INVESCO SHORT-TERM BOND FUND
Supplement to Prospectus
dated December 30, 1994
The section of the Fund's Prospectus entitled "Annual Fund Expenses" is
amended to read as follows:
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares. The Fund, however, is authorized to pay a distribution fee pursuant to
Rule 12b-1 under the Investment Company Act of 1940. (See "How Shares Can Be
Purchased--Distribution Expenses.") Lower expenses benefit Fund shareholders by
increasing the Fund's total return.
Shareholder Transaction Expenses
Sales load "charge" on purchases None
Sales load "charge" on reinvested dividends None
Redemption fees None
Exchange fees None
Annual Fund Operating Expenses (after absorbed expenses)(1)
(as a percentage of average net assets)*
Management Fee(1) 0.50%
12b-1 Fees (1) 0.25%
Other Expenses (1) 0.00%
Transfer Agency Fee (1)(2) 0.00%
General Services, Administrative 0.00%
Services, Registration, Postage (1)(3)
Total Fund Operating Expenses (1) 0.75%
(1) Certain Fund expenses are being voluntarily absorbed by the Fund's
investment adviser in order to ensure that the Fund's total operating expenses
do not exceed 0.30% (from March 21, 1994 through April 30, 1995) and 0.75%
(effective May 1, 1995)of the Fund's average net assets. In the absence of
such voluntary expenselimitation, the Fund's Other Expenses, Transfer Agency
Fee, General Services, etc. expenses and Total Fund Operating Expenses in
the above table would have been 1.41%, 0.37%, 1.04% and 2.16%, respectively,
of the Fund's average net assets based on the actual expenses of the Fund for
the fiscal year ended August 31, 1994.
(2) The 0.37% transfer agency fee referred to in footnote (1) assumes that
the current transfer agency fee had been in effect during the entire fiscal year
ended August 31, 1994. This fee is described under "Additional Information -
Transfer and Dividend Disbursing Agent."
<PAGE>
(3) Includes, but is not limited to, fees and expenses of directors,
custodian bank, legal counsel and auditors, a securities pricing service, costs
of administrative services under an Administrative Services Agreement, costs of
registration of Fund shares under applicable laws, and costs of printing and
distributing reports to shareholders.
Example*
Based upon Total Operating Expenses as estimated above, a shareholder
would pay the following expenses on a $1,000 investment for the periods shown,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
1 Year 3 Years 5 Years 10 Years
$8 $24 $42 $93
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. Such expenses are paid from the Fund's assets. (See "The Fund and
Its Management.") The Fund charges no sales load, redemption fee, or exchange
fee. The expense table and Example should not be considered a representation of
past or future expenses, and actual expenses may be greater or less than those
shown. The assumed 5% annual return is hypothetical and should not be considered
a representation of past or future annual returns, which may be greater or less
than the assumed amount.
As a result of the 0.25% Rule 12b-1 fee paid by the Fund, investors who
own Fund shares for a long period of time may pay more than the economic
equivalent of the maximum front-end sales charge permitted for mutual funds by
the National Association of Securities Dealers, Inc.
*The expense information in the above tables has been presented on a basis that
assumes that the Fund's current 0.75% expense limitation had been in effect
during the year ended August 31, 1994.
The ninth paragraph in the section of the Fund's Prospectus entitled "The
Fund and Its Management" is hereby amended to read as follows:
The Fund's expenses, which are accrued daily, are generally deducted from
the Fund's total income before dividends are paid. Total expenses of the Fund
for the fiscal year ended August 31, 1994, including investment advisory fees
(but excluding brokerage commissions which are included as a cost of acquiring
securities), amounted to 0.46% of the Fund's average net assets. In the absence
of the voluntary expense limitation that applied during this period, the total
expenses of the Fund, including investment advisory fees (but excluding
brokerage commissions), would have been 2.04% of the Fund's average net assets.
Certain Fund expenses will be absorbed voluntarily by INVESCO in order to ensure
that the Fund's total operating expenses will not exceed 0.30% (from March 21,
1994 through April 30, 1995) and 0.75% (effective May 1, 1995) of the Fund's
average net assets.
The date of this Supplement is July 21, 1995.
<PAGE>
PROSPECTUS
December 30, 1994
INVESCO SHORT-TERM BOND FUND
INVESCO Short-Term Bond Fund (the "Fund") seeks to achieve the highest
level of current income as is consistent with minimum fluctuation in principal
value and with maintaining liquidity. The Fund invests primarily in short-term
debt securities (having maturities of 3 years or less) and intermediate-term
debt securities (having maturities of 3 to 10 years) and maintains a diversified
portfolio with a dollar-weighted average maturity of not more than three years.
The Fund pursues its investment objective by investing in a variety of debt
securities consistent with the policies of this Fund.
The Fund is a series of INVESCO Income Funds, Inc. (the "Company"), a
diversified, managed, no-load mutual fund consisting of four separate investment
funds. This Prospectus relates to shares of the Fund. Separate Prospectuses are
available upon request from INVESCO Funds Group, Inc. for the Company's other
funds, INVESCO Select Income Fund, INVESCO High Yield Fund and INVESCO
U.S.
Government Securities Fund. Investors may purchase shares of any or all funds.
Additional funds may be offered in the future.
This Prospectus provides you with the basic information you
should know before investing in INVESCO Short-Term Bond Fund. You
should read it and keep it for future reference. A Statement of
Additional Information containing further information about the
Fund has been filed with the Securities and Exchange Commission.
You can obtain a copy without charge by writing INVESCO Funds
Group, Inc., Post Office Box 173706, Denver, Colorado 80217-3706; or by calling
1-800-525-8085.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL
INSTITUTION. THE SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE STATEMENT OF ADDITIONAL INFORMATION, DATED DECEMBER 30,
1994, IS HEREBY
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
<PAGE>
TABLE OF CONTENTS Page
ANNUAL FUND EXPENSES 5
FINANCIAL HIGHLIGHTS 7
PERFORMANCE DATA 7
INVESTMENT OBJECTIVE AND POLICIES 8
RISK FACTORS 13
THE FUND AND ITS MANAGEMENT 16
HOW SHARES CAN BE PURCHASED 18
SERVICES PROVIDED BY THE FUND 21
HOW TO REDEEM SHARES 24
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, AND TAXES 26
ADDITIONAL INFORMATION 27
APPENDIX-BOND RATINGS 28
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares. The Fund, however, is authorized to pay a distribution fee pursuant to
Rule 12b-1 under the Investment Company Act of 1940. (See "How Shares Can Be
Purchased--Distribution Expenses.") Lower expenses benefit Fund shareholders by
increasing the Fund's total return.
Shareholder Transaction Expenses
Sales load "charge" on purchases None
Sales load "charge" on reinvested dividends None
Redemption fees None
Exchange fees None
Annual Fund Operating Expenses (after absorbed expenses)(1)
(as a percentage of average net assets)
Management Fee(1) 0.30%
12b-1 Fees (1) 0.00%
Other Expenses (1) 0.00%
Transfer Agency Fee (1)(2) 0.00%
General Services, Administrative 0.00%
Services, Registration, Postage (1)(3)
Total Fund Operating Expenses (1) 0.30%
(1) Certain Fund expenses are being voluntarily absorbed by the Fund's
investment adviser and sub-adviser, in order to ensure that the Fund's total
operating expenses do not exceed 0.30% of the Fund's average net assets. In the
absence of such voluntary
<PAGE>
expense limitation, the Fund's Management Fees, 12b-1 Fees, Other Expenses,
Transfer Agency Fees, General Services, etc. Fees and Total Fund Operating
Expenses in the above table would have been 0.50%, 0.25%, 1.41%, 0.37%, 1.04%
and 2.16%, respectively, of the Fund's average net assets based on the actual
expenses of the Fund for the fiscal year ended August 31, 1994.
(2) The 0.37% transfer agency fee referred to in footnote (1) assumes that
the current transfer agency fee had been in effect during the entire fiscal year
ended August 31, 1994. This fee is described under "Additional Information -
Transfer and Dividend
Disbursing Agent."
(3) Includes, but is not limited to, fees and expenses of directors,
custodian bank, legal counsel and auditors, a securities pricing service, costs
of administrative services under an Administrative Services Agreement, costs of
registration of Fund shares under applicable laws, and costs of printing and
distributing reports to shareholders.
Example
Based upon Total Operating Expenses as estimated above, a shareholder
would pay the following expenses on a $1,000 investment for the periods shown,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
1 Year 3 Years 5 Years 10 Years
$3 $10 $17 $38
The purpose of the foregoing table and is to assist investors in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. Such expenses are paid from the Fund's assets. (See
"The Fund and Its Management.") The Fund charges no sales load, redemption fee,
or exchange fee. The expense table and Example should not be considered a
representation of past or future expenses, and actual expenses may be greater or
less than those shown. The assumed 5% annual return is hypothetical and should
not be considered a representation of past or future annual returns, which may
be greater or less than the assumed amount.
As a result of the 0.25% Rule 12b-1 fee paid by the Fund, investors who
own Fund shares for a long period of time may pay more than the economic
equivalent of the maximum front-end sales charge permitted for mutual funds by
the National Association of Securities Dealers, Inc.
<PAGE>
Financial Highlights
(For a Fund Share Outstanding throughout the Period)
The following information has been audited by Price Waterhouse LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and report of independent accountants thereon
appearing in the Fund's 1994 Annual Report to Shareholders and Statement of
Additional Information, both of which are available without charge by contacting
INVESCO Funds Group, Inc. at the address or telephone number shown below.
Period Ended August 31
----------------------
1994~
PER SHARE DATA
Net Asset Value -- Beginning of Period $10.00
---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.47
Net Losses on Securities
(Both Realized and Unrealized) (0.54)
---------
Total from Investment Operations (0.07)
---------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.47
---------
Net Asset Value -- End of Period $ 9.46
=========
TOTAL RETURN (0.72%)+
RATIOS
Net Assets -- End of Period ($000 Omitted) $7,878
Ratio of Expenses to Average Net Assets# 0.46%*
Ratio of Net Investment Income to
Average Net Assets# 5.50%*
Portfolio Turnover Rate 69%+
~ From September 30, 1993, commencement of operations, to August 31, 1994.
+ These amounts are based on operations for the period shown and,
accordingly, are not representative of a full year.
# Various expenses of the Short-Term Bond Fund were voluntarily absorbed by
INVESCO Funds Group, Inc. for the period ended August 31, 1994. If such
expenses had not been voluntarily absorbed, annualized ratio of expenses
to average net assets would have been 2.04%, and annualized ratio of net
investment income to average net assets would have been 3.92%.
* Annualized
Further information about the performance of the Fund is contained in the
Fund's annual report to shareholders, which may be obtained without charge by
writing INVESCO Funds Group, Inc., P.O. Box 173706, Denver, Colorado 80217-3706;
or by calling 1-800-525-8085.
PERFORMANCE DATA
From time to time, the Fund advertises its yield and total return
performance. These figures are based upon historical investment results and are
not intended to indicate future performance. The "yield" of the Fund refers to
the income generated by an investment in the Fund over a 30-day or one-month
period (which period will be stated in the advertisement). Yield quotations are
computed by dividing the net investment income per share earned during the
period as calculated according to a prescribed formula by the net asset value
per share at the end of the period, then adjusting the result to provide for
semiannual compounding.
"Total return" refers to the average annual rate of return of an
investment in the Fund. This figure is computed by calculating the percentage
change in value of an investment of $1,000, assuming reinvestment of all income
dividends and capital gains distributions, to the end of a specified period.
Periods of one year, five years, and ten years are used to the extent possible.
<PAGE>
Statements of the Fund's total return performance are based upon investment
results during a specified period and assume reinvestment of all dividends and
capital gains, if any, paid during that period. Thus, any given report of total
return performance should not be considered as representative of future
performance. The Fund charges no sales load, redemption fee, or exchange fee
which would affect the total return computation.
In conjunction with performance reports and/or analyses of shareholder
service for the Fund, comparative data between the Fund's performance for a
given period and recognized indices of investment results for the same period,
and/or assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company,
Standard & Poor's, Lipper Analytical Services, Inc., Lehman Brothers, National
Association of Securities Dealers Automated Quotations, Frank Russell Company,
Value Line Investment Survey, the American Stock Exchange, Morgan Stanley
Capital International, Wilshire Associates, the Financial Times-Stock Exchange,
the New York Stock Exchange, the Nikkei Stock Average and the Deutcher
Aktienindex, all of which are unmanaged market indicators. In addition,
rankings, ratings, and comparisons of investment performance and/or assessments
of the quality of shareholder service appearing in publications such as Money,
Forbes, Kiplinger's Personal Finance, Morningstar, and similar sources which
utilize information compiled (i) internally; (ii) by Lipper Analytical Services,
Inc.; or (iii) by other recognized analytical services, may be used in
advertising. The Lipper Analytical Services, Inc. mutual fund rankings and
comparisons, which may be used by the Fund in performance reports, will be drawn
from the "Corporate Bond Funds - BBB Rated" Lipper mutual fund groupings, in
addition to the broad-based Lipper general fund grouping.
INVESTMENT OBJECTIVE AND POLICIES
The Company consists of four separate portfolios of investments, each
represented by a different class of the Company's common stock. This Prospectus
relates to INVESCO Short-Term Bond Fund; separate Prospectuses for INVESCO
Select Income Fund, INVESCO High Yield Fund, and INVESCO U.S.
Government
Securities Fund are available. The investment objective of the Fund, which is
fundamental and may not be changed without a vote of the Fund's shareholders, is
to seek to achieve the highest level of current income as is consistent with
minimum fluctuation in principal value and with liquidity. The Fund invests
primarily in short-term debt securities (having maturities of 3 years or less)
and intermediate- term debt securities (having maturities of 3 to 10 years) and
maintains a diversified portfolio with a dollar-weighted average maturity of not
more than three years. When the investment adviser or sub-adviser deems it
appropriate, the Fund may invest in debt securities having maturities in excess
of ten years. The investment adviser or sub-adviser will seek to adjust the
portfolio of debt securities held by the Fund to maximize current income
consistent with the investment objective of the Fund. Debt securities in which
the Fund invests will be selected on the basis of the adviser's assessment of
interest rate trends and the liquidity of various instruments under prevailing
market conditions. The potential for capital appreciation is an incidental
factor that may also be considered in selecting investments for the Fund.
<PAGE>
In determining the maturity of debt securities held by the Fund for
purposes of the maturity limitations described above, debt securities may be
treated as having maturities that are shorter than their actual stated
maturities if the securities have special features that produce characteristics
similar to those associated with securities having shorter maturities.
Securities having these features include: securities with a "put" or "demand"
feature entitling the Fund to obtain repayment of principal from the issuer of
the security or from a third party on demand at any time or on specified dates
(subject to any applicable notice requirements); variable and floating rate
securities on which coupon rates of interest are adjusted on specified dates in
response to changes in market rates of interest or adjust periodically upon such
changes; mortgage pass-through obligations on which principal pay downs and
prepayments reduce the outstanding principal amount of such obligations over
time as the obligations approach maturity; and other securities having interest
rate, cash flow, prepayment, demand or other features that affect the maturity
of a security. The Fund's dollar-weighted average portfolio maturity represents
an average based on the actual stated maturity dates of the debt securities in
the Fund's portfolio, except that (i) variable-rate securities are deemed to
mature at the next interest rate adjustment date, (ii) debt securities with put
features are deemed to mature at the next put exercise date, (iii) the maturity
of mortgage-backed securities is determined on an "expected life" basis, and
(iv) securities being hedged with futures contracts may be deemed to have a
longer maturity, in the case of purchases of futures contracts, and a shorter
maturity, in the case of sales of futures contracts, than they would otherwise
be deemed to have.
The Fund should provide higher yields than money market funds and many
other fixed-price investments, but will not provide the same stability of
principal as money market funds. The Fund is designed for investors seeking
higher yields than those available from shorter-term, higher-quality money
market funds and who can tolerate modest share price fluctuations. The Fund's
share price, yield, and total return fluctuate, and your investment may be worth
more or less than your original cost when you redeem your shares.
The Fund limits its investments in debt securities to securities that are
of investment-grade quality. Debt securities are deemed to be of
investment-grade quality if they are rated at least Baa by Moody's Investors
Service, Inc. ("Moody's"), at least BBB by Standard & Poor's Ratings Group
("S&P"), at least BBB by Fitch Investors Service, Inc. ("Fitch"), or BBB by Duff
& Phelps, Inc. ("D&P") or, if unrated, they are judged by the investment adviser
to be equivalent in quality to debt securities having such ratings.
Investment-grade debt securities range in quality from medium to high quality.
Those rated in the lower end of the investment-grade category (Baa/BBB) have
certain speculative characteristics and may be more sensitive to economic
changes and changes in the financial condition of issuers. (See the Appendix to
this Prospectus for a description of bond ratings.) The investment return to
shareholders of the Fund is based solely upon the income earned and gains
realized on the debt securities held by the Fund, net of Fund expenses. This
policy of only investing in investment grade debt securities will prevent the
Fund from investing in non-investment grade debt securities that offer the
possibility of higher current income, but present greater risk of principal
loss.
<PAGE>
Subject to its policy of investing at least 65% of its assets in bonds and
debentures other than when it has assumed a defensive position, the Fund may
invest in all types of investment-grade variable and fixed rate debt securities
in any proportion, including foreign and domestic corporate bonds, notes, and
convertible bonds; mortgage-backed, stripped mortgage-backed, and asset-backed
securities; domestic and foreign government and government agency securities;
zero coupon bonds, and short-term obligations, such as commercial paper and
notes, bank deposits and other financial institution obligations and repurchase
agreements. Up to 25% of the Fund's total assets, measured at the time of
purchase may be invested directly in foreign debt securities; securities of
Canadian issuers are not subject to this limitation. Investments in foreign
securities involve certain risks. See "Risk Factors."
The Fund may purchase mortgage-backed securities issued by government and
non-government entities such as banks, mortgage lenders, or other financial
institutions. A mortgage-backed security may be an obligation of the issuer
backed by a mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Some mortgage-backed securities, such as collateralized
mortgage obligations or CMOs, make payments of both principal and interest at a
variety of intervals; others make semiannual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Mortgage-backed securities are based on different types of mortgages including
those on commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the Fund
may invest in them if the investment adviser determines they are consistent with
the Fund's investment objective and policies.
Stripped mortgage-backed securities are created when a U.S. government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security (IO) receives interest payments from the
same underlying security. The prices of stripped mortgage-backed securities may
be particularly affected by changes in interest rates. As interest rates fall,
prepayment rates tend to increase, which tends to reduce prices of IOs and
increase prices of POs. Rising interest rates can have the opposite effect.
Asset-backed securities represent interests in pools of consumer loans
(generally unrelated to mortgage loans) and most often are structured as
pass-through securities. Interest and principal payments ultimately depend on
payment of the underlying loans by individuals, although the securities may be
supported by letters of credit or other credit enhancements. The value of
asset-backed securities also may depend on the creditworthiness of the servicing
agent for the loan pool, the originator of the loans, or the financial
institution providing the credit enhancement.
Zero coupon bonds do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can be
very volatile when interest rates change. In calculating its daily dividend, the
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative
zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the
Financing Corporation (FICO) can also be separated in this fashion. Original
issue zeros are zero coupon securities originally issued by the U.S. Government,
a government agency, or a corporation in zero coupon form.
The Fund also may buy and sell interest rate future contracts relating to
the debt securities in which it invests for the purpose of hedging the value of
its securities portfolio. The Fund will not enter into futures contracts for
which the aggregate initial margins exceed 5% of the fair market value of the
Fund's assets. The Fund will not use futures contracts for speculation, but only
to attempt to hedge (i.e., protect) against future changes in interest rates
which might otherwise adversely affect the value of the debt securities held in
the Fund. Such adverse effects could occur because either (i) the value of the
Fund's debt securities declines due to a rise in interest rates; or (ii) the
Fund's debt securities or cash are not fully included in (i.e., do not
participate in) an increase in value of such debt securities due to a decline in
interest rates at times when the Fund is not fully invested in such debt
securities.
<PAGE>
The Fund may not purchase securities which are not readily marketable.
However, certain securities that are not registered for sale to the general
public, but that can be resold to institutional investors ("Rule 144A
Securities"), may be purchased if an institutional trading market exists. The
liquidity of the Fund's investments in Rule 144A Securities could be impaired if
dealers or institutional investors become uninterested in purchasing these
securities. The Company's board of directors has delegated to the adviser the
authority to determine the liquidity of Rule 144A Securities pursuant to
guidelines approved by the board. In the event that a Rule 144A Security
subsequently is determined to be illiquid, the security will be sold as soon as
that can be done in an orderly fashion consistent with the best interests of the
Fund's shareholders. For more information concerning Rule 144A Securities, see
the Statement of Additional Information.
Securities in which the Fund invests may at times be purchased or sold on
a delayed delivery, or a when-issued basis (i.e., securities may be purchased or
sold by the Fund with settlement taking place in the future, often a month or
more later). The Fund may invest up to ten percent of its total net assets in
when-issued securities. The payment obligation and the interest rate that will
be received on the securities purchased or sold on a when-issued or delayed
delivery basis generally are fixed at the time the Fund enters into the
commitment. As is described in the "Risk Factors" section of this Prospectus,
purchasing or selling securities on such a basis involves risks. The Fund
attempts to limit these risks when it purchases securities on a when-issued
basis by maintaining in a segregated account with its custodian until payment is
made, cash, U.S. Government securities or other high-grade debt obligations
readily convertible into cash having an aggregate value equal to the amount of
such purchase commitments.
The Fund may enter into repurchase agreements with respect to debt
instruments eligible for investment by the Fund. These agreements are entered
into with member banks of the Federal Reserve System, registered broker-dealers,
and registered government securities dealers, which are deemed creditworthy. A
repurchase agreement is a means of investing monies for a short period. In a
repurchase agreement, the Fund acquires a debt instrument (generally a security
issued by the U.S. government or an agency thereof, a banker's acceptance, or a
certificate of deposit) subject to resale to the seller at an agreed upon price
and date (normally, the next business day). In the event that the original
seller defaults on its obligation to repurchase the security, the Fund could
incur costs or delays in seeking to sell such securities. To minimize risks, the
securities underlying each repurchase agreement will be maintained with the
Fund's custodian in an amount at least equal to the repurchase price under the
agreement (including accrued interest), and such agreements will be effected
only with parties that meet certain creditworthiness standards established by
the Company's board of directors. The Fund will not enter into a repurchase
agreement maturing in more than seven days if as a result more than 10% of its
net assets would be invested in such repurchase agreements. The Fund has not
adopted any limit on the amount of its net assets that may be invested in
repurchase agreements maturing in seven days or less.
<PAGE>
The Fund also may lend its securities to qualified brokers, dealers,
banks, or other financial institutions. This practice permits the Fund to earn
income, which, in turn, can be invested in additional securities to pursue the
Fund's investment objective. Loans of securities by the Fund will be
collateralized by cash, letters of credit, or securities issued or guaranteed by
the U.S. government or its agencies equal to at least 100% of the current market
value of the loaned securities, determined on a daily basis. Lending securities
involves certain risks, the most significant of which is the risk that a
borrower may fail to return a portfolio security. The Fund monitors the
creditworthiness of borrowers in order to minimize such risks. The Fund will not
lend any security if, as a result of the loan, the aggregate value of securities
then on loan would exceed 33-1/3% of the Fund's total net assets (taken at
market value).
The Fund also may hold cash or invest all or a portion of its assets in
securities issued or guaranteed by the U.S. government or its agencies (which
may or may not be backed by the full faith and credit of the United States) and
bank certificates of deposit, if the investment adviser determines it to be
appropriate for purposes of preserving liquidity or capital in light of
prevailing market or economic conditions. The Fund also may invest in corporate
short-term notes rated at the time of purchase at least A-1 by S&P, Prime-1 by
Moody's, F-1 by Fitch's, or Duff 1 by D&P, and municipal short-term notes rated
at the time of purchase at least SP-1 by S&P, MIG-1 by Moody's, F-1 by Fitch's,
or Duff 1 by D&P, (the highest rating categories for such notes, indicating a
very strong capacity to make timely payments of principal and interest).
As one way of managing its exposure to different types of investments, the
Fund may enter into interest rate swaps, currency swaps, and other types of swap
agreements such as caps, collars, and floors. In a typical interest rate swap,
one party agrees to make regular payments equal to a floating interest rate
times a "notional principal amount," in return for payments equal to a fixed
rate times the same amount, for a specified period of time. If a swap agreement
provides for payments in different currencies, the parties might agree to
exchange the notional principal amount as well. Swaps also may depend on other
prices or rates, such as the value of an index or mortgage prepayment rates. In
a typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the other
party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
<PAGE>
Swap agreements will tend to shift the Fund's investment exposure from one
type of investment to another. For example, if the Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of the Funds'
investments and their share price and yield.
Investment Restrictions
The Fund is subject to certain restrictions regarding its investments,
which are set forth in the Statement of Additional Information, which may not be
altered without the approval of the Fund's shareholders. Those restrictions
include, among others, limitations which prohibit the Fund from: purchasing the
securities of any one issuer (other than government securities), if the purchase
would cause the Fund to have more than 5% of its total assets invested in the
issuer's securities or to own more than 10% of the outstanding voting securities
of the issuer; investing more than 25% of its net assets in any one industry
(other than government securities); and borrowing money except from banks for
temporary or emergency purposes in an amount not to exceed 10% of net assets.
While the Fund's investment adviser continuously monitors all of the debt
securities in the Fund's portfolio for the issuers' ability to make required
principal and interest payments and other quality factors, the adviser may
retain in the portfolio a debt security whose rating is changed to one below the
minimum rating required for purchase of such a security.
There are no fixed limitations regarding portfolio turnover for the Fund.
Although the Fund does not trade for short-term profits, securities may be sold
without regard to the time they have been held in the Fund when, in the opinion
of the adviser, investment considerations warrant such action. As a result,
under certain market conditions the portfolio turnover rate for the Fund may
exceed 100%, and may be higher than that of other investment companies seeking
current income. Increased portfolio turnover would cause the Fund to incur
greater brokerage costs, including commissions and other fees, than would
otherwise be the case, and may result in the acceleration of capital gains which
are taxable when distributed to shareholders. The Fund's portfolio turnover rate
is set forth under "Financial Highlights", and, along with the Fund's brokerage
allocation policies, is discussed in the Statement of Additional Information.
RISK FACTORS
The securities in which the Fund invests are generally subject to two
kinds of risk, credit risk and market risk. Credit risk relates to the ability
of the issuer to meet interest or principal payments, or both, as they come due.
The ratings given a security by Moody's and Standard & Poor's provide a
generally useful guide as to such credit risk. The lower the rating given a
security by such rating service, the greater the credit risk such rating service
perceives to exist with respect to such security.
Market risk relates to the fact that the market values of securities in
which the Fund invests generally will be affected by changes in the level of
interest rates. An increase in interest rates will tend to reduce the market
values of such securities, whereas a decline in interest rates will tend to
increase their values. Of course, relying in part on ratings assigned by credit
<PAGE>
agencies in making investments will not protect the Fund from the risk that the
securities in which it invests will decline in value, since credit ratings
represent evaluations of the safety of principal, dividend and interest payments
on debt securities, not the market values of such securities, and such ratings
may not be changed on a timely basis to reflect subsequent events.
The primary risks associates with the use of futures are: (i) imperfect
correlation between the change in the market value of the debt securities held
in the Fund and the prices of futures relating to debt securities purchased or
sold by the Fund; (ii) incorrect forecasts by the investment adviser concerning
interest rates which may result in the hedge being ineffective; and (iii)
possible lack of a liquid secondary market for any futures contract; the
resulting inability to close a futures position could have an adverse impact on
the Fund's ability to hedge or increase income. For a hedge to be completely
effective, the price change of the hedging instrument should equal the price
change of the security being hedged. Such equal price changes are not always
possible because the investment underlying the hedging instrument may not be the
same investment that is being hedged. Although the Fund intends to buy and sell
debt securities futures only on exchanges where there appears to be an active
secondary market, there is no assurance that a liquid secondary market will
exist in every instance for any particular debt securities future at any
particular time. In such event, it may not be possible to close a futures
position. See the Statement of Additional Information, including the "Appendix"
contained therein, for further information about these instruments and their
risks.
The Fund's investments in debt obligations may consist of investments
issued by foreign governments and foreign corporate issuers. These investments
involve certain risks. For U.S. investors, the returns on foreign securities are
influenced not only by the returns on the foreign investments themselves, but
also by currency risk (i.e., changes in the value of the currencies in which the
securities are denominated relative to the U.S. dollar). In a period when the
U.S. dollar generally rises against foreign currencies, the returns on foreign
securities for a U.S. investor are diminished. By contrast, in a period when the
U.S. dollar generally declines, the returns on foreign securities are enhanced.
Other risks and considerations of international investing include the
following: differences in accounting, auditing and financial reporting standards
which may result in less publicly available information than is generally
available with respect to U.S. issuers; generally higher commission rates on
foreign portfolio transactions and longer settlement periods; the small trading
volumes and generally lower liquidity of foreign securities markets, which may
result in greater price volatility; foreign withholding taxes payable on the
Fund's foreign securities, which may reduce interest income payable to
shareholders; the possibility of expropriation or confiscatory taxation; adverse
changes in investment or exchange control regulations; political instability
<PAGE>
which could affect U.S. investment in foreign countries; potential restrictions
on the flow of international capital; and the possibility of the Fund
experiencing difficulties in pursuing legal remedies and collecting judgments.
Certain of these risks, as well as currency risks, also apply to Canadian
securities, which are not subject to the 25% limitation. The Fund's investments
in foreign securities may include investments in developing countries. Many of
these securities are speculative and their prices may be more volatile than
those of securities issued by companies located in more developed countries.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be volatile and may have a considerable impact on a
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Funds may also suffer losses
if it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their total returns.
In addition to these investment performance risks, it should be recognized
that certain of the Fund's investment practices involve various risks. When
purchasing or selling securities on a when-issued or delayed delivery basis, the
price and yield are normally fixed on the date of the purchase commitment.
During the period between purchase and settlement, no payment is made by the
Fund and no interest accrues to the Fund. At the time of settlement, the market
value of the security may be more or less than the purchase price, and the Fund
bears the risk of such market value fluctuations. An additional risk is that,
when the Fund enters into a repurchase agreement or makes a securities loan, the
other party to the transaction may default on its obligation to repurchase or
return the security involved in such transaction. The Fund's practice of
obtaining appropriate collateral in these transactions provides protection
against this risk, but the Fund could suffer a loss in the event its ability to
dispose of the collateral promptly is delayed or restricted.
The Fund's investment adviser or sub-adviser seeks to reduce the overall
risks associated with the Fund's investments, through diversification and
consideration of factors affecting the value of debt securities it considers
relevant. No assurance can be given, however, regarding the degree of success
that will be achieved in this regard or in the Fund's achieving its investment
objective.
<PAGE>
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as an open-end, diversified, management investment
company.
It was incorporated on April 2, 1993, under the laws of Maryland. On July 1,
1993, the Company, through its INVESCO Select Income Fund, INVESCO High
Yield
Fund and INVESCO U.S. Government Securities Fund, assumed all of the assets
and
liabilities of their respective predecessor portfolios, the Select Income
Portfolio, High Yield Portfolio and U.S. Government Securities Portfolio of
Financial Bond Shares, Inc., which was incorporated under the laws of Colorado
on August 20, 1976. The overall supervision of the Fund is the responsibility of
the Company's board of directors.
Pursuant to an agreement with the Company, INVESCO Funds Group, Inc.
("INVESCO"), 7800 E. Union Avenue, Denver, Colorado, serves as the Fund's
investment adviser. INVESCO is primarily responsible for providing the Fund with
various administrative services and supervising the Fund's daily business
affairs. These services are subject to review by the Company's board of
directors.
The following individual serves as portfolio manager for the Fund and is
primarily responsible for the day-to-day management of the Fund's portfolio of
securities:
Richard R. Hinderlie Portfolio manager of the Fund since
1993 (inception); portfolio manager
of INVESCO U.S. Government
Securities Fund, INVESCO Cash
Reserves Fund and INVESCO U.S.
Government Money Fund; portfolio
manager of INVESCO Trust Company
since 1993; Securities Analyst with
Bank Western from 1987-1992; B.A.,
Pacific Lutheran University; MBA,
Arizona State University.
INVESCO is an indirect wholly-owned subsidiary of INVESCO PLC. INVESCO
PLC
is a financial holding company which, through its subsidiaries, engages in the
business of investment management on an international basis. INVESCO was
established in 1932 and, as of August 31, 1994, managed 14 mutual funds,
consisting of 36 separate portfolios, with combined assets of approximately $9.9
billion on behalf of over 861,000 shareholders.
Pursuant to an agreement with INVESCO, INVESCO Trust Company
("INVESCO
Trust"), 7800 E. Union Avenue, Denver, Colorado, serves as the sub-adviser to
the Fund. INVESCO Trust, a trust company founded in 1969, is a wholly-owned
subsidiary of INVESCO that
<PAGE>
served as adviser or sub-adviser to 33 investment portfolios as of August 31,
1994, including 27 portfolios in the INVESCO group. These 33 portfolios had
aggregate assets of approximately $8.8 billion as of August 31, 1994. In
addition, INVESCO Trust provides investment management services to private
clients, including employee benefit plans that may be invested in a collective
trust sponsored by INVESCO Trust. INVESCO Trust, subject to the supervision of
INVESCO, is primarily responsible for selecting and managing the Fund's
investments. Although the Fund is not a party to the sub-advisory agreement, the
agreement has been approved by the shareholders of the Fund.
The Company pays INVESCO a monthly advisory fee which is based upon a
percentage of the net assets of the Fund, determined daily. The maximum advisory
fee payable by the Fund for each fiscal year is 0.50% of the first $300 million
of the Fund's average net assets, 0.40% of the next $200 million of the Fund's
average net assets and 0.30% of the Fund's average net assets in excess of $500
million. For the fiscal year ended August 31, 1994, the investment advisory fees
paid by the Fund amounted to 0.50% of the Fund's average net assets. However,
certain fees are being absorbed voluntarily by INVESCO and INVESCO Trust in
order to ensure that advisory fees do not exceed 0.30% of the Fund's average net
assets.
Out of its advisory fee which it receives from the Fund, INVESCO pays
INVESCO Trust, as sub-adviser to the Fund, a monthly fee, which is computed at
the annual rate of 0.25% of the first $300 million of the Fund's average net
assets, 0.20% of the next $200 million of the Fund's average net assets, and
0.15% of the Fund's average net assets in excess of $500 million. No fee is paid
by the Fund to INVESCO Trust.
The Company also has entered into an Administrative Services Agreement
dated April 30, 1993 (the "Administrative Agreement"), with INVESCO. Pursuant to
the Administrative Agreement, INVESCO performs certain administrative,
recordkeeping and internal sub-accounting services, including without
limitation, maintaining general ledger and capital stock accounts, preparing a
daily trial balance, calculating net asset value daily, providing selected
general ledger reports and providing sub-accounting and recordkeeping services
for Fund shareholder accounts maintained by certain retirement and employee
benefit plans for the benefit of participants in such plans. For such services,
the Fund pays INVESCO a fee consisting of a base fee of $10,000 per year, plus
an additional incremental fee computed at the annual rate of 0.015% per year of
the average net assets of the Fund. INVESCO also is paid a fee by the Fund for
providing transfer agent services. See "Additional Information."
The Fund's expenses, which are accrued daily, are generally deducted from
the Fund's total income before dividends are paid. Total expenses of the Fund
for the fiscal year ended August 31, 1994, including investment advisory fees
(but excluding brokerage commissions which are included as a cost of acquiring
securities),
<PAGE>
amounted to 0.46% of the Fund's average net assets. In the absence of the
voluntary expense limitation which applied during this period, the total
expenses of the Fund, including investment advisory fees (but excluding
brokerage commissions) would have been 2.04% of the Fund's average net assets.
However, certain Fund expenses will be absorbed voluntarily by INVESCO and
INVESCO Trust in order to ensure that the Fund's total operating expenses will
not exceed 0.30% of the Fund's average net assets.
INVESCO, as the Company's investment adviser, or INVESCO Trust, as the
Company's sub-adviser, places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon INVESCO's evaluation of their
financial responsibility coupled with their ability to effect transactions at
the best available prices. The Company may market shares of the Fund through
intermediary brokers or dealers that have entered into Dealer Agreements with
INVESCO, as the Company's Distributor, under which such intermediary brokers or
dealers generally are compensated through the payment of continuing quarterly
fees at an annual rate of up to 0.25% of the average aggregate net asset value
of outstanding Fund shares sold by such entities, measured on each business day
during a calendar quarter. The Fund may place orders for portfolio transactions
with qualified broker/dealers which recommend the Fund, or sell shares of the
Fund to clients, or act as agent in the purchase of Fund shares for clients, if
management of the Fund believes that the quality of the transaction and
commission are comparable to those available from other qualified brokerage
firms.
HOW SHARES CAN BE PURCHASED
Shares of the Fund are sold on a continuous basis by INVESCO, as the
Fund's Distributor, at the net asset value per share next calculated after
receipt of a purchase order in good form. No sales charge is imposed upon the
sale of shares of the Fund. To purchase shares of the Fund, send a check made
payable to INVESCO Funds Group, Inc., together with a completed application
form, to:
INVESCO Funds Group, Inc.
Post Office Box 173706
Denver, Colorado 80217-3706
Purchase orders must specify the Fund in which the investment is to be
made.
The minimum initial purchase must be at least $1,000, with subsequent
investments of not less than $50, except that: (1) those shareholders
establishing an EasiVest or direct payroll purchase account, as described below
in the Prospectus section entitled "Services Provided by the Fund," may open an
account without making any initial investment if they agree to make regular,
minimum purchases of at least $50; (2) Fund management may permit a lesser
amount to be invested in the Fund under a federal income tax-sheltered
retirement plan (other than an IRA Account), or under a
<PAGE>
group investment plan qualifying as a sophisticated investor; (3) those
shareholders investing in an Individual Retirement Account (IRA), or through
omnibus accounts where individual shareholder recordkeeping and sub-accounting
are not required, may make initial minimum purchases of $250; and (4) Fund
management reserves the right to reduce or waive the minimum purchase
requirements in its sole discretion where it determines such action is in the
best interests of the Fund.
An order to purchase shares will not begin earning dividends or other
distributions until the investor's check can be converted into available federal
funds (i.e., moneys held on deposit within the Federal Reserve System) under
regular banking processing procedures. Checks drawn on a member bank of the
Federal Reserve System normally are converted into federal funds within two or
three business days following receipt of the checks by the Fund. In the case of
checks drawn on banks which are not members of the Federal Reserve System, it
may take longer for federal funds to become available. The purchase of shares
can be expedited by placing bank wire, overnight courier or telephone orders.
Overnight courier orders must meet the above minimum requirements. In no case
can a bank wire or telephone order be in an amount less than $1,000. For further
information, the purchaser may call the Fund's office by using the telephone
number on the cover of this Prospectus. Orders sent by overnight courier,
including Express Mail should be sent to the street address, not Post Office
Box, of INVESCO Funds Group, Inc., at 7800 E. Union Avenue, Denver, CO 80237.
Orders for the Fund can be placed by telephone. Shares of the Fund will be
issued at the net asset value per share next determined after receipt of
telephone instructions. Payments for telephone orders must be received by the
Fund within seven business days of the transaction. Effective June 1995, this
period will be reduced to five business days. In the event payment is not
received, the shares will be redeemed by INVESCO and the purchaser will be held
responsible for any loss resulting from a decline in the value of the shares.
INVESCO has agreed to indemnify the Fund for any losses resulting from such
cancellations.
If your check does not clear or if a telephone purchase must be cancelled
due to nonpayment, you will be responsible for any related loss the Fund or
INVESCO incurs. If you are already a shareholder in the INVESCO funds, the Fund
has the option to redeem shares from any identically registered account in the
Fund or any other INVESCO fund as reimbursement for any loss incurred. You also
may be prohibited or restricted from making future purchases in any of the
INVESCO funds.
Persons who invest in the Fund through a securities broker may be charged
a commission or transaction fee for the handling of the transaction if the
broker so elects. Any investor may deal directly with the Fund in any
transaction. In that event, there is no such charge.
<PAGE>
The Fund reserves the right in its sole discretion to reject any order for
purchase of its shares (including purchases by exchange) when, in the judgment
of management, such rejection is in the best interest of the Fund.
Net asset value per share is computed once each day that the New York
Stock Exchange is open as of the close of trading on that Exchange (presently
4:00 p.m., New York time) and also may be computed on other days under certain
circumstances. Net asset value per share of the Fund is calculated by dividing
the market value of the Fund's securities plus the value of its other assets
(including dividends and interest accrued but not collected), less all
liabilities (including accrued expenses), by the number of outstanding shares of
the Fund. If market quotations are not readily available, a security will be
valued at fair value as determined in good faith by the board of directors. Debt
securities with remaining maturities of 60 days or less will be valued at
amortized cost, absent unusual circumstances, so long as the Company's board of
directors believes that such value represents fair value.
Distribution Expenses. The Fund is authorized under a Plan and Agreement
of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Plan") to use its assets to finance certain activities relating to the
distribution of its shares to investors. Under the Plan, monthly payments may be
made by the Fund to INVESCO to reimburse it for particular expenditures incurred
by INVESCO during the rolling 12-month period in which that month falls in
connection with the distribution of the Fund's shares to investors. These
expenditures may include the payment of compensation (including incentive
compensation and/or continuing compensation based on the amount of customer
assets maintained in the Fund) to securities dealers and other financial
institutions and organizations to obtain various distribution-related and/or
administrative services for the Fund. Such services may include, among other
things, processing new shareholder account applications, preparing and
transmitting to the Fund's Transfer Agent computer processable tapes of all
transactions by customers, and serving as the primary source of information to
customers in answering questions concerning the Fund and their transactions with
the Fund.
In addition, other reimbursable expenditures include those incurred for
advertising, the preparation and distribution of sales literature, the cost of
printing and distributing prospectuses to prospective investors, and such other
services and promotional activities for the Fund as may from time to time be
agreed upon by the Company and its board of directors, including public
relations efforts and marketing programs to communicate with investors and
prospective investors.
Under the Plan, the Company's reimbursement to INVESCO on behalf of the
Fund is limited to an amount computed at an annual rate of 0.25 of 1% of the
Fund's average net assets during the
<PAGE>
month. INVESCO is not entitled to reimbursement for overhead expenses under the
Plan, but may be reimbursed for all or a portion of the compensation paid for
salaries and other employee benefits for the personnel of INVESCO whose primary
responsibilities involve marketing shares of the INVESCO funds, including the
Fund. Payment amounts by the Fund under the Plan, for any month, may only be
made to reimburse or pay expenditures incurred during the rolling 12- month
period in which that month falls; therefore, any reimbursable expenses incurred
by INVESCO in excess of the limitation described above are not reimbursable and
will be borne by INVESCO. No further payments will be made by the Fund under the
Plan in the event of its termination. Also, any payments made by the Fund may
not be used to finance the distribution of shares of any other fund of the
Company or other mutual fund advised by INVESCO. Payments made by the Fund
under
the Plan for compensation of marketing personnel, as noted above, are based on
an allocation formula designed to ensure that all such payments are appropriate.
SERVICES PROVIDED BY THE FUND
Shareholder Accounts. INVESCO maintains a share account that reflects the
current holdings of each shareholder. Share certificates will be issued only
upon specific request. Since certificates must be carefully safeguarded and must
be surrendered in order to exchange or redeem Fund shares, most shareholders do
not request share certificates in order to facilitate such transactions. Each
shareholder is sent a detailed confirmation of each transaction in shares of the
Fund. Shareholders whose only transactions are through the EasiVest, direct
payroll purchase, automatic monthly exchange or periodic withdrawal programs, or
are reinvestments of dividends or capital gains in the same or another fund,
will receive confirmations of those transactions on their quarterly statements.
These programs are discussed below. For information regarding a shareholder's
account and transactions, the shareholder may call the Fund's office by using
the telephone number on the cover of this Prospectus.
Reinvestment of Distributions. Income dividends and capital gain
distributions are automatically reinvested in additional shares of the Fund at
the net asset value per share of the Fund in effect on the ex-dividend date. A
shareholder may, however, elect to reinvest dividends and capital gains
distributions in certain of the other no-load mutual funds advised and
distributed by INVESCO, or to receive payment of all dividends and distributions
in excess of $10.00 by check by giving written notice to INVESCO at least two
weeks prior to the record date on which the change is to take effect. Further
information concerning these options can be obtained by contacting INVESCO.
Periodic Withdrawal Plan. A Periodic Withdrawal Plan is available to
shareholders who own or purchase shares of any mutual funds advised by
INVESCO
having a total value of $10,000 or more; provided, however, that at the time the
Plan is established, the shareholder owns shares having a value of at least
$5,000 in the
<PAGE>
fund from which the withdrawals will be made. Under the Periodic Withdrawal
Plan, INVESCO, as agent, will make specified monthly or quarterly payments of
any amount selected (minimum payment of $100) to the party designated by the
shareholder. Notice of all changes concerning the Periodic Withdrawal Plan must
be received by INVESCO at least two weeks prior to the next scheduled check.
Further information regarding the Periodic Withdrawal Plan and its requirements
and tax consequences can be obtained by contacting INVESCO.
Exchange Privilege. Shares of the Fund may be exchanged for shares of any
other fund of the Company, as well as for shares of any of the following other
no-load mutual funds, which are also advised and distributed by INVESCO, on the
basis of their respective net asset values at the time of the exchange: INVESCO
Diversified Funds, Inc., INVESCO Dynamics Fund, Inc., INVESCO Emerging
Opportunity Funds, Inc., INVESCO Growth Fund, Inc., INVESCO Industrial Income
Fund, Inc., INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc.,
INVESCO Multiple Asset Funds, Inc., INVESCO Specialty Funds, Inc., INVESCO
Strategic Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc., and INVESCO
Value Trust.
An exchange involves the redemption of shares in the Fund and investment
of the redemption proceeds in shares of another fund of the Company or in shares
of one of the funds listed above. Exchanges will be made at the net asset value
per share next determined after receipt of an exchange request in proper order.
Any gain or loss realized on such an exchange is recognizable for federal income
tax purposes by the shareholder. Exchange requests may be made either by
telephone or by written request to INVESCO Funds Group, Inc., using the
telephone number or the address on the cover of this Prospectus. Exchanges made
by telephone must be in an amount of at least $250, if the exchange is being
made into an existing account of one of the INVESCO funds. All exchanges that
establish a new account must meet the Fund's applicable minimum initial
investment requirements. Written exchange requests into an existing account have
no minimum requirements other than the Fund's applicable minimum subsequent
investment requirements.
The privilege of exchanging Fund shares by telephone is available to
shareholders automatically unless expressly declined. By signing the new account
Application, a Telephone Transaction Authorization Form, or otherwise utilizing
telephone exchange privileges, the investor has agreed that the Fund will not be
liable for following instructions communicated by telephone that it reasonably
believes to be genuine. The Fund employs procedures, which it believes are
reasonable, designed to confirm that exchange instructions are genuine. These
may include recording telephone instructions and providing written confirmations
of exchange transactions. As a result of this policy, the investor may bear the
risk of any loss due to unauthorized or fraudulent instructions; provided,
however, that if the Fund fails to follow these or other reasonable procedures,
the Fund may be liable.
<PAGE>
In order to prevent abuse of this privilege to the disadvantage of other
shareholders, the Fund reserves the right to terminate the exchange privilege of
any shareholder who requests more than four exchanges in a year. The Fund will
determine whether to do so based on a consideration of both the number of
exchanges any particular shareholder or group of shareholders has requested and
the time period over which those exchange requests have been made, together with
the level of expense to the Fund which will result from effecting additional
exchange requests. The exchange privilege also may be modified or terminated at
any time. Except for those limited instances where redemptions of the exchanged
security are suspended under Section 22(e) of the Investment Company Act of
1940, or where sales of the fund into which the shareholder is exchanging are
temporarily stopped, notice of all such modifications or termination of the
exchange privilege will be given at least 60 days prior to the date of
termination or the effective date of the modification.
Before making an exchange, the shareholder should review the prospectuses
of the funds involved and consider their differences, and should be aware that
the exchange privilege may only be available in those states where exchanges
legally may be made, which will require that the shares being acquired are
registered for sale in the shareholder's state of residence. Shareholders
interested in exercising the exchange privilege may contact INVESCO for
information concerning their particular exchanges.
Automatic Monthly Exchange. Shareholders who have accounts in any of the
mutual funds distributed by INVESCO may arrange for a fixed dollar amount of
their fund shares to be automatically exchanged for shares of any other INVESCO
mutual fund listed under "Exchange Privilege" on a monthly basis. The minimum
monthly exchange in this program is $50.00. This automatic exchange program can
be changed by the shareholder at any time by notifying INVESCO at least two
weeks prior to the date the change is to be made. Further information regarding
this service can be obtained by contacting INVESCO.
EasiVest. For shareholders who want to maintain a schedule of monthly
investments, EasiVest uses various methods to draw a preauthorized amount from
the shareholder's bank account to purchase Fund shares. This automatic
investment program can be changed by the shareholder at any time by writing to
INVESCO at least two weeks prior to the date the change is to be made. Further
information regarding this service can be obtained by contacting INVESCO.
Direct Payroll Purchase. Shareholders may elect to have their employers
make automatic purchases of Fund shares for them by deducting a specified amount
from their regular paychecks. This automatic investment program can be modified
or terminated at any time by the shareholder by notifying the employer. Further
information regarding this service can be obtained by contacting INVESCO.
<PAGE>
Tax-Sheltered Retirement Plans. Shares of the Fund may be purchased for
self-employed retirement plans, individual retirement accounts (IRAs),
simplified employee pension plans and corporate retirement plans. In addition,
shares can be used to fund tax qualified plans established under Section 403(b)
of the Internal Revenue Code by educational institutions, including public
school systems and private schools, and certain kinds of non-profit
organizations, which provide deferred compensation arrangements for their
employees.
Prototype forms for the establishment of these various plans, including,
where applicable, disclosure statements required by the Internal Revenue
Service, are available from INVESCO. INVESCO Trust Company, a subsidiary of
INVESCO, is qualified to serve as trustee or custodian under these plans and
provides the required services at competitive rates. Retirement plans (other
than IRAs) receive monthly statements reflecting all transactions in their Fund
accounts. IRAs receive the confirmations and quarterly statements described
under "Shareholder Accounts." For complete information, including prototype
forms and service charges, call INVESCO at the telephone number listed on the
cover of this Prospectus or send a written request to: Retirement Services,
INVESCO Funds Group, Inc., Post Office Box 173706, Denver, Colorado 80217-3706.
HOW TO REDEEM SHARES
You may redeem all or any portion of the shares in your account at any
time by telephone or mail as described below. Shares of the Fund will be
redeemed at their current net asset value per share next determined after a
request in proper form is received at the Fund's office. (See "How Shares Can Be
Purchased.") Net asset value per share at the time of redemption may be more or
less than the price you paid to purchase your shares, depending primarily upon
the Fund's investment performance.
If the shares to be redeemed are represented by stock certificates, a
written request for redemption signed by the registered shareholder(s) and the
certificates must be forwarded to INVESCO Funds Group, Inc., Post Office Box
173706, Denver, Colorado 80217-3706. Redemption requests sent by overnight
courier, including Express Mail, should be sent to the street address, not Post
Office Box, of INVESCO Funds Group, Inc. at 7800 E. Union Avenue, Denver, CO
80237. If no certificates have been issued, a written redemption request signed
by each registered owner of the account may be submitted to INVESCO at the
address noted above. If shares are held in the name of a corporation, additional
documentation may be necessary. Call or write for specifics. If payment for the
redeemed shares is to be made to someone other than the registered owner(s), the
signature(s) must be guaranteed by a financial institution which qualifies as an
eligible guarantor institution. Redemption procedures with respect to accounts
registered in the names of broker/dealers may differ from those applicable to
other shareholders.
<PAGE>
Be careful to specify the account from which the redemption is to be made.
Shareholders have a separate account for each Fund in which they invest.
Payment of redemption proceeds will be mailed within seven days following
receipt of the required documents. However, payment may be postponed under
unusual circumstances, such as when normal trading is not taking place on the
New York Stock Exchange, an emergency as defined by the Securities and Exchange
Commission exists, or the shares to be redeemed were purchased by check and that
check has not yet cleared; provided, however, that all redemption proceeds will
be paid out promptly upon clearance of the purchase check (which may take up to
15 days).
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to effect the involuntary redemption of all
shares in such account, in which case the account would be liquidated and the
proceeds forwarded to the shareholder. Prior to any such redemption, a
shareholder will be notified and given 60 days to increase the value of the
account to $250 or more.
Fund shareholders (other than shareholders holding Fund shares in accounts
of IRA plans) may request expedited redemption of shares having a minimum value
of $250 (or redemption of all shares if their value is less than $250), held in
accounts maintained in their name by telephoning redemption instructions to
INVESCO, using the telephone number on the cover of this Prospectus. The
redemption proceeds, at the shareholder's option, either will be mailed to the
address listed for the shareholder on its Fund account, or wired (minimum of
$1,000) or mailed to the bank which the shareholder has designated to receive
the proceeds of telephone redemptions. The Fund charges no fee for effecting
such telephone redemptions. Unless the Fund's management permits a larger
redemption request to be placed by telephone, a shareholder may not place a
redemption request by telephone in excess of $25,000. These telephone redemption
privileges may be modified or terminated in the future at the discretion of the
Company's management.
For INVESCO Trust Company-sponsored federal income tax-sheltered
retirement plans, the term "shareholders" is defined to mean plan trustees that
file a written request to be able to redeem Fund shares by telephone.
Shareholders should understand that, while the Fund will attempt to process all
telephone redemption requests on an expedited basis, there may be times,
particularly in periods of severe economic or market disruption, when (a) they
may encounter difficulty in placing a telephone redemption request, and (b)
processing telephone redemptions will require up to seven days following receipt
of the redemption request, or additional time because of the unusual
circumstances set forth above.
The privilege of redeeming Fund shares by telephone is available to
shareholders automatically unless expressly declined.
<PAGE>
By signing a new account Application, a Telephone Transaction Authorization Form
or otherwise utilizing telephone redemption privileges, the shareholder has
agreed that the Fund will not be liable for following instructions communicated
by telephone that it reasonably believes to be genuine. The Fund employs
procedures, which it believes are reasonable, designed to confirm that telephone
instructions are genuine. These may include recording telephone instructions and
providing written confirmation of transactions initiated by telephone. As a
result of this policy, the investor may bear the risk of any loss due to
unauthorized or fraudulent instructions; provided, however, that if the Fund
fails to follow these or other reasonable procedures, the Fund may be liable.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, AND TAXES
Dividends. In addition to any increase in the value of your shares which
may occur from increases in the values of the Fund's investments, the Fund may
earn income in the form of dividends and interest on its investments. Dividends
paid by the Fund will be based solely on the income earned by it. The Fund's
policy is to distribute substantially all of this income, less expenses, to
shareholders. Dividends from net investment income are declared daily and paid
monthly. Dividends are automatically reinvested in additional shares of the Fund
at the net asset value on the ex- dividend date, unless otherwise requested. See
"Services Provided by the Fund - Reinvestment of Distributions."
Capital Gains. Capital gains or losses are the result of the Fund's sale
of its securities at prices that are higher or lower than the prices paid by the
Fund to purchase such securities. Total gains from such sales, less any losses
from such sales (including losses carried forward from prior years), represent
net realized capital gains. The Fund distributes its net realized capital gains,
if any, to its shareholders at least annually, usually in December. Capital gain
distributions are automatically reinvested in additional shares of the Fund at
the net asset value per share on the ex-dividend date, unless otherwise
requested. See "Services Provided by the Fund - Reinvestment of Distributions."
Taxes. The Fund intends to distribute substantially all of its net
investment income and capital gains, if any, to shareholders, and to continue to
qualify for tax treatment under Subchapter M of the Internal Revenue Code as a
regulated investment company. Thus, it is not expected that the Fund will be
required to pay any federal income taxes. Shareholders (other than those exempt
from income tax) normally will have to pay federal income taxes, and any state
and local income taxes, on the dividends and distributions they receive from the
Fund, whether such dividends and distributions are received in cash or
reinvested in additional shares of the same or another fund. Shareholders of the
Fund are advised to consult their own tax advisers with respect to these
matters.
<PAGE>
Dividends paid by the Fund from net investment income, as well as
distributions of net realized short-term capital gains, are, for federal income
tax purposes, taxable as ordinary income to shareholders. At the end of each
calendar year, shareholders are sent full information on dividends and capital
gain distributions, including information as to the portions taxable as ordinary
income and long-term capital gains. Information concerning the amount of
dividends eligible for the dividends-received deduction available for
corporations is contained in the Company's annual report or may be obtained upon
request.
The Fund is required to withhold and remit to the U.S. Treasury 31% of
dividend payments, capital gain distributions, and redemption proceeds for any
account on which the owner provides an incorrect taxpayer identification number,
no number, or no certified number.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Fund and the other three funds of the
Company have equal voting rights, based on one vote for each share owned. Voting
with respect to certain matters, such as ratification of independent accountants
and the election of directors, will be by all funds of the Company voting
together. In other cases, such as voting upon an investment advisory contract,
voting is on a fund-by-fund basis. To the extent permitted by law, when not all
funds are affected by a matter to be voted upon, only shareholders of the fund
or funds affected by the matter will be entitled to vote thereon. The Company is
not generally required, and does not expect, to hold regular annual meetings of
shareholders. However, the board of directors will call special meetings of
shareholders for the purpose, among other reasons, of voting upon the question
of removal of a director or directors when requested to do so in writing by the
holders of 10% or more of the outstanding shares of the Company or as may be
required by applicable law or the Company's Articles of Incorporation. The
Company will assist shareholders in communicating with other shareholders as
required by the Investment Company Act of 1940. Directors may be removed by
action of the holders of a majority or more of the outstanding shares of the
Company.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone number or mailing address set forth on the cover
page of this Prospectus.
Transfer and Dividend Disbursing Agent. INVESCO Funds Group, Inc., 7800 E.
Union Ave., Denver, Colorado 80237 acts as registrar, transfer agent, and
dividend disbursing agent for the Fund pursuant to a Transfer Agency Agreement
which provides that the Fund will pay a fee of $20.00 per shareholder account or
omnibus account participant per year. The transfer agency fee is not charged to
each shareholder's or participant's account but is an expense of the Fund to be
paid from the Fund's assets. In addition, registered broker-dealers, third party
administrators of tax- qualified retirement plans and other entities may provide
sub- transfer agency services to the Fund which reduce or eliminate the need for
identical services to be provided on behalf of the Fund by INVESCO. In such
cases, INVESCO is authorized to pay the third party an annual sub-transfer
agency fee of up to $20.00 per participant in the third party's omnibus account
out of the transfer agency fee which is paid to INVESCO by the Fund.
<PAGE>
APPENDIX-BOND RATINGS
Description of Moody's Investors Service, Inc.'s corporate and municipal bond
ratings:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they constitute what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and have
speculative characteristics as well.
Rating Refinements: Moody's may apply the numerical modifier "1", for
municipally-backed bonds, and modifiers "1", "2" and "3" for corporate-backed
municipals. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range ranking;
and modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
<PAGE>
Description of Standard & Poor's Corporation's corporate and municipal bond
ratings:
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in a small degree.
A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Plus (+) or Minus (-): The ratings may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Description of Fitch Investors Service, Inc. corporate and municipal bond
ratings:
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
<PAGE>
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category.
Description of Duff & Phelps Inc. long-term corporate and municipal
debt ratings:
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- --High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
BBB+, BBB, BBB- --Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
<PAGE>
INVESCO SHORT-TERM BOND FUND A no-load
mutual fund seeking a high level of current
income.
PROSPECTUS December 30, 1994.
To receive general information and prospectuses on any of INVESCO's funds or
retirement plans, or to obtain current account or price information, call
toll-free:
1-800-525-8085
To reach PAL, your 24-hour Personal Account Line, call:
1-800-424-8085
Or write to:
INVESCO Funds Group, Inc., Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
If you're in Denver, visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
Lobby Level
