AUGUST 31, 2000
ANNUAL REPORT
--------------------------------------------------------------------------------
INVESCO Bond Funds, Inc.
HIGH YIELD FUND
SELECT INCOME FUND
TAX-FREE BOND FUND
U.S. GOVERNMENT SECURITIES FUND
"I'M PLEASED TO REPORT THAT OUR FUNDAMENTAL AND THEMATIC INVESTMENT APPROACH
HELPED US AVOID MANY OF THE CREDIT PROBLEMS THAT AFFECTED OUR PEERS."
SEE PAGE 7
[INVESCO ICON] INVESCO FUNDS(R)
A Member of the AMVESCAP Group
<PAGE>
BONDS PROVIDE WELCOME DIVERSIFICATION IN A VOLATILE MARKET
FELLOW SHAREHOLDER:
Inside, you will find a summary of your fund's performance over the past year.
As many of you know, the past few years have been difficult ones for most bond
investors. Climbing interest rates sparked by worries of an overheating economy
have had a negative impact on bond prices. Also, stellar returns from the stock
market have led many investors to lose interest in bonds as an asset class --
leaving many with portfolios composed solely of equities.
Yet fixed-income securities, because of the steady stream of income they
provide, offer unique advantages to today's investor. This income can
substantially reduce the volatility of a portfolio, for example, while also
providing cash for living expenses or alternative investments.
Although it is perhaps too early to declare the patience of bond investors
vindicated, the past several months have seen most of the bond indexes move
higher as many of the world stock markets have drifted lower. Inside, you will
find details on how this has helped the performance of INVESCO's bond funds. You
will also read about how our managers, while reluctant to predict the future
movement of interest rates, see substantial value remaining in the bond markets.
Sincerely,
/s/Mark H. Williamson
---------------------
Mark H. Williamson
Chairman and CEO, INVESCO Funds Group, Inc.
<PAGE>
"FADING INTEREST RATE FEARS TRIGGERED A REBOUND IN GOVERNMENT BONDS THAT
BENEFITED MORE INTEREST RATE-SENSITIVE ISSUES." - PAGE 3
TABLE OF CONTENTS
LETTER FROM THE CHAIRMAN.................................1
FUND REPORTS.............................................3
AN INTERVIEW WITH JERRY PAUL.............................11
MARKET HEADLINES.........................................13
INVESTMENT HOLDINGS......................................14
FINANCIAL STATEMENTS.....................................33
NOTES TO FINANCIAL STATEMENTS............................45
FINANCIAL HIGHLIGHTS.....................................52
OTHER INFORMATION........................................60
INVESCO BOND FUNDS, INC.
TOTAL RETURN
PERIODS ENDED 8/31/00(1)
<TABLE>
<CAPTION>
Manager's
Cumulative 10 years* or Report
Fund (Inception) 6 months 1 year 5 years* Since Inception+ Page #
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HIGH YIELD FUND-INVESTOR CLASS 0.38% 2.89% 8.75% 9.87% 4
--------------------------------------------------------------------------------------------------------
HIGH YIELD FUND-CLASS C (2/00) (0.10%) N/A N/A (0.52%)+ 4
--------------------------------------------------------------------------------------------------------
SELECT INCOME FUND-INVESTOR CLASS 4.36% 5.78% 6.55% 8.69% 5
--------------------------------------------------------------------------------------------------------
SELECT INCOME FUND-CLASS C (2/00) 4.11% N/A N/A 4.24%+ 5
--------------------------------------------------------------------------------------------------------
TAX-FREE BOND FUND-INVESTOR CLASS 6.68% 6.32% 5.13% 6.77% 7
--------------------------------------------------------------------------------------------------------
TAX-FREE BOND FUND-CLASS C (2/00) 6.24% N/A N/A 6.86%+ 7
--------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND
-INVESTOR CLASS 6.90% 9.12% 6.35% 7.72% 9
--------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND
-CLASS C (2/00) 6.49% N/A N/A 7.64%+ 9
--------------------------------------------------------------------------------------------------------
</TABLE>
* AVERAGE ANNUALIZED
+ FOR FUNDS INTRODUCED MORE RECENTLY
<PAGE>
YOUR FUND'S REPORT
FUND PERFORMANCE
Dear Shareholder:
The past year has been challenging for bond investors, as fixed-income
securities struggled against rising interest rates and heightened competition
from high-flying equities. The corporate debt market, in particular, was
shadowed by technical pressures, including a flood of new issuance and renewed
credit concerns -- particularly in the high-yield area.
RISING INTEREST RATES HURT BONDS
As you know, rising interest rates contribute to higher bond yields and
declining bond prices. Beginning in June 1999, the Federal Reserve raised its
targeted short-term interest rate six times, for a total increase of 1.75% over
15 months, in an effort to slow economic growth and head off inflation. The
Fed's tightening monetary policy hindered interest rate-sensitive bonds at
nearly all maturities on the yield curve. Longer-term government bonds were the
lone exception, and they benefited from the Treasury's efforts to retire debt.
Interest rate pressures began to ease this summer. Signs of a moderating economy
and benign inflation persuaded the Fed to leave interest rates unchanged as
policymakers waited to assess the impact of previous moves. Fading interest rate
fears triggered a rebound in government bonds that benefited more interest
rate-sensitive issues.
Meanwhile, the corporate market continued to struggle against challenging
technical pressures that were especially acute in the high yield market. For one
thing, bonds had a difficult time competing against the high returns on
equities.
GLUT OF NEW ISSUES AND HIGH PROFILE DEFAULTS ADD FURTHER PRESSURE
At the same time, the new issuance calendar remained heavy with companies
willing to pay nearly any price for additional capital. Telecommunications
providers accounted for much of this demand as they tried to meet the funding
needs required to build high-speed data networks. These deals forced down prices
of secondary issues and contributed to a significant widening of spreads over
Treasuries. Adding to the pressures in the high yield market were several high
profile defaults, which raised credit concerns that were aggravated by the
prospect of a slowing economy.
While this environment has been frustrating for bond investors, we are confident
that these technical pressures have created opportunities to invest in
high-quality corporate issues that may be selling at a discount to their
fundamentals. Furthermore, we believe that investors will again discover the
diversification advantages of fixed-income investments, particularly if the
equity market remains volatile.
<PAGE>
INVESCO HIGH YIELD FUND
PIE CHART: HIGH YIELD FUND
ASSET DIVERSIFICATION
AS OF 8/31/00
[PIE CHART]
% OF TOTAL ASSETS
Corporate Bonds - Domestic.......64.75%
Corporate Bonds - Foreign........17.30%
Common and Preferred Stocks
& Warrants....................11.68%
Other.............................4.53%
Cash & Cash Equivalents...........1.74%
For the one-year period ended August 31, 2000, the value of High Yield
Fund-Investor Class shares rose 2.89%. This return doubled that of the Merrill
Lynch High Yield Master Index, which rose just 1.40% over the period. (Of
course, past performance is no guarantee of future results.)(1),(2)
Over the past year, the high yield market has struggled against an oversupply of
new issues, renewed credit concerns and a volatile equities market. While this
has been a challenging period for high yield investors, I'm pleased to report
that our fundamental and thematic investment approach helped us avoid many of
the credit problems that affected our peers.
Moreover, our intensive company-by-company research also enabled us to identify
potential "big bang" events that others might have missed. For example, we
benefited when Esat Holdings Ltd, an Irish telecommunications company, was
purchased by British Telecom. The acquisition boosted the value of our Esat high
yield bonds. We are waiting to see if British Telecom calls in our bonds at a
premium. Even if it does not, the bonds have been effectively upgraded by the
acquisition.
A number of the fund's successes occurred in the telecommunications market,
validating our interest in that area. Consolidation continues to be a major
driver in the telecommunications space, providing us with potential "big bang"
events as our holdings are acquired by higher- rated players, or receive capital
injections that earn them a credit upgrade. We believe that the
telecommunications theme will continue to offer opportunities, although we warn
that technical conditions and oversupply could keep pressure on valuations in
the near-term.
Additionally, our electric utilities theme also helped our performance,
reflecting ongoing deregulation and improved credit quality. Our energy and
casino themes also remain intact, but have been downplayed recently given the
high valuations on many of these bonds.
Going forward, we will continue to seek out opportunities to capitalize on
potential credit improvements, which result from structural changes in
industries such as telecommunications, electric utilities, and energy. We
believe this strategy provides us a way to add value for our shareholders, while
capitalizing on our intensive research capabilities. Because of our focus on
these kind of special situations, the fund now has a higher weighting in
investment-grade paper than we have had in the past. Nonetheless, we believe
this focus on higher quality issues is prudent, given the recent shift from
interest rate risk to credit risk within the high yield market.
<PAGE>
FUND MANAGEMENT
JERRY PAUL, CFA, CPA
HIGH YIELD FUND,
SELECT INCOME FUND
JERRY PAUL IS THE DIRECTOR OF FIXED-INCOME INVESTMENTS AT INVESCO FUNDS GROUP.
HE RECEIVED HIS BBA FROM THE UNIVERSITY OF IOWA, AND AN MBA FROM THE UNIVERSITY
OF NORTHERN IOWA. BEFORE JOINING INVESCO FUNDS GROUP, JERRY WORKED FOR STEIN,
ROE & FARNHAM INC., AS WELL AS QUIXOTE INVESTMENT MANAGEMENT. HE BEGAN HIS
INVESTMENT CAREER IN 1976. HE IS A CHARTERED FINANCIAL ANALYST AND A CERTIFIED
PUBLIC ACCOUNTANT.
--------------------------------------------------------------------------------
HIGH YIELD FUND--
TOP 10 BOND HOLDINGS BY ISSUER
% of Total Net Assets as of 8/31/00
--------------------------------------------------------------------------------
Level 3 Communications...............................................6.22%
MetroNet Communications..............................................3.98%
Chancellor Media of Los Angeles......................................3.88%
Esat Holdings Ltd....................................................2.87%
PSI Net Inc..........................................................2.37%
United Rentals.......................................................2.36%
NEXTLINK Communications..............................................2.29%
NEXTLINK Communications LLC/NEXTLINK Capital.........................2.24%
RCN Corp.............................................................2.22%
Carson Inc...........................................................2.11%
SINCE THE FUNDS ARE ACTIVELY MANAGED, HOLDINGS WILL CHANGE OVER TIME.
--------------------------------------------------------------------------------
LINE GRAPH: INVESCO HIGH YIELD FUND - INVESTOR CLASS
GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO High Yield
Fund - Investor Class to the value of a $10,000 investment in the Merrill Lynch
High Yield Master Index(2), assuming in each case reinvestment of all dividends
and capital gain distributions, for the ten year period ended 8/31/00.
INVESCO High Yield Fund Merrill Lynch High Yield
Investor Class Master Index (2)
8/90 $10,000 $10,000
8/91 11,220 12,026
8/92 13,223 14,782
8/93 15,118 17,090
8/94 15,174 17,481
8/95 16,862 20,152
8/96 18,781 22,033
8/97 22,399 25,307
8/98 23,393 26,539
8/99 24,927 27,606
8/00 25,647 27,992
LINE GRAPH: INVESCO HIGH YIELD FUND - CLASS C
GROWTH OF $10,000(1)
<PAGE>
This line graph compares the value of a $10,000 investment in INVESCO High Yield
Fund - Class C to the value of a $10,000 investment in the Merrill Lynch High
Yield Master Index(2), assuming in each case reinvestment of all dividends and
capital gain distributions, for the six month period ended 8/31/00.
INVESCO High Yield Fund Merrill Lynch High Yield
Class C Master Index (2)
02/00 $10,000 $10,000
08/00 9,952 10,115
(1) PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN
ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN
INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE
GRAPHS ILLUSTRATE THE VALUE OF A $10,000 INVESTMENT, PLUS REINVESTED
DIVIDENDS AND CAPITAL GAIN DSITRIBUTIONS. THE CHARTS AND OTHER TOTAL
RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT THE INDEX
DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(2) THE MERRILL LYNCH HIGH YIELD MASTER TRUST INDEX IS AN UNMANAGED INDEX
INDICATIVE OF THE HIGH YIELD BOND MARKET.
INVESCO SELECT INCOME FUND
For the one-year period ended August 31, 2000, the value of Select Income
Fund-Investor Class shares rose 5.78%. This return lagged that of the Lehman
Government/Corporate Bond Index, which rose 7.29% during the same period. (Of
course, past performance is no guarantee of future results.)(3),(4)
We are disappointed with our recent performance, which we attribute to a higher
weighting in corporate bonds relative to many of our peers. Corporate bonds
underperformed the Treasury market over the past year, as heavy new issuance and
competition from the equities market contributed to widening yield spreads and
weakening prices on secondary issues. The widening of spreads was exacerbated by
a few well-publicized credit problems in the high yield market, which cast a
shadow across the entire group. These pressures were especially pronounced among
telecommunications issues, as the funding requirements of emerging carriers kept
the high yield market flooded with telecom paper.
Despite these pressures, we saw our telecommunications theme validated this past
year by several "big bang" events. One notable success was AT&T Canada,
previously MetroNet Communications -- a longtime position. AT&T and British
Telecom together own one-third of MetroNet Communi- cations, and are
contractually obligated to acquire the rest. In this event, these companies may
choose to retire the expensive high-yield bonds we own -- substantially
benefiting our performance. Even if the bonds are left outstanding, spreads have
already narrowed on the strength of AT&T and British Telecom's better credit
quality. We believe that technology and industry dynamics will continue to drive
consolidation in the telecommunications market, creating the opportunity for
more "big bang" events such as this.
We also saw continued confirmation of our "electric utilities -- stranded cost
theme" as companies such as Texas Utilities capitalize on deregulation, expanded
market opportunities, and improved credit ratings. And while our casino and
energy themes played less of a role in our performance this year, we remain
confident in their value going forward.
The fund ended the year with a slightly longer duration than we've had in the
past. This change reflects a number of special situation-theme bonds we've added
recently. Many of these were early issues by companies -- such as AT&T Canada --
that have been acquired by higher-grade suitors expected to retire the debt.
Consequently, we believe that the fund's effective average duration is shorter,
and our interest sensitivity lower, than the reported duration might suggest.
<PAGE>
PIE CHART: SELECT INCOME FUND
ASSET DIVERSIFICATION
AS OF 8/31/00
[PIE CHART]
% OF TOTAL ASSETS
Corporate Bonds - Domestic.......79.15%
Corporate Bonds - Foreign........12.89%
Mortgage-Backed Pass
Thru Securities.................1.83%
Common and Preferred Stocks
& Warrants......................2.37%
Cash & Cash Equivalents...........2.59%
Other.............................1.17%
LINE GRAPH: INVESCO SELECT INCOME FUND - INVESTOR CLASS
GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Select
Income Fund - Investor Class to the value of a $10,000 investment in the Lehman
Government/Corporate Bond Index(4), assuming in each case reinvestment of all
dividends and capital gain distributions, for the ten year period ended 8/31/00.
INVESCO Select Income Fund Lehman Government/Corporate
Investor Class Bond Index (4)
8/90 $10,000 $10,000
8/91 11,329 11,443
8/92 13,052 13,050
8/93 14,634 14,690
8/94 14,703 14,348
8/95 16,763 15,996
8/96 17,564 16,591
8/97 19,827 18,221
8/98 21,727 20,303
8/99 21,760 20,362
8/00 23,018 21,846
LINE GRAPH: INVESCO SELECT INCOME FUND - CLASS C
GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Select
Income Fund - Class C to the value of a $10,000 investment in the Lehman
Government/corporate Bond Index(4), assuming in each case reinvestment of all
dividends and capital gain distributions, for the six month period ended
8/31/00.
INVESCO Select Income Fund Lehman Government/Corporate
Class C Bond Index (4)
02/00 $10,000 $10,000
08/00 10,426 10,548
(3) PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN
ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN
INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE
GRAPHS ILLUSTRATE THE VALUE OF A $10,000 INVESTMENT, PLUS REINVESTED
DIVIDENDS AND CAPITAL GAIN DSITRIBUTIONS. THE CHARTS AND OTHER TOTAL
RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT THE INDEX
DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
<PAGE>
(4) THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX IS AN
UNMANAGED INDEX INDICATIVE OF THE OVERALL DOMESTIC
FIXED-INCOME MARKET.
--------------------------------------------------------------------------------
SELECT INCOME FUND--
TOP 10 BOND HOLDINGS BY ISSUER
% of Total Net Assets as of 8/31/00
--------------------------------------------------------------------------------
Chancellor Media of Los Angeles.................................5.65%
MetroNet Communications.........................................5.44%
Equitable Cos...................................................4.30%
Qwest Communications International..............................3.70%
USG Corp........................................................3.52%
Paramount Communications........................................3.31%
Atlantic Richfield..............................................2.99%
J Seagram & Sons................................................2.90%
Niagara Mohawk Power............................................2.86%
TXU Electric Capital............................................2.73%
SINCE THE FUNDS ARE ACTIVELY MANAGED, HOLDINGS WILL CHANGE OVER TIME.
--------------------------------------------------------------------------------
INVESCO TAX-FREE BOND FUND
The fiscal year ended August 31, 2000, represented a successful period for
Tax-Free Bond Fund, albeit one characterized by periodic turmoil in the
municipal bond market. The year was also notable for a change in management in
our fund to a new team.
For the one-year period ended August 31, 2000, the value of Tax-Free Bond
Fund-Investor Class shares rose 6.32%. This can be compared to the Lehman
Municipal Bond Index, which rose 6.77% over the same period. (Of course, past
performance is not a guarantee of future results.)5,6
Since taking over management of the fund, we have continued the basic approach
of not attempting to predict interest rates by constantly changing the mix of
longer- and shorter-maturity bonds. This "duration" management can sometimes
contribute positively to performance -- especially in periods when the interest
rate environment is in flux -- but can also involve significant risk. We
continue to believe that safety and stability are the primary purposes of a
municipal bond fund.
MAP: -----------------------------------
TAX-FREE BOND FUND - TOP 10 STATES
% of Total Net Assets as of 8/31/00
-----------------------------------
Indiana 9.21%
Illinois 8.93%
Texas 8.07%
Massachusetts 8.05%
New York 6.72%
Wisconsin 5.13%
Montana 4.98%
Louisiana 4.77%
Michigan 4.72%
Ohio 4.42%
<PAGE>
PIE CHART: TAX-FREE BOND FUND
CREDIT RATINGS
AS OF 8/31/00
[PIE CHART]
% OF BOND HOLDINGS
Aaa.....................54.95%
Aa......................25.47%
A.......................16.24%
Baa......................0.87%
Ba.......................1.69%
NR.......................0.79%
In other ways, however, the changes we have introduced in the management of the
fund have been fairly substantial. We have introduced a renewed focus on yield,
rather than on attempting to maximize total return by finding underpriced bonds.
This approach has led us to divest the fund of zero coupon and deep discount
bonds.
Our goal has been to keep current income levels by seeking higher current
yields, while also keeping the fund as stable as possible. Focusing on income,
rather than on the price that someone else may offer us for the underlying
security, helps ensure that the fund will remain tax efficient. Ind eed, selling
bonds at a loss in 1999 allowed the fund to accrue some substantial tax losses,
which should help further insulate shareholders.
We remain optimistic for the future of the municipal bond markets. As the Baby
Boomers have started to reach their fifties, more of them appear ready to
consolidate the substantial gains they have made in the equity markets and move
assets into tax-efficient and stable investments such as municipal bonds.
Indeed, banks have recently started to report large numbers of new municipal
accounts. Higher demand, combined with fiscally healthy municipal bond issuers
facing an ongoing need to fund new infrastructure, should create favorable
conditions for investors.
LINE GRAPH: INVESCO TAX-FREE BOND FUND - INVESTOR CLASS
GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Tax-Free
Bond Fund - Investor Class to the value of a $10,000 investment in the Lehman
Municipal Bond Index(6), assuming in each case reinvestment of all dividends and
capital gain distributions, for the ten year period ended 8/31/00.
INVESCO Tax Free Bond Fund Lehman Municipal Bond
Investor Class Index (6)
8/90 $10,000 $10,000
8/91 11,356 11,179
8/92 12,686 12,427
8/93 14,245 13,943
8/94 14,110 13,962
8/95 14,994 15,199
8/96 15,862 15,996
8/97 17,048 17,474
8/98 18,297 18,985
8/99 18,116 19,080
8/00 19,261 20,372
<PAGE>
LINE GRAPH: INVESCO TAX-FREE BOND FUND - CLASS C
GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Tax-Free
Bond Fund - Class C to the value of a $10,000 investment in the Lehman Municipal
Bond Index(6), assuming in each case reinvestment of all dividends and capital
gain distributions, for the six month period ended 8/31/00.
INVESCO Tax Free Bond Fund Lehman Municiple Bond
Class C Index (6)
02/00 $10,000 $10,000
08/00 10,688 10,679
(5) PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN
ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN
INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE
GRAPHS ILLUSTRATE THE VALUE OF A $10,000 INVESTMENT, PLUS REINVESTED
DIVIDENDS AND CAPITAL GAIN DSITRIBUTIONS. THE CHARTS AND OTHER TOTAL
RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT THE INDEX
DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(6) THE LEHMAN MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX INDICATIVE OF THE
BROAD TAX-EXEMPT BOND MARKET.
FUND MANAGEMENT
RICHARD A. BERRY, CFA
TAX-FREE BOND FUND
RICHARD BERRY IS VICE PRESIDENT AT AIM CAPITAL MANAGEMENT, INC. HE BEGAN HIS
INVESTMENT CAREER IN 1968, AND HAS WORKED FOR AIM SINCE 1987. HE HAS A BA AND
MBA FROM TEXAS CHRISTIAN UNIVERSITY.
STEPHEN D. TURMAN, CFA
TAX-FREE BOND FUND
STEPHEN D. TURMAN, A VICE PRESIDENT AND PORTFOLIO MANAGER OF AIM, IS THE
CO-PORTFOLIO MANAGER OF TAX-FREE BOND FUND. STEPHEN MANAGES SEVERAL OTHER AIM
FIXED-INCOME FUNDS. BEFORE JOINING AIM IN 1985, HE WORKED IN INSTITUTIONAL SALES
FOR DEAN WITTER. STEPHEN IS A CHARTERED FINANCIAL ANALYST. HE HOLDS A BBA IN
FINANCE FROM THE UNIVERSITY OF TEXAS AT ARLINGTON
INVESCO U.S. GOVERNMENT SECURITIES FUND
For the one-year period ended August 31, 2000, the value of U.S. Government
Securities Fund-Investor Class shares rose 9.12%. This return lagged that of
Lehman Government Long Bond Index, which rose 11.62% over the same period. (Of
course, past performance is no guarantee of future results.)(7),(8)
CHART: -----------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND -
TOP BOND HOLDINGS BY ISSUER
% of Total Net Assets as of 8/31/00
-----------------------------------------------------------------------
Government National Mortgage Association I............41.57%
US Treasury Bonds.....................................38.98%
Freddie Mac...........................................11.30%
SINCE THE FUNDS ARE ACTIVELY MANAGED, HOLDINGS WILL CHANGE OVER TIME.
-----------------------------------------------------------------------
<PAGE>
The positive news for investors in longer-term government securities is it
appears that interest rates may be stabilizing. But the outlook for government
securities continues to hinge on the economic environment. On the positive side,
the economy is showing more signs of moderating to a soft landing, inflation
remains benign, and the Federal Reserve has likely finished with its interest
rates hikes -- barring a renewed acceleration in economic growth. The government
budget surplus also bodes well for the performance of government bonds, as the
Treasury continues to buy back longer-term debt. All of these factors support
investing at the longer-end of the maturity spectrum.
Nonetheless, other developments would argue for caution. For one, the economy is
not without inflationary pressures -- energy prices have surged higher,
employment markets remain tight, and recent labor contracts have stipulated wage
increases. Additionally, Fed policy makers have made it clear they are targeting
equity prices, and a stock market rebound could trigger additional rate hikes.
And, with the presidential election almost upon us, there is a risk that
additional spending increases or tax cuts could eat away at the fiscal surplus.
These pressures are aggravated by the recent strengthening U.S. dollar, which
could curtail foreign investors' appetites for dollar-denominated investments.
While it is too early to assess how these developments will play out, lingering
inflation and interest rate risks suggest that the bond market could trade in a
narrower range. This could make it difficult for investors to benefit from
longer duration positions.
Because of the uncertainty in this equation, we have chosen to take a more
defensive stance as we head into the coming year. We have scaled back our
duration-sensitive exposure, while adding more spread-sensitive products,
including mortgage-backed securities, which could be less vulnerable to an
upturn in interest rates.
PIE CHART: U.S. GOVERNMENT SECURITIES FUND
ASSET DIVERSIFICATION
AS OF 8/31/00
[PIE CHART]
% OF TOTAL ASSETS
Mortgage-Backed Pass
Thru Securities......................52.88%
U.S. Govt. Obligations.................38.98%
Cash & Cash Equivalents.................8.14%
Despite the uncertainty affecting bond markets, we believe that investors may
revisit government bonds as a stable investment choice -- particularly if a
slowing economy contributes to uncertainty over corporate earnings and equity
market performance.
LINE GRAPH: INVESCO U.S. GOVERNMENT SECURITIES FUND - INVESTOR CLASS
GROWTH OF $10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO U.S.
Government Securities Fund - Investor Class to the value of a $10,000 investment
in the Lehman Government Long Bond Index(8), assuming in each case reinvestment
of all dividends and capital gain distributions, for the ten year period ended
8/31/00.
<PAGE>
INVESCO Tax Free Bond Fund Lehman Government Long Bond
Investor Class Index (8)
8/90 $10,000 $10,000
8/91 11,523 11,854
8/92 12,962 13,755
8/93 14,718 16,782
8/94 13,757 15,515
8/95 15,459 18,158
8/96 15,662 18,423
8/97 17,386 20,892
8/98 19,950 25,246
8/99 19,276 23,986
8/00 21,035 26,773
LINE GRAPH: INVESCO U.S. GOVERNMENT SECURITIES FUND - CLASS C
GROWTH OF $10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO U.S.
Government Securities Fund - Class C to the value of a $10,000 investment in the
Lehman Government Long Bond Index(8), assuming in each case reinvestment of all
dividends and capital gain distributions, for the six month period ended
8/31/00.
INVESCO U.S. Government Securities Fund Lehman Government Long Bond
Class C Index (8)
02/00 $10,000 $10,000
08/00 10,766 10,850
(7) PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN
ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN
INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE
GRAPHS ILLUSTRATE THE VALUE OF A $10,000 INVESTMENT, PLUS REINVESTED
DIVIDENDS AND CAPITAL GAIN DSITRIBUTIONS. THE CHARTS AND OTHER TOTAL
RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT THE INDEX
DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(8) THE LEHMAN GOVERNMENT LONG BOND INDEX IS AN UNMANAGED INDEX INDICATIVE OF
THE LONGER-TERM GOVERNMENT BOND MARKET.
FUND MANAGEMENT
RICHARD HINDERLIE
U.S GOVERNMENT SECURITIES FUND
DICK HINDERLIE RECEIVED HIS BA IN ECONOMICS FROM PACIFIC LUTHERAN UNIVERSITY AND
HIS MBA FROM ARIZONA STATE UNIVERSITY. HE BEGAN HIS INVESTMENT CAREER IN 1973,
AND HAS EXTENSIVE EXPERIENCE IN FIXED-INCOME ANALYSIS AND PORTFOLIO MANAGEMENT.
QUESTIONS & ANSWERS
AN INTERVIEW WITH FIXED-INCOME TEAM LEADER JERRY PAUL
JERRY PAUL IS DIRECTOR OF FIXED-INCOME INVESTMENTS AT INVESCO FUNDS GROUP, AND
MANAGES INVESCO SELECT INCOME FUND AND INVESCO HIGH YIELD FUND.
JERRY, THERE HAS BEEN A LOT OF TALK ABOUT TECHNICAL PRESSURES IN THE CORPORATE
DEBT MARKET. CAN YOU EXPLAIN?
<PAGE>
JERRY PAUL: For corporate bond investors, the past year has been one of the most
challenging in recent memory. For one thing, bonds have had a difficult time
competing with returns in the stock markets, and the fixed-income market has
experienced outflows. At the same time, demand for capital within the corporate
debt market has been soaring. Companies appear willing to pay almost any price
to get financing, and a heavy new issue calendar has contributed to widening
yield spreads and lower prices on secondary bonds. Finally, several highly
publicized bankruptcies have sparked renewed credit concerns, particularly in
the high-yield market.
While these market conditions have at times been frustrating, we recognize that
this kind of technical cycle has historically created long-term buying
opportunities. I believe this could be true again. For example, there is a great
deal of value in the high-yield market for investors who do their homework.
"I BELIEVE THESE CURRENT CREDIT PROBLEMS HIGHLIGHT THE IMPORTANT OF DOING
RIGOROUS, HANDS-ON RESEARCH ON EACH COMPANY AND EVERY ISSUE."
ARE YOU CONCERNED ABOUT CREDIT QUALITY WITHIN THE HIGH YIELD MARKET?
JERRY PAUL: We have been able to avoid many of the credit problems that have
affected some of our peers. That being said, we are certainly keeping a close
eye on credit quality. I believe these credit problems are isolated events, and
are less a reflection of market fundamentals than of the sheer volume of deals
-- good and bad -- that has been done recently. If anything, we believe these
credit problems highlight the importance of doing rigorous, hands-on research on
each company and every issue. There is a tremendous difference between
fundamentally strong companies whose potential might not be fully understood by
investors, and those issuers that have weak business plans and shaky balance
sheets.
TELECOMMUNICATIONS BONDS HAVE COME UNDER PRESSURE RECENTLY. DOES THAT CHANGE
YOUR VIEW ON YOUR TELECOMMUNICATIONS THEME?
JERRY PAUL: Despite recent technical pressures, we remain very upbeat on the
opportunities in the telecommunications market. These are high beta issues that
have contributed to our long-term performance, and we believe they will again
work in our favor once funding concerns ease. But we remain very selective in
our choice of investments. We have focused on telecommunications providers with
solid business plans, experienced management teams, and valuable assets. In
particular, we want to identify those companies that are candidates for a "big
bang" event -- such as a credit upgrade or purchase by a higher-grade
competitor.
HAS YOUR THEMATIC INVESTMENT APPROACH CHANGED AT ALL?
JERRY PAUL: We continue to invest by themes -- including communications,
electric utilities, energy, broadcasting, and radio. Our telecommunications and
electric utilities themes, in particular, were validated this year. Other
investment themes, including casinos and energy, played less of a role in our
performance -- due in part to the high valuations on many of these bonds. But we
have also benefited from several "big bang" events among our special situation
holdings -- bonds we invested in because we anticipated some kind of event or
development that will work in our favor.
<PAGE>
CAN YOU GIVE US AN EXAMPLE OF A SPECIAL SITUATION?
JERRY PAUL: A good example might be Chancellor Broadcasting, also known as AMFM
Broadcasting, a position in both Select Income Fund and High Yield Fund.
Chancellor was recently acquired by a competitor, Clear Channel Communications,
which has announced plans to refinance its debt structure. The company has
hinted it will retire many of the high-yield, more expensive bonds issued by
Chancellor and several other recently-acquired Clear Channel subsidiaries which
we also have a stake in. We were able to buy many of these bonds when they were
trading at a discount, and we are already seeing our investment validated as
prices on these issues converge with prices on Clear Channel's other debt.
WHAT IS YOUR INVESTMENT STRATEGY GOING FORWARD?
JERRY PAUL: Going forward, we will continue to focus on fundamentally strong
companies that are improving their credit profiles. We will look for
opportunities to use market volatility as a buying opportunity, and we will
maintain our investment discipline while working hard to manage risk.
At the same time, we will remain on the lookout for the kind of special
situations that offer us the opportunity for a "big bang" event. We believe
these events are often predictable for managers who understand dynamic industry
changes and who do the kind of hands-on research we emphasize. We believe this
process can offer added benefit for our shareholders, while also providing them
with the high current income they expect.
SINCE THE FUNDS ARE ACTIVELY MANAGED, HOLDINGS WILL CHANGE OVER TIME.
"THERE IS A GREAT DEAL OF VALUE IN THE HIGH-YIELD MARKET FOR INVESTORS WHO DO
THEIR HOMEWORK."
--JERRY PAUL
<PAGE>
YOUR FUND'S REPORT
"THE FED KEPT INTEREST RATES STEADY IN AUGUST ELICITING FAVORABLE REACTION FROM
THE EQUITY AND BOND MARKETS."
MARKET HEADLINES:
SEPTEMBER 1999 TO AUGUST 2000
The fiscal year ended August 31, 2000, saw both the economy and business profits
continue to steam ahead, although the equity markets finally began to slow from
the torrid pace they had maintained for the previous several years. The largest
story on the major stock exchanges was undoubtedly the spectacular run-up of
technology stocks in the fall of 1999 and winter of 2000, followed by an equally
dramatic correction in the spring. But the major story for the bond markets was
the tightening cycle engineered by the Federal Reserve which began back in June
1999 -- and may have wound down as the period came to a close.
With the world economic recovery demonstrably on solid footing, the U.S. economy
expanding at a rapid pace, and consumers spending freely, the Fed began to worry
that the "Goldilocks economy" (not too hot, and not too cold) had finally become
too warm. Rising oil and gas prices brought about by steep demand, tight
inventories, and new-found OPEC resolve, meant that consumers and businesses
were paying more for heat, electricity, and gasoline. While the emerging markets
crisis of 1997-1998 had helped keep commodity and import prices low in the
United States, the exact opposite was occurring now that global growth had come
back strongly. As unemployment reached 30-year lows, wage gains became more
generous, implying that costs may have to be passed on to consumers.
All these signs pointed to a substantial pickup in inflation on the consumer
level, but actual evidence of prices spiraling upward was scanty. While
inflation steadied after declining for several quarters, it remained comfortably
between 2% and 3% -- hardly levels that should keep central bankers awake at
night. Most analysts credited the remarkably strong increases in productivity
with keeping inflation at bay.
Still, the Fed gave clear notice that it would act preemptively to stave off
inflation, raising rates before price increases showed up in most goods and
services. Having begun with a quarter-point nudge upward in June 1999, the
central bank followed with five more interest rate hikes over the ensuing
months, bringing the target federal funds rate up from 4.75% to 6.50%. As the
increases were announced, market interest rates -- the rates that individuals
actually pay to borrow money -- moved up in tandem. A curious exception played
out in the Treasury market. Budget surpluses led the government to borrow less,
creating a scarcity in the market for 30-year Treasury bonds and driving yields
lower.
By August 2000, however, it began to appear that the Fed's medicine might have
solved the problem. The highest mortgage rates in several years seemed to cool
off new home construction. Consumer confidence, while still quite high, also
showed signs of moderation. Consumer spending fell as well. Reacting to this
news -- and perhaps reluctant to do anything to intervene in the upcoming
elections -- the Fed kept interest rates steady in August, eliciting favorable
reactions from the equity and bond markets.
As always, the jury is still out on which direction interest rates would take in
the future. Pulled in two directions by the strong global economy and continuing
domestic growth on the one hand, and the productivity safety valve of the New
Economy on the other, inflation seemed ready to head in any direction. Should it
head in the right one, however, and with the economy on track and some of the
excesses bled out of the stock market, many look forward to the bond and stock
markets resuming their upward direction.
<PAGE>
INVESTMENT HOLDINGS
STATEMENT OF INVESTMENT SECURITIES
INVESCO Bond Funds, Inc.
<TABLE>
<CAPTION>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUGUST 31, 2000
HIGH YIELD FUND
81.76 FIXED INCOME SECURITIES
81.76 CORPORATE BONDS
7.03 BROADCASTING
Capstar Broadcasting Partners, Sr Sub Notes
9.250%, 7/1/2007 $ 500,000 $ 518,750
Chancellor Media of Los Angeles
Gtd Sr Sub Notes
9.000%, 10/1/2008 $ 14,050,000 14,787,625
8.000%, 11/1/2008 $ 9,650,000 9,776,656
Sr Sub Notes, Series B, 8.125%, 12/15/2007 $ 6,100,000 6,176,250
LIN Holdings, Sr Discount Step-Up Notes
Zero Coupon(a), 3/1/2008 $ 14,585,000 10,209,500
LIN Television, Gtd Sr Sub Notes, 8.375%, 3/1/2008 $ 7,975,000 7,556,313
Sinclair Broadcast Group, Sr Sub Notes
10.000%, 9/30/2005 $ 4,000,000 3,930,000
XM Satellite Radio, Sr Secured Notes(b), 14.000%, 3/15/2010 $ 3,750,000 2,925,000
==============================================================================================================
55,880,094
3.80 CABLE
Charter Communications Holdings LLC/Charter
Communications Holdings Capital, Sr Discount
Step-Up Notes, Zero Coupon(a), 4/1/2011 $ 10,000,000 6,000,000
Comcast Cable Partners Ltd, Sr Discount Step-Up
Deb, Zero Coupon(a), 11/15/2007 UK $9,814,000 9,347,835
NTL Inc
Conv Sub Notes(b), 5.750%, 12/15/2009 $ 4,550,000 3,179,313
Sr Deferred Step-Up Notes, Zero Coupon(a)
4/1/2008 $ 5,250,000 3,307,500
Renaissance Media Group LLC/Renaissance
Media Capital, Gtd Sr Discount Step-Up Notes
Zero Coupon(a), 4/15/2008 $ 12,000,000 8,370,000
==============================================================================================================
30,204,648
2.51 CHEMICALS
Huntsman Corp, Sr Sub Notes(b), 9.500%, 7/1/2007 $ 8,500,000 7,437,500
Huntsman Polymers, Sr Notes, 11.750%, 12/1/2004 $ 12,291,000 12,536,820
==============================================================================================================
19,974,320
2.31 COMMUNICATIONS--EQUIPMENT & MANUFACTURING
Metromedia Fiber Network, Sr Notes, Series B
10.000%, 11/15/2008 $ 13,000,000 12,805,000
World Access, Sr Notes, Series B, 13.250%, 1/15/2008 $ 6,750,000 5,602,500
==============================================================================================================
18,407,500
3.13 COMPUTER RELATED
Covad Communications Group, Sr Notes, Series B
12.000%, 2/15/2010 $ 4,000,000 3,080,000
PSINet Inc
Sr Notes, 11.000%, 8/1/2009 $ 8,770,000 7,575,088
Sr Notes(b), 10.500%, 12/1/2006 $ 13,000,000 11,212,500
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
WAM!NET, Gtd Sr Discount Step-Up Notes, Series B
Zero Coupon(a), 3/1/2005 $ 5,700,000 $ 3,021,000
==============================================================================================================
24,888,588
4.27 ELECTRIC UTILITIES
El Paso Electric, 1st Mortage, Series D
8.900%, 2/1/2006 $ 8,000,000 8,274,192
Niagara Mohawk Power
1st Mortgage, 8.750%, 4/1/2022 $ 6,400,000 6,572,646
Sr Discount Step-Up Notes, Series H
Zero Coupon(a), 7/1/2010 $ 6,500,000 5,125,250
Texas Utilities, 1st Mortgage & Collateral Trust
8.875%, 2/1/2022 $ 1,200,000 1,249,962
8.750%, 11/1/2023 $ 2,000,000 2,086,408
TXU Electric Capital, Gtd Capital Securities
8.175%, 1/30/2037 $ 10,250,000 10,603,113
==============================================================================================================
33,911,571
0.48 ELECTRICAL EQUIPMENT
Alpine Group, Gtd Sr Secured Notes, Series B
12.250%, 7/15/2003 $ 3,800,000 3,876,000
==============================================================================================================
0.57 ENGINEERING & CONSTRUCTION
Ryland Group, Sr Sub Notes, 8.250%, 4/1/2008 $ 5,125,000 4,535,625
==============================================================================================================
1.13 ENTERTAINMENT
SFX Entertainment, Gtd Sr Sub Notes
9.125%, 12/1/2008 $ 1,750,000 1,830,938
Series B, 9.125%, 2/1/2008 $ 6,800,000 7,114,500
==============================================================================================================
8,945,438
2.59 FINANCIAL
Madison River Capital LLC/Madison River Finance
Sr Notes(b), 13.250%, 3/1/2010 $ 11,500,000 9,545,000
Primark Corp, Sr Sub Notes, 9.250%, 12/15/2008 $ 10,170,000 11,085,300
==============================================================================================================
20,630,300
0.44 GAMING
Isle of Capri Casinos, Gtd Sr Sub Notes, 8.750, 4/15/2009 $ 3,750,000 3,515,625
==============================================================================================================
1.03 HEALTH CARE RELATED
PharMerica Inc, Gtd Sr Sub Notes, 8.375%, 4/1/2008 $ 11,730,000 8,211,000
==============================================================================================================
0.36 HOUSEHOLD PRODUCTS
Home Products International, Gtd Sr Sub Notes
9.625%, 5/15/2008 $ 4,600,000 2,898,000
==============================================================================================================
1.05 IRON & STEEL
Inland Steel, 1st Mortgage, Series R, 7.900% 1/15/2007 $ 9,980,000 8,383,200
==============================================================================================================
0.25 METALS MINING
Bulong Operations Property Ltd, Sr Secured Notes
12.500%, 12/15/2008(c) AS $ 5,515,000 1,985,400
==============================================================================================================
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
1.84 OIL & GAS RELATED
Canadian Forest Oil Ltd, Gtd Sr Sub Notes
8.750%, 9/15/2007 CA $ 3,960,000 $ 3,880,800
GulfMark Offshore, Gtd Sr Notes, 8.750%, 6/1/2008 $ 8,000,000 7,500,000
Houston Exploration, Sr Sub Notes, Series B
8.625%, 1/1/2008 $ 2,250,000 2,216,250
Snyder Oil, Gtd Sr Sub Notes, 8.750%, 6/15/2007 $ 1,000,000 1,018,750
==============================================================================================================
14,615,800
1.75 PAPER & FOREST PRODUCTS
Bear Island Paper LLC/Bear Island Finance II, Sr
Secured Notes, Series B, 10.000%, 12/1/2007 $ 9,100,000 8,190,000
Repap New Brunswick, 2nd Priority, Sr Secured Notes
10.625%, 4/15/2005 CA $ 500,000 515,000
Riverwood International, Gtd Sr Sub Notes
10.875%, 4/1/2008 $ 5,500,000 5,197,500
==============================================================================================================
13,902,500
2.37 PERSONAL CARE
Carson Inc, Gtd Sr Sub Notes, Series B, 10.375%
11/1/2007 $ 15,012,000 16,700,850
Revlon Consumer Products, Sr Notes, 8.125%
2/1/2006 $ 3,000,000 2,160,000
==============================================================================================================
18,860,850
3.93 SERVICES
Heritage Media, Sr Sub Notes, 8.750%, 2/15/2006 $ 7,045,000 6,877,681
Iron Mountain, Gtd Sr Sub Notes, 8.250%, 7/1/2011 $ 1,000,000 910,000
NationsRent Inc, Gtd Sr Sub Notes, 10.375%, 12/15/2008 $ 6,250,000 4,750,000
United Rentals, Gtd Sr Sub Notes, Series B
9.250%, 1/15/2009 $ 5,000,000 4,650,000
9.000%, 4/1/2009 $ 3,600,000 3,330,000
8.800%, 8/15/2008 $ 11,675,000 10,741,000
==============================================================================================================
31,258,681
0.20 SHIPPING
TBS Shipping International Ltd, 1st Pfd Shipping
Mortgage Notes(d), 10.000%, 5/1/2005 BD $ 5,750,000 1,552,500
==============================================================================================================
1.15 SPECIALTY PRINTING
MDC Communications, Sr Sub Notes, 10.500%
12/1/2006 CA $ 9,500,000 9,120,000
==============================================================================================================
6.41 TELECOMMUNICATIONS--CELLULAR & WIRELESS
Clearnet Communications, Sr Discount Step-Up Notes
Zero Coupon(a), 5/1/2009 CA $ 7,240,000 5,466,200
Esat Holdings Ltd, Sr Deferred Step-Up Notes, Series B
Zero Coupon(a), 2/1/2007 IE $ 23,850,000 22,776,750
Nextel Partners, Sr Notes(b), 11.000%, 3/15/2010 $ 2,750,000 2,743,125
Price Communications Wireless
Gtd Sr Secured Notes, Series B, 9.125%, 12/15/2006 $ 1,550,000 1,565,500
Sr Sub Notes, 11.750%, 7/15/2007 $ 2,587,000 2,787,493
Rogers Cantel Sr Secured Deb, 9.375%, 6/1/2008 CA $ 3,750,000 3,909,375
VoiceStream Wireless, Sr Notes, 10.375%, 11/15/2009 $ 3,500,000 3,780,000
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
Williams Communications Group, Sr Notes(b)
11.875%, 8/1/2010 $ 1,500,000 $ 1,496,250
11.700%, 8/1/2008 $ 6,450,000 6,482,250
==============================================================================================================
51,006,943
13.32 TELECOMMUNICATIONS--LONG DISTANCE
Allegiance Telecom
Sr Discount Step-Up Notes, Series B
Zero Coupon(a), 2/15/2008 $ 13,640,000 9,752,600
Sr Notes , 12.875%, 5/15/2008 $ 1,475,000 1,563,500
Call-Net Enterprises, Sr Discount Step-Up Notes
Zero Coupon(a), 5/15/2007 CA $ 3,900,000 1,755,000
Esat Telecom Group PLC, Sr Notes, Series B
11.875%, 12/1/2008 IE $ 4,000,000 4,720,000
Esprit Telecom Group PLC, Sr Notes, 11.500%
12/15/2007 UK $ 8,250,000 4,372,500
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $ 7,850,000 7,398,625
Level 3 Communications
Sr Discount Step-Up Notes, Zero Coupon(a)
12/1/2008 $ 79,250,000 48,342,500
Sr Notes, 9.125%, 5/1/2008 $ 1,050,000 941,063
Nextel International, Sr Notes(b), 12.750%
8/1/2010 $ 7,500,000 7,312,500
Primus Telecommunications Group, Sr Notes
Series B, 9.875%, 5/15/2008 $ 6,750,000 4,050,000
Qwest Communications International, Sr Discount
Step-Up Notes, Series B, Zero Coupon(a)
10/15/2007 $ 2,000,000 1,744,618
2/1/2008 $ 9,250,000 7,587,294
Startec Global Communications, Sr Notes
12.000%, 5/15/2008 $ 3,850,000 2,926,000
Viatel Inc, Sr Dollar Notes, 11.500%, 3/15/2009 $ 6,000,000 3,420,000
==============================================================================================================
105,886,200
19.46 TELEPHONE
Diamond Cable Communications PLC, Sr Discount
Step-Up Notes, Zero Coupon(a)
12/15/2005 UK $ 10,000,000 9,500,000
2/15/2007 UK $ 7,100,000 5,467,000
Focal Communications
Sr Discount Step-Up Notes, Series B
Zero Coupon(a), 2/15/2008 $ 7,250,000 4,531,250
Sr Notes, Series B, 11.875%, 1/15/2010 $ 2,000,000 1,820,000
Intermedia Communications, Sr Discount Step-Up
Notes, Series B, Zero Coupon(a), 3/1/2009 $ 18,750,000 9,281,250
McLeodUSA Inc
Sr Discount Step-Up Notes, Zero Coupon(a), 3/1/2007 $ 4,650,000 3,906,000
Sr Notes, 8.125%, 2/15/2009 $ 5,000,000 4,550,000
MetroNet Communications, Sr Discount Step-Up
Notes, Zero Coupon(a)
11/1/2007 CA $ 3,250,000 2,851,878
6/15/2008 CA $ 34,900,000 28,668,116
Netia Holdings BV, Gtd Sr Discount Step-Up Notes
Series B, Zero Coupon(a), 11/1/2007 NL $ 8,300,000 5,810,000
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
NEXTLINK Communications
Sr Discount Step-Up Notes, Zero Coupon(a)
4/15/2008 $ 11,600,000 $ 7,105,000
Sr Notes
10.750%, 11/15/2008 $ 5,750,000 5,563,125
9.625%, 10/1/2007 $ 5,950,000 5,488,875
NEXTLINK Communications LLC/NEXTLINK Capital
Sr Notes, 12.500%, 4/15/2006 $ 17,160,000 17,717,700
RCN Corp
Sr Discount Step-Up Notes, Series B, Zero Coupon(a)
2/15/2008 $ 21,000,000 11,182,500
Sr Notes, 10.125%, 1/15/2010 $ 8,000,000 6,400,000
Time Warner Telecommunications LLC, Sr Notes
9.750%, 7/15/2008 $ 6,450,000 6,224,250
United Pan-Europe Communications NV
Sr Discount Step-Up Notes, Series B, Zero Coupon(a)
8/1/2009 NL $ 18,750,000 8,906,250
2/1/2010 NL $ 7,500,000 3,450,000
Sr Notes, Series B, 10.875%, 11/1/2007 NL $ 3,500,000 3,045,000
US WEST Communications, Notes, 5.650%, 11/1/2004 $ 3,475,000 3,246,428
==============================================================================================================
154,714,622
0.38 TEXTILE--APPAREL MANUFACTURING
WestPoint Stevens, Sr Notes, 7.875%, 6/15/2005 $ 3,500,000 3,027,500
==============================================================================================================
TOTAL FIXED INCOME SECURITIES (Cost $719,211,495) 650,192,905
==============================================================================================================
0.95 COMMON STOCKS & WARRANTS
0.06 BROADCASTING
XM Satellite Radio Warrants(e) (Exp 2010) 3,750 487,500
==============================================================================================================
0.03 COMPUTER RELATED
Wam!Net Warrants(b)(e) (Exp 2005) 17,100 198,788
==============================================================================================================
0.86 INVESTMENT COMPANIES
Alliance Capital Management Government
Securities Closed-End Fund 75,000 567,187
Spectrum Closed-End Fund 155,000 949,374
Delaware Group Global Dividend & Income
Closed-End Fund 10,600 132,500
Dresdner RCM Global Strategic Income Closed-End Fund 347,000 2,320,563
Dreyfus Strategic Governments Income
Closed-End Fund 124,400 1,174,025
Van Kampen Senior Income Trust Closed-End Fund 191,150 1,696,456
==============================================================================================================
6,840,105
0.00 TELECOMMUNICATIONS--LONG DISTANCE
STARTEC Global Communications Warrants(b)(e)
(Exp 2008) 3,850 13,475
==============================================================================================================
TOTAL COMMON STOCKS & WARRANTS (Cost $7,308,872) 7,539,868
==============================================================================================================
10.69 PREFERRED STOCKS
0.48 BROADCASTING
Granite Broadcasting, Exchangeable Pfd(f), 12.750% 4,893 3,767,610
==============================================================================================================
<PAGE>
0.21 COMPUTER RELATED
PSINet Inc, Conv Pfd(b), 7.000% 65,000 $ 1,690,000
==============================================================================================================
0.99 PUBLISHING
PRIMEDIA Inc, Exchangable Pfd, Series H Shrs, 8.625% 91,500 7,869,000
==============================================================================================================
2.71 TELECOMMUNICATIONS--CELLULAR & WIRELESS
Nextel Communications, Exchangeable Pfd(f)
Series E Shrs, 11.125% 22,309 21,528,185
==============================================================================================================
5.32 TELECOMMUNICATIONS--LONG DISTANCE
Global Crossing Holdings Ltd, Sr Exchangeable
Pfd(e), 10.500% BD 219,720 21,972,000
Global Crossing Ltd, Conv Pfd, 6.750% BD 9,000 2,202,750
IXC Communications, Jr Exchangeable Pfd
Series B Shrs, 12.500% 17,781 18,136,619
==============================================================================================================
42,311,369
0.98 TELEPHONE
Intermedia Communications, Pfd(f), Series B Shrs
13.500% 7,690 5,229,200
NEXTLINK Communications, Exchangeable Pfd(f)
14.000% 58,281 2,593,505
==============================================================================================================
7,822,705
TOTAL PREFERRED STOCKS (Cost $92,744,243) 84,988,869
==============================================================================================================
4.52 OTHER SECURITIES
1.56 ELECTRIC UTILITIES
AES EDC Funding, Term Loan, VR, 9.750%, 9/1/2001 $ 10,000,000 9,975,000
Alliant Energy Resources, Sr Sub Exchangeable
Step-Down Notes(b), PAY PHONES(g), 7.250%(h)
2/15/2030 (Each shr exchangeable for 2.5 shrs
McLeodUSA cmn stk) 41,500 2,391,437
==============================================================================================================
12,366,437
0.63 TELECOMMUNICATIONS--CELLULAR & WIRELESS
VoiceStream PCS Holdings LLC, Term Loan B, VR, 9.660%
2/25/2009 $ 5,000,000 4,975,000
==============================================================================================================
2.33 TELECOMMUNICATIONS--LONG DISTANCE
CFW Communications, Units(b) (Each unit consists of
one $1,000 Face Amount Sr Note, 13.000%
8/15/2010 and 1 wrnt to purchase 1.8 shrs of cmn stk) 16,500 15,675,000
GTGroup Telecom, Units(b) (Each unit consists of
one $1,000 Face Amount Sr Discount Step-Up Note
Zero Coupon(a), 2/1/2010 and 1 wrnt to purchase
4.9106 Class B non-voting shrs of cmn stk) CA 5,600 2,884,000
==============================================================================================================
18,559,000
TOTAL OTHER SECURITIES (Cost $37,388,409) 35,900,437
==============================================================================================================
2.08 SHORT-TERM INVESTMENTS
2.01 COMMECIAL PAPER
2.01 FINANCIAL
Associates First Capital, 6.650%, 9/1/2000
(Cost $16,000,000) $ 16,000,000 16,000,000
==============================================================================================================
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
0.07 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated
8/31/2000 due 9/1/2000 at 6.500%, repurchased
at $584,105 (Collateralized by US Treasury
Notes, due 5/15/2001 at 8.000%, value $600,297)
(Cost $584,000) $ 584,000 $ 584,000
==============================================================================================================
TOTAL SHORT-TERM INVESTMENTS (Cost $16,584,000) 16,584,000
==============================================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $873,237,019)
(Cost for Income Tax Purposes $873,448,402) $ 795,206,079
==============================================================================================================
SELECT INCOME FUND
94.29 FIXED INCOME SECURITIES
2.24 US GOVERNMENT AGENCY OBLIGATIONS
Freddie Mac, Gold, Participation Certificates
6.500%, 9/1/2011 $ 10,762,795 $ 10,534,477
Resolution Funding, Generic Interest Strip
Zero Coupon(a), 4/15/2009 $ 4,000,000 2,327,236
==============================================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $12,767,348) 12,861,713
==============================================================================================================
92.05 CORPORATE BONDS
5.65 BROADCASTING
Chancellor Media of Los Angeles
Gtd Sr Sub Notes
9.000%, 10/1/2008 $ 7,975,000 8,393,687
8.000%, 11/1/2008 $ 6,450,000 6,534,656
Series B, 8.750%, 6/15/2007 $ 8,500,000 8,670,000
Sr Sub Notes, Series B, 8.125%, 12/15/2007 $ 8,750,000 8,859,375
==============================================================================================================
32,457,718
3.52 BUILDING MATERIALS
USG Corp, Sr Notes, 8.500%, 8/1/2005 $ 19,549,000 20,245,550
==============================================================================================================
0.74 CABLE
Tele-Communications Inc, Sr Deb, 9.800%
2/1/2012 $ 3,718,000 4,257,969
==============================================================================================================
1.51 CHEMICALS
Equistar Chemicals LP, Deb, 7.550%, 2/15/2026 $ 5,050,000 4,213,917
Morton International, Deb, 9.250%, 6/1/2020 $ 3,850,000 4,491,499
==============================================================================================================
8,705,416
25.27 ELECTRIC UTILITIES
Appalachian Power, 1st Mortgage Medium-Term
Notes, 8.000%, 6/1/2025 $ 4,000,000 3,965,188
Central Power & Light, 1st Mortgage, Series II
7.500%, 4/1/2023 $ 3,551,000 3,345,557
Cleveland Electric Illuminating
1st Mortgage
Series B, 9.500%, 5/15/2005 $ 4,477,000 4,576,716
Series E, 9.000%, 7/1/2023 $ 2,750,000 2,898,087
Sr Secured Notes, Series D, 7.880%, 11/1/2017 $ 5,000,000 4,993,395
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
CMS Energy, Sr Notes, Series B, 6.750%, 1/15/2004 $ 6,900,000 6,435,271
Commonwealth Edison, 1st Mortgage
Series 76, 8.250%, 10/1/2006 $ 500,000 $ 516,922
Series 81, 8.625%, 2/1/2022 $ 965,000 988,615
Series 83, 8.000%, 5/15/2008 $ 6,100,000 6,238,824
Series 84, 8.500%, 7/15/2022 $ 2,650,000 2,711,024
Series 86, 8.375%, 9/15/2022 $ 3,250,000 3,302,689
Consumers Energy, 1st Mortgage
7.375%, 9/15/2023 $ 9,425,000 8,592,848
Duquesne Light, 1st Collateral Trust
7.550%, 6/15/2025 $ 6,500,000 6,098,957
El Paso Electric, 1st Mortgage, Series D
8.900%, 2/1/2006 $ 10,100,000 10,446,167
Kentucky Utilities, 1st Mortgage, Series R
7.550%, 6/1/2025 $ 5,500,000 5,257,934
Metropolitan Edison, Secured Medium-Term
Notes, Series B, 6.970%, 10/19/2023 $ 3,500,000 3,091,662
New York State Electric & Gas, 1st Mortgage
8.300%, 12/15/2022 $ 4,800,000 4,814,683
Niagara Mohawk Power
1st Mortgage
9.750%, 11/1/2005 $ 1,000,000 1,093,365
8.750%, 4/1/2022 $ 12,130,000 12,457,219
8.500%, 7/1/2023 $ 500,000 508,266
Sr Discount Step-Up Notes, Series H
Zero Coupon(a), 7/1/2010 $ 3,000,000 2,365,500
Pacific Gas & Electric, 1st Refunding Mortgage
Series 92D, 8.250%, 11/1/2022 $ 2,223,000 2,206,445
Pennsylvania Power, 1st Mortgage
8.500%, 7/15/2022 $ 2,000,000 1,973,720
Potomac Edison, 1st Mortgage
8.000%, 12/1/2022 $ 5,200,000 5,123,118
Public Service Electric & Gas, 1st Mortgage
6.375%, 5/1/2023 $ 2,000,000 1,883,034
Public Service of New Mexico, Sr Notes
Series A, 7.100%, 8/1/2005 $ 10,825,000 10,449,838
Series B, 7.500%, 8/1/2018 $ 1,000,000 914,130
Southern Energy, Sr Notes(b)
7.900%, 7/15/2009 $ 5,000,000 4,678,915
Texas Utilities, 1st Mortgage & Collateral Trust
8.750%, 11/1/2023 $ 5,000,000 5,216,020
7.625%, 7/1/2025 $ 348,000 337,905
Toledo Edison, 1st Mortgage, Medium-Term
Notes, Series A, 9.220%, 12/15/2021 $ 1,975,000 2,078,711
TXU Electric Capital, Gtd Capital Securities
8.175%, 1/30/2037 $ 15,184,000 15,707,089
==============================================================================================================
145,267,814
6.85 ENTERTAINMENT
J Seagram & Sons, Gtd Sr Notes, 7.600%
12/15/2028 $ 16,550,000 16,676,376
Paramount Communications, Sr Deb
8.250%, 8/1/2022 $ 19,500,000 19,040,716
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
SFX Entertainment, Gtd Sr Sub Notes
Series B, 9.125%, 2/1/2008 $ 3,500,000 $ 3,661,875
==============================================================================================================
39,378,967
0.38 FINANCIAL
Primark Corp, Sr Sub Notes, 9.250%, 12/15/2008 $ 2,000,000 2,180,000
==============================================================================================================
0.92 HEALTH CARE DRUGS--PHARMACEUTICALS
McKesson HBOC Corp, Sub Deb, 4.500%, 3/1/2004 $ 5,860,000 5,274,000
==============================================================================================================
1.10 HEALTH CARE RELATED
FHP International, Sr Notes, 7.000%, 9/15/2003 $ 6,535,000 6,308,543
==============================================================================================================
4.30 INSURANCE
Equitable Cos, Sr Notes, 9.000%, 12/15/2004 $ 23,457,000 24,727,783
==============================================================================================================
1.57 LODGING--HOTELS
Hilton Hotels, Sr Notes, 7.200%, 12/15/2009 $ 10,000,000 9,000,870
==============================================================================================================
0.92 NATURAL GAS
NorAm Energy, Conv Sub Deb, 6.000%, 3/15/2012 $ 6,088,000 5,266,120
==============================================================================================================
9.02 OIL & GAS RELATED
Atlantic Richfield, Deb
10.875%, 7/15/2005 $ 3,400,000 3,954,421
9.125%, 3/1/2011 $ 1,569,000 1,805,947
9.125%, 8/1/2031 $ 4,650,000 5,697,213
9.000%, 5/1/2031 $ 4,250,000 5,140,009
8.750%, 3/1/2032 $ 500,000 589,197
CMS Panhandle Holding, Sr Notes
7.000%, 7/15/2029 $ 6,000,000 5,183,970
6.500%, 7/15/2009 $ 11,400,000 10,321,503
Gulf Canada Resources Ltd, Sr Notes, 8.250%
3/15/2017 CA $ 5,900,000 5,516,500
Snyder Oil, Gtd Sr Sub Notes, 8.750%, 6/15/2007 $ 6,000,000 6,112,500
Sun Inc, Deb, 9.375%, 6/1/2016 $ 3,000,000 3,148,320
Texaco Capital, Gtd Notes, 5.500%, 1/15/2009 $ 4,900,000 4,400,744
==============================================================================================================
51,870,324
2.63 PAPER & FOREST PRODUCTS
Bowater Inc, Deb, 9.000%, 8/1/2009 $ 8,575,000 8,924,388
Chesapeake Corp, Deb, 7.200%, 3/15/2005 $ 4,400,000 4,135,529
Quno Corp, Sr Notes, 9.125%, 5/15/2005 CA $ 2,000,000 2,053,372
==============================================================================================================
15,113,289
0.37 PERSONAL CARE
Carson Inc, Gtd Sr Sub Notes, Series B, 10.375%
11/1/2007 $ 1,900,000 2,113,750
==============================================================================================================
1.15 SERVICES
Heritage Media, Sr Sub Notes, 8.750%, 2/15/2006 $ 3,000,000 2,928,750
United Rentals, Gtd Sr Sub Notes, Series B, 9.000%
4/1/2009 $ 4,000,000 3,700,000
==============================================================================================================
6,628,750
4.55 TELECOMMUNICATIONS--CELLULAR & WIRELESS
Esat Holdings Ltd, Sr Deferred Step-Up Notes
Series B, Zero Coupon(a), 2/1/2007 IE $ 7,250,000 6,923,750
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
Rogers Cantel, Sr Secured Deb
9.750%, 6/1/2016 CA $ 13,365,000 $ 14,400,788
9.375%, 6/1/2008 CA $ 1,250,000 1,303,125
Williams Communications Group, Sr Notes(b)
11.875%, 8/1/2010 $ 1,500,000 1,496,250
11.700%, 8/1/2008 $ 2,000,000 2,010,000
==============================================================================================================
26,133,913
9.55 TELECOMMUNICATIONS--LONG DISTANCE
AT&T Corp, Deb, 8.125%, 7/15/2024 $ 1,000,000 994,816
Esat Telecom Group PLC
Sr Deferred Step-Up Notes, Zero Coupon(a), 2/1/2007 IE $ 2,000,000 1,910,000
Sr Notes, Series B, 11.875%, 12/1/2008 IE $ 4,950,000 5,841,000
Esprit Telecom Group PLC, Sr Notes
11.500%, 12/15/2007 UK $ 1,500,000 795,000
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $ 2,000,000 1,885,000
GTE Corp, Deb
7.900%, 2/1/2027 $ 2,000,000 1,944,286
7.830%, 5/1/2023 $ 9,870,000 9,602,138
Level 3 Communications
Sr Discount Step-Up Notes, Zero Coupon(a)
12/1/2008 $ 12,650,000 7,716,500
Sr Notes, 11.000%, 3/15/2008 $ 2,000,000 1,980,000
Nextel International, Sr Notes(b), 12.750%
8/1/2010 $ 1,000,000 975,000
Qwest Communications International
Sr Discount Step-Up Notes, Series B, Zero Coupon(a)
10/15/2007 $ 9,650,000 8,417,782
2/1/2008 $ 14,500,000 11,893,596
Sr Notes, Series B, 7.250%, 11/1/2008 $ 1,000,000 966,013
==============================================================================================================
54,921,131
12.05 TELEPHONE
Centel Capital, Deb, 9.000%, 10/15/2019 $ 5,325,000 5,794,303
Diamond Cable Communications PLC, Sr Discount
Step-Up Notes, Zero Coupon(a), 12/15/2005 UK $ 2,900,000 2,755,000
McLeodUSA Inc, Sr Discount Step-Up Notes
Zero Coupon(a), 3/1/2007 $ 3,000,000 2,520,000
MetroNet Communications, Sr Discount
Step-Up Notes, Zero Coupon(a)
11/1/2007 CA $ 2,000,000 1,755,002
6/15/2008 CA $ 35,940,000 29,522,410
NEXTLINK Communictions
Sr Discount Step-Up Notes, Zero Coupon(a)
4/15/2008 $ 9,000,000 5,512,500
Sr Notes
12.500%, 4/15/2006 $ 3,500,000 3,613,750
10.750%, 11/15/2008 $ 3,200,000 3,096,000
9.625%, 10/1/2007 $ 3,000,000 2,767,500
RCN Corp, Sr Notes, 10.125%, 1/15/2010 $ 5,000,000 4,000,000
United Pan-Europe Communications NV, Sr Notes
Series B, 11.250%, 2/1/2010 NL $ 1,500,000 1,310,625
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
US WEST Communications, Notes, 5.650%
11/1/2004 $ 7,100,000 $ 6,632,990
==============================================================================================================
69,280,080
TOTAL CORPORATE BONDS (Cost $551,347,776) 529,131,987
==============================================================================================================
TOTAL FIXED INCOME SECURITIES (Cost $564,115,124) 541,993,700
==============================================================================================================
1.93 COMMON STOCKS
1.93 INVESTMENT COMPANIES
Alliance Capital Management Government
Opportunity Closed-End Fund 10,000 73,750
Securities Closed-End Fund 260,300 1,968,519
Spectrum Closed-End Fund 585,100 3,583,737
Delaware Group Global Dividend & Income
Closed-End Fund 4,463 55,787
Dresdner RCM Global Strategic Income
Closed-End Fund 13,300 88,944
Dreyfus Strategic Governments Income
Closed-End Fund 310,600 2,931,288
Mentor Income Closed-End Fund 33,000 268,125
Morgan Stanley Dean Witter Municipal Income
Trust Closed-End Fund 5,800 54,013
Trust II Closed-End Fund 45,100 419,994
Trust III Closed-End Fund 46,700 429,056
Van Kampen Senior Income Trust Closed-End Fund 136,150 1,208,331
==============================================================================================================
TOTAL COMMON STOCKS (Cost $10,949,682) 11,081,544
==============================================================================================================
0.44 PREFERRED STOCKS
0.09 COMPUTER RELATED
PSINet Inc, Conv Pfd, 7.000% 20,000 520,000
==============================================================================================================
0.35 TELECOMMUNICATIONS--LONG DISTANCE
Global Crossing Holdings Ltd,
Sr Exchangeable Pfd(f), 10.500% BD 20,000 2,000,000
==============================================================================================================
TOTAL PREFERRED STOCKS (Cost $2,962,778) 2,520,000
==============================================================================================================
0.77 OTHER SECURITIES
0.15 ELECTRIC UTILITIES
Alliant Energy Resources, Sr Sub Exchangeable
Step-Down Notes(b), PAY PHONES(g), 7.250%(h)
2/15/2030 (Each shr exchangeable for the cash
value of 2.5 shrs McLeodUSA cmn stk) 15,000 864,375
==============================================================================================================
0.62 TELECOMMUNICATIONS--LONG DISTANCE
CFW Communications, Units(b) (Each unit consists
of one $1,000 Face Amount Sr Note, 13.000%
8/15/2010 and 1 wrnt to purchase 1.8 shrs cmn stk) 3,750 3,562,500
==============================================================================================================
TOTAL OTHER SECURITIES (Cost $4,720,642) 4,426,875
==============================================================================================================
2.57 SHORT-TERM INVESTMENTS
2.44 COMMERCIAL PAPER
2.44 FINANCIAL
Associates First Capital, 6.650%, 9/1/2000
(Cost $14,000,000) $ 14,000,000 14,000,000
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
0.13 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated
8/31/2000 due 9/1/2000 at 6.500%, repurchased
at $761,137 (Collateralized by US Treasury
Notes due 5/15/2001 at 8.000%, value $781,422)
(Cost $761,000) $ 761,000 $ 761,000
==============================================================================================================
TOTAL SHORT-TERM INVESTMENTS (Cost $14,761,000) 14,761,000
==============================================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $597,509,226)
(Cost for Income Tax Purposes $597,519,151) $ 574,783,119
==============================================================================================================
TAX-FREE BOND FUND
96.61 MUNCIPAL BONDS
0.68 ALABAMA
Jefferson Cnty, Alabama (FSA Insured), Ltd Oblig
School Warrants, Series 2000, 5.500%, 2/15/2020 $ 1,250,000 $ 1,250,213
1.24 ALASKA
Alaska Hsg Fin (MBIA Insured), State Bldg Lease,
Series 1999, 5.750%, 4/1/2017 $ 2,000,000 2,056,200
Alaska Hsg Fin (Veterans Mtg Prog)
(GNMA/FNMA Insured), Collateralized Rev,
1990 First Series, 7.500%, 12/1/2030 $ 75,000 76,160
Alaska Indl Dev & Export Auth, Ref Revolving Fund,
Series 1994 A, Lots 1-29, 5.700%, 4/1/2004 $ 140,000 144,778
==============================================================================================================
2,277,138
2.52 ARIZONA
Arizona Edl Ln Mktng (Student Lns Insured),
Edl Ln Rev, Series 1992B, 7.000%, 3/1/2005 $ 1,000,000 1,030,920
Phoenix Civic Impt, Arizona (FGIC Insured),
Jr Lien Wstwtr System Rev, Series 2000, 5.700%,
7/1/2008 $ 2,055,000 2,200,741
7/1/2009 $ 1,275,000 1,370,217
==============================================================================================================
4,601,878
3.86 CALIFORNIA
Big Bear Lake Dept of Wtr & Pwr, California
(MBIA Insured), Wtr Rev Ref, Series 1996, 6.000%,
4/1/2022 $ 2,000,000 2,192,420
Los Angeles Cmnty Redev Agy, California (Cinerama
Dome Pub Pkg Proj) (ACA Insured), Pkg System
Rev, Series 2000, 5.750%, 7/1/2026 $ 1,000,000 986,730
San Francisco City & Cnty, California (Edl Facils-
Cmnty College Dist), Gen Oblig Rev, Series 2000A,
5.650%, 6/15/2017 $ 1,840,000 1,917,556
5.600%, 6/15/2016 $ 1,885,000 1,969,090
==============================================================================================================
7,065,796
1.99 COLORADO
Boulder, Colorado, Wtr & Swr Rev, Series 2000,
5.400%, 12/1/2014 $ 1,000,000 1,014,380
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
Denver Hlth & Hosp Auth, Colorado, Hlthcare Rev,
Series 1998A, 5.125%, 12/1/2005 $ 1,180,000 $ 1,141,933
Fountain Valley Auth, Colorado, Wtr Treatment Ref
Rev, Series 1991, 6.800%, 12/1/2019 $ 1,140,000 1,160,577
Montrose Cnty Bldg Auth, Colorado, Ctfs of Participation,
Series 1994, 6.350%, 6/15/2006 $ 300,000 315,708
==============================================================================================================
3,632,598
0.28 CONNECTICUT
Connecticut Hsg Fin Auth (Hsg Mtg Fin Prog),
Rev, Subseries D-2, 6.200%, 11/15/2027 $ 500,000 508,805
==============================================================================================================
0.01 DISTRICT OF COLUMBIA
District of Columbia, Gen Oblig Ref, Series 1994 A-3,
5.200%, 6/1/2003 $ 10,000 10,193
==============================================================================================================
3.41 FLORIDA
Escambia Cnty Hlthcre Facils Auth, Florida
(VHA Prog) (AMBAC Insured), Hlthcre Facil Rev,
Series 2000A, 5.950%, 7/1/2020 $ 1,000,000 1,035,370
Miami Beach Redev Agency, Florida (City Ctr/Historic
Convention Village), Tax Increment Rev, Series 1993,
5.100%, 12/1/2003 $ 80,000 80,372
Sunrise, Florida (AMBAC Insured), Util System Ref Rev,
Series 1998, 5.500%, 10/1/2018 $ 5,000,000 5,120,650
==============================================================================================================
6,236,392
2.23 GEORGIA
Atlanta, Georgia (MBIA Insured), Airport Facils Rev,
Series 1990, 7.250%, 1/1/2017 $ 2,000,000 2,056,900
Georgia, Gen Oblig, Series 1998 C, 5.750%, 9/1/2001 $ 2,000,000 2,029,120
==============================================================================================================
4,086,020
8.70 ILLINOIS
Boone McHenry & DeKalb Cntys, Illinios (Cmnty Unit
School Dist #100 (Belvidere)) (FSA Insured), Gen
Oblig, Series 1997, Cap Appreciation, 12/1/2010 $ 2,995,000 1,792,028
Chicago, Illinois (AMBAC Insured), Gen Oblig, Ref,
Series 1993B, 5.125%, 1/1/2022 $ 2,465,000 2,355,455
Chicago, Illinois (FGIC Insured), Gen Oblig, Ref,
Series 2000C, 5.500%, 1/1/2040 $ 1,000,000 970,470
Chicago, Illinois (Peoples Gas Light & Coke),
Gas Supply Rev, 1st & Ref Mtg, Medium-Term Notes,
Series CC, 6.875%, 3/1/2015 $ 2,875,000 3,018,233
Chicago Pub Bldg Commn, Illinois (Chicago School
Reform) (FGIC Insured), Rev Ref, Series B, 5.250%,
12/1/2018 $ 2,500,000 2,450,650
Illinois Dept Cent Mgmt Svcs, Illinois (MBIA Insured),
Certificates of Participation, Series 1999,
5.850%, 7/1/2019 $ 1,750,000 1,793,138
Illinois Dev Fin Auth (Catholic Charities Hsg Dev Proj),
Rev, Series 1995, 6.350%, 1/1/2025 $ 1,500,000 1,392,810
Illinois (MBIA Insured), Gen Oblig, Series June of 2000,
5.500%, 6/1/2007 $ 500,000 523,380
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
McCormick Place Receipts-Metro Pier & Exposition Auth,
Illinois (50% McCormick Place Expansion Proj #3)
(FGIC Insured), Dedicated State Tax Rev, Series 1998B,
Cap Appreciation, 6/15/2009 $ 500,000 $ 323,540
Will Cnty, Illinois (School Dist #122) (FSA Insured),
Gen Oblig, Series 2000A, 6.500%, 11/1/2014 $ 1,165,000 1,286,591
==============================================================================================================
15,906,295
8.97 INDIANA
DeKalb Cnty Redev Auth, Indiana (Mini-Mill Loc Pub
Impt Proj), Rev, Series A 1995, 6.500%, 1/15/2014 $ 900,000 955,395
Indiana Transn Fin Auth, Airport Facils Lease Rev,
Series A, 6.750%, 11/1/2011 $ 1,500,000 1,598,535
Indianapolis Loc Pub Impt Bank, Indiana, Rev,
Series 1991C, 6.700%, 1/1/2017 $ 3,750,000 3,929,400
Petersburg, Indiana (Indianapolis Pwr & Light Proj)
(MBIA Insured), PCR Ref, Series 1993B, 5.400%,
8/1/2017 $ 9,850,000 9,924,269
==============================================================================================================
16,407,599
4.10 LOUISIANA
Louisiana Loc Govt Envir Facils & Cmnty Dev Auth,
(Cap Proj & Equip Acquisition Prog)
(AMBAC Insured), Rev,
Series 2000, 6.550%, 9/1/2025 $ 6,000,000 6,234,060
Series 2000A, 6.300%, 7/1/2030 $ 1,000,000 1,096,470
Louisiana Pub Facils Auth (Student Lns Insured),
Student Ln Rev, Series 1992A-1, 6.200%, 3/1/2001 $ 165,000 166,346
==============================================================================================================
7,496,876
7.84 MASSACHUSETTS
Boston Wtr & Swr Commn, Massachusetts
(MBIA Insured), Gen Rev, 1993 Sr Series A, 5.250%,
11/1/2019 $ 5,385,000 5,313,810
Massachusetts, Gen Oblig Consolidated Ln,
Series 2000 A, 5.750%, 2/1/2009 $ 785,000 842,909
Massachusetts Dev Fin Agency (Boston Univ Issue)
(Institution Insured), Rev, Series P,
6.000%, 5/15/2059 $ 4,500,000 4,552,830
5.450%, 5/15/2059 $ 4,000,000 3,633,440
==============================================================================================================
14,342,989
4.59 MICHIGAN
Allegan Pub School Dist, Michigan (FSA Insured),
Gen Oblig Unlimited Tax, Series 2000, 5.750%, 5/1/2030 $ 500,000 505,610
Lake Orion Cmnty School Dist, Michigan (Oakland Cnty)
(FSA Insured), Gen Oblig Unlimited Tax,
Series A, 6.000%, 5/1/2018 $ 500,000 527,450
Michigan Hosp Fin Auth (Ascension Hlth Credit Group),
Rev, Series 1999A, 5.500%, 11/15/2007 $ 3,000,000 3,120,630
Michigan Muni Bd Auth, Clean Wtr Revolving Rev,
Series 1999, 5.625%, 10/1/2010 $ 3,500,000 3,735,445
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
Muskegon Heights, Michigan (MBIA Insured),
Wtr Supply System, Series 2000A, 5.400%, 11/1/2014 $ 505,000 $ 513,817
==============================================================================================================
8,402,952
0.55 MINNESOTA
Minneapolis-St Paul Metro Airports Commn, Minnesota,
Gen Oblig Rev Ref, Series 13, 5.000%, 1/1/2009 $ 1,000,000 1,010,220
==============================================================================================================
2.97 MISSISSIPPI
Mississippi (FGIC Insured), Gen Obilg, LOC Govts Cap
Impts Issue, Series I, 6.000%,
11/1/2008 $ 5,000,000 5,440,000
==============================================================================================================
4.85 MONTANA
Forsyth, Montana (Protland Gen Elec Proj), VR,
PCR Ref, Series 1998B, 4.750%, 5/1/2033 $ 9,000,000 8,876,790
==============================================================================================================
1.19 NEVADA
Nevada Hsg Div (Single Family Prog), Sr Rev,
1984 Issue B-1, 5.900%, 4/1/2003 $ 70,000 72,111
Nevada (Nevada Muni Bank Projs #66 & #67)
(FGIC Insured), Gen Oblig Ltd Tax, Series July 1,
1998A, 5.500%, 5/15/2007 $ 2,000,000 2,097,680
==============================================================================================================
2,169,791
1.55 NEW JERSEY
New Jersey Hlth Care Facils Fing Auth (Kennedy Hlth
System Obligated Group) (MBIA Insured), Rev & Ref,
Series 1997B, 5.750%, 7/1/2008 $ 1,000,000 1,064,700
New Jersey Transn Trust Fund Auth, Transn System Dev,
Series 1999A, 5.500%, 6/15/2010 $ 1,670,000 1,763,487
==============================================================================================================
2,828,187
2.89 NEW MEXICO
Los Alamos Cnty, New Mexico (FSA Insured),
Util System Rev, Series 1994A, 6.000%, 7/1/2009 $ 5,000,000 5,284,750
==============================================================================================================
6.55 NEW YORK
New York & New Jersey Port Auth, Consolidated
Gen Oblig, Rev, Ninety-Third Series, 6.125%,
6/1/2094 $ 5,250,000 5,602,380
New York City Muni Wtr Fin Auth, New York, Wtr &
Swr System Dev, Series 2000B, 6.000%, 6/15/2033 $ 1,500,000 1,557,105
Triborough Bridge & Tunnel Auth, New York,
Gen Purpose Rev,
Series 1993B, 5.000%, 1/1/2020 $ 1,935,000 1,838,076
Series Y, 5.500%, 1/1/2017 $ 2,900,000 2,981,374
==============================================================================================================
11,978,935
1.83 NORTH DAKOTA
Ward Cnty, North Dakota (St Joseph's Hosp Proj),
Hlth Care Facil Rev, Series 1994, 8.875%,
11/15/2024 $ 2,850,000 3,346,014
==============================================================================================================
3.59 OHIO
Cleveland, Ohio (MBIA Insured), Wtrwks Impt First
Mtg Ref Rev, Series G, 1993, 5.500%, 1/1/2021 $ 3,000,000 3,062,580
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
Ohio Wtr Dev Auth (Cleveland Elec Illum Proj),
PCR Ref, Series 1999-A, 5.580%, 6/15/2033 $ 3,000,000 $ 2,986,620
Plain Loc School Dist, Ohio (Franklin & Licking
Cntys) (FGIC Insured), Gen Oblig Unlimited Tax,
Series 2000, 6.000%, 12/1/2025 $ 500,000 523,080
==============================================================================================================
6,572,280
0.29 OKLAHOMA
Jenks Aquarium Auth, Oklahoma (MBIA Insured),
1st Mtg Rev, Series 2000, 6.000%, 7/1/2020 $ 500,000 526,100
==============================================================================================================
1.56 RHODE ISLAND
Providence Pub Bldgs Auth, Rhode Island (School Proj)
(FSA Insured), Rev, Series 2000A, 5.750%, 12/15/2016 $ 1,210,000 1,258,158
Rhode Island Depositors Econ Protection,
Special Oblig, 1992 Series A, 6.950%, 8/1/2022 $ 1,500,000 1,597,755
==============================================================================================================
2,855,913
1.71 TENNESSEE
Shelby Cnty Hlth, Edl & Hsg Facil Brd, Tennessee
(Methodist Hlthcare) (MBIA Insured), Hosp Rev,
Series 1998, 5.500%, 4/1/2008 $ 3,000,000 3,122,310
==============================================================================================================
7.86 TEXAS
Austin, Texas (AMBAC Insured), Combined Util
Systems Rev Ref, Series 1992, Cap Appreciation,
11/15/2011 $ 1,400,000 791,588
Austin, Texas, Wtr Swr & Elec Ref Rev, Series 1982,
14.000%, 11/15/2001,
Prerefunded 1995 $ 5,000 5,318
Prefunded 1998 $ 30,000 31,908
Unrefunded Balance 1998 $ 175,000 186,004
Denton, Texas (FSA Insured), Util System Rev Ref,
Series 2000A, 5.400%, 12/1/2013 $ 1,000,000 1,019,960
Galena Park Indpt School Dist, Texas (Harris Cnty)
(PSFG Insured), Unltd Tax School Bldg & Ref,
Series 1996, Cap Appreciation, 8/15/2023 $ 3,220,000 871,107
Little Elm Indpt School Dist, Texas (Denton Cnty)
(PSF Insured), Gen Oblig Unlimited Tax,
Series 1999, 6.000%, 8/15/2035 $ 1,500,000 1,546,200
Lubbock Hlth Facils Dev, Texas (St Joseph Hlth
System), Rev, Series 1998, 5.250%, 7/1/2013 $ 2,000,000 1,951,060
North Central Texas Hlth Facils Dev (MBIA Insured),
Hlth Resources System Rev,
Series 1997B, 5.750%, 2/15/2012 $ 2,000,000 2,110,760
San Antonio, Texas (Bexar Cnty) Wtr System Rev & Ref,
Series 1999, 5.875%, 5/15/2018 $ 1,000,000 1,031,260
Spring Branch Indpt School Dist, Texas (Harris Cnty)
(PSFG Insured), General Oblig Limited Tax,
Series 2000, 5.750%, 2/1/2024 $ 3,300,000 3,345,935
Texas Wtr Finl Assistance (State Participation Prog),
Gen Oblig, Series 1999C, 5.500%, 8/1/2024 $ 1,500,000 1,478,400
==============================================================================================================
14,369,500
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
1.05 UTAH
Utah, Gen Oblig Unlimited Tax, Series 1998A,
5.000%, 7/1/2012 $ 1,480,000 $ 1,479,941
Utah Hsg Fin Agency (FHA/VA/FHMA Insured),
Single Family Mtg, 1994 Issue D-1 Term
Mezzanine, 6.450%, 7/1/2011 $ 415,000 432,691
==============================================================================================================
1,912,632
0.56 VERMONT
Vermont Hsg Fin Agency, Single Family Hsg Rev,
Series 5, 6.875%, 11/1/2016 $ 975,000 1,027,465
==============================================================================================================
0.84 VIRGINIA
Virginia Hsg Dev Auth, Gen Oblig, Rental Hsg Rev,
2000 Series D, 5.700%, 4/1/2011 $ 1,500,000 1,543,350
==============================================================================================================
1.35 WASHINGTON
Washington Pub Pwr Supply System (Nuclear Proj #2)
(AMBAC Insured), Ref Rev, Series 1997A, 6.000%,
7/1/2006 $ 800,000 850,520
White River School Dist #416, Washington (Pierce Cnty)
(School Brd Gty) Gen Oblig, Series 2000,
5.350%, 12/1/2009 $ 1,550,000 1,622,726
==============================================================================================================
2,473,246
5.00 WISCONSIN
Adams Cnty, Wisconsin (Adams-Friendship School
Dist) (AMBAC Insured), Gen Oblig Ref, 6.500%,
4/1/2015 $ 1,340,000 1,528,002
Southeast Wisconsin Professional Baseball Park Dist
(MBIA Insured), Sales Tax Rev Ref, Series 1998A,
5.500%, 12/15/2019 $ 5,000,000 5,113,150
Wisconsin, Gen Oblig, Series 2000C, 5.500%, 5/1/2019 $ 2,500,000 2,500,375
==============================================================================================================
9,141,527
TOTAL MUNICPAL BONDS (Cost $173,086,410) 176,704,754
==============================================================================================================
3.39 SHORT-TERM INVESTMENTS--MUNICPAL NOTES
0.55 FLORIDA
Clay Cnty Hsg Fin Auth, Florida (Bluff House Apts Phase II Proj),
(LOC-Barnett Bank), VR, Multifamily Mortgage Rev Ref,
Series 1988, 4.250%, 9/1/2012(j) $ 1,000,000 1,000,000
==============================================================================================================
0.55 LOUISIANA
Calcasieu Parish, Lousiana (Olin Corp Proj)
(LOC-Wachovia Bank), VRD, IDR, Series 1993B,
4.250%, 2/1/2016(j) $ 1,000,000 1,000,000
==============================================================================================================
1.58 NORTH DAKOTA
Grand Forks, North Dakota (United Hosp Oblig Grp Proj)
(LOC-LaSalle National Bank), VR, Hosp Hlthcare Facils
Rev, Series 1992B, 4.300%, 12/1/2016(j) $ 2,900,000 2,900,000
==============================================================================================================
0.71 OHIO
Columbus, Ohio (SPA-WestDeutche LandesBank),
VR, Gen Oblig, Series 1996-1, 4.100%, 12/1/2017(j) $ 1,300,000 1,300,000
==============================================================================================================
<PAGE>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL SHORT-TERM NOTES
(COST $6,200,000) $ 6,200,000
==============================================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $179,286,410)(i) $ 182,904,754
==============================================================================================================
U.S. GOVERNMENT SECURITIES FUND
92.15 FIXED INCOME SECURITIES
39.10 US GOVERNMENT OBLIGATIONS
US Treasury Bonds
8.125%, 8/15/2019 $ 10,000,000 $ 12,431,250
7.500%, 11/15/2016 $ 5,000,000 5,789,065
5.250%, 2/15/2029 $ 12,000,000 11,058,756
==============================================================================================================
TOTAL US GOVERNMENT OBLIGATIONS
(COST $29,886,929) 29,279,071
==============================================================================================================
53.05 US GOVERNMENT AGENCY OBLIGATIONS
Freddie Mac, Gold, Participation Certificates
6.500%, 7/1/2008 $ 7,015,073 6,904,505
6.500%, 8/1/2008 $ 1,607,292 1,581,958
Government National Mortgage Association I
Pass-Through Certificates
7.000%, 7/15/2029 $ 4,793,576 4,705,705
6.000%, 12/15/2028 $ 9,431,709 8,829,347
6.000%, 2/15/2029 $ 9,575,945 8,955,919
6.000%, 3/15/2029 $ 9,345,312 8,740,219
==============================================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(COST $41,290,301) 39,717,653
==============================================================================================================
TOTAL FIXED INCOME SECURITIES (COST $71,177,230) 68,996,724
==============================================================================================================
7.85 SHORT-TERM INVESTMENTS--US
GOVERNMENT AGENCY
Fannie Mae, Discount Notes, 6.530%, 9/1/2000
(Cost $5,880,000) $ 5,880,000 5,880,000
==============================================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $77,057,230)
(Cost for Income Tax Purposes $77,139,981) $ 74,876,724
==============================================================================================================
</TABLE>
(a) Step-up bonds are obligations which increase the interest payment rate at a
specific point in time. Rate shown reflects current rate which may step up
at a future date.
(b) Securities acquired pursuant to Rule 144A. The fund deems such securities
to be "liquid" because an institutional market exists.
(c) Security is a defaulted security with respect to cumulative interest
payments of $344,688 at August 31, 2000 and is a fair valued security.
(d) Security is a defaulted security with respect to cumulative interest
payments of $862,500 at August 31, 2000.
(e) Security is non-income producing.
<PAGE>
(f) Security is a payment-in-kind (PIK) security. PIK securities may make
interest payments in additional securities.
(g) PAY PHONES-- Premium Accelerated Yield Participating Hybrid Option Note
Exchangeable Securities.
(h) Step-down bonds are obligations which decrease the interest payment rate at
a specific point in time. Rate shown reflects current rate which may step
down at a future date.
(i) Also represents cost for income tax purposes.
(j) All securties with a maturity date greater than one year have either a
variable rate, demand feature, optional or madatory put resulting in an
effective maturity of one year or less. Rate shown is current rate.
The following acronyms may be used in security descriptions:
AMBAC -- American Municpal Bond Assurance Corporation
FGIC -- Flexible Guaranty Insurance Company
FDR(k) -- Flexible Demand Revenue
FRD(k) -- Floating Rate Period
FSA -- Financial Security Assurance
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
PCR -- Pollution Control Revenue
PSFG -- Permanent School Fund Guarantee Program
VR(k) -- Variable Rate
(k) Rate is subject to change. Rate shown reflects current rate.
SUMMARY OF INVESMENTS BY COUNTRY
% OF
COUNTRY INVESTMENT
COUNTRY CODE SECURITIES VALUE
--------------------------------------------------------------------------------
HIGH YIELD FUND
Australia AS 0.25% $ 1,985,400
Bermuda BD 3.23 25,727,250
Canada CA 7.42 59,050,369
Ireland IE 3.46 27,496,750
Netherlands NL 2.67 21,211,250
United Kingdom UK 3.61 28,687,335
United States US 79.36 631,047,725
================================================================================
100.00% $ 795,206,079
================================================================================
SELECT INCOME FUND
Bermuda BD 0.35% $ 2,000,000
Canada CA 9.49 54,551,197
Ireland IE 2.55 14,674,750
Netherlands NL 0.23 1,310,625
United Kingdom UK 0.62 3,550,000
United States US 86.76 498,696,547
================================================================================
100.00% $ 574,783,119
================================================================================
See Notes to Financial Statements
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
INVESCO Bond Funds, Inc.
August 31, 2000
<TABLE>
<CAPTION>
HIGH SELECT
YIELD INCOME
FUND FUND
------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment Securities:
At Cost(a) $ 873,237,019 $ 597,509,226
================================================================================================
At Value(a) $ 795,206,079 $ 574,783,119
Cash 0 255
Receivables:
Investment Securities Sold 1,700,649 0
Fund Shares Sold 4,094,852 1,823,601
Dividends and Interest 11,305,557 8,667,069
Prepaid Expenses and Other Assets 55,615 41,881
================================================================================================
TOTAL ASSETS 812,362,752 585,315,925
================================================================================================
LIABILITIES
Payables:
Custodian 8,406 0
Distributions to Shareholders 700,666 177,059
Investment Securities Purchased 16,013,795 8,162,918
Fund Shares Repurchased 3,021,171 1,909,791
Accrued Distribution Expenses
Investor Class 164,327 120,454
Class C 3,726 312
Accrued Expenses and Other Payables 69,893 50,093
================================================================================================
TOTAL LIABILITIES 19,981,984 10,420,627
================================================================================================
NET ASSETS AT VALUE $ 792,380,768 $ 574,895,298
================================================================================================
NET ASSETS
Paid-in Capital(b) $ 922,314,988 $ 618,865,808
Accumulated Undistributed Net Investment Income (Loss) 27,941 (27,845)
Accumulated Undistributed Net Realized Loss on
Investment Securities and Foreign Currency Transactions (51,931,221) (21,216,558)
Net Depreciation of Investment Securities and
Foreign Currency Transactions (78,030,940) (22,726,107)
================================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 792,380,768 $ 574,895,298
NET ASSETS AT VALUE:
Investor Class $ 787,537,408 $ 574,518,235
================================================================================================
Class C $ 4,843,360 $ 377,063
================================================================================================
Shares Outstanding
Investor Class 131,591,244 94,736,348
Class C 811,248 62,252
NET ASSET VALUE, Offering and Redemption Price per Share
Investor Class $ 5.98 $ 6.06
Class C $ 5.97 $ 6.06
================================================================================================
</TABLE>
<PAGE>
(a)Investment securities at cost and value at August 31, 2000 include
repurchase agreements of $584,000 and $761,000 for High Yield and Select
Income Funds, respectively.
(b)The Fund has three billion authorized shares of common stock, par value
$0.01 per share. Of such shares, 700 million have been allocated to High
Yield Fund and 600 million to Select Income Fund: 400 million to High Yield
Fund - Investor Class, 300 million to High Yield - Class C, 300 million to
Select Income Fund - Investor Class and 300 million to Select Income Fund -
Class C.
See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
INVESCO Bond Funds, Inc.
August 31, 2000
<TABLE>
<CAPTION>
U.S.
TAX-FREE GOVERNMENT
BOND SECURITIES
FUND FUND
----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment Securities:
At Cost $ 179,286,410 $ 77,057,230
================================================================================================
At Value $ 182,904,754 $ 74,876,724
Cash 197,364 9,542
Receivables:
Fund Shares Sold 162,543 151,180
Interest 2,337,566 394,125
Prepaid Expenses and Other Assets 32,536 23,936
================================================================================================
TOTAL ASSETS 185,634,763 75,455,507
================================================================================================
LIABILITIES
Payables:
Distributions to Shareholders 171,859 11,305
Investment Securities Purchased 6,239,980 0
Fund Shares Repurchased 980,345 299,285
Accrued Distribution Expenses
Investor Class 37,554 15,705
Class C 1 91
Accrued Expenses and Other Payables 50,310 17,287
================================================================================================
TOTAL LIABILITIES 7,480,049 343,673
================================================================================================
NET ASSETS AT VALUE $ 178,154,714 $ 75,111,834
================================================================================================
NET ASSETS
Paid-in Capital(a) $ 177,172,050 $ 79,001,504
Accumulated Undistributed Net Investment Income 4,036 46,456
Accumulated Undistributed Net Realized
Loss on Investment Securities (2,639,716) (1,755,620)
Net Appreciation (Depreciation) of Investment Securities 3,618,344 (2,180,506)
================================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 178,154,714 $ 75,111,834
================================================================================================
NET ASSETS AT VALUE:
Investor Class $ 178,153,605 $ 74,870,441
================================================================================================
Class C $ 1,109 $ 241,393
================================================================================================
Shares Outstanding
Investor Class 12,106,007 10,619,735
Class C 75 34,214
NET ASSET VALUE, Offering and Redemption Price per Share
Investor Class $ 14.72 $ 7.05
Class C $ 14.71 $ 7.06
================================================================================================
</TABLE>
(a)The Fund has three billion authorized shares of common stock, par value
$0.01 per share. Of such shares, 200 million have been allocated to Tax-Free
Bond Fund and 200 million to U.S. Government Securities Fund: 100 million to
each Investor Class and 100 million to each Class C.
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
INVESCO Bond Funds, Inc.
Year Ended August 31, 2000
<TABLE>
<CAPTION>
HIGH SELECT
YIELD INCOME
FUND FUND
----------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INCOME
Dividends $ 7,498,524 $ 669,003
Interest 72,675,374 43,621,566
================================================================================================
TOTAL INCOME 80,173,898 44,290,569
================================================================================================
EXPENSES
Investment Advisory Fee 3,069,355 2,701,821
Distribution Expenses
Investor Class 1,887,592 1,358,254
Class C 14,147 756
Transfer Agent Fees 1,801,015 1,795,213
Administrative Services Fees 350,403 254,520
Custodian Fees and Expenses 71,798 74,902
Directors' Fees and Expenses 42,048 33,272
Interest Expenses 10,428 799
Professional Fees and Expenses 39,040 33,720
Registration Fees and Expenses - Investor Class 131,967 104,183
Reports to Shareholders 147,993 105,925
Other Expenses 35,081 30,422
================================================================================================
TOTAL EXPENSES 7,600,867 6,493,787
Fees and Expenses Absorbed by Investment Adviser 0 (720,362)
Fees and Expenses Paid Indirectly (66,614) (66,402)
================================================================================================
NET EXPENSES 7,534,253 5,707,023
================================================================================================
NET INVESTMENT INCOME 72,639,645 38,583,546
================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on:
Investment Securities (15,594,325) (13,352,053)
Foreign Currency Transactions (40,926) 0
================================================================================================
Total Net Realized Loss (15,635,251) (13,352,053)
================================================================================================
Change in Net Appreciation (Depreciation) of:
Investment Securities (36,288,241) 6,620,820
Foreign Currency Transactions 630,500 0
================================================================================================
Total Net Appreciation (Depreciation) (35,657,741) 6,620,820
================================================================================================
NET LOSS ON INVESTMENT SECURITIES
AND FOREIGN CURRENCY TRANSACTIONS (51,292,992) (6,731,233)
================================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 21,346,653 $ 31,852,313
================================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO Bond Funds, Inc.
Year Ended August 31, 2000
U.S.
TAX-FREE GOVERNMENT
BOND SECURITIES
FUND FUND
------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INTEREST INCOME $ 9,475,786 $ 4,746,183
================================================================================================
EXPENSES
Investment Advisory Fees 973,116 415,677
Distribution Expenses
Investor Class 442,324 188,897
Class C 6 189
Transfer Agent Fees 244,641 410,659
Administrative Services Fees 89,618 44,010
Custodian Fees and Expenses 17,118 13,148
Directors' Fees and Expenses 17,360 12,679
Professional Fees and Expenses 25,555 22,163
Registration Fees and Expenses - Investor Class 63,191 57,901
Reports to Shareholders 58,355 47,163
Other Expenses 33,359 5,158
================================================================================================
TOTAL EXPENSES 1,964,643 1,217,644
Fees and Expenses Absorbed by Investment Adviser (356,552) (449,952)
Fees and Expenses Paid Indirectly (15,622) (11,299)
================================================================================================
NET EXPENSES 1,592,469 756,393
================================================================================================
NET INVESTMENT INCOME 7,883,317 3,989,790
================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on Investment Securities (2,384,240) (1,402,264)
Change in Net Appreciation of Investment Securities 4,852,642 3,653,854
================================================================================================
NET GAIN ON INVESTMENT SECURITIES 2,468,402 2,251,590
================================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 10,351,719 $ 6,241,380
================================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
High Yield Fund
YEAR ENDED AUGUST 31
------------------------------------------------------------------------------------------------
2000 1999
OPERATIONS
Net Investment Income $ 72,639,645 $ 74,434,588
Net Realized Loss on Investment Securities
and Foreign Currency Transactions (15,635,251) (36,200,631)
Change in Net Appreciation (Depreciation) of Investment
Securities and Foreign Currency Transactions (35,657,741) 24,051,849
================================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS 21,346,653 62,285,806
================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income
Investor Class (72,509,127) (74,435,367)
Class C (130,539) --
In Excess of Net Realized Gain on Investment Securities
and Foreign Currency Transactions - Investor Class 0 (24,616,173)
================================================================================================
TOTAL DISTRIBUTIONS (72,639,666) (99,051,540)
================================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 454,459,618 1,378,371,257
Class C 5,089,857 --
Reinvestment of Distributions
Investor Class 62,831,854 86,094,100
Class C 76,667 --
================================================================================================
522,457,996 1,464,465,357
Amounts Paid for Repurchases of Shares
Investor Class (471,876,363) (1,275,757,061)
Class C (244,425) --
================================================================================================
(472,120,788) (1,275,757,061)
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 50,337,208 188,708,296
================================================================================================
TOTAL INCREASE (DECREASE) IN NET ASSETS (955,805) 151,942,562
NET ASSETS
Beginning of Period 793,336,573 641,394,011
================================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Income of $27,941 and $30,876, respectively) $ 792,380,768 $ 793,336,573
================================================================================================
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
High Yield Fund (Continued)
YEAR ENDED AUGUST 31
------------------------------------------------------------------------------------------------
2000 1999
FUND SHARE TRANSACTIONS
Shares Sold
Investor Class 73,111,663 210,553,094
Class C 839,665 --
Shares Issued from Reinvestment of Distributions
Investor Class 10,183,050 13,182,355
Class C 12,820 --
================================================================================================
84,147,198 223,735,449
Shares Repurchased
Investor Class (75,646,163) (194,736,532)
Class C (41,237) --
================================================================================================
(75,687,400) (194,736,532)
NET INCREASE IN FUND SHARES 8,459,798 28,998,917
================================================================================================
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
Select Income Fund
YEAR ENDED AUGUST 31
------------------------------------------------------------------------------------------------
2000 1999
OPERATIONS
Net Investment Income $ 38,583,546 $ 35,050,788
Net Realized Loss on Investment Securities
and Foreign Currency Transactions (13,352,053) (6,529,232)
Change in Net Appreciation (Depreciation) of Investment
Securities and Foreign Currency Transactions 6,620,820 (29,276,206)
================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 31,852,313 (754,650)
================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income
Investor Class (38,578,766) (35,047,792)
Class C (4,884) --
Net Realized Gain on Investment Securities - Investor Class 0 (1,765,695)
In Excess of Net Realized Gain on Investment
Securities - Investor Class (6,233) (7,747,843)
================================================================================================
TOTAL DISTRIBUTIONS (38,589,883) (44,561,330)
================================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 292,523,414 421,924,213
Class C 368,091 --
Reinvestment of Distributions
Investor Class 35,700,712 41,699,537
Class C 4,637 --
Net Assets Received from Acquisition
of Short-Term Bond Fund (Note 3) -- 17,295,250
================================================================================================
328,596,854 480,919,000
Amounts Paid for Repurchases of Shares
Investor Class (296,402,123) (388,789,138)
Class C (25) --
================================================================================================
(296,402,148) (388,789,138)
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 32,194,706 92,129,862
================================================================================================
TOTAL INCREASE IN NET ASSETS 25,457,136 46,813,882
NET ASSETS
Beginning of Period 549,438,162 502,624,280
================================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Income (Loss) of ($27,845) and
$72,968, respectively) $ 574,895,298 $ 549,438,162
================================================================================================
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
Select Income Fund (Continued)
YEAR ENDED AUGUST 31
------------------------------------------------------------------------------------------------
2000 1999
FUND SHARE TRANSACTIONS
Shares Sold
Investor Class 48,544,992 64,797,931
Class C 61,484 --
Shares Issued from Reinvestment of Distributions
Investor Class 5,919,994 6,431,237
Class C 772 --
Shares Issued in Connection with Acquisition of
Short-Term Bond Fund (Note 3) -- 2,767,609
================================================================================================
54,527,242 73,996,777
Shares Repurchased
Investor Class (49,108,309) (59,917,117)
Class C (4) --
================================================================================================
(49,108,313) (59,917,117)
NET INCREASE IN FUND SHARES 5,418,929 14,079,660
================================================================================================
See Notes to Financial Statements
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
Tax-Free Bond Fund
<TABLE>
<CAPTION>
YEAR PERIOD YEAR
ENDED ENDED ENDED
AUGUST 31 AUGUST 31 JUNE 30
------------------------------------------------------------------------------------------------
2000 1999(a) 1999
<S> <C> <C> <C>
OPERATIONS
Net Investment Income $ 7,883,317 $ 1,372,424 $ 8,423,076
Net Realized Gain (Loss) on
Investment Securities (2,384,240) (224,714) 2,734,848
Change in Net Appreciation (Depreciation)
of Investment Securities 4,852,642 (2,213,390) (8,012,486)
================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS 10,351,719 (1,065,680) 3,145,438
================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income
Investor Class (7,883,296) (1,372,389) (8,422,999)
Class C (21) -- --
In Excess of Net Realized Gain on Investment
Securities - Investor Class (689,096) 0 (6,238,148)
================================================================================================
TOTAL DISTRIBUTIONS (8,572,413) (1,372,389) (14,661,147)
================================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 56,243,612 4,467,683 76,105,580
Class C 1,039 -- --
Reinvestment of Distributions
Investor Class 6,316,170 1,001,308 11,143,364
Class C 21 -- --
Net Assets Received from Acquisition
of Tax-Free Intermediate Bond Fund (Note 3) -- -- 6,067,497
================================================================================================
62,560,842 5,468,991 93,316,441
Amounts Paid for Repurchases of Shares
Investor Class (78,021,237) (12,986,028) (91,480,968)
Class C (1) -- --
================================================================================================
(78,021,238) (12,986,028) (91,480,968)
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (15,460,396) (7,517,037) 1,835,473
================================================================================================
TOTAL DECREASE IN NET ASSETS (13,681,090) (9,955,106) (9,680,236)
NET ASSETS
Beginning of Period 191,835,804 201,790,910 211,471,146
================================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income
of $4,036, $15,741 and $15,706,
respectively) $ 178,154,714 $ 191,835,804 $ 201,790,910
================================================================================================
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
Tax-Free Bond Fund (Continued)
YEAR PERIOD YEAR
ENDED ENDED ENDED
AUGUST 31 AUGUST 31 JUNE 30
------------------------------------------------------------------------------------------------
2000 1999(a) 1999
FUND SHARE TRANSACTIONS
Shares Sold
Investor Class 3,917,935 306,314 4,882,612
Class C 74 -- --
Shares Issued from Reinvestment of Distributions
Investor Class 441,797 68,476 724,248
Class C 1 -- --
Shares Issued in Connection with Acquisition
of Tax-Free Intermediate Bond Fund (Note 3) -- -- 406,050
================================================================================================
4,359,807 374,790 6,012,910
Shares Repurchased - Investor Class (5,453,139) (890,035) (5,883,609)
================================================================================================
NET INCREASE (DECREASE) IN
FUND SHARES (1,093,332) (515,245) 129,301
================================================================================================
</TABLE>
(a) From July 1, 1999 to August 31, 1999, the Fund's
current fiscal year end.
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
U.S. Government Securities Fund
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
------------------------------------------------------------------------------------------------
2000 1999
<S> <C> <C>
OPERATIONS
Net Investment Income $ 3,989,790 $ 3,451,333
Net Realized Gain (Loss) on Investment Securities (1,402,264) 110,430
Change in Net Appreciation (Depreciation)
of Investment Securities 3,653,854 (6,306,012)
================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 6,241,380 (2,744,249)
================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income
Investor Class (3,988,910) (3,451,333)
Class C (880) --
Net Realized Gain on Investment Securities - Investor Class 0 (4,863,438)
In Excess of Net Realized Gain on Investment
Securities - Investor Class (4,763) (305,306)
================================================================================================
TOTAL DISTRIBUTIONS (3,994,553) (8,620,077)
================================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 73,789,352 177,382,649
Class C 423,663 --
Reinvestment of Distributions
Investor Class 3,630,906 8,027,013
Class C 824 --
Net Assets Received from Acquisition of
Intermediate Government Bond Fund (Note 3) -- 22,786,723
================================================================================================
77,844,745 208,196,385
Amounts Paid for Repurchases of Shares
Investor Class (84,694,074) (196,418,206)
Class C (184,357) --
================================================================================================
(84,878,431) (196,418,206)
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (7,033,686) 11,778,179
================================================================================================
TOTAL INCREASE (DECREASE) IN NET ASSETS (4,786,859) 413,853
NET ASSETS
Beginning of Period 79,898,693 79,484,840
================================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Income of $46,456 and $44,131, respectively) $ 75,111,834 $ 79,898,693
================================================================================================
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
U.S. Government Securities Fund (Continued)
YEAR ENDED AUGUST 31
------------------------------------------------------------------------------------------------
2000 1999
FUND SHARE TRANSACTIONS
Shares Sold
Investor Class 10,781,871 23,153,199
Class C 60,498 --
Shares Issued from Reinvestment of Distributions
Investor Class 531,143 1,080,738
Class C 118 --
Shares Issued in Connection with Acquisition
of Intermediate Government Bond Fund (Note3) -- 3,275,274
================================================================================================
11,373,630 27,509,211
Shares Repurchased
Investor Class (12,430,042) (25,723,274)
Class C (26,402) --
================================================================================================
(12,456,444) (25,723,274)
NET INCREASE (DECREASE) IN FUND SHARES (1,082,814) 1,785,937
================================================================================================
See Notes to Financial Statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
INVESCO Bond Funds, Inc.
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Bond Funds,
Inc. is incorporated in Maryland and presently consists of four separate Funds:
High Yield Fund, Select Income Fund, Tax-Free Bond Fund and U.S. Government
Securities Fund (individually the "Fund" and collectively, the "Funds"). The
investment objectives of the Funds are: to seek a high level of current income
for High Yield and Select Income Funds; to seek as high a level of current
income exempt from federal income taxes as is consistent with preservation of
capital for Tax-Free Bond Fund; and to seek a high level of current income by
investing in debt obligations issued by the U.S. Government or its agencies for
U.S. Government Securities Fund. INVESCO Bond Funds, Inc. is registered under
the Investment Company Act of 1940 (the "Act") as a diversified, open-end
management investment company.
Effective February 15, 2000, High Yield, Select Income, Tax-Free Bond and U.S.
Government Securities Funds began offering an additional class of shares,
referred to as Class C shares. Investor Class and Class C shares are subject to
an annual distribution fee to a maximum of 0.25% and 1.00%, respectively, of the
Fund's annual average net assets attributable to each Class' shares. Income,
expenses (other than those attributable to a specific class) and gains and
losses are allocated daily to each class of shares based on the relative
proportion of net assets represented by such class. Operating expenses directly
attributable to a specific class are charged against operations of that class.
On May 20, 1999, shareholders of Tax-Free Bond Fund approved an Agreement and
Plan of Conversion and Termination providing for the conversion of Tax-Free Bond
Fund from a separate series of INVESCO Tax Free Income Funds, Inc. to a separate
series of INVESCO Bond Funds, Inc., effective August 20, 1999.
On May 20, 1999, shareholders of the Funds approved an Agreement and Plan of
Reorganization and Termination in which the following Funds which were
previously series' of INVESCO Bond Funds, Inc., INVESCO Tax-Free Income Funds,
Inc. and INVESCO Value Trust, respectively, merged: Short-Term Bond Fund
("Target Fund") into INVESCO Bond Funds, Inc. - Select Income Fund ("Surviving
Fund"), Tax-Free Intermediate Bond Fund ("Target Fund") into INVESCO Tax-Free
Income Funds, Inc. - Tax-Free Bond Fund ("Surviving Fund") and Intermediate
Government Bond Fund ("Target Fund") into INVESCO Bond Funds, Inc. - U.S.
Government Securities Fund ("Surviving Fund"). Shareholders of the Target Funds
became shareholders of the Surviving Funds and received shares of the Surviving
Funds equal in dollar value to the then current value of their shares in the
Target Funds, effective at the close of business on June 4, 1999.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Debt securities are valued at evaluated bid prices as
determined by a pricing service approved by the Fund's board of directors. If
evaluated bid prices are not available, debt securities are valued by averaging
the bid prices obtained from one or more dealers making a market for such
securities.
Municipal securities (including commitments to purchase such securities on a
when-issued basis) are valued on the basis of prices provided by a pricing
service approved by the Fund's board of directors which, in determining values,
uses information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various relationships
between securities. Under these procedures, municipal securities are valued
based upon market quotations, if available.
<PAGE>
Equity securities and closed-end investment companies traded on national
securities exchanges or in the over-the-counter market are valued at the last
sales price at the close of the regular trading day on the exchange (generally
4:00 p.m. Eastern time) where such securities are primarily traded. If last
sales prices are not available, securities are valued at the highest closing bid
prices at the close of the regular trading day as obtained from one or more
dealers making a market for such securities or by a pricing service approved by
the Fund's board of directors.
Foreign securities are valued at the closing price on the principal stock
exchange on which they are traded. In the event that closing prices are not
available for foreign securities, prices will be obtained from the principal
stock exchange at or prior to the close of the New York Stock Exchange. Foreign
currency exchange rates are determined daily prior to the close of the New York
Stock Exchange.
Investments in shares of open-end investment companies are valued at net asset
value of the respective mutual fund as calculated each day.
If market quotations or pricing service valuations are not readily available,
securities are valued at fair value as determined in good faith under procedures
established by the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates market
value) if maturity is 60 days or less at the time of purchase, or market value
if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the date of valuation.
B. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by U.S. Government securities and such collateral is in the
possession of the Fund's custodian. The collateral is evaluated daily to ensure
its market value exceeds the current market value of the repurchase agreements
including accrued interest. In the event of default on the obligation to
repurchase, the Fund has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income, which may be comprised of stated coupon rate,
market discount, original issue discount and amortized premium, is recorded on
the accrual basis. Interest on payment-in-kind debt securities is accrued based
on the yield to maturity at purchase date method. Income and expenses on foreign
securities are translated into U.S. dollars at rates of exchange prevailing when
accrued. Discounts and premiums on debt securities purchased are amortized over
the life of the respective security as adjustments to interest income. Cost is
determined on the specific identification basis. The cost of foreign securities
is translated into U.S. dollars at the rates of exchange prevailing when such
securities are acquired.
Each Fund may invest in securities issued by other INVESCO Investment Companies
that invest in short-term debt securities and seek to maintain a net asset value
of one dollar per share.
Mortgage paydown gain/loss is treated as ordinary income for tax purposes and is
included in interest income in the Statement of Operations.
High Yield Fund invests primarily in high yield bonds, some of which may be
rated below investment grade. These high yield bonds may be more susceptible
than higher grade bonds to real or perceived adverse economic or industry
conditions. The secondary market, on which high yield bonds are traded, may also
be less liquid than the market for higher grade bonds.
<PAGE>
High Yield and Select Income Funds may have elements of risk due to concentrated
investments in specific industries or foreign issuers located in a specific
country. Such concentrations may subject these Funds to additional risks
resulting from future political or economic conditions and/or possible
impositions of adverse foreign governmental laws or currency exchange
restrictions.
The Fund's use of short-term forward foreign currency contracts may subject it
to certain risks as a result of unanticipated movements in foreign exchange
rates. The Fund does not hold short-term forward foreign currency contracts for
trading purposes. The Fund may hold foreign currency in anticipation of settling
foreign security transactions and not for investment purposes.
Investments in securities of governmental agencies may only be guaranteed by the
respective agency's limited authority to borrow from the U.S. Government and may
not be guaranteed by the full faith and credit of the U.S. Government.
D. FEDERAL AND STATE TAXES -- The Fund has complied, and continues to comply,
with the provisions of the Internal Revenue Code applicable to regulated
investment companies and, accordingly, has made or intends to make sufficient
distributions of net investment income and net realized capital gains, if any,
to relieve it from all federal and state income taxes and federal excise taxes.
High Yield, Select Income, Tax-Free Bond and U.S. Government Securities Funds
incurred and elected to defer post-October 31 net capital losses of $16,245,109,
$13,769,183, 1,832,459 and $1,400,783, respectively, to the year ended August
31, 2001.
At August 31, 2000, net capital loss carryovers were as follows:
U.S.
HIGH SELECT GOVERNMENT
YEAR OF YIELD INCOME SECURITIES
EXPIRATION FUND FUND FUND
-----------------------------------------------------------------------------
2003 $ 0 $ 46,911 $ 0
2004 0 17,095 0
2005 0 19,676 0
2007 2,045,175 16,678 0
2008 33,451,346 7,340,660 272,064
Net capital loss carryovers utilized in 2000 by Tax-Free Bond Fund amounted to
$807,256. To the extent future capital gains and income are offset by capital
loss carryovers and deferred post-October 31 losses, such gains and income will
not be distributed to shareholders.
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders. Of the ordinary income distributions
declared for the year ended August 31, 2000, 7.59% for High Yield Fund and 1.23%
for Select Income Fund qualified for the dividends received deduction available
to the Fund's corporate sharholders and 99.75% were exempt from federal income
taxes for Tax-Free Bond Fund.
Investment income received from foreign sources may be subject to foreign
withholding taxes. Dividend and interest income is shown gross of foreign
withholding taxes in the accompanying financial statements.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- All of the Fund's net
investment income is distributed to shareholders by dividends declared daily and
paid monthly. Income dividends are reinvested at the month-end net asset value.
The Fund distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from accounting principles generally accepted in
<PAGE>
the United States. These differences are primarily due to differing treatments
for mortgaged-backed securities, market discounts, amortized premiums, foreign
currency transactions, nontaxable dividends, net operating losses and expired
capital loss carryforwards.
For the year ended August 31, 2000, the effects of such differences were as
follows:
ACCUMULATED
ACCUMULATED UNDISTRIBUTED
UNDISTRIBUTED NET REALIZED
NET GAIN/LOSS ON
INVESTMENT INVESTMENT PAID-IN
FUND INCOME SECURITIES CAPITAL
--------------------------------------------------------------------------------
High Yield Fund $ (2,914) $ 2,914 $ 0
Select Income Fund (100,709) (100,330) 201,039
Tax-Free Bond Fund (11,705) 117 11,588
U.S. Government Securities Fund 2,325 (45,304) 42,979
Net investment income, net realized gains and net assets were not affected.
F. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund enters into short-term forward
foreign currency contracts in connection with planned purchases or sales of
securities as a hedge against fluctuations in foreign exchange rates pending the
settlement of transactions in foreign securities. A forward foreign currency
contract is an agreement between contracting parties to exchange an amount of
currency at some future time at an agreed upon rate. These contracts are
marked-to-market daily and the related appreciation or depreciation of the
contracts is presented in the Statement of Assets and Liabilities. Any realized
gain or loss incurred by the Fund upon the sale of securities is included in the
Statement of Operations.
G. EXPENSES -- Each Fund or Class bears expenses incurred specifically on its
behalf and, in addition, each Fund or Class bears a portion of general expenses,
based on the relative net assets of each Fund or Class.
Under an agreement between each Fund and the Fund's Custodian, agreed upon
Custodian Fees and Expenses are reduced by credits granted by the Custodian from
any temporarily uninvested cash. Such credits are included in Fees and Expenses
Paid Indirectly in the Statement of Operations.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group, Inc.
("IFG") serves as the Funds' investment adviser. As compensation for its
services to the Funds, IFG receives an investment advisory fee which is accrued
daily at the applicable rate and paid monthly. The fee is based on the annual
rate of each Fund's average net assets as follows:
AVERAGE NET ASSETS
--------------------------------------------------------------------------------
$0 TO $300 TO OVER
$300 $500 $500
FUND MILLION MILLION MILLION
--------------------------------------------------------------------------------
High Yield Fund 0.50% 0.40% 0.30%
Select Income Fund 0.55% 0.45% 0.35%
Tax-Free Bond Fund 0.55% 0.45% 0.35%
U.S. Government Securities Fund 0.55% 0.45% 0.35%
Effective May 11, 2000, a Sub-Advisory Agreement between IFG and AIM Capital
Management, Inc. ("AIM"), affiliated with IFG, provides that investment
decisions of Tax-Free Bond Fund are made by AIM. Fees for such sub-advisory
services are paid by IFG.
<PAGE>
A plan of distribution pursuant to Rule 12b-1 of the Act (the "Plan") provides
for compensation of marketing and advertising expenditures to INVESCO
Distributors, Inc. ("IDI" or the "Distributor"), a wholly owned subsidiary of
IFG, to a maximum of 0.25% of annual average net assets of Investor Class
shares. A master distribution plan and agreement pursuant to Rule 12b-1 of the
Act provides for financing the distribution and shareholder servicing of Class C
shares of 1.00% per annum of average daily net assets. Any unreimbursed expenses
IDI incurs with respect to Investor Class and Class C shares in any fiscal year
can not be recovered in subsequent years. For the year/period ended August 31,
2000, amounts paid to the Distributor were as follows:
INVESTOR CLASS
FUND CLASS C
--------------------------------------------------------------------------------
High Yield Fund $1,881,520 $ 10,421
Select Income Fund 1,350,818 444
Tax-Free Bond Fund 444,966 5
U.S. Government Securities Fund 189,618 98
IFG receives a transfer agent fee from each Class at an annual rate of $28.50
per shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month. Prior to June 1, 2000, each Class paid an annual rate of $26.00 per
shareholder account, or, where applicable, per participant in an omnibus
account, per year.
In accordance with an Administrative Services Agreement, each Fund pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.045% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG has voluntarily agreed to absorb certain fees and expenses incurred by
Select Income, Tax-Free Bond and U.S. Government Securities Funds for the year
ended August 31, 2000.
A 2% redemption fee is retained by High Yield Fund - Investor Class to offset
transaction costs and other expenses associated with short-term redemptions and
exchanges. The fee is imposed on redemptions or exchanges of shares held less
than three months. The redemption fee is accounted for as an addition to Paid-in
Capital by High Yield Fund - Investor Class. Total redemption fees received by
High Yield Fund - Investor Class for the year ended August 31, 2000 were
$603,591.
NOTE 3 -- ACQUISITION OF INVESCO BOND FUNDS, INC. - SHORT-TERM BOND FUND
("TARGET FUND I"), INVESCO TAX-FREE INCOME FUNDS, INC. - TAX-FREE INTERMEDIATE
BOND FUND ("TARGET FUND II") AND ACQUISITION OF INVESCO VALUE TRUST -
INTERMEDIATE GOVERNMENT BOND FUND ("TARGET FUND III"). On June 4, 1999, Select
Income Fund acquired all the net assets of Target Fund I pursuant to an
Agreement and Plan of Reorganization and Termination approved by Target Fund I
shareholders on May 20, 1999. The acquisition was accomplished by a tax-free
exchange of 2,767,609 shares of Select Income Fund (valued at $17,295,250) for
1,816,970 shares outstanding of Target Fund I on June 4, 1999. Target Fund I's
net assets at that date ($17,295,250), which included $61,116 of unrealized
depreciation, were combined with those of Select Income Fund. The aggregate net
assets of Select Income Fund and Target Fund I immediately before the
acquisition were $543,762,931 and $17,295,250, respectively. The net assets of
Select Income Fund after the acquisition were $561,058,181.
On June 4, 1999, Tax-Free Bond Fund acquired all the net assets of Target Fund
II pursuant to an Agreement and Plan of Reorganization and Termination approved
by Target Fund II shareholders on May 20, 1999. The acquisition was accomplished
by a tax-free exchange of 406,050 shares of Tax-Free Bond Fund (valued at
$6,067,497) for 605,338 shares outstanding of Target Fund II on June 4, 1999.
<PAGE>
Target Fund II's net assets at that date ($6,067,497), which included $74,932 of
unrealized appreciation, were combined with those of Tax-Free Bond Fund. The
aggregate net assets of Tax-Free Bond Fund and Target Fund II immediately before
the acquisition were $200,325,490 and $6,067,497, respectively. The net assets
of Tax-Free Bond Fund after the acquisition were $206,392,987.
On June 4,1999, U.S. Government Securities Fund acquired all the net assets of
Target Fund III pursuant to an Agreement and Plan of Reorganization and
Termination approved by Target Fund III shareholders on May 20, 1999. The
acquisition was accomplished by a tax-free exchange of 3,275,274 shares of U.S.
Government Securities Fund (valued at $22,786,723) for 1,845,823 shares
outstanding of Target Fund III on June 4, 1999. Target Fund III's net assets at
that date ($22,786,723), which included $238,936 of unrealized depreciation,
were combined with those of U.S. Government Securities Fund. The aggregate net
assets of U.S. Government Securities Fund and Target Fund III immediately before
the acquisition were $64,047,158 and $22,786,723, respectively. The net assets
of U.S. Government Securities Fund after the acquisition were $86,833,881.
NOTE 4 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended
August 31, 2000, the aggregate cost of purchases and proceeds from sales of
investment securities (excluding all U.S. Government securities and short-term
securities) were as follows:
FUND PURCHASES SALES
--------------------------------------------------------------------------------
High Yield Fund $784,248,901 $718,165,680
Select Income Fund 452,834,697 416,602,410
Tax-Free Bond Fund 82,351,598 89,871,585
For the year ended August 31, 2000, the aggregate cost of purchases and proceeds
from the sales of U.S. Government securities were as follows:
FUND PURCHASES SALES
--------------------------------------------------------------------------------
Select Income Fund $9,070,448 $13,905,984
U.S. Government Securities 15,054,217 21,804,589
NOTE 5 -- APPRECIATION AND DEPRECIATION. At August 31, 2000, the gross
appreciation of securities in which there was an excess of value over tax cost,
the gross depreciation of securities in which there was an excess of tax cost
over value and the resulting net appreciation (depreciation) by Fund were as
follows:
NET
GROSS GROSS APPRECIATION
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
--------------------------------------------------------------------------------
High Yield Fund $5,596,471 $83,838,794 $(78,242,323)
Select Income Fund 2,947,260 25,683,292 (22,736,032)
Tax-Free Bond Fund 5,094,765 1,476,421 3,618,344
U.S. Government Securities Fund 436,080 2,699,337 (2,263,257)
NOTE 6 -- TRANSACTIONS WITH AFFILIATES. Certain of the Funds' officers and
directors are also officers and directors of IFG, IDI or AIM.
Each Fund has adopted an unfunded defined benefit deferred compensation plan
covering all independent directors of the Fund who will have served as an
independent director for at least five years at the time of retirement. Benefits
under this plan are based on an annual rate equal to 50% of the sum of the
retainer fee plus the meeting attendance fees.
Pension expenses for the year ended August 31, 2000, included in Directors' Fees
and Expenses in the Statement of Operations, and unfunded accrued pension costs
and pension liability included in Prepaid Expenses and Accrued Expenses,
respectively, in the Statement of Assets and Liabilities were as follows:
<PAGE>
UNFUNDED
PENSION ACCRUED PENSION
FUND EXPENSES PENSION COSTS LIABILITY
--------------------------------------------------------------------------------
High Yield Fund $ 16,990 $ 12,619 $ 62,424
Select Income Fund 12,840 8,576 44,006
Tax-Free Bond Fund 4,746 11,863 36,082
U.S. Government Securities Fund 2,317 3,861 13,265
The independent directors have contributed to a deferred fee agreement plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds. The
deferred amounts may be invested in the shares of any of the INVESCO Funds,
excluding the INVESCO Variable Investment Funds.
NOTE 7 -- INTERFUND BORROWING AND LENDING. Each Fund is party to an interfund
lending agreement between each Fund and other INVESCO sponsored mutual funds,
which permit it to borrow or lend cash, at rates beneficial to both the
borrowing and lending funds. Loans totaling 10% or more of a borrowing Fund's
total assets are collateralized at 102% of the value of the loan; loans of less
than 10% are unsecured. Pursuant to each Fund's prospectus, each Fund may borrow
up to 33 1/3% of its total assets for temporary or emergency purposes. During
the year ended August 31, 2000, High Yield Fund borrowed cash at a weighted
average rate ranging from 6.37% to 6.38%. At August 31, 2000, there were no such
borrowings and/or lendings for any Fund.
NOTE 8 -- LINE OF CREDIT. Each Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the net assets at value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. At August
31, 2000, there were no such borrowings.
NOTE 9 --CONTINGENT DEFERRED SALES CHARGE ("CDSC"). A 1.00% CDSC is charged by
each Fund's Class C shares on redemptions or exchanges of shares held thirteen
months or less (other than shares acquired through reinvestment of dividends or
other distributions). The CDSC is paid by the redeeming shareholder and
therefore, it is not an expense of the Fund. For the period ended August 31,
2000, the Distributor received an insignificant amount of CDSC from shareholder
redemptions 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
INVESCO Bond Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of INVESCO High Yield Fund, INVESCO
Select Income Fund, INVESCO Tax-Free Bond Fund, and INVESCO U.S. Government
Securities Fund (constituting INVESCO Bond Funds, Inc., hereafter referred to as
the "Fund") at August 31, 2000, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the periods
indicated and the financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
October 2, 2000
<PAGE>
<TABLE>
<CAPTION>
HIGH YIELD FUND -- INVESTOR CLASS
---------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED AUGUST 31
---------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value-- Beginning of Period $ 6.40 $ 6.76 $ 7.45 $ 6.84 $ 6.73
=================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.60 0.60 0.64 0.62 0.63
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.42) (0.19) (0.29) 0.64 0.11
=================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.18 0.41 0.35 1.26 0.74
=================================================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income(a) 0.60 0.60 0.64 0.62 0.63
Distributions from Capital Gains 0.00 0.00 0.40 0.03 0.00
In Excess of Capital Gains 0.00 0.17 0.00 0.00 0.00
=================================================================================================================================
TOTAL DISTRIBUTIONS 0.60 0.77 1.04 0.65 0.63
=================================================================================================================================
Net Asset Value--End of Period $ 5.98 $ 6.40 $ 6.76 $ 7.45 $ 6.84
=================================================================================================================================
TOTAL RETURN 2.89% 6.53% 4.44% 19.27% 11.38%
RATIOS
Net Assets-- End of Period ($000 Omitted) $ 787,537 $ 793,337 $ 641,394 $ 470,965 $ 375,201
Ratio of Expenses to Average Net Assets(b)(c) 1.00% 0.99% 0.86% 1.00% 0.99%
Ratio of Net Investment Income to Average Net Assets(b) 9.60% 9.13% 8.72% 8.71% 9.13%
Portfolio Turnover Rate 98% 154% 282% 129% 266%
</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 Class were voluntarily absorbed by IFG for the year
ended August 31, 1996. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 0.99% and ratio of
net investment income to average net assets would have been 9.13%.
(c)Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
<PAGE>
HIGH YIELD FUND -- CLASS C
--------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
AUGUST 31
--------------------------------------------------------------------------------
2000(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $ 6.31
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.30
Net Losses on Securities (Both Realized and Unrealized) (0.34)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.04)
================================================================================
LESS DISTRIBUTIONS
DIVIDENDS FROM NET INVESTMENT INCOMe 0.30
================================================================================
Net Asset Value--End of Period $ 5.97
================================================================================
TOTAL RETURN(b) (0.52%)(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $ 4,843
Ratio of Expenses to Average Net Assets(d) 1.60%(e)
Ratio of Net Investment Income to Average Net Assets 9.20%(e)
Portfolio Turnover Rate 98%(f)
(a) From February 15, 2000, since inception of Class C, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level, and therefore,
represents the year ended August 31, 2000.
<PAGE>
SELECT INCOME FUND -- INVESTOR CLASS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED AUGUST 31
---------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value--Beginning of Period $ 6.15 $ 6.68 $ 6.66 $ 6.35 $ 6.54
=================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.43 0.43 0.43 0.45 0.47
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.09) (0.41) 0.19 0.34 (0.17)
=================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.34 0.02 0.62 0.79 0.30
=================================================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.43 0.43 0.43 0.45 0.46
In Excess of Net Investment Income 0.00 0.00 0.00 0.00 0.01
Distributions from Capital Gains 0.00 0.02 0.17 0.03 0.02
In Excess of Capital Gains(a) 0.00 0.10 0.00 0.00 0.00
=================================================================================================================================
TOTAL DISTRIBUTIONS 0.43 0.55 0.60 0.48 0.49
=================================================================================================================================
Net Asset Value--End of Period $ 6.06 $ 6.15 $ 6.68 $ 6.66 $ 6.35
=================================================================================================================================
TOTAL RETURN 5.78% 0.15% 9.58% 12.89% 4.78%
RATIOS
Net Assets--End of Period ($000 Omitted) $ 574,518 $ 549,438 $ 502,624 $ 287,618 $ 258,093
Ratio of Expenses to Average Net Assets(b)(c) 1.06% 1.06% 1.06% 1.03% 1.01%
Ratio of Net Investment Income to Average Net Assets(b) 7.10% 6.56% 6.36% 6.98% 7.14%
Portfolio Turnover Rate 82% 135% 140% 263% 210%
(a) Distributions in exess of capital gains for the year ended August 31, 2000,
aggregated less than $0.01 on a per share basis.
(b) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended August 31, 2000, 1999, 1998, 1997 and 1996. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 1.19%, 1.16%, 1.10%, 1.21% and 1.16%, respectively, and
ratio of net investment income to average net assets would have been 6.97%,
6.46%, 6.32%, 6.80% and 6.99%, respectively.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
<PAGE>
SELECT INCOME FUND -- CLASS C
--------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
AUGUST 31
--------------------------------------------------------------------------------
2000(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $ 6.02
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.21
Net Gains on Securities (Both Realized and Unrealized) 0.04
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.25
================================================================================
LESS DISTRIBUTIONS
DIVIDENDS FROM NET INVESTMENT INCOME 0.21
================================================================================
Net Asset Value--End of Period $ 6.06
================================================================================
TOTAL RETURN(b) 4.24%(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $ 377
Ratio of Expenses to Average Net Assets(d) 1.83%(e)
Ratio of Net Investment Income to Average Net Assets 6.42%(e)
Portfolio Turnover Rate 82%(f)
(a) From February 15, 2000, since inception of Class C, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level, and therefore,
represents the year ended August 31, 2000.
<PAGE>
TAX-FREE BOND FUND -- INVESTOR CLASS
---------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
</TABLE>
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
AUGUST 31 AUGUST 31 YEAR ENDED JUNE 30
---------------------------------------------------------------------------------------------------------------------------------
2000 1999(a) 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value--Beginning of Period $ 14.53 $ 14.71 $ 15.57 $ 15.34 $ 15.20 $ 15.07
=================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.64 0.10 0.62 0.63 0.66 0.73
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.24 (0.18) (0.40) 0.40 0.38 0.32
=================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.88 (0.08) 0.22 1.03 1.04 1.05
=================================================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.64 0.10 0.62 0.63 0.66 0.73
In Excess of Net Investment Income 0.00 0.00 0.00 0.00 0.01 0.00
Distributions from Capital Gains 0.00 0.00 0.46 0.17 0.23 0.19
In Excess of Capital Gains 0.05 0.00 0.00 0.00 0.00 0.00
=================================================================================================================================
TOTAL DISTRIBUTIONS 0.69 0.10 1.08 0.80 0.90 0.92
=================================================================================================================================
Net Asset Value--End of Period $ 14.72 $ 14.53 $ 14.71 $ 15.57 $ 15.34 $ 15.20
=================================================================================================================================
TOTAL RETURN 6.32% (0.53%)(b) 1.30% 6.87% 7.05% 7.01%
RATIOS
Net Assets--End of Period ($000 Omitted) $ 178,154 $ 191,836 $ 201,791 $ 211,471 $ 220,410 $ 250,890
Ratio of Expenses to Average Net Assets(c)(d) 0.91% 0.90%(e) 0.91% 0.91% 0.90% 0.91%
Ratio of Net Investment Income to Average Net Assets(c) 4.45% 4.08%(e) 4.03% 4.06% 4.36% 4.76%
Portfolio Turnover Rate 50% 3%(b) 66% 173% 123% 146%
</TABLE>
(a) From July 1, 1999 to August 31, 1999, the Fund's current fiscal year end.
(b) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(c) Various expenses of the Class were voluntarily absorbed by IFG for the year
ended August 31, 2000, for the period ended August 31, 1999 and for the
years ended June 30, 1999, 1998, 1997 and 1996. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would
have been 1.11%, 1.14% (annualized), 1.06%, 1.04%, 1.05% and 1.04%,
respectively, and ratio of net investment income to average net assets
would have been 4.25%, 3.84% (annualized), 3.88%, 3.93%, 4.21% and 4.63%,
respectively.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(e) Annualized
<PAGE>
TAX-FREE BOND FUND -- CLASS C
--------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
AUGUST 31
--------------------------------------------------------------------------------
2000(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $ 14.05
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.29
Net Gains on Securities (Both Realized and Unrealized) 0.66
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.95
================================================================================
LESS DISTRIBUTIONS
DIVIDENDS FROM NET INVESTMENT INCOME 0.29
================================================================================
Net Asset Value--End of Period $ 14.71
================================================================================
TOTAL RETURN(b) 6.86%(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $ 1
Ratio of Expenses to Average Net Assets(d)(e) 1.66%(f)
Ratio of Net Investment Income to Average Net Assets(d) 3.79%(f)
Portfolio Turnover Rate 50%(g)
(a) From February 15, 2000, since inception of Class C, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Various expenses of the Class were voluntarily absorbed by IFG for the
period ended August 31, 2000. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 6.90%
(annualized) and ratio of net investment loss to average net assets would
have been (1.45%) (annualized).
(e) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level, and therefore,
represents the year ended August 31, 2000.
<PAGE>
U.S. GOVERNMENT SECURITIES FUND -- INVESTOR CLASS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED AUGUST 31
---------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value--Beginning of Period $ 6.81 $ 7.99 $ 7.49 $ 7.15 $ 7.49
=================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.36 0.35 0.40 0.43 0.44
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.24 (0.58) 0.67 0.34 (0.34)
=================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.60 (0.23) 1.07 0.77 0.10
=================================================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.36 0.35 0.40 0.43 0.43
In Excess of Net Investment Income 0.00 0.00 0.00 0.00 0.01
Distributions from Capital Gains 0.00 0.56 0.17 0.00 0.00
In Excess of Capital Gains(a) 0.00 0.04 0.00 0.00 0.00
=================================================================================================================================
TOTAL DISTRIBUTIONS 0.36 0.95 0.57 0.43 0.44
=================================================================================================================================
Net Asset Value--End of Period $ 7.05 $ 6.81 $ 7.99 $ 7.49 $ 7.15
TOTAL RETURN 9.12% (3.40%) 14.75% 11.01% 1.31%
RATIOS
Net Assets--End of Period ($000 Omitted) $ 74,870 $ 79,899 $ 79,485 $ 51,581 $ 54,614
Ratio of Expenses to Average Net Assets(b)(c) 1.02% 1.01% 1.01% 1.01% 1.02%
Ratio of Net Investment Income to Average Net Assets(b) 5.28% 4.80% 5.22% 5.78% 5.76%
Portfolio Turnover Rate 21% 114% 323% 139% 212%
</TABLE>
(a) Distributions in excess of capital gains for the year ended August 31,
2000, aggregated less than $0.01 on a per share basis.
(b) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended August 31, 2000, 1999, 1998, 1997 and 1996. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 1.61%, 1.60%, 1.41%, 1.32% and 1.48%, respectively, and
ratio of net investment income to average net assets would have been 4.69%,
4.21%, 4.82%, 5.47% and 5.30%, respectively.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
<PAGE>
U.S. GOVERNMENT SECURITIES FUND -- CLASS C
--------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
AUGUST 31
--------------------------------------------------------------------------------
2000(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $ 6.72
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.17
Net Gains on Securities (Both Realized and Unrealized) 0.34
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.51
================================================================================
LESS DISTRIBUTIONS
DIVIDENDS FROM NET INVESTMENT INCOME 0.17
================================================================================
Net Asset Value--End of Period $ 7.06
================================================================================
TOTAL RETURN(b) 7.64%(c)
RATIOS
Net Assets-- End of Period ($000 Omitted) $ 241
Ratio of Expenses to Average Net Assets(d)(e) 1.94%(f)
Ratio of Net Investment Income to Average Net Assets(d) 4.65%(f)
Portfolio Turnover Rate 21% (g)
(a) From February 15, 2000, since inception of Class C, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Various expenses of the Class were voluntarily absorbed by IFG for the
period ended August 31, 2000. If such expenses had not been voluntarily
absorbed, ratio fo expenses to average net assets would have been 2.29%
(annualized) and ratio of net investment income to average net assets would
have been 4.30% (annualized).
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level, and therefore,
represents the year ended August 31, 2000.
<PAGE>
OTHER INFORMATION
UNAUDITED
On May 10, 2000, a special meeting of the shareholders of Tax-Free Bond Fund was
held at which the twelve directors identified below were elected and the
approval of a new sub-advisory agreement between INVESCO Funds Group, Inc. and
AIM Capital Management, Inc. (Proposal 1) were ratified. The following is a
report of the votes cast:
WITHHELD/
NOMINEE/PROPOSAL FOR AGAINST ABSTAIN TOTAL
--------------------------------------------------------------------------------
TAX-FREE BOND FUND
Charles W. Brady 7,304,371 0 237,796 7,542,167
Fred A. Derring 7,282,694 0 259,473 7,542,167
Mark H. Williamson 7,301,446 0 240,721 7,542,167
Dr. Victor L. Andrews 7,301,157 0 241,010 7,542,167
Bob R. Baker 7,322,633 0 219,534 7,542,167
Lawrence H. Budner 7,305,282 0 236,885 7,542,167
James T. Bunch 7,299,306 0 242,861 7,542,167
Dr. Wendy Lee Gramm 7,297,990 0 244,177 7,542,167
Richard W. Healey 7,298,913 0 243,254 7,542,167
Gerald J. Lewis 7,285,546 0 256,621 7,542,167
John W. McIntyre 7,301,387 0 240,780 7,542,167
Dr. Larry Soll 7,312,661 0 229,506 7,542,167
Proposal 1 6,808,479 348,973 384,715 7,542,167
<PAGE>
We're easy to stay in touch with:
Investor Services: 1-800-525-8025
Personal Account Line: 1-800-424-8085
On the World Wide Web: invescofunds.com
INVESCO Distributors, Inc., (SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or accompanied
by a current prospectus.
AEQ 9005 10/00
