As filed on January 27, 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. 43 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 32 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)
------------
Copies to:
Ronald M. Feiman, Esq.
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019-5820
------------
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 January 31, 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:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
PROSPECTUS | February 15, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
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 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..........3
Fund Performance................................6
Fees And Expenses...............................8
Investment Risks...............................10
Risks Associated With Particular Investments 10
Temporary Defensive Positions..................15
Portfolio Turnover.............................15
Fund Management................................16
Portfolio Managers.............................16
Potential Rewards..............................17
Share Price....................................17
How To Buy Shares..............................18
How To Sell Shares.............................21
Taxes..........................................21
Dividends And Capital Gain Distributions ......22
Financial Highlights...........................24
No dealer, sales person, 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
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
federal crime.
<PAGE>
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
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 directly to the public through separate prospectuses. Those other classes
of shares have lower expenses, with resulting positive 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.
FOR MORE DETAILS ABOUT EACH FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
The Funds attempt 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.
<PAGE>
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.
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 "Risks Associated With
Particular Investments." 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 can lose money on your investment in a Fund.
[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 gains 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 are 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 DIFFEREING 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 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 four charts below contain the following plot points:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
HIGH YIELD FUND - INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2)
- --------------------------------------------------------------------------------------------------
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(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)
- --------------------------------------------------------------------------------------------------
'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%)
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
TAX-FREE BOND FUND - INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1),(2)
- -------------------------------------------------------------------------------------------------
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.10% 12.53% 8.77% 12.11% (5.52%) 15.64% 2.63% 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)
- -------------------------------------------------------------------------------------------------
'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%)
- -------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)
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 -
Investor Class (5.97%) 7.36% 6.69%
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 include the effect of each Fund's expenses.
(2) The total 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 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 Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) 1.00%*
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and Other Distributions None
Redemption Fee (as a percentage of amount redeemed) None
Exchange Fee None
* A 1% contingent deferred sales charge is charged on redemptions or exchanges
of shares held thirteen months or less, other than shares acquired through
reinvestment of dividends and other distributions.
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
HIGH YIELD FUND--CLASS C
Management Fees 0.40%
Distribution and Service (12b-1)(Fees(1) 1.00%
Other Expenses(2) 0.36%
-----
Total Annual Fund Operating Expenses(2) 1.76%
=====
SELECT INCOME FUND--CLASS C
Class C Management Fees 0.50%
Distribution and Service (12b-1)Fees(1) 1.00%
Other Expenses (2) 0.43%
-----
Total Annual Fund Operating Expenses(2) 1.93%
=====
TAX-FREE BOND FUND--CLASS C
Class C Management Fees 0.55%
Distribution and Service (12b-1)Fees(1) 1.00%
Other Expenses(2) 0.28%
-----
Total Annual Fund Operating Expenses(2) 1.83%
=====
U.S. GOVERNMENT SECURITIES FUND--CLASS C
Management Fee 0.55%
Distribution and Services (12b-1)Fees(1) 1.00%
Other Expenses(2) 0.81%
-----
Total Annual Fund Operating Expenses(2) 2.36%
=====
<PAGE>
(1) 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.
(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 C shares are not offered until February 15, 2000. Certain
expenses of the Funds will be absorbed by INVESCO in order to ensure that
expenses 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
shares will not exceed 2.00%, 1.80%, 1.65% and 1.75%, respectively, of each
Fund's average net assets attributable to Class C shares pursuant to an
agreement between the Funds and INVESCO. These commitments may be changed at
any time following consultation with the board of directors. After
absorption, Select Income Fund--Class C shares' Other Expenses and Total
Annual Fund Operating Expenses for the fiscal year ending August 31, 2000
are estimated to be 0.30% and 1.80%, respectively, of the Fund's average
net assets attributable to Class C shares; Tax-Free Bond Fund--Class C
shares' Other Expenses and Total Annual Fund Operating Expenses for the
fiscal year ending August 31, 2000 are estimated to be 0.10% and 1.65%,
respectively, of the Fund's average net assets attributable to Class C
shares; and U.S. Government Securities Fund--Class C shares' Other Expenses
and Total Annual Fund Operating Expenses for the fiscal year ending August
31, 2000 are estimated to be 0.20% and 1.75%, respectively, of the Fund's
average net assets attributable to Class C shares.
EXAMPLES
These Examples are intended to help you compare the cost of investing in 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 those periods. 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 remained 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 have been:
<TABLE>
<CAPTION>
IF SHARES ARE REDEEMED 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
High Yield Fund--Class C $279 $554 $954 $2,073
Select Income Fund--Class C $296 $606 $1,042 $2,254
Tax-FreeBond Fund--Class C $286 $576 $990 $2,148
U.S. Government Securities Fund--Class C $339 $736 $1,260 $2,696
IF SHARES ARE NOT REDEEMED 1 year 3 years 5 years 10 years
High Yield Fund--Class C $179 $554 $954 $2,073
Select Income Fund--Class C $196 $606 $1,042 $2,254
Tax-FreeBond Fund--Class C $186 $576 $990 $2,148
U.S. Government Securities Fund-Class C $239 $736 $1,260 $2,696
</TABLE>
<PAGE>
[ARROWS ICON] INVESTMENT RISKS
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:
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.
NOT INSURED. Mutual funds are not insured by the FDIC or any other 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] RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS
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.
<PAGE>
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 interest rate risk. 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 Investor Services, 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
<PAGE>
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 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.
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,
provided that all such securities are denominated and pay interest in U.S.
dollars (such as Eurobonds and Yankee bonds). 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.
The introduction of the euro presents some uncertainties and possible risks,
which could adversely affect the value of securities held by the Funds.
EMU countries, as a single market, may affect future investment decisions
of the Funds. 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--present
and future--may affect the fiscal and monetary levels of those participating
countries. There may be increased levels of price competition among business
firms within EMU countries and between businesses in EMU and non-EMU countries.
The outcome of these 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.
--------------------------------------------------
<PAGE>
The Funds generally invest in debt securities. However, in an effort to
diversify their holdings and provide some protection against the risk of other
investments, the Funds also may invest in other types of securities and other
financial instruments, as indicated in the chart below. These investments, which
at any given time may constitute a significant portion of a Fund's portfolio,
have their own risks.
- --------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY
RECEIPTS (ADRS)
These are securities issued Market, High Yield
by U.S. banks that represent Information, Select Income
shares of foreign Political,
corporations held by those Regulatory,
banks. Although traded in Diplomatic,
U.S. securities markets Liquidity and
and valued in U.S. dollars, Currency Risks
ADRs carry most of the
risks of investing
directly in foreign
securities.
- --------------------------------------------------------------------------------
EUROBONDS AND YANKEE
BONDS
Bonds issued by Political, Market, High Yield
foreign branches of U.S. Information, Select Income
banks ("Eurobonds") and Currency,
bonds issued by a U.S. Political,
branch of a foreign bank Diplomatic,
and sold in the United Regulatory,
States ("Yankee bonds"). Liquidity,
These bonds are bought and Credit, Interest
sold in U.S. dollars, but Rate and Duration
generally carry with them Risks
the same risks as investing
in foreign securities.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
- --------------------------------------------------------------------------------
JUNK BONDS
Debt securities that are Market, Credit High Yield
rated BB or lower by S&P or Interest Rate and Select Income
Ba or lower Risks by Moody's. Duration Risks Tax-Free Bond
Tend to pay higher interest
rates than higher-rated debt
securities, but carry a
higher credit risk.
- --------------------------------------------------------------------------------
[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.
[ARROWS ICON] PORTFOLIO TURNOVER
We actively manage and trade the Funds' portfolios. Therefore, the Funds
may have a higher portfolio turnover rate compared to many other mutual funds.
The Funds with higher than average portfolio turnover rates for the year ended
August 31, 1999 are:
INVESCO High Yield Fund 154%
INVESCO Select Income Fund 135%
INVESCO U.S. Government Securities Fund 114%
A portfolio turnover rate of 200%, for example, is equivalent to a Fund
buying and selling all of the securities in its portfolio two times in the
course of a year. A comparatively high turnover rate may result in higher
brokerage commissions and taxable capital gain distributions to a Fund's
shareholders.
<PAGE>
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT
MANAGEMENT COMPANY THAT MANAGES MORE THAN $291 BILLION IN ASSETS WORLDWIDE.
AMVESCAP IS BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND
SOUTH AMERICA, AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the
investment adviser of the Funds. INVESCO was founded in 1932 and manages over
$31 billion for more than 960,748 shareholders of 45 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 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, 1999:
- --------------------------------------------------------------------------------
ADVISORY FEE AS A PERCENTAGE OF
AVERAGE ANNUAL NET ASSETS UNDER
FUND MANAGEMENT
- --------------------------------------------------------------------------------
INVESCO High Yield Fund 0.40%
INVESCO Select Income Fund 0.50%
INVESCO Tax-Free Bond Fund 0.55%(a)
INVESCO U.S. Government Securities Fund 0.55%
- --------------------------------------------------------------------------------
(a) Annualized, for the period of July 1, 1999 to August 31, 1999, the Fund's
current fiscal year end.
Since the Funds' Class C shares are not offered until February 15, 2000, Class C
shares paid no fees to INVESCO for its advisory services in the year ended
August 31, 1999.
[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 Donovan J. (Jerry) Paul
U.S. Government Securities Richard R. Hinderlie
<PAGE>
DONOVAN J. (JERRY) PAUL, a senior vice president of INVESCO, is the portfolio
manager of High Yield, Select Income Funds and Tax-Free Bond. Jerry manages
several other INVESCO fixed-income 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 received his M.B.A. from the University of Northern Iowa
and his B.B.A. from the University of Iowa.
RICHARD R. HINDERLIE, a vice president of INVESCO, is the portfolio manager of
U.S. Government Securities Fund. Dick has been a portfolio manager with INVESCO
since 1993. He received his M.B.A. from Arizona State University and his B.A. in
Economics from Pacific Lutheran University.
Dick Hinderlie is a member of the INVESCO 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. 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 appreciation or total return.
<PAGE>
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.
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. 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.
<PAGE>
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. Contact your investment
representative for several convenient ways to invest in the Funds. Class C
shares are available only through your investment representative.
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
current net asset value of the Class C shares will be assessed. If you invest in
a Fund through a securities broker, 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 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.)
EXCHANGE POLICY. You may exchange your Class C shares in any of the Funds for
Class C shares in another INVESCO mutual 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.
<PAGE>
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).
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 current net asset value of the shares being redeemed or exchanged will 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. If your holding period is less than thirteen
months, the CDSC will be assessed on the current net asset value of those
shares.
The CDSC for Class C shares generally will be waived:
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.
DISTRIBUTION EXPENSES. We have adopted a Master Distribution Plan and Agreement
(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 all your required
mailings.
<PAGE>
[INVESCO ICON] HOW TO SELL SHARES
Contact your investment representative for 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 in proper form is received by INVESCO. 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. 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 phone.
INVESCO usually mails you 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 15 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), each 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.
[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
<PAGE>
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, 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.
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 December.
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
<PAGE>
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, may be 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 C 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 an Investor Class share 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 1999 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.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HIGH YIELD FUND-- 1999 1998 1997 1996 1995
INVESTOR CLASS
PER SHARE DATA
Net Asset Value--Beginning of Period $6.76 $7.45 $6.84 $6.73 $6.73
- ----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.60 0.64 0.62 0.63 0.66
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.19) (0.29) 0.64 0.11 0.03
- ----------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.41 0.35 1.26 0.74 0.69
- ----------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income(a) 0.60 0.64 0.62 0.63 0.66
Distributions from Capital Gains 0.00 0.40 0.03 0.00 0.00
In Excess of Capital Gains 0.17 0.00 0.00 0.00 0.03
- ----------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.77 1.04 0.65 0.63 0.69
- ----------------------------------------------------------------------------------
Net Asset Value--End of Period $6.40 $6.76 $7.45 $6.84 $6.73
==================================================================================
TOTAL RETURN 6.53% 4.44% 19.27% 11.38% 11.12%
RATIOS
Net Assets--End of Period $793,337 $641,394 $470,965 $375,201 $288,959
($000 Omitted)
Ratio of Expenses to 0.99%(c) 0.86%(c) 1.00%(c) 0.99%(c) 1.00%
Average Net Assets(b)
Ratio of Net Investment Income to 9.13% 8.72% 8.71% 9.13% 10.01%
Average Net Assets(b)
Portfolio Turnover Rate 154% 282% 129% 266% 201%
</TABLE>
(a) Distributions in excess of net investment income for the year ended August
31, 1996, aggregated less than $0.01 on a per share basis.
(b) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
years ended August 31, 1996 and 1995. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have
been 0.99% and 1.07%, respectively, and ratio of net investment income to
average net assets would have been 9.13% and 9.94%, respectively.
(c) Ratio is based on Total Expenses of the Fund, less expenses absorbed by
INVESCO, if applicable, which is before any expense offset arrangements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED AUGUST 31
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECT INCOME FUND--
INVESTOR CLASS 1999 1998 1997 1996 1995
PER SHARE DATA
Net Asset Value--Beginning of Period $6.68 $6.66 $6.35 $6.54 $6.18
- ----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.43 0.43 0.45 0.47 0.47
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.41) 0.19 0.34 (0.17) 0.36
- ----------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.02 0.62 0.79 0.30 0.83
- ----------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.43 0.43 0.45 0.46 0.47
In Excess of Net Investment Income(a) 0.00 0.00 0.00 0.01 0.00
Distributions from Capital Gains 0.02 0.17 0.03 0.02 0.00
In Excess of Capital Gains 0.10 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.55 0.60 0.48 0.49 0.47
- ----------------------------------------------------------------------------------
Net Asset Value--End of Period $6.15 $6.68 $6.66 $6.35 $6.54
==================================================================================
TOTAL RETURN 0.15% 9.58% 12.89% 4.78% 14.01%
RATIOS
Net Assets--End of Period $549,438 $502,624 $287,618 $258,093 $216,597
($000 Omitted)
Ratio of Expenses to Average 1.06%(c) 1.06%(c) 1.03%(c) 1.01%(c) 1.00%
Net Assets(b)
Ratio of Net Investment Income
to Average Net 6.56% 6.36% 6.98% 7.14% 7.38%
Portfolio Turnover Rate 135% 140% 263% 210% 181%
</TABLE>
.
(a) Distributions in excess of net investment income for the year ended August
31, 1995, aggregated less than $0.01 on a per share basis.
(b) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
years ended August 31, 1999, 1998, 1997, 1996 and 1995. If such expenses had
not been voluntarily absorbed, ratio of expenses to average net assets would
have been 1.16%, 1.10%, 1.21%, 1.16% and 1.22%, respectively, and ratio of
net investment income to average net assets would have been 6.46%, 6.32%,
6.80%, 6.99% and 7.16%, respectively.
(c) Ratio is based on Total Expenses of the Fund, less expenses absorbed by
INVESCO, if applicable, which is before any expense offset arrangements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED
AUGUST 31 YEAR ENDED JUNE 30
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TAX-FREE BOND FUND--
INVESTOR CLASS 1999(a) 1999 1998 1997 1996 1995
PER SHARE DATA
Net Asset Value--Beginning of Period $14.71 $15.57 $15.34 $15.20 $15.07 $15.29
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.10 0.62 0.63 0.66 0.73 0.80
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.18) (0.40) 0.40 0.38 0.32 0.09
- ----------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.08) 0.22 1.03 1.04 1.05 0.89
- ----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.10 0.62 0.63 0.66 0.73 0.80
In Excess of Net Investment 0.00 0.01 0.00 0.01 0.00 0.00
Income
Distributions from Capital Gains 0.00 0.46 0.17 0.23 0.19 0.31
- ----------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.10 1.08 0.80 0.90 0.92 1.11
- ----------------------------------------------------------------------------------------------
Net Asset Value--End of Period $14.53 $14.71 $15.57 $15.34 $15.20 $15.07
==============================================================================================
TOTAL RETURN (0.53%)(b) 1.30% 6.87% 7.05% 7.01% 6.16%
RATIOS
Net Assets--End of Period $191,836 $201,791 $211,471 $220,410 $250,890 $254,584
($000 Omitted)
Ratio of Expenses to 0.90%(d(e) 0.91%(d) 0.91%(d) 0.90%(d) 0.91%(d) 0.92%
Average Net Assets(c)
Ratio of Net Investment Income to
Average Net Assets(c) 4.08%(e) 4.03% 4.06% 4.36% 4.76% 5.31%
Portfolio Turnover Rate 3%(b) 66% 173% 123% 146% 99%
</TABLE>
(a) From July 1, 1999 to August 31, 1999, the Fund's new fiscal year end.
(b) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(c) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
period ended August 31, 1999 and for the years ended June 30, 1999, 1998,
1997, 1996 and 1995. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 1.14% (annualized),
1.06%, 1.04%, 1.05%, 1.04%, and 1.05%, respectively, and ratio of net
investment income to average net assets would have been 3.84% (annualized),
3.88%, 3.93%, 4.21%, 4.63% and 5.18%, respectively.
(d) Ratio is based on Total Expenses of the Fund, less expenses absorbed by
INVESCO, which is before any expense offset arrangements.
(e) Annualized.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
YEAR ENDED AUGUST 31
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
FUND--INVESTOR CLASS 1999 1998 1997 1996 1995
PER SHARE DATA
Net Asset Value--Beginning of Period $7.99 $7.49 $7.15 $7.49 $7.10
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.35 0.40 0.43 0.44 0.45
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.58) 0.67 0.34 (0.34) 0.39
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.23) 1.07 0.77 0.10 0.84
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.35 0.40 0.43 0.43 0.45
In Excess of Net Investment Income(a) 0.00 0.00 0.00 0.01 0.00
Distributions from Capital Gains 0.56 0.17 0.00 0.00 0.00
In Excess of Capital Gains 0.04 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.95 0.57 0.43 0.44 0.45
- --------------------------------------------------------------------------------
Net Asset Value--End of Period $6.81 $7.99 $7.49 $7.15 $7.49
================================================================================
TOTAL RETURN (3.40%) 14.75% 11.01% 1.31% 12.37%
RATIOS
Net Assets--End of Period $79,899 $79,485 $51,581 $54,614 $38,087
($000 Omitted)
Ratio of Expenses to 1.01%(c) 1.01%(c) 1.01%(c) 1.02%(c) 1.00%
Average Net Assets(b)
Ratio of Net Investment Income to
Average Net Assets(b) 4.80% 5.22% 5.78% 5.76% 6.24%
Portfolio Turnover Rate 114% 323% 139% 212% 99%
(a) Distributions in excess of net investment income for the year ended August
31, 1995, aggregated less than $0.01 on a per share basis.
(b) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
years ended August 31, 1999, 1998, 1997, 1996 and 1995. If such expenses had
not been voluntarily absorbed, ratio of expenses to average net assets would
have been 1.60%, 1.41%, 1.32%, 1.48% and 1.51%, respectively, and ratio of
net investment income to average net assets would have been 4.21%, 4.82%,
5.47%, 5.30% and 5.73%, respectively.
(c) Ratio is based on Total Expenses of the Fund, less expenses absorbed by
INVESCO, which is before any expense offset arrangements.
<PAGE>
FEBRUARY 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 February 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 www.invesco.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 1-800-328-2234. 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 and Class C
INVESCO Select Income Fund - Investor Class and Class C
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., 1-800-525-8085
February 15, 2000
- --------------------------------------------------------------------------------
A Prospectus for the Investor Class shares of INVESCO High Yield, INVESCO Select
Income, INVESCO Tax-Free Bond (formerly INVESCO Tax-Free Long-Term Bond Fund),
and INVESCO U.S. Government Securities Funds dated October 31, 1999 and 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 dated
February 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. The
Prospectuses of the Investor Class and Class C shares of the Funds are also
available through the INVESCO Web site at www.invesco.com.
<PAGE>
TABLE OF CONTENTS
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Investments, Policies and Risks . . . . . . . . . . . . . . . . . . . . . ..31
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Management of the Funds . . . . . . . . . . . . . . . . . . . . . . . . . ..54
Other Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . .78
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . . . . ..79
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Tax Consequences of Owning Shares of a Fund . . . . . . . . . . . . . . . . .83
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..85
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .88
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
<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 and Class C, INVESCO Select Income Fund - Investor Class and
Class C, 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. The Funds do not charge
sales fees to purchase their shares. However, the Investor Class shares of each
Fund pay a 12b-1 distribution fee which is computed and paid monthly at an
annual rate of 0.25% of average net assets attributable to Investor Class
shares. The Class C shares of each Fund pay a 12b-1 distribution/ service fee
which is computed and paid monthly at an aggregate annual rate of 1.00% of
average net assets attributable to Class C shares.
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.
<PAGE>
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.
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
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.
<PAGE>
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 interest rates tends to increase the market values of debt securities
in which a Fund has invested.
Moody's Investor Services, 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, 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
<PAGE>
or interest. Lower-rated bonds by S&P (categories BB, B or CCC) include those
that are regarded, on balance, as predominately 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 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 a Fund until the maturity or call date of a bond, in
order for a 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
certificates of deposit (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
<PAGE>
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 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
Statement of Additional Information ("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.
<PAGE>
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
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.
<PAGE>
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
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
<PAGE>
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.
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
<PAGE>
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
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
<PAGE>
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
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.
<PAGE>
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.
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
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
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.
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-- 44
<PAGE>
selling at any particular time. The Funds 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
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. 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.
<PAGE>
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 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 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-
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
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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%
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, as amended, 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
<PAGE>
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 would be
treated as issued by that government or entity.
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SELECT TAX-FREE U.S. GOVERNMENT
INVESTMENT HIGH YIELD INCOME BOND SECURITIES
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOREIGN DEBT SECURITIES Up to 25% if Up to 25%
denominated
and pay
interest
in U.S.
dollars
- --------------------------------------------------------------------------------------------------
DEBT SECURITIES Normally,
Corporate Debt at least 90%
- --------------------------------------------------------------------------------------------------
Those maturing at At least 65% At least 65% At least 65%
least three years
after issuance
- --------------------------------------------------------------------------------------------------
Investment Grade At least 50%
- --------------------------------------------------------------------------------------------------
Junk Bonds Primarily, but Up to 50% Up to 10%;
never below never below
Caa by Caa by
Moody's or Moody's or
CCC by S&P CCC by S& P
- --------------------------------------------------------------------------------------------------
TEMPORARY TAXABLE Up to 100%
- --------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS At least 65%
- --------------------------------------------------------------------------------------------------
MUNICIPAL BONDS Normally,
at least 80%
- --------------------------------------------------------------------------------------------------
ALTERNATIVE MINIMUM No more
TAX BONDS than 20%
- --------------------------------------------------------------------------------------------------
</TABLE>
<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 Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO Flexible
Funds, Inc.)
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.)
INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
INVESCO Treasurer's Series Funds, Inc. (formerly, INVESCO Treasurer's
Series Trust)
INVESCO Variable Investment Funds, Inc.
As of December 31, 1999, INVESCO managed 45 mutual funds having combined assets
of over $31 billion, on behalf of more than 960,478 shareholders.
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 $291 billion in assets under management on September 30, 1999.
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,
sub-accounting, telephone communications and processing of
distributions.
<PAGE>
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 variable 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, EC2M4YR, England.
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.
<PAGE>
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;
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
<PAGE>
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 the Funds' Class C shares are not
offered until February 15, 2000, no advisory fees were paid with respect to
Class C shares for the periods shown below. If applicable, the advisory fees
were offset by credits in the amounts shown below, so that the Funds' fees were
not in excess of the expense limitations shown below, which have been
voluntarily agreed to by the Company and INVESCO.
ADVISORY TOTAL EXPENSE TOTAL EXPENSE
FEE DOLLARS REIMBURSEMENTS LIMITATIONS
----------- -------------- ------------
High Yield Fund - Investor Class
August 31, 1999 $3,245,140 $ 0 1.25%
August 31, 1998 2,842,990 0 1.25%
August 31, 1997 1,964,043 0 1.25%
Select Income Fund - Investor Class
August 31, 1999 $2,670,224 $536,940 1.05%
August 31, 1998 2,023,679 151,971 1.05%
August 31, 1997 1,477,302 490,039 1.05%
<PAGE>
Tax-Free Bond Fund - Investor Class
August 31, 1999(a) $ 185,151 $ 80,439 0.90%
June 30, 1999 1,149,834 310,487 0.90%
June 30, 1998 1,195,773 282,742 0.90%
June 30, 1997 1,275,473 348,199 0.90%
U.S. Government Securities Fund - Investor Class
August 31, 1999 $ 395,611 $422,317 1.00%
August 31, 1998 284,609 207,740 1.00%
August 31, 1997 312,851 176,398 1.00%
(a) For the period July 1, 1999 through August 31, 1999.
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 February 28, 1997 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 0.015% per year of the average net assets of
each Fund prior to May 13, 1999, and 0.045% per year of the average net assets
of each Fund effective May 13, 1999.
TRANSFER AGENCY AGREEMENT
INVESCO also performs transfer agent, dividend disbursing agent and
registrar services for the Funds pursuant to a Transfer Agency Agreement dated
February 28, 1997 with the Company.
The Transfer Agency Agreement provides that each Fund pays INVESCO an annual fee
of $26.00 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.
<PAGE>
FEES PAID TO INVESCO
For the periods outlined in the table below for each Fund, the Funds' Investor
Class shares paid the following fees to INVESCO (in some instances, prior to the
absorption of certain Fund expenses by INVESCO). Since the Funds' Class C shares
are not offered until February 15, 2000, no fees were paid with respect to Class
C shares for the periods shown below.
HIGH YIELD FUND - INVESTOR CLASS
YEAR ENDED AUGUST 31,
TYPE OF FEE 1999 1998 1997
- --------------------------------------------------------------------------------
Advisory $3,245,140 $2,842,990 $1,964,043
Administrative Services 204,752 112,212 72,410
Transfer Agency 1,560,584 778,174 51,471
SELECT INCOME FUND - INVESTOR CLASS
YEAR ENDED AUGUST 31,
TYPE OF FEE 1999 1998 1997
- --------------------------------------------------------------------------------
Advisory $2,670,224 $2,023,679 $1,477,302
Administrative Services 140,510 67,475 50,289
Transfer Agency 1,519,741 895,360 786,616
TAX-FREE BOND FUND - INVESTOR CLASS
PERIOD ENDED
AUGUST 31 YEAR ENDED JUNE 30,
TYPE OF FEE 1999(a) 1999 1998 1997
- --------------------------------------------------------------------------------
Advisory $185,151 $1,149,834 $1,195,773 $1,275,473
Administrative Services 16,815 49,494 42,612 44,786
Transfer Agency 43,473 252,005 266,096 317,800
U.S. GOVERNMENT SECURITIES FUND - INVESTOR CLASS
YEAR ENDED AUGUST 31,
TYPE OF FEE 1999 1998 1997
- --------------------------------------------------------------------------------
Advisory $395,611 284,609 $ 312,851
Administrative Services 27,813 17,762 18,532
Transfer Agency 333,566 186,705 178,192
(a) For the period July 1, 1999 through August 31, 1999.
<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 derivatives 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 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":
INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO Flexible
Funds, Inc.)
INVESCO International Funds, Inc.
<PAGE>
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.)
INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
INVESCO Treasurer's Series Funds, Inc. (formerly, INVESCO Treasurer's
Series Trust)
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
Charles W. Brady *+ Director and Chairman of the Board
1315 Peachtree St., N.E. Chairman of the Board of INVESCO Global
Atlanta, Georgia Health Sciences Fund;
Age: 64 Chief Executive Officer
and Director of AMVESCAP
PLC, London, England and
various subsidiaries of
AMVESCAP PLC.
Fred A. Deering +# Director and Vice Trustee of INVESCO Global
Security Life Center Chairman of the Board Health Sciences Fund;
1290 Broadway formerly, Chairman of the
Denver, Colorado Executive Committee and
Age: 72 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.
<PAGE>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE WITH COMPANY DURING PAST FIVE YEARS
Mark H. Williamson *+ President, Chief President, Chief
7800 E. Union Avenue Executive Officer Executive Officer and
Denver, Colorado and Director Director of INVESCO
Age: 48 Funds Group, Inc.;
President, Chief Executive
Officer and Director of
INVESCO Distributors,
Inc.; President, Chief
Operating Officer and
Trustee of INVESCO Global
Health Sciences Fund;
formerly, Chairman and
Chief Executive Officer of
Nations Banc Advisors,
Inc.; formerly, Chairman
of NationsBanc
Investments, Inc.
Victor L. Andrews, Ph.D. Director Professor Emeritus,
**! 34 Seawatch Drive Chairman Emeritus and
Savannah, Georgia Chairman of the CFO
Age: 69 Roundtable of the
Department of Finance of
Georgia State University;
President, Andrews
Financial Associates, Inc.
(consulting firm);
formerly, member of the
faculties of the Harvard
Business School and the
Sloan School of Management
of MIT; Director of The
Sheffield Funds, Inc.
<PAGE>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE WITH COMPANY DURING PAST FIVE YEARS
Bob R. Baker +**@ Director Consultant (since 2000)
AMC Cancer Research Center and President and Chief
1600 Pierce Street Executive Officer (1988
Denver, Colorado to 2000) of AMC Cancer
Age: 63 Research Center, Denver,
Colorado, since January
1989; 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.
Lawrence H. Budner # @ Director Trust Consultant; prior to
7608 Glen Albens Circle June 30, 1987, Senior Vice
Dallas, Texas President and Senior Trust
Age: 69 Officer of InterFirst
Bank, Dallas, Texas.
James T. Bunch**@ Principal and Founder of
3600 Republic Plaza Director Green Manning & Bunch
320 Seventeenth Street Ltd., Denver, Colorado,
Denver, Colorado since August 1988;
Age: 57 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.**! Director Self-employed (since
4201 Yuma Street, N.W. 1993); Professor of
Washington, DC Economics and Public
Age: 55 Administration, University
of Texas at Arlington;
formerly, Chairman,
Commodity Futures Trading
Commission; Administrator
for Information and
Regulatory Affairs at the
Office of Management and
Budget; Executive Director
of the Presidential Task
Force on Regulatory
Relief; and Director of
the Federal Trade
Commission's Bureau of
Economics; also, Director
of Chicago Mercantile
Exchange, Enron
Corporation, IBP, Inc.,
State Farm Insurance
Company, Independent
Women's Forum,
International Republic
Institute, and the
Republican Women's Federal
Forum. Also, Member of
Board of Visitors, College
of Business
Administration, University
of Iowa, and Member of
Board of Visitors, Center
for Study of Public
Choice, George Mason
University.
<PAGE>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND AGE WITH COMPANY DURING PAST FIVE YEARS
Gerald J. Lewis#! Director Chairman of Lawsuit
701 "B" Street Resolution Services,
Suite 2100 San Diego, California
San Diego, California since 1987; Director
Age: 65 of General Chemical Group,
Inc., Hampdon, New
Hampshire, since 1996;
formerly, Associate
Justice of the California
Court of Appeals;
formerly, Director of
Wheelabrator Tech-
nologies, Inc., Fisher
Scientific, Inc., Henley
Manufacturing, Inc., and
California Coastal Proper
ties, Inc.; formerly, Of
Counsel, Latham & Watkins,
San Diego, California
(1987 to 1997).
John W. McIntyre + #@ Director Retired. Formerly, Vice
7 Piedmont Center Chairman of the Board of
Suite 100 Directors of the Citizens
Atlanta, Georgia and Southern Corporation
Age: 69 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.!** Director Retired. Formerly,
345 Poorman Road Chairman of the Board
Boulder, Colorado (1987 to 1994), Chief
Age: 57 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: 52 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);
formerly, employee of a
U.S. regulatory agency,
Washington, D.C. (1973 to
1989).
<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 and of INVESCO Funds Group,
Age: 53 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 Secretary Senior Vice President
7800 E. Union Avenue and Assistant
Denver, Colorado Secretary of INVESCO
Age: 43 Funds Group, Inc.; Senior
Vice President and
Assistant Secretary of
INVESCO Distributors,
Inc.; formerly, Trust
Officer of INVESCO Trust
Company (1995 to 1998).
Pamela J. Piro Assistant Treasurer Vice President and
7800 E. Union Avenue Assistant Treasurer
Denver, Colorado of INVESCO Funds Group,
Age: 39 Inc.; Assistant Treasurer
of INVESCO Distributors,
Inc.; formerly, Assistant
Vice President (1996 to
1997), Director -
Portfolio Accounting (1994
to 1996), Portfolio
Accounting 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 Secretary Vice President of
7800 E. Union Avenue INVESCO Funds Group,
Denver, Colorado Inc.; formerly, Trust
Age: 58 Officer of INVESCO Trust
Company.
Judy P. Wiese Assistant Secretary Vice President and
7800 E. Union Avenue Assistant Secretary
Denver, Colorado of INVESCO Funds Group,
Age: 51 Inc.; Assistant Secretary
of INVESCO Distributors,
Inc.; formerly, Trust
Officer of INVESCO Trust
Company.
# Member of the audit committee of the Company.
+ 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.
* These directors are "interested persons" of the Company as defined in the
1940 Act.
** Member of the management liaison committee of the Company.
@ Member of the brokerage committee of the Company.
! Member of the derivatives 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
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, 1999.
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
<PAGE>
capacities as directors or trustees during the year ended December 31, 1999. As
of December 31, 1999, there were 46 funds in the INVESCO Complex.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
BENEFITS ESTIMATED TOTAL
ACCRUED AS ANNUAL COMPENSATION
NAME OF AGGREGATE PART OF BENEFITS FROM INVESCO
PERSON AND COMPENSATION COMPANY UPON COMPLEX PAID TO
POSITION FROM COMPANY(1) EXPENSES(2) RETIREMENT(3) DIRECTORS(7)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fred A. Deering, $6,717 $4,641 $3,135 $107,050
Vice Chairman of
the Board
- --------------------------------------------------------------------------------------
Victor L. Andrews 6,254 4,440 3,456 84,700
- --------------------------------------------------------------------------------------
Bob R. Baker 6,343 3,965 4,631 82,850
- --------------------------------------------------------------------------------------
Lawrence H. Budner 6,162 4,440 3,456 82,850
- --------------------------------------------------------------------------------------
James T. Bunch(4) 0 0 0 0
- --------------------------------------------------------------------------------------
Daniel D. Chabris(5) 2,049 4,537 2,843 34,000
- --------------------------------------------------------------------------------------
Wendy L. Gramm 6,133 0 0 81,350
- --------------------------------------------------------------------------------------
Kenneth T. King(5) 6,509 4,737 2,843 85,850
- --------------------------------------------------------------------------------------
Gerald J. Lewis(4) 0 0 0 0
- --------------------------------------------------------------------------------------
John W. McIntyre 6,595 0 0 108,700
- --------------------------------------------------------------------------------------
Larry Soll 6,133 0 0 100,900
- --------------------------------------------------------------------------------------
Total $52,895 $26,760 $20,364 $768,250
- --------------------------------------------------------------------------------------
% of Net Assets 0.0033%(6) 0.0017%(6) 0.0024%(7)
- --------------------------------------------------------------------------------
</TABLE>
(1) The vice chairman of the board, the chairmen 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.
(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 and that the basic
retainer payable to the directors will be adjusted periodically for inflation,
for increases in the number of funds in the INVESCO Funds, and for other reasons
during the period in which retirement benefits are accrued on behalf of the
<PAGE>
respective directors. This results in lower estimated benefits for directors who
are closer to retirement and higher estimated benefits for directors who are
further from retirement. With the exception of Drs. Soll and Gramm and Messers.
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.
Although Mr. McIntyre became eligible to participate in the Defined Benefit
Deferred Compensation Plan as of November 1, 1998, he 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, 1999.
(7) Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1999.
Messrs. Brady 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), continuation of payment for one
year (the "First Year Retirement Benefit") of the annual basic retainer and
annualized board meeting fees payable by the funds to the Qualified Director at
the time of his/her retirement (the "Basic 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 Basic
Benefit. These payments will continue for the remainder of the Qualified
Director's life or ten years, whichever is longer (the "Reduced Benefit
Payments"). If a Qualified Director dies or becomes disabled after age 72 and
before age 74 while still a director of the funds, the First Year Retirement
Benefit and Reduced Benefit Payments will be made to him/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 cost of the Plan will be allocated among the INVESCO Funds
<PAGE>
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.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of December 31, 1999, 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:
High Yield Fund
- --------------------------------------------------------------------------------
BASIS OF OWNERSHIP
NAME AND ADDRESS (RECORD/BENEFICIAL) PERCENTAGE OWNED
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. Record 36.78%
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
The Exclusive Benefit of Cust Record 9.28%
One World Financial Center
200 Liberty Street, 5th Floor
Attn: Kate Recon
New York, NY 10281-1003
- --------------------------------------------------------------------------------
<PAGE>
Select Income Fund
- --------------------------------------------------------------------------------
BASIS OF OWNERSHIP
NAME AND ADDRESS (RECORD/BENEFICIAL) PERCENTAGE OWNED
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. Record 15.71%
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 6.33%
The Exclusive Benefit of Cust
One World Financial Center
200 Liberty Street, 5th Floor
Attn: Kate Recon
New York, NY 10281-1003
- --------------------------------------------------------------------------------
INVESCO Trust Company TR Record 5.56%
Morris Communications Corp
Employees' Profit Sharing Ret
Plan
725 Broad Street
Augusta, GA 30901-1336
- --------------------------------------------------------------------------------
Prudential Securities Inc. Record 5.27%
Acct 910-404559-000
Attn: Mutual Funds
1 New York Plaza
New York, NY 10004-1901
- --------------------------------------------------------------------------------
Tax-Free Bond Fund
- --------------------------------------------------------------------------------
BASIS OF OWNERSHIP
NAME AND ADDRESS (RECORD/BENEFICIAL) PERCENTAGE OWNED
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
<PAGE>
U.S. Government Securities Fund
- --------------------------------------------------------------------------------
BASIS OF OWNERSHIP
NAME AND ADDRESS (RECORD/BENEFICIAL) PERCENTAGE OWNED
- --------------------------------------------------------------------------------
Charles Schwab & Co. Inc. Record 15.66%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St
- --------------------------------------------------------------------------------
Resources Trust Co Cust For
The Exclusive Benefit of The Record 8.56%
Various Customers of IMS
P.O. box 3865
Englewood, CO 80155-3865
- --------------------------------------------------------------------------------
As of December 31, 1999, 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 receives no compensation and bears all
expenses, including the cost of printing and distributing prospectuses, incident
to marketing of the Funds' shares, except for such distribution expenses as are
paid out of Fund assets under the Company's Plans of Distribution, 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
(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
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
<PAGE>
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. Activities appropriate for financing under the Class C Plan
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; supplemental
payments to dealers and other institutions such as asset-based sales charges or
as payments of service fees under shareholder service arrangements; and costs of
administering the Class C Plan.
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, and 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. Payments pursuant
to the Class C Plan are subject to any applicable limitations imposed by rules
of the National Association of Securities Dealers, Inc. ("NASD"). The Class C
Plan conforms to rules of the NASD by limiting payments made to dealers and
other financial institutions who provide continuing personal shareholder
services to their customers who purchase and own Class C shares of the Funds to
no more than 0.25% per annum of the average daily net assets of the Class C
shares of the funds attributable to the customers of such dealers or financial
institutions, and by imposing a cap on the total sales charges, including
asset-based sales charges, that may be paid by the Funds.
IDI may pay sales commissions to dealers and institutions who 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 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 thirteen months after they are
purchased. The portion of the payments to IDI under the Class C Plan
attributable to Class C shares 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 thirteen
months, 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.
A significant expenditure under the Investor Class Plan and Class C Plan
(collectively, 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.
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
<PAGE>
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 another.
During the fiscal year ended August 31, 1999, the High Yield Fund - Investor
Class, Select Income Fund - Investor Class and U.S. Government Securities Fund -
Investor Class made payments to IDI under the Investor Class Plan in the amounts
of $2,032,749, $1,321,787 and $176,399, respectively. During the period ended
August 31, 1999 and the fiscal year ended June 30, 1999, the Tax-Free Bond Fund
- - Investor Class made payments to IDI under the Investor Class Plan in the
amounts of $85,752 and $524,866, respectively. In addition, as of August 31,
1999, $158,254, $113,017, $40,196 and $16,426 of additional distribution
accruals had been incurred 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, and will be paid during the
fiscal year ended August 31, 2000. Since the Funds' Class C shares are not
offered until February 15, 2000, the Funds' Class C shares made no payments to
IDI under the Plans during the period ended August 31, 1999. For the fiscal year
ended August 31, 1999 for High Yield Fund - Investor Class, Select Income Fund -
Investor Class and U.S. Government Securities Fund -Investor Class and the
period ended August 31, 1999 and the fiscal year ended June 30, 1999 for
Tax-Free Bond Fund Investor Class, allocation of 12b-1 amounts paid by the
Funds' Investor Class shares for the following categories of expenses were:
High Yield Fund - Investor Class
Year Ended
August 31, 1999
Advertising $526,714
Sales literature, printing, and postage 219,853
Direct Mail 82,680
Public Relations/Promotion 114,478
Compensation to securities dealers
and other organizations 720,738
Marketing personnel 368,286
<PAGE>
Select Income Fund - Investor Class
Year Ended
August 31, 1999
Advertising $317,336
Sales literature, printing, and postage 118,551
Direct Mail 49,357
Public Relations/Promotion 55,990
Compensation to securities dealers
and other organizations 618,053
Marketing personnel 162,500
Tax-Free Bond Fund - Investor Class
Period Ended Year Ended
August 31, 1999(a) June 30, 1999
Advertising $11,904 $232,757
Sales literature, printing, and postage 30,914 63,087
Direct Mail 3,948 18,290
Public Relations/Promotion 6,713 35,630
Compensation to securities dealers
and other organizations 13,659 64,692
Marketing personnel 18,614 110,410
U.S. Government Securities Fund - Investor Class
Year Ended
August 31, 1999
Advertising $40,932
Sales literature, printing, and postage 17,723
Direct Mail 5,814
Public Relations/Promotion 8,756
Compensation to securities dealers
and other organizations 72,870
Marketing personnel 30,304
(a) For the period July 1, 1999 through August 31, 1999.
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.
<PAGE>
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 also 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 the affected class
of the Fund's 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.
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:
<PAGE>
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.
OTHER SERVICE PROVIDERS
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 950 Seventeenth Street, Suite 2500, 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.
<PAGE>
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 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.
<PAGE>
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 underwriting discounts and brokerage commissions
paid by each Fund for the periods outlined in the table below were:
High Yield Fund
Year Ended August 31, 1999 $1,665,183
Year Ended August 31, 1998 3,324,014
Year Ended August 31, 1997 2,922,214
Select Income Fund
Year Ended August 31, 1999 $ 553,125
Year Ended August 31, 1998 686,913
Year Ended August 31, 1997 1,171,410
Tax-Free Bond Fund
Period ended August 31, 1999(a) $ 0
Year Ended June 30, 1999 0
Year Ended June 30, 1998 623,244
Year Ended June 30, 1997 748,918
U.S. Government Securities Fund
Year Ended August 31, 1999 $ 0
Year Ended August 31, 1998 0
Year Ended August 31, 1997 0
(a) For the period July 1, 1999 through August 31, 1999.
For the fiscal year ended August 31, 1999 with respect to High Yield,
Select Income and U.S. Government Securities Fund and for the period ended
August 31, 1999 with respect to Tax-Free Bond Fund, brokers providing research
services received $918 in commissions on portfolio transactions effected for the
Funds. The aggregate dollar amount of such portfolio transactions was $775,745.
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, 1999 with respect to High Yield,
Select Income and U.S. Government Securities Fund. Commissions totaling $0
<PAGE>
and $0 were allocated to certain brokers in recognition of their sales of
shares of Tax-free Bond Fund on portfolio transactions of Tax-Free Bond Fund
during the period ended August 31, 1999 and the fiscal year ended June 30, 1999,
respectively.
At August 31, 1999, each Fund held debt securities of its regular brokers or
dealers, or their parents, as follows:
- --------------------------------------------------------------------------------
VALUE OF SECURITIES
FUND BROKER OR DEALER AT AUGUST 31, 1999
================================================================================
High Yield
- --------------------------------------------------------------------------------
State Street Bank & Trust $4,500,000
- --------------------------------------------------------------------------------
Associates Corporation $39,000,000
of North America
- --------------------------------------------------------------------------------
Select Income
- --------------------------------------------------------------------------------
State Street Bank & Trust $1,389,000
General Electric $9,000,000
- --------------------------------------------------------------------------------
Tax-Free Bond
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
U.S. Government
Securities
- --------------------------------------------------------------------------------
State Street Bank & Trust $1,210,000
- --------------------------------------------------------------------------------
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.
<PAGE>
CAPITAL STOCK
The Company is authorized to issue up to two billion shares of common stock with
a par value of $0.01 per share. As of December 31, 1999, the following shares of
each Fund were outstanding:
High Yield Fund - Investor Class 117,165,459
High Yield Fund - Class C 0
Select Income Fund - Investor Class 89,840,517
Select Income Fund - Class C 0
Tax-Free Bond Fund - Investor Class 12,577,351
Tax-Free Bond Fund - Class C 0
U.S. Government Securities Fund - Investor 11,471,097
U.S. Government Securities Fund - Class C 0
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 and Class C
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.
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
<PAGE>
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
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, whether
or not such dividends and distributions are reinvested in additional shares or
<PAGE>
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 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.
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.
<PAGE>
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
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). Total return figures show the rate of return on a $10,000
investment in a Fund, assuming reinvestment of all dividends and capital gain
distributions for the periods cited.
<PAGE>
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, 1999 was:
Name of Fund 1 Year 5 Year 10 Year
High Yield Fund - Investor Class 6.53% 10.43% 9.10%
Select Income Fund - Investor Class 0.15% 8.15% 8.55%
Tax-Free Bond Fund - Investor Class -1.00%(a) 5.12% 6.59%
U.S. Government Securities Fund - Investor Class -3.40% 6.98% 7.08%
(a) For the period July 1, 1999 through August 31, 1999.
Average annual total return performance is not provided for each Fund's Class C
shares since they are not offered until February 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:
<PAGE>
P(1 + T)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
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:
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
<PAGE>
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
U.S. NEWS AND WORLD REPORT
UNITED MUTUAL FUND SELECTOR
USA TODAY
THE WALL STREET JOURNAL
WIESENBERGER INVESTMENT COMPANIES SERVICES
WORKING WOMAN
WORTH
FINANCIAL STATEMENTS
The financial statements for the Funds for the fiscal year ended August 31, 1999
are incorporated herein by reference from INVESCO Bond Funds, Inc.'s Annual
Report to Shareholders dated August 31, 1999.
<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
obligation and indicates an extremely strong capacity to pay principal and
interest.
<PAGE>
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 Incorporation filed April 2, 1993.(1)
(1) Articles of Amendment to Articles of Incorporation filed
May 13, 1998.(6)
(2) Articles of Amendment to Articles of Incorporation filed
October 28, 1998.(3)
(3) Articles Supplementary to Articles of Incorporation filed
May 28, 1999.(4)
(4) Articles of Amendment to Articles of Incorporation filed
August 13, 1999.(5)
(5) Articles of Transfer of INVESCO Tax-Free Income Funds,
Inc. and INVESCO Bond Funds, Inc. filed August 13, 1999.(5)
(6) Articles of Amendment and Restatement of Articles of
Incorporation filed December 2, 1999.
(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) (1) Investment Advisory Agreement between Registrant and
INVESCO Funds Group, Inc. dated February 28, 1997.(2)
(a) Amendment dated August 13, 1999 to Advisory
Agreement.(5)
(e) (1) General Distribution Agreement between Registrant and
INVESCO Distributors, Inc. dated September 30, 1997.(2)
(f) (1) Amended Defined Benefit Deferred Compensation Plan for
Non-Interested Directors and Trustees.
(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.(6)
(4) Amended Fee Schedule effective January 1, 2000.
<PAGE>
(h) (1) Transfer Agency Agreement between Registrant and INVESCO
Funds Group, Inc. dated February 28, 1997.(2)
(a) Amendment dated October 29, 1998 to Transfer Agency
Agreement.(5)
(2) Administrative Services Agreement between Registrant and
INVESCO Funds Group, Inc. dated February 28, 1997.(2)
(a) Amendment dated May 13, 1999 to Administrative
Services Agreement.(5)
(b) Amendment dated August 16, 1999 to Administrative
Services Agreement.
(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) Opinon 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.(5)
(j) Consent of Independent Accountants.
(k) Not applicable.
(l) Not applicable.
(m) (1) Amended Plan and Agreement of Distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940 dated
September 30, 1997 with respect to the Funds' Investor Class
shares.(2)
(2) Form of Master Distribution Plan and Agreement adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940
dated January __, 2000, with respect to the Funds' Class C
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.
(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.
(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.
(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.
<PAGE>
(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. 38 to the Registration
Statement on October 28, 1998, and incorporated by reference herein.
(4) Previously filed with Post-Effective Amendment No. 39 to the Registration
Statement on August 13, 1999, and incorporated by reference herein.
(5) Previously filed with Post-Effective Amendment No. 40 to the Registration
Statement on August 30, 1999, and incorporated by reference herein.
(6) Previously filed with Post-Effective Amendment No. 41 to the Registration
Statement on October 29, 1999, 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 Seventh of the Articles of Incorporation, and
are hereby incorporated by reference. See Item 24 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.
<PAGE>
- --------------------------------------------------------------------------------
POSITION WITH PRINCIPAL OCCUPATION AND
NAME ADVISER COMPANY AFFILIATION
- --------------------------------------------------------------------------------
Mark H. Williamson Chairman, President & Chief Executive
Director and Officer
Officer INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Raymond R. Cunningham Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
William J. Galvin, Jr. Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Ronald L. Grooms Officer & Senior Vice President & Treasurer
Director INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Richard W. Healey Officer & Senior Vice President
Director 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
- --------------------------------------------------------------------------------
Charles P. Mayer Officer & Senior Vice President
Director INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Timothy J. Miller Officer & Senior Vice President
Director 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
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Elroy E. Frye, Jr. 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
- --------------------------------------------------------------------------------
Mark D. Greenberg Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Brian B. Hayward 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 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
- --------------------------------------------------------------------------------
Steve King 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
- --------------------------------------------------------------------------------
Ronald C. Lively 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
- --------------------------------------------------------------------------------
Trent E. May 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
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Pamela J. Piro Officer Vice President
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
- --------------------------------------------------------------------------------
James B. Sandidge Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
John S. Segner 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
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Thomas R. Wald Officer INVESCO Funds Group, Inc.
Vice President
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Alan I. Watson Officer INVESCO Funds Group, Inc.
Vice President
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Judy P. Wiese Officer INVESCO Funds Group, Inc.
Vice President
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Thomas H. Scanlan Officer INVESCO Funds Group, Inc.
Regional Vice President
12028 Edgepark Court
Potomac, MD 20854
- --------------------------------------------------------------------------------
Reagan A. Shopp Officer INVESCO Funds Group, Inc.
Regional Vice President
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Michael D. Legoski Officer INVESCO Funds Group, Inc.
Assistant Vice President
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
William S. Mechling Officer INVESCO Funds Group, Inc.
Assistant Vice President
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Donald R. Paddack Officer INVESCO Funds Group, Inc.
Assistant Vice President
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Kent T. Schmeckpeper Officer INVESCO Funds Group, Inc.
Assistant Vice President
Account Relationship Manager
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Jeraldine E. Kraus Officer INVESCO Funds Group, Inc.
Assistant Secretary
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
ITEM 27. (a) PRINCIPAL UNDERWRITERS
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
- ------------------ ------------ -------------
William J. Galvin, Jr. Senior Vice Assistant Secretary
7800 E. Union Avenue President &
Denver, CO 80237 Asst. Secretary
Ronald L. Grooms Senior Vice Treasurer,
7800 E. Union Avenue President, Chief Fin'l
Denver, CO 80237 Treasurer, & Officer, and
Director Chief Acctg. Off.
Richard W. Healey Senior Vice
7800 E. Union Avenue President &
Denver, CO 80237 Director
Charles P. Mayer Director
7800 E. Union Avenue
Denver, CO 80237
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 Treasurer
7800 E. Union Avenue
Denver, CO 80237
Judy P. Wiese Assistant Assistant Secretary
7800 E. Union Avenue Secretary
Denver, CO 80237
Mark H. Williamson Chairman of the Board, President,
7800 E. Union Avenue President, & Chief CEO & Director
Denver, CO 80237 Executive Officer
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Mark H. Williamson
7800 E. Union Avenue
Denver, CO 80237
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 effectieness 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 27th day of January, 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/ Victor L. Andrews* /s/ Fred A. Deering*
- ------------------------------- -----------------------------
Victor L. Andrews, Director Fred A. Deering, Director
/s/ Bob R. Baker* /s/ Larry Soll*
- ------------------------------- -----------------------------
Bob R. Baker, Director Larry Soll, Director
/s/ Charles W. Brady*
- -------------------------------
Charles W. Brady, Director
/s/ Wendy L. Gramm*
- -------------------------------
Wendy L. Gramm, Director
By_____________________________ By /s/ Glen A. Payne
Edward F. O'Keefe --------------------------
Attorney in Fact Glen A. Payne
Attorney in Fact
* Original Powers of Attorney authorizing Edward F. O'Keefe and Glen A.
Payne, and each of them, to execute this 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 and October 30, 1997, respectively.
<PAGE>
Exhibit Index
PAGE IN
EXHIBIT NUMBER REGISTRATION STATEMENT
- -------------- ----------------------
a(6) 102
f(1) 110
g(4) 117
h(2)(b) 123
j 124
m(2) 125
o(1) 137
o(2) 141
o(3) 145
o(4) 149
ARTICLES OF AMENDMENT AND RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
INVESCO BOND FUNDS, INC.
INVESCO Bond Funds, Inc., a corporation organized and existing under the
General Corporation Law of the State of Maryland, certifies to the Maryland
State Department of Assessments and Taxation that:
FIRST: INVESCO Bond Funds, Inc. desires to amend and restate its Articles
of Incorporation as currently in effect. The provisions set forth in these
Articles of Amendment and Restatement have been approved by a majority of the
entire board of directors of INVESCO Bond Funds, Inc. and are all the provisions
of the Articles of Incorporation currently in effect. These Articles of
Amendment and Restatement amend the Articles of Incorporation. The Articles of
Incorporation of INVESCO Bond Funds, Inc. are hereby amended and restated in the
following manner:
ARTICLE I
NAME AND TERM
The name of the corporation is INVESCO Bond Funds, Inc. (the "Company").
The corporation shall have perpetual existence.
ARTICLE II
POWERS AND PURPOSES
The nature of the business and the objects and purposes to be transacted,
promoted and carried on by the Company are as follows:
1. To engage in the business of an incorporated investment company of
open-end management type and to engage in all legally permissible
activities and operations usual, customary, or necessary in connection
therewith.
2. In general, to engage in any other business permitted to corporations
by the laws of the State of Maryland and to have and exercise all
powers conferred upon or permitted to corporations by the Maryland
General Corporation Law and any other laws of the State of Maryland;
provided, however, that the Company shall be restricted from engaging
in any activities or taking any actions which would preclude its
compliance with applicable provisions of the Investment Company Act of
1940, as amended, applicable to open-end management type investment
companies or applicable rules promulgated thereunder.
ARTICLE III
CAPITALIZATION
Section 1. The aggregate number of shares of stock of all series that the
Company shall have the authority to issue is two billion (2,000,000,000) shares
of Common Stock, having a par value of one cent ($0.01) per share of all
authorized shares, having an aggregate par value of twenty million dollars
($20,000,000.00). Such stock may be issued as full shares or as fractional
shares.
<PAGE>
In the exercise of the powers granted to the board of directors pursuant
to Section 3 of this Article III, the board of directors designates four series
of shares of common stock of the Company, with two or more classes of shares of
common stock for each series, designated as follows:
<TABLE>
<CAPTION>
Fund Name & Class Allocated Shares
----------------- ----------------
<S> <C>
INVESCO High Yield Fund-Investor Class Three hundred million shares (300,000,000)
INVESCO High Yield Fund-Class C Three hundred million shares (300,000,000)
INVESCO Select Income Fund-Investor Class Three hundred million shares (300,000,000)
INVESCO Select Income Fund-Class C Three hundred million shares (300,000,000)
INVESCO U.S. Government Securities Fund-Investor Class One hundred million shares (100,000,000)
INVESCO U.S. Government Securities Fund-Class C One hundred million shares (100,000,000)
INVESCO Tax-Free Bond Fund-Investor Class One hundred million shares (100,000,000)
INVESCO Tax-Free Bond Fund-Class C One hundred million shares (100,000,000)
</TABLE>
Unless otherwise prohibited by law, so long as the Company is registered
as an open-end investment company under the Investment Company Act of 1940, as
amended, the total number of shares that the Company is authorized to issue may
be increased or decreased by the board of directors in accordance with the
applicable provisions of the Maryland General Corporation Law.
Section 2. No holder of stock of the Company shall be entitled as a matter
of right to purchase or subscribe for any shares of the capital stock of the
Company which it may issue or sell, whether out of the number of shares
authorized by these articles of incorporation, or out of any shares of the
capital stock of the Company acquired by it after the issue thereof.
Section 3. The Company is authorized to issue its stock in one or more
series or one or more classes of shares, and, subject to the requirements of the
Investment Company Act of 1940, as amended, particularly Section 18(f) thereof
and Rule 18f-2 thereunder, the different series and classes, if any, shall be
established and designated, and the variations in the relative preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption as between the
different series or classes shall be fixed and determined and may be classified
and reclassified by the board of directors; provided that the board of directors
shall not classify or reclassify any of such shares into any class or series of
stock which is prior to any class or series of stock then outstanding with
respect to rights upon the liquidation, dissolution or winding up of the affairs
of, or upon any distribution of the general assets of, the Company, except that
there may be variations so fixed and determined between different series or
classes as to investment objective, purchase price, right of redemption, special
rights as to dividends and on liquidation with respect to assets and income
belonging to a particular series or class, voting powers and conversion rights.
All references to shares in these articles of incorporation shall be deemed to
be shares of any or all series and classes of shares of the Company's capital
stock as the context may require.
(a) The number of authorized shares allocated to each series or class and
the number of shares of each series or of each class that may be
issued shall be in such number as may be determined by the board of
directors. The directors may classify or reclassify any unissued
shares or any shares previously issued and reacquired of any series or
class into one or more series or one or more classes that may be
established and designated by the board of directors from time to
time. The directors may hold as treasury shares (of the same or some
other series or class), reissue for such consideration and on such
terms as they may determine, or cancel any shares of any series or any
class reacquired by the Company at their discretion from time to time.
(b) All consideration received by the Company for the issue or sale of
shares of a particular series or class, together with all assets in
which such consideration is invested or reinvested, all income,
earnings, profits and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds
<PAGE>
or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall irrevocably belong to that series or class
for all purposes, subject only to the rights of creditors of that
series or class, and shall be so recorded upon the books of account of
the Company. In the event that there are any assets, income, earnings,
profits and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular series or class, the
directors shall allocate them among any one or more of the series or
classes established and designated from time to time in such manner
and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Company shall be conclusive and
binding upon the stockholders of all series or classes for all
purposes. The directors shall have full discretion, to the extent not
inconsistent with the Investment Company Act of 1940, as amended, and
the Maryland General Corporation Law to determine which items shall be
treated as income and which items shall be treated as capital; and
each such determination and allocation shall be conclusive and binding
upon the stockholders.
(c) The assets belonging to each particular class or series shall be
charged with the liabilities of the Company in respect to that class
or series and all expenses, costs, charges and reserves attributable
to that class or series, and any general liabilities, expenses, costs,
charges or reserves of the Company which are not readily identifiable
as belonging to any particular class or series shall be allocated and
charged by the directors to and among any one or more of the classes
or series established and designated from time to time in such manner
and on such basis as the directors in their sole discretion deem fair
and equitable. Each allocation of liabilities, expenses, costs,
charges and reserves by the directors shall be conclusive and binding
upon the stockholders of all series and classes for all purposes.
(d) Dividends and distributions on shares of a particular series or class
may be paid with such frequency as the directors may determine, which
may be daily or otherwise, pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the board of
directors may determine, to the holders of shares of that series or
class, from such of the income and capital gains, accrued or realized,
from the assets belonging to that series or class, as the directors
may determine, after providing for actual and accrued liabilities
belonging to that series or class. All dividends and distributions on
shares of a particular series or class shall be distributed pro rata
to the holders of that series or class in proportion to the number of
shares of that series or class held by such holders at the date and
time of record established for the payment of such dividends or
distributions except that in connection with any dividend or
distribution program or procedure, the board of directors may
determine that no dividend or distribution shall be payable on shares
as to which the stockholder's purchase order and/or payment have not
been received by the time or times established by the board of
directors under such program or procedure.
The Company intends to have each series that may be established to
represent interests of a separate investment portfolio qualify as a
"regulated investment company" under the Internal Revenue Code of
1986, or any successor comparable statute thereto, and regulations
promulgated thereunder. Inasmuch as the computation of net income and
gains for federal income tax purposes may vary from the computation
thereof on the books of the Company, the board of directors shall have
the power, in its sole discretion, to distribute in any fiscal year as
dividends, including dividends designated in whole or in part as
capital gains distributions, amounts sufficient, in the opinion of the
board of directors, to enable the respective series to qualify as
regulated investment companies and to avoid liability of such series
for federal income tax in respect of that year. However, nothing in
the foregoing shall limit the authority of the board of directors to
make distributions greater than or less than the amount necessary to
qualify the series as regulated investment companies and to avoid
liability of such series for such tax.
<PAGE>
(e) Dividends and distributions may be made in cash, property or
additional shares of the same or another class or series, or a
combination thereof, as determined by the board of directors or
pursuant to any program that the board of directors may have in effect
at the time for the election by each stockholder of the mode of the
making of such dividend or distribution to that stockholder. Any such
dividend or distribution paid in shares will be paid at the net asset
value thereof as defined in section (4) below.
(f) In the event of the liquidation or dissolution of the Company or of a
particular class or series, the stockholders of each class or series
that has been established and designated and is being liquidated shall
be entitled to receive, as a class or series, when and as declared by
the board of directors, the excess of the assets belonging to that
class or series over the liabilities belonging to that class or
series. The holders of shares of any particular class or series shall
not be entitled thereby to any distribution upon liquidation of any
other class or series. The assets so distributable to the stockholders
of any particular class or series shall be distributed among such
stockholders in proportion to the number of shares of that class or
series held by them and recorded on the books of the Company. The
liquidation of any particular class or series in which there are
shares then outstanding may be authorized by vote of a majority of the
board of directors then in office, subject to the approval of a
majority of the outstanding securities of that class or series, as
defined in the Investment Company Act of 1940, as amended, and without
the vote of the holders of any other class or series. The liquidation
or dissolution of a particular class or series may be accomplished, in
whole or in part, by the transfer of assets of such class or series to
another class or series or by the exchange of shares of such class or
series for the shares of another class or series.
(g) On each matter submitted to a vote of the stockholders, each holder of
a share shall be entitled to one vote for each share standing in his
name on the books of the Company, irrespective of the class or series
thereof, and all shares of all classes or series shall vote as a
single class or series ("single class voting"); provided, however that
(i) as to any matter with respect to which a separate vote of any
class or series is required by the Investment Company Act of 1940, as
amended, or by the Maryland General Corporation Law, such requirement
as to a separate vote by that class or series shall apply in lieu of
single class voting as described above; (ii) in the event that the
separate vote requirements referred to in (i) above apply with respect
to one or more but not all classes or series, then, subject to (iii)
below, the shares of all other classes or series shall vote as a
single class or series; and (iii) as to any matter which does not
affect the interest of a particular class or series, only the holders
of shares of the one or more affected classes shall be entitled to
vote. Holders of shares of the stock of the Company shall not be
entitled to exercise cumulative voting in the election of directors or
on any other matter.
(h) The establishment and designation of any series or class of shares, in
addition to the initial class of shares which has been established in
section (1) above, shall be effective upon the adoption by a majority
of the then directors of a resolution setting forth such establishment
and designation and the relative rights and preferences of such series
or class, or as otherwise provided in such instrument and the filing
with the proper authority of the State of Maryland of Articles
Supplementary setting forth such establishment and designation and
relative rights and preferences.
Section 4. The Company shall, upon due presentation of a share or shares
of stock for redemption, redeem such share or shares of stock at a redemption
price prescribed by the board of directors in accordance with applicable laws
and regulations; provided that in no event shall such price be less than the
applicable net asset value per share of such class or series as determined in
accordance with the provisions of this section (4), less such redemption or
other charge as is determined by the board of directors. Subject to applicable
<PAGE>
law, the Company may redeem shares, not offered by a stockholder for redemption,
held by any stockholder whose shares of a class or series had a value less than
such minimum amount as may be fixed by the board of directors from time to time
or prescribed by applicable law, other than as a result of a decline in value of
such shares because of market action; provided that before the Company redeems
such shares it must notify the shareholder by first-class mail that the value of
his shares is less than the required minimum value and allow him 60 days to make
an additional investment in an amount which will increase the value of his
account to the required minimum value. Unless otherwise required by applicable
law, the price to be paid for shares redeemed pursuant to the preceding sentence
shall be the aggregate net asset value of the shares at the close of business on
the date of redemption, and the shareholder shall have no right to object to the
redemption of his shares. The Company shall pay redemption prices in cash,
except that the Company may at its sole option pay redemption prices in kind in
such manner as is consistent with and not in contravention of Section 18(f) of
the Investment Company Act of 1940, as amended, and any Rules or Regulations
thereunder. Redemption prices shall be paid exclusively out of the assets of the
class or series whose shares are being redeemed.
Notwithstanding the foregoing, the Company may postpone payment of
redemption proceeds and may suspend the right of the holders of shares of any
class or series to require the Company to redeem shares of that class or series
during any period or at any time when and to the extent permissible under the
Investment Company Act of 1940, as amended, or any rule or order thereunder.
The net asset value of a share of any class or series of common stock of
the Company shall be determined in accordance with applicable laws and
regulations or under the supervision of such persons and at such time or times
as shall from time to time be prescribed by the board of directors.
Section 5. The Company may issue, sell, redeem, repurchase and otherwise
deal in and with shares of its stock in fractional denominations and such
fractional denominations shall, for all purposes, be shares having
proportionately to the respective fractions represented thereby all the rights
of whole shares, including without limitation, the right to vote, the right to
receive dividends and distributions, and the right to participate upon
liquidation of the Company; provided that the issue of shares in fractional
denominations shall be limited to such transactions and be made upon such terms
as may be fixed by or under authority of the bylaws.
Section 6. The Company shall not be obligated to issue certificates
representing shares of any class or series unless it shall receive a written
request therefor from the record holder thereof in accordance with procedures
established in the bylaws or by the board of directors.
ARTICLE IV
PREEMPTIVE RIGHTS
No stockholder of the Company of any class or series, whether now or
hereafter authorized, shall have any preemptive or preferential or other right
of purchase of or subscription to any share of any class or series of stock, or
shares convertible into, exchangeable for or evidencing the right to purchase
stock of any class or series whatsoever, whether or not the stock in question be
of the same class or series as may be held by such stockholder, and whether now
or hereafter authorized and whether issued for cash, property, services or
otherwise, other than such, if any, as the board of directors in its discretion
may from time to time fix.
ARTICLE V
PRINCIPAL OFFICE AND REGISTERED AGENT
The post office address of the principal office of the Company in the
State of Maryland is 32 South Street, Baltimore, Maryland 21202. The resident
agent of the Company is The Corporation Trust Incorporated, whose post office
address is 32 South Street, Baltimore, Maryland 21202. Said resident agent is a
corporation of the State of Maryland. The Company owns no interest in land
located in the State of Maryland.
<PAGE>
ARTICLE VI
DIRECTORS
Section 1. The board of directors currently consists of ten members who
need not be residents of the State of Maryland or stockholders of the Company.
Section 2. The names of the current directors who shall act until their
successors are duly elected and qualified are as follows:
Charles W. Brady
Fred A. Deering
Mark H. Williamson
Dr. Victor L. Andrews
Bob R. Baker
Lawrence H. Budner
Dr. Wendy L. Gramm
Kenneth T. King
John W. McIntyre
Dr. Larry Soll
Section 3. The number of directors may be increased or decreased in
accordance with the bylaws, provided that the number shall not be reduced to
less than three.
Section 4. A majority of the directors shall constitute a quorum for the
transaction of business, unless the bylaws shall provide that a different number
shall constitute a quorum; provided, however, that in no case shall a quorum be
less than one-third (1/3) of the total number of directors or less than two (2)
directors.
Section 5. No person shall serve as a director, unless elected by the
stockholders at an annual meeting or a special meeting called for such purpose;
except that vacancies occurring between such meetings may be filled by the
directors in accordance with the bylaws, and subject to such limitations as may
be set forth by applicable laws and regulations.
Section 6. The board of directors of the Company is hereby empowered to
authorize the issuance from time to time of shares of stock, whether of a class
or series now or hereafter authorized, for such consideration as it deems
advisable, subject to such limitations as may be set forth herein, in the
bylaws, in the Maryland General Corporation Law, and in the Investment Company
Act of 1940, as amended.
Section 7. The board of directors of the Company may make, alter or repeal
from time to time any of the bylaws of the Company except any particular bylaw
that is specified as not subject to alternation or repeal by the board of
directors.
ARTICLE VII
LIABILITY AND INDEMNIFICATION
Section 1. Directors and officers of the Company, including persons who
formerly have served in such capacities, shall have limitations on, and/or
immunity from, liability of such directors and officers to the fullest extent
permitted by the Maryland General Corporation Law, subject only to such
<PAGE>
restrictions as may be required by the Investment Company Act of 1940, as
amended, and the rules thereunder. Such limitations and/or immunity will apply
to acts or omissions occurring at the time an individual serves as a director or
officer of the Company, whether such person is a director or officer of the
Company at the time of any proceeding in which liability is asserted against the
director or officer. No amendment to these Articles of Incorporation or repeal
of any of its provisions shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to any act or omission
which occurred prior to such amendment or repeal.
Section 2. The Company shall indemnify and advance expenses to its
directors and officers, including persons who formerly have served in such
capacities, to the fullest extent permitted to directors by the Maryland General
Corporation Law and the bylaws of the Company, as such Law and bylaws now or in
the future may be in effect, subject only to such limitations as may be required
by the Investment Company Act of 1940, as amended, and the rules thereunder.
ARTICLE VIII
SPECIAL VOTING AND MEETING PROVISIONS
Section 1. Notwithstanding any provision of Maryland law requiring a
greater proportion than a majority of the votes of all classes or of any class
of stock entitled to be cast to take or authorize any action, the Company may
take or authorize any such action upon the concurrence of a majority of the
aggregate number of the votes entitled to be cast thereon.
Section 2. The presence in person or by proxy of the holders of one-third
of the shares of stock of the Company entitled to vote without regard to class
shall constitute a quorum at any meeting of stockholders, except with respect to
any matter which by law requires the approval of one or more classes of stock,
in which case the presence in person or by proxy of the holders of one-third of
the shares of stock of each class entitled to vote on the matter shall
constitute a quorum.
Section 3. So long as the Company is registered pursuant to the Investment
Company Act of 1940, as amended, the Company will not be required to hold annual
shareholder meetings in years in which the election of directors is not required
to be acted upon under the Investment Company Act of 1940, as amended.
ARTICLE IX
AMENDMENT
The Company reserves the right from time to time to make any amendment of
its articles of incorporation now or hereafter authorized by law, including any
amendment which alters the contract rights, as expressly set forth in such
articles, of any outstanding stock by classification, reclassification or
otherwise, but no such amendment which changes the terms or rights of any of its
outstanding shares shall be valid unless such amendment shall have been
authorized by not less than a majority of the aggregate number of votes entitled
to be cast thereon, by a vote at a meeting or in writing with or without a
meeting.
SECOND: The foregoing amendment was duly adopted in accordance with the
requirements of ss.ss. 2-408, -607, and -608 of the General Corporation Law of
the State of Maryland. The undersigned Secretary of the Company who is executing
on behalf of the Company the foregoing Articles of Restatement, of which this
paragraph is made a part, hereby acknowledges, in the name and on behalf of the
Company, the foregoing Articles of Restatement to be the corporate act of the
Company and further verifies under oath that, to the best of his knowledge,
information and belief, the matters and facts set forth herein are true in all
material respects, under penalties of perjury.
<PAGE>
IN WITNESS WHEREOF, INVESCO Bond Funds, Inc. has caused these Articles of
Amendment and Restatement to be signed in its name and on its behalf by its
President and witnessed by its Secretary on this 29 day of November, 1999.
INVESCO BOND FUNDS, INC.
By: /s/ Mark H. Williamson
-----------------------
Mark H. Williamson, President
[SEAL]
WITNESSED
By: /s/ Glen A. Payne
------------------
Glen A. Payne, Secretary
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
I, Ruth A. Christensen, a Notary Public in the City and County of Denver,
State of Colorado, do hereby certify that Mark H. Williamson, personally known
to me to be the person whose name is subscribed to the foregoing Articles of
Incorporation, appeared before me this date in person and acknowledged that he
signed, sealed and delivered said instrument as his full and voluntary act and
deed for the uses and purposes therein set forth.
Witness my hand and official seal this 29 day of November, 1999.
Ruth A. Christensen
-------------------
Notary Public
My commission expires March 16, 2002.
DEFINED BENEFIT DEFERRED COMPENSATION PLAN
FOR NON-INTERESTED DIRECTORS
As Amended November 10, 1999
The registered, open-end management investment companies referred to on
Schedule A as the Schedule may hereafter be revised by the addition and deletion
of investment companies (the "Funds") have adopted this Defined Benefit Deferred
Compensation Plan ("Plan") for the benefit of those directors of the Funds who
are not interested directors thereof as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended ("Independent Directors").
1. Eligibility
Each Independent Director who has served as such ("Eligible Service") on
the boards of any of the Funds and their predecessor and successor entities, if
any, for an aggregate of at least five years at the time of his/her Service
Termination Date (as defined in paragraph 2) will be entitled to receive
benefits under the Plan. An Independent Director's period of Eligible Service
commences on the date of election to the board of directors of any one or more
of the Funds ("Board"). Hereafter, references in this Plan to Independent
Directors shall be deemed to include only those Directors who have met the
Eligible Service requirement for Plan participation.
2. Service Termination and Service Termination Date
a. Service Termination. Service Termination means termination of service
(other than by disability or death) of an Independent Director which results
from the Director's having reached his/her Service Termination Date.
b. Service Termination Date. An Independent Director's Service Termination
Date is that date upon which he or she no longer serves as a Director. Normally,
an Independent Director's Service Termination Date will be the last day of the
calendar quarter in which such Director's seventy-second birthday occurs. A
majority of the Board of a Fund may annually extend a Director's normal Service
Termination Date for a maximum period of three years, through the date not later
than the last day of the calendar quarter in which such Director's seventy-fifth
birthday occurs.
As used in this Plan unless otherwise stipulated, Service Termination Date
shall mean the date upon which the Director no longer serves as a Director.
<PAGE>
3. Defined Payments and Benefit
a. Payments. If an Independent Director's Service Termination Date occurs
on a date not earlier than the last day of the calendar quarter in which such
Director's seventy-second birthday occurs and not later than the last day of the
calendar quarter in which such Director's seventy-fourth birthday occurs, the
Independent Director will receive four successive quarterly payments (the "First
Year Retirement Payments"), with each payment to be equal to 25 percent of the
sum of the annual basic retainer and annualized quarterly Board meeting fees
payable by each Fund to the Independent Director on his/her Service Termination
Date (excluding any fees relating to attending or chairing committee meetings or
other fees payable to an Independent Director). The first quarterly First Year
Retirement Payment shall be made on the first day of the calendar quarter
subsequent to the Independent Director's Service Termination Date.
b. Benefit. Commencing with the first day of the calendar quarter following
the calendar quarter in which an Independent Director has received the last of
four First Year Retirement Payments, and commencing as of the Service
Termination Date of an Independent Director whose Service Termination Date is
subsequent to the date of the last day of the calendar quarter in which such
Director's seventy-fourth birthday occurred, the Independent Director will
receive, for the remainder of his/her life, a benefit (the "Benefit"), payable
quarterly, with each quarterly payment to be equal to 12.50 percent of the sum
of the annual basic retainer and annualized quarterly Board meeting fees payable
by each Fund to the Independent Director on his/her Service Termination Date
(excluding any fees relating to attending or chairing committee meetings or
other fees payable to an Independent Director).
If an Independent Director's Service Termination Date occurs prior to the
date of the last day of the calendar quarter in which such Director's
seventy-second birthday occurs as a result of the Director's voluntary
resignation, the Independent Director will receive the Benefit commencing on the
first day of the calendar quarter following the calendar quarter in which such
Director's seventy-second birthday occurs.
Example: As of July 1, 1998, the annual Benefit would be $34,000 (annual
basic retainer of $56,000 plus annualized quarterly Board meeting fees of
$12,000 times 12.50 percent of the total each quarter: $56,000 + $12,000 =
$68,000 x .125 = $8,500 x 4 = $34,000). As of July 1, 1998, the vice chairman of
the Funds receives an aggregate annual retainer of $62,000. The vice chairman's
annual Benefit would be $37,000. The annual Benefit may increase or decrease in
the future in accordance with changes in the Independent Directors' annual basic
retainer and/or Board meeting fees.
c. Death Provisions. If an Independent Director's service as a Director is
terminated because of his/her death subsequent to the last day of the calendar
quarter in which such Director's seventy-second birthday occurred and prior to
the last day of the calendar quarter in which such Director's seventy-fourth
birthday occurs, the designated beneficiary of the Independent Director shall
receive the First Year Retirement Payments and shall, commencing with the
quarter following the quarter in which the last First Year Retirement Payment is
made, receive the Benefit for a period of ten years, with quarterly payments to
be made to the designated beneficiary.
<PAGE>
If an Independent Director's service as a Director is terminated because
of his/her death prior to the last day of the calendar quarter in which such
Director's seventy-second birthday occurs or subsequent to the last day of the
calendar quarter in which such Director's seventy-fourth birthday occurred, the
designated beneficiary of the Independent Director shall receive the Benefit for
a period of ten years, with quarterly payments to be made to the designated
beneficiary commencing in the first quarter following the Director's death.
d. Disability Provisions. If an Independent Director's service as a
Director is terminated because of his/her disability subsequent to the last day
of the calendar quarter in which such Director's seventy-second birthday
occurred and prior to the last day of the calendar quarter in which such
Director's seventy-fourth birthday occurs, the Independent Director shall
receive the First Year Retirement Payments and shall, commencing with the
quarter following the quarter in which the last First Year Retirement Payment is
made, receive the Benefit for the remainder of his/her life, with quarterly
payments to be made to the disabled Independent Director. If the disabled
Independent Director should die before the First Year Retirement Payments are
completed and before forty quarterly Benefit payments are made, such payments
will continue to be made to the Independent Director's designated beneficiary
until the aggregate of the First Year Retirement Payments and forty quarterly
Benefit payments have been made to the disabled Independent Director and the
Director's designated beneficiary.
If an Independent Director's service as a Director is terminated because
of his/her disability prior to the last day of the calendar quarter in which
such Director's seventy-second birthday occurs or subsequent to the last day of
the calendar quarter in which such Director's seventy-fourth birthday occurred,
the Independent Director shall receive the Benefit for the remainder of his/her
life, with quarterly payments to be made to the disabled Independent Director
commencing in the first quarter following the Director's termination for
disability. If the disabled Independent Director should die before forty
quarterly payments are made, payments will continue to be made to the
Independent Director's designated beneficiary until the aggregate of forty
quarterly payments has been made to the disabled Independent Director and the
Director's designated beneficiary.
e. Death of Independent Director and Beneficiary. If, subsequent to the
death of the Independent Director, his/her designated beneficiary should die
before the First Year Retirement Payments (if applicable) and/or a total of
forty quarterly Benefit payments are made, the remaining value of the
Independent Director's First Year Retirement Payments, if any, and/or Benefit
(which Benefit shall in no event exceed the value of forty quarterly payments
minus the number of payments made) shall be determined as of the date of the
death of the Independent Director's designated beneficiary and shall be paid to
the estate of the designated beneficiary in one lump sum or in periodic
payments, with the determinations with respect to the value of the First Year
Retirement Payments, if any, and/or Benefit and the method and frequency of
payment to be made by the Committee (as defined in paragraph 8.a.) in its sole
discretion.
<PAGE>
4. Designated Beneficiary
The beneficiary referred to in paragraph 3 may be designated or changed by
the Independent Director without the consent of any prior beneficiary on a form
provided by the Committee (as defined in paragraph 8.a.) and delivered to the
Committee (or its designee as described on the form) before the Independent
Director's death. If no such beneficiary shall have been designated, or if no
designated beneficiary shall survive the Independent Director, the value or
remaining value of the Independent Director's First Year Retirement Payments, if
any, and/or Benefit (which Benefit shall in no event exceed the value of forty
quarterly payments minus the number of payments made) shall be determined as of
the date of the death of the Independent Director by the Committee and shall be
paid as promptly as possible in one lump sum to the Independent Director's
estate.
5. Disability
An Independent Director shall be deemed to have become disabled for the
purposes of paragraph 3 if the Committee shall find on the basis of medical
evidence satisfactory to it that the Independent Director is disabled, mentally
or physically, as a result of an accident or illness, so as to be prevented from
performing each of the duties which are incumbent upon an Independent Director
in fulfilling his/her responsibilities as such.
6. Time of Payment
The First Year Retirement Payments and/or the Benefit for each year will
be paid in quarterly installments that are as nearly equal as possible.
7. Payment of First Year Retirement Payments and/or Benefit; Allocation of
Costs
Each Fund is responsible for the payment of the amount of the First Year
Retirement Payments and/or Benefit applicable to the Fund, as well as its
proportionate share of all expenses of administration of the Plan, including
without limitation all accounting and legal fees and expenses and fees and
expenses of any Actuary. The obligations of each Fund to pay such First Year
Retirement Payments and/or Benefit and expenses will not be secured or funded in
any manner, and such obligations will not have any preference over the lawful
claims of each Fund's creditors and shareholders. To the extent that the First
Year Retirement Payments and/or Benefit is paid by more than one Fund, such
costs and expenses will be allocated among such Funds in a manner that is
determined by the Committee to be fair and equitable under the circumstances. To
the extent that one or more of such Funds consist of one or more separate
portfolios, such costs and expenses allocated to any such Fund will thereafter
be allocated among such portfolios by the Board of the Fund in a manner that is
determined by such Board to be fair and equitable under the circumstances.
<PAGE>
8. Administration
a. The Committee. Any question involving entitlement to payments under or
the administration of the Plan will be referred to a four-person committee (the
"Committee") composed of three Independent Directors designated by all of the
Independent Directors of the Funds and one director of the Funds who is not an
Independent Director, designated by the non-Independent Directors. Except as
otherwise provided herein, the Committee will make all interpretations and
determinations necessary or desirable for the Plan's administration, and such
interpretations and determinations will be final and conclusive. Committee
members will be elected annually.
b. Powers of the Committee. The Committee will represent and act on behalf
of the Funds in respect of the Plan and, subject to the other provisions of the
Plan, the Committee may adopt, amend or repeal bylaws or other regulations
relating to the administration of the Plan, the conduct of the Committee's
affairs, its rights or powers, or the rights or powers of its members. The
Committee will report to the Independent Directors and to the Boards of the
Funds from time to time on its activities in respect of the Plan. The Committee
or persons designated by it will cause such records to be kept as may be
necessary for the administration of the Plan.
9. Miscellaneous Provisions
a. Rights Not Assignable. Other than as is specifically provided in
paragraph 3, the right to receive any payment under the Plan is not transferable
or assignable, and nothing in the Plan shall create any benefit, cause of
action, right of sale, transfer, assignment, pledge, encumbrance, or other such
right in any heirs or the estate of any Independent Director.
b. Amendment, etc. The Committee, with the concurrence of the Board of any
Fund, may as to the specific Fund at any time amend or terminate the Plan or
waive any provision of the Plan; provided, however, that subject to the
limitations imposed by paragraph 7, no amendment, termination or waiver will
impair the rights of an Independent Director to receive the payments which would
have been made to such Independent Director had there been no such amendment,
termination, or waiver. Notwithstanding any other provisions of this Plan which
may imply the contrary, amendments to the Plan which directly or indirectly
increase or otherwise enhance or improve the First Year Retirement Payments, the
Benefit, or other Plan provisions will be applied prospectively, but not
retroactively, to Independent Directors who have reached their Service
Termination Dates and who either are eligible in the future to receive, or are
receiving, First Year Retirement Payments or Benefits.
c. No Right to Reelection. Nothing in the Plan will create any obligation
on the part of the Board of any Fund to nominate any Independent Director for
reelection.
d. Consulting. Subsequent to his/her Service Termination Date, an
Independent Director may render such services for any Fund, for such
compensation, as may be agreed upon from time to time by such Independent
Director and the Board of the Fund which desires to procure such services.
<PAGE>
e. Effectiveness. The Plan will be effective for all Independent Directors
who have Service Termination Dates occurring on and after October 20, 1993.
Periods of Eligible Service shall include periods commencing prior and
subsequent to such date. Upon its adoption by the Board of a Fund, the Plan will
become effective as to that Fund on the date when the Committee determines that
any regulatory approval or advice that may be necessary or appropriate in
connection with the Plan have been obtained.
Adopted October 20, 1993.
Amended October 19, 1994.
Amended May 1, 1996, effective July 1, 1996.
Amended May 13, 1998, effective July 1, 1998.
Amended November 10, 1999.
<PAGE>
SCHEDULE A
TO
DEFINED BENEFIT DEFERRED COMPENSATION PLAN
FOR NON-INTERESTED DIRECTORS
INVESCO Bond Funds, Inc.
INVESCO Combination Stock and Bond Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Specialty Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Variable Investment Funds, Inc.
INVESCO Treasurer's Series Funds, Inc.
December 1, 1999
STATE STREET BANK
INVESCO Funds Group - per Attached Addendum
Custodian Fee Schedule
- --------------------------------------------------------------------------------
I. Administration
Custody Service - Maintain custody of fund assets. Settle portfolio purchases
and sales. Report buy and sell fails. Determine and collect portfolio income.
Make cash disbursements and report cash transactions. Monitor corporate actions.
The administration fee shown below is an annual charge, billed and payable
monthly, based on average monthly net assets.
ANNUAL FEES (BASIS POINTS) GROUP A
----------------------------------
Aggregate
Fund Net Assets Complex Wide
- --------------- ------------
First $10 Billion 1.40 Basis Points
Next $10 Billion .70 Basis Points
Next $10 Billion .40 Basis Points
Remainder .25 Basis Points
Minimum Monthly Charge None
II. Global Custody
Maintain custody of fund assets. Settle portfolio purchases and sales. Report
buy and sell fails. Determine and collect portfolio income. Make cash
disbursements and report cash transactions in local and base currency. Withhold
foreign taxes. File foreign tax reclaims. Monitor corporate actions.
Report portfolio positions.
A. Country Grouping
Group B Group C Group D Group E
- -------- ------- ------- -------
Australia Austria Botswana Argentina
Canada Belgium Brazil Bangladesh
Denmark Finland China Bolivia*
Euroclear Hong Kong Czech Republic Chile
France Indonesia Ecuador* Colombia
Germany Ireland Egypt Cyprus
Italy Malaysia Ghana Greece
Japan Mexico Israel Hungary
New Zealand Netherlands Kenya India
Spain Norway Luxembourg Jamaica*
Switzerland Philippines Morocco Jordan
U.K. Portugal South Africa Mauritus
Singapore Sri Lanka Namibia
Sweden Taiwan Pakistan
Thailand Trinidad and Tobago* Peru
Turkey Poland
Zambia Slovakia*
Zimbabwe South Korea
Tunisia *
Uruguay
Venezuela
* 17f-5 Ineligible at this time
<PAGE>
B. Transaction Charges
Group B Group C Group D Group E
------- ------- ------- -------
$25 $50 $100 $150
C. Holding Charges in Basis Points (Annual Fee)
Group B Group C Group D Group E
------- ------- ------- -------
7.5 15.0 40.0 50.0
III. Portfolio Trades - For each line item processed - Group A
State Street Bank Repos $7.00
DTC or Fed Book Entry $7.00
New York Physical Settlements $20.00
Maturity Collections N/C
PTC Purchase, Sale, Deposit or Withdrawal $8.00
All other trades $16.00
IV. Options
Option charge for each option written or closing
contract, per issue, per broker $25.00
Option expiration charge, per issue, per broker $15.00
Option exercised charge, per issue, per broker $15.00
V. Lending of Securities
Deliver loaned securities versus cash collateral $20.00
Deliver loaned securities versus securities collateral $30.00
Receive/deliver additional cash collateral $6.00
Substitutions of securities collateral $30.00
Deliver cash collateral versus receipt
of loaned securities $15.00
Deliver securities collateral versus receipt
of loaned securities $25.00
Loan administration--mark-to-market per day, per loan $3.00
<PAGE>
VI. Interest Rate Futures
Transactions--no security movement $8.00
VIl. Principal Reduction Payments
Per Paydown $10.00
VIll. Dividend Charges (For items $50.00
held at the Request of Traders
over record date in street form)
IX. Special Services
Fees for activities of a non-recurring nature such as fund consolidations
or reorganizations, extraordinary security shipments and the preparation of
special reports will be subject to negotiation.
X. Shareholder-Check Writing Withdrawal
Per Item $0.30
XI. Out-of-Pocket Expenses
A billing for the recovery of the following out-of-pocket expenses will be
made as of the end of each month.
Wire Charges ($5.00 per wire in and $5.50 out)
Legal Fees
Sub-custodian Charges limited to telex charges and taxes
Other out-of-pocket expenses as negotiated by State Street and INVESCO
XIl. Payment
Upon proper notification of the above fees will be charged against the
fund's custodian checking account within five (5) business days.
XIII. Balance Credits
Balance credits will be calculated based upon 90% of the monthly average
balance of accounts at State Street using 91 day Treasury Bill Rate in
effect at the month end. Balance Credits will be applied against Custody
Fees. Excess balance credits may accumulate from month to month and will be
reviewed and resolved periodically by State Street and INVESCO.
XIV. Effective Date
This schedule will be effective on January 1, 2000.
<PAGE>
INVESCO Funds Group State Street Bank
By: /s/ Ronald L. Grooms By: /s/ Charles R. Whittemore, Jr.
-------------------- ------------------------------
Title: Senior Vice President Title: Vice President
Date: December 20, 1999 Date: December 16, 1999
<PAGE>
INVESCO Funds Group - Appendix A
INVIESCO Stock Funds, Inc.
INVESCO Endeavor Fund
INVESCO Dynamics Fund
INVESCO Blue Chip Growth Fund
INVESCO Growth & Income Fund
INVESCO S & P 500 Index Fund
INVESCO Small Company Growth Fund
INVESCO Value Equity Fund
INVESCO Bond Funds, Inc.
INVESCO High Yield Fund
INVESCO Tax-Free Bond Fund
INVESCO Select Income Fund
INVESCO U.S. Government Securities Fund
INVESCO Combination Stock and Bond Funds, Inc.
INVESCO Balanced Fund
INVESCO Equity Income Fund
INVESCO Total Return Fund
INVESCO International Funds, Inc.
INVESCO International Blue Chip Fund
INVESCO Latin American Growth Fund
INVESCO Pacific Basin Fund
INVESCO European Fund
INVESCO Money Maket Funds, Inc.
INVESCO Cash Reserves Fund
INVESCO Tax-Free Money Fund
INVESCO U.S. Government Money Fund
INVESCO Sector Funds, Inc.
INVESCO Telecommunications Fund
INVESCO Energy Fund
INVESCO Financial Services Fund
INVESCO Gold Fund
INVESCO Health Sciences Fund
INVESCO Leisure Fund
INVESCO Realty Fund
INVESCO Technology Fund
INVESCO Utilities Fund
<PAGE>
INVESCO Treasurer's Series Funds, Inc.
INVESCO Treasurer's Money Market Reserve Fund
INVESCO Treasurer's Tax-Exempt Reserve Fund
INVESCO Variable Investment Funds, Inc.
INVESCO VIF - Dynamics Fund
INVESCO VIF - Blue Chip Growth Fund
INVESCO VIF - Health Sciences Fund
INVESCO VIF - High Yield Fund
INVESCO VIF - Equity Income Fund
INVESCO VIF - Realty Fund
INVESCO VIF - Small Company Growth Fund
INVESCO VIF - Technology Fund
INVESCO VIF - Total Return Fund
INVESCO VIF - Utilities Fund
INVESCO VIF - Financial Services Fund
INVESCO VIF - Market Neutral Fund
INVESCO VIF - Telecommunications Fund
INVESCO Global Health Sciences Fund
AMENDMENT TO ADMINISTRATIVE SERVICES AGREEMENT
This is an Amendment to the Administrative Services Agreement made and
entered into between INVESCO Funds Group, Inc., a Delaware corporation
("INVESCO"), and INVESCO Bond Funds, Inc., a Maryland corporation (the "Fund")
as of the 28th day of February, 1997 (the "Agreement").
WHEREAS, the Fund is engaged in business as an open-end management
investment company, is registered as such under the Investment Company Act of
1940, as amended (the "Act"), and is authorized to issue shares representing
interests in separate portfolios of investments (the "Portfolios"); and
NOW, THEREFORE, the Fund is authorized to issue shares representing
interests in the Portfolio, the INVESCO Tax-Free Bond Fund.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of
the 16th day of August, 1999.
INVESCO FUNDS GROUP, INC.
By: /s/ William J. Galvin
---------------------
William J. Galvin
Senior Vice President
ATTEST:
/s/ Glen A. Payne
- -----------------
Glen A. Payne
Secretary
INVESCO BOND FUNDS, INC.
By: /s/ Ronald L. Grooms
--------------------
Ronald L. Grooms
Treasurer & Chief Financial Officer
& Accounting Officer
ATTEST:
Glen A. Payne
- -------------
Glen A. Payne
Secretary
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated October 6, 1999, relating to the
financial statements and financial highlights which appears in the August 31,
1999 Annual Report to Shareholders of INVESCO Bond Funds, Inc., which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "Financial Highlights" and "Independent
Accountants" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Denver, Colorado
January 21, 2000
FORM OF MASTER DISTRIBUTION PLAN AND AGREEMENT
BETWEEN
INVESCO _______ FUNDS, INC.
(CLASS C SHARES)
AND
INVESCO DISTRIBUTORS, INC.
THIS AGREEMENT made as of the ____ day of January, 2000, by and between
INVESCO ____________FUNDS, Inc. a Maryland Corporation (the "Company"), with
respect to the series of shares of the common stock of the Funds set forth on
Appendix A to this Agreement (the "Funds") (the shares of each of the Funds
hereinafter referred to as the "Class C Shares") and INVESCO DISTRIBUTORS, INC.,
a Delaware corporation (the "Distributor").
WHEREAS, the Company engages in business as an open-end management
investment company, and is registered as such under the Investment Company Act
of 1940, as amended (the "Act"); and
WHEREAS, the Company desires to finance the distribution of the Class C
Shares of common stock of each Fund, together with the Class C Shares of any
additional Fund that may hereafter be offered to the public, in accordance with
this Master Distribution Plan and Agreement of Distribution pursuant to Rule
12b-1 under the Act (the "Plan and Agreement"); and
WHEREAS, Distributor desires to be retained to perform services in
accordance with such Plan and Agreement and on said terms and conditions; and
WHEREAS, this Plan and Agreement has been approved by a vote of the board
of directors of the Company, including a majority of the directors who are not
interested persons of the Company, as defined in the Act, and who have no direct
or indirect financial interest in the operation of this Plan and Agreement (the
"Independent Directors"), cast in person at a meeting called for the purpose of
voting on this Plan and Agreement;
NOW, THEREFORE, the Company hereby adopts the Plan set forth herein and
the Company and Distributor hereby enter into this Agreement pursuant to the
Plan in accordance with the requirements of Rule 12b-1 under the Act, and
provide and agree as follows:
<PAGE>
FIRST: The Plan is defined as those provisions of this document by which
the Company adopts a Plan pursuant to Rule 12b-1 under the Act and authorizes
payments as described herein. The Agreement is defined as those provisions of
this document by which the Company retains Distributor to provide distribution
services beyond those required by the General Distribution Agreement between the
parties, as are described herein. The Company may retain the Plan
notwithstanding termination of the Agreement. Termination of the Plan will
automatically terminate the Agreement. Each Fund is hereby authorized to utilize
the assets of the Company to finance certain activities in connection with
distribution of the Company's Class C Shares.
SECOND: The Company on behalf of the Class C Shares hereby appoints the
Distributor as its exclusive agent for the sale of the Class C Shares to the
public directly and through investment dealers and financial institutions in the
United States and throughout the world in accordance with the terms of the
current prospectuses applicable to the Funds.
THIRD: The Class C shares of each Fund may incur expenses per annum of the
average daily net assets of the Company attributable to the Class C Shares at
the rates set forth in Schedule A subject to any limitations imposed from time
to time by applicable rules of the National Association of Securities Dealers,
Inc.
FOURTH: The Company shall not sell any Class C Shares except through the
Distributor and under the terms and conditions set forth in the FIFTH paragraph
below. Notwithstanding the provisions of the foregoing sentence, however:
(A) the Company may issue Class C Shares to any other investment company
or personal holding company, or to the shareholders thereof, in exchange for all
or a majority of the shares or assets of any such company; and
(B) the Company may issue Class C Shares at their net asset value in
connection with certain classes of transactions or to certain categories of
persons, in accordance with Rule 22d-1 under the Act, provided that any such
category is specified in the then current prospectus of the applicable Class C
Shares.
FIFTH: The Distributor hereby accepts appointment as exclusive agent for
the sale of the Class C Shares and agrees that it will use its best efforts to
sell such shares; provided, however, that:
(A) the Distributor may, and when requested by the Company on behalf of
the Class C Shares shall, suspend its efforts to effectuate such sales at any
time when, in the opinion of the Distributor or of the Company, no sales should
be made because of market or other economic considerations or abnormal
circumstances of any kind; and
(B) the Company may withdraw the offering of the Class C Shares at any
time without the consent of the Distributor. It is mutually understood and
agreed that the Distributor does not undertake to sell any specific amount of
the Class C Shares. The Company shall have the right to specify minimum amounts
for initial and subsequent orders for the purchase of Class C Shares.
<PAGE>
(C) To the extent that obligations incurred by Distributor out of its own
resources to finance any activity primarily intended to result in the sale of
Class C Shares of a Fund, pursuant to this Plan and Agreement or otherwise, may
be deemed to constitute the indirect use of Class C Shares Fund assets, such
indirect use of Class C Shares Fund assets is hereby authorized in addition to,
and not in lieu of, any other payments authorized under this Plan and Agreement.
(D) Distributor shall provide to the Company's Board of Directors and the
Board of Directors shall review, at least quarterly, a written report of the
amounts expended pursuant to the Plan and Agreement and the purposes for which
such expenditures were made.
SIXTH:
(A) The public offering price of the Class C shares shall be the net asset
value per share of the applicable Class C shares. Net asset value per share
shall be determined in accordance with the provisions of the then current
prospectus and statement of additional information of the applicable Fund. The
Company's Board of Directors may establish a schedule of contingent deferred
sales charges to be imposed at the time of redemption of the Class C Shares, and
such schedule shall be disclosed in the current prospectus or statement of
additional information of each Fund. Such schedule of contingent deferred sales
charges may reflect variations in or waivers of such charges on redemptions of
Class C shares, either generally to the public or to any specified class of
shareholders and/or in connection with any specified class of transactions, in
accordance with applicable rules and regulations and exemptive relief granted by
the Securities and Exchange Commission, and as set forth in the Funds' current
prospectus(es) or statement(s) of additional information. The Distributor and
the Company shall apply any then applicable scheduled variation in or waiver of
contingent deferred sales charges uniformly to all shareholders and/or all
transactions belonging to a specified class.
(B) The Distributor may pay to investment dealers and other financial
institutions through whom Class C Shares are sold, such sales commission as the
Distributor may specify from time to time. Payment of any such sales commissions
shall be the sole obligation of the Distributor.
(C) Amounts set forth in Schedule A may be used to finance any activity
which is primarily intended to result in the sale of the Class C Shares,
including, but not limited to, expenses of organizing and conducting sales
seminars, advertising programs, finders fees, printing of prospectuses and
statements of additional information (and supplements thereto) and reports for
other than existing shareholders, preparation and distribution of advertising
material and sales literature, supplemental payments to dealers and other
institutions as asset-based sales charges and providing such other services and
activities as may from time to time be agreed upon by the Company. Such reports,
prospectuses and statements of additional information (and supplements thereto),
sales literature, advertising and other services and activities may be prepared
and/or conducted either by Distributor's own staff, the staff of affiliated
companies of the Distributor, or third parties.
<PAGE>
(D) Amounts set forth in Schedule A may also be used to finance payments
of service fees under a shareholder service arrangement to be established by
Distributor in accordance with Section E below, and the costs of administering
the Plan and Agreement. To the extent that amounts paid hereunder are not used
specifically to compensate Distributor for any such expense, such amounts may be
treated as compensation for Distributor's distribution-related services. All
amounts expended pursuant to the Plan and Agreement shall be paid to Distributor
and are the legal obligation of the Company and not of Distributor. That portion
of the amounts paid under the Plan and Agreement that is not paid or advanced by
Distributor to dealers or other institutions that provide personal continuing
shareholder service as a service fee pursuant to Section E below shall be deemed
an asset-based sales charge. No provision of this Plan and Agreement shall be
interpreted to prohibit any payments by the Company during periods when the
Company has suspended or otherwise limited sales.
(E) Amounts expended by the Company under the Plan shall be used in part
for the implementation by Distributor of shareholder service arrangements. The
maximum service fee paid to any service provider shall be twenty-five
one-hundredths of one percent (0.25%), per annum of the average daily net assets
of the Company attributable to the Shares owned by the customers of such service
provider, or such lower rate for the Fund as is specified on Schedule A.
(1) Pursuant to this program, Distributor may enter into agreements
("Service Agreements") with such broker-dealers ("Dealers") as may
be selected from time to time by Distributor for the provision of
distribution-related personal shareholder services in connection
with the sale of Shares to the Dealers' clients and customers
("Customers") to Customers who may from time to time directly or
beneficially own Shares. The distribution-related personal
continuing shareholder services to be rendered by Dealers under the
Service Agreements may include, but shall not be limited to, the
following : (i) distributing sales literature; (ii) answering
routine Customer inquiries concerning the Company and the Shares;
(iii) assisting Customers in changing dividend options, account
designations and addresses, and in enrolling into any of several
retirement plans offered in connection with the purchase of Shares;
(iv) assisting in the establishment and maintenance of customer
accounts and records, and in the processing of purchase and
redemption transactions; (v) investing dividends and capital gains
distributions automatically in Shares; and (vi) providing such
other information and services as the Company or the Customer may
reasonably request.
<PAGE>
(2) Distributor may also enter into agreements ("Third Party
Agreements") with selected banks, financial planners, retirement
plan service providers and other appropriate third parties acting in
an agency capacity for their customers ("Third Parties"). Third
Parties acting in such capacity will provide some or all of the
shareholder services to their customers as set forth in the Third
Party Agreements from time to time.
(3) Distributor may also enter into variable group annuity
contractholder service agreements ("Variable Contract Agreements")
with selected insurance companies ("Insurance Companies") offering
variable annuity contracts to employers as funding vehicles for
retirement plans qualified under Section 401(a) of the Internal
Revenue Code, where amounts contributed under such plans are
invested pursuant to such variable annuity contracts in Shares of
the Company. The Insurance Companies receiving payments under such
Variable Contract Agreements will provide specialized services to
contractholders and plan participants, as set forth in the Variable
Contract Agreements from time to time.
(4) Distributor may also enter into shareholder service agreements
("Bank Trust Department Agreements and Brokers for Bank Trust
Department Agreements") with selected bank trust departments and
brokers for bank trust departments. Such bank trust departments and
brokers for bank trust departments will provide some or all of the
shareholder services to their customers as set forth in the Bank
Trust Department Agreements and Brokers for Bank Trust Department
Agreements.
(F) No provision of this Plan and Agreement shall be deemed to prohibit
any payments by a Fund to the Distributor or by a Fund or the Distributor to
investment dealers, financial institutions and 401(k) plan service providers
where such payments are made under the Plan and Agreement.
(G) The Company shall redeem Class C Shares from shareholders in
accordance with the terms set forth from time to time in the current prospectus
and statement of additional information of each Fund. The price to be paid to a
shareholder to redeem Class C Shares shall be equal to the net asset value of
the Class C Shares being redeemed, less any applicable contingent deferred sales
charge. The Distributor shall be entitled to receive the amount of any
applicable contingent deferred sales charge that has been subtracted from gross
redemption proceeds. The Company shall pay or cause the Company's transfer agent
to pay the applicable contingent deferred sales charge to the Distributor on the
date net redemption proceeds are payable to the redeeming shareholder.
<PAGE>
SEVENTH: The Distributor shall act as agent of the Company on behalf of
each Fund in connection with the sale and repurchase of Class C Shares. Except
with respect to such sales and repurchases, the Distributor shall act as
principal in all matters relating to the promotion or the sale of Class C Shares
and shall enter into all of its own engagements, agreements and contracts as
principal on its own account. The Distributor shall enter into agreements with
investment dealers and financial institutions selected by the Distributor,
authorizing such investment dealers and financial institutions to offer and sell
Class C Shares to the public upon the terms and conditions set forth therein,
which shall not be inconsistent with the provisions of this Agreement. Each
agreement shall provide that the investment dealer and financial institution
shall act as a principal, and not as an agent, of the Company on behalf of the
Funds. The Distributor or such other investment dealers or financial
institutions will be deemed to have performed all services required to be
performed in order to be entitled to receive the asset based sales charge
portion of any amounts payable with respect to Class C Shares to the Distributor
pursuant to the Plan and Agreement adopted by the Company on behalf of each Fund
upon the settlement of each sale of a Class C Share (or a share of another fund
from which the Class C Share derives).
EIGHTH: The Funds shall bear:
(A) the expenses of qualification of Class C Shares for sale in connection
with such public offerings in such states as shall be selected by the
Distributor, and of continuing the qualification therein until the Distributor
notifies the Company that it does not wish such qualification continued; and
(B) all legal expenses in connection with the foregoing.
NINTH:
(A) The Distributor shall bear the expenses of printing from the final
proof and distributing the Funds' prospectuses and statements of additional
information (including supplements thereto) relating to public offerings made by
the Distributor pursuant to this Agreement (which shall not include those
prospectuses and statements of additional information, and supplements thereto,
to be distributed to shareholders of each Fund), and any other promotional or
sales literature used by the Distributor or furnished by the Distributor to
dealers in connection with such public offerings, and expenses of advertising in
connection with such public offerings.
(B) The Distributor may be compensated for all or a portion of such
expenses, or may receive reasonable compensation for distribution related
services, to the extent permitted by the Plan and Agreement.
TENTH: The Distributor will accept orders for the purchase of Class C
Shares only to the extent of purchase orders actually received and not in excess
of such orders, and it will not avail itself of any opportunity of making a
profit by expediting or withholding orders. It is mutually understood and agreed
that the Company may reject purchase orders where, in the judgment of the
Company, such rejection is in the best interest of the Company.
<PAGE>
ELEVENTH: The Company, on behalf of the Funds, and the Distributor shall
each comply with all applicable provisions of the Act, the Securities Act of
1933, rules and regulations of the National Association of Securities Dealers,
Inc. and its affiliates, and of all other federal and state laws, rules and
regulations governing the issuance and sale of Class C Shares.
TWELFTH:
(A) In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of the
Distributor, the Company on behalf of the Funds agrees to indemnify the
Distributor against any and all claims, demands, liabilities and expenses which
the Distributor may incur under the Securities Act of 1933, or common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in any registration statement or prospectus of the
Funds, or any omission to state a material fact therein, the omission of which
makes any statement contained therein misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Company or Fund in connection therewith by or on behalf of the
Distributor. The Distributor agrees to indemnify the Company and the Funds
against any and all claims, demands, liabilities and expenses which the Company
or the Funds may incur arising out of or based upon any act or deed of the
Distributor or its sales representatives which has not been authorized by the
Company or the Funds in its prospectus or in this Agreement.
(B) The Distributor agrees to indemnify the Company and the Funds against
any and all claims, demands, liabilities and expenses which the Company or the
Funds may incur under the Securities Act of 1933, or common law or otherwise,
arising out of or based upon any alleged untrue statement of a material fact
contained in any registration statement or prospectus of the Funds, or any
omission to state a material fact therein if such statement or omission was made
in reliance upon, and in conformity with, information furnished to the Company
or the Funds in connection therewith by or on behalf of the Distributor.
(C) Notwithstanding any other provision of this Agreement, the Distributor
shall not be liable for any errors of the Funds' transfer agent, or for any
failure of any such transfer agent to perform its duties.
THIRTEENTH: Nothing herein contained shall require the Company to take
any action contrary to any provision of its Articles of Incorporation, or to
any applicable statute or regulation.
<PAGE>
FOURTEENTH: This Plan and Agreement shall become effective as of the date
hereof, shall continue in force and effect until May 30, 2000, and shall
continue in force and effect from year to year thereafter, provided that such
continuance is specifically approved at least annually (a)(i) by the Board of
Directors of the Company or (ii) by the vote of a majority of the Funds'
outstanding voting securities of Class C Shares (as defined in Section 2(a)(42)
of the 1940 Act), and (b) by vote of a majority of the Company's directors who
are not parties to this Plan and Agreement or "interested persons" (as defined
in Section 2(a)(19) of the 1940 Act) of any party to this Plan and Agreement
cast in person at a meeting called for such purpose.
Any amendment to this Plan and Agreement that requires the approval of the
shareholders of Class C Shares pursuant to Rule 12b-1 under the 1940 Act shall
become effective as to such Class C Shares upon the approval of such amendment
by a "majority of the outstanding voting securities" (as defined in the 1940
Act) of such Class C Shares, provided that the Board of Directors of the Company
has approved such amendment.
FIFTEENTH: This Plan and Agreement, any amendment to this Plan and
Agreement and any agreements related to this Plan and Agreement shall become
effective immediately upon the receipt by the Company of both (a) the
affirmative vote of a majority of the Board of Directors of the Company, and (b)
the affirmative vote of a majority of those directors of the Company who are not
"interested persons" of the Company (as defined in the 1940 Act) and have no
direct or indirect financial interest in the operation of this Plan and
Agreement or any agreements related to it (the "Independent Directors"), cast in
person at a meeting called for the purpose of voting on this Plan and Agreement
or such agreements. Notwithstanding the foregoing, no such amendment that
requires the approval of the shareholders of Class C Shares of a Company shall
become effective as to such Class C Shares until such amendment has been
approved by the shareholders of such Class C Shares in accordance with the
provisions of the Fourteenth paragraph of this Plan and Agreement.
This Plan and Agreement may not be amended to increase materially the
amount of distribution expenses provided for in Schedule A hereof unless such
amendment is approved in the manner provided herein, and no material amendment
to the Plan and Agreement shall be made unless approved in the manner provided
for in the Fourteenth paragraph hereof.
So long as the Plan and Agreement remains in effect, the selection and
nomination of persons to serve as directors of the Company who are not
"interested persons" of the Company shall be committed to the discretion of the
directors then in office who are not "interested persons" of the Company.
However, nothing contained herein shall prevent the participation of other
persons in the selection and nomination process, provided that a final decision
on any such selection or nomination is within the discretion of, and approved
by, a majority of the directors of the Company then in office who are not
"interested persons" of the Company.
<PAGE>
SIXTEENTH:
(A) This Plan and Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Board of Directors of the
Company or by vote of a majority of the outstanding voting
securities of Class C Shares of each Fund, or by the Distributor, on
sixty (60) days' written notice to the other party.
(B) In the event that neither Distributor nor any affiliate of
Distributor serves the Company as investment adviser, the agreement
with Distributor pursuant to this Plan shall terminate at such time.
The board of directors may determine to approve a continuance of the
Plan and/or a continuance of the Agreement, hereunder.
(C) To the extent that this Plan and Agreement constitutes a Plan of
Distribution adopted pursuant to Rule 12b-1 under the Act it
shall remain in effect as such, so as to authorize the use by the
Class C Shares of each Fund of its assets in the amounts and for
the purposes set forth herein, notwithstanding the occurrence of
an "assignment," as defined by the Act and the rules thereunder.
To the extent it constitutes an agreement with INVESCO pursuant
to a plan, it shall terminate automatically in the event of such
"assignment." Upon a termination of the agreement with
Distributor, the Funds may continue to make payments pursuant to
the Plan only upon the approval of a new agreement under this
Plan and Agreement, which may or may not be with Distributor, or
the adoption of other arrangements regarding the use of the
amounts authorized to be paid by the Funds hereunder, by the
Company's board of directors in accordance with the procedures
set forth above.
SEVENTEENTH: Any notice under this Plan and Agreement shall be in writing,
addressed and delivered, or mailed postage prepaid, to the other party at such
address as the other party may designate for the receipt of notices. Until
further notice to the other party, it is agreed that the addresses of both the
Company and the Distributor shall be 7800 East Union Avenue, Mail Stop 201,
Denver, Colorado 80237.
EIGHTEENTH: This Plan and Agreement shall be governed by and construed
in accordance with the laws (without reference to conflicts of law
provisions) of the State of Maryland.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Plan and Agreement to be
executed in duplicate on the day and year first above written.
INVESCO _______FUNDS, Inc.
Attest:
By: ________________________
____________________ Name: Mark H. Williamson
Name: Title: President
Title:
INVESCO DISTRIBUTORS, INC.
Attest:
By: ______________________
____________________ Name: Glen A. Payne
Name: Title: Secretary
Title:
<PAGE>
APPENDIX A
TO
MASTER DISTRIBUTION PLAN AND AGREEMENT
OF
INVESCO __________ FUNDS, Inc.
CLASS C SHARES
INVESCO _______ Fund
INVESCO _______ Fund
<PAGE>
SCHEDULE A
TO
MASTER DISTRIBUTION PLAN and AGREEMENT
OF
INVESCO __________FUNDS, INC.
(DISTRIBUTION FEE)
The Company shall pay the Distributor as full compensation for all
services rendered and all facilities furnished under the Distribution Plan and
Agreement for each Fund (or Class thereof) designated below, a Distribution Fee*
determined by applying the annual rate set forth below as to each Fund (or Class
thereof) to the average daily net assets of the Fund (or Class thereof) for the
plan year, computed in a manner used for the determination of the offering price
of shares of the Fund.
Maximum Asset Maximum Maximum
Fund Based Sales Service Aggregate
Class C Shares Charge Fee Fee
-------------- ------------- -------- ---------
INVESCO _______ Fund 0.75% 0.25% 1.00%
INVESCO _______ Fund 0.75% 0.25% 1.00%
- -----------------
* The Distribution Fee is payable apart from the sales charge, if any, as
stated in the current prospectus for the applicable Fund (or Class
thereof).
INVESCO HIGH YIELD FUND PLAN PURSUANT TO RULE 18F-3
November 9, 1999
1. The Plan. This Plan is the written multiple class plan for the INVESCO
High Yield Fund (the "Fund") for INVESCO Distributors, Inc. ("IDI"),
the general distributor of shares of the Fund and INVESCO Funds Group,
Inc. ("INVESCO"), the investment adviser of the Fund. It is the
written plan contemplated by Rule 18f-3 (the "Rule") under the
Investment Company Act of 1940 (the "1940 Act"), pursuant to which the
Fund may issue multiple classes of shares. The terms and provisions of
this Plan shall be interpreted and defined in a manner consistent with
the provisions and definitions contained in the Rule.
2. Similarities and Differences Among Classes. The Fund agrees that one or
more classes of that Fund:
(1) may have a separate service plan or distribution and service
plan ("12b-1 Plan"), and shall pay all of the expenses incurred
pursuant to that arrangement, and may pay a different share of
expenses ("Class Expenses") if such expenses are actually incurred
in a different amount by that class, or if the class receives
services of a different kind or to a different degree than that of
other classes. Class Expenses are those expenses specifically
attributable to the particular class of shares, namely (a) 12b-1
Plan fees, (b) transfer and shareholder servicing agent fees and
administrative service fees, (c) shareholder meeting expenses, (d)
blue sky and SEC registration fees and (e) any other incremental
expenses subsequently identified that should be allocated to one
class which shall be approved by a vote of that Fund's Board of
Directors (the "Directors"). Expenses identified in Items (c)
through (e) may involve issues relating either to a specific class
or to the entire Fund; such expenses constitute Class Expenses only
when they are attributable to a specific class. Because Class
Expenses may be accrued at different rates for each class of the
Fund, dividends distributable to shareholders and net asset values
per share may differ for shares of different classes of the Fund.
<PAGE>
(2) shall have exclusive voting rights on any matters that relate solely
to that class's arrangements, including without limitation voting with
respect to a 12b-1 Plan for that class;
(3) shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the
interests of any other class;
(4) may have a different arrangement for shareholder services, including
different sales charges, sales charge waivers, purchase and redemption
features, exchange privileges, loan privileges, the availability of
certificated shares and/or conversion features; and
(5) shall have in all other respects the same rights and obligations as
each other class.
3. Allocations of Income, Capital Gains and Losses and Expenses. Income,
realized and unrealized capital gains and losses, and expenses of the Fund
other than Class Expenses allocated to a particular class shall be
allocated to each class on the basis of the net asset value of that class
in relation to the net asset value of the Fund.
4. Expense Waivers and Reimbursements. From time to time the Adviser may
voluntarily undertake to (i) waive any portion of the management fee
charged to the Fund, and/or (ii) reimburse any portion of the expenses
of the Fund or of one or more of its classes, but is not required to do
so or to continue to do so for any period of time. The quarterly
report by the Advisor to the Directors of Fund expense reimbursements
shall disclose any reimbursements that are not equal for all classes of
the Fund.
<PAGE>
5. Disclosure. The classes of shares to be offered by the Fund, and other
material distribution arrangements with respect to such classes, shall be
disclosed in the prospectus and/or statement of additional information
used to offer that class of shares. Such prospectus or statement of
additional information shall be supplemented or amended to reflect any
change(s) in classes of shares to be offered or in the material
distribution arrangements with respect to such classes.
6. Independent Audit. The methodology and procedures for calculating the net
asset value, dividends and distributions of each class shall be reviewed
by an independent auditing firm (the "Expert"). At least annually, the
Expert, or an appropriate substitute expert, will render a report to the
Funds on policies and procedures placed in operation and tests of
operating effectiveness as defined and described in SAS 70 of the AICPA.
7. Offers and Sales of Shares. INVESCO will maintain compliance standards as
to when each class of shares may appropriately be sold to particular
investors, and will require all persons selling shares of the Fund to
agree to conform to such standards.
8. Rule 12b-1 Payments. The Treasurer of INVESCO Bond Funds, Inc. (the
"Company") shall provide to the Directors of the Company, and the
Directors shall review, at least quarterly, the written report required
by the Company's 12b-1 Plan. The report shall include information on
(i) the amounts expended pursuant to the 12b-1 Plan, (ii) the purposes
for which such expenditures were made and (iii) the amount of INVESCO's
unpaid distribution costs (if recovery of such costs in future periods
is permitted by that 12b-1 Plan), taking into account 12b-1 Plan
payments paid to INVESCO.
<PAGE>
9. Conflicts. On an ongoing basis, the Directors of the Company, pursuant to
their fiduciary responsibilities under the 1940 Act and otherwise, will
monitor the Fund for the existence of any material conflicts among the
interests of the classes. INVESCO will be responsible for reporting any
potential or existing conflicts to the Directors. In the event a conflict
arises, the Directors shall take such action as they deem appropriate.
10. Effectiveness and Amendment. This Plan takes effect for the Fund as of
the date of adoption shown below. This Plan has been approved by a
majority vote of the Board of the Company and of the Company's Board
members who are not "interested persons" (as defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation
of the Plan or any agreements relating to the Plan (the "Independent
Directors") of the Fund at meetings called on this Plan. Prior to that
vote, (i) the Board was furnished by the methodology used for net asset
value and dividend and distribution determinations for the Fund, and
(ii) a majority of the Board and its Independent Directors determined
that the Plan as proposed to be adopted, including the expenses
allocation, is in the best interests of the Fund as a whole and to each
class of the Fund individually. Prior to any material amendment to the
Plan, the Board shall request and evaluate, and INVESCO shall furnish,
such information as may be reasonably necessary to evaluate such
amendment, and a majority of the Board and its Independent Directors
shall find that the Plan as proposed to be amended, including the
expense allocation, is in the best interest of each class, the Fund as
a whole and each class of the Fund individually. No material amendment
to the Plan shall be made by any Fund's Prospectus or Statement of
Additional Information or any supplement to either of the foregoing,
unless such amendment has first been approved by a majority of the
Fund's Board and its Independent Directors.
Adopted by the Board of INVESCO Bond Funds, Inc. on November 9, 1999.
/s/ Glen A. Payne
------------------------
Glen A. Payne, Secretary
INVESCO SELECT INCOME FUND PLAN PURSUANT TO RULE 18F-3
November 9, 1999
1. The Plan. This Plan is the written multiple class plan for the INVESCO
Select Income Fund (the "Fund") for INVESCO Distributors, Inc. ("IDI"),
the general distributor of shares of the Fund and INVESCO Funds Group,
Inc. ("INVESCO"), the investment adviser of the Fund. It is the
written plan contemplated by Rule 18f-3 (the "Rule") under the
Investment Company Act of 1940 (the "1940 Act"), pursuant to which the
Fund may issue multiple classes of shares. The terms and provisions of
this Plan shall be interpreted and defined in a manner consistent with
the provisions and definitions contained in the Rule.
2. Similarities and Differences Among Classes. The Fund agrees that one or
more classes of that Fund:
(1) may have a separate service plan or distribution and service
plan ("12b-1 Plan"), and shall pay all of the expenses incurred
pursuant to that arrangement, and may pay a different share of
expenses ("Class Expenses") if such expenses are actually incurred
in a different amount by that class, or if the class receives
services of a different kind or to a different degree than that of
other classes. Class Expenses are those expenses specifically
attributable to the particular class of shares, namely (a) 12b-1
Plan fees, (b) transfer and shareholder servicing agent fees and
administrative service fees, (c) shareholder meeting expenses, (d)
blue sky and SEC registration fees and (e) any other incremental
expenses subsequently identified that should be allocated to one
class which shall be approved by a vote of that Fund's Board of
Directors (the "Directors"). Expenses identified in Items (c)
through (e) may involve issues relating either to a specific class
or to the entire Fund; such expenses constitute Class Expenses only
when they are attributable to a specific class. Because Class
Expenses may be accrued at different rates for each class of the
Fund, dividends distributable to shareholders and net asset values
per share may differ for shares of different classes of the Fund.
<PAGE>
(2) shall have exclusive voting rights on any matters that relate solely
to that class's arrangements, including without limitation voting with
respect to a 12b-1 Plan for that class;
(3) shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the
interests of any other class;
(4) may have a different arrangement for shareholder services, including
different sales charges, sales charge waivers, purchase and redemption
features, exchange privileges, loan privileges, the availability of
certificated shares and/or conversion features; and
(5) shall have in all other respects the same rights and obligations as
each other class.
3. Allocations of Income, Capital Gains and Losses and Expenses. Income,
realized and unrealized capital gains and losses, and expenses of the Fund
other than Class Expenses allocated to a particular class shall be
allocated to each class on the basis of the net asset value of that class
in relation to the net asset value of the Fund.
4. Expense Waivers and Reimbursements. From time to time the Adviser may
voluntarily undertake to (i) waive any portion of the management fee
charged to the Fund, and/or (ii) reimburse any portion of the expenses
of the Fund or of one or more of its classes, but is not required to do
so or to continue to do so for any period of time. The quarterly
report by the Advisor to the Directors of Fund expense reimbursements
shall disclose any reimbursements that are not equal for all classes of
the Fund.
<PAGE>
5. Disclosure. The classes of shares to be offered by the Fund, and other
material distribution arrangements with respect to such classes, shall be
disclosed in the prospectus and/or statement of additional information
used to offer that class of shares. Such prospectus or statement of
additional information shall be supplemented or amended to reflect any
change(s) in classes of shares to be offered or in the material
distribution arrangements with respect to such classes.
6. Independent Audit. The methodology and procedures for calculating the net
asset value, dividends and distributions of each class shall be reviewed
by an independent auditing firm (the "Expert"). At least annually, the
Expert, or an appropriate substitute expert, will render a report to the
Funds on policies and procedures placed in operation and tests of
operating effectiveness as defined and described in SAS 70 of the AICPA.
7. Offers and Sales of Shares. INVESCO will maintain compliance standards as
to when each class of shares may appropriately be sold to particular
investors, and will require all persons selling shares of the Fund to
agree to conform to such standards.
8. Rule 12b-1 Payments. The Treasurer of INVESCO Bond Funds, Inc. (the
"Company") shall provide to the Directors of the Company, and the
Directors shall review, at least quarterly, the written report required
by the Company's 12b-1 Plan. The report shall include information on
(i) the amounts expended pursuant to the 12b-1 Plan, (ii) the purposes
for which such expenditures were made and (iii) the amount of INVESCO's
unpaid distribution costs (if recovery of such costs in future periods
is permitted by that 12b-1 Plan), taking into account 12b-1 Plan
payments paid to INVESCO.
<PAGE>
9. Conflicts. On an ongoing basis, the Directors of the Company, pursuant to
their fiduciary responsibilities under the 1940 Act and otherwise, will
monitor the Fund for the existence of any material conflicts among the
interests of the classes. INVESCO will be responsible for reporting any
potential or existing conflicts to the Directors. In the event a conflict
arises, the Directors shall take such action as they deem appropriate.
10. Effectiveness and Amendment. This Plan takes effect for the Fund as of
the date of adoption shown below. This Plan has been approved by a
majority vote of the Board of the Company and of the Company's Board
members who are not "interested persons" (as defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation
of the Plan or any agreements relating to the Plan (the "Independent
Directors") of the Fund at meetings called on this Plan. Prior to that
vote, (i) the Board was furnished by the methodology used for net asset
value and dividend and distribution determinations for the Fund, and
(ii) a majority of the Board and its Independent Directors determined
that the Plan as proposed to be adopted, including the expenses
allocation, is in the best interests of the Fund as a whole and to each
class of the Fund individually. Prior to any material amendment to the
Plan, the Board shall request and evaluate, and INVESCO shall furnish,
such information as may be reasonably necessary to evaluate such
amendment, and a majority of the Board and its Independent Directors
shall find that the Plan as proposed to be amended, including the
expense allocation, is in the best interest of each class, the Fund as
a whole and each class of the Fund individually. No material amendment
to the Plan shall be made by any Fund's Prospectus or Statement of
Additional Information or any supplement to either of the foregoing,
unless such amendment has first been approved by a majority of the
Fund's Board and its Independent Directors.
Adopted by the Board of INVESCO Bond Funds, Inc. on November 9, 1999.
/s/ Glen A. Payne
------------------------
Glen A. Payne, Secretary
INVESCO TAX-FREE BOND FUND PLAN PURSUANT TO RULE 18F-3
November 9, 1999
1. The Plan. This Plan is the written multiple class plan for the INVESCO
Tax-Free Bond Fund (the "Fund") for INVESCO Distributors, Inc. ("IDI"),
the general distributor of shares of the Fund and INVESCO Funds Group,
Inc. ("INVESCO"), the investment adviser of the Fund. It is the
written plan contemplated by Rule 18f-3 (the "Rule") under the
Investment Company Act of 1940 (the "1940 Act"), pursuant to which the
Fund may issue multiple classes of shares. The terms and provisions of
this Plan shall be interpreted and defined in a manner consistent with
the provisions and definitions contained in the Rule.
2. Similarities and Differences Among Classes. The Fund agrees that one or
more classes of that Fund:
(1) may have a separate service plan or distribution and service
plan ("12b-1 Plan"), and shall pay all of the expenses incurred
pursuant to that arrangement, and may pay a different share of
expenses ("Class Expenses") if such expenses are actually incurred
in a different amount by that class, or if the class receives
services of a different kind or to a different degree than that of
other classes. Class Expenses are those expenses specifically
attributable to the particular class of shares, namely (a) 12b-1
Plan fees, (b) transfer and shareholder servicing agent fees and
administrative service fees, (c) shareholder meeting expenses, (d)
blue sky and SEC registration fees and (e) any other incremental
expenses subsequently identified that should be allocated to one
class which shall be approved by a vote of that Fund's Board of
Directors (the "Directors"). Expenses identified in Items (c)
through (e) may involve issues relating either to a specific class
or to the entire Fund; such expenses constitute Class Expenses only
when they are attributable to a specific class. Because Class
Expenses may be accrued at different rates for each class of the
Fund, dividends distributable to shareholders and net asset values
per share may differ for shares of different classes of the Fund.
<PAGE>
(2) shall have exclusive voting rights on any matters that relate solely
to that class's arrangements, including without limitation voting with
respect to a 12b-1 Plan for that class;
(3) shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the
interests of any other class;
(4) may have a different arrangement for shareholder services, including
different sales charges, sales charge waivers, purchase and redemption
features, exchange privileges, loan privileges, the availability of
certificated shares and/or conversion features; and
(5) shall have in all other respects the same rights and obligations as
each other class.
3. Allocations of Income, Capital Gains and Losses and Expenses. Income,
realized and unrealized capital gains and losses, and expenses of the Fund
other than Class Expenses allocated to a particular class shall be
allocated to each class on the basis of the net asset value of that class
in relation to the net asset value of the Fund.
4. Expense Waivers and Reimbursements. From time to time the Adviser may
voluntarily undertake to (i) waive any portion of the management fee
charged to the Fund, and/or (ii) reimburse any portion of the expenses
of the Fund or of one or more of its classes, but is not required to do
so or to continue to do so for any period of time. The quarterly
report by the Advisor to the Directors of Fund expense reimbursements
shall disclose any reimbursements that are not equal for all classes of
the Fund.
<PAGE>
5. Disclosure. The classes of shares to be offered by the Fund, and other
material distribution arrangements with respect to such classes, shall be
disclosed in the prospectus and/or statement of additional information
used to offer that class of shares. Such prospectus or statement of
additional information shall be supplemented or amended to reflect any
change(s) in classes of shares to be offered or in the material
distribution arrangements with respect to such classes.
6. Independent Audit. The methodology and procedures for calculating the net
asset value, dividends and distributions of each class shall be reviewed
by an independent auditing firm (the "Expert"). At least annually, the
Expert, or an appropriate substitute expert, will render a report to the
Funds on policies and procedures placed in operation and tests of
operating effectiveness as defined and described in SAS 70 of the AICPA.
7. Offers and Sales of Shares. INVESCO will maintain compliance standards as
to when each class of shares may appropriately be sold to particular
investors, and will require all persons selling shares of the Fund to
agree to conform to such standards.
8. Rule 12b-1 Payments. The Treasurer of INVESCO Bond Funds, Inc. (the
"Company") shall provide to the Directors of the Company, and the
Directors shall review, at least quarterly, the written report required
by the Company's 12b-1 Plan. The report shall include information on
(i) the amounts expended pursuant to the 12b-1 Plan, (ii) the purposes
for which such expenditures were made and (iii) the amount of INVESCO's
unpaid distribution costs (if recovery of such costs in future periods
is permitted by that 12b-1 Plan), taking into account 12b-1 Plan
payments paid to INVESCO.
<PAGE>
9. Conflicts. On an ongoing basis, the Directors of the Company, pursuant to
their fiduciary responsibilities under the 1940 Act and otherwise, will
monitor the Fund for the existence of any material conflicts among the
interests of the classes. INVESCO will be responsible for reporting any
potential or existing conflicts to the Directors. In the event a conflict
arises, the Directors shall take such action as they deem appropriate.
10. Effectiveness and Amendment. This Plan takes effect for the Fund as of
the date of adoption shown below. This Plan has been approved by a
majority vote of the Board of the Company and of the Company's Board
members who are not "interested persons" (as defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation
of the Plan or any agreements relating to the Plan (the "Independent
Directors") of the Fund at meetings called on this Plan. Prior to that
vote, (i) the Board was furnished by the methodology used for net asset
value and dividend and distribution determinations for the Fund, and
(ii) a majority of the Board and its Independent Directors determined
that the Plan as proposed to be adopted, including the expenses
allocation, is in the best interests of the Fund as a whole and to each
class of the Fund individually. Prior to any material amendment to the
Plan, the Board shall request and evaluate, and INVESCO shall furnish,
such information as may be reasonably necessary to evaluate such
amendment, and a majority of the Board and its Independent Directors
shall find that the Plan as proposed to be amended, including the
expense allocation, is in the best interest of each class, the Fund as
a whole and each class of the Fund individually. No material amendment
to the Plan shall be made by any Fund's Prospectus or Statement of
Additional Information or any supplement to either of the foregoing,
unless such amendment has first been approved by a majority of the
Fund's Board and its Independent Directors.
Adopted by the Board of INVESCO Bond Funds, Inc. on November 9, 1999.
/s/ Glen A. Payne
------------------------
Glen A. Payne, Secretary
INVESCO U.S. GOVERNMENT SECURITIES FUND PLAN PURSUANT TO RULE 18F-3
November 9, 1999
1. The Plan. This Plan is the written multiple class plan for the INVESCO U.S.
Government Securities Fund (the "Fund") for INVESCO Distributors, Inc.
("IDI"), the general distributor of shares of the Fund and INVESCO Funds
Group, Inc. ("INVESCO"), the investment adviser of the Fund. It is the
written plan contemplated by Rule 18f-3 (the "Rule") under the Investment
Company Act of 1940 (the "1940 Act"), pursuant to which the Fund may issue
multiple classes of shares. The terms and provisions of this Plan shall be
interpreted and defined in a manner consistent with the provisions and
definitions contained in the Rule.
2. Similarities and Differences Among Classes. The Fund agrees that one or
more classes of that Fund:
(1) may have a separate service plan or distribution and service
plan ("12b-1 Plan"), and shall pay all of the expenses incurred
pursuant to that arrangement, and may pay a different share of
expenses ("Class Expenses") if such expenses are actually incurred
in a different amount by that class, or if the class receives
services of a different kind or to a different degree than that of
other classes. Class Expenses are those expenses specifically
attributable to the particular class of shares, namely (a) 12b-1
Plan fees, (b) transfer and shareholder servicing agent fees and
administrative service fees, (c) shareholder meeting expenses, (d)
blue sky and SEC registration fees and (e) any other incremental
expenses subsequently identified that should be allocated to one
class which shall be approved by a vote of that Fund's Board of
Directors (the "Directors"). Expenses identified in Items (c)
through (e) may involve issues relating either to a specific class
or to the entire Fund; such expenses constitute Class Expenses only
when they are attributable to a specific class. Because Class
Expenses may be accrued at different rates for each class of the
Fund, dividends distributable to shareholders and net asset values
per share may differ for shares of different classes of the Fund.
<PAGE>
(2) shall have exclusive voting rights on any matters that relate solely
to that class's arrangements, including without limitation voting with
respect to a 12b-1 Plan for that class;
(3) shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the
interests of any other class;
(4) may have a different arrangement for shareholder services, including
different sales charges, sales charge waivers, purchase and redemption
features, exchange privileges, loan privileges, the availability of
certificated shares and/or conversion features; and
(5) shall have in all other respects the same rights and obligations as
each other class.
3. Allocations of Income, Capital Gains and Losses and Expenses. Income,
realized and unrealized capital gains and losses, and expenses of the Fund
other than Class Expenses allocated to a particular class shall be
allocated to each class on the basis of the net asset value of that class
in relation to the net asset value of the Fund.
4. Expense Waivers and Reimbursements. From time to time the Adviser may
voluntarily undertake to (i) waive any portion of the management fee
charged to the Fund, and/or (ii) reimburse any portion of the expenses
of the Fund or of one or more of its classes, but is not required to do
so or to continue to do so for any period of time. The quarterly
report by the Advisor to the Directors of Fund expense reimbursements
shall disclose any reimbursements that are not equal for all classes of
the Fund.
<PAGE>
5. Disclosure. The classes of shares to be offered by the Fund, and other
material distribution arrangements with respect to such classes, shall be
disclosed in the prospectus and/or statement of additional information
used to offer that class of shares. Such prospectus or statement of
additional information shall be supplemented or amended to reflect any
change(s) in classes of shares to be offered or in the material
distribution arrangements with respect to such classes.
6. Independent Audit. The methodology and procedures for calculating the net
asset value, dividends and distributions of each class shall be reviewed
by an independent auditing firm (the "Expert"). At least annually, the
Expert, or an appropriate substitute expert, will render a report to the
Funds on policies and procedures placed in operation and tests of
operating effectiveness as defined and described in SAS 70 of the AICPA.
7. Offers and Sales of Shares. INVESCO will maintain compliance standards as
to when each class of shares may appropriately be sold to particular
investors, and will require all persons selling shares of the Fund to
agree to conform to such standards.
8. Rule 12b-1 Payments. The Treasurer of INVESCO Bond Funds, Inc. (the
"Company") shall provide to the Directors of the Company, and the
Directors shall review, at least quarterly, the written report required
by the Company's 12b-1 Plan. The report shall include information on
(i) the amounts expended pursuant to the 12b-1 Plan, (ii) the purposes
for which such expenditures were made and (iii) the amount of INVESCO's
unpaid distribution costs (if recovery of such costs in future periods
is permitted by that 12b-1 Plan), taking into account 12b-1 Plan
payments paid to INVESCO.
<PAGE>
9. Conflicts. On an ongoing basis, the Directors of the Company, pursuant to
their fiduciary responsibilities under the 1940 Act and otherwise, will
monitor the Fund for the existence of any material conflicts among the
interests of the classes. INVESCO will be responsible for reporting any
potential or existing conflicts to the Directors. In the event a conflict
arises, the Directors shall take such action as they deem appropriate.
10. Effectiveness and Amendment. This Plan takes effect for the Fund as of
the date of adoption shown below. This Plan has been approved by a
majority vote of the Board of the Company and of the Company's Board
members who are not "interested persons" (as defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation
of the Plan or any agreements relating to the Plan (the "Independent
Directors") of the Fund at meetings called on this Plan. Prior to that
vote, (i) the Board was furnished by the methodology used for net asset
value and dividend and distribution determinations for the Fund, and
(ii) a majority of the Board and its Independent Directors determined
that the Plan as proposed to be adopted, including the expenses
allocation, is in the best interests of the Fund as a whole and to each
class of the Fund individually. Prior to any material amendment to the
Plan, the Board shall request and evaluate, and INVESCO shall furnish,
such information as may be reasonably necessary to evaluate such
amendment, and a majority of the Board and its Independent Directors
shall find that the Plan as proposed to be amended, including the
expense allocation, is in the best interest of each class, the Fund as
a whole and each class of the Fund individually. No material amendment
to the Plan shall be made by any Fund's Prospectus or Statement of
Additional Information or any supplement to either of the foregoing,
unless such amendment has first been approved by a majority of the
Fund's Board and its Independent Directors.
Adopted by the Board of INVESCO Bond Funds, Inc. on November 9, 1999.
/s/ Glen A. Payne
------------------------
Glen A. Payne, Secretary
