (PSFG Insured), Unltd Tax
School Bldg & Ref, Series 1996, Cap
Appreciation, 8/15/2023 $ 3,220,000 810,925
Goose Creek Cons Indpt School Dist,
Texas (PSFG Insured), Unltd Tax Ref,
Series 1998, 5.000%, 2/15/2010 $ 2,575,000 2,548,993
Harris Cnty, Texas (MBIA Insured), Toll
Road Unltd Tax & Sub Lien Rev, Series
1994A, 6.500%, 8/15/2013 $ 500,000 559,045
Katy Indpt School Dist, Texas (Fort Bend,
Harris & Waller Cntys) (PSFG Insured),
Ltd Tax School Bldg, Series 1996, 7.500%,
2/15/2006 $ 150,000 170,970
Lubbock Hlth Facils Dev, Texas (St Joseph
Hlth System), Rev, Series 1998, 5.250%,
7/1/2013 $ 2,000,000 1,917,560
Texas Muni Pwr Agency (MBIA Insured), Ref
Rev, Series 1993, 5.250%, 9/1/2006 $ 325,000 333,778
Trinity River Indl Dev Auth, Texas (Intl
Paper Proj), Rev Ref, 1993 Series,
4.900%, 12/1/2002 $ 25,000 25,117
================================================================================
7,480,514
0.51 UTAH
Utah Hsg Fin Agency (FHA/VA/FHMA Insured),
Single Family Mtg, 1994 Issue D-1 Term
Mezzanine, 6.450%, 7/1/2011 $ 945,000 975,098
================================================================================
0.54 VERMONT
Vermont Hsg Fin Agency, Single Family
Hsg Rev, Series 5, 6.875%, 11/1/2016 $ 1,000,000 1,041,230
================================================================================
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
1.10 VIRGINIA
Rivanna Wtr & Swr Auth, Virginia, Regl Wtr
& Swr System Ref Rev, Series of 1993,
4.500%, 10/1/2000 $ 50,000 $ 50,417
Virginia Pub School Auth, School Fing &
Ref, Series 1998 A, 5.250%, 8/1/2007 $ 2,000,000 2,061,380
================================================================================
2,111,797
3.25 WASHINGTON
Grant Cnty Pub Util Dist #2, Washington,
Hydroelectric Dev Rev,Second Series 1990,
(Priest Rapids), 7.700%, 1/1/2018 $ 3,000,000 3,095,430
(Wanapum), 7.700%, 1/1/2018 $ 1,050,000 1,083,222
North Thurston Cnty School Dist #3,
Washington, Unlmtd Tax Gen Oblig, Series
1992, 6.500%, 12/1/2009 $ 1,400,000 1,475,754
Washington Hlth Care Facils Auth (Catholic
Hlth Initiatives) (MBIA Insured), Rev,
Series 1997A, 5.100%, 12/1/2009 $ 100,000 99,946
Washington Pub Pwr Supply System (Nuclear
Proj #1), Ref Rev, Series 1993A, 5.300%,
7/1/2002 $ 400,000 407,000
Wenatchee, Washington, Wtr & Swr Rev Ref,
1994 Series, 4.600%, 12/1/2002 $ 65,000 65,209
================================================================================
6,226,561
3.62 WISCONSIN
Adams Cnty, Wisconsin (Adams-Friendship
School Dist)(AMBAC Insured), Gen Oblig
Ref, 6.500%, 4/1/2015 $ 1,340,000 1,493,698
Merrill Area Common Pub School Dist,
Wisconsin (Lincoln, Langlade & Marathon
Cntys) (FSA Insured), Gen Oblig Ref,
6.500%, 4/1/2007 $ 100,000 110,030
Southeast Wisconsin Professional Baseball
Park Dist (MBIA Insured), Sales Tax Rev
Ref, Series 1998A, 5.500%, 12/15/2019 $ 5,370,000 5,317,428
================================================================================
6,921,156
0.11 WYOMING
Platte Cnty, Wyoming (Basin Elec Pwr
Cooperative-Laramie River Station Proj)
(MBIA Insured), PCR Ref, Series 1994,
5.100%, 1/1/2008 $ 200,000 202,172
================================================================================
TOTAL MUNICIPAL BONDS (Cost $179,783,187) 178,530,921
================================================================================
6.68 SHORT-TERM INVESTMENTS -- MUNICIPAL NOTES
0.16 ALABAMA
Stevenson Indl Dev Brd, Alabama (Mead Proj)
(LOC-Credit Suisse First Boston),
Environmental Impt Rev Ref,
DATES, Series 1986, 3.050%, 11/1/2016(h) $ 300,000 300,000
================================================================================
0.26 CALIFORNIA
Los Angeles Regl Airports Impt, California
(American Airlines/Los Angeles Intl
Airport) (LOC-Wachovia Bank), AR, Facils
Sublease FDR, Issue 1984, Series LAX 2,
3.100%, 12/1/2025(h) $ 500,000 500,000
================================================================================
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
1.58 GEORGIA
Atlanta, Georgia (Delta Air Lines Proj),
Special Purpose Facils Rev, Series
1989B, 7.400%, 12/1/1999 $ 3,000,000 $ 3,019,230
================================================================================
0.32 INDIANA
Indiana Hosp Equip Fing Auth (MBIA
Insured), VR, Rev, Series A, 3.250%,
12/1/2015(h) $ 600,000 600,000
================================================================================
1.67 MASSACHUSETTS
Massachusetts Hlth & Edl Facils Auth (MBIA
Insured), VRD Rev, Cap Asset Prog Issue,
Series D, 1.965%, 1/1/2035(h) $ 3,200,000 3,200,000
================================================================================
0.26 MICHIGAN
Delta Cnty Econ Dev, Michigan (Mead-
Escanaba Paper Proj) (LOC-Nova Scotia
Bank), ATS, Environmental Impt Rev Ref,
1985 Series C, 2.800%, 12/1/2023(h) $ 500,000 500,000
================================================================================
0.26 NORTH DAKOTA
Grand Forks, North Dakota (United Hosp
Obligated Group) (LOC-LaSalle Natl Bank),
VR, Hosp Hlthcare Facils Rev, Series
1992B, 3.100%, 12/1/2016(h) $ 500,000 500,000
================================================================================
0.13 SOUTH DAKOTA
South Dakota Student Ln Fin (Student Lns
Insured), Student Ln Rev, Series 1994-A,
5.850%, 8/1/2000 $ 250,000 254,492
================================================================================
1.73 TENNESSEE
Chattanooga-Hamilton Cnty Hosp Auth,
Tennessee (Erlanger Med Ctr) (LOC-Morgan
Gty Trust), VR, Hosp Rev Ref, Series
1987, 3.000%, 10/1/2017(h) $ 3,300,000 3,300,000
================================================================================
0.31 TEXAS
Lone Star Airport Impt Auth, Texas
(American Airlines Proj) (LOC-Royal Bank
of Canada), VR, Multiple Mode Demand
Rev, Series A-4, 3.100%, 12/1/2014(h) $ 600,000 600,000
================================================================================
TOTAL MUNICIPAL SHORT-TERM NOTES
(Amortized Cost $12,755,754) 12,773,722
================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $192,538,941)(g) $191,304,643
================================================================================
U.S. Government Securities Fund
98.46% FIXED INCOME SECURITIES
44.37% US GOVERNMENT OBLIGATIONS
US Treasury Bonds
8.125%, 8/15/2019 $10,000,000 $ 11,806,250
7.500%, 11/15/2016 $10,000,000 11,046,880
6.125%, 8/15/2029 $ 1,000,000 1,007,813
<PAGE>
SHARES OR
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
5.250%, 2/15/2029 $ 12,500,000 $ 10,917,974
================================================================================
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $38,093,140) 34,778,917
================================================================================
54.09% US GOVERNMENT AGENCY OBLIGATIONS
Freddie Mac, Gold, Participation
Certificates
6.500%, 7/1/2008 $ 8,642,951 8,491,353
6.500%, 8/1/2008 $ 1,987,696 1,952,831
Government National Mortgage Association I
Pass-Through Certificates
6.500%, 5/15/2029 $ 4,984,968 4,702,419
6.000%, 12/15/2028 $ 9,816,479 8,988,654
6.000%, 2/15/2029 $ 10,027,602 9,175,957
6.000%, 3/15/2029 $ 9,936,888 9,092,947
================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $44,924,298) 42,404,161
================================================================================
TOTAL FIXED INCOME SECURITIES (Cost $83,017,438) 77,183,078
================================================================================
1.54% SHORT-TERM INVESTMENTS -- REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 8/31/1999 due 9/1/1999 at 5.300%,
repurchased at $1,210,178 (Collaterized
by US Treasury Inflationary Index Bonds
due 4/15/2028 at 3.625%, value
$1,233,606) (Cost $1,210,000) $ 1,210,000 1,210,000
================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $84,227,438)(g) $ 78,393,078
================================================================================
(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 are acquired 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 a defaulted security with respect to cumulative interest
payments of $287,500 at August 31, 1999.
(e) Security is non-income producing.
(f) Security is an affiliated company (See Notes).
(g) Also represents cost for income tax purposes.
(h) All securities with a maturity date greater than one year have either a
variable rate, demand feature, optional or mandatory put resulting in an
effective maturity of one year or less. Rate shown reflects current rate.
<PAGE>
The following abbreviations may be used in portfolio descriptions:
AMBAC - American Municipal Bond Assurance Corporation
AR(h) - Adjustable Rate
ATS - Adjustable Tender Securities
FGIC - Flexible Guaranty Insurance
DATES(h) - Daily Adjustable Tax-Exempt Securities
FDR(h) - Flexible Demand Revenue
FRD(h) - Floating Rate Demand
FSA - Financial Security Assurance
LOC - Letter of Credit
MBIA - Municipal Bond Investors Association
PCR - Pollution Control Revenue
PSFG - Permanent School Fund Guarantee Program
UPDATES(h) - Unit Price Demand Tax-Exempt Securities
VR(h) - Variable Rate
(i) Rate is subject to change. Rate shown reflects current rate.
See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
INVESCO Bond Funds, Inc.
August 31, 1999
HIGH SELECT
YIELD INCOME
FUND FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 824,552,567 $ 571,443,827
================================================================================
At Value(a) $ 782,179,368 $ 542,096,900
Cash 22,216 40,101
Receivables:
Fund Shares Sold 1,745,669 1,000,722
Interest 12,686,992 8,887,676
Prepaid Expenses and Other Assets 93,768 90,893
================================================================================
TOTAL ASSETS 796,728,013 552,116,292
================================================================================
LIABILITIES
Payables:
Distributions to Shareholders 678,826 211,750
Investment Securities Purchased 0 324,194
Fund Shares Repurchased 2,464,556 1,984,318
Accrued Distribution Expenses 158,254 113,017
Accrued Expenses and Other Payables 89,804 44,851
================================================================================
TOTAL LIABILITIES 3,391,440 2,678,130
================================================================================
NET ASSETS AT VALUE $ 793,336,573 $ 549,438,162
================================================================================
NET ASSETS
Paid-in Capital(b) $ 871,977,780 $ 586,470,063
Accumulated Undistributed Net Investment Income 30,876 72,968
Accumulated Undistributed Net Realized Loss
on Investment Securities (36,298,884) (7,757,942)
Net Depreciation of Investment Securities (42,373,199) (29,346,927)
================================================================================
NET ASSETS AT VALUE $ 793,336,573 $ 549,438,162
================================================================================
Shares Outstanding 123,942,694 89,379,671
NET ASSET VALUE, Offering and Redemption
Price per Share $ 6.40 $ 6.15
================================================================================
(a) Investment securities at cost and value at August 31, 1999 include
repurchase agreements of $4,500,000 and $1,389,000 for High Yield and
Select Income Funds, respectively.
(b) The Fund has one billion 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 300 million have been allocated to Select Income Fund.
See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
INVESCO Bond Funds, Inc.
August 31, 1999
U.S.
TAX-FREE GOVERNMENT
BOND SECURITIES
FUND FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 192,538,941 $ 84,227,438
================================================================================
At Value(a) $ 191,304,643 $ 78,393,078
Cash 60,953 1,926
Receivables:
Fund Shares Sold 43,229 1,134,567
Interest 2,531,920 526,494
Prepaid Expenses and Other Assets 73,790 40,858
================================================================================
TOTAL ASSETS 194,014,535 80,096,923
================================================================================
LIABILITIES
Payables:
Distributions to Shareholders 164,091 26,145
Fund Shares Repurchased 1,936,204 133,655
Accrued Distribution Expenses 40,196 16,426
Accrued Expenses and Other Payables 38,240 22,004
================================================================================
TOTAL LIABILITIES 2,178,731 198,230
================================================================================
NET ASSETS AT VALUE $ 191,835,804 $ 79,898,693
================================================================================
NET ASSETS
Paid-in Capital(b) $ 192,620,858 $ 85,992,211
Accumulated Undistributed Net Investment Income 15,741 44,131
Accumulated Undistributed Net Realized Gain
(Loss) on Investment Securities 433,503 (303,289)
Net Depreciation of Investment Securities (1,234,298) (5,834,360)
================================================================================
NET ASSETS AT VALUE $ 191,835,804 $ 79,898,693
================================================================================
Shares Outstanding 13,199,414 11,736,763
NET ASSET VALUE, Offering and Redemption
Price per Share $ 14.53 $ 6.81
================================================================================
(a) Investment securities at cost and value at August 31, 1999 include a
repurchase agreement of $1,210,000 for U.S. Government Securities Fund.
(b) The Fund has one billion authorized shares of common stock, par value of
$0.01 per share. Of such shares, 100 million have been allocated to
Tax-Free Bond Fund and 100 million have been allocated to U.S. Government
Securities Fund.
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
INVESCO Bond Funds, Inc.
Year Ended August 31, 1999
HIGH SELECT
YIELD INCOME
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 2,883,369 $ 0
Interest 79,537,778 40,663,678
================================================================================
TOTAL INCOME 82,421,147 40,663,678
================================================================================
EXPENSES
Investment Advisory Fees 3,245,140 2,670,224
Distribution Expenses 2,037,617 1,336,175
Transfer Agent Fees 1,560,584 1,519,741
Administrative Fees 204,752 140,510
Custodian Fees and Expenses 95,278 82,875
Directors' Fees and Expenses 41,405 31,420
Interest Expense 339,347 0
Professional Fees and Expenses 40,302 27,644
Registration Fees and Expenses 166,974 189,618
Reports to Shareholders 274,829 176,457
Other Expenses 39,801 28,260
================================================================================
TOTAL EXPENSES 8,046,029 6,202,924
Fees and Expenses Absorbed by Investment Adviser 0 (536,940)
Fees and Expenses Paid Indirectly (59,470) (53,094)
================================================================================
NET EXPENSES 7,986,559 5,612,890
================================================================================
NET INVESTMENT INCOME 74,434,588 35,050,788
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES
Net Realized Loss on Investment Securities (36,200,631) (6,529,232)
Change in Net Appreciation (Depreciation) of
Investment Securities 24,051,849 (29,276,206)
================================================================================
NET LOSS ON INVESTMENT SECURITIES (12,148,782) (35,805,438)
================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ 62,285,806 $ (754,650)
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO Bond Funds, Inc.
TAX-FREE BOND FUND
PERIOD YEAR
ENDED ENDED
AUGUST 31 JUNE 30
- --------------------------------------------------------------------------------
1999 1999
(Note 1)
INVESTMENT INCOME
INTEREST INCOME $ 1,675,372 $ 10,304,996
================================================================================
EXPENSES
Investment Advisory Fees 185,151 1,149,834
Distribution Expenses 84,160 522,652
Transfer Agent Fees 43,473 252,005
Administrative Fees 16,815 49,494
Custodian Fees and Expenses 1,914 25,248
Directors' Fees and Expenses 3,065 18,696
Professional Fees and Expenses 6,727 34,854
Registration Fees and Expenses 16,642 49,112
Reports to Shareholders 22,802 67,396
Other Expenses 3,908 38,396
================================================================================
TOTAL EXPENSES 384,657 2,207,687
Fees and Expenses Absorbed by Investment
Adviser (80,439) (310,487)
Fees and Expenses Paid Indirectly (1,270) (15,280)
================================================================================
NET EXPENSES 302,948 1,881,920
================================================================================
NET INVESTMENT INCOME 1,372,424 8,423,076
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES
Net Realized Gain (Loss) on
Investment Securities (224,714) 2,734,848
Change in Net Appreciation of
Investment Securities (2,213,390) (8,012,486)
================================================================================
NET LOSS ON INVESTMENT SECURITIES (2,438,104) (5,277,638)
================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ (1,065,680) $ 3,145,438
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO Bond Funds, Inc.
Year Ended August 31, 1999
U.S.
GOVERNMENT
SECURITIES
FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INTEREST INCOME $ 4,170,884
================================================================================
EXPENSES
Investment Advisory Fees 395,611
Distribution Expenses 179,823
Transfer Agent Fees 333,566
Administrative Fees 27,813
Custodian Fees and Expenses 14,500
Directors' Fees and Expenses 12,199
Professional Fees and Expenses 18,433
Registration Fees and Expenses 69,199
Reports to Shareholders 95,421
Other Expenses 4,162
================================================================================
TOTAL EXPENSES 1,150,727
Fees and Expenses Absorbed by Investment Adviser (422,317)
Fees and Expenses Paid Indirectly (8,859)
================================================================================
NET EXPENSES 719,551
================================================================================
NET INVESTMENT INCOME 3,451,333
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES
Net Realized Gain on Investment Securities 110,430
Change in Net Depreciation of Investment Securities (6,306,012)
================================================================================
NET LOSS ON INVESTMENT SECURITIES (6,195,582)
================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (2,744,249)
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
High Yield Fund
YEAR ENDED AUGUST 31
- --------------------------------------------------------------------------------
1999 1998
OPERATIONS
Net Investment Income $ 74,434,588 $ 59,460,048
Net Realized Gain (Loss) on Investment
Securities (36,200,631) 32,888,835
Change in Net Appreciation (Depreciation)
of Investment Securities 24,051,849 (75,240,209)
================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS 62,285,806 17,108,674
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (74,435,367) (59,476,726)
Net Realized Gain on Investment Securities 0 (30,288,153)
In Excess of Net Realized Gain on Investment
Securities (24,616,173) 0
================================================================================
TOTAL DISTRIBUTIONS (99,051,540) (89,764,879)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 1,378,371,257 1,042,691,975
Reinvestment of Distributions 86,094,100 76,691,873
================================================================================
1,464,465,357 1,119,383,848
Amounts Paid for Repurchases of Shares (1,275,757,061) (876,298,646)
================================================================================
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 188,708,296 243,085,202
================================================================================
TOTAL INCREASE IN NET ASSETS 151,942,562 170,428,997
NET ASSETS
Beginning of Period 641,394,011 470,965,014
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income of
$30,876 and $18,665, respectively) $ 793,336,573 $ 641,394,011
================================================================================
----------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 210,553,094 140,608,922
Shares Issued from Reinvestment of Distributions 13,182,355 10,496,776
================================================================================
223,735,449 151,105,698
Shares Repurchased (194,736,532) (119,368,526)
================================================================================
NET INCREASE IN FUND SHARES 28,998,917 31,737,172
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
Select Income Fund
YEAR ENDED AUGUST 31
- --------------------------------------------------------------------------------
1999 1998
OPERATIONS
Net Investment Income $ 35,050,788 $ 24,383,685
Net Realized Gain (Loss) on Investment Securities (6,529,232) 9,584,731
Change in Net Depreciation of Investment
Securities (29,276,206) (2,723,693)
================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS (754,650) 31,244,723
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (35,047,792) (24,420,934)
Net Realized Gain on Investment Securities (1,765,695) (8,101,485)
In Excess of Net Realized Gain on Investment
Securities (7,747,843) 0
================================================================================
TOTAL DISTRIBUTIONS (44,561,330) (32,522,419)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 421,924,213 447,676,089
Reinvestment of Distributions 41,699,537 29,357,565
Net Assets Received from Acquisition of
Short-Term Bond Fund (Note 3) 17,295,250 0
================================================================================
480,919,000 477,033,654
Amounts Paid for Repurchases of Shares (388,789,138) (260,749,761)
================================================================================
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 92,129,862 216,283,893
================================================================================
TOTAL INCREASE IN NET ASSETS 46,813,882 215,006,197
NET ASSETS
Beginning of Period 502,624,280 287,618,083
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income of
$72,968 and $69,972, respectively) $ 549,438,162 $ 502,624,280
================================================================================
----------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 64,797,931 66,530,497
Shares Issued from Reinvestment of Distributions 6,431,237 4,376,447
Shares Issued in Connection with Acquisition of
Short-Term Bond Fund (Note 3) 2,767,609 0
================================================================================
73,996,777 70,906,944
Shares Repurchased (59,917,117) (38,783,681)
================================================================================
NET INCREASE IN FUND SHARES 14,079,660 32,123,263
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
Tax-Free Bond Fund
PERIOD ENDED
AUGUST 31 YEAR ENDED JUNE 30
- --------------------------------------------------------------------------------
1999 1999 1998
(Note 1)
OPERATIONS
Net Investment Income $ 1,372,424 $ 8,423,076 $ 8,836,825
Net Realized Gain (Loss) on
Investment Securities (224,714) 2,734,848 3,733,310
Change in Net Appreciation of
Investment Securities (2,213,390) (8,012,486) 1,943,163
================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS (1,065,680) 3,145,438 14,513,298
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (1,372,389) (8,422,999) (8,836,825)
Net Realized Gain on Investment
Securities and Futures Contracts 0 (6,238,148) (2,405,462)
================================================================================
TOTAL DISTRIBUTIONS (1,372,389) (14,661,147) (11,242,287)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 4,467,683 76,105,580 73,871,498
Reinvestment of Distributions 1,001,308 11,143,364 8,527,627
Net Assets Received from Acquisition
of Tax-Free Intermediate Bond
Fund (Note 3) 0 6,067,497 0
================================================================================
5,468,991 93,316,441 82,399,125
Amounts Paid for Repurchases of Shares (12,986,028) (91,480,968) (94,609,312)
================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (7,517,037) 1,835,473 (12,210,187)
================================================================================
TOTAL DECREASE IN NET ASSETS (9,955,106) (9,680,236) (8,939,176)
NET ASSETS
Beginning of Period 201,790,910 211,471,146 220,410,322
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income
of $15,741, $15,706 and $2,750,
respectively) $191,835,804 $201,790,910 $211,471,146
================================================================================
----------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 306,314 4,882,612 4,748,107
Shares Issued from Reinvestment of
Distributions 68,476 724,248 546,335
Shares Issued in Connection with
Acquisition of Tax-Free
Intermediate Bond Fund (Note 3) 0 406,050 0
================================================================================
374,790 6,012,910 5,294,442
Shares Repurchased (890,035) (5,883,609) (6,077,593)
================================================================================
NET INCREASE (DECREASE) IN FUND SHARES (515,245) 129,301 (783,151)
================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
U.S. Government Securities Fund
YEAR ENDED AUGUST 31
- --------------------------------------------------------------------------------
1999 1998
OPERATIONS
Net Investment Income $ 3,451,333 $ 2,700,296
Net Realized Gain on Investment Securities 110,430 5,191,748
Change in Net Depreciation of
Investment Securities (6,306,012) (685,916)
================================================================================
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS (2,744,249) 7,206,128
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (3,451,333) (2,700,296)
Net Realized Gain on Investment Securities (4,863,438) (1,103,906)
In Excess of Net Realized Gain on Investment
Securities (305,306) 0
================================================================================
TOTAL DISTRIBUTIONS (8,620,077) (3,804,202)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 177,382,649 161,798,727
Reinvestment of Distributions 8,027,013 3,423,772
Net Assets Received from Acquisition of
Intermediate Government Bond Fund (Note 3) 22,786,723 0
================================================================================
208,196,385 165,222,499
Amounts Paid for Repurchases of Shares (196,418,206) (140,720,399)
================================================================================
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 11,778,179 24,502,100
================================================================================
TOTAL INCREASE IN NET ASSETS 413,853 27,904,026
NET ASSETS
Beginning of Period 79,484,840 $ 51,580,814
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income of
$44,131 and $7,539, respectively) $ 79,898,693 $ 79,484,840
================================================================================
----------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 23,153,199 20,773,244
Shares Issued from Reinvestment of Distributions 1,080,738 441,618
Shares Issued in Connection with Acquisition of
Intermediate Government Bond Fund (Note 3) 3,275,274 0
================================================================================
27,509,211 21,214,862
Shares Repurchased (25,723,274) (18,146,732)
================================================================================
NET INCREASE IN FUND SHARES 1,785,937 3,068,130
================================================================================
See Notes to Financial Statements
<PAGE>
INVESCO Notes to financial statements - INVESCO Bond Funds, Inc.
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, Tax-Free 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 Funds are: to seek a
high level of current income for High Yield and Select Income Funds; to seek as
high a level of current income exempt from federal income taxes as is consistent
with preservation of capital for Tax-Free 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.
On May 20, 1999, shareholders of Tax-Free Bond Fund approved an Agreement and
Plan of Conversion and Termination providing for the conversion of Tax-Free Bond
Fund from a separate series of INVESCO Tax-Free Income Funds, Inc. to a separate
series of INVESCO Bond Funds, Inc., effective August 20, 1999.
On May 20, 1999, shareholders of the Funds approved an Agreement and Plan of
Reorganization and Termination in which the following Funds which were
previously series' of INVESCO Bond Funds, Inc., INVESCO Tax-Free Income Funds,
Inc. and INVESCO Value Trust, respectively, merged: Short-Term Bond Fund
("Target Fund") into INVESCO Bond Funds, Inc. - Select Income Fund ("Surviving
Fund"), Tax-Free Intermediate Bond Fund ("Target Fund") into INVESCO Tax-Free
Income Fund, Inc. - Tax-Free Bond Fund ("Surviving Fund") and Intermediate
Government Bond Fund ("Target Fund") into INVESCO Bond Funds, Inc. - U.S.
Government Securities Fund ("Surviving Fund"), effective close of business on
June 4, 1999. Shareholders of the Target Funds became shareholders of the
Surviving Funds and received shares of the Surviving Funds equal in dollar value
to the then current value of their shares in the Target Funds.
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.
Municipal securities (including commitments to purchase such securities on a
when-issued basis) are valued on the basis of prices provided by a pricing
service approved by the Fund's board of directors which, in determining values,
uses information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various relationships
between securities. Under these procedures, municipal securities are valued
based upon market quotations, if available.
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.
<PAGE>
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.
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 purchase date method. Discounts and premiums on debt
securities 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 in 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 and Select Income Funds may have elements of risk due to concentrated
investments in specific industries or foreign issuers located in a specific
country. Such concentrations may subject these Funds 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.
High Yield, Select Income and U.S. Government Securities Funds incurred and
elected to defer post-October 31 capital losses of $34,244,653, $7,757,789 and
$308,126, respectively, to the year ended August 31, 2000. At August 31, 1999,
High Yield Fund had $2,045,175 and Tax-Free Bond Fund had $30,762 and $224,714
in net capital loss carryovers which expire in the years 2007, 2001 and 2007,
respectively. The capital loss carryover from INVESCO Tax-Free Funds, Inc. -
Tax-Free Intermediate Bond Fund (which was acquired by Tax-Free Bond Fund on
June 4, 1999), is subject to certain limitations under the Internal Revenue
Code.
To the extent future capital gains and income are offset by capital loss
carryovers and deferred post-October 31 losses, such gains and income will not
be distributed to shareholders. Of the ordinary income distributions declared
for the year ended August 31, 1999, 2.95% for High Yield Fund qualified for the
dividends received deduction available to the Fund's corporate 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. Of the ordinary income distributions
declared for the period ended August 31, 1999, 99.50% were exempt from federal
income taxes for Tax-Free Bond Fund.
<PAGE>
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 mortgaged-backed
securities, market discounts, amortized premiums, nontaxable dividends, net
operating losses and expired capital loss carryforwards.
For the year/period ended August 31, 1999, the effects of such differences were
as follows:
ACCUMULATED
ACCUMULATED UNDISTRIBUTED
UNDISTRIBUTED NET REALIZED
NET GAIN ON
INVESTMENT INVESTMENT PAID-IN
FUND INCOME SECURITIES CAPITAL
- --------------------------------------------------------------------------------
High Yield Fund $ 12,990 $ (12,990) $ 0
U.S. Government Securities Fund 36,592 2,017 (38,609)
Net investment income, net realized gains (losses) and net assets were not
affected.
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.
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 TO OVER
$300 $500 $500
FUND MILLION MILLION MILLION
- --------------------------------------------------------------------------------
High Yield Fund 0.50% 0.40% 0.30%
Select Income Fund 0.55% 0.45% 0.35%
Tax-Free Bond Fund 0.55% 0.45% 0.35%
U.S. Government Securities Fund 0.55% 0.45% 0.35%
A plan of distribution pursuant to Rule 12b-1 of the Act ("the Plan") 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 year/period
ended, August 31, 1999, High Yield, Select Income, Tax-Free Bond and U.S.
Government Securities Funds paid the Distributor $2,032,749, $1,321,787, $85,752
and $176,399 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.
<PAGE>
In accordance with an Administrative Services Agreement, each Fund paid 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. Effective May 13, 1999,
each Fund pays IFG an annual fee of $10,000, plus an additional amount computed
at an annual rate of 0.045% of average net assets.
IFG has voluntarily agreed to absorb certain fees and expenses incurred by
Select Income, Tax-Free Bond and U.S. Government Securities Funds.
Effective May 1, 1999, a 2% redemption fee is retained by High Yield Fund to
offset transaction costs and other expenses associated with short-term
redemptions and exchanges. The fee is imposed on redemptions or exchanges of
shares held less than three months. The redemption fee is accounted for as an
addition to Paid-in Capital by High Yield Fund. Total redemption fees received
by High Yield Fund for the period ended August 31, 1999 were $305,819.
NOTE 3 -- ACQUISITION OF INVESCO BOND FUNDS, INC. - SHORT-TERM BOND FUND
("TARGET FUND I"), INVESCO TAX-FREE INCOME FUNDS, INC. - TAX-FREE INTERMEDIATE
BOND FUND ("TARGET FUND II") AND ACQUISITION OF INVESCO VALUE TRUST -
INTERMEDIATE GOVERNMENT BOND FUND ("TARGET FUND III").On June 4, 1999, Select
Income Fund acquired all the net assets of Target Fund I pursuant to an
Agreement and Plan of Reorganization and Termination approved by Target Fund I
shareholders on May 20, 1999. The acquisition was accomplished by a tax-free
exchange of 2,767,609 shares of Select Income Fund (valued at $17,295,250) for
1,816,970 shares of Target Fund I outstanding on June 4, 1999. Target Fund I's
net assets at that date ($17,295,250) including $61,116 of unrealized
depreciation, were combined with those of Select Income Fund. The aggregate net
assets of Select Income Fund and Target Fund I immediately before the
acquisition were $543,762,931 and $17,295,250, respectively. The net assets of
Select Income Fund after the acquisition were $561,058,181.
On June 4, 1999, Tax-Free Bond Fund acquired all the net assets of Target Fund
II pursuant to an Agreement and Plan of Reorganization and Termination approved
by Target Fund II shareholders on May 20, 1999. The acquisition was accomplished
by a tax-free exchange of 406,050 shares of Tax-Free Bond Fund (valued at
$6,067,497) for 605,338 shares of Target Fund II outstanding on June 4, 1999.
Target Fund II's net assets at that date ($6,067,497) including $74,932 of
unrealized appreciation, were combined with those of Tax-Free Bond Fund. The
aggregate net assets of Tax-Free Bond Fund and Target Fund II immediately before
the acquisition were $200,325,490 and $6,067,497, respectively. The net assets
of Tax-Free Bond Fund after the acquisition were $206,392,987.
On June 4, 1999, U.S. Government Securities Fund acquired all the net assets of
Target Fund III pursuant to an Agreement and Plan of Reorganization and
Termination approved by Target Fund III shareholders on May 20, 1999. The
acquisition was accomplished by a tax-free exchange of 3,275,274 shares of U.S.
Government Securities Fund (valued at $22,786,723) for 1,845,823 shares of
Target Fund III outstanding on June 4, 1999. Target Fund III's net assets at
that date ($22,786,723) including $238,936 of unrealized depreciation, were
combined with those of U.S. Government Securities Fund. The aggregate net assets
of U.S. Government Securities Fund and Target Fund III immediately before the
acquisition were $64,047,158 and $22,786,723, respectively. The net assets of
U.S. Government Securities Fund after the acquisition were $86,833,881.
NOTE 4 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year/period
ended August 31, 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 $ 1,293,753,012 $ 1,186,939,075
Select Income Fund 725,490,871 651,474,723
Tax-Free Bond Fund 5,032,200 6,921,785
<PAGE>
For the year/period ended August 31, 1999, the aggregate cost of purchases and
proceeds from the sales of U.S. Government securities were as follows:
FUND PURCHASES SALES
- --------------------------------------------------------------------------------
High Yield Fund $ 16,990,695 $ 17,077,906
Select Income Fund 43,404,344 49,125,141
U.S. Government Securities Fund 77,357,274 83,426,537
NOTE 5 -- APPRECIATION AND DEPRECIATION. At August 31, 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 depreciation by Fund were as follows:
GROSS GROSS NET
FUND APPRECIATION DEPRECIATION DEPRECIATION
- -------------------------------------------------------------------------------
High Yield Fund $ 4,173,522 $ 46,552,997 $(42,379,475)
Select Income Fund 1,052,277 30,405,610 (29,353,333)
Tax-Free Bond Fund 2,789,086 4,023,384 (1,234,298)
U.S. Government Securities Fund 4,098 5,838,458 (5,834,360)
NOTE 6 -- TRANSACTIONS WITH AFFILIATES AND AFFILIATED COMPANIES. Certain of the
Funds' officers and directors are also officers and directors of IFG or IDI.
Each 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 meeting attendance fees.
Pension expenses for the year/period ended August 31, 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 $ 13,823 $ 23,348 $ 58,910
Select Income Fund 9,900 16,487 41,005
Tax-Free Bond Fund 665 14,516 35,657
U.S. Government Securities Fund 1,741 5,067 12,761
The independent directors have contributed to a deferred fee agreement 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
Funds, excluding the INVESCO Variable Investment Funds.
<PAGE>
An affiliated company represents ownership by a 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 year ended August 31, 1999, in which the
issuer was an affiliate of the Fund, is as follows:
<TABLE>
<CAPTION>
REALIZED
PURCHASES SALES GAIN ON
---------------------------------------------------- INVESTMENTS VALUE AT
AFFILIATE SHARES COST SHARES COST SECURITIES 8/31/99
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HIGH YIELD FUND
Global Crossings Holdings
Ltd, Sr Exchangeable
Pfd, 10.500% 322,000 $31,969,500 117,000 $11,700,000 $ 1,589,923 $ 20,500,000
</TABLE>
NOTE 7 -- LINE OF CREDIT. Each 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 August
31, 1999, there were no such borrowings.
---------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
INVESCO Bond Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of INVESCO High Yield Fund, INVESCO
Select Income Fund, INVESCO Tax-Free Bond Fund and INVESCO U.S. Government
Securities Fund, comprising INVESCO Bond Funds, Inc., (formerly INVESCO Income
Funds, Inc., hereafter referred to as the "Fund") at August 31, 1999, the
results of each of their operations for each of the periods indicated, the
changes in each of their net assets for each of the periods indicated, and the
financial highlights for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
October 6, 1999
<PAGE>
FINANCIAL HIGHLIGHTS
High Yield Fund
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
- -----------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value-- Beginning of Period $ 6.76 $ 7.45 $ 6.84 $ 6.73 $ 6.73
===========================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.60 0.64 0.62 0.63 0.66
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.19) (0.29) 0.64 0.11 0.03
==========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.41 0.35 1.26 0.74 0.69
==========================================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income(a) 0.60 0.64 0.62 0.63 0.66
Distributions from Capital Gains 0.00 0.40 0.03 0.00 0.00
In Excess of Capital Gains 0.17 0.00 0.00 0.00 0.03
==========================================================================================================
TOTAL DISTRIBUTIONS 0.77 1.04 0.65 0.63 0.69
==========================================================================================================
Net Asset Value-- End of Period $ 6.40 $ 6.76 $ 7.45 $ 6.84 $ 6.73
==========================================================================================================
TOTAL RETURN 6.53% 4.44% 19.27% 11.38% 11.12%
RATIOS
Net Assets-- End of Period
($000 Omitted) $793,337 $641,394 $470,965 $375,201 $ 288,959
Ratio of Expenses to Average Net
Assets(b) 0.99%(c) 0.86%(c) 1.00%(c) 0.99%(c) 1.00%
Ratio of Net Investment Income to
Average Net Assets(b) 9.13% 8.72% 8.71% 9.13% 10.01%
Portfolio Turnover Rate 154% 282% 129% 266% 201%
</TABLE>
(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) Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended August 31, 1996 and 1995. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 0.99% and
1.07%, respectively, and ratio of net investment income to average net
assets would have been 9.13% and 9.94%, respectively.
(c) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements.
<PAGE>
FINANCIAL HIGHLIGHTS
Select Income Fund
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
- -------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value-- Beginning of Period $ 6.68 $ 6.66 $ 6.35 $ 6.54 $ 6.18
=======================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.43 0.43 0.45 0.47 0.47
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.41) 0.19 0.34 (0.17) 0.36
=======================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.02 0.62 0.79 0.30 0.83
=======================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.43 0.43 0.45 0.46 0.47
In Excess of Net Investment Income(a) 0.00 0.00 0.00 0.01 0.00
Distributions from Capital Gains 0.02 0.17 0.03 0.02 0.00
In Excess of Capital Gains 0.10 0.00 0.00 0.00 0.00
=======================================================================================================
TOTAL DISTRIBUTIONS 0.55 0.60 0.48 0.49 0.47
=======================================================================================================
Net Asset Value-- End of Period $ 6.15 $ 6.68 $ 6.66 $ 6.35 $ 6.54
=======================================================================================================
TOTAL RETURN 0.15% 9.58% 12.89% 4.78% 14.01%
RATIOS
Net Assets-- End of Period
($000 Omitted) $549,438 $502,624 $287,618 $258,093 $216,597
Ratio of Expenses to Average Net
Assets(b) 1.06%(c) 1.06%(c) 1.03%(c) 1.01%(c) 1.00%
Ratio of Net Investment Income to
Average Net Assets(b) 6.56% 6.36% 6.98% 7.14% 7.38%
Portfolio Turnover Rate 135% 140% 263% 210% 181%
</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) Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended August 31, 1999, 1998, 1997, 1996 and 1995. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would
have been 1.16%, 1.10%, 1.21%, 1.16% and 1.22%, respectively, and ratio of
net investment income to average net assets would have been 6.46%, 6.32%,
6.80%, 6.99% and 7.16%, respectively.
(c) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements.
<PAGE>
FINANCIAL HIGHLIGHTS
Tax-Free Bond Fund
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31 YEAR ENDED JUNE 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999(a) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $ 14.71 $ 15.57 $ 15.34 $ 15.20 $ 15.07 $ 15.29
====================================================================================================================================
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.10 0.62 0.63 0.66 0.73 0.80
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.18) (0.40) 0.40 0.38 0.32 0.09
====================================================================================================================================
TOTAL FROM INVESTMENT
OPERATIONS (0.08) 0.22 1.03 1.04 1.05 0.89
====================================================================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.10 0.62 0.63 0.66 0.73 0.80
In Excess of Net Investment
Income 0.00 0.00 0.00 0.01 0.00 0.00
Distributions from Capital Gains 0.00 0.46 0.17 0.23 0.19 0.31
====================================================================================================================================
TOTAL DISTRIBUTIONS 0.10 1.08 0.80 0.90 0.92 1.11
====================================================================================================================================
Net Asset Value-- End of Period $ 14.53 $ 14.71 $ 15.57 $ 15.34 $ 15.20 $ 15.07
====================================================================================================================================
TOTAL RETURN (0.53%)(b) 1.30% 6.87% 7.05% 7.01% 6.16%
RATIOS
Net Assets --- End of Period
($000 Omitted) $191,836 $ 201,791 $ 211,471 $ 220,410 $ 250,890 $ 254,584
Ratio of Expenses to Average
Net Assets(c) 0.90%(d)(e) 0.91%(d) 0.91%(d) 0.90%(d) 0.91%(d) 0.92%
Ratio of Net Investment Income
to Average Net Assets(c) 4.08%(e) 4.03% 4.06% 4.36% 4.76% 5.31%
Portfolio Turnover Rate 3%(b) 66% 173% 123% 146% 99%
</TABLE>
(a) From July 1, 1999 to August 31, 1999, the Fund's current fiscal year end.
(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
period ended August 31, 1999 and for the years ended June 30 1999, 1998,
1997, 1996 and 1995. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 1.14% (annualized),
1.06%, 1.04%, 1.05%, 1.04% and 1.05%, respectively, and ratio of net
investment income to average net assets would have been 3.84%, (annualized)
3.88%, 3.93%, 4.21%, 4.63% and 5.18%, respectively.
(d) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
(e) Annualized
<PAGE>
FINANCIAL HIGHLIGHTS
U.S. Government Securities Fund
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
- -------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value-- Beginning of Period $ 7.99 $ 7.49 $ 7.15 $ 7.49 $ 7.10
=======================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.35 0.40 0.43 0.44 0.45
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.58) 0.67 0.34 (0.34) 0.39
=======================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.23) 1.07 0.77 0.10 0.84
=======================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.35 0.40 0.43 0.43 0.45
In Excess of Net Investment Income(a) 0.00 0.00 0.00 0.01 0.00
Distributions from Capital Gains 0.56 0.17 0.00 0.00 0.00
In Excess of Capital Gains 0.04 0.00 0.00 0.00 0.00
=======================================================================================================
TOTAL DISTRIBUTIONS 0.95 0.57 0.43 0.44 0.45
=======================================================================================================
Net Asset Value-- End of Period $ 6.81 $ 7.99 $ 7.49 $ 7.15 $ 7.49
=======================================================================================================
TOTAL RETURN (3.40%) 14.75% 11.01% 1.31% 12.37%
RATIOS
Net Assets-- End of Period
($000 Omitted) $ 79,899 $ 79,485 $51,581 $54,614 $38,087
Ratio of Expenses to Average Net
Assets(b) 1.01%(c) 1.01%(c) 1.01%(c) 1.02%(c) 1.00%
Ratio of Net Investment Income to
Average Net Assets(b) 4.80% 5.22% 5.78% 5.76% 6.24%
Portfolio Turnover Rate 114% 323% 139% 212% 99%
</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) Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended August 31, 1999, 1998, 1997, 1996 and 1995. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would
have been 1.60%, 1.41%, 1.32%, 1.48% and 1.51%, respectively, and ratio of
net investment income to average net assets would have been 4.21%, 4.82%,
5.47%, 5.30% and 5.73%, respectively.
(c) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
<PAGE>
OTHER INFORMATION
UNAUDITED
On May 20, 1999, a special meeting of the shareholders of High Yield, Select
Income and U.S. Government Funds was held at which the ten directors identified
below were elected. The selection of PricewaterhouseCoopers LLP as independent
accountants (Proposal 1) and the approval of changes to the fundamental
investment restrictions identified below (Proposal 2) were ratified. The
following is a report of the votes cast:
WITHHELD/
NOMINEE/PROPOSAL FOR AGAINST ABSTAIN TOTAL
- ----------------------------- --------------------------------------------------
HIGH YIELD FUND
Charles W. Brady 68,383,458 N/A 2,120,335 70,503,793
Fred A. Deering 68,383,416 N/A 2,120,377 70,503,793
Mark H. Williamson 68,448,622 N/A 2,055,171 70,503,793
Dr. Victor L. Andrews 68,457,723 N/A 2,046,070 70,503,793
Bob R. Baker 68,467,205 N/A 2,036,588 70,503,793
Lawrence H. Budner 68,470,577 N/A 2,033,216 70,503,793
Dr. Wendy Lee Gramm 68,453,498 N/A 2,050,295 70,503,793
Kenneth T. King 68,455,117 N/A 2,048,676 70,503,793
John W. McIntyre 68,484,771 N/A 2,019,022 70,503,793
Dr. Larry Soll 68,484,771 N/A 2,019,022 70,503,793
Proposal 1 67,849,066 863,890 1,790,837 70,503,793
Proposal 2
Modification of Fundamental
Investment Restrictions
on:
a -- Borrowing and adoption
of non-fundamental
restriction on borrowing 48,259,842 3,752,850 18,491,101 70,503,793
b --Investing in another
investment company 48,222,005 3,790,687 18,491,101 70,503,793
c --Issuer diversification 48,233,178 3,779,514 18,491,101 70,503,793
d --Loans 48,246,193 3,766,499 18,491,101 70,503,793
e --Investing in commodities 48,224,038 3,788,654 18,491,101 70,503,793
f --Real estate investments 48,274,540 3,738,152 18,491,101 70,503,793
g --Underwriting 48,274,234 3,738,458 18,491,101 70,503,793
h --Industry concentration 48,278,970 3,733,722 18,491,101 70,503,793
Elimination of Fundamental
Investment Restrictions on:
i -- Short sales and margin
purchases and adoption of
non-fundamental restriction
on short sales and margin
purchases 48,221,851 3,790,841 18,491,101 70,503,793
j -- Investments for the
purpose of exercising
control or management 48,253,075 3,759,617 18,491,101 70,503,793
<PAGE>
OTHER INFORMATION (CONTINUED)
WITHHELD/
NOMINEE/PROPOSAL FOR AGAINST ABSTAIN TOTAL
- ----------------------------- --------------------------------------------------
HIGH YIELD FUND (continued)
k -- Investments in
securities that are not
readily marketable,
entering into repurchase
agreements and adoption
of non-fundamental
restriction on investing
in illiquid securities 48,255,733 3,756,959 18,491,101 70,503,793
l -- Fund ownership of
securities also owned
by directors and officers
of each Fund or its
investment adviser 48,275,891 3,736,801 18,491,101 70,503,793
m -- Purchasing equity
securities and
securities convertible
into equity securities 48,295,672 3,717,020 18,491,101 70,503,793
n -- Investing in
securities of newly-
formed issuers 48,245,912 3,766,780 18,491,101 70,503,793
o -- Investing in oil, gas
or other mineral interest
or exploration programs 48,222,535 3,790,157 18,491,101 70,503,793
p -- Joint trading
activities and purchase
of warrants 48,225,228 3,787,464 18,491,101 70,503,793
Adoption of Fundamental
Investment Restrictions on:
q -- Issuance of senior
securities 48,295,674 3,717,018 18,491,101 70,503,793
SELECT INCOME FUND
Charles W. Brady 49,309,362 N/A 1,280,691 50,590,053
Fred A. Deering 49,333,873 N/A 1,256,180 50,590,053
Mark H. Williamson 49,345,131 N/A 1,244,922 50,590,053
Dr. Victor L. Andrews 49,374,408 N/A 1,215,645 50,590,053
Bob R. Baker 49,369,657 N/A 1,220,396 50,590,053
Lawrence H. Budner 49,373,917 N/A 1,216,136 50,590,053
Dr. Wendy Lee Gramm 49,382,803 N/A 1,207,250 50,590,053
Kenneth T. King 49,365,572 N/A 1,224,481 50,590,053
John W. McIntyre 49,381,042 N/A 1,209,011 50,590,053
Dr. Larry Soll 49,386,394 N/A 1,203,659 50,590,053
Proposal 1 49,084,148 281,857 1,224,048 50,590,053
Proposal 2
Modification of Fundamental
Investment Restrictions
on:
a -- Borrowing and adoption
of non-fundamental
restriction on borrowing 36,822,415 1,475,850 12,291,788 50,590,053
<PAGE>
OTHER INFORMATION (CONTINUED)
WITHHELD/
NOMINEE/PROPOSAL FOR AGAINST ABSTAIN TOTAL
- ----------------------------- --------------------------------------------------
SELECT INCOME FUND (continued)
b -- Investing in another
investment company 36,833,628 1,464,637 12,291,788 50,590,053
c --Issuer diversification 36,810,470 1,487,795 12,291,788 50,590,053
d --Loans 36,837,933 1,460,332 12,291,788 50,590,053
e --Investing in commodities 36,814,676 1,483,589 12,291,788 50,590,053
f --Real estate investments 36,854,176 1,444,089 12,291,788 50,590,053
g --Underwriting 36,860,329 1,437,936 12,291,788 50,590,053
h --Industry concentration 36,855,710 1,442,555 12,291,788 50,590,053
Elimination of Fundamental
Investment Restrictions on:
i -- Short sales and margin
purchases and adoption of
non-fundamental restriction
on short sales and margin
purchases 36,803,656 1,494,609 12,291,788 50,590,053
j -- Investments for the
purpose of exercising
control or management 36,839,029 1,459,236 12,291,788 50,590,053
k -- Investments in
securities that are not
readily marketable,
entering into repurchase
agreements, and adoption of
non-fundamental restriction
on investing in illiquid
securities 36,824,386 1,473,879 12,291,788 50,590,053
l -- Fund ownership of
securities also owned by
directors and officers of
each Fund or its
investment adviser 36,838,722 1,459,543 12,291,788 50,590,053
m -- Purchasing equity
securities and securities
convertible into equity
securities 36,861,035 1,437,230 12,291,788 50,590,053
n -- Investing in securities
of newly-formed issuers 36,813,955 1,484,310 12,291,788 50,590,053
o -- Investing in oil, gas
or other mineral interest
or exploration programs 36,831,689 1,466,576 12,291,788 50,590,053
p -- Joint trading activities
and purchase of warrants 36,833,506 1,464,759 12,291,788 50,590,053
Adoption of Fundamental
Investment Restrictions on:
q -- Issuance of senior
securities 36,868,744 1,429,521 12,291,788 50,590,053
<PAGE>
OTHER INFORMATION (CONTINUED)
WITHHELD/
NOMINEE/PROPOSAL FOR AGAINST ABSTAIN TOTAL
- ----------------------------- --------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND
Charles W. Brady 4,345,454 N/A 337,438 4,682,892
Fred A. Deering 4,345,897 N/A 336,995 4,682,892
Mark H. Williamson 4,350,859 N/A 332,033 4,682,892
Dr. Victor L. Andrews 4,338,971 N/A 343,921 4,682,892
Bob R. Baker 4,350,663 N/A 332,229 4,682,892
Lawrence H. Budner 4,353,719 N/A 329,173 4,682,892
Dr. Wendy Lee Gramm 4,354,443 N/A 328,449 4,682,892
Kenneth T. King 4,354,089 N/A 328,803 4,682,892
John W. McIntyre 4,354,971 N/A 327,921 4,682,892
Dr. Larry Soll 4,354,971 N/A 327,921 4,682,892
Proposal 1 4,267,445 61,245 354,202 4,682,892
Proposal 2
Modification of Fundamental
Investment Restrictions on:
a -- Borrowing and adoption of
non-fundamental restriction
on borrowing 3,199,837 356,729 1,126,326 4,682,892
b --Investing in another
investment company 3,202,307 354,259 1,126,326 4,682,892
c --Issuer diversification 3,200,600 355,966 1,126,326 4,682,892
d --Loans 3,201,369 355,197 1,126,326 4,682,892
e --Investing in commodities 3,198,451 358,115 1,126,326 4,682,892
f --Real estate investments 3,203,086 353,480 1,126,326 4,682,892
g --Underwriting 3,205,291 351,275 1,126,326 4,682,892
h --Industry concentration 3,202,589 353,977 1,126,326 4,682,892
Elimination of Fundamental
Investment Restrictions on:
i -- Short sales and margin
purchases and adoption of
non-fundamental restriction
on short sales and margin
purchases 3,199,239 357,327 1,126,326 4,682,892
j -- Investments for the
purpose of exercising
control or management 3,205,455 351,111 1,126,326 4,682,892
k -- Investments in securities
that are not readily
marketable, entering into
repurchase agreements, and
adoption of non-fundamental
restriction on investing in
illiquid securities 3,203,295 353,271 1,126,326 4,682,892
<PAGE>
OTHER INFORMATION (CONTINUED)
WITHHELD/
NOMINEE/PROPOSAL FOR AGAINST ABSTAIN TOTAL
- ----------------------------- --------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND (continued)
l -- Fund ownership of securities
also owned by directors and
officers of each Fund or
its investment adviser 3,200,039 356,527 1,126,326 4,682,892
m -- Purchasing equity
securities and securities
convertible into equity
securities 3,204,891 351,675 1,126,326 4,682,892
n --Investing in securities
of newly-formed issuers 3,199,422 357,144 1,126,326 4,682,892
o -- Investing in oil, gas
or other mineral interest
or exploration programs 3,201,925 354,641 1,126,326 4,682,892
p -- Joint trading activities
and purchase of warrants 3,202,387 354,179 1,126,326 4,682,892
Adoption of Fundamental
Investment Restrictions on:
q --Issuance of senior
securities 3,205,825 350,741 1,126,326 4,682,892
<PAGE>
INVESCO Family of Funds
Newspaper
Fund Name Fund Code Ticker Symbol Abbreviation
- --------------------------------------------------------------------------------
Stock
Growth & Income 21 IVGIX Gro&Inc
Blue Chip Growth 10 FLRFX BlChpGro
Dynamics 20 FIDYX Dynm
Small Company Growth 60 FIEGX SmCoGth
INVESCO Endeavor 61 IVENX Endeavor
Value Equity 46 FSEQX ValEq
S&P 500 Index Fund-Class II 23 ISPIX SP500II
- --------------------------------------------------------------------------------
Bond
U.S. Government Securities 32 FBDGX USGvt
Select Income 30 FBDSX SelInc
High Yield 31 FHYPX HiYld
Tax-Free Bond (formerly
Tax-Free Long-Term Bond) 35 FTIFX TxFre
- --------------------------------------------------------------------------------
Combination Stock & Bond
Equity Income (formerly
Industrial Income) 15 FIIIX EquityInc
Total Return 48 FSFLX TotRtn
Balanced 71 IMABX Bal
- --------------------------------------------------------------------------------
Sector
Energy 50 FSTEX Enrgy
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
Telecommunications 39 ISWCX Telecomm
(formerly Worldwide Communications)
Utilities 58 FSTUX Util
- --------------------------------------------------------------------------------
International
International Blue Chip 09 IIBCX ItlBlChp
Pacific Basin 54 FPBSX PcBas
European 56 FEURX Europ
Latin American Growth 34 IVSLX LtnAmerGr
- --------------------------------------------------------------------------------
Money Market
U.S. Government Money 44 FUGXX InvGvtMF
Cash Reserves 25 FDSXX InvCshR
Tax-Free Money 40 FFRXX InvTaxFree
Treasurer's Money Market Reserve 96 IMRXX InvescoMMR
Treasurer's Tax-Exempt Reserve 95 ITTXX InvescoTTE
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>
YOU SHOULD
KNOW WHAT
INVESCO KNOWS (TM)
[INVESCO ICON] INVESCO
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, 3003 East Third Avenue, Suite 1
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.
AINC 9025 9/99
