As filed on December 12, 2000 File No. 002-57151
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ___ ___
Post-Effective Amendment No. 45 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 34 X
INVESCO BOND FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
7800 E. Union Avenue, Denver, Colorado 80237
(Address of Principal Executive Offices)
P.O. Box 173706, Denver, Colorado 80217-3706
(Mailing Address)
Registrant's Telephone Number, including Area Code: (303) 930-6300
Glen A. Payne, Esq.
7800 E. Union Avenue
Denver, Colorado 80237
(Name and Address of Agent for Service)
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Copies to:
Clifford J. Alexander, Esq. Ronald M. Feiman, Esq.
Kirkpatrick & Lockhart LLP Mayer, Brown & Platt
1800 Massachusetts Avenue, N.W. 675 Broadway
Second Floor New York, New York 10019-5820
Washington, D.C. 20036-1800
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Approximate Date of Proposed Public Offering: As soon as practicable after this
post-effective amendment becomes effective.
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
X on December 14, 2000, pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on ______________, pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on _________, pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
X this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
PROSPECTUS | DECEMBER 15, 2000
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YOU SHOULD KNOW WHAT INVESCO KNOWS (R)
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INVESCO BOND FUNDS, INC.
INVESCO HIGH YIELD FUND - CLASS K
INVESCO SELECT INCOME FUND - CLASS K
TWO MUTUAL FUNDS DESIGNED FOR INVESTORS SEEKING A HIGH LEVEL OF CURRENT INCOME.
CLASS K SHARES ARE SOLD TO QUALIFIED RETIREMENT PLANS, RETIREMENT SAVINGS
PROGRAMS, EDUCATIONAL SAVINGS PROGRAMS AND WRAP PROGRAMS PRIMARILY THROUGH THIRD
PARTIES SUCH AS BROKERS, BANKS AND FINANCIAL PLANNERS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks.........................................3
Fund Performance...............................................................4
Fees And Expenses..............................................................6
Investment Risks...............................................................7
Principal Risks Associated With The Funds......................................7
Temporary Defensive Positions.................................................11
Fund Management...............................................................12
Portfolio Manager.............................................................12
Potential Rewards.............................................................13
Share Price...................................................................13
How To Buy Shares.............................................................14
Your Account Services.........................................................16
Taxes.........................................................................16
Dividends And Capital Gain Distributions......................................17
Financial Highlights..........................................................18
No dealers, salesperson, or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and you should not rely on such other information or representations.
[INVESCO ICON] INVESCO FUNDS (R)
The Securities and Exchange Commission has not approved or disapproved the
shares of these Funds. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the Funds.
Together with our affiliated companies, we at INVESCO direct all aspects of the
management and sale of the Funds.
This Prospectus contains important information about the Funds' Class K shares,
which are sold to qualified retirement plans, retirement savings programs,
educational savings programs and wrap programs primarily through third parties,
such as brokers, banks and financial planners. Please contact your plan or
program sponsor for more detailed information on suitability and transactional
issues (i.e., how to purchase or sell shares, minimum investment amounts, and
fees and expenses). Each Fund also offers one or more additional classes of
shares through separate prospectuses. Each of the Fund's classes has varying
expenses, with resulting effects on their performance. You can choose the class
of shares that is best for you, based on how much you plan to invest and other
relevant factors discussed in "How To Buy Shares." To obtain additional
information about other classes of shares, contact INVESCO Distributors, Inc.
("IDI") at 1-800-328-2234, or your broker, bank or financial planner who is
offering the Class K shares offered in this Prospectus.
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] INVESTMENT GOALS & STRATEGIES
[ARROWS ICON] POTENTIAL INVESTMENT RISKS
[GRAPH ICON] PAST PERFORMANCE
[INVESCO ICON] WORKING WITH INVESCO
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[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
FACTORS COMMON TO BOTH FUNDS
FOR MORE DETAILS ABOUT EACH FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
The Funds seek to provide you with a high level of current income and capital
appreciation through investments in debt securities. The Funds invest in bonds
and other debt securities, as well as in preferred stocks. Often, but not
always, when stock markets are up, debt markets are down and vice versa.
Although the Funds are subject to a number of risks that could affect their
performance, their principal risk is interest rate risk -- that is, the value of
the securities in a portfolio will rise and fall due to changes in interest
rates. In general, as interest rates rise, the resale value of debt securities
decreases; as interest rates decline, the resale value of debt securities
generally increases. Debt securities with longer maturities are usually more
sensitive to interest rate movements.
<PAGE>
Other principal risks involved in investing in the Funds are credit, debt
securities, foreign securities, duration, liquidity, counterparty, and lack of
timely information risks. These risks are described and discussed later in the
Prospectus under the headings "Investment Risks" and "Principal Risks Associated
The Funds." An investment in a Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or
any other government agency. As with any other mutual fund, there is always a
risk that you may lose money on your investment in a Fund.
[KEY ICON] INVESCO HIGH YIELD FUND - CLASS K
The Fund invests primarily in a diversified portfolio of high yield corporate
bonds rated below investment grade, commonly known as "junk bonds," and
preferred stocks with medium to lower credit ratings. These investments
generally offer higher rates of return, but are riskier than investments in
securities of issuers with higher credit ratings.
The rest of the Fund's assets are invested in securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, bank CDs, corporate
short-term notes and municipal obligations. Normally, at least 65% of the Fund's
total assets will be invested in debt securities maturing at least three years
after they are issued. There are no limitations on the maturities of the
securities held by the Fund, and the Fund's average maturity will vary as
INVESCO responds to changes in interest rates.
[KEY ICON] INVESCO SELECT INCOME FUND - CLASS K
The Fund invests primarily in bonds and marketable debt securities of
established companies. Normally, at least 50% of the Fund's assets are invested
in investment grade securities. While an investment grade rating does not
guarantee that a security will be profitable, such securities generally carry
less risk than securities that are not investment grade. No more than 50% of the
Fund's assets may consist of corporate bonds rated below investment grade ("junk
bonds").
The rest of the Fund's assets are invested in securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, bank CDs, and municipal
obligations. Normally, the Fund's total assets will be invested primarily in
debt securities maturing at least three years after they are issued. There are
no limitations on the maturities of the securities held by the Fund, and the
Fund's average maturity will vary as INVESCO responds to changes in interest
rates.
[GRAPH ICON] FUND PERFORMANCE
Since the Funds' Class K shares were not offered until December 15, 2000, the
bar charts below show the Funds' Investor Class shares' actual yearly
performance for the years ended December 31 (commonly known as their "total
return") over the past decade. Investor Class shares are not offered in this
Prospectus. INVESTOR CLASS AND CLASS K RETURNS WOULD BE SIMILAR BECAUSE BOTH
CLASSES OF SHARES INVEST IN THE SAME PORTFOLIO OF SECURITIES. THE RETURNS OF THE
CLASSES WOULD DIFFER, HOWEVER, TO THE EXTENT OF DIFFERING LEVELS OF EXPENSES. IN
THIS REGARD, THE BAR CHARTS DO NOT REFLECT AN ASSET BASED SALES CHARGE IN EXCESS
OF 0.25% OF NET ASSETS; IF THEY DID, THE TOTAL RETURNS SHOWN WOULD BE LOWER. The
<PAGE>
table below shows average annual total returns for various periods ended
December 31, 1999 for each Fund's Investor Class shares compared to the Merrill
Lynch High Yield Master and Lehman Government/ Corporate Bond Indexes. The
information in the charts and table illustrates the variability of each Fund's
Investor Class shares' total return and how its performance compared to a broad
measure of market performance. Remember, past performance does not indicate how
a Fund will perform in the future.
The charts below contain the following plot points:
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HIGH YIELD FUND--INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2),(3)
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[GRAPHIC OMITTED]
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
(4.57%) 23.51% 14.53% 15.81% (4.98%) 17.90% 14.08% 17.10% 0.15% 9.30%
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Best Calendar Qtr. 3/91 7.85%
Worst Calendar Qtr. 9/98 (7.12%)
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SELECT INCOME FUND--INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2),(3)
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[GRAPHIC OMITTED]
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
4.86% 18.57% 10.38% 11.43% (1.20%) 20.61% 4.87% 11.72% 7.13% (1.37%)
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Best Calendar Qtr. 6/95 6.75%
Worst Calendar Qtr. 3/94 (2.01%)
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AVERAGE ANNUAL TOTAL RETURN(1),(2),(3)
AS OF 12/31/99
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1 YEAR 5 YEARS 10 YEARS
High Yield Fund--Investor Class 9.30% 11.51% 9.86%
Select Income Fund--Investor Class (1.37%) 8.35% 8.48%
Merrill Lynch High Yield Master Index(4) 1.57% 9.61% 10.79%
Lehman Government/Corporate Bond Index(4) (2.15%) 7.61% 7.65%
<PAGE>
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of each Fund's expenses.
(2) The returns are for Investor Class shares that are not offered in this
Prospectus. Total returns of Class K shares will differ only to the extent that
the classes do not have the same expenses.
(3) The returns for Investor Class shares of High Yield Fund and Select Income
Fund were (2.04%) and 4.64%, respectively, year-to-date as of the calendar
quarter ended September 30, 2000.
(4) The Merrill Lynch High Yield Master Index and Lehman Government/Corporate
Bond Index are unmanaged indexes indicative of the high yield bond and broad
domestic fixed-income markets. Please keep in mind that the indexes do not pay
brokerage, management, administrative or distribution expenses, all of which are
paid by the Funds and are reflected in their annual returns.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
SHAREHOLDER FEES PAID DIRECTLY FROM YOUR ACCOUNT
You pay no fees to purchase Fund shares, to exchange to another INVESCO fund, or
to sell your shares. Accordingly, no fees are paid directly from your
shareholder account.
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
HIGH YIELD FUND - CLASS K
Management Fees 0.41%
Distribution and Service (12b-1) Fees(1) 0.45%
Other Expenses(2) 0.37%
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Total Annual Fund Operating Expenses(2) 1.23%
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SELECT INCOME FUND - CLASS K
Management Fees 0.50%
Distribution and Service(12b-1) Fees(1) 0.45%
Other Expenses(2) 0.48%
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Total Annual Fund Operating Expenses(2) 1.43%
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(1) Because the Funds' Class K shares pay 12b-1 distribution and service fees
which are based upon each Fund's assets, if you own shares of a Fund for a long
period of time, you may pay more than the economic equivalent of the maximum
front-end sales charge permitted for mutual funds by the National Association of
Securities Dealers, Inc.
(2) Based on estimated expenses for the current fiscal year, which may be more
or less than actual expenses. Actual expenses are not provided because the
Funds' Class K shares were not offered until December 15, 2000. Certain expenses
will be absorbed by INVESCO pursuant to a commitment between the Select Income
Fund and INVESCO. This commitment may be changed at any time following
consultation with the board of directors. After absorption, but excluding any
expense offset arrangements, Select Income Fund - Class K Other Expenses and
Total Annual Fund Operating Expenses are estimated to be 0.31% and 1.26%,
respectively, of the Fund's net assets attributable to Class K shares.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Class K
shares of the Funds to the cost of investing in other mutual funds.
<PAGE>
The Example assumes that you invested $10,000 in the Class K shares of a Fund
for the time periods indicated and redeem all of your shares at the end of each
period. The Example also assumes that your investment had a hypothetical 5%
return each year and that a Fund's Class K shares' operating expenses remain the
same. Although the actual costs and performance of a Fund's Class K shares may
be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
High Yield Fund - Class K $125 $390 $676 $1,489
Select Income Fund - Class K $146 $452 $782 $1,713
[ARROWS ICON] INVESTMENT RISKS
BEFORE INVESTING IN A FUND, YOU SHOULD DETERMINE THE LEVEL OF RISK WITH WHICH
YOU ARE COMFORTABLE. TAKE INTO ACCOUNT FACTORS LIKE YOUR AGE, CAREER, INCOME
LEVEL, AND TIME HORIZON.
You should determine the level of risk with which you are comfortable before you
invest. The principal risks of investing in any mutual fund, including these
Funds, are:
NOT INSURED. Mutual funds are not insured by the FDIC or any other government
agency, unlike bank deposits such as CDs or savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its performance, nor
assure you that the market value of your investment will increase. You may lose
the money you invest, and the Funds will not reimburse you for any of these
losses.
VOLATILITY. The price of your mutual fund shares will increase or decrease with
changes in the value of a Fund's underlying investments and changes in the debt
markets as a whole.
NOT A COMPLETE INVESTMENT PLAN. An investment in any mutual fund does not
constitute a complete investment plan. The Funds are designed to be only a part
of your personal investment plan.
[ARROWS ICON] PRINCIPAL RISKS ASSOCIATED WITH THE FUNDS
You should consider the special factors associated with the policies discussed
below in determining the appropriateness of investing in a Fund. See the
Statement of Additional Information for a discussion of additional risk factors.
INTEREST RATE RISK
Changes in interest rates will affect the resale value of debt securities held
in a Fund's portfolio. In general, as interest rates rise, the resale value of
debt securities decreases; as interest rates decline, the resale value of debt
securities generally increases. Debt securities with longer maturities usually
are more sensitive to interest rate movements.
<PAGE>
CREDIT RISK
The Funds invest in debt instruments, such as notes, bonds and commercial paper.
There is a possibility that the issuers of these instruments will be unable to
meet interest payments or repay principal. Changes in the financial strength of
an issuer may reduce the credit rating of its debt instruments and may affect
their value.
DEBT SECURITIES RISKS
Debt securities include bonds, notes and other securities that give the holder
the right to receive fixed amounts of principal, interest, or both on a date in
the future or on demand. Debt securities also are often referred to as fixed
income securities, even if the rate of interest varies over the life of the
security.
Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that the
market value of the security may decline for a variety of reasons, including
changes in interest rates. An increase in interest rates tends to reduce the
market value of debt securities in which a Fund invests. A decline in interest
rates tends to increase the market value of debt securities in which a Fund
invests.
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's ("S&P")
ratings provide a useful but not certain guide to the credit risk of many debt
securities. The lower the rating of a debt security, the greater the credit risk
the rating service assigns to the security. To compensate investors for
accepting that greater risk, lower-rated securities tend to offer higher
interest rates. Lower-rated debt securities are often referred to as "junk
bonds." A debt security is considered lower grade if it is rated Ba or less by
Moody's or BB or less by S&P.
Lower-rated and non-rated debt securities of comparable quality are subject to
wider fluctuations in yields and market values than higher-rated debt securities
and may be considered speculative. Junk bonds are perceived by independent
rating agencies as having a greater risk that their issuers will not be able to
pay the interest and principal as they become due over the life of the bond. In
addition to the loss of interest payments, the market value of a defaulted bond
would likely drop, and a Fund would be forced to sell it at a loss. Debt
securities rated lower than B by either S&P or Moody's are usually considered to
be highly speculative.
In addition to poor individual company performance in the marketplace or in its
internal management, a significant economic downturn or increase in interest
rates may cause issuers of debt securities to experience increased financial
problems which could hurt their ability to pay principal and interest
obligations, to meet projected business goals, and to obtain additional
financing. These conditions more severely affect issuers of lower-rated debt
securities. The market for lower-rated straight debt securities may not be as
liquid as the market for higher-rated straight debt securities. Therefore,
INVESCO attempts to limit purchases of lower-rated securities to securities
having an established secondary market.
Debt securities rated Caa by Moody's may be in default or may present risks of
non-payment of principal or interest. Lower-rated securities by S&P (categories
BB, B and CCC) include those which are predominantly speculative because of the
issuer's perceived capacity to pay interest and repay principal in accordance
with their terms; BB indicates the lowest degree of speculation and CCC a high
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are usually outweighed by large uncertainties
or major risk exposures to adverse conditions.
<PAGE>
FOREIGN SECURITIES RISKS
Investments in foreign and emerging markets carry special risks, including
currency, political, regulatory and diplomatic risks. The Funds may invest up to
25% of their assets in foreign debt securities. Securities of Canadian issuers
and American Depository Receipts are not subject to this 25% limitation.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of a Fund's investment in a security
valued in the foreign currency, or based on that currency value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than those
in the U.S. may permit trading practices that are not allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. and a
foreign country could affect the value or liquidity of investments.
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain
are presently members of the European Economic and Monetary Union (the
"EMU") which as of January 1, 1999, adopted the euro as a common currency.
The national currencies will be sub-currencies of the euro until July 1,
2002, at which time these currencies will disappear entirely. Other
European countries may adopt the euro in the future.
As the euro is implemented, there may be changes in the relative strength
and value of the U.S. dollar and other major currencies, as well as
possible adverse tax consequences. The euro transition by EMU countries may
affect the fiscal and monetary levels of those participating countries. The
outcome of these and other uncertainties could have unpredictable effects
on trade and commerce and result in increased volatility for all financial
markets.
DURATION RISK
Duration is a measure of a debt security's sensitivity to interest rate changes.
Duration is usually expressed in terms of years, with longer durations usually
more sensitive to interest rate fluctuations.
LIQUIDITY RISK
A Fund's portfolio is liquid if the Fund is able to sell the securities it owns
at a fair price within a reasonable time. Liquidity is generally related to the
market trading volume for a particular security. Investments in smaller
companies or in foreign companies or companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the transaction with a
Fund.
<PAGE>
LACK OF TIMELY INFORMATION RISK
Timely information about a security or its issuer may be unavailable, incomplete
or inaccurate. This risk is more common to securities issued by foreign
companies and companies in emerging markets than it is to the securities of
U.S.-based companies.
-----------------------------------------------
Although each Fund generally invests in debt securities, the Funds also may
invest in other types of securities and other financial instruments indicated in
the chart below. Although these investments typically are not part of either
Fund's principal investment strategy, they may constitute a significant portion
of a Fund's portfolio, thereby possibly exposing a Fund and its investors to the
following additional risks.
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INVESTMENT RISKS APPLIES TO THESE FUNDS
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AMERICAN DEPOSITORY Market, Information, High Yield
RECEIPTS (ADRs) Political, Select Income
These are securities Regulatory,
issued by U.S. banks that Diplomatic,
represent shares of Liquidity and
foreign corporations held Currency Risks
by those banks. Although
traded in U.S. securities
markets and val ued in
U.S. dollars, ADRs carry
most of the risks of
investing directly in
foreign securities.
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EUROBONDS AND YANKEE Market, Information, High Yield
BONDS Currency, Political, Select Income
Bonds issued by foreign Diplomatic,
branches of U.S. banks Regulatory,
("Eurobonds") and bonds Liquidity, Credit,
issued by a U.S. branch Interest Rate and
of a foreign bank and Duration Risks
sold in the United States
("Yankee bonds"). These
bonds are bought and sold
in U.S. dollars, but
generally carry with them
the same risks as
investing in foreign
securities.
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JUNK BONDS Market, Credit, High Yield
Debt securities that are Interest Rate and Select Income
rated BB or lower by S&P Duration Risks
or Ba or lower by
Moody's. Tend to pay
higher interest rates
than higher-rated debt
securities, but carry a
higher credit risk.
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<PAGE>
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INVESTMENT RISKS APPLIES TO THESE FUNDS
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PIK (PAYMENT IN KIND) Market, Credit, High Yield
SECURITIES Interest Rate and
A type of bond or Duration Risks
preferred stock that pays
interest and/or dividends
in the form of additional
bonds or preferred stock.
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STEP-UP BONDS Market, Credit, High Yield
A bond that pays one Interest Rate and Select Income
coupon rate (the interest Duration Risks
rate stated on a bond,
which could be as low as
0%) for an initial period
followed by a higher
coupon rate.
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[ARROWS ICON] TEMPORARY DEFENSIVE POSITIONS
When securities markets or economic conditions are unfavorable or unsettled, we
might try to protect the assets of a Fund by investing in securities that are
highly liquid, such as high quality money market instruments like short-term
U.S. government obligations, commercial paper or repurchase agreements, even
though that is not the normal investment strategy of either Fund. We have the
right to invest up to 100% of a Fund's assets in these securities, although we
are unlikely to do so. Even though the securities purchased for defensive
purposes often are considered the equivalent of cash, they also have their own
risks. Investments that are highly liquid or comparatively safe tend to offer
lower returns. Therefore, a Fund's performance could be comparatively lower if
it concentrates in defensive holdings.
<PAGE>
[INVESCO ICON] FUND MANAGEMENT
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $414 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESTMENT ADVISER
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Funds. INVESCO was founded in 1932 and manages over $46.1 billion
for more than 2,320,000 shareholder accounts of 46 INVESCO funds. INVESCO
performs a wide variety of other services for the Funds, including
administrative and transfer agency functions (the processing of purchases, sales
and exchanges of Fund shares).
A wholly owned subsidiary of INVESCO, IDI is the Funds' distributor and is
responsible for the sale of the Funds' shares.
INVESCO and IDI are subsidiaries of AMVESCAP PLC.
The following table shows the fees the Funds paid to INVESCO for its advisory
services in the fiscal year ended August 31, 2000.
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FEE AS A PERCENTAGE OF
AVERAGE ANNUAL NET ASSETS
FUND UNDER MANAGEMENT
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High Yield Fund 0.41%
Select Income Fund 0.50%
[INVESCO ICON] PORTFOLIO MANAGER
The following individual is primarily responsible for the day-to-day management
of the Funds' portfolio holdings:
DONOVAN J. (JERRY) PAUL, Director of Fixed-Income Investments and a senior vice
president of INVESCO, is the portfolio manager of High Yield and Select Income
Funds. Jerry manages several other fixed-income INVESCO funds. Before joining
INVESCO in 1994, he was a senior vice president with Stein, Roe & Farnham, Inc.
<PAGE>
and president of Quixote Investment Management. Jerry is a Chartered Financial
Analyst and a Certified Public Accountant. He holds an M.B.A. from the
University of Northern Iowa and a B.B.A. from the University of Iowa.
Jerry Paul leads INVESCO's Fixed-Income Team.
[INVESCO ICON] POTENTIAL REWARDS
NO SINGLE FUND SHOULD REPRESENT YOUR COMPLETE INVESTMENT PROGRAM NOR SHOULD YOU
ATTEMPT TO USE THE FUNDS FOR SHORT-TERM TRADING PURPOSES.
The Funds offer shareholders the opportunity for current income and capital
growth. Like most mutual funds, each Fund seeks to provide higher returns than
the market or its competitors, but cannot guarantee that performance. Each Fund
seeks to minimize risk by investing in debt securities of a variety of issuers.
SUITABILITY FOR INVESTORS
Only you can determine if an investment in a Fund is right for you based upon
your own economic situation, the risk level with which you are comfortable and
other factors. In general, the Funds are most suitable for investors who:
o are primarily seeking higher current income and capital growth.
o understand that shares of a Fund can, and likely will, have daily price
fluctuations.
o are investing in tax-deferred retirement accounts, such as Traditional and
Roth Individual Retirement Accounts ("IRAs"), as well as employer-sponsored
qualified retirement plans, including 401(k)s and 403(b)s, all of which have
longer investment horizons.
You probably do not want to invest in the Funds if you are:
o primarily seeking high rates of capital growth or total return.
o unwilling to accept potential daily changes in the price of Fund shares.
o speculating on short-term fluctuations in the securities markets.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- FUND DEBTS,
INCLUDING ACCRUED EXPENSES
-----------------------------------
/ NUMBER OF SHARES
= YOUR SHARE PRICE (NAV).
The value of your Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in each Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of the regular trading day on that
exchange (normally 4:00 p.m. Eastern time). Therefore, shares of the Funds are
not priced on days when the NYSE is closed, which generally is on weekends and
national holidays in the U.S.
NAV is calculated by adding together the current market price of all of a Fund's
investments and other assets, including accrued interest and dividends;
<PAGE>
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
All purchases, sales and exchanges of Fund shares are made by INVESCO at the NAV
next calculated after INVESCO receives proper instructions from you to purchase,
redeem or exchange shares of a Fund. Your instructions must be received by
INVESCO no later than the close of the NYSE to effect transactions at that day's
NAV. If INVESCO hears from you after that time, your instructions will be
processed at the NAV calculated at the end of the next day that the NYSE is
open.
Foreign securities exchanges, which set the prices for foreign securities held
by the Funds, are not always open the same days as the NYSE, and may be open for
business on days the NYSE is not. For example, Thanksgiving Day is a holiday
observed by the NYSE and not by overseas exchanges. In this situation, the Funds
would not calculate NAV on Thanksgiving Day (and INVESCO would not buy, sell or
exchange shares for you on that day), even though activity on foreign exchanges
could result in changes in the value of investments held by a Fund on that day.
[INVESCO ICON] HOW TO BUY SHARES
TO BUY SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE THE CLOSE
OF THE NYSE, NORMALLY, 4:00 P.M. EASTERN TIME.
The Funds offer multiple classes of shares. A share of each class represents an
identical interest in a Fund and has the same rights, except that each class
bears its own distribution and shareholder servicing charges, and other
expenses. The income attributable to each class and the dividends payable on the
shares of each class will be reduced by the amount of the distribution fee or
service fee, if applicable, and the other expenses payable by that class.
There is no charge to invest, exchange or redeem shares when you make
transactions directly through INVESCO. However, if you invest in a Fund through
a securities broker or any other third party, you may be charged a commission or
transaction fee for either purchases or sales of Fund shares. For all new
accounts, please send a completed application form, and specify the fund or
funds and class or classes of shares you wish to purchase.
EXCHANGE POLICY. You may exchange your shares in any of the Funds for shares of
the same class in another INVESCO fund on the basis of their respective NAVs at
the time of the exchange. You may also exchange between Class K and Investor
Class shares in any of the INVESCO funds on the basis of their respective NAVs
at the time of the exchange.
<PAGE>
FUND EXCHANGES CAN BE A CONVENIENT WAY FOR YOU TO DIVERSIFY YOUR INVESTMENTS, OR
TO REALLOCATE YOUR INVESTMENTS WHEN YOUR OBJECTIVES CHANGE.
Before making any exchange, be sure to review the prospectuses of the funds
involved and consider the differences between the funds. Also, be certain that
you qualify to purchase certain classes of shares in the new fund. An exchange
is the sale of shares from one fund immediately followed by the purchase of
shares in another. Therefore, any gain or loss realized on the exchange is
recognizable for federal income tax purposes (unless, of course, you or your
account qualifies as tax-deferred under the Internal Revenue Code). If the
shares of the fund you are selling have gone up in value since you bought them,
the sale portion of an exchange may result in taxable income to you.
We have the following policies governing exchanges:
o Both fund accounts involved in the exchange must be registered in exactly the
same name(s) and Social Security or federal tax I.D. number(s).
o You may make up to four exchanges out of each Fund per 12-month period.
o Each Fund reserves the right to reject any exchange request, or to modify or
terminate the exchange policy, if it is in the best interests of the Fund and
its shareholders. Notice of all such modifications or terminations that
affect all shareholders of the Fund will be given at least 60 days prior to
the effective date of the change, except in unusual instances, including a
suspension of redemption of the exchanged security under Section 22(e) of the
Investment Company Act of 1940.
In addition, the ability to exchange may be temporarily suspended at any time
that sales of the Fund into which you wish to exchange are temporarily stopped.
Please remember that if you pay by check, Automated Clearing House ("ACH") or
wire and your funds do not clear, you will be responsible for any related loss
to a Fund or INVESCO. If you are already an INVESCO funds shareholder, the Fund
may seek reimbursement for any loss from your existing account(s).
CHOOSING A SHARE CLASS. Each Fund has multiple classes of shares, each class
representing an interest in the same portfolio of investments. In deciding which
class of shares to purchase, you should consider, among other things, (i) the
length of time you expect to hold your shares, (ii) the provisions of the
distribution plan applicable to that class, if any, (iii) the eligibility
requirements that apply to purchases of a particular class, and (iv) any
services you may receive in making your investment determination. Your
investment representative can help you decide among the various classes. Please
contact your investment representative for several convenient ways to invest in
the Funds. Class K shares are available only to qualified retirement plans,
retirement savings programs, educational savings programs and wrap programs
through your investment representative.
DISTRIBUTION EXPENSES. We have adopted a Plan and Agreement of Distribution -
Class K (commonly known as a "12b-1 Plan") for the Funds' Class K shares. The
12b-1 fee paid by each Fund's Class K shares is used to pay distribution and
service fees to IDI for the sale and distribution of the Funds' shares and to
pay fees for services provided to shareholders, all or a substantial portion of
which are paid to the dealer of record. Because the Funds' Class K shares pay
<PAGE>
these fees out of their assets on an ongoing basis, these fees increase the cost
of your investment.
[INVESCO ICON] YOUR ACCOUNT SERVICES
YOU CAN CHECK ON YOUR ACCOUNT THROUGH OUR TOLL-FREE TELEPHONE NUMBER. YOU MAY
ALSO ACCESS PERSONAL ACCOUNT INFORMATION AT OUR WEB SITE, INVESCOFUNDS.COM.
HOUSEHOLDING. To save money for the Funds, you may receive only one copy of a
prospectus or financial report to each household address. This process, known as
"householding," is used for most required shareholder mailings. It does not
apply to account statements. You may, of course, request an additional copy of a
prospectus or financial report at any time by calling or writing INVESCO. You
may also request that householding be eliminated from all of your required
mailings.
[GRAPH ICON] TAXES
TO AVOID BACKUP WITHHOLDING, BE SURE WE HAVE YOUR CORRECT SOCIAL SECURITY OR
TAXPAYER IDENTIFICATION NUMBER.
Everyone's tax status is unique. We encourage you to consult your own tax
adviser on the tax impact to you of investing in the Funds.
Each Fund customarily distributes to its shareholders substantially all of its
net investment income, net capital gains and net gains from foreign currency
transactions, if any. You receive a proportionate part of these distributions,
depending on the percentage of each Fund's shares that you own. These
distributions are required under federal tax laws governing mutual funds. It is
the policy of each Fund to distribute all investment company taxable income and
net capital gains. As a result of this policy and each Fund's qualification as a
regulated investment company, it is anticipated that neither of the Funds will
pay any federal income or excise taxes. Instead, each Fund will be accorded
conduit or "pass through" treatment for federal income tax purposes.
However, unless you are (or your account is) exempt from income taxes, you must
include all dividends and capital gain distributions paid to you by a Fund in
your taxable income for federal, state and local income tax purposes. You also
may realize capital gains or losses when you sell shares of a Fund at more or
less than the price you originally paid. An exchange is treated as a sale, and
is a taxable event. Dividends and other distributions usually are taxable
whether you receive them in cash or automatically reinvest them in shares of the
distributing Fund(s) or other INVESCO funds.
If you have not provided INVESCO with complete, correct tax information, a Fund
is required by law to withhold 31% of your distributions and any money that you
receive from the sale of shares of the Fund as a backup withholding tax.
Unless your account is held at a brokerage firm, we will provide you with
detailed information every year about your dividends and capital gain
<PAGE>
distributions. Depending on the activity in your individual account, we may also
be able to assist with cost basis figures for shares you sell.
[GRAPH ICON] DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Funds earn ordinary or investment income from dividends and interest on
their investments. The Funds expect to distribute substantially all of this
investment income, less Fund expenses, to shareholders. Dividends from net
investment income are declared daily and paid monthly at the discretion of the
Company's board of directors.
NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS ARE DISTRIBUTED TO
SHAREHOLDERS AT LEAST ANNUALLY. DISTRIBUTIONS ARE TAXABLE WHETHER REINVESTED IN
ADDITIONAL SHARES OR PAID TO YOU IN CASH (EXCEPT FOR TAX-EXEMPT ACCOUNTS).
TAX-EXEMPT ACCOUNTS)
A Fund also realizes capital gains and losses when it sells securities in its
portfolio for more or less than it had paid for them. If total gains on sales
exceed total losses (including losses carried forward from previous years), a
Fund has a net realized capital gain. Net realized capital gains, if any, are
distributed to shareholders at least annually, usually in November.
Under present federal income tax laws, capital gains may be taxable at different
rates, depending on how long a Fund has held the underlying investment.
Short-term capital gains which are derived from the sale of assets held one year
or less are taxed as ordinary income. Long-term capital gains which are derived
from the sale of assets held for more than one year are taxed at up to the
maximum capital gains rate, currently 20% for individuals.
Dividends and capital gain distributions are paid to you if you hold shares on
the record date of the distribution regardless of how long you have held your
shares. A Fund's NAV will drop by the amount of the distribution on the day the
distribution is declared. If you buy shares of a Fund just before a distribution
is declared, you may wind up "buying a distribution." This means that if the
Fund declares a dividend or a capital gain distribution shortly after you buy,
you will receive some of your investment back as a taxable distribution. Most
shareholders want to avoid this. And, if you sell your shares at a loss for tax
purposes and purchase a substantially identical investment within 30 days before
or after that sale, the transaction is usually considered a "wash sale" and you
will not be able to claim a tax loss.
Dividends and capital gain distributions paid by each Fund are automatically
reinvested in additional Fund shares at the NAV on the ex-distribution date,
unless you choose to have them automatically reinvested in another INVESCO fund
or paid to you by check or electronic funds transfer. Dividends and other
distributions, whether received in cash or reinvested in additional Fund shares,
are generally subject to federal income tax.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of Investor Class shares of each Fund for the past five years.
Certain information reflects financial results for a single Investor Class
share. Since Class K shares are new, financial information is not available for
this class as of the date of this Prospectus. The total returns in the table
represent the annual percentages that an investor would have earned (or lost) on
an investment in the Investor Class shares of a Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the financial statements, is included in INVESCO Bond Funds, Inc.'s 2000 Annual
Report to Shareholders, which is incorporated by reference into the Statement of
Additional Information. This Report is available without charge by contacting
IDI at the address or telephone number on the back cover of this Prospectus.
HIGH YIELD FUND - INVESTOR CLASS
YEAR ENDED AUGUST 31
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996
PER SHARE DATA
Net Asset Value--Beginning
of Period $6.40 $6.76 $7.45 $6.84 $6.73
================================================================================
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.60 0.60 0.64 0.62 0.63
Net Gains or (Losses)
on Securities (Both
Realized and Unrealized) (0.42) (0.19) (0.29) 0.64 0.11
================================================================================
TOTAL FROM INVESTMENT
OPERATIONS 0.18 0.41 0.35 1.26 0.74
================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income(a) 0.60 0.60 0.64 0.62 0.63
Distributions from
Capital Gains 0.00 0.00 0.40 0.03 0.00
In Excess of
Capital Gains 0.00 0.17 0.00 0.00 0.00
================================================================================
TOTAL DISTRIBUTIONS 0.60 0.77 1.04 0.65 0.63
================================================================================
Net Asset Value--End
of Period $5.98 $6.40 $6.76 $7.45 $6.84
================================================================================
TOTAL RETURN 2.89% 6.53% 4.44% 19.27% 11.38%
RATIOS
Net Assets--End of Period
($000 Omitted) $787,537 $793,337 $641,394 $470,965 $375,201
Ratio of Expenses to
Average Net Assets(b)(c) 1.00% 0.99% 0.86% 1.00% 0.99%
Ratio of Net Investment Income
to Average Net Assets(b) 9.60% 9.13% 8.72% 8.71% 9.13%
Portfolio Turnover Rate 98% 154% 282% 129% 266%
<PAGE>
(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 Class were voluntarily absorbed by INVESCO for the
year ended August 31, 1996. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 0.99%, and
ratio of net investment income to average net assets would have been 9.13%.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
INVESCO, if applicable, which is before any expense offset arrangements
(which may include custodian fees).
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECT INCOME FUND -
INVESTOR CLASS
YEAR ENDED AUGUST 31
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996
PER SHARE DATA
Net Asset Value--Beginning
of Period $6.15 $6.68 $6.66 $6.35 $6.54
================================================================================
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.43 0.43 0.43 0.45 0.47
Net Gains or (Losses)
on Securities (Both
Realized and Unrealized) (0.09) (0.41) 0.19 0.34 (0.17)
================================================================================
TOTAL FROM INVESTMENT
OPERATIONS 0.34 0.02 0.62 0.79 0.30
================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.43 0.43 0.43 0.45 0.46
In Excess of Net
Investment Income 0.00 0.00 0.00 0.00 0.01
Distributions from
Capital Gains 0.00 0.02 0.17 0.03 0.02
In Excess of
Capital Gains(a) 0.00 0.10 0.00 0.00 0.00
================================================================================
TOTAL DISTRIBUTIONS 0.43 0.55 0.60 0.48 0.49
================================================================================
Net Asset Value--End
of Period $6.06 $6.15 $6.68 $6.66 $6.35
================================================================================
TOTAL RETURN 5.78% 0.15% 9.58% 12.89% 4.78%
RATIOS
Net Assets--End of Period $574,518 $549,438 $502,624 $287,618 $258,093
($000 Omitted)
Ratio of Expenses to
Average Net Assets(b)(c) 1.06% 1.06% 1.06% 1.03% 1.01%
Ratio of Net Investment Income
to Average Net Assets(b) 7.10% 6.56% 6.36% 6.98% 7.14%
Portfolio Turnover Rate 82% 135% 140% 263% 210%
(a) Distributions in excess of capital gains for the year ended August 31, 2000,
aggregated less than $0.01 on a per share basis.
(b) Various expenses of the Class were voluntarily absorbed by INVESCO for the
years ended August 31, 2000, 1999, 1998, 1997, and 1996. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 1.19%, 1.16%, 1.10%, 1.21%, and 1.16%, respectively, and
ratio of net investment income to average net assets would have been 6.97%,
6.46%, 6.32%, 6.80%, and 6.99%, respectively.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (which may include
custodian fees).
<PAGE>
DECEMBER 15, 2000
INVESCO BOND FUNDS, INC.
INVESCO HIGH YIELD FUND - CLASS K
INVESCO SELECT INCOME FUND - CLASS K
You may obtain additional information about the Funds from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Funds' anticipated
investments and operations, the Funds also prepare annual and semiannual reports
that detail the Funds' actual investments at the report date. These reports
include discussion of each Fund's recent performance, as well as market and
general economic trends affecting each Fund's performance. The annual report
also includes the report of the Funds' independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated December 15, 2000 is a
supplement to this Prospectus and has detailed information about the Funds and
their investment policies and practices. A current SAI for the Funds is on file
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus of the Funds may be accessed through the
INVESCO Web site at invescofunds.com. In addition, the Prospectus, SAI, annual
report and semiannual report of the Funds are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 17970, Denver,
Colorado 80217; or call 1-800-328-2234. Copies of these materials are also
available (with a copying charge) from the SEC's Public Reference Section at 450
Fifth Street, N.W., Washington, D.C., 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Funds are 811-2674 and 002-57151.
<PAGE>
PROSPECTUS | DECEMBER 15, 2000
--------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (R)
--------------------------------------------------------------------------------
INVESCO BOND FUNDS, INC.
INVESCO HIGH YIELD FUND - INVESTOR CLASS
INVESCO SELECT INCOME FUND - INVESTOR CLASS
INVESCO TAX-FREE BOND FUND - INVESTOR CLASS
INVESCO U.S. GOVERNMENT SECURITIES FUND - INVESTOR CLASS
FOUR NO-LOAD CLASSES OF SHARES OF MUTUAL FUNDS DESIGNED FOR INVESTORS SEEKING A
HIGH LEVEL OF CURRENT INCOME.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks........................................23
Fund Performance..............................................................26
Fees And Expenses.............................................................28
Investment Risks..............................................................29
Principal Risks Associated With The Funds.....................................30
Temporary Defensive Positions.................................................34
Fund Management...............................................................34
Portfolio Managers............................................................35
Potential Rewards.............................................................36
Share Price...................................................................36
How To Buy Shares.............................................................37
Your Account Services.........................................................41
How To Sell Shares............................................................42
Taxes.........................................................................44
Dividends And Capital Gain Distributions......................................45
Financial Highlights..........................................................46
[INVESCO ICON] INVESCO FUNDS (R)
The Securities and Exchange Commission has not approved or disapproved the
shares of these Funds. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the Funds.
Together with our affiliated companies, we at INVESCO direct all aspects of the
management and sale of the Funds.
This Prospectus contains important information about the Funds' Investor Class
shares. Each Fund also offers one or more additional classes of shares through
separate prospectuses. Each of the Fund's classes has varying expenses, with
resulting effects on their performance. You can choose the class of shares that
is best for you, based on how much you plan to invest and other relevant factors
discussed in "How To Buy Shares." To obtain additional information about other
classes of shares, contact INVESCO Distributors, Inc. ("IDI") at 1-800-328-2234.
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] INVESTMENT GOALS & STRATEGIES
[ARROWS ICON] POTENTIAL INVESTMENT RISKS
[GRAPH ICON] PAST PERFORMANCE
[INVESCO ICON] WORKING WITH INVESCO
--------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
FACTORS COMMON TO ALL THE FUNDS
FOR MORE DETAILS ABOUT EACH FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
The Funds seek to provide you with a high level of current income through
investments in debt securities. High Yield, Select Income and U.S. Government
Securities Funds also seek capital appreciation. The Funds invest in bonds and
other debt securities, as well as in preferred stocks. Often, but not always,
when stock markets are up, debt markets are down and vice versa.
Although the Funds are subject to a number of risks that could affect their
performance, their principal risk is interest rate risk -- that is, the value of
the securities in a portfolio will rise and fall due to changes in interest
rates. In general, as interest rates rise, the resale value of debt securities
decreases; as interest rates decline, the resale value of debt securities
generally increases. Debt securities with longer maturities are usually more
sensitive to interest rate movements.
<PAGE>
Other principal risks involved in investing in the Funds are credit, debt
securities, foreign securities, duration, liquidity, counterparty and lack of
timely information risks. These risks are described and discussed later in the
Prospectus under the headings "Investment Risks" and "Principal Risks Associated
With The Funds." An investment in a Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or
any other government agency. As with any other mutual fund, there is always a
risk that you may lose money on your investment in a Fund.
[KEY ICON] INVESCO HIGH YIELD FUND - INVESTOR CLASS
The Fund invests primarily in a diversified portfolio of high yield corporate
bonds rated below investment grade, commonly known as "junk bonds," and
preferred stocks with medium to lower credit ratings. These investments
generally offer higher rates of return, but are riskier than investments in
securities of issuers with higher credit ratings.
The rest of the Fund's assets are invested in securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, bank CDs, corporate
short-term notes and municipal obligations. Normally, at least 65% of the Fund's
total assets will be invested in debt securities maturing at least three years
after they are issued. There are no limitations on the maturities of the
securities held by the Fund, and the Fund's average maturity will vary as
INVESCO responds to changes in interest rates.
[KEY ICON] INVESCO SELECT INCOME FUND - INVESTOR CLASS
The Fund invests primarily in bonds and marketable debt securities of
established companies. Normally, at least 50% of the Fund's assets are invested
in investment grade securities. While an investment grade rating does not
guarantee that a security will be profitable, such securities generally carry
less risk than securities that are not investment grade. No more than 50% of the
Fund's assets may consist of corporate bonds rated below investment grade ("junk
bonds").
The rest of the Fund's assets are invested in securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, bank CDs, and municipal
obligations. Normally, the Fund's total assets will be invested primarily in
debt securities maturing at least three years after they are issued. There are
no limitations on the maturities of the securities held by the Fund, and the
Fund's average maturity will vary as INVESCO responds to changes in interest
rates.
<PAGE>
[KEY ICON] INVESCO TAX-FREE BOND FUND - INVESTOR CLASS
The Fund invests primarily in municipal securities issued by state, county, and
city governments, including industrial development obligations and private
activity bonds which generally are not guaranteed by the governmental entity
that issues them. The interest on these securities is generally exempt from
federal income tax, although the interest may be included in your income if you
are subject to the federal alternative minimum tax. The interest on these
securities may be subject to state and/or local income taxes. Portions of
capital gain distributions made by the Fund may be taxable. These securities
include municipal notes, short-term municipal bonds, and variable rate debt
obligations. Municipal obligations may be purchased or sold on a delayed
delivery or a when-issued basis with settlement taking place in the future. The
Fund may purchase securities together with the right to resell them to the
seller at an agreed-upon price or yield within a specific time period prior to
the maturity date of the securities. This is commonly known as a "demand
feature" or a "put."
The rest of the Fund's investment portfolio may be invested in short-term
taxable instruments. These may include corporate debt securities, bank
obligations, commercial paper, U.S. government debt, and repurchase agreements.
The circumstances under which the Fund will invest in taxable securities include
but are not limited to: (a) pending investment of proceeds of sales of portfolio
securities; (b) pending settlement of purchases of portfolio securities; and (c)
maintaining liquidity to meet the need for anticipated redemptions. We seek to
manage the Fund so that substantially all of the income produced is exempt from
federal income tax when paid to you, although we cannot guarantee this result.
[KEY ICON] INVESCO U.S. GOVERNMENT SECURITIES FUND - INVESTOR CLASS
The Fund invests primarily in debt securities issued or guaranteed by the U.S.
government or its agencies. Direct U.S. government obligations include Treasury
bonds, bills and notes, and are backed by the full faith and credit of the U.S.
Treasury. Federal agency securities are direct obligations of the issuing
agency, such as GNMA, FNMA and FHLMC, and may or may not be guaranteed by the
U.S. government. Treasury bills, notes, bonds and some agency securities are
exempt from state income tax.
In addition to U.S. government debt, the Fund may invest in bank CDs and
municipal obligations. Normally, the Fund invests primarily in debt securities
maturing at least three years after they are issued. There are no limitations on
the maturities of the securities held by the Fund, and the Fund's average
maturity will vary as INVESCO responds to changes in interest rates.
<PAGE>
[GRAPH ICON] FUND PERFORMANCE
The bar charts below show the Funds' Investor Class shares' actual yearly
performance for the years ended December 31 (commonly known as their "total
return") over the past decade. The table below shows average annual total
returns for various periods ended December 31, 1999 for each Fund's Investor
Class shares compared to the Merrill Lynch High Yield Master, Lehman
Government/Corporate Bond, Lehman Municipal Bond and Lehman Government Long Bond
Indexes. The information in the charts and table illustrates the variability of
each Fund's Investor Class shares' total return and how its performance compared
to a broad measure of market performance. Remember, past performance does not
indicate how a Fund will perform in the future.
The charts below contain the following plot points:
--------------------------------------------------------------------------------
HIGH YIELD FUND - INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
(4.57%) 23.51% 14.53% 15.81% (4.98%) 17.90% 14.08% 17.10% 0.15% 9.30%
--------------------------------------------------------------------------------
Best Calendar Qtr. 3/91 7.85%
Worst Calendar Qtr. 9/98 (7.12%)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SELECT INCOME FUND - INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
4.86% 18.57% 10.38% 11.43% (1.20%) 20.61% 4.87% 11.72% 7.13% (1.37%)
--------------------------------------------------------------------------------
Best Calendar Qtr. 6/95 6.75%
Worst Calendar Qtr. 3/94 (2.01%)
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
TAX-FREE BOND FUND - INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
7.10% 12.53% 8.77% 12.11% (5.52%) 15.64% 2.36 8.67% 4.72% (3.36%)
--------------------------------------------------------------------------------
Best Calendar Qtr. 12/95 5.65%
Worst Calendar Qtr. 3/94 (5.76%)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND -
INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
7.23% 15.56% 5.68% 10.28% (7.20%) 22.13% 0.47% 12.26% 10.11% (5.97%)
--------------------------------------------------------------------------------
Best Calendar Qtr. 6/95 7.68%
Worst Calendar Qtr. 3/94 (4.53%)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1),(2)
AS OF 12/31/99
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
High Yield Fund--Investor Class 9.30% 11.51% 9.86%
Select Income Fund--Investor Class (1.37%) 8.35% 8.48%
Tax-Free Bond Fund--Investor Class (3.36%) 5.42% 6.10%
U.S. Government Securities Fund-- (5.97%) 7.36% 6.69%
Investor Class
Merrill Lynch High Yield Master Index(3) 1.57% 9.61% 10.79%
Lehman Government/Corporate Bond Index(3) (2.15%) 7.61% 7.65%
Lehman Municipal Bond Index(3) (2.06%) 6.91% 6.89%
Lehman Government Long Bond Index(3) (8.73%) 9.12% 8.62%
(1)Total return figures include reinvested dividends and capital gain
distributions and the effect of each Fund's expenses.
(2)The returns for Investor Class shares of High Yield Fund, Select Income Fund,
Tax-Free Bond Fund and U.S. Government Securities Fund were (2.04%), 4.64%,
6.70% and 9.30%, respectively, year-to-date as of the calendar quarter ended
September 30, 2000.
(3)The Merrill Lynch High Yield Master Index, Lehman Government/Corporate Bond
Index, Lehman Municipal Bond Index and Lehman Government Long Bond Index are
unmanaged indexes indicative of the high yield bond, broad domestic fixed-
<PAGE>
income, municipal government bond and longer-term government bond markets.
Please keep in mind that the indexes do not pay brokerage, management,
administrative or distribution expenses, all of which are paid by the Funds and
are reflected in their annual returns.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
SHAREHOLDER FEES PAID DIRECTLY FROM YOUR ACCOUNT
HIGH YIELD FUND - INVESTOR CLASS
Redemption Fee (as a percentage of amount redeemed) 2.00%(1)
Exchange Fee 2.00%(1)
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
HIGH YIELD FUND - INVESTOR CLASS
Management Fees 0.41%
Distribution and Service (12b-1) Fees(2) 0.25%
Other Expenses(3) 0.37%
-----
Total Annual Fund Operating Expenses(3) 1.03%
=====
SELECT INCOME FUND - INVESTOR CLASS
Management Fees 0.50%
Distribution and Service (12b-1) Fees(2) 0.25%
Other Expenses(3),(4) 0.48%
=====
Total Annual Fund Operating Expenses(3),(4) 1.23%
=====
TAX-FREE BOND FUND - INVESTOR CLASS
Management Fees 0.55%
Distribution and Service (12b-1) Fees(2) 0.25%
Other Expenses(3),(4) 0.32%
-----
Total Annual Fund Operating Expenses(3),(4) 1.12%
=====
U.S. GOVERNMENT SECURITIES FUND -
INVESTOR CLASS
Management Fee 0.55%
Distribution and Services (12b-1) Fees(2) 0.25%
Other Expenses(3),(4) 0.86%
-----
Total Annual Fund Operating Expenses(3),(4) 1.66%
=====
(1) A 2% fee is charged on redemptions or exchanges of shares held three months
or less, other than shares acquired through reinvestment of dividends and other
distributions.
(2) Because the Funds' Investor Class shares pay 12b-1 distribution and service
fees which are based upon each Fund's assets, if you own shares of a Fund for a
long period of time, you may pay more than the economic equivalent of the
maximum front-end sales charge permitted for mutual funds by the National
Association of Securities Dealers, Inc.
<PAGE>
(3) Each Fund's actual Other Expenses and Total Annual Fund Operating Expenses
were lower than the figures shown, because their custodian fees were reduced
under expense offset arrangements.
(4) Certain expenses of the Select Income Fund-Investor Class, Tax-Free Bond
Fund-Investor Class and U.S. Government Securities Fund-Investor Class were
absorbed voluntarily by INVESCO pursuant to commitments between those Funds and
INVESCO. These commitments may be changed at any time following consultation
with the board of directors. After absorption, but excluding any expense offset
arrangements, Select Income Fund's Other Expenses and Total Annual Fund
Operating Expenses were 0.31% and 1.06%, respectively, of the Fund's average net
assets attributable to Investor Class shares, Tax-Free Bond Fund's Other
Expenses and Total Annual Fund Operating Expenses were 0.11% and 0.91%,
respectively, of the Fund's average net assets attributable to Investor Class
shares, and U.S. Government Securities Fund's Other Expenses and Total Annual
Fund Operating Expenses were 0.22% and 1.02%, respectively, of the Fund's
average net assets attributable to Investor Class shares.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Investor Class shares of the Funds to the cost of investing in other mutual
funds.
The Example assumes that you invested $10,000 in the Investor Class shares of a
Fund for the time periods indicated and redeem all of your shares at the end of
each period. The Example also assumes that your investment had a hypothetical 5%
return each year and that a Fund's Investor Class shares' operating expenses
remain the same. Although actual costs and performance of a Fund's Investor
Class shares may be higher or lower, based on these assumptions your costs would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
High Yield Fund - Investor Class $105 $328 $569 $1,259
Select Income Fund - Investor Class $125 $390 $676 $1,489
Tax-Free Bond Fund - Investor Class $114 $356 $617 $1,363
U.S. Government Securities Fund - $169 $523 $902 $1,965
Investor Class
[ARROWS ICON] INVESTMENT RISKS
BEFORE INVESTING IN A FUND, YOU SHOULD DETERMINE THE LEVEL OF RISK WITH WHICH
YOU ARE COMFORTABLE. TAKE INTO ACCOUNT FACTORS LIKE YOUR AGE, CAREER, INCOME
LEVEL, AND TIME HORIZON.
You should determine the level of risk with which you are comfortable before you
invest. The principal risks of investing in any mutual fund, including these
Funds, are:
NOT INSURED. Mutual funds are not insured by the FDIC or any other government
agency, unlike bank deposits such as CDs or savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its performance, nor
assure you that the market value of your investment will increase. You may lose
the money you invest, and the Funds will not reimburse you for any of these
losses.
<PAGE>
VOLATILITY. The price of your mutual fund shares will increase or decrease with
changes in the value of a Fund's underlying investments and changes in the debt
markets as a whole.
NOT A COMPLETE INVESTMENT PLAN. An investment in any mutual fund does not
constitute a complete investment plan. The Funds are designed to be only a part
of your personal investment plan.
[ARROWS ICON] PRINCIPAL RISKS ASSOCIATED WITH THE FUNDS
You should consider the special factors associated with the policies discussed
below in determining the appropriateness of investing in a Fund. See the
Statement of Additional Information for a discussion of additional risk factors.
INTEREST RATE RISK
Changes in interest rates will affect the resale value of debt securities held
in a Fund's portfolio. In general, as interest rates rise, the resale value of
debt securities decreases; as interest rates decline, the resale value of debt
securities generally increases. Debt securities with longer maturities usually
are more sensitive to interest rate movements.
CREDIT RISK
The Funds invest in debt instruments, such as notes, bonds and commercial paper.
There is a possibility that the issuers of these instruments will be unable to
meet interest payments or repay principal. Changes in the financial strength of
an issuer may reduce the credit rating of its debt instruments and may affect
their value.
DEBT SECURITIES RISKS
Debt securities include bonds, notes and other securities that give the holder
the right to receive fixed amounts of principal, interest, or both on a date in
the future or on demand. Debt securities also are often referred to as fixed
income securities, even if the rate of interest varies over the life of the
security.
Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that the
market value of the security may decline for a variety of reasons, including
changes in interest rates. An increase in interest rates tends to reduce the
market values of debt securities in which a Fund invests. A decline in interest
rates tends to increase the market values of debt securities in which a Fund
invests.
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's ("S&P")
ratings provide a useful but not certain guide to the credit risk of many debt
securities. The lower the rating of a debt security, the greater the credit risk
the rating service assigns to the security. To compensate investors for
accepting that greater risk, lower-rated securities tend to offer higher
interest rates. Lower-rated debt securities are often referred to as "junk
<PAGE>
bonds." A debt security is considered lower grade if it is rated Ba or less by
Moody's or BB or less by S&P.
Lower-rated and non-rated debt securities of comparable quality are subject to
wider fluctuations in yields and market values than higher-rated debt securities
and may be considered speculative. Junk bonds are perceived by independent
rating agencies as having a greater risk that their issuers will not be able to
pay the interest and principal as they become due over the life of the bond. In
addition to the loss of interest payments, the market value of a defaulted bond
would likely drop, and a Fund would be forced to sell it at a loss. Debt
securities rated lower than B by either S&P or Moody's are usually considered to
be highly speculative.
In addition to poor individual company performance in the marketplace or in its
internal management, a significant economic downturn or increase in interest
rates may cause issuers of debt securities to experience increased financial
problems which could hurt their ability to pay principal and interest
obligations, to meet projected business goals, and to obtain additional
financing. These conditions more severely affect issuers of lower-rated debt
securities. The market for lower-rated straight debt securities may not be as
liquid as the market for higher-rated straight debt securities. Therefore,
INVESCO attempts to limit purchases of lower-rated securities to securities
having an established secondary market.
Debt securities rated Caa by Moody's may be in default or may present risks of
non-payment of principal or interest. Lower-rated securities by S&P (categories
BB, B and CCC) include those which are predominantly speculative because of the
issuer's perceived capacity to pay interest and repay principal in accordance
with their terms; BB indicates the lowest degree of speculation and CCC a high
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are usually outweighed by large uncertainties
or major risk exposures to adverse conditions.
FOREIGN SECURITIES RISKS
Investments in foreign and emerging markets carry special risks, including
currency, political, regulatory and diplomatic risks. High Yield and Select
Income Funds may invest up to 25% of their assets in foreign debt securities.
Securities of Canadian issuers and American Depository Receipts are not subject
to this 25% limitation.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of a Fund's investment in a security
valued in the foreign currency, or based on that currency value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than those
in the U.S. may permit trading practices that are not allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. and a
foreign country could affect the value or liquidity of investments.
<PAGE>
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain
are presently members of the European Economic and Monetary Union (the
"EMU") which as of January 1, 1999, adopted the euro as a common currency.
The national currencies will be sub-currencies of the euro until July 1,
2002, at which time these currencies will disappear entirely. Other
European countries may adopt the euro in the future.
As the euro is implemented, there may be changes in the relative strength
and value of the U.S. dollar and other major currencies, as well as
possible adverse tax consequences. The euro transition by EMU countries may
affect the fiscal and monetary levels of those participating countries. The
outcome of these and other uncertainties could have unpredictable effects
on trade and commerce and result in increased volatility for all financial
markets.
DURATION RISK
Duration is a measure of a debt security's sensitivity to interest rate changes.
Duration is usually expressed in terms of years, with longer durations usually
more sensitive to interest rate fluctuations.
LIQUIDITY RISK
A Fund's portfolio is liquid if the Fund is able to sell the securities it owns
at a fair price within a reasonable time. Liquidity is generally related to the
market trading volume for a particular security. Investments in smaller
companies or in foreign companies or companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the transaction with a
Fund.
LACK OF TIMELY INFORMATION RISK
Timely information about a security or its issuer may be unavailable, incomplete
or inaccurate. This risk is more common to securities issued by foreign
companies and companies in emerging markets than it is to the securities of
U.S.-based companies.
-----------------------------------------------
Although each Fund generally invests in debt securities, the Funds also may
invest in other types of securities and other financial instruments as indicated
in the chart below. Although these investments typically are not part of any
Fund's principal investment strategy, they may constitute a significant portion
of a Fund's portfolio, thereby possibly exposing a Fund and its investors to the
following additional risks.
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
--------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS
(ADRs)
These are banks that Market, Information, High Yield Select
represent shares of Political, Regulatory, Select Income
Although traded in U.S. Diplomatic, Liquidity
securities markets and and Currency Risks
valued in U.S. dollars,
ADRs carry most of the
risks of investing
directly in foreign
securities.
--------------------------------------------------------------------------------
EUROBONDS AND YANKEE BONDS
Bonds issued by foreign Market, Credit, High Yield
branches of U.S. banks Interest Rate and Select Income
("Eurobonds") and bonds Duration Risks
issued by a U.S. branch of
a foreign bank and sold in
the United States ("Yankee
bonds"). These bonds are
bought and sold in U.S.
dollars, but generally
carry with them the same
risks as investing in
foreign securities.
--------------------------------------------------------------------------------
JUNK BONDS
Debts securities that are Market, Credit, High Yield
rated BB or lower by S&P Interest Rate and Select Income
or Ba or lower by Moody's. Duration Risks Tax-Freee Bond
Tend to pay higher
interest rates than
higher-rated debt
securities, but carry a
higher credit risk.
--------------------------------------------------------------------------------
PIK (PAYMENT IN KIND)
SECURITIES
A type of bond or preferred Market, Credit High Yield
stock that pays interest Interest Rate and
and/or dividends in the form Duration Risks
of additional bonds or
preferred stock.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
--------------------------------------------------------------------------------
STEP-UP BONDS Market, Credit, High Yield
A bond that pays one Interest Rate and Select Income
coupon rate (the interest Duration Risks
rate stated on a bond,
which could be as low as
0%) for an initial period
followed by a higher
coupon rate.
--------------------------------------------------------------------------------
[ARROWS ICON] TEMPORARY DEFENSIVE POSITIONS
When securities markets or economic conditions are unfavorable or unsettled, we
might try to protect the assets of a Fund by investing in securities that are
highly liquid, such as high quality money market instruments like short-term
U.S. government obligations, commercial paper or repurchase agreements, even
though that is not the normal investment strategy of any Fund. We have the right
to invest up to 100% of a Fund's assets in these securities, although we are
unlikely to do so. Even though the securities purchased for defensive purposes
often are considered the equivalent of cash, they also have their own risks.
Investments that are highly liquid or comparatively safe tend to offer lower
returns. Therefore, a Fund's performance could be comparatively lower if it
concentrates in defensive holdings.
[INVESCO ICON] FUND MANAGEMENT
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $414 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESTMENT ADVISER
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Funds. INVESCO was founded in 1932 and manages over $46.1 billion
for more than 2,320,000 shareholder accounts of 46 INVESCO mutual funds. INVESCO
performs a wide variety of other services for the Funds, including
administrative and transfer agency functions (the processing of purchases, sales
and exchanges of Fund shares).
A I M Capital Management, Inc. ("AIM"), located at 11 Greenway Plaza, Suite 100,
Houston, Texas, is the sub-adviser to Tax-Free Bond Fund.
A wholly owned subsidiary of INVESCO, IDI is the Funds' distributor and is
responsible for the sale of the Funds' shares.
INVESCO, AIM and IDI are subsidiaries of AMVESCAP PLC.
<PAGE>
The following table shows the fees the Funds paid to INVESCO for its advisory
services in the fiscal year ended August 31, 2000.
--------------------------------------------------------------------------------
ADVISORY FEE AS A PERCENTAGE OF
AVERAGE ANNUAL NET ASSETS UNDER
FUND MANAGEMENT
--------------------------------------------------------------------------------
High Yield Fund 0.41%
Select Income Fund 0.50%
Tax-Free Bond Fund 0.55%
U.S. Government Securities Fund 0.55%
--------------------------------------------------------------------------------
[INVESCO ICON] PORTFOLIO MANAGERS
The following individuals are primarily responsible for the day-to-day
management of their respective Fund's or Funds' portfolio holdings:
FUND PORTFOLIO MANAGER(S)
High Yield Donovan J. (Jerry) Paul
Select Income Donovan J. (Jerry) Paul
Tax-Free Bond Richard A. Berry
Stephen D. Turman
U.S. Government Securities Richard R. Hinderlie
RICHARD A. BERRY, a vice president and senior portfolio manager of AIM, is the
portfolio manager of Tax-Free Bond Fund. Richard manages several other AIM
fixed-income funds. Before joining AIM in 1987, he served at various times as
senior vice president for InterFirst Investment Management Company, manager of
investor relations at Texas Industries, Inc., vice president of Banc Texas, and
investment officer at Southwestern Life Insurance Company. Richard is a
Chartered Financial Analyst. He holds an M.B.A. in finance and a B.B.A. from
Texas Christian University.
RICHARD R. HINDERLIE, a vice president of INVESCO, is the portfolio manager of
U.S. Government Securities Fund. Dick joined INVESCO in 1993. He holds an M.B.A.
from Arizona State University and a B.A. in Economics from Pacific Lutheran
University.
DONOVAN J. (JERRY) PAUL, Director of Fixed-Income Investments and a senior vice
president of INVESCO, is the portfolio manager of High Yield and Select Income
Funds. Jerry manages several other fixed-income INVESCO Funds. Before joining
INVESCO in 1994, he was a senior vice president with Stein, Roe & Farnham, Inc.
and president of Quixote Investment Management. Jerry is a Chartered Financial
Analyst and a Certified Public Accountant. He holds an M.B.A. from the
University of Northern Iowa and a B.B.A. from the University of Iowa.
STEPHEN D. TURMAN, a vice president and portfolio manager of AIM, is the
co-portfolio manager of Tax-Free Bond Fund. Stephen manages several other AIM
fixed-income funds. Before joining AIM in 1985, he worked in institutional sales
for Dean Witter.
<PAGE>
Stephen is a Chartered Financial Analyst. He holds a B.B.A. in finance from the
University of Texas at Arlington.
Dick Hinderlie is a member of INVESCO's Fixed-Income Team, which is led by Jerry
Paul.
[INVESCO ICON] POTENTIAL REWARDS
NO SINGLE FUND SHOULD REPRESENT YOUR COMPLETE INVESTMENT PROGRAM NOR SHOULD YOU
ATTEMPT TO USE THE FUNDS FOR SHORT-TERM TRADING PURPOSES.
The Funds offer shareholders the opportunity for current income. High Yield,
Select Income and U.S. Government Securities Funds also offer the opportunity
for capital growth. Like most mutual funds, each Fund seeks to provide higher
returns than the market or its competitors, but cannot guarantee that
performance. Each Fund seeks to minimize risk by investing in debt securities of
a variety of issuers.
SUITABILITY FOR INVESTORS
Only you can determine if an investment in a Fund is right for you based upon
your own economic situation, the risk level with which you are comfortable and
other factors. In general, the Funds are most suitable for investors who:
o are primarily seeking higher current income; and, for High Yield, Select
Income and U.S. Government Securities Funds, a secondary opportunity for
capital growth.
o understand that shares of a Fund can, and likely will, have daily price
fluctuations.
o are investing in tax-deferred retirement accounts, such as Traditional and
Roth Individual Retirement Accounts ("IRAs"), as well as employer-sponsored
qualified retirement plans, including 401(k)s and 403(b)s, all of which have
longer investment horizons.
You probably do not want to invest in the Funds if you are:
o primarily seeking high rates of capital growth or total return.
o unwilling to accept potential daily changes in the price of Fund shares.
o speculating on short-term fluctuations in the securities markets.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- FUND DEBTS,
INCLUDING ACCRUED EXPENSES
-----------------------------------
/ NUMBER OF SHARES
= YOUR SHARE PRICE (NAV).
The value of your Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in each Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of the regular trading day on that
exchange (normally 4:00 p.m. Eastern time). Therefore, shares of the Funds are
not priced on days when the NYSE is closed, which generally is on weekends and
national holidays in the U.S.
<PAGE>
NAV is calculated by adding together the current market price of all of a Fund's
investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
All purchases, sales and exchanges of Fund shares are made by INVESCO at the NAV
next calculated after INVESCO receives proper instructions from you to purchase,
redeem or exchange shares of a Fund. Your instructions must be received by
INVESCO no later than the close of the NYSE to effect transactions at that day's
NAV. If INVESCO hears from you after that time, your instructions will be
processed at the NAV calculated at the end of the next day that the NYSE is
open.
Foreign securities exchanges, which set the prices for foreign securities held
by the Funds, are not always open the same days as the NYSE, and may be open for
business on days the NYSE is not. For example, Thanksgiving Day is a holiday
observed by the NYSE and not by overseas exchanges. In this situation, the Funds
would not calculate NAV on Thanksgiving Day (and INVESCO would not buy, sell or
exchange shares for you on that day), even though activity on foreign exchanges
could result in changes in the value of investments held by a Fund on that day.
[INVESCO ICON] HOW TO BUY SHARES
TO BUY SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE THE CLOSE
OF THE NYSE, NORMALLY, 4:00 P.M. EASTERN TIME.
The Funds offer multiple classes of shares. The chart in this section shows
several convenient ways to invest in the Funds. A share of each class represents
an identical interest in a Fund and has the same rights, except that each class
bears its own distribution and shareholder servicing charges, and other
expenses. The income attributable to each class and the dividends payable on the
shares of each class will be reduced by the amount of the distribution fee or
service fee, if applicable, and the other expenses payable by that class.
There is no charge to invest directly through INVESCO. With regard to all Funds,
except High Yield Fund - Investor Class, there is no charge to exchange or
redeem shares when you make transactions directly through INVESCO. However, with
respect to High Yield Fund - Investor Class, upon a redemption or an exchange of
shares held three months or less (other than shares acquired through
reinvestment of dividends or other distributions), a fee of 2% of the current
net asset value of the shares being exchanged will be assessed and retained by
that Fund for the benefit of the remaining shareholders. If you invest in a Fund
through a securities broker or any other third party, you may be charged a
commission or transaction fee for either purchases or sales of Fund shares. For
all new accounts, please forward, either by mail or electronically, a completed
application form, and specify the fund or funds and class or classes of shares
you wish to purchase. If you do not specify a fund or funds, your initial
investment and any subsequent purchases will automatically go into INVESCO Cash
Reserves Fund - Investor Class, a series of INVESCO Money Market Funds, Inc. You
will receive a confirmation of this transaction and may contact INVESCO to
exchange it into the fund you choose.
<PAGE>
INVESCO reserves the right to increase, reduce or waive each Fund's minimum
investment requirements in its sole discretion, if it determines this action is
in the best interests of that Fund's shareholders. INVESCO also reserves the
right in its sole discretion to reject any order to buy Fund shares, including
purchases by exchange.
MINIMUM INITIAL INVESTMENT. $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans, including IRAs.
MINIMUM SUBSEQUENT INVESTMENT. $50 (Minimums are lower for certain retirement
plans.)
EXCHANGE POLICY. You may exchange your shares in any of the Funds for shares of
the same class in another INVESCO fund on the basis of their respective NAVs at
the time of the exchange. You may also exchange between Investor Class and Class
K shares in any of the INVESCO funds on the basis of their respective NAVs at
the time of the exchange.
FUND EXCHANGES CAN BE A CONVENIENT WAY FOR YOU TO DIVERSIFY YOUR INVESTMENTS, OR
TO REALLOCATE YOUR INVESTMENTS WHEN YOUR OBJECTIVES CHANGE.
Before making any exchange, be sure to review the prospectuses of the funds
involved and consider the differences between the funds. Also, be certain that
you qualify to purchase certain classes of shares in the new fund. An exchange
is the sale of shares from one fund immediately followed by the purchase of
shares in another. Therefore, any gain or loss realized on the exchange is
recognizable for federal income tax purposes (unless, of course, you or your
account qualifies as tax-deferred under the Internal Revenue Code). If the
shares of the fund you are selling have gone up in value since you bought them,
the sale portion of an exchange may result in taxable income to you.
We have the following policies governing exchanges:
o Both fund accounts involved in the exchange must be registered in exactly the
same name(s) and Social Security or federal tax I.D. number(s).
o You may make up to four exchanges out of each Fund per 12-month period, but
you may be subject to the redemption fee described below.
o Each Fund reserves the right to reject any exchange request, or to modify or
terminate the exchange policy, if it is in the best interests of the Fund and
its shareholders. Notice of all such modifications or terminations that affect
all shareholders of the Fund will be given at least 60 days prior to the
effective date of the change, except in unusual instances, including a
suspension of redemption of the exchanged security under Section 22(e) of the
Investment Company Act of 1940.
In addition, the ability to exchange may be temporarily suspended at any time
that sales of the Fund into which you wish to exchange are temporarily stopped.
REDEMPTION FEE (HIGH YIELD FUND - INVESTOR CLASS ONLY). If you exchange or
redeem shares of High Yield Fund after holding them three months or less (other
than shares acquired through reinvestment of dividends or other distributions),
a fee of 2% of the current net asset value of the shares being exchanged will be
assessed and retained by the Fund for the benefit of the remaining shareholders.
This fee is intended to encourage long-term investment in High Yield Fund, to
<PAGE>
avoid transaction and other expenses caused by early redemptions, and to
facilitate portfolio management. The fee is currently waived for institutional,
qualified retirement plan and other shareholders investing through omnibus
accounts, due to certain economies associated with these accounts. However, High
Yield Fund reserves the right to impose redemption fees on shares held by such
shareholders at any time if warranted by the Fund's future cost of processing
redemptions. The redemption fee may be modified or discontinued at any time or
from time to time. This fee is not a deferred sales charge, is not a commission
paid to INVESCO and does not benefit INVESCO in any way. The fee applies to
redemptions from the Fund and exchanges into any of the other no-load mutual
funds which are also advised by INVESCO and distributed by IDI. High Yield Fund
will use the "first-in, first-out" method to determine your holding period.
Under this method, the date of redemption or exchange will be compared with the
earliest purchase date of shares held in your account. If your holding period is
less than three months, the redemption/ exchange fee will be assessed on the
current net asset value of those shares.
Please remember that if you pay by check, Automated Clearing House ("ACH") or
wire and your funds do not clear, you will be responsible for any related loss
to a Fund or INVESCO. If you are already an INVESCO funds shareholder, the Fund
may seek reimbursement for any loss from your existing account(s).
CHOOSING A SHARE CLASS. Each Fund has multiple classes of shares, each class
representing an interest in the same portfolio of investments. In deciding which
class of shares to purchase, you should consider, among other things, (i) the
length of time you expect to hold your shares, (ii) the provisions of the
distribution plan applicable to that class, if any, (iii) the eligibility
requirements that apply to purchases of a particular class, and (iv) any
services you may receive in making your investment determination.
INTERNET TRANSACTIONS. Investors in any of the Investor Class shares of any
INVESCO fund may open new accounts, exchange and redeem shares through the
INVESCO Web site. To use this service, you will need a Web browser (presently
Netscape version 4.0 or higher, Microsoft Internet Explorer version 4.0 or
higher, or AOL version 5.0 or higher) and the ability to use the INVESCO Web
site. INVESCO will accept Internet purchase instructions only for exchanges or
if the purchase price is paid to INVESCO through debiting your bank account.
Internet cash redemptions will be paid only to the same bank account from which
the payment to INVESCO originated. INVESCO imposes a limit of $25,000 on
Internet purchase and redemption transactions. Other minimum transaction amounts
are discussed in this Prospectus. You may also download an application to open
an account from the Web site, complete it by hand, and mail it to INVESCO, along
with a check.
INVESCO employs reasonable procedures to confirm that transactions entered into
over the Internet are genuine. These procedures include the use of alphanumeric
passwords, secure socket layering, encryption and other precautions reasonably
designed to protect the integrity, confidentiality and security of shareholder
information. In order to enter into a transaction on the INVESCO Web site, you
will need an account number, your Social Security Number and an alphanumeric
password. If INVESCO follows these procedures, neither INVESCO, its affiliates
nor any Fund will be liable for any loss, liability, cost or expense for
following instructions communicated via the Internet that are reasonably
believed to be genuine or that follow INVESCO's security procedures. By entering
<PAGE>
into the user's agreement with INVESCO to open an account through our Web site,
you lose certain rights if someone gives fraudulent or unauthorized instructions
to INVESCO that result in a loss to you.
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
--------------------------------------------------------------------------------
BY CHECK $1,000 for regular INVESCO does not
Mail to: accounts; $250 for accept a third party
INVESCO Funds Group, Inc., an IRA; $50 for each check unless it is
P.O. Box 173706, subsequent from another
Denver, CO 80217-3706. investment. financial
You may send your check institution related
by overnight courier to: to a retirement plan
7800 E. Union Ave. transfer.
Denver, CO 80237.
--------------------------------------------------------------------------------
BY WIRE $1,000 for regular
You may send your payment accounts;
by bank wire (call $250 for an IRA; $50
1-800-525-8085 for for each subsequent
instructions). investment.
--------------------------------------------------------------------------------
BY TELEPHONE WITH ACH $1,000 for regular You must forward
Call 1-800-525-8085 to accounts; $250 for your bank account
request your purchase. an IRA; $50 for each information to
Upon your telephone subsequent INVESCO prior to
instructions, INVESCO investment. using this option.
will move money from your
designated bank/credit
union checking or savings
account in order to
purchase shares.
--------------------------------------------------------------------------------
BY INTERNET $1,000 for regular You will need a Web
Go to the INVESCO Web site accounts; $250 for browser to use this
at invescofunds.com $250 for an IRA;$50 service. Internet
for each subsequent purchase
investment. transactions are
limited to a maximum
of $25,000.
--------------------------------------------------------------------------------
REGULAR INVESTING WITH $50 pe rmonth for Like all regular
EASIVEST PAYROLL PURCHASE EasiVest; $50 per investment plans,
OR DIRECT PAYROLL pay period for neither EasiVest nor
PURCHASE You may enroll Direct Payroll Direct Payroll
on your fund application, Purchase. You may Purchase ensures a
or call us for separate start or stop your profit or protects
form and more details. regular investment against loss in a
Investing the same amount plan at any time, falling market.
on a monthly basis allows with two weeks' Because you'll invest
you to buy more shares notice to INVESCO. continually,
when prices are low and regardlesss of
fewer shares when prices varying price levels,
are high. This "dollar consider your
cost averaging" may help financial ability to
offset market keep buying through
fluctuations. Over a low price levels.
period of time, your Remember that you
average cost per share will lose money if
may be less than the you redeem your
actual average market shares when the
value per share. market value of all
your shares is less
than their cost.
<PAGE>
--------------------------------------------------------------------------------
BY PERSONAL ACCOUNT LINE $50 for subsequent You must forward
Automated transactions are investments. your bank account
available for subsequent information to
purchases and exchanges 24 INVESCO prior to
hours a day. Simply call using this option.
1-800-424-8085. Automated
transactions are
limited to a maximum
of $25,000.
--------------------------------------------------------------------------------
BY EXCHANGE $1,000 for regular See "Exchange Policy."
Between the same class of $250 for an IRA; $50
any two INVESCO funds or for each subsequent
between Investor Class investment.
and Class K. Call
1-800-525-8085 for
prospectuses of other
INVESCO funds. Exchanges
may be made in writing,
by telephone or at our
Web site at
invescofunds.com. You may
also establish an
automatic monthly
exchange service between
tow INVESCO funds, call
us for further details
and the correct form.
DISTRIBUTION EXPENSES. We have adopted a Plan and Agreement of Distribution -
Investor Class (commonly known as a "12b-1 Plan") for the Funds' Investor Class
shares. The 12b-1 fees paid by each Fund are used to defray all or part of the
cost of preparing and distributing prospectuses and promotional materials, as
well as to pay for certain distribution-related and other services. These
services include compensation to third party brokers, financial advisers and
financial services companies that sell Fund shares and/or service shareholder
accounts.
Under the Plan, each Fund's payments are limited to an amount computed at an
annual rate of 0.25% of the Fund's average net assets. If distribution expenses
for a Fund exceed these computed amounts, INVESCO pays the difference.
[INVESCO ICON] YOUR ACCOUNT SERVICES
INVESCO PROVIDES YOU WITH SERVICES DESIGNED TO MAKE IT SIMPLE FOR YOU TO BUY,
SELL OR EXCHANGE YOUR SHARES OF ANY INVESCO MUTUAL FUND.
SHAREHOLDER ACCOUNTS. Unless your account is held at a brokerage firm, INVESCO
maintains your share account, which contains your current Fund holdings. The
Funds do not issue share certificates.
QUARTERLY INVESTMENT SUMMARIES. Each calendar quarter, you will receive a
written statement which consolidates and summarizes account activity and value
at the beginning and end of the period for each of your INVESCO funds.
TRANSACTION CONFIRMATIONS. You will receive detailed confirmations of individual
purchases, exchanges and sales. If you choose certain recurring transaction
plans (for instance, EasiVest), your transactions are confirmed on your
quarterly Investment Summaries.
<PAGE>
TELEPHONE TRANSACTIONS. You may buy, exchange and sell Fund shares by telephone,
unless you specifically decline these privileges when you fill out the INVESCO
new account Application.
YOU CAN CONDUCT MOST TRANSACTIONS AND CHECK ON YOUR ACCOUNT THROUGH OUR
TOLL-FREE TELEPHONE NUMBER. YOU MAY ALSO ACCESS PERSONAL ACCOUNT INFORMATION AT
OUR WEB SITE, INVESCOFUNDS.COM.
Unless you decline the telephone transaction privileges, when you fill out and
sign the new account Application, a Telephone Transaction Authorization Form, or
use your telephone transaction privileges, you lose certain rights if someone
gives fraudulent or unauthorized instructions to INVESCO that result in a loss
to you. In general, if INVESCO has followed reasonable procedures, such as
recording telephone instructions and sending written transaction confirmations,
INVESCO is not liable for following telephone instructions that it believes to
be genuine. Therefore, you have the risk of loss due to unauthorized or
fraudulent instructions.
HOUSEHOLDING. To save money for the Funds, INVESCO will send only one copy of a
prospectus or financial report to each household address. This process, known as
"householding," is used for most required shareholder mailings. It does not
apply to account statements. You may, of course, request an additional copy of a
prospectus or financial report at any time by calling or writing INVESCO. You
may also request that householding be eliminated from all your required
mailings.
IRAS AND OTHER RETIREMENT PLANS. Shares of any INVESCO mutual fund may be
purchased for IRAs and many other types of tax-deferred retirement plans. Please
call INVESCO for information and forms to establish or transfer your existing
retirement plan or account.
[INVESCO ICON] HOW TO SELL SHARES
The chart in this section shows several convenient ways to sell your Fund
shares. Shares of the Funds may be sold at any time at the next NAV calculated
after your request to sell is received by INVESCO in proper form. Depending on
Fund performance, the NAV at the time you sell your shares may be more or less
than the price you paid to purchase your shares.
TO SELL SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE 4:00 P.M.
EASTERN TIME.
If you own shares in more than one INVESCO fund, please specify the fund whose
shares you wish to sell and specify the class of shares. Remember that any sale
or exchange of shares in a non-retirement account will likely result in a
taxable gain or loss.
While INVESCO attempts to process telephone redemptions promptly, there may be
times - particularly in periods of severe economic or market disruption - when
you may experience delays in redeeming shares by telephone.
INVESCO usually forwards the proceeds from the sale of Fund shares within seven
days after we receive your request to sell in proper form. However, payment may
be postponed under unusual circumstances -- for instance, if normal trading is
<PAGE>
not taking place on the NYSE, or during an emergency as defined by the
Securities and Exchange Commission. If your INVESCO fund shares were purchased
by a check which has not yet cleared, payment will be made promptly when your
purchase check does clear, which can take up to 12 business days.
If you participate in EasiVest, the Funds' automatic monthly investment program,
and sell all of the shares in your account, we will not make any additional
EasiVest purchases unless you give us other instructions.
Because of the Funds' expense structure, it costs as much to handle a small
account as it does to handle a large one. If the value of your account in a Fund
falls below $250 as a result of your actions (for example, sale of your Fund
shares), the Fund reserves the right to sell all of your shares, send the
proceeds of the sale to you and close your account. Before this is done, you
will be notified and given 60 days to increase the value of your account to $250
or more.
--------------------------------------------------------------------------------
METHOD REDEMPTION MINIMUM PLEASE REMEMBER
--------------------------------------------------------------------------------
BY TELEPHONE $250 (or, if less, INVESCO's telephone
Call us toll-free at: full liquidation of redemption
1-800-525-8085. the account) for a privileges may be
redemption check. modified or
terminated in the
future at INVESCO's
discretion. The
maximum amount which
may be redeemed by
telephone is
generally $25,000.
--------------------------------------------------------------------------------
IN WRITING Any amount. The redemption
Mail your request to request must be
INVESCO Funds Group, Inc., signed by all
P.O. Box 173706, Denver, registered account
CO 80217-3706. You may owners. Payment will
also send your request by be mailed to your
overnight courier to 7800 address as it
E. Union Ave., Denver, CO appears on INVESCO's
80237. records, or to a
bank designated by
you in writing.
--------------------------------------------------------------------------------
BY TELEPHONE WITH ACH $50. IRA redemptions You must forward
Call 1-800-525-8085 to are not permitted. your bank account
request your redemption. information to
INVESCO prior to
using this option.
INVESCO will
automatically pay
the proceeds into
your designated bank
account.
--------------------------------------------------------------------------------
BY INTERNET $50. IRA redemptions are You will need a Web
Go to the INVESCO Web site not permitted. browser to use this
at invescofunds.com service. Internet
redemption
transactions are
limited to a maximum
of $25,000. INVESCO
will auto matically
pay the proceeds
into your designated
bank account.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
METHOD REDEMPTION MINIMUM PLEASE REMEMBER
--------------------------------------------------------------------------------
PERIODIC WITHDRAWAL PLAN $100 per payment on You must have at
You may call us to request a monthly or least $10,000 total
the appro priate form and quarterly basis. The invested with the
more information at redemption check may INVESCO funds with
1-800-525-8085. be made payable to at least $5,000 of
any party you that total invested
designate. in the fund from
which withdrawals
will be made.
--------------------------------------------------------------------------------
PAYMENT TO THIRD PARTY Any amount. All registered
Mail your request to INVESCO account owners must
Funds Group, Inc., P.O. Box sign the request,
173706, Denver, CO 80217-3706. with signature
guarantees from an
eligible guarantor
financial
institution, such as
a commercial bank
or a recognized
national or regional
securities firm.
[GRAPH ICON] TAXES
Everyone's tax status is unique. We encourage you to consult your own tax
adviser on the tax impact to you of investing in the Funds.
TO AVOID BACKUP WITHHOLDING, BE SURE WE HAVE YOUR CORRECT SOCIAL SECURITY OR
TAXPAYER IDENTIFICATION NUMBER.
Each Fund customarily distributes to its shareholders substantially all of its
net investment income, net capital gains and net gains from foreign currency
transactions, if any. You receive a proportionate part of these distributions,
depending on the percentage of each Fund's shares that you own. These
distributions are required under federal tax laws governing mutual funds. It is
the policy of each Fund to distribute all investment company taxable income and
net capital gains. As a result of this policy and each Fund's qualification as a
regulated investment company, it is anticipated that none of the Funds will pay
any federal income or excise taxes. Instead, each Fund will be accorded conduit
or "pass through" treatment for federal income tax purposes.
However, unless you are (or your account is) exempt from income taxes, you must
include all dividends and capital gain distributions paid to you by a Fund in
your taxable income for federal, state and local income tax purposes. You also
may realize capital gains or losses when you sell shares of a Fund at more or
less than the price you originally paid. An exchange is treated as a sale, and
is a taxable event. Dividends and other distributions usually are taxable
whether you receive them in cash or automatically reinvest them in shares of the
distributing Fund(s) or other INVESCO funds.
If you have not provided INVESCO with complete, correct tax information, a Fund
is required by law to withhold 31% of your distributions and any money that you
receive from the sale of shares of the Fund as a backup withholding tax.
<PAGE>
Unless your account is held at a brokerage firm, we will provide you with
detailed information every year about your dividends and capital gain
distributions. Depending on the activity in your individual account, we may also
be able to assist with cost basis figures for shares you sell.
[GRAPH ICON] DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Funds earn ordinary or investment income from dividends and interest on
their investments. The Funds expect to distribute substantially all of this
investment income, less Fund expenses, to shareholders. Dividends from net
investment income are declared daily and paid monthly at the discretion of the
Company's board of directors.
NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS ARE DISTRIBUTED TO
SHAREHOLDERS AT LEAST ANNUALLY. DISTRIBUTIONS ARE TAXABLE WHETHER REINVESTED IN
ADDITIONAL SHARES OR PAID TO YOU IN CASH (EXCEPT FOR TAX-EXEMPT ACCOUNTS).
TAX-EXEMPT ACCOUNTS)
A Fund also realizes capital gains and losses when it sells securities in its
portfolio for more or less than it had paid for them. If total gains on sales
exceed total losses (including losses carried forward from previous years), a
Fund has a net realized capital gain. Net realized capital gains, if any, are
distributed to shareholders at least annually, usually in November.
Under present federal income tax laws, capital gains may be taxable at different
rates, depending on how long a Fund has held the underlying investment.
Short-term capital gains which are derived from the sale of assets held one year
or less are taxed as ordinary income. Long-term capital gains which are derived
from the sale of assets held for more than one year are taxed at up to the
maximum capital gains rate, currently 20% for individuals.
Dividends and capital gain distributions are paid to you if you hold shares on
the record date of the distribution regardless of how long you have held your
shares. A Fund's NAV will drop by the amount of the distribution on the day the
distribution is declared. If you buy shares of a Fund just before a distribution
is declared, you may wind up "buying a distribution." This means that if the
Fund declares a capital gain distribution shortly after you buy, you will
receive some of your investment back as a taxable distribution. Most
shareholders want to avoid this. And, if you sell your shares at a loss for tax
purposes and purchase a substantially identical investment within 30 days before
or after that sale, the transaction is usually considered a "wash sale" and you
will not be able to claim a tax loss.
Dividends and capital gain distributions paid by each Fund are automatically
reinvested in additional Fund shares at the NAV on the ex-distribution date,
unless you choose to have them automatically reinvested in another INVESCO fund
or paid to you by check or electronic funds transfer. If you choose to be paid
by check, the minimum amount of the check must be at least $10; amounts less
than that will be automatically reinvested. Dividends and other distributions,
whether received in cash or reinvested in additional Fund shares, are generally
subject to federal income tax.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of each Fund for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the annual percentages that an investor would have earned (or lost) on
an investment in a Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the financial statements, is
included in INVESCO Bond Funds, Inc.'s 2000 Annual Report to Shareholders, which
is incorporated by reference into the Statement of Additional Information. This
report is available without charge by contacting IDI at the address or telephone
number on the back cover of this Prospectus.
HIGH YIELD FUND - INVESTOR CLASS
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996
PER SHARE DATA
Net Asset Value--Beginning
of Period $6.40 $6.76 $7.45 $6.84 $6.73
================================================================================
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.60 0.60 0.64 0.62 0.63
Net Gains or (Losses)
on Securities (Both
Realized and Unrealized) (0.42) (0.19) (0.29) 0.64 0.11
================================================================================
TOTAL FROM INVESTMENT
OPERATIONS 0.18 0.41 0.35 1.26 0.74
================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income(a) 0.60 0.60 0.64 0.62 0.63
Distributions from
Capital Gains 0.00 0.00 0.40 0.03 0.00
In Excess of
Capital Gains 0.00 0.17 0.00 0.00 0.00
================================================================================
TOTAL DISTRIBUTIONS 0.60 0.77 1.04 0.65 0.63
================================================================================
Net Asset Value--End
of Period $5.98 $6.40 $6.76 $7.45 $6.84
================================================================================
TOTAL RETURN 2.89% 6.53% 4.44% 19.27% 11.38%
RATIOS
Net Assets--End of Period
($000 Omitted) $787,537 $793,337 $641,394 $470,965 $375,201
Ratio of Expenses to
Average Net Assets(b)(c) 1.00% 0.99% 0.86% 1.00% 0.99%
Ratio of Net Investment Income
to Average Net Assets(b) 9.60% 9.13% 8.72% 8.71% 9.13%
Portfolio Turnover Rate 98% 154% 282% 129% 266%
<PAGE>
(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 Class were voluntarily absorbed by INVESCO for the
year ended August 31, 1996. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 0.99% and
ratio of net investment income to average net assets would have been 9.13%.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
INVESCO, if applicable, which is before any expense offset arrangements
(which may include custodian fees).
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECT INCOME FUND -
INVESTOR CLASS
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996
PER SHARE DATA
Net Asset Value--Beginning
of Period $6.15 $6.68 $6.66 $6.35 $6.54
================================================================================
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.43 0.43 0.43 0.45 0.47
Net Gains or (Losses)
on Securities (Both
Realized and Unrealized) (0.09) (0.41) 0.19 0.34 (0.17)
================================================================================
TOTAL FROM INVESTMENT
OPERATIONS 0.34 0.02 0.62 0.79 0.30
================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.43 0.43 0.43 0.45 0.46
In Excess of Net
Investment Income 0.00 0.00 0.00 0.00 0.01
Distributions from
Capital Gains 0.00 0.02 0.17 0.03 0.02
In Excess of
Capital Gains(a) 0.00 0.10 0.00 0.00 0.00
================================================================================
TOTAL DISTRIBUTIONS 0.43 0.55 0.60 0.48 0.49
================================================================================
Net Asset Value--End
of Period $6.06 $6.15 $6.68 $6.66 $6.35
================================================================================
TOTAL RETURN 5.78% 0.15% 9.58% 12.89% 4.78%
RATIOS
Net Assets--End of Period
($000 Omitted) $574,518 $549,438 $502,624 $287,618 $258,093
Ratio of Expenses to
Average Net Assets(b)(c) 1.06% 1.06% 1.06% 1.03% 1.01%
Ratio of Net Investment Income
to Average Net Assets(b) 7.10% 6.56% 6.36% 6.98% 7.14%
Portfolio Turnover Rate 82% 135% 140% 263% 210%
(a) Distributions in excess of capital gains for the year ended August 31, 2000,
aggregated less than $0.01 on a per share basis.
(b) Various expenses of the Class were voluntarily absorbed by INVESCO for the
years ended August 31, 2000, 1999, 1998, 1997, and 1996. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 1.19%, 1.16%, 1.10%, 1.21%, and 1.16%, respectively, and
ratio of net investment income to average net assets would have been 6.97%,
6.46%, 6.32%, 6.80%, and 6.99%, respectively.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (which may include
custodian fees).
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
TAX-FREE BOND FUND -
INVESTOR CLASS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
PERIOD
YEAR ENDED ENDED
AUGUST 31 AUGUST 31 YEAR ENDED JUNE 30
----------------------------------------------------------------------------------------
2000 1999(a) 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
========================================================================================
Net Asset Value--
Beginning of Period 14.53 $14.71 $15.57 $15.34 $15.20 $15.07
----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.64 0.10 0.62 0.63 0.66 0.73
Net Gains or (Losses) on
Securities (Both
Realized and Unrealized) 0.24 (0.18) (0.40) 0.40 0.38 0.32
========================================================================================
TOTAL FROM INVESTMENT
OPERATIONS 0.88 (0.08) 0.22 1.03 1.04 1.05
========================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.64 0.10 0.62 0.63 0.66 0.73
In Excess of Net
Investment Income 0.00 0.00 0.00 0.00 0.01 0.00
Distributions from
Capital Gains 0.00 0.00 0.46 0.17 0.23 0.19
In Excess of
Capital Gains 0.05 0.00 0.00 0.00 0.00 0.00
========================================================================================
TOTAL DISTRIBUTIONS 0.69 0.10 1.08 0.80 0.90 0.92
========================================================================================
Net Asset Value--End
of Period $14.72 $14.53 $14.71 $15.57 $15.34 $15.20
========================================================================================
TOTAL RETURN 6.32% (0.53%)(b) 1.30% 6.87% 7.05% 7.01%
RATIOS
Net Assets--End
of Period
($000 Omitted) $178,154 $191,836 $201,791 $211,471 $220,410 $250,890
Ratio of Expenses
to Average
Net Assets(c)(d) 0.91% 0.90%(e) 0.91% 0.91% 0.90% 0.91%
Ratio of Net Investment
Income to Average
Net Assets(c) 4.45% 4.08%(e) 4.03% 4.06% 4.36% 4.76%
Average Net Assets(c)
Portfolio Turnover Rate 50% 3%(b) 66% 173% 123% 146%
</TABLE>
<PAGE>
(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 Class were voluntarily absorbed by INVESCO for the
year ended August 31, 2000, for the period ended August 31, 1999 and for the
years ended June 30, 1999, 1998, 1997 and 1996. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would
have been 1.11%, 1.14% (annualized), 1.06%, 1.04%, 1.05% and 1.04%,
respectively, and ratio of net investment income to average net assets would
have been 4.25%, 3.84% (annualized), 3.88%, 3.93%, 4.21% and 4.63%,
respectively.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (which may include
custodian fees).
(e) Annualized
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
U.S. GOVERNMENT
SECURITIES FUND - INVESTOR CLASS
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996
PER SHARE DATA
Net Asset Value--Beginning
of Period $6.81 $7.99 $7.49 $7.15 $7.49
================================================================================
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.36 0.35 0.40 0.43 0.44
Net Gains or (Losses)
on Securities (Both
Realized and Unrealized) 0.24 (0.58) 0.67 0.34 (0.34)
================================================================================
TOTAL FROM INVESTMENT
OPERATIONS 0.60 (0.23) 1.07 0.77 0.10
================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.36 0.35 0.40 0.43 0.43
In Excess of Net
Investment Income 0.00 0.00 0.00 0.00 0.01
Distributions from
Capital Gains 0.00 0.56 0.17 0.00 0.00
In Excess of
Capital Gains(a) 0.00 0.04 0.00 0.00 0.00
================================================================================
TOTAL DISTRIBUTIONS 0.36 0.95 0.57 0.43 0.44
================================================================================
Net Asset Value--End
of Period $7.05 $6.81 $7.99 $7.49 $7.15
================================================================================
TOTAL RETURN 9.12% (3.40%) 14.75% 11.01% 1.31%
RATIOS
Net Assets--End of Period
($000 Omitted) $74,870 $79,899 $79,485 $51,581 $54,614
Ratio of Expenses to
Average Net Assets(b)(c) 1.02% 1.01% 1.01% 1.01% 1.02%
Ratio of Net Investment
Income to Average
Net Assets(b) 5.28% 4.80% 5.22% 5.78% 5.76%
Portfolio Turnover Rate 21% 114% 323% 139% 212%
(a) Distributions in excess of capital gains for the year ended August 31, 2000,
aggregated less than $0.01 on a per share basis.
(b) Various expenses of the Class were voluntarily absorbed by INVESCO for the
years ended August 31, 2000, 1999, 1998, 1997, and 1996. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 1.61%, 1.60%, 1.41%, 1.32% and 1.48%, respectively, and
ratio of net investment income to average net assets would have been 4.69%,
4.21%, 4.82%, 5.47% and 5.30%, respectively.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (which may include
custodian fees).
<PAGE>
DECEMBER 15, 2000
INVESCO BOND FUNDS, INC.
INVESCO HIGH YIELD FUND--INVESTOR CLASS
INVESCO SELECT INCOME FUND--INVESTOR CLASS
INVESCO TAX-FREE BOND FUND--INVESTOR CLASS
INVESCO U.S. GOVERNMENT SECURITIES FUND--INVESTOR CLASS
You may obtain additional information about the Funds from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Funds' anticipated
investments and operations, the Funds also prepare annual and semiannual reports
that detail the Funds' actual investments at the report date. These reports
include discussion of each Fund's recent performance, as well as market and
general economic trends affecting each Fund's performance. The annual report
also includes the report of the Funds' independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated December 15, 2000 is a
supplement to this Prospectus and has detailed information about the Funds and
their investment policies and practices. A current SAI for the Funds is on file
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus of the Funds may be accessed through the
INVESCO Web site at invescofunds.com. In addition, the Prospectus, SAI, annual
report and semiannual report of the Funds are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; or call 1-800-525-8085. Copies of these materials are also
available (with a copying charge) from the SEC's Public Reference Section at 450
Fifth Street, N.W., Washington, D.C. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Funds are 811-2674 and 002-57151.
811-2674
<PAGE>
PROSPECTUS | DECEMBER 15, 2000
--------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (R)
--------------------------------------------------------------------------------
INVESCO BOND FUNDS, INC.
INVESCO HIGH YIELD FUND--CLASS C
INVESCO SELECT INCOME FUND--CLASS C
INVESCO TAX-FREE BOND FUND--CLASS C
INVESCO U.S. GOVERNMENT SECURITIES FUND--CLASS C
FOUR MUTUAL FUNDS DESIGNED FOR INVESTORS SEEKING A HIGH LEVEL OF CURRENT INCOME.
CLASS C SHARES ARE SOLD PRIMARILY THROUGH THIRD PARTIES, SUCH AS BROKERS, BANKS,
AND FINANCIAL PLANNERS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks........................................52
Fund Performance..............................................................55
Fees And Expenses.............................................................57
Investment Risks..............................................................58
Principal Risks Associated With The Funds.....................................59
Temporary Defensive Positions.................................................63
Fund Management...............................................................64
Portfolio Managers............................................................65
Potential Rewards.............................................................66
Share Price...................................................................66
How To Buy Shares.............................................................67
How To Sell Shares............................................................71
Taxes.........................................................................73
Dividends And Capital Gain Distributions......................................74
Financial Highlights..........................................................75
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and you should not rely on such other information or
representations.
[INVESCO ICON] INVESCO FUNDS (R)
The Securities and Exchange Commission has not approved or disapproved the
shares of these Funds. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the Funds.
Together with our affiliated companies, we at INVESCO direct all aspects of the
management of the Funds.
This Prospectus contains important information about the Funds' Class C shares,
which are sold primarily through third parties, such as brokers, banks, and
financial planners. Each Fund also offers one or more additional classes of
shares through separate prospectuses. Each of the Fund's classes has varying
expenses, with resulting effects on their performance. You can choose the class
of shares that is best for you, based on how much you plan to invest and other
relevant factors discussed in "How To Buy Shares." To obtain additional
information about other classes of shares, contact INVESCO Distributors, Inc.
("IDI") at 1-800-328-2234 or your broker, bank, or financial planner who is
offering the Class C shares offered in this Prospectus.
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] INVESTMENT GOALS & STRATEGIES
[ARROWS ICON] POTENTIAL INVESTMENT RISKS
[GRAPH ICON] PAST PERFORMANCE
[INVESCO ICON] WORKING WITH INVESCO
--------------------------------------------------------------------------------
[KEY ICON][ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
FACTORS COMMON TO ALL THE FUNDS
FOR MORE DETAILS ABOUT EACH FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
The Funds seek to provide you with a high level of current income through
investments in debt securities. High Yield, Select Income and U.S. Government
Securities Funds also seek capital appreciation. The Funds invest primarily in
bonds and other debt securities, as well as in preferred stocks. Often, but not
always, when stock markets are up, debt markets are down and vice versa.
Although the Funds are subject to a number of risks that could affect their
performance, their principal risk is interest rate risk -- that is, the value of
the securities in a portfolio will rise and fall due to changes in interest
rates. In general, as interest rates rise, the resale value of debt securities
decreases; as interest rates decline, the resale value of debt securities
generally increases. Debt securities with longer maturities are usually more
sensitive to interest rate movements.
<PAGE>
The Funds are subject to other principal risks such as credit, debt securities,
foreign securities, duration, liquidity, counterparty and lack of timely
information risks. These risks are described and discussed later in the
Prospectus under the headings "Investment Risks" and "Principal Risks Associated
With The Funds." An investment in a Fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or
any other government agency. As with any other mutual fund, there is always a
risk that you may lose money on your investment.
[KEY ICON] INVESCO HIGH YIELD FUND -- CLASS C
The Fund invests primarily in a diversified portfolio of high yield corporate
bonds rated below investment grade, commonly known as "junk bonds," and
preferred stocks with medium to lower credit ratings. These investments
generally offer higher rates of return, but are riskier than investments in
securities of issuers with higher credit ratings.
The rest of the Fund's assets are invested in securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, bank CDs, corporate
short-term notes and municipal obligations. Normally, at least 65% of the Fund's
total assets will be invested in debt securities maturing at least three years
after they are issued. There are no limitations on the maturities of the
securities held by the Fund, and the Fund's average maturity will vary as
INVESCO responds to changes in interest rates.
[KEY ICON] INVESCO SELECT INCOME FUND -- CLASS C
The Fund invests primarily in bonds and marketable debt securities of
established companies. Normally, at least 50% of the Fund's assets are invested
in investment grade securities. While an investment grade rating does not
guarantee that a security will be profitable, such securities generally carry
less risk than securities that are not investment grade. No more than 50% of the
Fund's assets may consist of corporate bonds rated below investment grade ("junk
bonds").
The rest of the Fund's assets are invested in securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, bank CDs, and municipal
obligations. Normally, the Fund's total assets will be invested primarily in
debt securities maturing at least three years after they are issued. There are
no limitations on the maturities of the securities held by the Fund, and the
Fund's average maturity will vary as INVESCO responds to changes in interest
rates.
<PAGE>
[KEY ICON] INVESCO TAX-FREE BOND FUND -- CLASS C
The Fund invests primarily in municipal securities issued by state, county, and
city governments, including industrial development obligations and private
activity bonds which generally are not guaranteed by the governmental entity
that issues them. The interest on these securities is generally exempt from
federal income tax, although the interest may be included in your income if you
are subject to the federal alternative minimum tax. The interest on these
securities may be subject to state and/or local income taxes. Portions of
capital gain distributions made by the Fund may be taxable. These securities
include municipal notes, short-term municipal bonds, and variable rate debt
obligations. Municipal obligations may be purchased or sold on a delayed
delivery or a when-issued basis with settlement taking place in the future. The
Fund may purchase securities together with the right to resell them to the
seller at an agreed-upon price or yield within a specific time period prior to
the maturity date of the securities. This is commonly known as a "demand
feature" or a "put."
The rest of the Fund's investment portfolio may be invested in short-term
taxable instruments. These may include corporate debt securities, bank
obligations, commercial paper, U.S. government debt, and repurchase agreements.
The circumstances under which the Fund will invest in taxable securities include
but are not limited to: (a) pending investment of proceeds of sales of portfolio
securities; (b) pending settlement of purchases of portfolio securities; and (c)
maintaining liquidity to meet the need for anticipated redemptions. We seek to
manage the Fund so that substantially all of the income produced is exempt from
federal income tax when paid to you, although we cannot guarantee this result.
[KEY ICON] INVESCO U.S. GOVERNMENT SECURITIES FUND -- CLASS C
The Fund invests primarily in debt securities issued or guaranteed by the U.S.
government or its agencies. Direct U.S. government obligations include Treasury
bonds, bills and notes, and are backed by the full faith and credit of the U.S.
Treasury. Federal agency securities are direct obligations of the issuing
agency, such as GNMA, FNMA and FHLMC, and may or may not be guaranteed by the
U.S. government. Treasury bills, notes, bonds and some agency securities are
exempt from state income tax.
In addition to U.S. government debt, the Fund may invest in bank CDs and
municipal obligations. Normally, the Fund invests primarily in debt securities
maturing at least three years after they are issued. There are no limitations on
the maturities of the securities held by the Fund, and the Fund's average
maturity will vary as INVESCO responds to changes in interest rates.
<PAGE>
[GRAPH ICON] FUND PERFORMANCE
Since the Funds' Class C shares were not offered until February 15, 2000, the
bar charts below show the Funds' Investor Class shares' actual yearly
performance for the years ended December 31 (commonly known as their "total
return") over the past decade. Investor Class shares of the Funds are not
offered in this Prospectus. INVESTOR CLASS AND CLASS C RETURNS WOULD BE SIMILAR
BECAUSE BOTH CLASSES OF SHARES INVEST IN THE SAME PORTFOLIO OF SECURITIES. THE
RETURNS OF THE CLASSES WOULD DIFFER, HOWEVER, TO THE EXTENT OF DIFFERING LEVELS
OF EXPENSES. IN THIS REGARD, THE BAR CHARTS DO NOT REFLECT CONTINGENT DEFERRED
SALES CHARGES OR ASSET BASED SALES CHARGES IN EXCESS OF 0.25% OF NET ASSETS; IF
THEY DID, THE TOTAL RETURNS SHOWN WOULD BE LOWER. The table below shows average
annual total returns for various periods ended December 31, 1999 for each Fund's
Investor Class shares compared to the Merrill Lynch High Yield Master, Lehman
Government/Corporate Bond, Lehman Municipal Bond, and Lehman Government Long
Bond Indexes. The information in the charts and table illustrates the
variability of each Fund's Investor Class shares' total return and how its
performance compared to a broad measure of market performance. Remember, past
performance does not indicate how a Fund will perform in the future.
The charts below contain the following plot points:
--------------------------------------------------------------------------------
HIGH YIELD FUND--INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2),(3)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
(4.57%) 23.51% 14.53% 15.81% (4.98%) 17.90% 14.08% 17.10% 0.15% 9.30%
--------------------------------------------------------------------------------
Best Calendar Qtr. 3/91 7.85%
Worst Calendar Qtr. 9/98 (7.12%)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SELECT INCOME FUND--INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2),(3)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
4.86% 18.57% 10.38% 11.43% (1.20%) 20.61% 4.87% 11.72% 7.13% (1.37%)
--------------------------------------------------------------------------------
Best Calendar Qtr. 6/95 6.75%
Worst Calendar Qtr. 3/94 (2.01%)
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
TAX-FREE BOND FUND--INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2),(3)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
7.10% 12.53% 8.77% 12.11% (5.52%) 15.64% 2.36% 8.67% 4.72% (3.36%)
--------------------------------------------------------------------------------
Best Calendar Qtr. 12/95 5.65%
Worst Calendar Qtr. 3/94 (5.76%)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND--
INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2),(3)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
7.23% 15.56% 5.68% 10.28% (7.20%) 22.13% 0.47% 12.26% 10.11% (5.97%)
--------------------------------------------------------------------------------
Best Calendar Qtr. 6.25 7.68%
Worst Calendar Qtr. 3.94 (4.53%)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1),(2),(3)
AS OF 12/31/99
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
High Yield Fund -- Investor Class 9.30% 11.51% 9.86%
Select Income Fund -- Investor Class (1.37%) 8.35% 8.48%
Tax-Free Bond Fund -- Investor Class (3.36%) 5.42% 6.10%
U.S. Government Securities Fund -- (5.97%) 7.36% 6.69%
Investor Class
Merrill Lynch High Yield Master Index(4) 1.57% 9.61% 10.79%
Lehman Government/Corporate Bond Index(4) (2.15%) 7.61% 7.65%
Lehman Municipal Bond Index(4) (2.06%) 6.91% 6.89%
Lehman Government Long Bond Index(4) (8.73%) 9.12% 8.62%
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of each Fund's expenses.
(2) The returns are for the Investor Class of shares that are not offered in
this Prospectus. Total returns of Class C shares will differ only to the extent
that the classes do not have the same expenses.
(3) The returns for Investor Class shares of High Yield, Select Income,
Tax-Free Bond and U.S. Government Securities Funds were (2.04%), 4.64%, 6.70%,
and 7.20%, respectively, year-to-date as of the calendar quarter ended September
30, 2000.
(4) The Merrill Lynch High Yield Master Index, Lehman Government/Corporate Bond
Index, Lehman Municipal Bond Index, and Lehman Government Long Bond Index are
unmanaged indexes indicative of the high yield bond, broad domestic
fixed-income, municipal government bond and longer-term government bond markets.
Please keep in mind that the Indexes do not pay brokerage, management,
administrative or distribution expenses, all of which are paid by the Funds and
are reflected in their annual returns.
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
SHAREHOLDER FEES PAID DIRECTLY FROM YOUR ACCOUNT
CLASS C SHARES
Maximum Deferred Sales Charge (Load) 1.00%(1)
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
HIGH YIELD FUND--CLASS C
Management Fees(2) 0.41%
Distribution and Service (12b-1) Fees(3) 1.00%
Other Expenses(2),(4) 0.20%
-----
Total Annual Fund Operating Expenses(2),(4) 1.61%
=====
SELECT INCOME FUND--CLASS C
Management Fees(2) 0.50%
Distribution and Service (12b-1) Fees(3) 1.00%
Other Expenses(2),(4) 0.35%
-----
Total Annual Fund Operating Expenses(2),(4) 1.85%
=====
TAX-FREE BOND FUND--CLASS C
Management Fees(2) 0.55%
Distribution and Service (12b-1) Fees(3) 1.00%
Other Expenses(2),(4),(5) 5.85%
-----
Total Annual Fund Operating Expenses(2),(4),(5) 7.40%
=====
U.S. GOVERNMENT SECURITIES FUND--CLASS C
Management Fee(2) 0.55%
Distribution and Services (12b-1) Fees(3) 1.00%
Other Expenses(2),(4),(5) 0.78%
-----
Total Annual Fund Operating Expenses(2),(4),(5) 2.33%
=====
(1) A 1% contingent deferred sales charge may be charged on redemptions or
exchanges of shares held thirteen months or less, other than shares acquired
through reinvestment of dividends and other distributions.
(2) Annualized from February 15, 2000 through August 31, 2000, the Fund's
current fiscal year end.
(3) Because the Funds' Class C shares pay 12b-1 distribution and service fees
which are based upon each Fund's assets, if you own shares of a Fund for a long
period of time, you may pay more than the economic equivalent of the maximum
front-end sales charge permitted for mutual funds by the National Association of
Securities Dealers, Inc.
(4) Each Fund's actual Other Expenses and Total Annual Fund Expenses were lower
than the figures shown because their custodian fees were reduced under an
expense offset arrangement.
(5) Certain expenses of the Funds were absorbed voluntarily by INVESCO pursuant
to commitments between the Funds and INVESCO. These commitments may be changed
at any time following consultation with the board of directors. After
absorption, but excluding any expense offset arrangements, Tax-Free Bond Fund -
<PAGE>
Class C shares' Other Expenses and Total Annual Fund Operating Expenses
annualized for the period February 15, 2000 through August 31, 2000 were 0.12%
(annualized) and 1.67% (annualized), respectively, of the Fund's average net
assets attributable to Class C shares; and U.S. Government Securities Fund's
Class C shares' Other Expenses and Total Annual Fund Operating Expenses were
0.39% (annualized) and 1.94% (annualized), respectively, of the Fund's average
net assets attributable to Class C shares.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the Class
C shares of the Funds to the cost of investing in other mutual funds.
The Examples assume that you invested $10,000 in Class C shares of a Fund for
the time periods indicated. The first Example assumes that you redeem all of
your shares at the end of each period. The second Example assumes that you keep
your shares. Both Examples also assume that your investment had a hypothetical
5% return each year and that a Fund's Class C shares' operating expenses remain
the same. Although the actual costs and performance of a Fund's Class C shares
may be higher or lower, based on these assumptions your costs would be:
IF SHARES ARE REDEEMED 1 year 3 years 5 years 10 years
High Yield Fund--Class C $164 $508 $876 $1,911
Select Income Fund--Class C $188 $582 $1,001 $2,169
Tax-Free Bond Fund--Class C $731 $2,141 $3,484 $6,570
U.S. Government Securities Fund--Class C $236 $727 $1,245 $2,666
IF SHARES ARE NOT REDEEMED 1 year 3 years 5 years 10 years
High Yield Fund--Class C $264 $508 $876 $1,911
Select Income Fund--Class C $288 $582 $1,001 $2,169
Tax-Free Bond Fund--Class C $831 $2,141 $3,484 $6,570
U.S. Government Securities Fund--Class C $336 $727 $1,245 $2,666
[ARROWS ICON] INVESTMENT RISKS
BEFORE INVESTING IN A FUND, YOU SHOULD DETERMINE THE LEVEL OF RISK WITH WHICH
YOU ARE COMFORTABLE. TAKE INTO ACCOUNT FACTORS LIKE YOUR AGE, CAREER, INCOME
LEVEL, AND TIME HORIZON.
You should determine the level of risk with which you are comfortable before you
invest. The principal risks of investing in any mutual fund, including these
Funds, are:
NOT INSURED. Mutual funds are not insured by the FDIC or any other government
agency, unlike bank deposits such as CDs or savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its performance, nor
assure you that the market value of your investment will increase. You may lose
the money you invest, and the Funds will not reimburse you for any of these
losses.
VOLATILITY. The price of your mutual fund shares will increase or decrease with
changes in the value of a Fund's underlying investments and changes in the debt
markets as a whole.
<PAGE>
NOT A COMPLETE INVESTMENT PLAN. An investment in any mutual fund does not
constitute a complete investment plan. The Funds are designed to be only a part
of your personal investment plan.
[ARROWS ICON] PRINCIPAL RISKS ASSOCIATED WITH THE FUNDS
You should consider the special factors associated with the policies discussed
below in determining the appropriateness of investing in a Fund. See the
Statement of Additional Information for a discussion of additional risk factors.
INTEREST RATE RISK
Changes in interest rates will affect the resale value of debt securities held
in a Fund's portfolio. In general, as interest rates rise, the resale value of
debt securities decreases; as interest rates decline, the resale value of debt
securities generally increases. Debt securities with longer maturities usually
are more sensitive to interest rate movements.
CREDIT RISK
The Funds invest in debt instruments, such as notes, bonds and commercial paper.
There is a possibility that the issuers of these instruments will be unable to
meet interest payments or repay principal. Changes in the financial strength of
an issuer may reduce the credit rating of its debt instruments and may affect
their value.
DEBT SECURITIES RISKS
Debt securities include bonds, notes and other securities that give the holder
the right to receive fixed amounts of principal, interest, or both on a date in
the future or on demand. Debt securities also are often referred to as fixed
income securities, even if the rate of interest varies over the life of the
security.
Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that the
market value of the security may decline for a variety of reasons, including
changes in interest rates. An increase in interest rates tends to reduce the
market values of debt securities in which a Fund invests. A decline in interest
rates tends to increase the market values of debt securities in which a Fund
invests.
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's ("S&P")
ratings provide a useful but not certain guide to the credit risk of many debt
securities. The lower the rating of a debt security, the greater the credit risk
the rating service assigns to the security. To compensate investors for
accepting that greater risk, lower-rated securities tend to offer higher
interest rates. Lower-rated debt securities are often referred to as "junk
bonds." A debt security is considered lower grade if it is rated Ba or less by
Moody's or BB or less by S&P.
Lower-rated and non-rated debt securities of comparable quality are subject to
wider fluctuations in yields and market values than higher-rated debt securities
and may be considered speculative. Junk bonds are perceived by independent
<PAGE>
rating agencies as having a greater risk that their issuers will not be able to
pay the interest and principal as they become due over the life of the bond. In
addition to the loss of interest payments, the market value of a defaulted bond
would likely drop, and a Fund would be forced to sell it at a loss. Debt
securities rated lower than B by either S&P or Moody's are usually considered to
be highly speculative.
In addition to poor individual company performance in the marketplace or in its
internal management, a significant economic downturn or increase in interest
rates may cause issuers of debt securities to experience increased financial
problems which could hurt their ability to pay principal and interest
obligations, to meet projected business goals, and to obtain additional
financing. These conditions more severely affect issuers of lower-rated debt
securities. The market for lower-rated straight debt securities may not be as
liquid as the market for higher-rated straight debt securities. Therefore,
INVESCO attempts to limit purchases of lower-rated securities to securities
having an established secondary market.
Debt securities rated Caa by Moody's may be in default or may present risks of
non-payment of principal or interest. Lower-rated securities by S&P (categories
BB, B, CCC) include those which are predominantly speculative because of the
issuer's perceived capacity to pay interest and repay principal in accordance
with their terms; BB indicates the lowest degree of speculation and CCC a high
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are usually outweighed by large uncertainties
or major risk exposures to adverse conditions.
FOREIGN SECURITIES RISKS
Investments in foreign and emerging markets carry special risks, including
currency, political, regulatory and diplomatic risks. High Yield and Select
Income Funds may invest up to 25% of their assets in foreign debt securities.
Securities of Canadian issuers and American Depository Receipts are not subject
to this 25% limitation. Tax-Free Bond and U.S. Government Securities Funds may
not invest in foreign securities.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of a Fund's investment in a security
valued in the foreign currency, or based on that currency value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than those
in the U.S. may permit trading practices that are not allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. and a
foreign country could affect the value or liquidity of investments.
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain
are presently members of the European Economic and Monetary Union (the
"EMU") which as of January 1, 1999, adopted the euro as a common currency.
The national
<PAGE>
currencies will be sub-currencies of the euro until July 1, 2002, at which
time these currencies will disappear entirely. Other European countries may
adopt the euro in the future.
As the euro is implemented, there may be changes in the relative strength
and value of the U.S. dollar and other major currencies, as well as
possible adverse tax consequences. The euro transition by EMU countries may
affect the fiscal and monetary levels of those participating countries. The
outcome of these and other uncertainties could have unpredictable effects
on trade and commerce and result in increased volatility for all financial
markets.
DURATION RISK
Duration is a measure of a debt security's sensitivity to interest rate changes.
Duration is usually expressed in terms of years, with longer durations usually
more sensitive to interest rate movements.
LIQUIDITY RISK
A Fund's portfolio is liquid if the Fund is able to sell the securities it owns
at a fair price within a reasonable time. Liquidity is generally related to the
market trading volume for a particular security. Investments in smaller
companies or in foreign companies or companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the transaction with a
Fund.
LACK OF TIMELY INFORMATION RISK
Timely information about a security or its issuer may be unavailable, incomplete
or inaccurate. This risk is more common to securities issued by foreign
companies and companies in emerging markets than it is to the securities of
U.S.-based companies.
_______________________________________________
Although each Fund generally invests in debt securities, the Funds also may
invest in other types of securities and other financial instruments as indicated
in the chart below. Although these investments typically are not part of any
Fund's principal investment strategy, they may constitute a significant portion
of a Fund's portfolio, thereby possibly exposing a Fund and its investors to the
following additional risks.
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
--------------------------------------------------------------------------------
AMERICAN DEPOSITORY
RECEIPTS (ADRs) Market, High Yield
These are securities issued by Information, Select Income
U.S. banks that represent Political,
shares of foreign corporations Regulatory,
held by those banks. Although Liquidity and
traded in U.S. securities Currency Risks
markets and valued in U.S.
dollar, ADRs carry most of the
risks of investing directly in
foreign securities.
--------------------------------------------------------------------------------
EUROBONDS AND YANKEE
BONDS
Bonds issued by foreign
branches of U.S. banks
("Eurobonds") and bonds issued Market, High Yield
by a U.S. branch of a foreign Information, Select Income
bank and sold in the United Currency,
States ("Yankee bond"). The Political,
bonds are bought and sold in Diplomatic,
U.S. dollars, but generally Regulatory,
carry with them the same risks Liquidity, Credit,
as investing in foreign Interest Rate and
securities. Duration Risks
--------------------------------------------------------------------------------
JUNK BONDS
Debt securities that are rated Market, Credit, High Yield
BB or lower by S&P or Ba or Interest Rate and Select Income
lower by Moody's. Tend to pay Duration Risks Tax-Free Bond
higher interest rates than
higher-rated debt securities,
buy carry a higher credit
risk.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT RISKS APPLIED TO THESE FUNDS
--------------------------------------------------------------------------------
PIK (PAYMENT IN KIND)
SECURITIES
A type of bond or preferred Market, Credit, High Yield
stock that pays interest Interest Rate and
and/or dividends in the form Duration Risks.
of additional bonds or
preferred stock.
--------------------------------------------------------------------------------
STEP-UP BONDS
A bond that pays one coupon Market, Credit, High Yield
rate (the interest rate state Interest Rate and Select Income
on a 0%) for an initial period Duration Risks.
followed by a higher coupon
rate.
--------------------------------------------------------------------------------
[ARROWS ICON] TEMPORARY DEFENSIVE POSITIONS
When securities markets or economic conditions are unfavorable or unsettled, we
might try to protect the assets of a Fund by investing in securities that are
highly liquid, such as high quality money market instruments like short-term
U.S. government obligations, commercial paper or repurchase agreements, even
though that is not the normal investment strategy of any Fund. We have the right
to invest up to 100% of a Fund's assets in these securities, although we are
unlikely to do so. Even though the securities purchased for defensive purposes
often are considered the equivalent of cash, they also have their own risks.
Investments that are highly liquid or comparatively safe tend to offer lower
returns. Therefore, a Fund's performance could be comparatively lower if it
concentrates in defensive holdings.
<PAGE>
[INVESCO ICON] FUND MANAGEMENT
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $414 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESTMENT ADVISER
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Funds. INVESCO was founded in 1932 and manages over $46.1 billion
for more than 2,320,000 shareholder accounts of 46 INVESCO mutual funds. INVESCO
performs a wide variety of other services for the Funds, including
administrative and transfer agency functions (the processing of purchases, sales
and exchanges of Fund shares).
A I M Capital Management, Inc. ("AIM"), located at 11 Greenway Plaza, Suite 100,
Houston, Texas, is the sub-adviser to Tax-Free Bond Fund.
A wholly owned subsidiary of INVESCO, IDI is the Funds' distributor and is
responsible for the sale of the Funds' shares.
INVESCO, AIM and IDI are subsidiaries of AMVESCAP PLC.
The following table shows the fees the Funds paid to INVESCO for its advisory
services in the fiscal year ended August 31, 2000:
--------------------------------------------------------------------------------
ADVISORY FEE AS A PERCENTAGE OF
AVERAGE ANNUAL NET ASSETS UNDER
FUND MANAGEMENT
------------------------------------------------------------------------------
High Yield Fund 0.41%
Select Income Fund 0.50%
Tax-Free Bond Fund 0.55%
U.S. Government Securities Fund 0.55%
------------------------------------------------------------------------------
<PAGE>
[INVESCO ICON] PORTFOLIO MANAGERS
The following individuals are primarily responsible for the day-to-day
management of their respective Fund's or Funds' portfolio holdings:
FUND PORTFOLIO MANAGER(S)
High Yield Donovan J. (Jerry) Paul
Select Income Donovan J. (Jerry) Paul
Tax-Free Bond Richard A. Berry
Stephen D. Turman
U.S. Government Securities Richard R. Hinderlie
RICHARD A. BERRY, a vice president and senior portfolio manager of AIM, is the
portfolio manager of Tax-Free Bond Fund. Richard manages several other AIM
fixed-income funds. Before joining AIM in 1987, he served at various times as
senior vice president for InterFirst Investment Management Company, manager of
investor relations at Texas Industries, Inc., vice president of Banc Texas, and
investment officer at Southwestern Life Insurance Company. Richard is a
Chartered Financial Analyst. He holds an M.B.A. in finance and a B.B.A. from
Texas Christian University.
RICHARD R. HINDERLIE, a vice president of INVESCO, is the portfolio manager of
U.S. Government Securities Fund. Dick joined INVESCO in 1993. He holds an M.B.A.
from Arizona State University and a B.A. in Economics from Pacific Lutheran
University.
DONOVAN J. (JERRY) PAUL, Director of Fixed-Income Investments and a senior vice
president of INVESCO, is the portfolio manager of High Yield and Select Income
Funds. Jerry manages several other fixed-income INVESCO Funds. Before joining
INVESCO in 1994, he was a senior vice president with Stein, Roe & Farnham, Inc.
and president of Quixote Investment Management. Jerry is a Chartered Financial
Analyst and a Certified Public Accountant. He holds an M.B.A. from the
University of Northern Iowa and a B.B.A. from the University of Iowa.
STEPHEN D. TURMAN, a vice president and portfolio manager of AIM, is the
co-portfolio manager of Tax-Free Bond Fund. Stephen manages several other AIM
fixed-income funds. Before joining AIM in 1985, he worked in institutional sales
for Dean Witter. Stephen is a Chartered Financial Analyst. He holds a B.B.A. in
finance from the University of Texas at Arlington.
Dick Hinderlie is a member of INVESCO's Fixed-Income Team, which is led by Jerry
Paul.
<PAGE>
[INVESCO ICON] POTENTIAL REWARDS
NO SINGLE FUND SHOULD REPRESENT YOUR COMPLETE INVESTMENT PROGRAM NOR SHOULD YOU
ATTEMPT TO USE THE FUNDS FOR SHORT-TERM TRADING PURPOSES.
The Funds offer shareholders the opportunity for current income. High Yield,
Select Income and U.S. Government Securities Funds also offer the opportunity
for capital growth. Like most mutual funds, each Fund seeks to provide higher
returns than the market or its competitors, but cannot guarantee that
performance. Each Fund seeks to minimize risk by investing in debt securities of
a variety of issuers.
SUITABILITY FOR INVESTORS
Only you can determine if an investment in a Fund is right for you based upon
your own economic situation, the risk level with which you are comfortable and
other factors. In general, the Funds are most suitable for investors who:
o are primarily seeking higher current income; and,for High Yield, Select
Income and U.S. Government Securities Funds, a secondary opportunity for
capital growth.
o understand that shares of a Fund can, and likely will, have daily price
fluctuations.
o are investing in tax-deferred retirement accounts, such as Traditional and
Roth Individual Retirement Accounts ("IRAs"), as well as employer-sponsored
qualified retirement plans, including 401(k)s and 403(b)s, all of which have
longer investment horizons.
You probably do not want to invest in the Funds if you are:
o primarily seeking high rates of capital growth or total return.
o unwilling to accept potential daily changes in the price of Fund shares.
o speculating on short-term fluctuations in the securities markets.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- FUND DEBTS,
INCLUDING ACCRUED EXPENSES
-----------------------------------
/ NUMBER OF SHARES
= YOUR SHARE PRICE (NAV).
The value of your Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in each Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of the regular trading day on that
exchange (normally 4:00 p.m. Eastern time).
Therefore, shares of the Funds are not priced on days when the NYSE is closed,
which generally is on weekends and national holidays in the U.S.
NAV is calculated by adding together the current market price of all of a Fund's
investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
<PAGE>
All purchases, sales and exchanges of Fund shares are made by INVESCO at the NAV
next calculated after INVESCO receives proper instructions from you to purchase,
redeem or exchange shares of a Fund. Your instructions must be received by
INVESCO no later than the close of the NYSE to effect transactions at that day's
NAV. If INVESCO hears from you after that time, your instructions will be
processed at the NAV calculated at the end of the next day that the NYSE is
open.
Foreign securities exchanges, which set the prices for foreign securities held
by the Funds, are not always open the same days as the NYSE, and may be open for
business on days the NYSE is not. For example, Thanksgiving Day is a holiday
observed by the NYSE and not by overseas exchanges. In this situation, the Funds
would not calculate NAV on Thanksgiving Day (and INVESCO would not buy, sell or
exchange shares for you on that day), even though activity on foreign exchanges
could result in changes in the value of investments held by a Fund on that day.
[INVESCO ICON] HOW TO BUY SHARES
TO BUY SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE THE CLOSE
OF THE NYSE, NORMALLY, 4:00 P.M. EASTERN TIME.
The Funds offer multiple classes of shares. The chart in this section shows
several convenient ways to invest in the Funds.
A share of each class represents an identical interest in a Fund and has the
same rights, except that each class bears its own distribution and shareholder
servicing charges, and other expenses. The income attributable to each class and
the dividends payable on the shares of each class will be reduced by the amount
of the distribution fee or service fee, if applicable, and the other expenses
payable by that class.
There is no charge to invest directly through INVESCO. However, with respect to
Class C shares, upon redemption or exchange of Class C shares held thirteen
months or less (other than Class C shares acquired through reinvestment of
dividends or other distributions, or Class C shares exchanged for Class C shares
of another INVESCO fund), a contingent deferred sales charge of 1% of the amount
of the total original cost of the Class C shares may be assessed. If you invest
in a Fund through a securities broker or any other third party, you may be
charged a commission or transaction fee for either purchases or sales of Fund
shares. For all new accounts, please send a completed application form, and
specify the fund or funds and class or classes of shares you wish to purchase.
INVESCO reserves the right to increase, reduce or waive each Fund's minimum
investment requirements in its sole discretion, if it determines this action is
in the best interests of that Fund's shareholders. INVESCO also reserves the
right in its sole discretion to reject any order to buy Fund shares, including
purchases by exchange.
MINIMUM INITIAL INVESTMENT. $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans, including IRAs.
MINIMUM SUBSEQUENT INVESTMENT. $50 (Minimums are lower for certain retirement
plans.)
<PAGE>
EXCHANGE POLICY. You may exchange your shares in any of the Funds for shares of
the same class in another INVESCO fund on the basis of their respective NAVs at
the time of the exchange.
FUND EXCHANGES CAN BE A CONVENIENT WAY FOR YOU TO DIVERSIFY YOUR INVESTMENTS, OR
TO REALLOCATE YOUR INVESTMENTS WHEN YOUR OBJECTIVES CHANGE.
Before making any exchange, be sure to review the prospectuses of the funds
involved and consider the differences between the funds. Also, be certain that
you qualify to purchase certain classes of shares in the new fund. An exchange
is the sale of shares from one fund immediately followed by the purchase of
shares in another. Therefore, any gain or loss realized on the exchange is
recognizable for federal income tax purposes (unless, of course, you or your
account qualifies as tax-deferred under the Internal Revenue Code). If the
shares of the fund you are selling have gone up in value since you bought them,
the sale portion of an exchange may result in taxable income to you.
We have the following policies governing exchanges:
o Both fund accounts involved in the exchange must be registered in exactly
the same name(s) and Social Security or federal tax I.D. number(s).
o You may make up to four exchanges out of each Fund per 12-month period,
but you may be subject to the contingent deferred sales charge, described
below.
o Each Fund reserves the right to reject any exchange request, or to
modify or terminate the exchange policy, if it is in the best interests of
the Fund and its shareholders. Notice of all such modifications or
terminations that affect all shareholders of the Fund will be given at least
60 days prior to the effective date of the change, except in unusual
instances, including a suspension of redemption of the exchanged security
under Section 22(e) of the Investment Company Act of 1940.
In addition, the ability to exchange may be temporarily suspended at any time
that sales of the fund into which you wish to exchange are temporarily stopped.
Please remember that if you pay by check, Automated Clearing House ("ACH"), or
wire and your funds do not clear, you will be responsible for any related loss
to a Fund or INVESCO. If you are already an INVESCO funds shareholder, the Fund
may seek reimbursement for any loss from your existing account(s).
CHOOSING A SHARE CLASS. Each Fund has multiple classes of shares, each class
representing an interest in the same portfolio of investments. In deciding which
class of shares to purchase, you should consider, among other things, (i) the
length of time you expect to hold your shares, (ii) the provisions of the
distribution plan applicable to that class, if any, (iii) the eligibility
requirements that apply to purchases of a particular class, and (iv) any
services you may receive in making your investment determination. Your
investment representative can help you decide among the various classes. Please
contact your investment representative for several convenient ways to invest in
the Funds. Class C shares are available only though your investment
representative.
<PAGE>
CONTINGENT DEFERRED SALES CHARGE (CDSC). If you redeem or exchange Class C
shares of any Fund after holding them thirteen months or less (other than shares
acquired through reinvestment of dividends or other distributions), a CDSC of 1%
of the total original cost of the shares being redeemed or exchanged may be
assessed. The fee applies to redemptions from a Fund and exchanges (other than
exchanges into Class C shares) into any of the other mutual funds which are also
advised by INVESCO and distributed by IDI. We will use the "first-in, first-out"
method to determine your holding period. Under this method, the date of
redemption or exchange will be compared with the earliest purchase date of
shares held in your account.
You will not pay a CDSC:
o if you redeem Class C shares held for more than 13 months;
o if you redeem shares acquired through reinvestment of dividends and
distributions;
o on increases in the net asset value of your shares;
o if you are participating in the periodic withdrawal program and withdraw up
to 10% of the value of your shares that are subject to a CDSC in any
12-month period. The value of your shares, and applicable 12-month period,
will be calculated based upon the value of your account on, and the date of,
the first periodic withdrawal;
o to pay account fees;
o for IRA distributions due to death, disability or periodic distributions
based on life expectancy;
o to return excess contributions (and earnings, if applicable) from
retirement plan accounts; or
o for redemptions following the death of a shareholder or beneficial
owner.
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
--------------------------------------------------------------------------------
BY CHECK $1,000 for regular INVESCO does not
Mail to: accounts; $250 for an accept a third party
INVESCO Funds Group, Inc., IRA; $50 for each check unless it is
P.O. Box 17970, Denver, CO subsequent investment. from another
80217. You may send your check financial
by overnight courier to: 7800 institution related
E. Union Ave. Denver, CO to a retirement plan
80237. transfer.
--------------------------------------------------------------------------------
BY WIRE $1,000 for regular
You may send your payment accounts; $250 for an
by bank wire (call IRA; $50 for each
1-800-328-2234 for subsequent investment.
instructions).
--------------------------------------------------------------------------------
BY TELEPHONE WITH ACH $1,000 for regular You must forward
Call 1-800-328-2234 to accounts $250 for an your bank account
request your purchase. IRA; $50 for each information to
Upon receiving your subsequent investment. INVESCO prior to
telephone instructions, using this option.
INVESCO will move money
from your designated
bank/credit union
checking or savings
account in order to
purchase shares.
--------------------------------------------------------------------------------
<PAGE>
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
--------------------------------------------------------------------------------
REGULAR INVESTING WITH $50 per month for Like all regular
EASIVEST OR DIRECT EsiVest; $50 per pay investment plans,
PAYROLL PURCHASE period for Direct Payroll neither Easi Vest
You may enroll on your Purchase. You may start nor Direct Payroll
fund application, or call or stop your regular Purchase ensures a
us for a separate form investment plan at any profit or protects
and more details. time with two weeks' against loss in a
Investing the same amount notice to INVESCO. falling market.
on a monthly basis allows Because you'll
you to buy more shares invest continually,
when prices are high. regardless of
This "dollar cost varying price
averaging" may help levels, consider
offset market your financial
fluctuations. Over a ability to keep
period of time your buying through low
average cost per share price levels. And
may be less than the remember that you
actual average market will lose money if
value per share. you redeem your
shares when the
market value of all
your shares is less
than their cost.
--------------------------------------------------------------------------------
BY EXCHANGE Between the $1,000 for regular See "Exchange
same class of any two accounts; $250 for an Policy."
INVESCO funds. Call IRA; $50 for each
1-800-328-2234 for subsequent investment.
prospectuses of other Class C shares may also
INVESCO funds. Exchanges be exchanged at our Web
may be made in writing or site at invescofunds.com.
by telephone. You
may also establish an
automatic monthly
exchange service
between two INVESCO
funds, call us for
further details and the
correct form.
DISTRIBUTION EXPENSES. We have adopted a Master Distribution Plan and Agreement
- Class C (commonly known as a "12b-1 Plan") for the Funds' Class C shares. The
12b-1 fees paid by each Fund's Class C shares are used to pay distribution fees
to IDI for the sale and distribution of the Fund's shares and fees for services
provided to shareholders, all or a substantial portion of which are paid to the
dealer of record. Because the Funds' Class C shares pay these fees out of their
assets on an ongoing basis, these fees increase the cost of your investment.
HOUSEHOLDING. To save money for the Funds, INVESCO will send only one copy of a
prospectus or financial report to each household address. This process, known as
"householding," is used for most required shareholder mailings. It does not
apply to account statements. You may, of course, request an additional copy of a
prospectus or financial report at any time by calling or writing INVESCO. You
may also request that householding be eliminated from your required mailings.
<PAGE>
[INVESCO ICON] HOW TO SELL SHARES
The chart in this section shows several convenient ways to sell your Fund
shares. Shares of the Funds may be sold at any time at the next NAV calculated
after your request to sell is received by INVESCO in proper form. Depending on
Fund performance, the NAV at the time you sell your shares may be more or less
than the price you paid to purchase your shares.
TO SELL SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE 4:00 P.M.
EASTERN TIME.
If you own shares in more than one INVESCO fund, please specify the fund whose
shares you wish to sell and specify the class of shares. Remember that any sale
or exchange of shares in a non-retirement account will likely result in a
taxable gain or loss.
While INVESCO attempts to process telephone redemptions promptly, there may be
times -- particularly in periods of severe economic or market disruption -- when
you may experience delays in redeeming shares by telephone.
INVESCO usually forwards the proceeds from the sale of Fund shares within seven
days after we receive your request to sell in proper form. However, payment may
be postponed under unusual circumstances -- for instance, if normal trading is
not taking place on the NYSE, or during an emergency as defined by the
Securities and Exchange Commission. If your INVESCO fund shares were purchased
by a check which has not yet cleared, payment will be made promptly when your
purchase check does clear, which can take up to 12 business days.
If you participate in EasiVest, the Funds' automatic monthly investment program,
and sell all of the shares in your account, we will not make any additional
EasiVest purchases unless you give us other instructions.
Because of the Funds' expense structure, it costs as much to handle a small
account as it does to handle a large one. If the value of your account in a Fund
falls below $250 as a result of your actions (for example, sale of your Fund
shares), the Fund reserves the right to sell all of your shares, send the
proceeds of the sale to you and close your account. Before this is done, you
will be notified and given 60 days to increase the value of your account to $250
or more.
REDEMPTION FEE. Except for any applicable CDSC, we will not charge you any fees
to redeem your Class C shares; however, your broker or financial consultant may
charge service fees for handling these transactions.
<PAGE>
--------------------------------------------------------------------------------
METHOD REDEMPTION MINIMUM PLEASE REMEMBER
--------------------------------------------------------------------------------
BY TELEPHONE $250 (or, if less, INVESCO's telephone
Call us toll-free at: full liquidation of redemption
1-800-328-2234. the account) for a privileges may be
redemption check. modified or
terminated in the
future at INVESCO's
discretion. The
maximum amount which
may be redeemed by
telephone is
generally $25,000.
--------------------------------------------------------------------------------
IN WRITING Any amount. The redemption
Mail your request to request must be
INVESCO Funds Group, signed by all
Inc., P.O. Box 17970, registered account
Denver, CO 80217. You may owners. Payment will
also send your request by be mailed to your
overnight courier to 7800 address as it
E. Union Ave., Denver, CO appears on INVESCO's
80237. records, or to a
bank designated by
you in writing.
--------------------------------------------------------------------------------
BY TELEPHONE WITH ACH $50. You must forward
Call 1-800-328-2234 to IRA redemptions are your bank account
request your redemption . not permitted. information to
INVESCO prior to
using this option.
INVESCO will
automatically pay
the proceeds into
your designated bank
account.
<PAGE>
--------------------------------------------------------------------------------
PERIODIC WITHDRAWAL PLAN $100 per payment on a You must have at
You may call us to monthly or quarterly least $10,000 total
request appropriate form basis. The redemption invested with the
and more information at check may be made INVESCO funds with
1-800-328-2234. payale to any party at least $5,000 of
you designate. that total invested
in the fund from
which withdrawals
will be made.
--------------------------------------------------------------------------------
PAYMENT TO THIRD PARTY Any amount. All registered
Mail your request to account owners must
INVESCO Funds Group, sign the request,
Inc., P.O. Box 17970, with signature
Denver, CO 80217. guarantees from an
eligible guarantor
financial
institution, such as
a commercial bank or
a recognized
national or regional
securities firm.
[GRAPH ICON] TAXES
TO AVOID BACKUP WITHHOLDING, BE SURE WE HAVE YOUR CORRECT SOCIAL SECURITY OR
TAXPAYER IDENTIFICATION NUMBER.
Everyone's tax status is unique. We encourage you to consult your own tax
adviser on the tax impact to you of investing in the Funds.
Each Fund customarily distributes to its shareholders substantially all of its
net investment income, net capital gains and net gains from foreign currency
transactions, if any. You receive a proportionate part of these distributions,
depending on the percentage of each Fund's shares that you own. These
distributions are required under federal tax laws governing mutual funds. It is
the policy of each Fund to distribute all investment company taxable income and
net capital gains. As a result of this policy and each Fund's qualification as a
regulated investment company, it is anticipated that none of the Funds will pay
any federal income or excise taxes. Instead, each Fund will be accorded conduit
or "pass through" treatment for federal income tax purposes.
However, unless you are (or your account is) exempt from income taxes, you must
include all dividends and capital gain distributions paid to you by a Fund in
your taxable income for federal, state and local income tax purposes. You also
may realize capital gains or losses when you sell shares of a Fund at more or
less than the price you originally paid. An exchange is treated as a sale, and
is a taxable event. Dividends and other distributions usually are taxable
whether you receive them in cash or automatically reinvest them in shares of the
distributing Fund(s) or other INVESCO funds.
<PAGE>
If you have not provided INVESCO with complete, correct tax information, the
Funds are required by law to withhold 31% of your distributions and any money
that you receive from the sale of shares of the Fund as a backup withholding
tax.
Unless your account is held at a brokerage firm, we will provide you with
detailed information every year about your dividends and capital gain
distributions. Depending on the activity in your individual account, we may also
be able to assist with cost basis figures for shares you sell.
[GRAPH ICON] DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Funds earn ordinary or investment income from dividends and interest on
their investments. The Funds expect to distribute substantially all of this
investment income, less Fund expenses, to shareholders. Dividends from net
investment income are declared daily and paid monthly at the discretion of the
Company's board of directors.
NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS ARE DISTRIBUTED TO
SHAREHOLDERS AT LEAST ANNUALLY. DISTRIBUTIONS ARE TAXABLE WHETHER REINVESTED IN
ADDITIONAL SHARES OR PAID TO YOU IN CASH (EXCEPT FOR TAX-EXEMPT ACCOUNTS).
A Fund also realizes capital gains or losses when it sells securities in its
portfolio for more or less than it had paid for them. If total gains on sales
exceed total losses (including losses carried forward from previous years), a
Fund has a net realized capital gain. Net realized capital gains, if any, are
distributed to shareholders at least annually, usually in November.
Under present federal income tax laws, capital gains may be taxable at different
rates, depending on how long a Fund has held the underlying investment.
Short-term capital gains which are derived from the sale of assets held one year
or less are taxed as ordinary income. Long-term capital gains which are derived
from the sale of assets held for more than one year are taxed at up to the
maximum capital gains rate, currently 20% for individuals.
Dividends and capital gain distributions are paid to you if you hold shares on
the record date of the distribution regardless of how long you have held your
shares. A Fund's NAV will drop by the amount of the distribution on the day the
distribution is declared. If you buy shares of a Fund just before a distribution
is declared, you may wind up "buying a distribution." This means that if the
Fund declares a dividend or capital gain distribution shortly after you buy, you
will receive some of your investment back as a taxable distribution. Most
shareholders want to avoid this. And, if you sell your shares at a loss for tax
purposes and purchase a substantially identical investment within 30 days before
or after that sale, the transaction is usually considered a "wash sale" and you
will not be able to claim a tax loss.
Dividends and capital gain distributions paid by each Fund are automatically
reinvested in additional Fund shares at the NAV on the ex-distribution date,
unless you choose to have them automatically reinvested in another INVESCO fund
or paid to you by check or electronic funds transfer. If you choose to be paid
by check, the minimum amount of the check must be at least $10; amounts less
than that will be automatically reinvested. Dividends and other distributions,
whether received in cash or reinvested in additional Fund shares, are generally
subject to federal income tax.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of each Fund for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the annual percentages that an investor would have earned (or lost) on
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the financial statements, is included in
INVESCO Bond Funds, Inc.'s 2000 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. This
Report is available without charge by contacting IDI at the address or telephone
number on the back cover of this Prospectus.
HIGH YIELD FUND--CLASS C
--------------------------------------------------------------------------------
PERIOD ENDED
AUGUST 31
--------------------------------------------------------------------------------
2000(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $6.31
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.30
Net Losses on Securities (Both Realized and Unrealized) (0.34)
================================================================================
Total from Investment Operations (0.04)
================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.30
================================================================================
Net Asset Value -- End of Period $5.97
================================================================================
TOTAL RETURN(b) (0.52%)(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $4,843
Ratio of Expenses to Average Net Assets(d) 1.60%(e)
Ratio of Net Investment Income to Average Net Assets 9.20%(e)
Portfolio Turnover Rate 98%(f)
(a) From February 15, 2000, inception of Class C, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level, and therefore,
represents the year ended August 31, 2000.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECT INCOME FUND--CLASS C
--------------------------------------------------------------------------------
PERIOD ENDED
AUGUST 31
--------------------------------------------------------------------------------
2000(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $6.02
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.21
Net Gains on Securities (Both Realized and Unrealized) 0.04
================================================================================
Total from Investment Operations 0.25
================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.21
================================================================================
Net Asset Value -- End of Period $6.06
================================================================================
TOTAL RETURN(b) 4.24%(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $377
Ratio of Expenses to Average Net Assets(d) 1.83%(e)
Ratio of Net Investment Income to Average Net Assets 6.42%(e)
Portfolio Turnover Rate 82%(f)
(a) From February 15, 2000, inception of Class C, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any
expense offset arrangements (which may include custodian fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level, and therefore,
represents the year ended August 31, 2000.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
TAX-FREE BOND FUND--CLASS C
--------------------------------------------------------------------------------
PERIOD ENDED
AUGUST 31
--------------------------------------------------------------------------------
2000(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $14.05
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.29
Net Gains on Securities (Both Realized and Unrealized) 0.66
================================================================================
Total from Investment Operations 0.95
================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.29
================================================================================
Net Asset Value -- End of Period $14.71
================================================================================
TOTAL RETURN(b) 6.86%(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $1
Ratio of Expenses to Average Net Assets(d)(e) 1.66%(f)
Ratio of Net Investment Income to Average Net Assets(d) 3.79%(f)
Portfolio Turnover Rate 50%(g)
(a) From February 15, 2000, inception of Class C, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Various expenses of the Class were voluntarily absorbed by INVESCO for the
period ended August 31, 2000. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 6.90%
(annualized) and ratio of net investment loss to average net assets would
have been (1.45%) (annualized).
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (which may include
custodian fees).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level, and therefore,
represents the year ended August 31, 2000.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
U.S. GOVERNMENT SECURITIES FUND--CLASS C
--------------------------------------------------------------------------------
PERIOD ENDED
AUGUST 31
--------------------------------------------------------------------------------
2000(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $6.72
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.17
Net Gains on Securities (Both Realized and Unrealized) 0.34
================================================================================
Total from Investment Operations 0.51
================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.17
================================================================================
Net Asset Value--End of Period $7.06
================================================================================
TOTAL RETURN(b) 7.64%(c)
RATIOS
Net Assets End of Period ($000 Omitted) $241
Ratio of Expenses to Average Net Assets(d)(e) 1.94%(f)
Ratio of Net Investment Income to Average Net Assets(d) 4.65%(f)
Portfolio Turnover Rate 21%(g)
(a) From February 15, 2000, inception of Class C, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
Based on operations for the period shown and, accordingly, is not
representative of a full year.
(c) Various expenses of the Class were voluntarily absorbed by INVESCO for the
period ended August 31, 2000. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 2.29%
(annualized) and ratio of net investment income to average net assets would
have been 4.30% (annualized).
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (which may include
custodian fees).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level, and therefore,
represents the year ended August 31, 2000.
<PAGE>
DECEMBER 15, 2000
INVESCO BOND FUNDS, INC.
INVESCO HIGH YIELD FUND--CLASS C
INVESCO SELECT INCOME FUND--CLASS C
INVESCO TAX-FREE BOND FUND--CLASS C
INVESCO U.S. GOVERNMENT SECURITIES FUND--CLASS C
You may obtain additional information about the Funds from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Funds' anticipated
investments and operations, the Funds also prepare annual and semiannual reports
that detail the Funds' actual investments at the report date. These reports
include discussion of each Fund's recent performance, as well as market and
general economic trends affecting each Fund's performance. The annual report
also includes the report of the Funds' independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated December 15, 2000 is a
supplement to this Prospectus and has detailed information about the Funds and
their investment policies and practices. A current SAI for the Funds is on file
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus of the Funds may be accessed through the
INVESCO Web site at invescofunds.com. In addition, the Prospectus, SAI, annual
report and semiannual report of the Funds are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 17970, Denver,
Colorado 80217-3706; or call 1-800-328-2234. Copies of these materials are also
available (with a copying charge) from the SEC's Public Reference Section at 450
Fifth Street, N.W., Washington, D.C., 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Funds are 811-2674 and 002-57151.
811-2674
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INVESCO BOND FUNDS, INC.
INVESCO High Yield Fund - Investor Class, Class C and Class K
INVESCO Select Income Fund - Investor Class, Class C and Class K
INVESCO Tax-Free Bond Fund - Investor Class and Class C
INVESCO U.S. Government Securities Fund - Investor Class and Class C
Address: Mailing Address:
7800 E. Union Ave., Denver, CO 80237 P.O. Box 173706, Denver, CO 80217-3706
Telephone:
In continental U.S., call:
1-800-525-8085 for Investor Class and
1-800-328-2234 for Class C and Class K
December 15, 2000
--------------------------------------------------------------------------------
A Prospectus for the Investor Class shares of INVESCO High Yield, INVESCO Select
Income, INVESCO Tax-Free Bond, and INVESCO U.S. Government Securities Funds, a
Prospectus for the Class C shares of INVESCO High Yield, INVESCO Select Income,
INVESCO Tax-Free Bond and INVESCO U.S. Government Securities Funds and a
Prospectus for the Class K shares of INVESCO High Yield and INVESCO Select
Income Funds, each dated December 15, 2000, provide the basic information you
should know before investing in a Fund. This Statement of Additional Information
("SAI") is incorporated by reference into the Funds' Prospectuses; in other
words, this SAI is legally part of the Funds' Prospectuses. Although this SAI is
not a prospectus, it contains information in addition to that set forth in the
Prospectuses. It is intended to provide additional information regarding the
activities and operations of the Funds and should be read in conjunction with
the Prospectuses.
You may obtain, without charge, the current Prospectuses, SAI and annual and
semiannual reports of the Funds by writing to INVESCO Distributors, Inc., P.O.
Box 173706, Denver, CO 80217-3706 , or by calling 1-800-525-8085 for Investor
Class and 1-800-328-2234 for Class C and Class K. The Prospectuses of the
Investor Class, Class C and Class K shares of the Funds are also available
through the INVESCO Web site at invescofunds.com.
<PAGE>
TABLE OF CONTENTS
The Company...................................................................84
Investments, Policies and Risks...............................................84
Investment Restrictions......................................................103
Management of the Funds......................................................107
Other Service Providers......................................................136
Brokerage Allocation and Other Practices.....................................136
Capital Stock................................................................139
Tax Consequences of Owning Shares of a Fund..................................140
Performance..................................................................143
Code of Ethics...............................................................146
Financial Statements.........................................................146
Appendix A...................................................................147
<PAGE>
THE COMPANY
The Company was incorporated under the laws of Colorado on August 20, 1976 and
was reorganized as a Maryland corporation on April 2, 1993. On October 29, 1998,
the name of the Company was changed to INVESCO Bond Funds, Inc. On August 16,
1999, the Company assumed all of the assets and liabilities of INVESCO Tax-Free
Bond Fund (formerly, INVESCO Tax-Free Long-Term Bond Fund), a series of INVESCO
Tax-Free Income Funds, Inc.
The Company is an open-end, diversified, management investment company currently
consisting of four portfolios of investments: INVESCO High Yield Fund - Investor
Class, Class C and Class K, INVESCO Select Income Fund - Investor Class, Class C
and Class K, INVESCO Tax-Free Bond Fund - Investor Class and Class C and INVESCO
U.S. Government Securities Fund - Investor Class and Class C (each a "Fund" and
collectively the "Funds"). Additional funds may be offered in the future.
"Open-end" means that each Fund issues an indefinite number of shares which it
continuously offers to redeem at net asset value per share ("NAV"). A
"management" investment company actively buys and sells securities for the
portfolio of each Fund at the direction of a professional manager. Open-end
management investment companies (or one or more series of such companies, such
as the Funds) are commonly referred to as mutual funds.
INVESTMENTS, POLICIES AND RISKS
The principal investments and policies of the Funds are discussed in the
Prospectuses of the Funds. The Funds also may invest in the following securities
and engage in the following practices.
ADRs (HIGH YIELD AND SELECT INCOME FUNDS ONLY) -- American Depository Receipts,
or ADRs, are securities issued by American banks. ADRs are receipts for the
shares of foreign corporations that are held by the bank issuing the receipt. An
ADR entitles its holder to all dividends and capital gains on the underlying
foreign securities, less any fees paid to the bank. Purchasing ADRs gives a Fund
the ability to purchase the functional equivalent of foreign securities without
going to the foreign securities markets to do so. ADRs are bought and sold in
U.S. dollars, not foreign currencies. An ADR that is "sponsored" means that the
foreign corporation whose shares are represented by the ADR is actively involved
in the issuance of the ADR, and generally provides material information about
the corporation to the U.S. market. An "unsponsored" ADR program means that the
foreign corporation whose shares are held by the bank is not obligated to
disclose material information in the United States, and, therefore, the market
value of the ADR may not reflect important facts known only to the foreign
company. Since they mirror their underlying foreign securities, ADRs generally
have the same risks as investing directly in the underlying foreign securities.
AMT BONDS (TAX-FREE BOND FUND ONLY) -- These are "private activity bonds" issued
after August 7, 1986; the proceeds are directed in full or in part to private,
for-profit organizations. The income from AMT Bonds is exempt from federal
income tax, but may be subject to the alternative minimum tax - a special tax
that applies to taxpayers who have certain adjustments to income or tax
preference items.
<PAGE>
CERTIFICATES OF DEPOSIT IN FOREIGN BANKS AND U.S. BRANCHES OF FOREIGN BANKS --
The Funds may maintain time deposits in and invest in U.S. dollar denominated
certificates of deposit ("CDs") issued by foreign banks and U.S. branches of
foreign banks. The Funds limit investments in foreign bank obligations to U.S.
dollar denominated obligations of foreign banks which have more than $10 billion
in assets, have branches or agencies in the U.S., and meet other criteria
established by the board of directors. Investments in foreign securities involve
special considerations. There is generally less publicly available information
about foreign issuers since many foreign countries do not have the same
disclosure and reporting requirements as are imposed by the U.S. securities
laws. Moreover, foreign issuers are generally not bound by uniform accounting
and auditing and financial reporting requirements and standards of practice
comparable to those applicable to domestic issuers. Such investments may also
entail the risks of possible imposition of dividend withholding or confiscatory
taxes, possible currency blockage or transfer restrictions, expropriation,
nationalization or other adverse political or economic developments, and the
difficulty of enforcing obligations in other countries.
The Funds may also invest in bankers' acceptances, time deposits and
certificates of deposit of U.S. branches of foreign banks and foreign branches
of U.S. banks. Investments in instruments of U.S. branches of foreign banks will
be made only with branches that are subject to the same regulations as U.S.
banks. Investments in instruments issued by a foreign branch of a U.S. bank will
be made only if the investment risk associated with such investment is the same
as that involving an investment in instruments issued by the U.S. parent, with
the U.S. parent unconditionally liable in the event that the foreign branch
fails to pay on the investment for any reason.
COMMERCIAL PAPER -- Commercial paper is the term for short-term promissory notes
issued by domestic corporations to meet current working capital needs.
Commercial paper may be unsecured by the corporation's assets but may be backed
by a letter of credit from a bank or other financial institution. The letter of
credit enhances the paper's creditworthiness. The issuer is directly responsible
for payment but the bank "guarantees" that if the note is not paid at maturity
by the issuer, the bank will pay the principal and interest to the buyer.
INVESCO Funds Group, Inc. ("INVESCO"), the Funds' investment adviser, will
consider the creditworthiness of the institution issuing the letter of credit,
as well as the creditworthiness of the issuer of the commercial paper, when
purchasing paper enhanced by a letter of credit. Commercial paper is sold either
as interest-bearing or on a discounted basis, with maturities not exceeding 270
days.
DEBT SECURITIES -- Debt securities include bonds, notes and other securities
that give the holder the right to receive fixed amounts of principal, interest,
or both on a date in the future or on demand. Debt securities also are often
referred to as fixed-income securities, even if the rate of interest varies over
the life of the security.
Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that the
market value of the security may decline for a variety of reasons, including
changes in interest rates. An increase in interest rates tends to reduce the
market values of debt securities in which a Fund has invested. A decline in
<PAGE>
interest rates tends to increase the market values of debt securities in which a
Fund has invested.
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's ("S&P")
ratings provide a useful guide to the credit risk of many debt securities. The
lower the rating of a debt security, the greater the credit risk the rating
service assigns to the security. To compensate investors for accepting that
greater risk, lower-rated debt securities tend to offer higher interest rates.
High Yield invests primarily in lower-rated securities commonly known as junk
bonds, Select Income may invest up to 50% of its portfolio and Tax-Free Bond
Fund may invest up to 10% of its portfolio in such securities. Although Tax-Free
Bond Fund may invest in debt securities assigned lower grade ratings by S&P or
Moody's at the time of purchase, the Fund's investments are generally
concentrated in debt securities rated BBB or higher by S&P or Baa or higher by
Moody's. U.S. Government Securities Fund may invest only in investment grade
debt securities, which are those rated BBB or higher by S&P or Baa or higher by
Moody's, or if unrated, are judged by INVESCO to be of equivalent quality.
Increasing the amount of Fund assets invested in unrated or lower-grade straight
debt securities may increase the yield produced by the Fund's debt securities
but will also increase the credit risk of those securities. A debt security is
considered lower-grade if it is rated Ba or less by Moody's or BB or less by
S&P. Lower-rated and non-rated debt securities of comparable quality are subject
to wider fluctuations in yields and market values than higher-rated debt
securities and may be considered speculative.
A significant economic downturn or increase in interest rates may cause issuers
of debt securities to experience increased financial problems which could
adversely affect their ability to pay principal and interest obligations, to
meet projected business goals, and to obtain additional financing. These
conditions more severely impact issuers of lower-rated debt securities. The
market for lower-rated straight debt securities may not be as liquid as the
market for higher-rated straight debt securities.
Debt securities rated Caa by Moody's may be in default or may present risks of
non-payment of principal or interest. Lower-rated securities by S&P (categories
BB, B or CCC) include those which are predominantly speculative because of the
issuer's perceived capacity to pay interest and repay principal in accordance
with their terms; BB indicates the lowest degree of speculation and CCC a high
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are usually outweighed by large uncertainties
or major risk exposures to adverse conditions.
Although bonds in the lowest investment grade debt category (those rated BBB by
S&P, Baa by Moody's or the equivalent) are regarded as having adequate
capability to pay principal and interest, they have speculative characteristics.
Adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case for
higher-rated bonds. Lower-rated bonds by Moody's (categories Ba, B or Caa) are
of poorer quality and also have speculative characteristics. Bonds rated Caa may
be in default or there may be present elements of danger with respect to
principal or interest. Lower-rated bonds by S&P (categories BB, B or CCC)
include those that are regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with their terms; BB indicates the lowest degree of speculation and
CCC a high degree of speculation. While such bonds likely will have some quality
<PAGE>
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions. Bonds having equivalent ratings from
other ratings services will have characteristics similar to those of the
corresponding S&P and Moody's ratings. For a specific description of S&P and
Moody's corporate bond rating categories, please refer to Appendix A.
The Funds may invest in zero coupon bonds, step-up bonds, mortgage-backed
securities and asset-backed securities. Zero coupon bonds do not make regular
interest payments. Zero coupon bonds are sold at a discount from face value.
Principal and accrued discount (representing interest earned but not paid) are
paid at maturity in the amount of the face value. Step-up bonds initially make
no (or low) cash interest payments but begin paying interest (or a higher rate
of interest) at a fixed time after issuance of the bond. The market values of
zero coupon and step-up bonds generally fluctuate more in response to changes in
interest rates than interest-paying securities of comparable term and quality. A
Fund may be required to distribute income recognized on these bonds, even though
no cash may be paid to the Fund until the maturity or call date of a bond, in
order for the Fund to maintain its qualification as a regulated investment
company. These required distributions could reduce the amount of cash available
for investment by a Fund. Mortgage-backed securities represent interests in
pools of mortgages while asset-backed securities generally represent interests
in pools of consumer loans. Both of these are usually set up as pass-through
securities. Interest and principal payments ultimately depend on payment of the
underlying loans, although the securities may be supported, at least in part, by
letters of credit or other credit enhancements or, in the case of
mortgage-backed securities, guarantees by the U.S. government, its agencies or
instrumentalities. The underlying loans are subject to prepayments that may
shorten the securities' weighted average lives and may lower their returns.
DOMESTIC BANK OBLIGATIONS -- U.S. banks (including their foreign branches) issue
CDs and bankers' acceptances which may be purchased by the Funds if an issuing
bank has total assets in excess of $5 billion and the bank otherwise meets the
Funds' credit rating requirements. CDs are issued against deposits in a
commercial bank for a specified period and rate and are normally negotiable.
Eurodollar CDs are certificates issued by a foreign branch (usually London) of a
U.S. domestic bank, and, as such, the credit is deemed to be that of the
domestic bank. Bankers' acceptances are short-term credit instruments evidencing
the promise of the bank (by virtue of the bank's "acceptance") to pay at
maturity a draft which has been drawn on it by a customer (the "drawer").
Bankers' acceptances are used to finance the import, export, transfer, or
storage of goods and reflect the obligation of both the bank and the drawer to
pay the face amount. Both types of securities are subject to the ability of the
issuing bank to meet its obligations, and are subject to risks common to all
debt securities. In addition, banker's acceptances may be subject to foreign
currency risk and certain other risks of investment in foreign securities.
FOREIGN SECURITIES (HIGH YIELD AND SELECT INCOME FUNDS) -- Investments in the
securities of foreign companies, or companies that have their principal business
activities outside the United States, involve certain risks not associated with
investments in U.S. companies. Non-U.S. companies generally are not subject to
the same uniform accounting, auditing and financial reporting standards that
apply to U.S. companies. Therefore, financial information about foreign
companies may be incomplete, or may not be comparable to the information
available on U.S. companies. There may also be less publicly available
information about a foreign company.
<PAGE>
Although the volume of trading in foreign securities markets is growing,
securities of many non-U.S. companies may be less liquid and have greater swings
in price than securities of comparable U.S. companies. The costs of buying and
selling securities on foreign securities exchanges is generally significantly
higher than similar costs in the United States. There is generally less
government supervision and regulation of exchanges, brokers and issuers in
foreign countries than there is in the United States. Investments in non-U.S.
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, confiscatory taxation, and
imposition of withholding taxes on dividends or interest payments. If it becomes
necessary, it may be more difficult for a Fund to obtain or to enforce a
judgment against a foreign issuer than against a domestic issuer.
Securities traded on foreign markets are usually bought and sold in local
currencies, not in U.S. dollars. Therefore, the market value of foreign
securities acquired by a Fund can be affected -- favorably or unfavorably -- by
changes in currency rates and exchange control regulations. Costs are incurred
in converting money from one currency to another. Foreign currency exchange
rates are determined by supply and demand on the foreign exchange markets.
Foreign exchange markets are affected by the international balance of payments
and other economic and financial conditions, government intervention,
speculation and other factors, all of which are outside the control of each
Fund. Generally, the Funds' foreign currency exchange transactions will be
conducted on a cash or "spot" basis at the spot rate for purchasing or selling
currency in the foreign currency exchange markets.
FUTURES, OPTIONS AND OTHER FINANCIAL INSTRUMENTS
GENERAL. The adviser may use various types of financial instruments, some of
which are derivatives, to attempt to manage the risk of a Fund's investments or,
in certain circumstances, for investment (E.G., as a substitute for investing in
securities). These financial instruments include options, futures contracts
(sometimes referred to as "futures"), forward contracts, swaps, caps, floors and
collars (collectively, "Financial Instruments"). The policies in this section do
not apply to other types of instruments sometimes referred to as derivatives,
such as indexed securities, mortgage-backed and other asset-backed securities,
and stripped interest and principal of debt.
Hedging strategies can be broadly categorized as "short" hedges and "long" or
"anticipatory" hedges. A short hedge involves the use of a Financial Instrument
in order to partially or fully offset potential variations in the value of one
or more investments held in a Fund's portfolio. A long or anticipatory hedge
involves the use of a Financial Instrument in order to partially or fully offset
potential increases in the acquisition cost of one or more investments that the
Fund intends to acquire. In an anticipatory hedge transaction, the Fund does not
already own a corresponding security. Rather, it relates to a security or type
of security that the Fund intends to acquire. If the Fund does not eliminate the
hedge by purchasing the security as anticipated, the effect on the Fund's
portfolio is the same as if a long position were entered into. Financial
Instruments may also be used, in certain circumstances, for investment (e.g., as
a substitute for investing in securities).
Financial Instruments on individual securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that a Fund already owns or intends to acquire. Financial Instruments on
<PAGE>
indexes, in contrast, generally are used to attempt to hedge all or a portion of
a portfolio against price movements of the securities within a market sector in
which the Fund has invested or expects to invest.
The use of Financial Instruments is subject to applicable regulations of the
Securities and Exchange Commission ("SEC"), the several exchanges upon which
they are traded, and the Commodity Futures Trading Commission ("CFTC"). In
addition, the Funds' ability to use Financial Instruments will be limited by tax
considerations. See "Tax Consequences of Owning Shares of a Fund."
In addition to the instruments and strategies described below, the adviser may
use other similar or related techniques to the extent that they are consistent
with a Fund's investment objective and permitted by its investment limitations
and applicable regulatory authorities. The Funds' Prospectuses or SAI will be
supplemented to the extent that new products or techniques become employed
involving materially different risks than those described below or in the
Prospectuses.
SPECIAL RISKS. Financial Instruments and their use involve special
considerations and risks, certain of which are described below.
(1) Financial Instruments may increase the volatility of a Fund. If the adviser
employs a Financial Instrument that correlates imperfectly with a Fund's
investments, a loss could result, regardless of whether or not the intent was to
manage risk. In addition, these techniques could result in a loss if there is
not a liquid market to close out a position that a Fund has entered.
(2) There might be imperfect correlation between price movements of a Financial
Instrument and price movement of the investment(s) being hedged. For example, if
the value of a Financial Instrument used in a short hedge increased by less than
the decline in value of the hedged investment(s), the hedge would not be fully
successful. This might be caused by certain kinds of trading activity that
distorts the normal price relationship between the security being hedged and the
Financial Instrument. Similarly, the effectiveness of hedges using Financial
Instruments on indexes will depend on the degree of correlation between price
movements in the index and price movements in the securities being hedged.
The Funds are authorized to use options and futures contracts related to
securities with issuers, maturities or other characteristics different from the
securities in which it typically invests. This involves a risk that the options
or futures position will not track the performance of a Fund's portfolio
investments.
The direction of options and futures price movements can also diverge from the
direction of the movements of the prices of their underlying instruments, even
if the underlying instruments match a Fund's investments well. Options and
futures prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options and futures markets and the securities
markets, from structural differences in how options and futures and securities
are traded, or from imposition of daily price fluctuation limits or trading
<PAGE>
halts. A Fund may take positions in options and futures contracts with a greater
or lesser face value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases.
(3) If successful, the above-discussed hedging strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements of portfolio securities. However, such strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements. For example, if a Fund entered into a short hedge because the adviser
projected a decline in the price of a security in the Fund's portfolio, and the
price of that security increased instead, the gain from that increase would
likely be wholly or partially offset by a decline in the value of the short
position in the Financial Instrument. Moreover, if the price of the Financial
Instrument declined by more than the increase in the price of the security, the
Fund could suffer a loss.
(4) A Fund's ability to close out a position in a Financial Instrument prior to
expiration or maturity depends on the degree of liquidity of the market or, in
the absence of such a market, the ability and willingness of the other party to
the transaction (the "counterparty") to enter into a transaction closing out the
position. Therefore, there is no assurance that any position can be closed out
at a time and price that is favorable to a Fund.
(5) As described below, the Funds are required to maintain assets as "cover,"
maintain segregated accounts or make margin payments when they take positions in
Financial Instruments involving obligations to third parties (i.e., Financial
Instruments other than purchased options). If a Fund is unable to close out its
positions in such Financial Instruments, it might be required to continue to
maintain such assets or segregated accounts or make such payments until the
position expired. These requirements might impair a Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time.
COVER. Positions in Financial Instruments, other than purchased options, expose
the Funds to an obligation to another party. A Fund will not enter into any such
transaction unless it owns (1) an offsetting ("covered") position in securities,
currencies or other options, futures contracts or forward contracts, or (2) cash
and liquid assets with a value, marked-to-market daily, sufficient to cover its
obligations to the extent not covered as provided in (1) above. The Funds will
comply with SEC guidelines regarding cover for these instruments and will, if
the guidelines so require, designate cash or liquid assets as segregated in the
prescribed amount as determined daily.
Assets used as cover or held as segregated cannot be sold while the position in
the corresponding Financial Instrument is open unless they are replaced with
other appropriate assets. As a result, the commitment of a large portion of a
Fund's assets to cover or to hold as segregated could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. Each Fund may engage in certain strategies involving options to attempt
to manage the risk of its investments or, in certain circumstances, for
investment (E.G., as a substitute for investing in securities). A call option
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gives the purchaser the right to buy, and obligates the writer to sell the
underlying investment at the agreed-upon exercise price during the option
period. A put option gives the purchaser the right to sell, and obligates the
writer to buy the underlying investment at the agreed-upon exercise price during
the option period. Purchasers of options pay an amount, known as a premium, to
the option writer in exchange for the right under the option contract. See
"Options on Indexes" below with regard to cash settlement of option contracts on
index values.
The purchase of call options can serve as a hedge against a price rise of the
underlier and the purchase of put options can serve as a hedge against a price
decline of the underlier. Writing call options can serve as a limited short
hedge because declines in the value of the hedged investment would be offset to
the extent of the premium received for writing the option. However, if the
security or currency appreciates to a price higher than the exercise price of
the call option, it can be expected that the option will be exercised and a Fund
will be obligated to sell the security or currency at less than its market
value.
Writing put options can serve as a limited long or anticipatory hedge because
increases in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency depreciates to a price lower than the exercise price of the put option,
it can be expected that the put option will be exercised and a Fund will be
obligated to purchase the security or currency at more than its market value.
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the price volatility of the underlying investment and general market
and interest rate conditions. Options that expire unexercised have no value.
A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option, which is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option, which is known as a
closing sale transaction. Closing transactions permit a Fund to realize profits
or limit losses on an option position prior to its exercise or expiration.
RISKS OF OPTIONS ON SECURITIES. Options embody the possibility of large amounts
of exposure, which will result in a Fund's net asset value being more sensitive
to changes in the value of the related investment. A Fund may purchase or write
both exchange-traded and OTC options. Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization guarantee. Thus, when a Fund purchases an OTC option,
it relies on the counterparty from whom it purchased the option to make or take
delivery of the underlying investment upon exercise of the option. Failure by
the counterparty to do so would result in the loss of any premium paid by a Fund
as well as the loss of any expected benefit from the transaction.
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The Funds' ability to establish and close out positions in options depends on
the existence of a liquid market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. There can be no
assurance that a Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
counterparty, a Fund might be unable to close out an OTC option position at any
time prior to the option's expiration. If a Fund is not able to enter into an
offsetting closing transaction on an option it has written, it will be required
to maintain the securities subject to the call or the liquid assets underlying
the put until a closing purchase transaction can be entered into or the option
expires. However, there can be no assurance that such a market will exist at any
particular time.
If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
OPTIONS ON INDEXES. Puts and calls on indexes are similar to puts and calls on
securities or futures contracts except that all settlements are in cash and
changes in value depend on changes in the index in question. When a Fund writes
a call on an index, it receives a premium and agrees that, prior to the
expiration date, upon exercise of the call, the purchaser will receive from the
Fund an amount of cash equal to the positive difference between the closing
price of the index and the exercise price of the call times a specified multiple
("multiplier"), which determines the total dollar value for each point of such
difference. When a Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When a Fund buys a put on an
index, it pays a premium and has the right, prior to the expiration date, to
require the seller of the put to deliver to the Fund an amount of cash equal to
the positive difference between the exercise price of the put and the closing
price of the index times the multiplier. When a Fund writes a put on an index,
it receives a premium and the purchaser of the put has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash equal to
the positive difference between the exercise price of the put and the closing
level of the index times the multiplier.
The risks of purchasing and selling options on indexes may be greater than
options on securities. Because index options are settled in cash, when a Fund
writes a call on an index it cannot fulfill its potential settlement obligations
by delivering the underlying securities. A Fund can offset some of the risk of
writing a call index option by holding a diversified portfolio of securities
similar to those on which the underlying index is based. However, a Fund cannot,
as a practical matter, acquire and hold a portfolio containing exactly the same
securities as underlie the index and, as a result, bears a risk that the value
of the securities held will vary from the value of the index.
Even if a Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level. As with other kinds of options, a Fund as the call
writer will not learn what it has been assigned until the next business day. The
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time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as common stock,
because in that case the writer's obligation is to deliver the underlying
security, not to pay its value as of a moment in the past. In contrast, the
writer of an index call will be required to pay cash in an amount based on the
difference between the closing index value on the exercise date and the exercise
price. By the time a Fund learns what it has been assigned, the index may have
declined. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure.
If a Fund has purchased an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund nevertheless will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with respect
to the underlying instrument, expiration date, contract size, and strike price,
the terms of OTC options (options not traded on exchanges) generally are
established through negotiation with the other party to the option contract.
While this type of arrangement allows a Fund great flexibility to tailor the
option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchange where they are traded.
Generally, OTC foreign currency options used by a Fund are European-style
options. This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. When a Fund purchases or
sells a futures contract, it incurs an obligation respectively to take or make
delivery of a specified amount of the obligation underlying the contract at a
specified time and price. When a Fund writes an option on a futures contract, it
becomes obligated to assume a position in the futures contract at a specified
exercise price at any time during the term of the option. If a Fund writes a
call, on exercise it assumes a short futures position. If it writes a put, on
exercise it assumes a long futures position.
The purchase of futures or call options on futures can serve as a long or an
anticipatory hedge, and the sale of futures or the purchase of put options on
futures can serve as a short hedge. Writing call options on futures contracts
can serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indexes. Similarly, writing put options on
futures contracts can serve as a limited long or anticipatory hedge.
In addition, futures strategies can be used to manage the "duration" (a measure
of anticipated sensitivity to changes in interest rates, which is sometimes
related to the weighted average maturity of a portfolio) and associated interest
rate risk of a Fund's fixed-income portfolio. If the adviser wishes to shorten
the duration of a Fund's fixed-income portfolio (i.e., reduce anticipated
sensitivity), the Fund may sell an appropriate debt futures contract or a call
option thereon, or purchase a put option on that futures contract. If the
adviser wishes to lengthen the duration of a Fund's fixed-income portfolio
(i.e., increase anticipated sensitivity), the Fund may buy an appropriate debt
<PAGE>
futures contract or a call option thereon, or sell a put option thereon.
At the inception of a futures contract, a Fund is required to deposit "initial
margin" in an amount generally equal to 10% or less of the contract value.
Initial margin must also be deposited when writing a call or put option on a
futures contract, in accordance with applicable exchange rules. Subsequent
"variation margin" payments are made to and from the futures broker daily as the
value of the futures or written option position varies, a process known as
"marking-to-market." Unlike margin in securities transactions, initial margin on
futures contracts and written options on futures contracts does not represent a
borrowing on margin, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, a Fund may be required to
increase the level of initial margin deposits. If the Fund has insufficient cash
to meet daily variation margin requirements, it might need to sell securities in
order to do so at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. However, there can be no assurance that a liquid
market will exist for a particular contract at a particular time. In such event,
it may not be possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a futures contract or an option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures contract or an option on a futures
contract position due to the absence of a liquid market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to continue to maintain the
position being hedged by the futures contract or option or to continue to
maintain cash or securities in a segregated account.
To the extent that a Fund enters into futures contracts, options on futures
contracts and options on foreign currencies traded on a CFTC-regulated exchange,
in each case that is not for bona fide hedging purposes (as defined by the
CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
<PAGE>
RISKS OF FUTURES CONTRACTS AND OPTIONS THEREON. The ordinary spreads at a given
time between prices in the cash and futures markets (including the options on
futures markets), due to differences in the natures of those markets, are
subject to the following factors. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions, which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Due to the possibility of distortion, a hedge may not be successful.
Although stock index futures contracts do not require physical delivery, under
extraordinary market conditions, liquidity of such futures contracts also could
be reduced. Additionally, the adviser may be incorrect in its expectations as to
the extent of various interest rates, currency exchange rates or stock market
movements or the time span within which the movements take place.
INDEX FUTURES. The risk of imperfect correlation between movements in the price
of index futures and movements in the price of the securities that are the
subject of a hedge increases as the composition of a Fund's portfolio diverges
from the index. The price of the index futures may move proportionately more
than or less than the price of the securities being hedged. If the price of the
index futures moves proportionately less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective. Assuming
the price of the securities being hedged has moved in an unfavorable direction,
as anticipated when the hedge was put into place, the Fund would be in a better
position than if it had not hedged at all, but not as good as if the price of
the index futures moved in full proportion to that of the hedged securities.
However, if the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially offset by movement of the price of
the futures contract. If the price of the futures contract moves more than the
price of the securities, the Fund will experience either a loss or a gain on the
futures contract that will not be completely offset by movements in the price of
the securities that are the subject of the hedge.
Where index futures are purchased in an anticipatory hedge, it is possible that
the market may decline instead. If a Fund then decides not to invest in the
securities at that time because of concern as to possible further market decline
or for other reasons, it will realize a loss on the futures contract that is not
offset by a reduction in the price of the securities it had anticipated
purchasing.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. A Fund may use
options and futures contracts on foreign currencies, as mentioned previously,
and forward currency contracts, as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated or, in certain circumstances, for investment (e.g., as a
substitute for investing in securities denominated in foreign currency).
Currency hedges can protect against price movements in a security that a Fund
owns or intends to acquire that are attributable to changes in the value of the
currency in which it is denominated.
A Fund might seek to hedge against changes in the value of a particular currency
when no Financial Instruments on that currency are available or such Financial
Instruments are more expensive than certain other Financial Instruments. In such
cases, a Fund may seek to hedge against price movements in that currency by
<PAGE>
entering into transactions using Financial Instruments on another currency or a
basket of currencies, the value of which the adviser believes will have a high
degree of positive correlation to the value of the currency being hedged. The
risk that movements in the price of the Financial Instrument will not correlate
perfectly with movements in the price of the currency subject to the hedging
transaction may be increased when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the value of
the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such Financial Instruments, a
Fund could be disadvantaged by having to deal in the odd-lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
generally is representative of very large transactions in the interbank market
and thus might not reflect odd-lot transactions where rates might be less
favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
a Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY DEPOSITS. The Funds may enter
into forward currency contracts to purchase or sell foreign currencies for a
fixed amount of U.S. dollars or another foreign currency. A forward currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days (term) from the date of the
forward currency contract agreed upon by the parties, at a price set at the time
the forward currency contract is entered. Forward currency contracts are
negotiated directly between currency traders (usually large commercial banks)
and their customers.
Such transactions may serve as long or anticipatory hedges. For example, a Fund
may purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Fund intends to acquire.
Forward currency contracts may also serve as short hedges. For example, a Fund
may sell a forward currency contract to lock in the U.S. dollar equivalent of
the proceeds from the anticipated sale of a security or a dividend or interest
payment denominated in a foreign currency.
The Funds may also use forward currency contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. Such a hedge
<PAGE>
would tend to offset both positive and negative currency fluctuations, but would
not offset changes in security values caused by other factors. A Fund could also
hedge the position by entering into a forward currency contract to sell another
currency expected to perform similarly to the currency in which the Fund's
existing investments are denominated. This type of hedge could offer advantages
in terms of cost, yield or efficiency, but may not hedge currency exposure as
effectively as a simple hedge against U.S. dollars. This type of hedge may
result in losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.
The Funds may also use forward currency contracts in one currency or a basket of
currencies to attempt to hedge against fluctuations in the value of securities
denominated in a different currency if the adviser anticipates that there will
be a positive correlation between the two currencies.
The cost to a Fund of engaging in forward currency contracts varies with factors
such as the currency involved, the length of the contract period and the market
conditions then prevailing. Because forward currency contracts are usually
entered into on a principal basis, no fees or commissions are involved. When a
Fund enters into a forward currency contract, it relies on the counterparty to
make or take delivery of the underlying currency at the maturity of the
contract. Failure by the counterparty to do so would result in the loss of some
or all of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that a Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, the Fund might be unable to close out a forward
currency contract. In either event, the Fund would continue to be subject to
market risk with respect to the position, and would continue to be required to
maintain a position in securities denominated in the foreign currency or to
segregate cash or liquid assets.
The precise matching of forward currency contract amounts and the value of the
securities, dividends or interest payments involved generally will not be
possible because the value of such securities, dividends or interest payments,
measured in the foreign currency, will change after the forward currency
contract has been established. Thus, a Fund might need to purchase or sell
foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Forward currency contracts may substantially change a Fund's investment exposure
to changes in currency exchange rates and could result in losses to the Fund if
currencies do not perform as the adviser anticipates. There is no assurance that
the adviser's use of forward currency contracts will be advantageous to a Fund
or that it will hedge at an appropriate time.
<PAGE>
The Funds may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.
COMBINED POSITIONS. A Fund may purchase and write options or futures in
combination with each other, or in combination with futures or forward currency
contracts, to manage the risk and return characteristics of its overall
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs.
TURNOVER. The Funds' options and futures activities may affect their turnover
rates and brokerage commission payments. The exercise of calls or puts written
by a Fund, and the sale or purchase of futures contracts, may cause it to sell
or purchase related investments, thus increasing its turnover rate. Once a Fund
has received an exercise notice on an option it has written, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price. The
exercise of puts purchased by a Fund may also cause the sale of related
investments, increasing turnover. Although such exercise is within the Fund's
control, holding a protective put might cause it to sell the related investments
for reasons that would not exist in the absence of the put. A Fund will pay a
brokerage commission each time it buys or sells a put or call or purchases or
sells a futures contract. Such commissions may be higher than those that would
apply to direct purchases or sales.
SWAPS, CAPS, FLOORS AND COLLARS. The Funds are authorized to enter into swaps,
caps, floors and collars. Swaps involve the exchange by one party with another
party of their respective commitments to pay or receive cash flows, e.g., an
exchange of floating rate payments for fixed rate payments. The purchase of a
cap or a floor entitles the purchaser, to the extent that a specified index
exceeds in the case of a cap, or falls below in the case of a floor, a
predetermined value, to receive payments on a notional principal amount from the
party selling such instrument. A collar combines elements of buying a cap and
selling a floor.
ILLIQUID SECURITIES -- Securities which do not trade on stock exchanges or in
the over the counter market, or have restrictions on when and how they may be
sold, are generally considered to be "illiquid." An illiquid security is one
that a Fund may have difficulty -- or may even be legally precluded from --
selling at any particular time. A Fund may invest in illiquid securities,
including restricted securities and other investments which are not readily
marketable. A Fund will not purchase any such security if the purchase would
cause the Fund to invest more than 15% of its net assets, measured at the time
of purchase, in illiquid securities. Repurchase agreements maturing in more than
seven days are considered illiquid for purposes of this restriction.
The principal risk of investing in illiquid securities is that a Fund may be
unable to dispose of them at the time desired or at a reasonable price. In
addition, in order to resell a restricted security, a Fund might have to bear
the expense and incur the delays associated with registering the security with
<PAGE>
the SEC, and otherwise obtaining listing on a securities exchange or in the over
the counter market.
INVESTMENT COMPANY SECURITIES -- To manage their daily cash positions, the Funds
may invest in securities issued by other investment companies that invest in
short-term debt securities and seek to maintain a net asset value of $1.00 per
share ("money market funds"). The Funds also may invest in Standard & Poor's
Depository Receipts ("SPDRs") and shares of other investment companies. SPDRs
are investment companies whose portfolios mirror the compositions of specific
S&P indices, such as the S&P 500 and the S&P 400. SPDRs are traded on the
American Stock Exchange. SPDR holders such as a Fund are paid a "Dividend
Equivalent Amount" that corresponds to the amount of cash dividends accruing to
the securities held by the SPDR Trust, net of certain fees and expenses. The
Investment Company Act of 1940, as amended (the "1940 Act"), limits investments
in securities of other investment companies, such as the SPDR Trust. These
limitations include, among others, that, subject to certain exceptions, no more
than 10% of a Fund's total assets may be invested in securities of other
investment companies and no more than 5% of its total assets may be invested in
the securities of any one investment company, and a Fund may not invest more
than 3% of the outstanding shares of any investment company. As a shareholder of
another investment company, a Fund would bear its pro rata portion of the other
investment company's expenses, including advisory fees, in addition to the
expenses the Fund bears directly in connection with its own operations.
MUNICIPAL OBLIGATIONS -- Municipal debt securities including municipal bonds,
notes and commercial paper. It is a policy of the Tax-Free Bond Fund that, under
normal market conditions, it will have at least 80% of its net assets invested
in municipal obligations that, based on the opinion of counsel to the issuer,
pay interest free from federal income tax. It is the Fund's present intention to
invest its assets so that substantially all of its annual income will be
tax-exempt. The Fund may invest in municipal obligations whose interest income
may be specially treated as a tax preference item under the alternative minimum
tax ("AMT"). Securities that generate income that is a tax preference item may
not be counted towards the 80% tax exempt threshold described above. Tax-exempt
income may result in an indirect tax preference item for corporations, which may
subject an investor to liability under the AMT depending on its particular
situation. Tax-Free Bond Fund, however, will not invest more than 20% of its net
assets in obligations the interest from which gives rise to a preference item
for the purpose of the AMT and in other investments subject to federal income
tax. Distributions from this Fund may be subject to state and local taxes. The
other Funds may invest in municipal obligations, but under normal circumstances
do not intend to make significant investment in these securities.
The Funds may invest in the following types of municipal obligations:
MUNICIPAL BONDS -- Municipal bonds are classified as general obligation or
revenue bonds. General obligations bonds are secured by the issuer's pledge
of its full faith, credit and unlimited taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues
generated by a particular facility or class of facility, or in some cases
from the proceeds of a special excise tax or specific revenue source.
Industrial development obligations are a particular kind of municipal bond
which are issued by or on behalf of public authorities to obtain funds for
many kinds of local, privately operated
<PAGE>
facilities. Such obligations are, in most cases, revenue bonds that
generally are secured by a lease with a particular private corporation.
MUNICIPAL NOTES -- Municipal notes are short-term debt obligations issued
by municipalities which normally have a maturity at the time of issuance of
six months to three years. Such notes include tax anticipation notes, bond
anticipation notes, revenue anticipation notes and project notes. Notes
sold in anticipation of collection of taxes, a bond sale or receipt of
other revenues are normally obligations of the issuing municipality or
agency.
MUNICIPAL COMMERCIAL PAPER -- Municipal commercial paper is short-term debt
obligations issued by municipalities. Although done so infrequently,
municipal commercial paper may be issued at a discount (sometimes referred
to as Short-Term Discount Notes). These obligations are issued to meet
seasonal working capital needs of a municipality or interim construction
financing and are paid from a municipality's general revenues or refinanced
with long-term debt. Although the availability of municipal commercial
paper has been limited, from time to time the amounts of such debt
obligations offered have increased, and INVESCO believes that this increase
may continue.
VARIABLE RATE OBLIGATIONS -- The interest rate payable on a variable rate
municipal obligation is adjusted either at predetermined periodic intervals
or whenever there is a change in the market rate of interest upon which the
interest rate payable is based. A variable rate obligation may include a
demand feature pursuant to which the Fund would have the right to demand
prepayment of the principal amount of the obligation prior to its stated
maturity. The issuer of the variable rate obligation may retain the right
to prepay the principal amount prior to maturity.
MUNICIPAL LEASE OBLIGATIONS -- Also included in "municipal securities" are
municipal lease obligations, which may take the form of a lease, an
installment purchase or a conditional sales contract. Municipal lease
obligations are issued by state and local governments and authorities to
acquire land, equipment and facilities such as state and municipal
vehicles, telecommunications and computer equipment, and other capital
assets. Interest payments on qualifying municipal leases are exempt from
federal income taxes. The Funds may purchase these obligations directly, or
they may purchase participation interests in such obligations. Municipal
leases are generally subject to greater risks than general obligation or
revenue bonds. State laws set forth requirements that states or
municipalities must meet in order to issue municipal obligations, and such
obligations may contain a covenant by the issuer to budget for,
appropriate, and make payments due under the obligation. However, certain
municipal lease obligations may contain "non-appropriation" clauses which
provide that the issuer is not obligated to make payments on the obligation
in future years unless funds have been appropriated for this purpose each
year. Accordingly, such obligations are subject to "non-appropriation"
risk. While municipal leases are secured by the underlying capital asset,
it may be difficult to dispose of such assets in the event of
non-appropriation or other default. All direct investments by the Funds in
municipal lease obligations shall be deemed illiquid and shall be valued
according to each Fund's Procedures for Valuing Securities current at the
time of such valuation.
Municipal obligations purchased by a Fund must be rated by at least two NRSROs -
generally S&P and Moody's - in the highest rating category (AAA, AA, A or BBB by
S&P or Aaa, Aa, A or Baa by Moody's), or by one NRSRO in the highest rating
category if such obligations are rated by only one NRSRO. No more than 10% of
Tax-Free Bond Fund's total assets may be invested in junk bonds. Never under any
circumstances will Tax-Free Bond Fund invest in bonds which are rated below B-
<PAGE>
or B by S&P or Moody's, respectively. Municipal notes or municipal commercial
paper must be rated in the two highest rating categories by at least two NRSROs,
or where the note or paper is rated only by one NRSRO, in the two highest rating
categories by that NRSRO. If a security is unrated, the Fund may invest in such
security if INVESCO determines, in an analysis similar to that performed by
Moody's or S&P in rating similar securities and issuers, that the security is
comparable to that eligible for investment by the Fund. After the Fund has
purchased an issue of municipal obligations, such issue might cease to be rated
or its rating might be reduced below the minimum required for purchase. If a
security originally rated in the highest rating category by a NRSRO has been
downgraded to the second highest rating category, INVESCO must assess promptly
whether the security presents minimal credit risk and must take such action with
respect to the security as it determines to be in the best interest of the Fund.
If a security is downgraded below the second highest rating of an NRSRO, is in
default, or no longer presents a minimal credit risk, the security must be
disposed of either within five business days of INVESCO becoming aware of the
new rating, the default or the credit risk, or as soon as practicable consistent
with achieving an orderly disposition of the security, whichever is the first to
occur, unless the executive committee of the Company's board of directors
determines within the aforesaid five business days that holding the security is
in the best interest of a Fund.
REITS -- Real Estate Investment Trusts are investment trusts that invest
primarily in real estate and securities of businesses connected to the real
estate industry.
REPURCHASE AGREEMENTS -- A Fund may enter into repurchase agreements, or REPOs,
on debt securities that the Fund is allowed to hold in its portfolio. This is a
way to invest money for short periods. A REPO is an agreement under which the
Fund acquires a debt security and then resells it to the seller at an
agreed-upon price and date (normally, the next business day). The repurchase
price represents an interest rate effective for the short period the debt
security is held by the Fund, and is unrelated to the interest rate on the
underlying debt security. A repurchase agreement is often considered as a loan
collateralized by securities. The collateral securities acquired by the Fund
(including accrued interest earned thereon) must have a total value in excess of
the value of the repurchase agreement. The collateral securities are held by the
Fund's custodian bank until the repurchase agreement is completed.
The Funds may enter into repurchase agreements with commercial banks, registered
broker-dealers or registered government securities dealers that are creditworthy
under standards established by the Company's board of directors. The Company's
board of directors has established standards that INVESCO must use to review the
creditworthiness of any bank, broker or dealer that is a party to a REPO. REPOs
maturing in more than seven days are considered illiquid securities. A Fund will
not enter into repurchase agreements maturing in more than seven days if as a
result more than 15% of the Fund's net assets would be invested in these
repurchase agreements and other illiquid securities.
As noted above, the Funds use REPOs as a means of investing cash for short
periods of time. Although REPOs are considered to be highly liquid and
comparatively low-risk, the use of REPOs does involve some risks. For example,
if the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss on the sale of the collateral security. If the other party
to the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within the control
of the Fund and therefore the realization by the Fund on such collateral may
automatically be stayed. Finally, it is possible that the Fund may not be able
to substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement.
<PAGE>
RULE 144A SECURITIES -- A Fund also may invest in securities that can be resold
to institutional investors pursuant to Rule 144A under the Securities Act of
1933, as amended (the "1933 Act"). In recent years, a large institutional market
has developed for many Rule 144A Securities. Institutional investors generally
cannot sell these securities to the general public but instead will often depend
on an efficient institutional market in which Rule 144A Securities can readily
be resold to other institutional investors, or on an issuer's ability to honor a
demand for repayment. Therefore, the fact that there are contractual or legal
restrictions on resale to the general public or certain institutions does not
necessarily mean that a Rule 144A Security is illiquid. Institutional markets
for Rule 144A Securities may provide both reliable market values for Rule 144A
Securities and enable a Fund to sell a Rule 144A investment when appropriate.
For this reason, the Company's board of directors has concluded that if a
sufficient institutional trading market exists for a given Rule 144A security,
it may be considered "liquid," and not subject to a Fund's limitations on
investment in restricted securities. The Company's board of directors has given
INVESCO the day-to-day authority to determine the liquidity of Rule 144A
Securities, according to guidelines approved by the board. The principal risk of
investing in Rule 144A Securities is that there may be an insufficient number of
qualified institutional buyers interested in purchasing a Rule 144A Security
held by a Fund, and the Fund might be unable to dispose of such security
promptly or at reasonable prices.
SECURITIES LENDING -- Each Fund may lend its portfolio securities. The advantage
of lending portfolio securities is that a Fund continues to have the benefits
(and risks) of ownership of the loaned securities, while at the same time
receiving interest from the borrower of the securities. The primary risk in
lending portfolio securities is that a borrower may fail to return a portfolio
security.
TEMPORARY INVESTMENTS (TAX-FREE BOND FUND ONLY) -- Tax-Free Bond Fund may from
time to time invest a portion of its assets on a temporary basis in "temporary
investments," the income from which may be subject to federal income tax. These
investments include AMT Bonds, short-term or taxable securities (the income from
which may be subject to federal income tax), junk bonds and cash. Short-term
taxable investments normally will consist of notes having quality ratings within
the two highest grades of Moody's, S&P, Fitch or D&P; obligations of the U.S.
government, its agencies or instrumentalities; commercial paper rated at least
P-2 by Moody's and A-2 by S & P; certificates of deposit of U.S. domestic banks,
including foreign branches of domestic banks, with assets of $1 billion or more;
time deposits, bankers acceptances and other short-term bank obligations; and
repurchase agreements. Temporary taxable investment normally will consist of
corporate bonds and other debt obligations. Any net interest income on taxable
temporary investments will be taxable to shareholders as ordinary income when
distributed.
U.S. GOVERNMENT SECURITIES -- Each Fund may, from time to time, purchase debt
securities issued by the U.S. government. These securities include Treasury
bills, notes and bonds. Treasury bills have a maturity of one year or less,
Treasury notes generally have a maturity of one to ten years, and Treasury bonds
generally have maturities of more than ten years.
U.S. government debt securities also include securities issued or guaranteed by
agencies or instrumentalities of the U.S. government. Some obligations of U.S.
government agencies, which are established under the authority of an act of
Congress, such as Government National Mortgage Association ("GNMA")
Participation Certificates, are supported by the full faith and credit of the
U.S. Treasury. GNMA Certificates are mortgage-backed securities representing
part ownership of a pool of mortgage loans. These loans -- issued by lenders
such as mortgage bankers, commercial banks and savings and loan associations --
are either insured by the Federal Housing Administration or guaranteed by the
Veterans Administration. A "pool" or group of such mortgages is assembled and,
after being approved by GNMA, is offered to investors through securities
dealers. Once approved by GNMA, the timely payment of interest and principal on
each mortgage is guaranteed by GNMA and backed by the full faith and credit of
the U.S. government. The market value of GNMA Certificates is not guaranteed.
<PAGE>
GNMA Certificates are different from bonds because principal is paid back
monthly by the borrower over the term of the loan rather than returned in a lump
sum at maturity, as is the case with a bond. GNMA Certificates are called
"pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the GNMA
Certificate.
Other United States government debt securities, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury. Others, such as bonds issued by Fannie Mae, a federally chartered
private corporation, are supported only by the credit of the corporation. In the
case of securities not backed by the full faith and credit of the United States,
a Fund must look principally to the agency issuing or guaranteeing the
obligation in the event the agency or instrumentality does not meet its
commitments. A Fund will invest in securities of such instrumentalities only
when INVESCO is satisfied that the credit risk with respect to any such
instrumentality is comparatively minimal.
WHEN-ISSUED/DELAYED DELIVERY -- The Funds normally buy and sell securities on an
ordinary settlement basis. That means that the buy or sell order is sent, and a
Fund actually takes delivery or gives up physical possession of the security on
the "settlement date," which is three business days later. However, the Funds
also may purchase and sell securities on a when-issued or delayed delivery
basis.
When-issued or delayed delivery transactions occur when securities are purchased
or sold by a Fund and payment and delivery take place at an agreed-upon time in
the future. The Funds may engage in this practice in an effort to secure an
advantageous price and yield. However, the yield on a comparable security
available when delivery actually takes place may vary from the yield on the
security at the time the when-issued or delayed delivery transaction was entered
into. When a Fund engages in when-issued and delayed delivery transactions, it
relies on the seller or buyer to consummate the sale at the future date. If the
seller or buyer fails to act as promised, that failure may result in the Fund
missing the opportunity of obtaining a price or yield considered to be
advantageous. No payment or delivery is made by a Fund until it receives
delivery or payment from the other party to the transaction. However,
fluctuation in the value of the security from the time of commitment until
delivery could adversely affect a Fund.
INVESTMENT RESTRICTIONS
The Funds operate under certain investment restrictions. For purposes of the
following restrictions, all percentage limitations apply immediately after a
purchase or initial investment. Any subsequent change in a particular percentage
resulting from fluctuations in value does not require elimination of any
security from a Fund.
The following restrictions are fundamental and may not be changed without prior
approval of a majority of the outstanding voting securities of a Fund, as
defined in the 1940 Act. Each Fund may not:
1. purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities or municipal securities) if, as a result, more than 25%
<PAGE>
of the Fund's total assets would be invested in the securities of
companies whose principal business activities are in the same industry;
2. with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities, or
securities of other investment companies) if, as a result, (i) more than
5% of a Fund's total assets would be invested in the securities of that
issuer, or (ii) a Fund would hold more than 10% of the outstanding voting
securities of that issuer;
3. underwrite securities of other issuers, except insofar as it may
be deemed to be an underwriter under the 1933 Act, in connection with the
disposition of the Fund's portfolio securities;
4. borrow money, except that the Fund may borrow money in an amount
not exceeding 33 1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings);
5. issue senior securities, except as permitted under the 1940 Act;
6. lend any security or make any loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to the purchase of debt securities or to
repurchase agreements;
7. purchase or sell physical commodities; however, this policy shall
not prevent the Fund from purchasing and selling foreign currency,
futures contracts, options, forward contracts, swaps, caps, floors,
collars and other financial instruments; or
8. purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the Fund from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business).
9. Each Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company managed by INVESCO or an
affiliate or a successor thereof, with substantially the same fundamental
investment objective, policies and limitations as the Fund.
<PAGE>
In addition, each Fund has the following non-fundamental policies, which may be
changed without shareholder approval:
A. The Fund may not sell securities short (unless it owns or has the
right to obtain securities equivalent in kind and amount to the
securities sold short) or purchase securities on margin, except that (i)
this policy does not prevent the Fund from entering into short positions
in foreign currency, futures contracts, options, forward contracts,
swaps, caps, floors, collars and other financial instruments, (ii) the
Fund may obtain such short-term credits as are necessary for the
clearance of transactions, and (iii) the Fund may make margin payments in
connection with futures contracts, options, forward contracts, swaps,
caps, floors, collars and other financial instruments.
B. The Fund may borrow money only from a bank or from an open-end
management investment company managed by INVESCO or an affiliate or a
successor thereof for temporary or emergency purposes (not for leveraging
or investing) or by engaging in reverse repurchase agreements with any
party (reverse repurchase agreements will be treated as borrowings for
purposes of fundamental limitation (4)).
C. The Fund does not currently intend to purchase any security if, as
a result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the
prices at which they are valued.
D. The Fund may invest in securities issued by other investment
companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940
Act.
E. With respect to fundamental limitation (1), domestic and foreign
banking will be considered to be different industries.
In addition, with respect to a Fund that may invest in municipal obligations,
the following non-fundamental policy applies, which may be changed without
shareholder approval:
Each state (including the District of Columbia and Puerto Rico),
territory and possession of the United States, each political
subdivision, agency, instrumentality and authority thereof, and each
multi-state agency of which a state is a member is a separate "issuer."
When the assets and revenues of an agency, authority, instrumentality
or other political subdivision are separate from the government
creating the subdivision and the security is backed only by assets and
revenues of the subdivision, such subdivision would be deemed to be the
sole issuer. Similarly, in the case of an Industrial Development Bond
or Private Activity bond, if that bond is backed only by the assets and
revenues of the non-governmental user, then that non-governmental user
would be deemed to be the sole issuer. However, if the creating
government or another entity guarantees a security, then to the extent
that the value of all securities issued or guaranteed by that
government or entity and owned by a Fund exceeds 10% of the Fund's
total assets, the guarantee would be considered a separate security and
<PAGE>
would be treated as issued by that government or entity. With respect
to a Fund that is not a money market fund, securities issued or
guaranteed by a bank or subject to financial guaranty insurance are not
subject to the limitations set forth in the preceding sentence.
Following is a chart outlining some of the limitations pursuant to
non-fundamental investment policies set by the board of directors. These
non-fundamental policies may be changed by the board of directors without
shareholder approval:
--------------------------------------------------------------------------------
SELECT TAX-FREE U.S. GOVERNMENT
INVESTMENT HIGH YIELD INCOME BOND SECURITIES
--------------------------------------------------------------------------------
FOREIGN DEBT Up to 25% Up to
SECURITIES 25%
--------------------------------------------------------------------------------
DEBT SECURITIES Normally,
Corporate Debt at least
90%
--------------------------------------------------------------------------------
Those maturing at At least At least At least 65%
least three years 65% 65%
after issuance
--------------------------------------------------------------------------------
Investment Grade At least
50%
--------------------------------------------------------------------------------
Junk Bonds Primarily, Up to 50%; Up to 10%;
but never never never
below Caa below B below B
by Moody's by Moody's by Moody's
or CCC or B- or B- by
by S&P by S&P S&P
--------------------------------------------------------------------------------
TEMPORARY TAXABLE Nonrated Up to 100%
Up to when
25% defensive.
Normally, to
20%
including
AMT.
--------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS At least 65%
--------------------------------------------------------------------------------
MUNICIPAL BONDS Normally,
at least
80%
--------------------------------------------------------------------------------
ALTERNATIVE MINIMUM Normally, no
TAX BONDS more than
20%
including
other
taxable
investments.
--------------------------------------------------------------------------------
<PAGE>
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISER
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the Company's
investment adviser. INVESCO was founded in 1932 and serves as an investment
adviser to:
INVESCO Counselor Series Funds, Inc.
(formerly, INVESCO Advantage Series Funds, Inc.)
INVESCO Bond Funds, Inc.
INVESCO Combination Stock & Bond Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Treasurer's Series Funds, Inc.
INVESCO Variable Investment Funds, Inc.
As of October 31, 2000, INVESCO managed 46 mutual funds having combined assets
of over $46.1 billion, on behalf of more than 2,320,000 shareholder accounts.
INVESCO is an indirect wholly owned subsidiary of AMVESCAP PLC, a publicly
traded holding company. Through its subsidiaries, AMVESCAP PLC engages in the
business of investment management on an international basis. AMVESCAP PLC is one
of the largest independent investment management businesses in the world, with
approximately $414 billion in assets under management as of September 30, 2000.
AMVESCAP PLC's North American subsidiaries include:
INVESCO Retirement and Benefit Services, Inc. ("IRBS"), Atlanta, Georgia,
develops and provides domestic and international defined contribution
retirement plan services to plan sponsors, institutional retirement plan
sponsors, institutional plan providers and foreign governments.
INVESCO Retirement Plan Services ("IRPS"), Atlanta, Georgia, a
division of IRBS, provides recordkeeping and investment selection
services to defined contribution plan sponsors of plans with between
$2 million and $200 million in assets. Additionally, IRPS provides
investment consulting services to institutions seeking to provide
retirement plan products and services.
Institutional Trust Company, doing business as INVESCO Trust Company
("ITC"), Denver, Colorado, a division of IRBS, provides retirement
account custodian and/or trust services for individual retirement
accounts ("IRAs") and other retirement plan accounts. This includes
services such as recordkeeping, tax reporting and compliance. ITC acts
as trustee or custodian to these plans. ITC accepts contributions and
provides complete transfer agency functions: correspondence,
<PAGE>
sub-accounting, telephone communications and processing of
distributions.
INVESCO, Inc., Atlanta, Georgia, manages individualized investment
portfolios of equity, fixed-income and real estate securities for
institutional clients, including mutual funds and the collective investment
entities. INVESCO, Inc. includes the following Divisions:
INVESCO Capital Management Division, Atlanta, Georgia, manages
institutional investment portfolios, consisting primarily of
discretionary employee benefit plans for corporations and state and
local governments, and endowment funds.
INVESCO Management & Research Division, Boston, Massachusetts,
primarily manages pension and endowment accounts.
PRIMCO Capital Management Division, Louisville, Kentucky, specializes
in managing stable return investments, principally on behalf of
Section 401(k) retirement plans.
INVESCO Realty Advisors Division, Dallas, Texas, is responsible for
providing advisory services in the U.S. real estate markets for
AMVESCAP PLC's clients worldwide. Clients include corporate pension
plans and public pension funds as well as endowment and foundation
accounts.
INVESCO (NY) Division, New York, is an investment adviser for
separately managed accounts, such as corporate and municipal pension
plans, Taft-Hartley Plans, insurance companies, charitable
institutions and private individuals. INVESCO NY further serves as
investment adviser to several closed-end investment companies, and as
sub-adviser with respect to certain commingled employee benefit
trusts.
A I M Advisors, Inc., Houston, Texas, provides investment advisory and
administrative services for retail and institutional mutual funds.
A I M Capital Management, Inc., Houston, Texas, provides investment
advisory services to individuals, corporations, pension plans and other
private investment advisory accounts and also serves as a sub-adviser to
certain retail and institutional mutual funds, one Canadian mutual fund and
one portfolio of an open-end registered investment company that is offered
to separate accounts of insurance companies.
A I M Distributors, Inc. and Fund Management Company, Houston, Texas, are
registered broker-dealers that act as the principal underwriters for retail
and institutional mutual funds.
The corporate headquarters of AMVESCAP PLC are located at 11 Devonshire Square,
London, EC2M 4YR, England.
<PAGE>
THE INVESTMENT ADVISORY AGREEMENT
INVESCO serves as investment adviser to the Funds under an investment advisory
agreement dated February 28, 1997 (the "Agreement") with the Company.
The Agreement requires that INVESCO manage the investment portfolio of each Fund
in a way that conforms with the Fund's investment policies. INVESCO may directly
manage a Fund itself, or may hire a sub-adviser, which may be an affiliate of
INVESCO, to do so. Specifically, INVESCO is responsible for:
o managing the investment and reinvestment of all the assets of the Funds, and
executing all purchases and sales of portfolio securities;
o maintaining a continuous investment program for the Funds, consistent
with (i) each Fund's investment policies as set forth in the Company's
Articles of Incorporation, Bylaws and Registration Statement, as from time
to time amended, under the 1940 Act, and in any prospectus and/or statement
of additional information of the Funds, as from time to time amended and in
use under the 1933 Act, and (ii) the Company's status as a regulated
investment company under the Internal Revenue Code of 1986, as amended;
o determining what securities are to be purchased or sold for the Funds,
unless otherwise directed by the directors of the Company, and executing
transactions accordingly;
o providing the Funds the benefit of the investment analysis and research,
the reviews of current economic conditions and trends, and the consideration
of a long-range investment policy now or hereafter generally available to
the investment advisory customers of the adviser or any sub-adviser;
o determining what portion of each Fund's assets should be invested in the
various types of securities authorized for purchase by the Fund; and
o making recommendations as to the manner in which voting rights, rights to
consent to Fund action and any other rights pertaining to a Fund's portfolio
securities shall be exercised.
INVESCO also performs all of the following services for the Funds:
o administrative;
o internal accounting (including computation of net asset value);
o clerical and statistical;
o secretarial;
o all other services necessary or incidental to the administration of the
affairs of the Funds;
<PAGE>
o supplying the Company with officers, clerical staff and other employees;
o furnishing office space, facilities, equipment, and supplies; providing
personnel and facilities required to respond to inquiries related to
shareholder accounts;
o conducting periodic compliance reviews of the Funds' operations;
preparation and review of required documents, reports and filings by
INVESCO's in-house legal and accounting staff or in conjunction with
independent attorneys and accountants (including prospectuses, statements of
additional information, proxy statements, shareholder reports, tax returns,
reports to the SEC, and other corporate documents of the Funds);
o supplying basic telephone service and other utilities; and
o preparing and maintaining certain of the books and records required to be
prepared and maintained by the Funds under the 1940 Act.
Expenses not assumed by INVESCO are borne by the Funds. As full compensation for
its advisory services to the Company, INVESCO receives a monthly fee from each
Fund. The fee is calculated at the annual rate of:
High Yield Fund
o 0.50% on the first $300 million of the Fund's average net assets;
o 0.40% on the next $200 million of the Fund's average net assets;
o 0.30% of the Fund's average net assets from $500 million;
Select Income, Tax-Free Bond and U.S. Government Securities Funds
o 0.55% on the first $300 million of each Fund's average net assets;
o 0.45% on the next $200 million of each Fund's average net assets; and
o 0.35% of each Fund's average net assets from $500 million.
During the periods outlined in the table below, the Funds paid INVESCO advisory
fees in the dollar amounts shown below. Since High Yield and Select Income
Funds' Class K shares were not offered until December 15, 2000, no advisory fees
were paid with respect to Class K shares for the periods shown below. If
applicable, the advisory fees were offset by credits in the amounts shown below,
so that INVESCO's fees were not in excess of the expense limitations shown
below, which have been voluntarily agreed to by the Company and INVESCO.
<PAGE>
ADVISORY TOTAL EXPENSE TOTAL EXPENSE
FEE DOLLARS REIMBURSEMENTS LIMITATIONS
INVESTOR CLASS
HIGH YIELD FUND
Year Ended August 31, 2000 $ 3,063,648 $ 0 1.25%
Year Ended August 31, 1999 3,245,140 0 1.25%
Year Ended August 31, 1998 2,842,990 0 1.25%
SELECT INCOME FUND
Year Ended August 31, 2000 $ 2,701,447 $ 720,362 1.05%
Year Ended August 31, 1999 2,670,224 536,940 1.05%
Year Ended August 31, 1998 2,023,679 151,971 1.05%
TAX-FREE BOND FUND
Year Ended August 31, 2000 $ 973,112 $ 356,522 0.90%
Period Ended August 31, 1999(1) 185,151 80,439 0.90%
Year Ended June 30, 1999 1,149,834 310,487 0.90%
Year Ended June 30, 1998 1,195,773 282,742 0.90%
U.S. GOVERNMENT SECURITIES FUND
Year Ended August 31, 2000 $ 415,569 $ 449,886 1.00%
Year Ended August 31, 1999 395,611 422,317 1.00%
Year Ended August 31, 1998 284,609 207,740 1.00%
CLASS C(2)
HIGH YIELD FUND
Period Ended August 31, 2000 $ 5,707 $ 0 2.00%
SELECT INCOME FUND
Period Ended August 31, 2000 $ 374 $ 0 1.80%
TAX-FREE BOND FUND
Period Ended August 31, 2000 $ 4 $ 30 1.65%
U.S. GOVERNMENT SECURITIES FUND
Period Ended August 31, 2000 $ 108 $ 66 1.75%
(1) For the period July 1, 1999 through August 31, 1999.
(2) Class C shares were not offered until February 15, 2000.
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
INVESCO, either directly or through affiliated companies, provides certain
administrative, sub-accounting, and recordkeeping services to the Funds pursuant
to an Administrative Services Agreement dated June 1, 2000 with the Company.
The Administrative Services Agreement requires INVESCO to provide the following
services to the Funds:
o such sub-accounting and recordkeeping services and functions as are
reasonably necessary for the operation of the Funds; and
o such sub-accounting, recordkeeping, and administrative services and
functions, which may be provided by affiliates of INVESCO, as are
reasonably necessary for the operation of Fund shareholder accounts
maintained by certain retirement plans and employee benefit plans for the
benefit of participants in such plans.
As full compensation for services provided under the Administrative Services
Agreement, each Fund pays a monthly fee to INVESCO consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
monthly at an annual rate of 0.045% of the average net assets of each Fund.
Prior to May 13, 1999, the rate was 0.015% of the average net assets of each
Fund.
TRANSFER AGENCY AGREEMENT
INVESCO also performs transfer agent, dividend disbursing agent and registrar
services for the Funds pursuant to a Transfer Agency Agreement dated June 1,
2000 with the Company.
The Transfer Agency Agreement provides that each Fund pays INVESCO an annual fee
of $28.50 ($26.00 prior to June 1, 2000) per shareholder account, or, where
applicable, per participant in an omnibus account. This fee is paid monthly at
the rate of 1/12 of the annual fee and is based upon the actual number of
shareholder accounts and omnibus account participants in each Fund at any time
during each month.
FEES PAID TO INVESCO
During the periods outlined in the table below, the Funds paid the following
fees to INVESCO (in some instances, prior to the absorption of certain Fund
expenses by INVESCO). Since High Yield and Select Income Funds' Class K shares
were not offered until December 15, 2000, no fees were paid with respect to
Class K shares for the periods shown below.
<PAGE>
ADMINISTRATIVE TRANSFER
ADVISORY SERVICES AGENCY
INVESTOR CLASS
HIGH YIELD FUND
Year Ended August 31, 2000 $3,063,648 $ 349,751 $1,799,501
Year Ended August 31, 1999 3,245,140 204,752 1,560,584
Year Ended August 31, 1998 2,842,990 112,212 778,174
SELECT INCOME FUND
Year Ended August 31, 2000 $2,701,447 $ 254,484 $1,795,050
Year Ended August 31, 1999 2,670,224 140,510 1,519,741
Year Ended August 31, 1998 2,023,679 67,475 895,360
TAX-FREE BOND FUND
Year Ended August 31, 2000 $ 973,112 $ 89,618 $ 244,611
Period Ended August 31, 1999(1) 185,151 16,815 43,473
Year Ended June 30, 1999 1,149,834 49,494 252,005
Year Ended June 30, 1998 1,195,773 42,612 266,096
U.S. GOVERNMENT SECURITIES FUND
Year Ended August 31, 2000 $ 415,569 $ 43,999 $ 410,580
Year Ended August 31, 1999 395,611 27,813 333,566
Year Ended August 31, 1998 284,609 17,762 186,705
CLASS C(2)
HIGH YIELD FUND
Period Ended August 31, 2000 $ 5,707 $ 652 $ 1,514
SELECT INCOME FUND
Period Ended August 31, 2000 $ 374 $ 36 $ 163
TAX-FREE BOND FUND
Period Ended August 31, 2000 $ 4 $ 0 $ 30
U.S. GOVERNMENT SECURITIES FUND
Period Ended August 31, 2000 $ 108 $ 11 $ 79
(1) For the period July 1, 1999 through August 31, 1999.
(2) Class C shares were not offered until February 15, 2000.
<PAGE>
DIRECTORS AND OFFICERS OF THE COMPANY
The overall direction and supervision of the Company come from the board of
directors. The board of directors is responsible for making sure that the Funds'
general investment policies and programs are carried out and that the Funds are
properly administered.
The board of directors has an audit committee comprised of four of the directors
who are not affiliated with INVESCO (the "Independent Directors"). The committee
meets quarterly with the Company's independent accountants and officers to
review accounting principles used by the Company, the adequacy of internal
controls, the responsibilities and fees of the independent accountants, and
other matters.
The Company has a management liaison committee which meets quarterly with
various management personnel of INVESCO in order to facilitate better
understanding of management and operations of the Company, and to review legal
and operational matters which have been assigned to the committee by the board
of directors, in furtherance of the board of directors' overall duty of
supervision.
The Company has a brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by the Funds, and to review
policies and procedures of INVESCO with respect to brokerage transactions. It
reports on these matters to the Company's board of directors.
The Company has a derivatives committee. The committee meets periodically to
review derivative investments made by the Funds. It monitors derivative usage by
the Funds and the procedures utilized by INVESCO to ensure that the use of such
instruments follows the policies on such instruments adopted by the Company's
board of directors. It reports on these matters to the Company's board of
directors.
The Company has a legal committee, an insurance committee and a compensation
committee. These committees meet when necessary to review legal, insurance and
compensation matters of importance to the directors of the Company.
The Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors.
The officers of the Company, all of whom are officers and employees of INVESCO,
are responsible for the day-to-day administration of the Company and the Funds.
The officers of the Company receive no direct compensation from the Company or
the Funds for their services as officers. INVESCO has the primary responsibility
for making investment decisions on behalf of the Funds. These investment
decisions are reviewed by the investment committee of INVESCO.
All of the officers and directors of the Company hold comparable positions with
the following funds, which, with the Company, are collectively referred to as
the "INVESCO Funds":
<PAGE>
INVESCO Counselor Series Funds, Inc.
(formerly, INVESCO Advantage Series Funds, Inc.)
INVESCO Bond Funds, Inc.
INVESCO Combination Stock & Bond Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Treasurer's Series Funds, Inc.
INVESCO Variable Investment Funds, Inc.
The table below provides information about each of the Company's directors and
officers. Their affiliations represent their principal occupations.
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Mark H. Williamson (2)(3) President, Chief President, Chief
7800 E. Union Avenue Executive Officer Executive Officer and
Denver, Colorado and Chairman of Chairman of the Board
Age: 49 the Board of INVESCO Funds Group,
Inc.; President, Chief
Executive Officer and
Chairman of the Board
of INVESCO
Distributors, Inc.;
President, Chief
Operating Officer and
Chairman of the Board
of INVESCO Global
Health Sciences Fund;
formerly, Chairman and
Chief Executive Officer
of NationsBanc
Advisors, Inc.;
formerly, Chairman of
NationsBanc
Investments, Inc.
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Fred A. Deering (1)(2)(7)(8) Vice Chairman Trustee of INVESCO
1551 Larimer Street, #1701 of the Board Global Health Sciences
Denver, Colorado Fund; formerly,
Age: 72 Chairman of the
Executive Committee and
Chairman of the Board
of Security Life of
Denver Insurance
Company; Director of
ING American Holdings
Company and First ING
Life Insurance Company
of New York.
Victor L. Andrews, Ph.D.(4)(6)(10) Director Professor Emeritus,
34 Seawatch Drive Chairman Emeritus and
Savannah, Georgia Chairman of the CFO
Age: 70 Roundtable of the
Department of Finance
of Georgia State
University; President,
Andrews Financial
Associates, Inc.
(consulting firm);
Director of The
Sheffield Funds, Inc.;
formerly, member of the
faculties of the
Harvard Business School
and the Sloan School of
Management of MIT.
Bob R. Baker (2)(4)(5)(9) Director Consultant (since
37 Castle Pines Dr., N. 2000); formerly,
Castle Rock, Colorado President and Chief
Age: 64 Executive Officer (1989
to 2000) of AMC Cancer
Research Center,
Denver, Colorado; until
mid-December 1988, Vice
Chairman of the Board
of First Columbia
Financial Corporation,
Englewood, Colorado;
formerly, Chairman of
the Board and Chief
Executive Officer of
First Columbia
Financial Corporation.
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Charles W. Brady(3)(10) Director Chief Executive Officer
1315 Peachtree St., N.E. and Chairman of
Atlanta, Georgia AMVESCAP PLC, London,
Age: 65 England and various
subsidiaries of
AMVESCAP PLC; Trustee
of INVESCO Global
Health Sciences Fund.
Lawrence H. Budner (1)(5)(10) Director Trust Consultant; prior
7608 Glen Albens Circle to June 30, 1987,
Dallas, Texas Senior Vice President
Age: 70 and Senior Trust
Officer of InterFirst
Bank, Dallas, Texas.
James T. Bunch(4)(5)(9) Director Principal and Founder
3600 Republic Plaza of Green Manning &
370 Seventeenth Street Bunch Ltd., Denver,
Denver, Colorado Colorado, since August
Age: 58 1988; Director and
Secretary of Green
Manning & Bunch
Securities, Inc.,
Denver, Colorado since
September 1993; Vice
President and Director
of Western Golf
Association and Evans
Scholars Foundation;
formerly, General
Counsel and Director of
Boettcher & Co.,
Denver, Colorado;
formerly, Chairman and
Managing Partner of
Davis Graham & Stubbs,
Denver, Colorado.
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Wendy L. Gramm, Ph.D.(4)(6)(9) Director Self-employed (since
4201 N. Yuma Street, N.W. 1993); Distinguished
Washington, D.C. Senior Fellow and
Age: 55 Director, Regulatory
Studies Program,
Mercatus Center George
Mason University, VA;
formerly, Chairman,
Commodity Futures
Trading Commission;
Administrator for
Information and
Regulatory Affairs at
the Office of
Management and Budget.
Also, Director of Enron
Corporation, IBP, Inc.,
State Farm Insurance
Company, International
Republic Institute, and
the Texas Public Policy
Foundation; formerly,
Director of the Chicago
Mercantile Exchange
(1994 to 1999), Kinetic
Concepts, Inc. (1996 to
1997), and the
Independent Women's
Forum (1994 to 1999).
Richard W. Healey(3) Director Director and Senior
7800 E. Union Avenue Vice President of
Denver, Colorado INVESCO Funds Group,
Age: 46 Inc.; Director and
Senior Vice President
of INVESCO
Distributors, Inc.;
formerly, Senior Vice
President of GT
Global-North America
(1996 to 1998) and The
Boston Company (1993 to
1996).
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Gerald J. Lewis(1)(6)(7) Director Chairman of Lawsuit
701 "B" Street Resolution Services,
Suite 2100 San Diego, California
San Diego, California since 1987; Director of
Age: 67 General Chemical Group,
Inc., Hampdon, New
Hampshire, since 1996;
formerly, Associate
Justice of the
California Court of
Appeals; Director of
Wheelabrator
Technologies, Inc.,
Fisher Scientific,
Inc., Henley
Manufacturing, Inc.,
and California Coastal
Properties, Inc.; Of
Counsel, Latham &
Watkins, San Diego,
California (1987 to
1997).
John W. McIntyre (1)(2)(5)(7) Director Retired. Formerly, Vice
7 Piedmont Center Chairman of the Board
Suite 100 of Directors of The
Atlanta, Georgia Citizens and Southern
Age: 70 Corporation and
Chairman of the Board
and Chief Executive
Officer of The Citizens
and Southern Georgia
Corp. and The Citizens
and Southern National
Bank; Trustee of
INVESCO Global Health
Sciences Fund, Gables
Residential Trust,
Employee's Retirement
System of GA, Emory
University, and J.M.
Tull Charitable
Foundation; Director of
Kaiser Foundation
Health Plans of
Georgia, Inc.
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Larry Soll, Ph.D.(4)(6)(9)(10) Director Retired. Formerly,
2358 Sunshine Canyon Drive Chairman of the Board
Boulder, Colorado (1987 to 1994), Chief
Age: 58 Executive Officer (1982
to 1989 and 1993 to
1994) and President
(1982 to 1989) of
Synergen Inc.; Director
of Synergen since
incorporation in 1982;
Director of Isis
Pharmaceuticals, Inc.;
Trustee of INVESCO
Global Health Sciences
Fund.
Glen A. Payne Secretary Senior Vice President,
7800 E. Union Avenue General Counsel and
Denver, Colorado Secretary of INVESCO
Age: 53 Funds Group, Inc.;
Senior Vice President,
Secretary and General
Counsel of INVESCO
Distributors, Inc.;
Secretary of INVESCO
Global Health Sciences
Fund; formerly, General
Counsel of INVESCO
Trust Company (1989
to1998) and employee of
a U.S. regulatory
agency, Washington,
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Ronald L. Grooms Chief Accounting Senior Vice President,
7800 E. Union Avenue Officer, Chief Treasurer and Director
Denver, Colorado Financial Officer of INVESCO Funds Group,
Age: 54 and Treasurer Inc.; Senior Vice
President, Treasurer
and Director of INVESCO
Distributors, Inc.;
Treasurer and Principal
Financial and
Accounting Officer of
INVESCO Global Health
Sciences Fund;
formerly, Senior Vice
President and Treasurer
of INVESCO Trust
Company (1988 to 1998).
William J. Galvin, Jr. Assistant Senior Vice President,
7800 E. Union Avenue Secretary Assistant Secretary and
Denver, Colorado Director of INVESCO
Age: 44 Funds Group, Inc.;
Senior Vice President,
Assistant Secretary and
Director of INVESCO
Distributors, Inc.;
formerly, Trust Officer
of INVESCO Trust
Company (1995 to 1998).
Pamela J. Piro Assistant Vice President and
7800 E. Union Avenue Treasurer Assistant Treasurer of
Denver, Colorado INVESCO Funds Group,
Age: 40 Inc.; Assistant
Treasurer of INVESCO
Distributors, Inc.;
formerly, Assistant
Vice President (1996 to
1997), Director -
Portfolio Accounting
(1994 to 1996),
Portfolio Account ing
Manager (1993 to 1994)
and Assistant
Accounting Manager
(1990 to 1993).
<PAGE>
Position(s) Held Principal Occupation(s)
Name, Address, and Age With Company During Past Five Years
Alan I. Watson Assistant Vice President of
7800 E. Union Avenue Secretary INVESCO Funds Group,
Denver, Colorado Inc.; formerly, Trust
Age: 59 Officer of INVESCO
Trust Company.
Judy P. Wiese Assistant Vice President and
7800 E. Union Avenue Secretary Assistant Secretary of
Denver, Colorado INVESCO Funds Group,
Age: 52 Inc.; Assistant
Secretary of INVESCO
Distributors, Inc.;
formerly, Trust Officer
of INVESCO Trust
Company.
(1) Member of the audit committee of the Company.
(2) Member of the executive committee of the Company. On occasion, the
executive committee acts upon the current and ordinary business of the Company
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
(3) These directors are "interested persons" of the Company as defined in the
1940 Act.
(4) Member of the management liaison committee of the Company.
(5) Member of the brokerage committee of the Company.
(6) Member of the derivatives committee of the Company.
(7) Member of the legal committee of the Company.
(8) Member of the insurance committee of the Company.
(9) Member of the nominating committee of the Company.
(10) Member of the compensation committee of the Company.
The following table shows the compensation paid by the Company to its
Independent Directors for services rendered in their capacities as directors of
the Company; the benefits accrued as Company expenses with respect to the
Defined Benefit Deferred Compensation Plan discussed below; and the estimated
<PAGE>
annual benefits to be received by these directors upon retirement as a result of
their service to the Company, all for the fiscal year ended August 31, 2000.
In addition, the table sets forth the total compensation paid by all of the
INVESCO Funds and INVESCO Global Health Sciences Fund (collectively, the
"INVESCO Complex") to these directors or trustees for services rendered in their
capacities as directors or trustees during the year ended December 31, 1999. As
of December 31, 1999, there were 45 funds in the INVESCO Complex.
--------------------------------------------------------------------------------
Name of Person Aggregate Benefits Estimated Total
and Compensation Accrued As Annual Compensation
Position From Part of Benefits From INVESCO
Company(1) Company Upon Complex
Expenses(2) Retirement(3) Paid To
Directors(7)
--------------------------------------------------------------------------------
Fred A. Deering,
Vice Chairman of
the Board $6,209 $4,395 $2,145 $107,050
--------------------------------------------------------------------------------
Victor L. Andrews 6,101 4,210 2,483 84,700
--------------------------------------------------------------------------------
Bob R. Baker 6,074 3,759 3,328 82,850
--------------------------------------------------------------------------------
Lawrence H. Budner 6,055 4,210 2,483 82,850
--------------------------------------------------------------------------------
James T. Bunch(4) 4,185 0 0 0
--------------------------------------------------------------------------------
Daniel D. Chabris(5) 2,768 4,196 2,043 34,000
--------------------------------------------------------------------------------
Wendy L. Gramm 5,930 0 0 81,350
--------------------------------------------------------------------------------
Kenneth T. King(5) 5,986 4,448 2,043 85,850
--------------------------------------------------------------------------------
Gerald J. Lewis(4) 4,197 0 0 0
--------------------------------------------------------------------------------
John W. McIntyre 6,173 1,160 2,483 108,700
--------------------------------------------------------------------------------
Larry Soll 6,023 0 0 100,900
--------------------------------------------------------------------------------
Total $59,701 $26,378 $17,008 $768,250
--------------------------------------------------------------------------------
% of Net Assets 0.0037%(6) 0.0016%(6) 0.0024%(7)
--------------------------------------------------------------------------------
(1) The vice chairman of the board, the chairs of the Funds' committees who
are Independent Directors, and the members of the Funds' committees who are
Independent Directors, each receive compensation for serving in such capacities
in addition to the compensation paid to all Independent Directors.
(2) Represents estimated benefits accrued with respect to the Defined
Benefit Deferred Compensation Plan discussed below, and not compensation
deferred at the election of the directors.
<PAGE>
(3) These amounts represent the Company's share of the estimated annual
benefits payable by the INVESCO Funds upon the directors' retirement, calculated
using the current method of allocating director compensation among the INVESCO
Funds. These estimated benefits assume retirement at age 72. With the exception
of Drs. Soll and Gramm and Messrs. Bunch and Lewis, each of these directors has
served as a director of one or more of the funds in the INVESCO Funds for the
minimum five-year period required to be eligible to participate in the Defined
Benefit Deferred Compensation Plan. Mr. McIntyre became eligible to participate
in the Defined Benefit Deferred Compensation Plan as of November 1, 1998 and was
not included in the calculation of retirement benefits until November 1, 1999.
(4) Messrs. Bunch and Lewis became directors of the Company on
January 1, 2000.
(5) Mr. Chabris retired as a director of the Company on September 30, 1998.
Mr. King retired as a director of the Company on December 31, 1999.
(6) Total as a percentage of the Company's net assets as of August 31, 2000.
(7) Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1999.
Messrs. Brady, Healey and Williamson, as "interested persons" of the Company and
the other INVESCO Funds, receive compensation as officers or employees of
INVESCO or its affiliated companies, and do not receive any director's fees or
other compensation from the Company or the other funds in the INVESCO Funds for
their service as directors.
The boards of directors of the mutual funds in the INVESCO Funds have adopted a
Defined Benefit Deferred Compensation Plan (the "Plan") for the Independent
Directors of the funds. Under this Plan, each director who is not an interested
person of the funds (as defined in Section 2(a)(19) of the 1940 Act) and who has
served for at least five years (a "Qualified Director") is entitled to receive,
if the Qualified Director retires upon reaching age 72 (or the retirement age of
73 or 74, if the retirement date is extended by the boards for one or two years,
but less than three years), payment of a basic benefit for one year (the "First
Year Retirement Benefit"). Commencing with any such director's second year of
retirement, commencing with the first year of retirement of any Qualified
Director whose retirement has been extended by the boards for three years, and
commencing with attainment of age 72 by a Qualified Director who voluntarily
retires prior to reaching age 72, a Qualified Director shall receive quarterly
payments at an annual rate equal to 50% of the First Year Retirement Benefit.
These payments will continue for the remainder of the Qualified Director's life
or ten years, whichever is longer (the "Reduced Benefit Payments"). If a
Qualified Director dies or becomes disabled after age 72 and before age 74 while
still a director of the funds, the First Year Retirement Benefit and Reduced
Benefit Payments will be made to him/her or to his/her beneficiary or estate. If
a Qualified Director becomes disabled or dies either prior to age 72 or during
his/her 74th year while still a director of the funds, the director will not be
entitled to receive the First Year Retirement Benefit; however, the Reduced
Benefit Payments will be made to him/her or to his/her beneficiary or estate.
The Plan is administered by a committee of three directors who are also
participants in the Plan and one director who is not a Plan participant. The
<PAGE>
cost of the Plan will be allocated among the INVESCO Funds in a manner
determined to be fair and equitable by the committee. The Company began making
payments under the Plan to Mr. Chabris as of October 1, 1998 and to Mr. King as
of January 1, 2000. The Company has no stock options or other pension or
retirement plans for management or other personnel and pays no salary or
compensation to any of its officers. A similar plan has been adopted by INVESCO
Global Health Sciences Fund's board of trustees. All trustees of INVESCO Global
Health Sciences Fund are also directors of the INVESCO Funds.
The Independent Directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of certain of the INVESCO
Funds. Certain of the deferred amounts have been invested in the shares of all
INVESCO Funds, except Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally precluded from investing. Each Independent
Director may, therefore, be deemed to have an indirect interest in shares of
each such INVESCO Fund, in addition to any INVESCO Fund shares the Independent
Director may own either directly or beneficially. Each of the Independent
Directors has agreed to invest a minimum of $100,000 of his or her own resources
in shares of the INVESCO Funds. Compensation contributed to a deferred
compensation plan may constitute all or a portion of this $100,000 commitment.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of November 30, 2000, the following persons owned more than 5% of the
outstanding shares of the Funds indicated below. This level of share ownership
is considered to be a "principal shareholder" relationship with a Fund under the
1940 Act. Shares that are owned "of record" are held in the name of the person
indicated. Shares that are owned "beneficially" are held in another name, but
the owner has the full economic benefit of ownership of those shares:
INVESTOR CLASS
High Yield Fund
--------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Charles Schwab & Co. Inc. Record 52.01%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Nat'l Financial Services Corp Record 7.90%
The Exclusive Benefit of Cust
One World Financial Center
200 Liberty Street, 5th Floor
Attn: Kate Recon
New York, NY 10281-1003
--------------------------------------------------------------------------------
Select Income Fund
--------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Charles Schwab & Co. Inc. Record 20.68%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------
Nat'l Financial Services Corp Record 6.25%
The Exclusive Benefit of Cust
One World Financial Center
200 Liberty Street, 5th Floor
Attn: Kate Recon
New York, NY 10281-1003
--------------------------------------------------------------------------------
Prudential Securities Inc. Record 5.28%
Acct 910-4U4559-000
Attn: Mutual Funds
1 New York Plaza
New York, NY 10004-1901
--------------------------------------------------------------------------------
<PAGE>
Tax-Free Bond Fund
--------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Charles Schwab & Co. Inc. Record 5.24%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------
U.S. Government Securities Fund
--------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Charles Schwab & Co. Inc. Record 19.15%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------
<PAGE>
CLASS C
High Yield Bond Fund
--------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
None
--------------------------------------------------------------------------------
Select Income Fund
--------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Donaldson Lufkin Jenrette Record 28.01%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
--------------------------------------------------------------------------------
Dain Rauscher Custodian Beneficial 8.18%
Don M. Mayer
A/C #5451-5328
Segregated Rollover/IRA
12315 Broken Arrow
Houston, TX 77024-4962
--------------------------------------------------------------------------------
Donaldson Lufkin Jenrette Record 8.15%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
--------------------------------------------------------------------------------
Dain Rauscher Custodian Beneficial 8.11%
Theo Blue
A/C #1635-0397
Individual Retirement Account
919 Long Reach
Tiki Island, TX 77554-2846
--------------------------------------------------------------------------------
Carl Tesitor Beneficial 5.37%
Elsie M. Tesitor JT WROS
- Tod on File
421 Pinon St.
Walsenburg, CO 81089-1327
--------------------------------------------------------------------------------
Tax-Free Bond Fund
--------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Sharon Robinson Record 57.96%
STD Profit Sharing Plan
2200 W. McGalliard Rd
Nuncie, IN 47304-2188
--------------------------------------------------------------------------------
Michelle Greer Record 41.85%
8516 W. Lake Mead Blvd, #150
Las Vegas, NV 89128-7936
--------------------------------------------------------------------------------
<PAGE>
U.S. Government Securities Fund
--------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Kenneth J. Widder TR Beneficial 19.92%
Widder/Johnson 1997
Charitable Remainder Uni Trust
UDT 01/22/97
P.O. Box 3644
Rancho Santa Fe, CA 92067-3644
--------------------------------------------------------------------------------
Deseret Captial Record 16.08%
A Partnership
8516 W. Lake Mead Blvd, Ste 123
Las Vegas, NV 89128-7636
--------------------------------------------------------------------------------
INVESCO Trust Co Cust IRA Beneficial 15.37%
Lawrence A. Lang #2
3124 W. Torquay Rd
Muncie, IN 47304-3233
--------------------------------------------------------------------------------
NFSC FEBO # STL - 890430 Beneficial 11.31%
NFSC/FMTC IRA
FBO Charles G. Allen
2811 NE 96th St
Ankeny, IA 50021
--------------------------------------------------------------------------------
INVESCO Trust Co Cust Beneficial 8.30%
Bobby R. Derryberry
Southwest Baptist University
403B Plan Employee Match
341 S. Chicago Pl
Bolivar, MO 65613-2021
--------------------------------------------------------------------------------
Coleman M. Absher Record 7.16%
Mizner on the Green
270 SE Mizner Blvd, Apt 712
Boca Raton, FL 33432-5087
--------------------------------------------------------------------------------
Irene-Eva Absher Record 5.10%
Mizner on the Green
270 SE Mizner Blvd, Apt 712
Boca Raton, FL 33432-5087
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As of November 20, 2000, officers and directors of the Company, as a group,
beneficially owned less than 1% of any Fund's outstanding shares.
DISTRIBUTOR
INVESCO Distributors, Inc. ("IDI"), a wholly owned subsidiary of INVESCO, is the
distributor of the Funds. IDI bears all expenses, including the cost of printing
and distributing prospectuses, incident to marketing of the Funds' shares,
<PAGE>
except for such distribution expenses as are paid out of Fund assets under the
Company's Plans of Distribution (collectively, the "Plans"), which have been
adopted by each Fund pursuant to Rule 12b-1 under the 1940 Act.
INVESTOR CLASS. The Company has adopted a Plan and Agreement of Distribution -
Investor Class (the "Investor Class Plan") with respect to Investor Class
shares, which provides that the Investor Class shares of each Fund will make
monthly payments to IDI computed at an annual rate no greater than 0.25% of
average net assets attributable to Investor Class shares. These payments permit
IDI, at its discretion, to engage in certain activities and provide services in
connection with the distribution of a Fund's Investor Class shares to investors.
Payments by a Fund under the Investor Class Plan, for any month, may be made to
compensate IDI for permissible activities engaged in and services provided.
CLASS C. The Company has adopted a Master Distribution Plan and Agreement -
Class C pursuant to Rule 12b-1 under the 1940 Act relating to the Class C shares
of the Funds (the "Class C Plan"). Under the Class C Plan, Class C shares of the
Funds pay compensation to IDI at an annual rate of 1.00% per annum of the
average daily net assets attributable to Class C shares for the purpose of
financing any activity which is primarily intended to result in the sale of
Class C shares. The Class C Plan is designed to compensate IDI for certain
promotional and other sales-related costs, and to implement a dealer incentive
program which provides for periodic payments to selected dealers who furnish
continuing personal shareholder services to their customers who purchase and own
Class C shares of a Fund. Payments can also be directed by IDI to selected
institutions that have entered into service agreements with respect to Class C
shares of each Fund and that provide continuing personal services to their
customers who own such Class C shares of a Fund.
Of the aggregate amount payable under the Class C Plan, payments to dealers and
other financial institutions that provide continuing personal shareholder
services to their customers who purchase and own Class C shares of a Fund, in
amounts of up to 0.25% of the average daily net assets of the Class C shares of
the Fund attributable to the customers of such dealers or financial institutions
are characterized as a service fee. Payments to dealers and other financial
institutions in excess of such amount and payments to IDI would be characterized
as an asset-based sales charge pursuant to the Class C Plan. The Class C Plan
also imposes a cap on the total amount of sales charges, including asset-based
sales charges, that may be paid by the Company with respect to the Class C
shares of a Fund.
CLASS K (High Yield and Select Income Funds). The Company has adopted a Plan and
Agreement of Distributions - Class K pursuant to Rule 12b-1 under the 1940 Act
relating to Class K shares (the "Class K Plan"). Under the Class K Plan, Class K
shares of the Funds pay compensation to IDI at an annual rate of 0.45% of
average net assets attributable to Class K shares for the purpose of financing
any activity which is primarily intended to result in the sale of Class K
shares. The Class K Plan is designed to compensate IDI for certain promotional
and other sales-related costs, and to implement a dealer incentive program which
provides for periodic payments to selected dealers who furnish continuing
personal shareholder services to their customers who purchase and own Class K
shares of a Fund. Payments can also be directed by IDI to selected institutions
that have entered into service agreements with respect to Class K shares of each
<PAGE>
Fund and that provide continuing personal services to their customers who own
such Class K shares of a Fund.
Of the aggregate amount payable under the Class K Plan, payments to dealers and
other financial institutions that provide continuing personal shareholder
services to their customers who purchase and own Class K shares of a Fund may be
characterized as a service fee.
ALL PLANS. Activities appropriate for financing under the Plans include, but are
not limited to, the following: printing of prospectuses and statements of
additional information and reports for other than existing shareholders;
preparation and distribution of advertising material and sales literature;
expenses of organizing and conducting sales seminars; and supplemental payments
to dealers and other institutions such as asset-based sales charges or as
payments of service fees under shareholder service arrangements.
A significant expenditure under the Plans is compensation paid to securities
companies and other financial institutions and organizations, which may include
INVESCO-affiliated companies, in order to obtain various distribution-related
and/or administrative services for the Funds. Each Fund is authorized by a Plan
to use its assets to finance the payments made to obtain those services from
selected securities companies and other financial institutions and organizations
which may enter into agreements with IDI. Payments will be made by IDI to
broker-dealers who sell shares of a Fund and may be made to banks, savings and
loan associations and other depository institutions. Although the Glass-Steagall
Act limits the ability of certain banks to act as underwriters of mutual fund
shares, INVESCO does not believe that these limitations would affect the ability
of such banks to enter into arrangements with IDI, but can give no assurance in
this regard. However, to the extent it is determined otherwise in the future,
arrangements with banks might have to be modified or terminated, and, in that
case, the size of the Funds possibly could decrease to the extent that the banks
would no longer invest customer assets in the Funds. Neither the Company nor its
investment adviser will give any preference to banks or other depository
institutions which enter into such arrangements when selecting investments to be
made by a Fund. Financial institutions and any other person entitled to receive
compensation for selling Fund shares may receive different compensation for
selling shares of one particular class instead of another.
The Funds made payments to IDI under the Investor Class Plan during the fiscal
year ended August 31, 2000, in the amounts of $1,881,520, $1,350,818, $444,966
and $189,618 for High Yield Fund - Investor Class, Select Income Fund - Investor
Class, Tax-Free Bond Fund - Investor Class, and U.S. Government Securities Fund
- Investor Class, respectively. In addition, as of August 31, 2000, $164,327,
$120,454, $37,554 and $15,705 of additional distribution accruals had been
incurred by High Yield Fund - Investor Class, Select Income Fund - Investor
Class, Tax-Free Bond Fund - Investor Class and U.S. Government Securities Fund -
Investor Class, respectively, and will be paid during the fiscal year ended
August 31, 2001.
The Funds made payments to IDI under the Class C Plan during the period February
15, 2000 through August 31, 2000 in the amounts of $10,421, $444, $5, and $98
for High Yield Fund - Class C, Select Income Fund - Class C, Tax-Free Bond Fund
- Class C and U.S. Government Securities Fund - Class C, respectively. In
addition, as of August 31, 2000, $3,726, $312, $1, and $91 of additional
<PAGE>
distribution accruals had been incurred by High Yield Fund - Class C, Select
Income Fund - Class C, Tax-Free Bond Fund - Class C and U.S. Government
Securities Fund - Class C, respectively, and will be paid during the fiscal year
ended August 31, 2001.
Since High Yield and Select Income Funds' Class K shares were not offered until
December 15, 2000, those shares made no payments to IDI under the Class K Plan
during the fiscal year ended August 31, 2000.
For the fiscal year ended August 31, 2000, allocation of 12b-1 amounts paid by
the Funds for the following categories of expenses were:
INVESTOR CLASS
HIGH YIELD FUND
Advertising $299,655
Sales literature, printing, and postage $175,885
Direct mail $ 20,632
Public relations/promotion $104,030
Compensation to securities dealers and other organizations $986,287
Marketing personnel $295,031
SELECT INCOME FUND
Advertising $203,105
Sales literature, printing, and postage $100,077
Direct mail $ 25,731
Public relations/promotion $ 66,696
Compensation to securities dealers and other organizations $754,328
Marketing personnel $200,881
TAX-FREE BOND FUND
Advertising $127,936
Sales literature, printing, and postage $ 69,252
Direct mail $ 6,922
Public relations/promotion $ 42,680
Compensation to securities dealers and other organizations $ 68,845
Marketing personnel $129,331
U.S. GOVERNMENT SECURITIES FUND
Advertising $ 32,080
Sales literature, printing, and postage $ 14,880
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Direct mail $ 2,229
Public relations/promotion $ 10,626
Compensation to securities dealers and other organizations $ 97,599
Marketing personnel $ 32,204
CLASS C(1)
HIGH YIELD FUND
Advertising $ 0
Sales literature, printing, and postage $ 0
Direct mail $ 0
Public relations/promotion $ 0
Compensation to securities dealers and other organizations $ 10,421
Marketing personnel $ 0
SELECT INCOME FUND
Advertising $ 0
Sales literature, printing, and postage $ 0
Direct mail $ 0
Public relations/promotion $ 0
Compensation to securities dealers and other organizations $ 444
Marketing personnel $ 0
TAX-FREE BOND FUND
Advertising $ 0
Sales literature, printing, and postage $ 0
Direct mail $ 0
Public relations/promotion $ 0
Compensation to securities dealers and other organizations $ 5
Marketing personnel $ 0
U.S. GOVERNMENT SECURITIES FUND
Advertising $ 0
Sales literature, printing, and postage $ 0
Direct mail $ 0
Public relations/promotion $ 0
Compensation to securities dealers and other organizations $ 98
Marketing personnel $ 0
(1) Class C shares were not offered until February 15, 2000.
<PAGE>
The services which are provided by securities dealers and other organizations
may vary by dealer but include, among other things, processing new shareholder
account applications, preparing and transmitting to the Company's Transfer Agent
computer-processable tapes of all Fund transactions by customers, serving as the
primary source of information to customers in answering questions concerning the
Funds, and assisting in other customer transactions with the Funds.
The Plans provide that they shall continue in effect with respect to each Fund
as long as such continuance is approved at least annually by the vote of the
board of directors of the Company cast in person at a meeting called for the
purpose of voting on such continuance, including the vote of a majority of the
Independent Directors. A Plan can be terminated at any time by a Fund, without
penalty, if a majority of the Independent Directors, or shareholders of the
relevant class of shares of the Fund, vote to terminate a Plan. The Company may,
in its absolute discretion, suspend, discontinue or limit the offering of its
shares at any time. In determining whether any such action should be taken, the
board of directors intends to consider all relevant factors including, without
limitation, the size of a Fund, the investment climate for a Fund, general
market conditions, and the volume of sales and redemptions of a Fund's shares.
The Plans may continue in effect and payments may be made under a Plan following
any temporary suspension or limitation of the offering of Fund shares; however,
the Company is not contractually obligated to continue a Plan for any particular
period of time. Suspension of the offering of a Fund's shares would not, of
course, affect a shareholder's ability to redeem his or her shares.
So long as the Plans are in effect, the selection and nomination of persons to
serve as Independent Directors of the Company shall be committed to the
Independent Directors then in office at the time of such selection or
nomination. The Plans may not be amended to increase the amount of a Fund's
payments under a Plan without approval of the shareholders of that Fund's
respective class of shares, and all material amendments to a Plan must be
approved by the board of directors of the Company, including a majority of the
Independent Directors. Under the agreement implementing the Plans, IDI or a
Fund, the latter by vote of a majority of the Independent Directors, or a
majority of the holders of the relevant class of a Fund's outstanding voting
securities, may terminate such agreement without penalty upon 30 days' written
notice to the other party. No further payments will be made by a Fund under a
Plan in the event of its termination.
To the extent that a Plan constitutes a plan of distribution adopted pursuant to
Rule 12b-1 under the 1940 Act, it shall remain in effect as such, so as to
authorize the use of Fund assets in the amounts and for the purposes set forth
therein, notwithstanding the occurrence of an assignment, as defined by the 1940
Act, and rules thereunder. To the extent it constitutes an agreement pursuant to
a plan, a Fund's obligation to make payments to IDI shall terminate
automatically, in the event of such "assignment." In this event, a Fund may
continue to make payments pursuant to a Plan only upon the approval of new
arrangements regarding the use of the amounts authorized to be paid by a Fund
under a Plan. Such new arrangements must be approved by the directors, including
a majority of the Independent Directors, by a vote cast in person at a meeting
called for such purpose. These new arrangements might or might not be with IDI.
On a quarterly basis, the directors review information about the distribution
services that have been provided to each Fund and the 12b-1 fees paid for such
services. On an annual basis, the directors consider whether a Plan should be
continued and, if so, whether any amendment to a Plan, including changes in the
amount of 12b-1 fees paid by each class of a Fund, should be made.
<PAGE>
The only Company directors and interested persons, as that term is defined in
Section 2(a)(19) of the 1940 Act, who have a direct or indirect financial
interest in the operation of the Plans are the officers and directors of the
Company who are also officers either of IDI or other companies affiliated with
IDI. The benefits which the Company believes will be reasonably likely to flow
to a Fund and its shareholders under the Plans include the following:
o Enhanced marketing efforts, if successful, should result in an increase
in net assets through the sale of additional shares and afford greater
resources with which to pursue the investment objectives of the Funds;
o The sale of additional shares reduces the likelihood that redemption of
shares will require the liquidation of securities of the Funds in amounts
and at times that are disadvantageous for investment purposes; and
o Increased Fund assets may result in reducing each investor's share of
certain expenses through economies of scale (e.g. exceeding established
breakpoints in an advisory fee schedule and allocating fixed expenses
over a larger asset base), thereby partially offsetting the costs of a
Plan.
The positive effect which increased Fund assets will have on INVESCO's revenues
could allow INVESCO and its affiliated companies:
o To have greater resources to make the financial commitments necessary to
improve the quality and level of the Funds' shareholder services (in both
systems and personnel);
o To increase the number and type of mutual funds available to investors
from INVESCO and its affiliated companies (and support them in their
infancy), and thereby expand the investment choices available to all
shareholders; and
o To acquire and retain talented employees who desire to be associated with
a growing organization.
DEALER CONCESSIONS
IDI may pay sales commissions to dealers and institutions that sell Class C
shares of the Funds at the time of such sales. Payments with respect to Class C
shares will equal 1.00% of the purchase price of the Class C shares sold by the
dealer or institution, and will consist of a sales commission of 0.75% of the
purchase price of the Class C shares sold plus an advance of the first year
service fee of 0.25% with respect to such shares. IDI will retain all payments
received by it relating to Class C shares for the first year after they are
purchased. The portion of the payments to IDI under the Class C Plan which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
IDI to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, IDI will make such payments quarterly
to dealers and institutions based on the average net asset value of Class C
shares which are attributable to shareholders for whom the dealers and
institutions are designated as dealers of record. These commissions are not paid
on sales to investors who may not pay the CDSC and in circumstances where IDI
<PAGE>
grants an exemption on particular transactions.
IDI may pay sales commissions to dealers and institutions that sell Class K
shares of the Funds at the time of such sales. Payments with respect to Class K
shares will equal 0.45% of the purchase price of the Class K shares sold by the
dealer or institution.
OTHER SERVICE PROVIDERS
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1670 Broadway, Suite 1000, Denver, Colorado, are the
independent accountants of the Company. The independent accountants are
responsible for auditing the financial statements of the Funds.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts, is the
custodian of the cash and investment securities of the Company. The custodian is
also responsible for, among other things, receipt and delivery of each Fund's
investment securities in accordance with procedures and conditions specified in
the custody agreement with the Company. The custodian is authorized to establish
separate accounts in foreign countries and to cause foreign securities owned by
the Funds to be held outside the United States in branches of U.S. banks and, to
the extent permitted by applicable regulations, in certain foreign banks and
securities depositories.
TRANSFER AGENT
INVESCO, 7800 E. Union Avenue, Denver, Colorado, is the Company's transfer
agent, registrar, and dividend disbursing agent. Services provided by INVESCO
include the issuance, cancellation and transfer of shares of the Funds, and the
maintenance of records regarding the ownership of such shares.
LEGAL COUNSEL
The firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., 2nd
Floor, Washington, D.C., is legal counsel for the Company. The firm of Moye,
Giles, O'Keefe, Vermeire & Gorrell LLP, 1225 17th Street, Suite 2900, Denver,
Colorado, acts as special counsel to the Company.
BROKERAGE ALLOCATION AND OTHER PRACTICES
As the investment adviser to the Funds, INVESCO places orders for the purchase
and sale of securities with broker-dealers based upon an evaluation of the
financial responsibility of the broker-dealers and the ability of the
broker-dealers to effect transactions at the best available prices.
While INVESCO seeks reasonably competitive commission rates, the Funds do not
necessarily pay the lowest commission or spread available. INVESCO is permitted
to, and does, consider qualitative factors in addition to price in the selection
of brokers. Among other things, INVESCO considers the quality of executions
<PAGE>
obtained on a Fund's portfolio transactions, viewed in terms of the size of
transactions, prevailing market conditions in the security purchased or sold,
and general economic and market conditions. INVESCO has found that a broker's
consistent ability to execute transactions is at least as important as the price
the broker charges for those services.
In seeking to ensure that the commissions charged a Fund are consistent with
prevailing and reasonable commissions, INVESCO monitors brokerage industry
practices and commissions charged by broker-dealers on transactions effected for
other institutional investors like the Funds.
Consistent with the standard of seeking to obtain favorable execution on
portfolio transactions, INVESCO may select brokers that provide research
services to INVESCO and the Company, as well as other INVESCO mutual funds and
other accounts managed by INVESCO. Research services include statistical and
analytical reports relating to issuers, industries, securities and economic
factors and trends, which may be of assistance or value to INVESCO in making
informed investment decisions. Research services prepared and furnished by
brokers through which a Fund effects securities transactions may be used by
INVESCO in servicing all of its accounts and not all such services may be used
by INVESCO in connection with a particular Fund. Conversely, a Fund receives
benefits of research acquired through the brokerage transactions of other
clients of INVESCO.
In order to obtain reliable trade execution and research services, INVESCO may
utilize brokers that charge higher commissions than other brokers would charge
for the same transaction. This practice is known as "paying up." However, even
when paying up, INVESCO is obligated to obtain favorable execution of a Fund's
transactions.
Portfolio transactions also may be effected through broker-dealers that
recommend the Funds to their clients, or that act as agent in the purchase of a
Fund's shares for their clients. When a number of broker-dealers can provide
comparable best price and execution on a particular transaction, INVESCO may
consider the sale of a Fund's shares by a broker-dealer in selecting among
qualified broker-dealers.
Certain of the INVESCO Funds utilize fund brokerage commissions to pay custody
fees for each respective fund. This program requires that the participating
funds receive favorable execution.
The aggregate dollar amount of brokerage commissions and underwriting discounts
paid by each Fund for the periods outlined in the table below were:
High Yield Fund
Year Ended August 31, 2000 $ 555,962
Year Ended August 31, 1999 1,665,183
Year Ended August 31, 1998 3,324,014
Select Income Fund
Year Ended August 31, 2000 $ 402,166
Year Ended August 31, 1999 553,125
Year Ended August 31, 1998 686,913
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Tax-Free Bond Fund
Year Ended August 31, 2000 $ 0
Period ended August 31, 1999(1) 0
Year Ended June 30, 1999 0
Year Ended June 30, 1998 623,244
U.S. Government Securities Fund
Year Ended August 31, 2000 $ 0
Year Ended August 31, 1999 0
Year Ended August 31, 1998 0
(1) For the period July 1, 1999 through August 31, 1999.
For the fiscal year ended August 31, 2000 brokers providing research services
received $98,139 in commissions on portfolio transactions effected for the
Funds. The aggregate dollar amount of such portfolio transactions was
$64,729,441. Commissions totaling $0 were allocated to certain brokers in
recognition of their sales of shares of the Funds on portfolio transactions of
the Funds effected during the year ended August 31, 2000.
At August 31, 2000, each Fund held debt and equity securities of its regular
brokers or dealers, or their parents, as follows:
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Fund Broker or Dealer Value of Securities
at August 31, 2000
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High Yield Associates First Capital $16,000,000
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State Street Bank and Trust 584,000
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Select Income Associates First Capital $14,000,000
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State Street Bank and Trust 761,000
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MSDW Municipal Income Trust III 429,000
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MSDW Municipal Income Trust II 419,000
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MSDW Municipal Income Trust I 54,000
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Tax-Free Bond None
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Fund Broker or Dealer Value of Securities
at August 31, 2000
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U.S. Government
Securities None
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Neither INVESCO nor any affiliate of INVESCO receives any brokerage commissions
on portfolio transactions effected on behalf of the Funds, and there is no
affiliation between INVESCO or any person affiliated with INVESCO or the Funds
and any broker-dealer that executes transactions for the Funds.
CAPITAL STOCK
The Company is authorized to issue up to three billion shares of common stock
with a par value of $0.01 per share. As of November 30, 2000, the following
shares of each Fund were outstanding:
High Yield Fund - Investor Class 130,562,230
High Yield Fund - Class C 1,069,932
High Yield Fund - Class K 0
Select Income Fund - Investor Class 95,298,368
Select Income Fund - Class C 105,569
Select Income Fund - Class K 0
Tax-Free Bond Fund - Investor Class 11,608,785
Tax-Free Bond Fund - Class C 22,506
U.S. Government Securities Fund - Investor Class 13,495,459
U.S. Government Securities Fund - Class C 108,853
A share of each class of a Fund represents an identical interest in that Fund's
investment portfolio and has the same rights, privileges and preferences.
However, each class may differ with respect to sales charges, if any,
distribution and/or service fees, if any, other expenses allocable exclusively
to each class, voting rights on matters exclusively affecting that class, and
its exchange privilege, if any. The different sales charges and other expenses
applicable to the different classes of shares of the Funds will affect the
performance of those classes. Each share of a Fund is entitled to participate
equally in dividends for that class, other distributions and the proceeds of any
liquidation of a class of that Fund. However, due to the differing expenses of
the classes, dividends and liquidation proceeds on Investor Class, Class C and
Class K shares will differ. All shares of a Fund will be voted together, except
that only the shareholders of a particular class of a Fund may vote on matters
exclusively affecting that class, such as the terms of a Rule 12b-1 Plan as it
relates to the class. All shares issued and outstanding are, and all shares
offered hereby when issued will be, fully paid and nonassessable. The board of
directors has the authority to designate additional classes of common stock
without seeking the approval of shareholders and may classify and reclassify any
authorized but unissued shares.
Shares have no preemptive rights and are freely transferable on the books of
each Fund.
<PAGE>
All shares of the Company have equal voting rights based on one vote for each
share owned. The Company is not generally required and does not expect to hold
regular annual meetings of shareholders. However, when requested to do so in
writing by the holders of 10% or more of the outstanding shares of the Company
or as may be required by applicable law or the Company's Articles of
Incorporation, the board of directors will call special meetings of
shareholders.
Directors may be removed by action of the holders of a majority of the
outstanding shares of the Company. The Funds will assist shareholders in
communicating with other shareholders as required by the 1940 Act.
Fund shares have noncumulative voting rights, which means that the holders of a
majority of the shares of the Company voting for the election of directors of
the Company can elect 100% of the directors if they choose to do so. If that
occurs, the holders of the remaining shares voting for the election of directors
will not be able to elect any person or persons to the board of directors.
Directors may be removed by action of the holders of a majority of the
outstanding shares of the Company.
TAX CONSEQUENCES OF OWNING SHARES OF A FUND
Each Fund intends to continue to conduct its business and satisfy the applicable
diversification of assets, distribution and source of income requirements to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. Each Fund qualified as a regulated investment
company and intends to continue to qualify during its current fiscal year. It is
the policy of each Fund to distribute all investment company taxable income, net
tax-exempt income and net capital gains. As a result of this policy and the
Funds' qualification as regulated investment companies, it is anticipated that
none of the Funds will pay federal income or excise taxes and that all of the
Funds will be accorded conduit or "pass through" treatment for federal income
tax purposes. Therefore, any taxes that a Fund would ordinarily owe are paid by
its shareholders on a pro-rata basis. If a Fund does not distribute all of its
net investment income or net capital gains, it will be subject to income and
excise taxes on the amount that is not distributed. If a Fund does not qualify
as a regulated investment company, it will be subject to income tax on all of
its net investment income and net capital gains at the corporate tax rates.
Dividends paid by a Fund from net investment income as well as distributions of
net realized short-term capital gains and net realized gains from certain
foreign currency transactions are taxable for federal income tax purposes as
ordinary income to shareholders. After the end of each calendar year, the Funds
send shareholders information regarding the amount and character of dividends
paid in the year, including the percentage of distributions paid by Tax-Free
Bond Fund which are exempt from Federal tax and the dividends eligible for the
dividends-received deduction for corporations. Dividends eligible for the
dividends-received deduction will be limited to the aggregate amount of
qualifying dividends that a Fund derives from its portfolio investments.
A Fund realizes a capital gain or loss when it sells a portfolio security for
more or less than it paid for that security. Capital gains and losses are
divided into short-term and long-term, depending on how long the Fund held the
security which gave rise to the gain or loss. If the security was held one year
or less the gain or loss is considered short-term, while holding a security for
<PAGE>
more than one year will generate a long-term gain or loss. A capital gain
distribution consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest as ordinary income and are paid to shareholders as dividends, as
discussed above. If total long-term gains on sales exceed total short-term
losses, including any losses carried forward from previous years, a Fund will
have a net capital gain. Distributions by a Fund of net capital gains are, for
federal income tax purposes, taxable to the shareholder as a long-term capital
gain regardless of how long a shareholder has held shares of the particular
Fund. Such distributions are not eligible for the dividends-received deduction.
After the end of each calendar year, the Funds send information to shareholders
regarding the amount and character of distributions paid during the year.
With the exception of tax-exempt dividends paid by Tax-Free Bond Fund, all
dividends and other distributions are taxable income to the shareholder,
regardless of whether such dividends and distributions are reinvested in
additional shares or paid in cash. If the net asset value of a Fund's shares
should be reduced below a shareholder's cost as a result of a distribution, such
distribution would be taxable to the shareholder although a portion would be a
return of invested capital. The net asset value of shares of a Fund reflects
accrued net investment income and undistributed realized capital and foreign
currency gains; therefore, when a distribution is declared, the net asset value
is reduced by the amount of the distribution. If shares of a Fund are purchased
shortly before a distribution, the full price for the shares will be paid and
some portion of the price may then be returned to the shareholder as a taxable
dividend or capital gain. However, the net asset value per share will be reduced
by the amount of the distribution, which would reduce any gain (or increase any
loss) for tax purposes on any subsequent redemption of shares.
If it invests in foreign securities, a Fund may be subject to the withholding of
foreign taxes on dividends or interest it receives on foreign securities.
Foreign taxes withheld will be treated as an expense of the Fund unless the Fund
meets the qualifications and makes the election to enable it to pass these taxes
through to shareholders for use by them as a foreign tax credit or deduction.
Tax conventions between certain countries and the United States may reduce or
eliminate such taxes.
Gains or losses (1) from the disposition of foreign currencies, (2) from the
disposition of debt securities denominated in foreign currencies that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders.
INVESCO may provide Fund shareholders with information concerning the average
cost basis of their shares in order to help them prepare their tax returns. This
information is intended as a convenience to shareholders and will not be
<PAGE>
reported to the Internal Revenue Service (the "IRS"). The IRS permits the use of
several methods to determine the cost basis of mutual fund shares. The cost
basis information provided by INVESCO will be computed using the single-category
average cost method, although neither INVESCO nor the Funds recommend any
particular method of determining cost basis. Other methods may result in
different tax consequences. If you have reported gains or losses for a Fund in
past years, you must continue to use the method previously used, unless you
apply to the IRS for permission to change methods. Even if you have reported
gains or losses for a Fund in past years using another basis method, you may be
able to use the average cost method for determining gains or losses in the
current year. However, once you have elected to use the average cost method, you
must continue to use it unless you apply to the IRS for permission to change
methods.
If you sell Fund shares at a loss after holding them for six months or less,
your loss will be treated as long-term (instead of short-term) capital loss to
the extent of any capital gain distributions that you may have received on those
shares.
Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and its net capital gains for the one-year period
ending on October 31 of that year, plus certain other amounts.
Tax-Free Bond Fund intends to qualify to pay "exempt-interest dividends" to its
shareholders. The Fund will so qualify if at least 50% of its total assets are
invested in municipal securities at the close of each quarter of the Fund's
fiscal year. The exempt interest portion of the income dividend that is payable
monthly may be based on the ratio of the Fund's tax-exempt income to taxable
income for the entire taxable year. In such case, the ratio would be determined
and reported to shareholders after the close of each taxable year. Thus, the
exempt-interest portion of any particular dividend may be based upon the
tax-exempt portion of all distributions for the taxable year, rather than upon
the tax-exempt portion of that particular dividend. Exemption of exempt-interest
dividends for federal income tax purposes does not necessarily result in
exemption under the income or other tax laws of any state or local taxing
authority. Although these dividends generally may be subject to state and local
income taxes, the laws of the several states and local taxing authorities vary
with respect to the taxation of exempt-interest dividends, taxable dividends and
distributions of capital gains.
A corporation includes exempt-interest dividends in calculating its alternative
taxable income in situations where the "adjusted current earnings" of the
corporation exceed its alternative minimum taxable income.
AMT bonds are "private activity bonds" issued after August 1986; the proceeds
are directed in full or in part to private, for-profit organizations. The income
from AMT bonds is exempt from federal income tax but may be subject to the
alternative minimum tax -- a special tax that applies to taxpayers who have
certain adjustments to income or tax preference items.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by private activity bonds or
individual development bonds should consult their tax advisers before purchasing
shares of the Fund because, for users of certain of these facilities, the
<PAGE>
interest on those bonds is not exempt from federal income tax. For these
purposes, the term "substantial user" is defined generally to include a
"non-exempt person" who regularly uses in trade or business a part of a facility
financed from the proceeds of such bonds.
Up to 85% of social security and railroad retirement benefits may be included in
taxable income for recipients whose adjusted gross income (including income from
tax-exempt sources such as a mutual fund) plus 50% of their benefits exceed
certain base amounts. Exempt-interest dividends from the Fund still are
tax-exempt to the extent described above - they are only included in the
calculation of whether a recipient's income exceeds the established amounts.
You should consult your own tax adviser regarding specific questions as to
federal, state and local taxes. Dividends and capital gain distributions will
generally be subject to applicable state and local taxes. Qualification as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, for income tax purposes does not entail government supervision of
management or investment policies.
PERFORMANCE
To keep shareholders and potential investors informed, INVESCO will occasionally
advertise the Funds' total return for one-, five-, and ten-year periods (or
since inception).
Cumulative total return shows the actual rate of return on an investment for the
period cited; average annual total return represents the average annual
percentage change in the value of an investment. Both cumulative and average
annual total returns tend to "smooth out" fluctuations in a Fund's investment
results, because they do not show the interim variations in performance over the
periods cited. More information about the Funds' recent and historical
performance is contained in the Company's Annual Report to Shareholders. You can
get a free copy by calling or writing to INVESCO using the telephone number or
address on the back cover of the Funds' Prospectuses.
When we quote mutual fund rankings published by Lipper Inc., we may compare a
Fund to others in its appropriate Lipper category, as well as the broad-based
Lipper general fund groupings. These rankings allow you to compare a Fund to its
peers. Other independent financial media also produce performance- or
service-related comparisons, which you may see in our promotional materials.
Performance figures are based on historical earnings and are not intended to
suggest future performance.
Average annual total return performance for the one-, five-, and ten-year
periods ended August 31, 2000 was:
<PAGE>
10 YEAR OR
FUND AND CLASS 1 YEAR 5 YEAR SINCE INCEPTION
INVESTOR CLASS
High Yield Fund 2.89% 8.75% 9.87%
Select Income Fund 5.78% 6.55% 8.69%
Tax-Free Bond Fund 6.32% 5.13% 6.77%
U.S. Government Securities Fund 9.12% 6.35% 7.72%
CLASS C(6)
High Yield Fund N/A N/A (0.52%)
Select Income Fund N/A N/A 4.24%
Tax-Free Bond Fund N/A N/A 6.86%
U.S. Government Securities Fund N/A N/A 7.64%
(6) Cumulative since inception February 15, 2000.
Average annual total return performance is not provided for High Yield and
Select Income Funds' Class K shares since they were not offered until December
15, 2000. Average annual total return performance for each of the periods
indicated was computed by finding the average annual compounded rates of return
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1 + T)[exponential n] = ERV
where: P = a hypothetical initial payment of $10,000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown above were determined
by solving the above formula for "T" for each time period indicated.
In conjunction with performance reports, comparative data between a Fund's
performance for a given period and other types of investment vehicles, including
certificates of deposit, may be provided to prospective investors and
shareholders.
In conjunction with performance reports and/or analyses of shareholder services
for a Fund, comparative data between that Fund's performance for a given period
and recognized indices of investment results for the same period, and/or
assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company, S&P,
Lipper Inc., Lehman Brothers, National Association of Securities Dealers
Automated Quotations, Frank Russell Company, Value Line Investment Survey, the
American Stock Exchange, Morgan Stanley Capital International, Wilshire
Associates, the Financial Times Stock Exchange, the New York Stock Exchange, the
<PAGE>
Nikkei Stock Average and Deutcher Aktienindex, all of which are unmanaged market
indicators. In addition, rankings, ratings, and comparisons of investment
performance and/or assessments of the quality of shareholder service made by
independent sources may be used in advertisements, sales literature or
shareholder reports, including reprints of, or selections from, editorials or
articles about the Fund. These sources utilize information compiled (i)
internally; (ii) by Lipper Inc.; or (iii) by other recognized analytical
services. The Lipper Inc. mutual fund rankings and comparisons which may be used
by the Funds in performance reports will be drawn from the following mutual fund
groupings, in addition to the broad-based Lipper general fund groupings:
FUND LIPPER MUTUAL FUND CATEGORY
---- ---------------------------
High Yield Fund High Current Yield Funds
Select Income Fund Corporate Debt Funds BBB-Rated
Tax-Free Bond Fund General Municipal Bond Funds
U.S. Government Securities Fund U.S. Government Funds
Sources for Fund performance information and articles about the Funds include,
but are not limited to, the following:
AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS' JOURNAL
BANXQUOTE
BARRON'S
BUSINESS WEEK
CDA INVESTMENT TECHNOLOGIES
CNBC
CNN
CONSUMER DIGEST
FINANCIAL TIMES
FINANCIAL WORLD
FORBES
FORTUNE
IBBOTSON ASSOCIATES, INC.
INSTITUTIONAL INVESTOR
INVESTMENT COMPANY DATA, INC.
INVESTOR'S BUSINESS DAILY
KIPLINGER'S PERSONAL FINANCE
LIPPER INC.'S MUTUAL FUND PERFORMANCE ANALYSIS
MONEY
MORNINGSTAR
MUTUAL FUND FORECASTER
NO-LOAD ANALYST
NO-LOAD FUND X
PERSONAL INVESTOR
SMART MONEY
THE NEW YORK TIMES
THE NO-LOAD FUND INVESTOR
<PAGE>
U.S. NEWS AND WORLD REPORT
UNITED MUTUAL FUND SELECTOR
USA TODAY
THE WALL STREET JOURNAL
WIESENBERGER INVESTMENT COMPANIES SERVICES
WORKING WOMAN
WORTH
CODE OF ETHICS
INVESCO permits investment and other personnel to purchase and sell securities
for their own accounts, subject to a compliance policy governing personal
investing. This policy requires INVESCO's personnel to conduct their personal
investment activities in a manner that INVESCO believes is not detrimental to
the Funds or INVESCO's other advisory clients. The Code of Ethics is on file
with, and may be obtained from, the Commission.
FINANCIAL STATEMENTS
The financial statements for the Funds for the fiscal year ended August 31, 2000
are incorporated herein by reference from INVESCO Bond Funds, Inc.'s Annual
Report to Shareholders dated August 31, 2000.
<PAGE>
APPENDIX A
BOND RATINGS
The following is a description of Moody's and S&P's bond ratings:
MOODY'S CORPORATE BOND RATINGS
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any longer period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
S&P CORPORATE BOND RATINGS
AAA - This is the highest rating assigned by Standard & Poor's to a debt
<PAGE>
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to default and
are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Amendment and Restatement of Articles of
Incorporation filed December 2, 1999.(5)
(1) Articles Supplementary to the Articles of Amendment and
Restatements of the Articles of Incorporation filed
December 8, 2000.
(b) Bylaws.(1)
(c) Provisions of instruments defining the rights of holders of
Registrant's securities are contained in Articles II, IV, VI and
VIII of the Articles of Incorporation and Articles I, II, V, VI,
VII, VIII, IX and X of the Bylaws of the Registrant.
(d) Investment Advisory Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997.(2)
(1) Amendment dated August 13, 1999 to Advisory
Agreement.(3)
(e) Underwriting Agreement between Registrant and INVESCO
Distributors, Inc. dated June 1, 2000.
(f) Defined Benefit Deferred Compensation Plan for
Non-Interested Directors and Trustees as amended June 1, 2000
(g) Custody Agreement between Registrant and State Street Bank
and Trust Company dated July 1, 1994.(1)
(1) Amendment to Custody Agreement dated
October 25, 1995.(1)
(2) Data Access Services Addendum.(2)
(3) Additional Fund Letter dated August 20, 1999.(4)
(4) Amended Fee Schedule effective January 1, 2000.(5)
(h) (1) Transfer Agency Agreement between Registrant and INVESCO
Funds Group, Inc. dated June 1, 2000.
(2) Administrative Services Agreement between Registrant and
INVESCO Funds Group, Inc. dated June 1, 2000.
(i) (1) Opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will,
when sold, be legally issued, fully paid and
non-assessable(2)
(2) Opinion and Consent of Counsel with respect to INVESCO
Tax-Free Bond Fund as to the legality of the securities
being registered dated August 13, 1999(3)
<PAGE>
(j) Consent of Independent Accountants.
(k) Not applicable.
(l) Not applicable.
(m) (1) Plan and Agreement of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940 dated
June 1, 2000 with respect to the Funds' Investor Class
shares.(6)
(2) Master Distribution Plan and Agreement adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 dated
June 1, 2000, with respect to the Funds' Class C shares.
(3) Form of Master Distribution Plan and Agreement adopted
pursuant to Rule 12b-1 under the Investment Company Act of
1940 dated ________, 2000, with respect to the Funds' Class
K shares.
(n) Not Applicable.
(o) (1) Plan Pursuant to Rule 18f-3 under the Investment Company
Act of 1940 by the Company with respect to INVESCO High
Yield Fund adopted by the board of directors on
November 9, 1999.(5)
(2) Plan Pursuant to Rule 18f-3 under the Investment Company
Act of 1940 by the Company with respect to INVESCO Select
Income Fund adopted by the board of directors on
November 9, 1999.(5)
(3) Plan Pursuant to Rule 18f-3 under the Investment Company
Act of 1940 by the Company with respect to INVESCO Tax-Free
Bond Fund adopted by the board of directors on
November 9, 1999.(5)
(4) Plan Pursuant to Rule 18f-3 under the Investment Company
Act of 1940 by the Company with respect to INVESCO U.S.
Government Securities Fund adopted by the board of directors
on November 9, 1999.(5)
(p) Code of Ethics pursuant to Rule 17j-1.(6)
(1) Previously filed with Post-Effective Amendment No. 36 to the Registration
Statement on October 30, 1996, and incorporated by reference herein.
(2) Previously filed with Post-Effective Amendment No. 37 to the Registration
Statement on October 30, 1997, and incorporated by reference herein.
(3) Previously filed with Post-Effective Amendment No. 40 to the Registration
Statement on August 30, 1999, and incorporated by reference herein.
(4) Previously filed with Post-Effective Amendment No. 41 to the Registration
Statement on October 29, 1999, and incorporated by reference herein.
(5) Previously filed with Post-Effective Amendment No. 43 to the Registration
Statement on January 27, 2000, and incorporated by reference herein.
<PAGE>
(6) Previously filed with Post-Effective Amendment No. 44 to the Registration
Statement on October 12, 2000, and incorporated by reference herein.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH INVESCO BOND
FUNDS, INC. (THE"COMPANY")
No person is presently controlled by or under common control with the Company.
ITEM 25. INDEMNIFICATION
Indemnification provisions for officers, directors and employees of the Company
are set forth in Article VII of the Articles of Amendment and Restatement of the
Articles of Incorporation, and are hereby incorporated by reference. See Item
23(a) and (b) above. Under these Articles, directors and officers will be
indemnified to the fullest extent permitted to directors by the Maryland General
Corporation Law, subject only to such limitations as may be required by the
Investment Company Act of 1940, as amended, and the rules thereunder. Under the
Investment Company Act of 1940, directors and officers of the Company cannot be
protected against liability to a Fund or its shareholders to which they would be
subject because of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties of their office. The Company also maintains liability
insurance policies covering its directors and officers.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Fund Management" in the Funds' Prospectuses and "Management of the Funds"
in the Statement of Additional Information for information regarding the
business of the investment adviser, INVESCO.
Following are the names and principal occupations of each director and officer
of the investment adviser, INVESCO. Certain of these persons hold positions with
IDI, a subsidiary of INVESCO.
--------------------------------------------------------------------------------
Position with Principal Occupation and
Name Adviser Company Affiliation
--------------------------------------------------------------------------------
Mark H. Williamson Chairman & Officer Chairman of the Board,
President & Chief Executive
Officer
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Raymond R. Cunningham Officer & Director Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
William J. Galvin, Jr. Officer & Director Senior Vice President
& Assistant Secretary
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Mark D. Greenberg Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
Ronald L. Grooms Officer & Director Senior Vice President
& Treasurer
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Brian B. Hayward Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Richard W. Healey Officer & Director Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
William R. Keithler Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Trent E. May Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Charles P. Mayer Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Timothy J. Miller Officer & Director Senior Vice President &
Chief Investment Officer
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Donovan J. (Jerry) Paul Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Glen A. Payne Officer Senior Vice President,
Secretary & General
Counsel
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
John R. Schroer, II Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Marie E. Aro Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
Jeffrey R. Botwinick Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Michael K. Brugman Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Ingeborg S. Cosby Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Stacie Cowell Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Rhonda Dixon-Gunner Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Delta L. Donohue Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Harvey I. Fladeland Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Linda J. Gieger Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Richard R. Hinderlie Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Stuart A. Holland Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Thomas M. Hurley Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
Patricia F. Johnston Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Campbell C. Judge Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Thomas A. Kolbe Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Peter M. Lovell Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
James F. Lummanick Officer Vice President & Assistant
General Counsel
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Thomas A. Mantone, Jr. Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
George A. Matyas Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Corey M. McClintock Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Douglas J. McEldowney Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Frederick R. (Fritz) Meyer Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Stephen A. Moran Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
Jeffrey G. Morris Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Laura M. Parsons Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Jon B. Pauley Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Thomas E. Pellowe Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Dean C. Phillips Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Pamela J. Piro Officer Vice President
& Assistant Treasurer
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Sean F. Reardon Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Dale A. Reinhardt Officer Vice President & Controller
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Anthony R. Rogers Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Gary L. Rulh Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Thomas R. Samuelson Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
James B. Sandidge Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Thomas H. Scanlan Officer Vice President
INVESCO Funds Group, Inc.
12028 Edgepark Court
Potomac, MD 20854
--------------------------------------------------------------------------------
John S. Segner Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Reagan A. Shopp Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Terri B. Smith Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Tane T. Tyler Officer Vice President & Assistant
General Counsel
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Thomas R. Wald Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Alan I. Watson Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Judy P. Wiese Officer Vice President
& Assistant Secretary
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Vaughn A. Greenlees Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Matthew A. Kunze Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
Christopher T. Lawson Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Michael D. Legoski Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
William S. Mechling Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Donald R. Paddack Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Craig J. St. Thomas Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Kent T. Schmeckpeper Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
C. Vince Sellers Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
Jeraldine E. Kraus Officer Assistant Secretary
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
--------------------------------------------------------------------------------
ITEM 27. (a) PRINCIPAL UNDERWRITERS
INVESCO Counselor Series Funds, Inc.
(formerly, INVESCO Advantage Series Funds, Inc.)
INVESCO Bond Funds, Inc.
INVESCO Combination Stock & Bond Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Treasurer's Series Funds, Inc.
INVESCO Variable Investment Funds, Inc.
<PAGE>
(b)
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS UNDERWRITER THE COMPANY
Raymond R. Cunningham Senior Vice
7800 E. Union Avenue President
Denver, CO 80273
William J. Galvin, Jr. Senior Vice Assistant
7800 E. Union Avenue President, Secretary
Denver, CO 80237 Asst. Secretary &
Director
Ronald L. Grooms Senior Vice Treasurer & Chief
7800 E. Union Avenue President, Financial and
Denver, CO 80237 Treasurer, & Accounting
Director Officer
Richard W. Healey Senior Vice Director
7800 E. Union Avenue President &
Denver, CO 80237 Director
Timothy J. Miller Director
7800 E. Union Avenue
Denver, CO 80237
Glen A. Payne Senior Vice Secretary
7800 E. Union Avenue President,
Denver, CO 80237 Secretary &
General Counsel
Pamela J. Piro Assistant Treasurer Assistant
7800 E. Union Avenue Treasurer
Denver, CO 80237
Judy P. Wiese Assistant Assistant
7800 E. Union Avenue Secretary Secretary
Denver, CO 80237
Mark H. Williamson Chairman of the Board, Chairman,
7800 E. Union Avenue President, & Chief President & Chief
Denver, CO 80237 Executive Officer Executive Officer
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Mark H. Williamson
7800 E. Union Avenue
Denver, CO 80237
<PAGE>
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Company certifies that it meets all the requirements
for effectiveness of this Registration Statement under Rule 485(b) under the
Securities Act and has duly caused this post-effective amendment to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Denver,
County of Denver, and State of Colorado, on the 12th day of December, 2000.
Attest: INVESCO Bond Funds, Inc.
/s/ Glen A. Payne /s/ Mark H. Williamson
------------------------------- -------------------------------
Glen A. Payne, Secretary Mark H. Williamson, President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the date indicated.
/s/ Mark H. Williamson /s/ Lawrence H. Budner*
------------------------------- -------------------------------
Mark H. Williamson, President & Lawrence H. Budner, Director
Director (Chief Executive Officer)
/s/ Ronald L. Grooms /s/ John W. McIntyre*
------------------------------- -------------------------------
Ronald L. Grooms, Treasurer John W. McIntyre, Director
Chief Financial and Accounting Officer)
/s/ Richard W. Healey*
-------------------------------
/s/ Victor L. Andrews* Richard W. Healey, Director
-------------------------------
Victor L. Andrews, Director /s/ Fred A. Deering*
-------------------------------
/s/ Bob R. Baker* Fred A. Deering, Director
-------------------------------
Bob R. Baker, Director /s/ Larry Soll*
-------------------------------
/s/ Charles W. Brady* Larry Soll, Director
-------------------------------
Charles W. Brady, Director /s/ Wendy L. Gramm*
-------------------------------
/s/ James T. Bunch* Wendy L. Gramm, Director
-------------------------------
James T. Bunch, Director /s/ Gerald J. Lewis*
-------------------------------
Gerald J. Lewis, Director
By By /s/ Glen A. Payne
------------------------------- -------------------------------
Edward F. O'Keefe Glen A. Payne
Attorney in Fact Attorney in Fact
* Original Powers of Attorney authorizing Edward F. O'Keefe and Glen A. Payne,
and each of them, to execute this post-effective amendment to the Registration
Statement of the Registrant on behalf of the above-named directors and officers
of the Registrant have been filed with the Securities and Exchange Commission on
January 9, 1990, January 16, 1990, May 22, 1992, March 31, 1994, October 23,
1995, October 30, 1996, October 30, 1997, and October 13, 2000. respectively.
<PAGE>
Exhibit Index
PAGE IN
EXHIBIT NUMBER REGISTRATION STATEMENT
a(1) 162
e 164
f 176
h(1) 183
h(2) 200
j 208
m(2) 209
m(3) 221
