ANNUAL REPORT
August 31, 1996
INVESCO
INCOME
FUNDS,
INC.
High Yield Fund
Select Income Fund
U.S. Government Securities Fund
Short-Term Bond Fund
Smart Choices For
Seeking Current Income
INVESCO FUNDS
<PAGE>
Market Overview September 1996
Over the first eight months of 1996, the securities markets
have been exceptionally attentive to figures: Gross Domestic Product,
unemployment, and earnings growth. Each announcement of fresh data has sent the
S&P 500 and other market indexes moving in a new direction.
Based on a moderate economic expansion, the stock market advanced 9.60%
for the five months ended 5/31/96. But as expectations of economic vigor grew,
investors began to see the likelihood of accelerating inflation. This in turn
makes it more probable that the Federal Reserve Board may hike short-term
interest rates. In June, the S&P 500 advanced a mere 0.44%; in July, the index
declined sharply.(1)
Since 1994 the Fed has actively manipulated short-term rates, seeking to
maintain economic expansion without sparking inflation. Recently, there has been
some indication that the central bank may allow a slightly higher level of
inflation before tightening credit availability; however, their overall strategy
is unlikely to alter in the near-term, given an impending presidential election
and the recent reappointment of Alan Greenspan as Fed chairman.
The current economic expansion has shown unexpected tenacity, with an
annualized growth rate in GDP estimated at 4.7% for the second quarter of 1996.
As a result, chances are growing stronger that the Fed will launch a preemptive
strike against inflation during the second half of 1996.
The market environment has been even more challenging for bond investors.
Over the past 18 months, the fixed-income markets experienced two distinct
phases. The first began in 1995 with a bond rally that ran through January 1996.
Price advances were fueled by moderate economic growth and low inflation. For
all of 1995, the broad fixed-income market had a total return of 19.24%, as
measured by the Lehman Government/Corporate Bond Index. (Of course, past
performance is not a guarantee of future results.)(1),(2)
The second fixed-income market phase was initiated in February of this
year. The environment shifted to one of stronger economic growth, with the
concomitant potential for upward spirals in wages and prices; mild indications
of inflation have already appeared. Fixed-income investors responded to the
positive economic news by sending prices tumbling.
With more reassuring economic and corporate data being released, we may
have entered a third phase. After losing ground in three of the previous four
months, the Lehman Government/Corporate Bond Index achieved positive total
returns for two of the past three months. (Of course, past performance is not a
guarantee of future results.)(1),(2)
INVESCO Income Funds, Inc.
The line graphs below illustrate the value of a $10,000 investment in each
of the INVESCO Income Funds, plus reinvested dividends and capital gain
distributions, if any, for the 10 years ended 8/31/96 (or for Short-Term Bond
Fund, from inception through 8/31/96). The charts and other total return figures
cited reflect the funds' operating expenses, but the indexes do not have
expenses, which would, of course, have lowered their performance.(2)
<PAGE>
High Yield Fund
High Yield Fund Fund
Average Annual Total Return
as of 8/31/96(2)
1 year 11.38%
-----------------------------------------
5 years 10.85%
-----------------------------------------
10 years 8.66%
-----------------------------------------
For the eight-month period ended 8/31/96, INVESCO High Yield Fund achieved
a total return of 6.29%, compared to a total return of 4.62% for the Merrill
Lynch High Yield Master Index. (Of course, past performance is not a guarantee
of future results.)(1),(2)
Graph:
This line graph represents a comparison of the value of a $10,000
investment in INVESCO High Yield Fund to the value of a $10,000 investment
in the Merrill Lynch High Yield Master Index, assuming reinvestment of all
dividends and capital gain distributions, for the period from 8/31/86
through 8/31/96.
The high yield sector has provided most of the positive news for the
fixed-income market in 1996. While U.S. Treasury and high quality corporate
obligations have dropped significantly in value as interest rates rose, high
yield bonds have been resilient.
Understandably, credit risk assessment is critical to this fund. In
addition to utilizing outside credit rating services such as Standard & Poor's
and Moody's Investors Service, we perform extensive analysis of our own. Our
research provides us additional insight on corporate restructurings, changes to
a firm's fundamentals, potential merger & acquisition activity, and other
issues. By putting together internal and third-party data, we seek to identify
"special situations" which may lead to price appreciation for a specific bond
due to market, institutional, and information flow inefficiencies.
One particular area in which we look for opportunities involves companies
with low credit ratings which are paying down debt. Some of these firms will
emerge with investment grade ratings, due to balance sheet improvements. For
example, MFS Communications was recently acquired by a higher quality company,
resulting in gains for the fund.
Other firms may be acquired by stronger companies. The fund currently owns
bonds issued by a U.K.-based cable television firm which we believe to be a
likely acquisition/joint venture candidate.
<PAGE>
Over the past few months, the fund's performance was hindered by our
overweighting in zero coupon bonds and other interest rate-sensitive issues. We
have since reduced this exposure.
Select Income Fund
Select Income Fund
Average Annual Total Return
as of 8/31/96(2)
1 year 4.78%
-----------------------------------------
5 years 9.17%
-----------------------------------------
10 years 8.14%
-----------------------------------------
For the eight-month period ended 8/31/96, INVESCO Select Income Fund
achieved a total return of -1.10%, compared to a total return of -1.89% for the
Lehman Government/Corporate Bond Index. (Of course, past performance is not a
guarantee of future results.)(1),(2)
The fund's outperformance relative to the index was the result of several
factors. In previous reports, we have discussed the importance of credit risk
assessment, since Select Income Fund typically allocates investments between
investment grade and high yield debt. At INVESCO, we rely on independent credit
ratings services, as well as our internal research staff; the latter, in
particular, can provide information regarding recapitalization plans,
indenture-related issues, and other news which we can exploit in making
investment decisions regarding specific positions. Combining data from these two
sources allows us to identify companies which we believe may experience ratings
upgrades due to improving fundamentals.
Industries and industry groups are continuously monitored. Specifically,
we are seeking to identify market segments which are over- or under-valued
relative to their historical trading values.
Graph:
This line graph represents a comparison of the value of a $10,000
investment in INVESCO Select Fund to the value of a $10,000 investment in
the Lehman Government/Coporate Index, assuming reinvestment of all
dividends and capital gain distributions, for the period from 8/31/86
through 8/31/96.
In other instances, companies whose bonds we hold have been acquired by
other companies. Such holdings may produce positive results independent of
interest rate moves. Communications industries -- for example, cable television,
competitive access providers, and broadcasting -- are one area where we see
increased likelihood of merger & acquisition activity with resulting
<PAGE>
appreciation for certain securities. For example, MFS Communications was
recently acquired by a higher quality company, resulting in again for the fund.
One factor which has hindered fund performance this year is duration.
(Duration is an expression of the fund's exposure to interest rate risk; if we
anticipate that rates may rise, we shorten the duration.) In hindsight, it would
have been to the fund's advantage to shorten duration earlier, when short-term
interest rates began to climb. We are watching reports from the Fed and other
sources closely as it becomes more likely that the Fed will act in the second
half of 1996.
U.S. Government Securities Fund
U.S. Government Securities Fund
Average Annual Total Return
as of 8/31/96(2)
1 Year 1.31%
-----------------------------------------
5 Years 6.33%
-----------------------------------------
10 Years 6.16%
-----------------------------------------
For the eight-month period ended 8/31/96, INVESCO U.S. Government
Securities Fund had a total return of -4.97%, compared to a total return of
- -7.71% for the Lehman Long Government Bond Index. (Of course, past performance
is not a guarantee of future results.)(1),(2)
Graph:
This line graph represents a comparison of the value of a $10,000
investment in INVESCO U.S. Government Securities Fund to the value of a
$10,000 investment in the Lehman Long Government Bond Index, assuming
reinvestment of all dividends and capital gain distributions, for the
period from 8/31/86 through 8/31/96.
The fund's outperformance relative to the index may be attributed to
adjustments in the average duration of the portfolio. (Duration is an expression
of the fund's exposure to interest rate risk; if we anticipate that rates may
rise, we shorten the duration.) The fund typically maintains a duration of six
to nine years; 7.5 is "neutral." Over the course of the year, we have actively
managed the fund's average duration, seeking to benefit from short-term market
rallies, while cushioning the fund against potential corrections.
Direct government and government agency obligations represent the largest
sector of the fixed-income market -- approximately $6 trillion. Because credit
risk is effectively nil, the prices of Treasury securities are dependent solely
on interest rate-risk. (Fund holdings, but not shares of the fund, may be issued
or guaranteed by the U.S. government.) Long-term Treasuries were the worst hit
<PAGE>
obligations when interest rates began their sharp rise during the first
quarter of 1996. Should interest rates decline, however, Treasury prices will be
among the first to react positively.
Over the past year, we have held 30% to 50% in direct government
obligations, with 40% to 55% allocated to government agency mortgage-backed
securities, such as GNMAs. This weighting generated slightly higher income
levels at minimal additional credit risk.
Short-Term Bond Fund
Short-Term Bond Fund
Average Annual Total Return
as of 8/31/96(2)
1 year 4.63%
-----------------------------------------
Since Inception (10/93) 3.74%
-----------------------------------------
For the eight-month period ended 8/31/96, INVESCO Short-Term Bond Fund
achieved a total return of 1.80%, compared to a total return of 2.26% for the
Lehman 1-3 Year Government/Corporate Bond Index. (Of course, past performance is
not a guarantee of future results.)(1),(2)
Graph:
This line graph represents a comparison of the value of a $10,000
investment in INVESCO Short-Term Bond Fund to the value of a $10,000
investment in the Lehman 1-3 Year Government/Corporate Bond Index,
assuming reinvestment of all dividends and capital gain distributions, for
the period from inception (10/93)through 8/31/96.
The fund seeks to provide a better return than money market funds (whose
share price is expected, but cannot be guaranteed, to remain stable), while
offering less volatility than a long-term bond fund pursuing higher returns.
Direct government and government agency obligations compose over half of the
fund's portfolio. These high quality holdings balance the higher-risk,
below-investment grade bonds which offer higher yields. Due to the narrow
interest rate spreads between Treasuries and investment grade corporate
securities, we have reduced our allocation to the latter.
Under normal circumstances, the fund's average portfolio maturity ranges
from one to three years. After short-term interest rates started their upward
climb in February 1996, we began to shorten duration, which by the end of August
stood at just under two years. (Duration is an expression of the fund's exposure
to interest rate risk; if we anticipate that rates may rise, we shorten the
duration.)
<PAGE>
(1) The S&P 500 is an unmanaged index of common stocks illustrating broad
equity market performance. The Lehman Government/ Corporate Bond Index,
Lehman 1-3 Year Government/Corporate Bond Index, Lehman Long Government
Bond Index, and Merrill Lynch High Yield Master Index are unmanaged
indexes of securities considered to be representative of the overall
domestic fixed-income, shorter-term bond, longer-term government bond
and high yield bond markets, respectively.
(2) Total return assumes reinvestment of dividends and capital gain
distributions for the periods indicated. Past performance is not a
guarantee of future results. Investment return and principal value will
fluctuate so that, when redeemed, an investor's shares may be worth more
or less than when purchased.
Fund Management
Vice President Richard R. Hinderlie: co-manager,Short-Term Bond Fund;
manager, U.S. Government Securities Fund. Dick began his investment career in
1973, and has extensive experience in fixed-income analysis and portfolio
management. He received his MBA from Arizona State University and a BA in
economics from Pacific Lutheran University.
Senior Vice President Donovan "Jerry" Paul: co-manager, Short-Term Bond
Fund; manager, Select Income Fund and High Yield Fund. Jerry began his
investment career in 1976; before joining INVESCO, he worked for Stein, Roe &
Farnham Inc. as well as Quixote Investment Management. He earned an MBA from the
University of Northern Iowa, and a BBA from the University of Iowa. He is a
Chartered Financial Analyst and Certified Public Accountant.
<PAGE>
<TABLE>
<CAPTION>
INVESCO Income Funds, Inc.
Statement of Investment Securities
August 31, 1996
Country Shares, Units
Code if or Principal
Description Non US Amount Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HIGH YIELD Fund
FIXED INCOME SECURITIES 81.58%
Corporate Bonds 81.58%
AUTOMOBILE RELATED 0.91%
Venture Holdings Trust, Gtd
Sr Sub Notes, 9.750%, 4/1/2004 $3,950,000 $3,466,125
-----------
BROADCASTING 6.84%
Allbritton Communications,
Sr Sub Deb 11.500%, 8/15/2004 5,185,000 5,340,550
Series B, 9.750%, 11/30/2007 2,000,000 1,860,000
Benedek Broadcasting, Sr Secured
Notes, 11.875%, 3/1/2005 4,450,000 4,833,813
Benedek Communications, Sr Sub
Discount Step-Up Notes^, Zero
Coupon^^, 5/15/2006 7,750,000 4,281,875
Chancellor Broadcasting, Sr Sub
Notes, 9.375%, 10/1/2004 5,900,000 5,752,500
JCAC Inc, Gtd Sr Sub Notes,
10.125%, 6/15/2006 3,900,000 3,997,500
-----------
26,066,238
-----------
BUILDING & CONSTRUCTION RELATED 1.11%
Ryland Group, Sr Notes, 10.500%,7/1/2006 3,800,000 3,809,500
3,800,000 3,809,500
USG Corp, Deb, 8.750%, 3/1/2017 400,000 398,000
-----------
4,207,500
-----------
CABLE TELEVISION 13.87%
Cablevision Industries, Sr Deb,
Series B, 9.250%, 4/1/2008 7,027,000 7,123,621
Comcast Cable Partners Ltd, Sr
Discount Step-Up Deb, Zero
Coupon^^, 11/15/2007 UK 7,900,000 4,937,500
Continental Cablevision, Sr Sub
Deb, 11.000%, 6/1/2007 3,900,000 4,389,384
<PAGE>
Kabelmedia Holding GmbH, Sr Discount
Step-Up Notes, Zero Coupon^^,
8/1/2006 GM 3,900,000 2,018,250
Lenfest Communications, Sr Notes,
8.375%, 11/1/2005 1,000,000 920,000
Marcus Cable LP/Marcus Cable
Capital III Sr Deb, 11.875%,
10/1/2005 8,230,000 8,579,775
Sr Discount Step-Up Notes, Zero
Coupon^^, 12/15/2005 8,500,000 5,461,250
Rogers Cablesystems Ltd, Sr Secured
2nd Priority Deb, 10.000%, 12/1/2007 CA 5,000,000 4,962,500
Rogers Communications, Sr Notes, 9.125%,
1/15/2006 CA 3,000,000 2,820,000
UIH Australia/Pacific, Sr Discount
Step-Up Notes, Zero Coupon^^,
5/15/2006 AS 8,000,000 4,140,000
United International Holdings, Sr
Secured Discount Notes, Zero
Coupon, 11/15/1999 6,145,000 4,024,975
Wireless One, Sr Notes, 13.000%,
10/15/2003 3,400,000 3,468,000
-----------
52,845,255
-----------
CHEMICALS 2.87%
NL Industries, Sr Secured Discount
Step-Up Notes, Zero Coupon^^,
10/15/2005 7,750,000 6,238,750
Rexene Corp, Sr Notes, 11.750%,
12/1/2004 1,715,000 1,839,338
Sterling Chemicals Holdings, Sr Sub
Notes, 11.750%, 8/15/2006 2,800,000 2,870,000
-----------
10,948,088
-----------
CONTAINERS 2.62%
Gaylord Container, Sr Sub Discount
Step-Up Deb, 12.750%^^, 5/15/2005 2,950,000 3,149,125
Riverwood International, Gtd Sr Sub
Notes, 10.875%, 4/1/2008 2,850,000 2,764,500
Stone Container, Sr Notes, 11.500%,
10/1/2004 3,900,000 4,056,000
-----------
9,969,625
-----------
<PAGE>
ELECTRONICS 1.57%
Advanced Micro Devices, Sr Secured
Notes, 11.000%, 8/1/2003 5,900,000 5,973,750
-----------
GAMING 5.41%
Casino America, Gtd Sr Secured
Notes, 12.500%, 8/1/2003 5,800,000 5,800,000
Station Casinos, Sr Sub Notes,
Series B, 9.625%, 6/1/2003 5,820,000 5,587,200
Trump Atlantic City Associates/Trump
Atlantic City Funding, 1st
Mortgage Notes 11.250%, 5/1/2006 6,750,000 6,480,000
Trump Castle Funding, Mortgage Notes,
11.750%, 11/15/2003 2,900,000 2,740,500
-----------
20,607,700
-----------
METALS & MINING 1.36%
Haynes International, Sr Notes,
11.625%, 9/1/2004 5,250,000 5,184,375
-----------
MOTION PICTURES & TELEVISION 1.44%
Viacom Inc, Sub Deb, 8.000%, 7/7/2006 6,000,000 5,471,406
-----------
OFFICE EQUIPMENT 0.89%
Dictaphone Corp, Gtd Sr Sub Notes,
11.750%, 8/1/2005 3,900,000 3,393,000
-----------
OIL & GAS RELATED 4.23%
Gulf Canada Resources Ltd, Sr Sub Deb,
9.625%, 7/1/2005 CA 6,850,000 6,747,312
Maxus Energy, Medium-Term Notes,
Series C, 10.830%, 9/1/2004 4,900,000 4,941,204
TransTexas Gas, Gtd Sr Secured Notes,
11.500%, 6/15/2002 4,225,000 4,436,250
-----------
16,124,766
-----------
PAPER & PAPER PRODUCTS 5.53%
Crown Paper, Sr Sub Notes,
11.000%, 9/1/2005 3,900,000 3,714,750
Repap New Brunswick, 2nd Priority Sr
Secured Notes, 10.625%, 4/15/2005 CA 3,450,000 3,277,500
SD Warren, Sr Sub Notes, Series B,
12.000%, 12/15/2004 6,900,000 7,296,750
Tembec Finance, Gtd Sr Notes,
9.875%, 9/30/2005 CA 7,190,000 6,758,600
-----------
21,047,600
-----------
<PAGE>
PRINTING & PUBLISHING 2.20%
Affiliated Newspapers Investments,
Sr Discount Step-Up Notes, Zero
Coupon^^, 7/1/2006 7,800,000 5,655,000
Hollinger International Publishing,
Gtd Sr Sub Notes, 9.250% 2/1/2006 CA 2,900,000 2,740,500
-----------
8,395,500
-----------
RECREATION PRODUCTS & SERVICES 1.50%
Six Flags Theme Parks, Sr Sub Discount
Step-Up Notes, Series A Zero
Coupon^^, 6/15/2005 6,750,000 5,720,625
-----------
RETAIL 0.78%
TPI Enterprises, Gtd Conv Sub
Deb, 8.250%, 7/15/2002 3,368,000 2,963,840
-----------
SCHOOLS 0.25%
KinderCare Learning Centers,
Sr Notes, 10.375%, 6/1/2001 900,000 951,750
-----------
TELECOMMUNICATIONS 21.12%
Arch Communications Group, Sr
Discount Step-Up Notes,
Zero Coupon^^, 3/15/2008 5,595,000 2,951,362
Centennial Cellular, Sr Notes,
8.875%, 11/1/2001 5,500,000 5,142,500
Comcast Cellular, Sr Participating
Redeemable Notes
Series A, Zero Coupon, 3/5/2000 1,000,000 696,250
Series B, Zero Coupon, 3/5/2000 5,400,000 3,759,750
CommNet Cellular, Sr Sub Discount
Step-Up Notes, Zero Coupon^^,
9/1/2003 8,000,000 6,560,000
InterCel Inc, Sr Discount Step-Up
Notes, Zero Coupon^^, 5/1/2006 4,000,000 2,090,000
International CableTel, Sr Deferred
Step-Up Notes, Series B, Zero
Coupon^^, 2/1/2006 UK 15,100,000 8,871,250
MFS Communications, Sr Discount
Step-Up Notes, Zero Coupon^^,
1/15/2006 19,000,000 12,825,000
<PAGE>
Millicom International Cellular SA,
Sr Sub Discount Step-Up Notes^
Zero Coupon^^, 6/1/2006 LU 8,000,000 4,320,000
NEXTEL Communications, Sr Redeemable
Discount Step-Up Notes
Zero Coupon^^, 8/15/2004 3,900,000 2,286,375
ORBCOMM Global LP/ORBCOMM Global
Capital, Sr Notes^, 14.000%,
8/15/2004 2,900,000 2,907,250
Rogers Cantel, Sr Secured Deb,
9.375%, 6/1/2008 CA 8,000,000 7,840,000
Sprint Spectrum LP/Sprint Spectrum
Finance, Sr Discount Step-Up Notes
Zero Coupon^^, 8/15/2006 12,500,000 7,031,250
Teleport Communications Group,
Sr Notes, 9.875%, 7/1/2006 4,400,000 4,389,000
Vanguard Cellular Systems, Sr Deb,
9.375%, 4/15/2006 750,000 731,250
Western Wireless, Sr Sub Notes,
10.500%, 6/1/2006 8,060,000 8,039,850
-----------
80,441,087
-----------
TRANSPORTATION 3.50%
Stena AB, Sr Notes, 10.500%,
12/15/2005 SW 3,900,000 3,939,000
TNT Transport Europe PLC/TNT USA,
Gtd Sr Notes, 11.500%, 4/15/2004 AS 4,800,000 4,992,000
Viking Star Shipping, 1st Pfd Ship
Mortgage Notes, 9.625%, 7/15/2003 4,300,000 4,407,500
-----------
13,338,500
-----------
UTILITIES 3.58%
El Paso Electric, 1st Mortgage Bonds,
Series B, 7.750%, 5/1/2001 3,000,000 2,940,000
Intermedia Communications of Florida,
Sr Discount Step-Up Notes
Zero Coupon^^, 5/15/2006 4,800,000 2,856,000
Long Island Lighting, Deb, 9.000%,
11/1/2022 3,000,000 2,722,377
Niagara Mohawk Power, Secured
Facils Bonds, 8.770%, 1/1/2018 5,500,000 5,106,271
-----------
13,624,648
-----------
TOTAL FIXED INCOME SECURITIES
(Cost $315,792,684) 310,741,378
-----------
PREFERRED STOCKS 5.10%
BROADCASTING 1.08%
Chancellor Radio Broadcasting,
Sr Cum Exchangeable Pfd, 12.250%~ 39,000 4,095,000
-----------
<PAGE>
CABLE TELEVISION 3.25%
Cablevision Systems, Cum Exchangeable
Pfd, Series H, 11.750%~ 70,512 6,874,920
Tele-Communications Inc, Exchangeable
Jr Pfd, Class B, 6.000%~ 93,000 5,510,250
-----------
12,385,170
-----------
TELECOMMUNICATIONS 0.77%
ICG Holdings, Mandatory Redeemable
Exchangeable Pfd~ 2,900 2,936,250
-----------
TOTAL PREFERRED STOCKS
(Cost $19,124,750) 19,416,420
-----------
OTHER SECURITIES 6.53%
BROADCASTING 0.98%
ParkCommunications, Units^ (Each unit consists
of one $1,000 face amount Sr Note 13.750%,
5/15/2004** and 1 wrnt to purchase
10 shrs of cmn stock) 3,000 3,743,958
-----------
CABLE TELEVISION 3.39%
Australis Media Ltd, Units (Each unit consists of
one $1,000 face amount Sr Sub Discount Step-Up
Note, Zero Coupon^^, 5/15/2003 and 1 wrnt to
purchase 57.721 shrs of cmn stock) AS 1,950 1,092,000
CS Wireless Systems, Units^ (Each unit consists
of four $1,000 face amount Sr Discount Step-Up
Notes, Zero Coupon^^, 3/1/2006 and 1.1 shrs of
cmn stock) 2,950 5,664,000
People's Choice TV, Units (Each unit consists
of one $1,000 face amount Sr Discount Step-Up
Note, Zero Coupon^^, 6/1/2004 and 1 wrnt to
purchase 1.427 shrs of cmn stock) 4,850 2,788,750
United International Holdings, Units (Each unit
consists of one $1,000 face amount Sr Secured
Discount Note, Zero Coupon, 11/15/1999 and 1 wrnt
to purchase 4.535 shrs of cmn stock) 4,900 3,350,375
-----------
12,895,125
-----------
RETAIL 0.77%
InterAct Systems, Units^ (Each unit consists of
one $1,000 face amount Sr Discount Step-Up Note,
14.000%^^, 8/1/2003 and 1 wrnt to purchase 1 shr
of cmn stock) 4,400 2,948,000
-----------
<PAGE>
TELECOMMUNICATIONS 1.39%
InterCel Inc, Units (Each unit consists of ten $1,000
face amount Sr Discount Step-Up Notes, Zero Coupon^^,
2/1/2006 and 32 wrnts to purchase 1 shr of cmn stock) 440 2,475,000
Occidente y Caribe Celular SA, Units^ (Each unit consists
of one $1,000 face amount Sr Discount Step-Up Note, Zero
Coupon^^, 3/15/2004 and 4 wrnts to purchase 5.709 shrs
of cmn stock each) CO 5,500 2,805,000
-----------
5,280,000
-----------
TOTAL OTHER SECURITIES
(Cost $26,385,957) 24,867,083
-----------
SHORT-TERM INVESTMENTS - COMMERCIAL
PAPER 6.79%
FINANCE RELATED 6.79%
Associates Corp of North America,
5.250%, 9/3/1996 13,500,000 13,500,000
Chevron Oil Finance, 5.280%, 9/3/1996 12,383,000 12,383,000
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $25,883,000) 25,883,000
-----------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $387,186,391) (Cost for Income
Tax Purposes $387,300,401) 380,907,881
===========
SELECT INCOME Fund
FIXED INCOME SECURITIES 93.93%
US Government Obligations 6.27%
US Treasury Bonds, 6.875%, 8/15/2025+ 5,000,000 4,796,875
US Treasury Notes, 6.875%, 5/15/2006+ 12,000,000 11,943,732
-----------
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $17,165,000) 16,740,607
-----------
US Government Agency Obligations 23.74%
Federal Home Loan Mortgage, Gold,
Participation Certificates
7.000%, 4/1/2008 4,776,719 4,714,235
7.000%, 4/1/2024 4,636,223 4,438,761
7.000%, 5/1/2024 8,836,763 8,460,396
7.000%, 6/1/2024 4,364,900 4,178,994
6.500%, 6/1/2010 2,612,113 2,527,530
6.500%, 10/1/2010 4,627,639 4,449,517
6.500%, 9/9/2011~~ 20,000,000 19,200,000
<PAGE>
Federal National Mortgage Association,
Gtd Mortgage Pass-Through
Certificates, 7.500%, 12/1/2024 2,710,702 2,658,166
Government National Mortgage Associa-
tion I Pass-Through Certificates
7.500%, 5/15/2022 4,301,370 4,224,113
7.500%, 11/15/2023 8,693,063 8,529,798
-----------
TOTAL US GOVERNMENT AGENCY
OBLIGATIONS
(Cost $62,790,937) 63,381,510
-----------
Corporate Bonds 63.92%
AEROSPACE & DEFENSE 0.99%
Howmet Corp, Sr Sub Notes,
10.000%, 12/1/2003 2,500,000 2,656,250
-----------
BANKING 1.85%
Union Bank of Switzerland, Sub Notes,
7.250%, 7/15/2006 5,000,000 4,932,590
-----------
BROADCASTING 4.54%
Allbritton Communications, Sr Sub Deb
11.500%, 8/15/2004 3,225,000 3,321,750
Series B, 9.750%, 11/30/2007 2,000,000 1,860,000
Benedek Broadcasting, Sr Secured
Notes, 11.875%, 3/1/2005 2,100,000 2,281,125
Benedek Communications, Sr Sub Discount
Step-Up Notes^, Zero Coupon^^,
5/15/2006 4,000,000 2,210,000
Young Broadcasting, Sr Sub Notes,
Series B, 9.000%, 1/15/2006 2,650,000 2,438,000
-----------
12,110,875
-----------
BUILDING & CONSTRUCTION RELATED 3.89%
USG Corp
Deb, 8.750%, 3/1/2017 2,110,000 2,099,450
Sr Notes, 8.500%, 8/1/2005 8,340,000 8,277,450
-----------
10,376,900
-----------
<PAGE>
CABLE TELEVISION 9.63%
Cablevision Industries, Sr Deb,
Series B, 9.250%, 4/1/2008 9,860,000 9,995,575
Comcast Cable Partners Ltd, Sr
Discount Step-Up Deb, Zero
Coupon^^, 11/15/2007 2,900,000 1,812,500
Continental Cablevision, Sr Sub Deb,
11.000%, 6/1/2007 9,900,000 11,142,282
Lenfest Communications, Sr Notes,
8.375%, 11/1/2005 3,000,000 2,760,000
-----------
25,710,357
-----------
FINANCE RELATED 1.83%
General Motors Acceptance, Medium-Term
Notes, 6.700%, 4/25/2001 5,000,000 4,887,195
-----------
GAMING 1.55%
Ballys Park Place Funding, Gtd
1st Mortgage Notes, 9.250%,
3/15/2004 3,000,000 3,180,000
Trump Atlantic City Associates/Trump
Atlantic City Funding, 1st
Mortgage Notes 11.250%, 5/1/2006 1,000,000 960,000
-----------
4,140,000
-----------
HEALTH CARE RELATED 0.40%
Tenet Healthcare, Sr Sub Notes,
10.125%, 3/1/2005 1,000,000 1,073,750
-----------
HOUSEHOLD & HARDWARE PRODUCTS 0.72%
LifeStyle Furnishings International,
Sr Sub Notes^, 10.875%, 8/1/2006 1,900,000 1,923,750
-----------
INSURANCE 1.02%
Berkley (W R) Corp, Sr Notes,
6.250%, 1/15/2006 3,000,000 2,715,894
-----------
<PAGE>
INVESTMENT BROKERS 1.05%
Donaldson Lufkin & Jenrette,
Medium-Term Notes, 5.625%,
2/15/2016 3,000,000 2,801,244
-----------
METALS & MINING 3.56%
Freeport-McMoRan Resource Partners LP,
Sr Sub Notes, 8.750%, 2/15/2004 3,900,000 3,882,438
Royal Oak Mines, Sr Sub Notes^,
11.000%, 8/15/2006 3,000,000 3,000,000
USX-Marathon Group, Conv Sub Deb,
5.750%, 7/1/2001 2,850,000 2,614,875
-----------
9,497,313
-----------
MOTION PICTURES & TELEVISION 4.09%
Viacom Inc, Sub Deb, 8.000%, 7/7/2006+ 8,000,000 7,295,208
Viacom International, Sub Deb
Series A, 7.000%, 7/1/2003 2,000,000 1,811,972
Series B, 7.000%, 7/1/2003 2,000,000 1,811,972
-----------
10,919,152
-----------
OIL & GAS RELATED 3.32%
Gulf Canada Resources Ltd
Sr Notes, 8.350%, 8/1/2006 2,900,000 2,814,157
Sr Sub Deb, 9.625%, 7/1/2005 350,000 344,753
Sr Sub Deb, 9.250%, 1/15/2004 2,650,000 2,683,125
Maxus Energy, Medium-Term Notes,
Series C, 10.830%, 9/1/2004 3,000,000 3,025,227
-----------
8,867,262
-----------
PAPER & PAPER PRODUCTS 1.80%
Canadian Pacific Forest Products Ltd,
Deb, 10.250%, 1/15/2003 2,700,000 2,934,841
Tembec Finance, Gtd Sr Notes,
9.875%, 9/30/2005 2,000,000 1,880,000
-----------
4,814,841
-----------
PRINTING & PUBLISHING 0.62%
News America Holdings, Sr Notes,
8.500%, 2/15/2005 1,600,000 1,666,906
-----------
RECREATION PRODUCTS & SERVICES 0.82%
AMF Group, Sr Sub Discount Step-Up
Notes^, Zero Coupon^^, 3/15/2006 3,750,000 2,179,688
-----------
<PAGE>
RETAIL 2.27%
Ferrellgas Partners LP/Ferrellgas
Partners Finance, Sr Secured Notes^,
9.375%, 6/15/2006 3,000,000 2,958,750
Revco (D S) Inc, Sr Notes, 9.125%,
1/15/2000 3,000,000 3,112,500
-----------
6,071,250
-----------
SAVINGS & LOAN 0.74%
Western Financial Savings Bank, Sub
Capital Deb, 8.500%, 7/1/2003 2,000,000 1,985,378
-----------
TELECOMMUNICATIONS 9.76%
Centennial Cellular, Sr Notes,
8.875%, 11/1/2001 2,000,000 1,870,000
Comcast Cellular, Sr Participating
Redeemable Notes, Series B
Zero Coupon, 3/5/2000 3,000,000 2,088,750
IMPSAT Corp, Gtd Sr Notes^,
12.125%, 7/15/2003 2,000,000 1,995,000
International CableTel, Sr Deferred
Step-Up Notes, Series B, Zero
Coupon^^, 2/1/2006 5,200,000 3,055,000
MFS Communications, Sr Discount
Step-Up Notes, Zero Coupon^^,
1/15/2006 8,000,000 5,400,000
Rogers Cantel, Sr Secured Deb,
9.375%, 6/1/2008 4,000,000 3,920,000
US WEST Communications, Deb, 6.875%,
9/15/2033 2,000,000 1,702,500
Vanguard Cellular Systems, Sr Deb,
9.375%, 4/15/2006 4,160,000 4,056,000
Western Wireless, Sr Sub Notes,
10.500%, 6/1/2006 2,000,000 1,995,000
-----------
26,082,250
-----------
TRANSPORTATION 3.67%
Delta Air Lines, Equipment Trust
Certificates, Series 1992C,
9.300%, 1/2/2010 2,800,000 3,063,298
Overseas Shipholding Group, Deb,
8.750%, 12/1/2013 2,000,000 1,981,040
Teekay Shipping, Gtd 1st Preferred
Ship Mortgage Notes, 8.320%,
2/1/2008 5,000,000 4,750,000
-----------
9,794,338
-----------
<PAGE>
UTILITIES 5.80%
Cleveland Electric Illuminating,
1st Mortgage Notes, 9.250%,
5/1/2009 500,000 491,497
El Paso Electric, 1st Mortgage Bonds,
Series B, 7.750%, 5/1/2001 3,000,000 2,940,000
Long Island Lighting, Deb
9.000%, 11/1/2022 5,000,000 4,537,295
7.500%, 3/1/2007 2,000,000 1,778,234
Niagara Mohawk Power, Secured Facils
Bonds, 8.770%, 1/1/2018 3,000,000 2,785,239
Public Service of New Mexico, 1st
Mortgage Notes, 9.000%, 5/1/2008 3,000,000 2,948,610
-----------
15,480,875
-----------
TOTAL CORPORATE BONDS
(Cost $175,112,969) 170,688,058
-----------
TOTAL FIXED INCOME SECURITIES
(Cost $255,068,906) 250,810,175
-----------
SHORT-TERM INVESTMENTS -
COMMERCIAL PAPER 6.07%
FINANCE RELATED 6.07%
Associates Corp of North America,
5.250%, 9/3/1996 8,100,000 8,100,000
General Electric Capital,
5.280%, 9/3/1996 8,100,000 8,100,000
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $16,200,000) 16,200,000
-----------
TOTAL INVESTMENT SECURITIES AT
VALUE 100.00%
(Cost $271,268,906#) 267,010,175
===========
SHORT-TERM BOND Fund FIXED INCOME SECURITIES 74.13%
US Government Obligations 28.46% US Treasury Notes,
6.375%, 5/15/1999(Cost $3,022,031) 3,000,000 2,990,625
-----------
<PAGE>
US Government Agency Obligations 24.96%
Federal Home Loan Mortgage, Gold,
Participation Certificates
7.000%, 6/1/2009 1,289,130 1,270,616
6.500%, 9/1/2010 1,406,113 1,351,991
-----------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $2,671,989) 2,622,607
-----------
Corporate Bonds 20.71%
BROADCASTING 2.10%
Granite Broadcasting, Sr Sub Deb,
12.750%, 9/1/2002 200,000 220,500
-----------
CABLE TELEVISION 2.02%
Century Communications, Sr Sub Notes,
11.875%, 10/15/2003 200,000 212,750
-----------
FINANCE RELATED 8.76%
Chrysler Financial, Notes,
6.500%, 6/15/1998 470,000 469,169
Ford Motor Credit, Medium-Term Notes,
5.938%, 2/1/1999 450,000 451,115
-----------
920,284
-----------
LEASING COMPANIES 3.82%
United States Leasing International,
Medium-Term Notes,
5.650%, 11/16/1998 400,000 401,341
-----------
RECREATION PRODUCTS & SERVICES 2.01%
United Artists Theatre Circuit,
Sr Secured Notes, Series B,
11.500%, 5/1/2002 200,000 211,000
-----------
TELECOMMUNICATIONS 2.00%
Rogers Cantel Mobile, Gtd Sr Sub
Notes, 11.125%, 7/15/2002 200,000 210,250
-----------
TOTAL CORPORATE BONDS
(Cost $2,193,758) 2,176,125
-----------
TOTAL FIXED INCOME SECURITIES
(Cost $7,887,778) 7,789,357
-----------
<PAGE>
SHORT-TERM INVESTMENTS 25.87% Corporate Bonds
16.07% BUSINESS SERVICES 1.79% Tenneco Credit,
Notes, 9.250%, 11/1/1996 187,000 187,980
-----------
FINANCE RELATED 7.66%
AVCO Financial Services, Notes,
7.500%, 11/15/1996 350,000 351,277
General Motors Acceptance, Notes,
7.750%, 4/15/1997 450,000 454,358
-----------
805,635
-----------
INVESTMENT BROKERS 3.80%
Merrill Lynch & Co, Notes,
5.000%, 12/15/1996 400,000 399,257
-----------
UTILITIES 2.82%
Detroit Edison, Gen & Ref Mortgage,
6.000%, 12/1/1996 296,000 296,033
-----------
TOTAL CORPORATE BONDS
(Cost $1,738,769) 1,688,905
-----------
Repurchase Agreements 9.80%
Repurchase Agreement with State
Street Bank & Trust Co dated 8/30/1996 due
9/3/1996 at 5.200%, repurchased at $1,030,595
(Collateralized by US Treasury Bonds due 8/15/2023
at 6.250%, value $1,038,238)(Cost $1,030,000) 1,030,000 1,030,000
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $2,768,769) 2,718,905
-----------
TOTAL INVESTMENT SECURITIES AT
VALUE 100.00%
(Cost $10,656,547#) 10,508,262
============
U.S. GOVERNMENT SECURITIES Fund
FIXED INCOME SECURITIES 83.05%
US Government Obligations 40.73%
US Treasury Bonds
8.500%, 2/15/2020 5,000,000 5,675,000
8.125%, 8/15/2019 5,000,000 5,460,930
8.125%, 5/15/2021 10,000,000 10,946,860
-----------
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $21,960,156) 22,082,790
-----------
<PAGE>
US Government Agency Obligations 42.32%
Federal Home Loan Mortgage, Gold,
Participation Certificates,
6.500%, 4/1/2026 14,916,181 13,802,076
Government National Mortgage Association
I, Pass-Through Certificates
6.500%, 4/15/2026 9,949,816 9,147,652
-----------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $23,411,270) 22,949,728
-----------
TOTAL FIXED INCOME SECURITIES
(Cost $45,371,426) 45,032,518
-----------
SHORT-TERM INVESTMENTS -
REPURCHASE AGREEMENTS 16.95%
Repurchase Agreement with State Street Bank &
Trust Co dated 8/30/1996 due 9/3/1996 at 5.200%,
repurchased at $9,195,310 (Collateralized by US Treasury
Bonds due 8/15/2023 at 6.250%, value $9,256,155)
(Cost $9,190,000) 9,190,000 9,190,000
-----------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $54,561,426#) 54,222,518
===========
^^ 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.
** Security is a payment-in-kind (PIK) bond. PIK bonds may make interest
payments in additional securities.
~ Security may make interest payments in other types of securities or cash.
+ Security has been designated as collateral for To-Be-Announced (TBA)
securities.
~~ Security is a To-Be-Announced (TBA) security.
# Also represents cost for income tax purposes.
^ The following are restricted securities at August 31, 1996:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Value as
Acquisition Acquisition % of
Description Date(s) Cost Net Assets
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Fund
Benedek Communications, Sr Sub
Discount Step-Up Notes 8/27/96 $4,256,968 1.14%
CS Wireless Systems, Units 2/16/96 7,108,270 1.51
InterAct Systems, Units 7/30/96 2,932,996 0.79
Millicom International Cellular
SA, Sr Sub Discount Step-Up
Notes, Zero Coupon, 6/1/2006 5/24/96 4,256,663 1.15
Occidente y Caribe Celular SA, Units 5/31/96 2,944,093 0.75
ORBCOMM Global LP/ORBCOMM Global
Capital, Sr Notes
14.000%, 8/15/2004 8/2/96 2,900,000 0.77
Park Communications, Units 5/6/96 3,000,000 1.00
-----------
7.11%
===========
Select Income Fund
AMF Group, Sr Sub Discount
Step-Up Notes Zero Coupon,
3/15/2006 3/7/96 2,186,726 0.84%
Benedek Communications, Sr Sub
Discount Step-Up Notes
Zero Coupon, 5/15/2006 5/30/96 2,188,670 0.86
Ferrellgas Partners LP/Ferrellgas
Partners Finance Sr Secured
Notes, 9.375%, 6/15/2006 4/23/96 3,000,000 1.15
IMPSAT Corp, Gtd Sr Notes,
12.125%, 7/15/2003 7/25/96 2,000,000 0.77
LifeStyle Furnishings International,
Sr Sub Notes 10.875%, 8/1/2006 7/31/96 1,900,000 0.75
Royal Oak Mines, Sr Sub Notes,
11.000%, 8/15/2006 8/5/96 3,000,000 1.16
-----------
5.53%
===========
</TABLE>
<PAGE>
Summary of Investments by Country
% of
Country Investment
Country Code Securities Value
- ---------------------------------------------------------------------------
High Yield Fund
Australia AS 2.68 $10,224,000
Canada CA 9.23 35,146,412
Colombia CO 0.74 2,805,000
Germany GM 0.53 2,018,250
Luxembourg LU 1.13 4,320,000
Sweden SW 1.03 3,939,000
United Kingdom UK 3.63 13,808,750
United States US 81.03 308,646,469
---------------------------
100.00% 380,907,881
===========================
See Notes to Financial Statements
<PAGE>
INVESCO Income Funds, Inc.
Statement of Assets and Liabilities
August 31, 1996
<TABLE>
<CAPTION>
U.S.
High Select Short-Term Government
Yield Income Bond Securities
Fund Fund Fund Fund
------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment Securities:
At Cost~ $387,186,391 $271,268,906 $10,656,547 $54,561,426
==================================================================
At Value~ 380,907,881 267,010,175 10,508,262 54,222,518
Cash 11,641 48,256 5,505 6,500
Receivables:
Investment Securities Sold 1,964,442 10,006,313 0 0
Fund Shares Sold 974,366 534,264 108,459 192,579
Dividends and Interest 5,818,172 3,709,821 149,507 416,405
Prepaid Expenses and Other Assets 52,994 32,053 13,114 13,663
------------------------------------------------------------------
TOTAL ASSETS 389,729,496 281,340,882 10,784,847 54,851,665
------------------------------------------------------------------
LIABILITIES
Payables:
Distributions to Shareholders 375,867 180,107 2,343 17,628
Investment Securities Purchased 12,632,681 22,162,855 0 0
Fund Shares Repurchased 1,436,592 849,873 37,515 207,444
Accrued Distribution Expenses 78,839 55,191 2,243 11,195
Accrued Expenses and Other Payables 4,273 0 8,162 1,816
------------------------------------------------------------------
TOTAL LIABILITIES 14,528,252 23,248,026 50,263 238,083
------------------------------------------------------------------
Net Assets at Value 375,201,244 258,092,856 10,734,584 54,613,582
==================================================================
NET ASSETS
Paid-in Capital* 380,583,412 261,161,169 11,209,671 55,403,619
Accumulated Undistributed (Distributions
In Excess of) Net Investment Income (1,009) 24,027 0 0
<PAGE>
Accumulated Undistributed Net Realized Gain
(Loss) on Investment Securities 897,351 1,166,391 (326,802) (451,129)
Net Depreciation of Investment Securities (6,278,510) (4,258,731) (148,285) (338,908)
------------------------------------------------------------------
Net Assets at Value 375,201,244 258,092,856 10,734,584 54,613,582
==================================================================
Shares Outstanding 54,835,176 40,629,816 1,140,887 7,638,635
Net Asset Value, Offering and Redemption
Price per Share 6.84 6.35 9.41 7.15
==================================================================
</TABLE>
~ Investment securities at cost and value at August 31, 1996 include
repurchase agreements of $1,030,000 and $9,190,000 for Short-Term Bond and U.S.
Government Securities Funds, respectively.
* The Fund has 600 million authorized shares of common stock, par value
$0.01 per share. Of such shares, 100 million have been allocated to each
individual Fund.
See Notes to Financial Statements
<PAGE>
INVESCO Income Funds, Inc.
Statement of Operations
Year Ended August 31, 1996
<TABLE>
<CAPTION>
U.S.
High Select Short-Term Government
Yield Income Bond Securities
Fund Fund Fund Fund
------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $34,606,209 $20,863,877 $587,044 $ 2,863,742
Dividends 38,414 0 0 0
------------------------------------------------------------------
TOTAL INCOME 34,644,623 20,863,877 587,044 2,863,742
------------------------------------------------------------------
EXPENSES
Investment Advisory Fees 1,671,610 1,410,937 44,394 233,025
Distribution Expenses 857,391 641,335 22,197 105,920
Transfer Agent Fees 532,180 614,471 51,685 177,086
Administrative Fees 61,443 48,480 11,332 16,355
Custodian Fees and Expense 52,802 67,243 6,372 14,461
Directors' Fees and Expenses 23,582 19,498 8,261 10,022
Professional Fees and Expenses 26,493 23,487 12,149 16,813
Registration Fees and Expenses 71,720 60,195 25,653 26,145
Reports to Shareholders 84,285 68,753 8,298 22,899
Other Expenses 25,119 19,503 2,077 3,985
------------------------------------------------------------------
TOTAL EXPENSES 3,406,625 2,973,902 192,418 626,711
Fees and Expenses Absorbed by
Investment Adviser (521) (372,595) (121,704) (195,258)
Fees and Expenses Paid Indirectly (36,858) (36,064) (2,666) (7,776)
------------------------------------------------------------------
NET EXPENSES 3,369,246 2,565,243 68,048 423,677
------------------------------------------------------------------
NET INVESTMENT INCOME 31,275,377 18,298,634 518,996 2,440,065
------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on Investment
Securities 13,285,701 3,393,400 (36,906) 687,053
Change in Net Depreciation of Investment
Securities (8,092,678) (10,577,175) (88,336) (3,007,303)
------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENT SECURITIES 5,193,023 (7,183,775) (125,242) (2,320,250)
------------------------------------------------------------------
Net Increase in Net Assets from Operations 36,468,400 11,114,859 393,754 119,815
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Income Funds, Inc.
Statement of Changes in Net Assets
Year Ended August 31
<TABLE>
<CAPTION>
High Yield Fund Select Income Fund
1996 1995 1996 1995
------------------------------- ------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $31,275,377 $25,855,573 $18,298,634 $12,692,130
Net Realized Gain (Loss) on Investment
Securities 13,285,701 (9,175,919) 3,393,400 1,099,163
Change in Net Appreciation (Depreciation)
of Investment Securities (8,092,678) 13,064,414 (10,577,175) 10,684,511
------------------------------- --------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS 36,468,400 29,744,068 11,114,859 24,475,804
------------------------------- --------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (31,275,377) (25,855,573) (18,298,634) (12,692,130)
In Excess of Net Investment Income (1,009) 0 (236,099) (120,083)
Net Realized Gain on Investment Securities 0 0 (928,028) 0
In Excess of Net Realized Gain on
Investment Securities 0 (1,057,760) 0 0
------------------------------- --------------------------------
TOTAL DISTRIBUTIONS (31,276,386) (26,913,333) (19,462,761) (12,812,213)
------------------------------- --------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 521,528,845 369,650,883 183,060,076 168,255,492
Reinvestment of Distributions 26,085,121 22,047,381 17,478,881 11,346,504
------------------------------- --------------------------------
547,613,966 391,698,264 200,538,957 179,601,996
Amounts Paid for Repurchases of Shares (466,563,331) (349,343,198) (150,695,392) (113,005,592)
------------------------------- --------------------------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 81,050,635 42,355,066 49,843,565 66,596,404
------------------------------- --------------------------------
Total Increase in Net Assets 86,242,649 45,185,801 41,495,663 78,259,995
NET ASSETS
Beginning of Period 288,958,595 243,772,794 216,597,193 138,337,198
------------------------------- --------------------------------
End of Period 375,201,244 288,958,595 258,092,856 216,597,193
=============================== ================================
Accumulated Undistributed (Distributions
In Excess of) Net Investment Income
Included in Net Assets at End of Period (1,009) 0 24,027 0
=============================== ================================
<PAGE>
FUND SHARE TRANSACTIONS
Shares Sold 76,321,844 56,172,989 27,935,727 26,867,635
Shares Issued from Reinvestment of
Distributions 3,819,405 3,348,656 2,677,261 1,806,508
------------------------------- --------------------------------
80,141,249 59,521,645 30,612,988 28,674,143
Shares Repurchased (68,212,157) (52,832,960) (23,097,234) (17,930,852)
------------------------------- --------------------------------
Net Increase in Fund Shares 11,929,092 6,688,685 7,515,754 10,743,291
================================ ================================
</TABLE>
See Notes to Financial Statements
<PAGE>
INVESCO Income Funds, Inc.
Statement of Changes in Net Assets (Continued)
Year Ended August 31
<TABLE>
<CAPTION>
Short-Term U.S. Government
Bond Fund Securities Fund
---------------------------- --------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $518,996 $523,746 $2,440,065 $2,493,232
Net Realized Gain (Loss) on Investment
Securities (36,906) (7,117) 687,053 (408,402)
Change in Net Appreciation (Depreciation)
of Investment Securities (88,336) 89,746 (3,007,303) 3,021,667
---------------------------- ------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS 393,754 606,375 119,815 5,106,497
---------------------------- ------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (518,996) (523,746) (2,440,065) (2,493,232)
In Excess of Net Investment Income (2,069) (2,276) (57,412) (19,177)
---------------------------- ------------------------------
TOTAL DISTRIBUTIONS (521,065) (526,022) (2,497,477) (2,512,409)
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 19,759,334 14,790,698 85,568,163 75,656,494
Reinvestment of Distributions 477,042 487,634 2,279,230 2,314,765
---------------------------- ------------------------------
20,236,376 15,278,332 87,847,393 77,971,259
Amounts Paid for Repurchases of Shares
---------------------------- ------------------------------
(18,353,980) (14,257,062) (68,943,386) (79,217,928)
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 1,882,396 1,021,270 18,904,007 (1,246,669)
---------------------------- ------------------------------
Total Increase in Net Assets 1,755,085 1,101,623 16,526,345 1,347,419
NET ASSETS
Beginning of Period 8,979,499 7,877,876 38,087,237 36,739,818
---------------------------- ------------------------------
End of Period 10,734,584 8,979,499 54,613,582 38,087,237
============================ ==============================
FUND SHARE TRANSACTIONS
Shares Sold 2,075,335 1,565,933 11,508,907 10,741,553
Shares Issued from Reinvestment of
Distributions 50,130 51,720 305,421 323,737
---------------------------- ------------------------------
2,125,465 1,617,653 11,814,328 11,065,290
<PAGE>
Shares Repurchased (1,925,401) (1,509,685) (9,263,315) (11,155,172)
---------------------------- ------------------------------
Net Increase (Decrease) in Fund Shares 200,064 107,968 2,551,013 (89,882)
============================ ==============================
</TABLE>
See Notes to Financial Statements
<PAGE>
INVESCO Income Funds, Inc.
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Income
Funds, Inc. (the "Fund"), was incorporated in Maryland and presently consists of
four separate Funds: High Yield Fund, Select Income Fund, Short-Term Bond Fund
and U.S. Government Securities Fund. The investment objectives of the Funds are:
to seek a high level of current income for the High Yield and Select Income
Funds; to seek a high level of current income with minimum fluctuation in
principal value while maintaining liquidity for the Short-Term 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 the U.S. Government Securities Fund. The
Fund is registered under the Investment Company Act of 1940 (the "Act") as a
diversified, open-end management investment company.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION - Debt securities are valued at evaluated bid prices as
determined by a pricing service approved by the Fund's board of directors.
If evaluated bid prices are not available, debt securities are valued by
averaging the bid prices obtained from one or more dealers making a market
for such securities.
Equity securities traded on national securities exchanges or in the
over-the-counter market are valued at the last sales price in the market
where such securities are primarily traded. If last sales prices are not
available, securities are valued at the highest closing bid price obtained
from one or more dealers making a market for such securities or by a pricing
service approved by the Fund's board of directors.
If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good faith
by the Fund's board of directors. Restricted securities are valued in
accordance with 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.
B. TO-BE-ANNOUNCED SECURITIES - To-be-announced ("TBA") securities held by the
Fund are fully collateralized by other 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 TBA
securities.
C. 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.
<PAGE>
D. 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 and original issue discount, is recorded on the
accrual basis. Discounts 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 Fund may have elements of risk due to concentrated investments in
foreign issuers located in a specific country. Such concentrations may
subject the Fund to additional risks resulting from future political or
economic conditions and/or possible impositions of adverse foreign
governmental laws or currency exchange restrictions. Net realized and
unrealized gain or loss from investments includes fluctuations from currency
exchange rates and fluctuations in market value.
The 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.
Restricted securities held by the Fund may not be sold except in exempt
transactions or in a public offering registered under the Securities Act of
1933. The risk of investing in such securities is generally greater than the
risk of investing in the securities of widely held, publicly traded
companies. Lack of a secondary market and resale restrictions may result in
the inability of each Fund to sell a security at a fair price and may
substantially delay the sale of the security which each Fund seeks to sell.
In addition, these securities may exhibit greater price volatility than
securities for which secondary markets exist.
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
United States.
E. 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. At August 31, 1996, Short-Term Bond Fund had $64,
$285,423 and $17,095, in net capital loss carryovers which expire in the
years 2002, 2003 and 2004, respectively. At August 31, 1996, U.S.
Government Securities Fund had $434,697, in net capital loss carryovers
which expire in the year 2003.
Short-Term Bond Fund incurred and elected to defer post-October 31 net
capital losses of $24,220 to the year ended August 31, 1997. To the extent
future capital gains are offset by capital loss carryovers and deferred
post-October 31 losses, such gains will not be distributed to shareholders.
Net capital loss carryovers utilized in 1996 by the High Yield and U.S.
Government Securities Funds amounted to $6,030,690 and $646,073,
respectively.
<PAGE>
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.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - All of the Fund's net
investment income is distributed to shareholders by dividends declared
daily and paid monthly. Reinvestment of dividends is effected at the
month-end net asset value. The Fund distributes net realized capital
gains, if any, to its shareholders at least annually, if not offset by
capital loss carryovers. Income distributions and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments for mortgage-backed
securities, market discounts, foreign currency transactions, nontaxable
dividends, net operating losses and expired capital loss carryforwards.
During the year ended August 31, 1996, the effect of such differences on
accumulated undistributed net investment income and accumulated
undistributed net realized gain on investment securities were as follows:
Accumulated Accumulated
Undistributed Undistributed
Net Realized Net Gain on
Investment Investment
Fund Income Securities
- --------------------------------------------------------------------------------
Select Income Fund $260,126 $(260,126)
Short-Term Bond Fund 2,069 (2,069)
U.S. Government Securities Fund 57,412 (57,412)
Net investment income, net realized gains, paid-in capital and net assets were
not affected.
G. EXPENSES - Each of the Funds bears expenses incurred specifically on its
behalf and, in addition, each Fund bears a portion of general expenses,
based on the relative net assets of each Fund.
Under an agreement between each Fund and the Fund's Custodian, agreed
upon Custodian Fees and Expenses are reduced by credits granted by the
Custodian from any temporarily uninvested cash. Similarly, Other Expenses,
which include Pricing Expenses, are reduced by credits earned by each Fund
from security brokerage transactions under certain broker/service
arrangements with third parties. Such credits are included in Fees and
Expenses Paid Indirectly in the Statement of Operations.
For the year ended August 31, 1996, Fees and Expenses Paid Indirectly
consisted of the following:
Custodian Fees Other
Fund and Expenses Expenses
- --------------------------------------------------------------------------------
High Yield Fund $36,758 $100
Select Income Fund 36,064 0
Short-Term Bond Fund 2,666 0
U.S. Government Securities Fund 7,776 0
<PAGE>
NOTE 2 - INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group, Inc.
("IFG") serves as the Fund's investment adviser. As compensation for its
services to the Fund, 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 Million Over
$300 to $500 $500
Fund Million Million Million
- --------------------------------------------------------------------------------
High Yield Fund 0.50% 0.40% 0.30%
Select Income Fund 0.55% 0.45% 0.35%
Short-Term Bond Fund 0.50% 0.40% 0.30%
U.S. Government
Securities Fund 0.55% 0.45% 0.35%
In accordance with a Sub-Advisory Agreement between IFG and INVESCO Trust
Company ("ITC"), a wholly owned subsidiary of IFG, investment decisions of each
Fund are made by ITC. Fees for such sub-advisory services are paid by IFG. In
accordance with an Administrative Agreement, each Fund pays IFG an annual fee of
$10,000, plus an additional amount computed at an annual rate of 0.015% of
average net assets to provide administrative, accounting and clerical services.
The fee is accrued daily and paid monthly.
IFG received a transfer agent fee at an annual rate of $20.00 per
shareholder account, or per participant in an omnibus account through April 30,
1996. 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. As of
May 1, 1996, the transfer agent fee became $26.00 per shareholder account or,
where applicable, per participant in an omnibus account, per year, computed in a
manner similar to the previous fee.
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
reimbursement of marketing and advertising expenditures to IFG (the
"Distributor") to a maximum of 0.25% of average annual net assets. Amounts
accrued by the Fund are available to reimburse the Distributor for actual
expenditures incurred within a rolling twelve-month period. For the year ended
August 31, 1996, High Yield, Select Income, Short-Term Bond and U.S. Government
Securities Funds paid the Distributor $842,755, $630,553, $21,828 and $102,611,
respectively, for reimbursement of expenses incurred. IFG has voluntarily
agreed, in some instances, to absorb certain fees and expenses incurred by High
Yield, Select Income and U.S. Government Securities Funds, and IFG and ITC have
voluntarily agreed, in some instances, to absorb certain fees and expenses
incurred by Short-Term Bond Fund.
<PAGE>
NOTE 3 - PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended
August 31, 1996, 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 $925,311,661 $850,134,108
Select Income Fund 482,360,773 415,654,074
Short-Term Bond Fund 1,524,320 2,212,426
For the year ended August 31, 1996, the aggregate cost of purchases and proceeds
from sales of U.S. Government securities were as follows:
Fund Purchases Sales
- --------------------------------------------------------------------------------
Select Income Fund $79,761,985 $95,935,975
Short-Term Bond Fund 8,535,783 5,268,695
U.S. Government Securities Fund 92,238,609 78,567,119
NOTE 4 - APPRECIATION AND DEPRECIATION. At August 31, 1996, the gross
appreciation of securities in which there was an excess of value over tax cost,
the gross depreciation of securities in which there was an excess of tax cost
over value and the resulting net depreciation by Fund were as follows:
Gross Gross Net
Fund Appreciation Depreciation Depreciation
- --------------------------------------------------------------------------------
High Yield Fund $2,906,328 $9,298,848 $6,392,520
Select Income Fund 1,678,674 5,937,405 4,258,731
Short-Term Bond Fund 3,389 151,674 148,285
U.S. Government
Securities Fund 403,586 742,494 338,908
NOTE 5 - TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or ITC.
The Fund has adopted an unfunded 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 were based on an annual rate equal to 25% of the retainer fee at the time
of retirement. As of July 1, 1996, benefits are based on an annual rate of 40%
of the retainer fee at the time of retirement.
<PAGE>
Pension expenses for the year ended August 31, 1996, included in Directors'
Fees and Expenses in the Statement of Operations, and unfunded accrued pension
costs and pension liability included in Prepaid Expenses and Accrued Expenses,
respectively, in the Statement of Assets and Liabilities were as follows:
Unfunded
Pension Accrued Pension
Fund Expenses Pension Costs Liability
- --------------------------------------------------------------------------------
High Yield Fund $3,200 $6,386 $15,023
Select Income Fund 2,410 3,055 8,521
Short-Term Bond Fund 91 228 502
U.S. Government
Securities Fund 440 941 2,167
NOTE 6 - LINE OF CREDIT. The 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. For the
year ended August 31, 1996, there were no such borrowings.
<PAGE>
INVESCO Income Funds, Inc.
Financial Highlights
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Period Year
Ended Ended
Year Ended August 31 August 31 December 31
------------------------------------ ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993>> 1992 1991
High Yield Fund
PER SHARE DATA
Net Asset Value -
Beginning of Period $6.73 $6.73 $7.32 $6.97 $6.66 $6.00
------------------------------------ ---------- --------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.63 0.66 0.62 0.39 0.64 0.70
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.11 0.03 (0.59) 0.36 0.30 0.64
------------------------------------ ---------- --------------------
Total from Investment Operations 0.74 0.69 0.03 0.75 0.94 1.34
------------------------------------ ---------- --------------------
LESS DISTRIBUTIONS
Dividends from Net Investment
Income+ 0.63 0.66 0.62 0.40 0.63 0.68
In Excess of Capital Gains 0.00 0.03 0.00 0.00 0.00 0.00
------------------------------------ ---------- --------------------
Total Distributions 0.63 0.69 0.62 0.40 0.63 0.68
------------------------------------ ---------- --------------------
Net Asset Value -
End of Period 6.84 6.73 6.73 7.32 6.97 6.66
==================================== ========== ====================
TOTAL RETURN 11.38% 11.12% 0.37% 11.01%* 14.53% 23.51%
RATIOS
Net Assets - End of Period
($000 Omitted) 375,201 288,959 243,773 308,945 212,172 99,103
Ratio of Expenses to
Average Net Assets# 0.99%@ 1.00% 0.97% 0.97%~ 1.00% 1.05%
Ratio of Net Investment Income
to Average Net Assets# 9.13% 10.01% 8.70% 8.28%~ 9.29% 10.57%
Portfolio Turnover Rate 266% 201% 195% 45%* 120% 64%
</TABLE>
>> From January 1, 1993 to August 31, 1993, the Fund's current fiscal year-end.
<PAGE>
+ Distributions in excess of net investment income for the year ended August 31,
1996, aggregated less that $0.01 on a per share basis.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended August 31, 1996, 1995 and 1994. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 0.99%, 1.07%
and 0.98%, respectively, and ratio of net investment income to average net
assets would have been 9.13%, 9.94% and 8.69%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
INVESCO Income Funds, Inc.
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Period Year
Ended Ended
Year Ended August 31 August 31 December 31
1996 1995 1994 1993>> 1992 1991
------------------------------------ ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Select Income Fund
PER SHARE DATA
Net Asset Value -
Beginning of Period 6.54 6.18 6.80 6.53 6.50 5.96
------------------------------------ ---------- ---------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.47 0.47 0.47 0.33 0.52 0.53
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.17) 0.36 (0.43) 0.27 0.13 0.53
------------------------------------ ---------- ---------------------
Total from Investment Operations 0.30 0.83 0.04 0.60 0.65 1.06
------------------------------------ ---------- ---------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.46 0.47 0.47 0.33 0.52 0.52
In Excess of Net Investment
Income+ 0.01 0.00 0.00 0.00 0.00 0.00
Distributions from Capital Gains 0.02 0.00 0.09 0.00 0.10 0.00
In Excess of Capital Gains 0.00 0.00 0.10 0.00 0.00 0.00
------------------------------------ ---------- ---------------------
Total Distributions 0.49 0.47 0.66 0.33 0.62 0.52
------------------------------------ ---------- ---------------------
Net Asset Value -
End of Period 6.35 6.54 6.18 6.80 6.53 6.50
==================================== ========== =====================
TOTAL RETURN 4.78% 14.01% 0.47% 9.42%* 10.38% 18.57%
RATIOS
Net Assets - End of Period
($000 Omitted) 258,093 216,597 138,337 158,780 123,036 93,827
Ratio of Expenses to Average
Net Assets# 1.01%@ 1.00% 1.11% 1.15%~ 1.14% 1.15%
Ratio of Net Investment Income
to Average Net Assets# 7.14% 7.38% 7.22% 7.40%~ 7.97% 8.57%
Portfolio Turnover Rate 210% 181% 135% 105%* 178% 117%
</TABLE>
<PAGE>
>> From January 1, 1993 to August 31, 1993, the Fund's current fiscal year-end.
+ Distributions in excess of net investment income for the year ended August 31,
1995, aggregated less than $0.01 on a per share basis.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended August 31, 1996, 1995 and 1994. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.16%, 1.22%
and 1.15%, respectively, and ratio of net investment income to average net
assets would have been 6.99%, 7.16% and 7.18%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
INVESCO Income Funds, Inc.
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Period
Ended
Year Ended August 31 August 31
--------------------------------- ------------
1996 1995 1994^
<S> <C> <C> <C>
Short-Term Bond Fund
PER SHARE DATA
Net Asset Value -
Beginning of Period $9.54 $9.46 $ 10.00
--------------------------------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.56 0.57 0.47
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.13) 0.08 (0.54)
--------------------------------- ------------
Total from Investment Operations 0.43 0.65 (0.07)
--------------------------------- ------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income+ 0.56 0.57 0.47
---------------------------------- ------------
Net Asset Value - End of Period 9.41 9.54 9.46
================================== ============
TOTAL RETURN 4.63% 7.16% (0.72%)*
RATIOS
Net Assets - End of Period
($000 Omitted) 10,735 8,979 7,878
Ratio of Expenses to Average Net Assets# 0.80%@ 0.46% 0.46%~
Ratio of Net Investment Income to
Average Net Assets# 5.85% 6.05% 5.50%~
Portfolio Turnover Rate 103% 68% 169%*
</TABLE>
^ From September 30, 1993, commencement of operations, to August 31, 1994.
+ Distributions in excess of net investment income for the years ended August
31, 1996 and 1995, aggregated less than $0.01 on a per share basis.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
<PAGE>
# Various expenses of the Fund were voluntarily absorbed by IFG and ITC for the
years ended August 31, 1996, 1995 and for the period ended August 31, 1994. If
such expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 2.17%, 2.09% and 2.04% (annualized), respectively,
and ratio of net investment income to average net assets would have been 4.48%,
4.42% and 3.92% (annualized), respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
INVESCO Income Funds, Inc.
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Period Year
Ended Ended
Year Ended August 31 August 31 December 31
------------------------------------- ------------ ----------------------
1996 1995 1994 1993>> 1992 1991
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Securities Fund
PER SHARE DATA
Net Asset Value -
Beginning of Period $7.49 $7.10 $8.19 $7.61 $7.65 $7.09
------------------------------------- ------------ ----------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.44 0.45 0.41 0.28 0.46 0.48
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.34) 0.39 (0.93) 0.58 (0.04) 0.57
------------------------------------- ------------ ----------------------
Total from Investment Operations 0.10 0.84 (0.52) 0.86 0.42 1.05
------------------------------------- ------------ ----------------------
LESS DISTRIBUTIONS
Dividends from Net Investment
Income 0.43 0.45 0.41 0.28 0.46 0.49
In Excess of Net Investment
Income+ 0.01 0.00 0.00 0.00 0.00 0.00
Distributions from Capital Gains 0.00 0.00 0.16 0.00 0.00 0.00
------------------------------------- ------------ ----------------------
Total Distributions 0.44 0.45 0.57 0.28 0.46 0.49
------------------------------------- ------------ ----------------------
Net Asset Value - End of Period 7.15 7.49 7.10 8.19 7.61 7.65
===================================== ============ ======================
TOTAL RETURN 1.31% 12.37% (6.53%) 11.61%* 5.68% 15.56%
RATIOS
Net Assets - End of Period
($000 Omitted) 54,614 38,087 36,740 36,391 35,799 29,229
Ratio of Expenses to Average
Net Assets# 1.02%@ 1.00% 1.32% 1.40%~ 1.27% 1.27%
Ratio of Net Investment Income
to Average Net Assets# 5.76% 6.24% 5.46% 5.36%~ 6.08% 6.78%
Portfolio Turnover Rate 212% 99% 95% 100%* 115% 67%
</TABLE>
<PAGE>
>> From January 1, 1993 to August 31, 1993, the Fund's current fiscal year-end.
+ Distributions in excess of net investment income for the year ended August 31,
1995, aggregated less than $0.01 on a per share basis.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended August 31, 1996, 1995 and 1994. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.48%, 1.51%
and 1.42%, respectively, and ratio of net investment income to average net
assets would have been 5.30%, 5.73% and 5.36%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
INVESCO Income 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 High Yield Fund, Select Income
Fund, Short-Term Bond Fund and U.S. Government Securities Fund (constituting
INVESCO Income Funds, Inc., hereafter referred to as the "Fund") at August 31,
1996, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1996 by
correspondence with the custodian and the application of alternative auditing
procedures for unsettled security transactions, provide a reasonable basis for
the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Denver, Colorado
September 30, 1996
<PAGE>
INVESCO FUNDS
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(R), your 24-hour Personal
Account Line, call: 1-800-424-8085
You can find us on the Word Wide Web:
http://www.invesco.com
Or write to:
INVESCO Funds Group, Inc., (SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
If you're in Denver, please visit one of our
convenient Investor Centers:
Cherry Creek, 155-B Fillmore Street;
Denver Tech Center,
7800 East Union Avenue, Lobby Level
This information must be preceded or accompanied by an effective prospectus.
