Annual Report
August 31, 1997
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 1997
U.S. financial markets are highly dependent on investors' perception of the
domestic economy. This has been especially true this year. In the early spring,
fears of inflation and the potential for an overheating economy caused the
Federal Reserve Board to increase short-term interest rates by 25 basis points.
This produced a dramatic increase in interest rates and tempered the returns for
fixed-income securities. Subsequently, the prevailing view had been of strong
and stable economic growth with benign inflation. Quickly, the bond market
rallied, and equity markets followed. Recently, however, renewed concerns over
inflation, and a stronger-than-expected economy have again increased day-to-day
volatility within the fixed-income market.
Why has the economy been so difficult to gauge?
Conventional wisdom has always held that strong economic growth and benign
inflation couldn't coexist. However, for the last seven months they have. Some
analysts are calling the current economic environment a "new paradigm" or a
"utopian environment." The Gross Domestic Product (GDP) -- the primary indicator
of economic status -- continues to increase at a rapid pace. In the fourth
quarter of 1996, the GDP rose at a revised rate of 3.9%; for the first quarter
of 1997, 4.9%; and for the second quarter of 1997, 3.3%.
Meanwhile, the specter of inflation has been nonexistent. Wholesale prices
across the economy decreased for the first seven months of 1997, yet the
unemployment rate measured 4.9% in August and 4.8% in July -- the lowest levels
since 1973.
Given these conditions, credit analysis continues to play a more important
role in evaluating fixed-income securities than interest-rate analysis --
especially for high-yield securities. Until a clearer picture of the economy's
direction does develop, fixed-income investors may experience continued
day-to-day volatility, although probably to a lesser degree than equity markets.
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, for the 10 years ended 8/31/97 (or for Short-Term Bond Fund, from
inception through 8/31/97). 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
Average Annual Total Return
as of 8/31/97 (2)
1 Year 19.27%
---------------------------
5 Years 11.12%
---------------------------
10 Years 9.82%
---------------------------
For the one-year period ended 8/31/97, INVESCO High Yield Fund achieved a
total return of 19.27%, compared to 14.90% for the Merrill Lynch High Yield
Master Index. The fund also outperformed its peers over the same period, besting
the average fund return of 15.79% for the Lipper High Current Yield objective.
(Lipper Analytical Services, Inc., is an independent mutual fund analyst, which
tracks fund performance by total return unadjusted for commissions. Of course,
past performance is not a guarantee of future results.) (1),(2)
Graph: This line graph compares 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 in each case reinvestment of all
dividends and capital gain distributions, for the ten
year period ended 8/31/97.
INVESCO High Yield Fund received the overall prestigious five-star rating
for risk-adjusted performance by Morningstar, for the period ended 8/31/97. For
the three-year and five-year periods ended 8/31/97, the fund received the
five-star rating, and for the 10-year period ended 8/31/97, a four-star rating.
(3)
This has been a record year for new issues of high-yield securities, as
investors' demand for stronger yields plus a vibrant economy have increased the
number of participants in this market. However, tightening credit and interest
rate spreads have changed the risk/reward relationship, requiring a greater
emphasis on fundamental analysis. Even with many high-yield sectors appearing
fully valued, we continue to seek opportunities through our in-depth research.
<PAGE>
Earlier in the fund's fiscal year, we identified undervalued securities in
the broadcast radio and communications industries, which were experiencing
consolidation and improving fundamentals. The fund's returns were enhanced by
investments in Chancellor Broadcasting, which was acquired by Evergreen Media.
Another company that produced positive returns for the portfolio was EZ
Communications, Inc., which was bought by American Radio Systems. We later
reduced our exposure to the radio broadcasting sector, however, as promising
targets disappeared.
The communications sector remains our favorite investment area. This is
especially true in regard to competitive local exchange carriers -- local phone
companies. These companies should be "cash flow positive" this year for the
first time, which may increase their credit quality. Consolidation is also
occurring in the industry, which provides two ways to win for these holdings.
Recently, the fund's performance has been enhanced by companies like McLeodUSA
Inc. and Brooks Fiber Properties. Both companies have been improving
fundamentally, and are active in acquiring local communications companies.
Looking Forward
We believe that the current strong economy and low interest rates provide a good
investment environment for high-yield securities. This market has the potential
to offer competitive returns with less risk than the broad equity market.
Select Income Fund
For the one-year period ended 8/31/97, INVESCO Select Income Fund achieved
a total return of 12.89%, compared to a total return of 9.80% for the Lehman
Government/ Corporate Bond Index. In addition, the fund outperformed its peer
group for the same period, besting the average fund return of 11.19% for the
Lipper Corporate Debt BBB objective. (Lipper Analytical Services, Inc., is an
independent mutual fund analyst, which tracks fund performance by total return
unadjusted for commissions. Of course, past performance is not a guarantee of
future results.) (1),(2)
Select Income Fund
Average Annual Total Return
as of 8/31/97 (2)
1 Year 12.89%
---------------------------
5 Years 8.72%
---------------------------
10 Years 9.35%
---------------------------
<PAGE>
INVESCO Select Income Fund received the overall prestigious five-star
rating for risk-adjusted performance by Morningstar, for the period ended
8/31/97. For the five-year and 10-year periods ended 8/31/97, the fund received
the five-star rating, and for the three-year period, a four-star rating. (3)
Our strong relative performance over the last year can be attributed to
our value-oriented bond management strategy, which has helped us identify
undervalued securities. Earlier in 1997, our analysis suggested that
mortgage-backed obligations were undervalued by the market -- thus we increased
our position in these securities. However, after producing strong returns, the
spreads narrowed, and we reduced the fund's exposure. During this period, we
also avoided investment grade corporate debt, as we considered these securities
generally unattractive due to narrow spreads (that is, on a risk/reward basis).
As the year progressed, we increased the fund's emphasis on putable bonds.
(Putable bonds are debt obligations that allow a holder to redeem the issue at
specified intervals before maturity and receive full face value.) These
securities provide price appreciation in bull markets, while offering protection
in bear markets. They can be an excellent hedge in a volatile interest rate
environment, and remain a major focus of the fund's investment strategy.
Graph: This line graph represents a comparison of the value of
a $10,000 investment in INVESCO Select Income Fund to the
value of a $10,000 investment in the Lehman Government/
Corporate Bond Index, assuming in each cash reinvestment
of all dividends and capital gain distributions, for the
ten year period ended August 31, 1997.
In our semiannual report, we mentioned the intriguing possibilities of the
electric utility industry. Over the last six months, this industry surpassed our
expectations and is now the dominant theme in the portfolio. Proposed changes in
individual state legislation potentially allow electric utility companies to
recover the "stranded costs" associated with the building of new power plants.
This may create enormous cash flows for certain electric companies and allow
them to pay down their debt -- improving their credit ratings. New England Power
and Light, Pennsylvania Power and Light, and Houston Light and Power are
examples of three fund holdings that enhanced returns over the last year.
<PAGE>
Last year, we utilized a "credit barbell" approach, by investing on both
extremes of the credit quality spectrum. In response to changing market
conditions and tightening credit spreads, we have altered our strategy. Moving
forward, we expect to stay focused on putable bonds, yield-to-call issues, and
the electric utility industry. We believe these securities are undervalued
compared to alternative investments in the fixed-income market. Interest rate
volatility may continue into next year, and investment selectivity will remain
crucial.
U.S. Government Securities Fund
Average Annual Total Return
as of 8/31/97 (2)
1 Year 11.01%
---------------------------
5 Years 6.05%
---------------------------
10 Years 7.48%
---------------------------
U.S. Government Securities Fund
For the one-year period ended 8/31/97, INVESCO U.S. Government Securities
Fund had a total return of 11.01%, compared to a total return of 13.39% for the
Lehman Long Government Bond Index. However, the fund outperformed its peers for
the same period, beating the average fund return of 8.91% for the Lipper General
U.S. Government objective. (Lipper Analytical Services, Inc., is an independent
mutual fund analyst, which tracks fund performance by total return unadjusted
for commissions. 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
in each case reinvestment of all dividends and and capital
gain distributions, for the ten year period ended
August 31, 1997.
Over the last year, a volatile interest rate environment made fixed-income
investing more challenging. We have successfully navigated by adjusting the
duration of the fund, and by allocating assets between U.S. Treasuries and
mortgage-backed securities on a sliding scale between 40% to 60% approximately.
(Duration is the weighted average term-to-maturity of the security's cash flows,
<PAGE>
generally used to measure the price volatility of a bond.) Recently, we modestly
increased the fund's exposure to intermediate-term mortgage-backed securities
while reducing our exposure to U.S. Treasuries with longer maturities.
Looking forward, we will continue to evaluate economic trends developing
in the interest rate market, adjusting the duration of the portfolio
accordingly. Duration is now slightly on the high side of our mid-range target.
This is in response to our positive near-term view for interest rates.
Short-Term Bond Fund
For the one-year period ended 8/31/97, INVESCO Short-Term Bond Fund had a
total return of 7.08%, compared to a total return of 7.04% for the Lehman 1-3
Year Government/Corporate Bond Index. The fund outperformed its peers for the
same period, besting the average fund return of 6.74% for the Lipper Short
Investment Grade Debt objective. (Lipper Analytical Services, Inc., is an
independent mutual fund analyst, which tracks fund performance by total return
unadjusted for commissions. Of course, past performance is not a guarantee of
future results.) (1),(2)
The fund seeks a high current yield, while keeping the average portfolio
maturity between two to three years. Because the fund targets a very specific
maturity segment of the fixed-income market, it is more sensitive to sector
allocation decisions than perceptions of where interest rates are headed.
Short-Term Bond Fund
Averaige Annual Total Return
as of 8/31/97 (2)
1 Year 7.08%
------------------------------
Since Inception (10/93) 4.59%
------------------------------
During the last year, the fund's assets have primarily been allocated
among mortgage-backed securities, U.S. Treasuries, floating rate securities, and
investment grade corporate debt. The investment grade corporate debt holdings
generally represent special situations and, typically, enhance the yield of the
fund.
Looking forward, we will continue to manage the fund conservatively by
focusing on high-quality securities.
<PAGE>
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 in each case
reinvestment of all dividends and capital gain
distributions, for the period from inception (10/93)
through 8/31/97.
(1) 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, high
yield bond, and longer-term government 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.
(3) Morningstar proprietary rankings reflect historical risk-adjusted
performance and are subject to change every month. Ratings are calculated for
the fund's overall, three-, five-, and 10-year average annual returns (based on
available track records) in excess of 90 day Treasury bill returns. The top 10%
of funds in an investment category receive 5 stars; the next 22.5%, 4 stars; and
the next 35%, 3 stars. As of 8/31/97, High Yield Fund received 5 stars among
1,284 funds in the taxable bond fund category for the 3-year period, 5 stars
among 698 for the 5-year, and 4 stars among 269 for the 10-year. Select Income
Fund received 4 stars among 1,284 funds in the taxable bond fund category for
the 3-year period, 5 stars among 698 for the 5-year, and 5 stars among 269 for
the 10-year.
Fund Management
Vice President Richard R. Hinderlie: manager, U.S. Government Securities
Fund; co-manager, Short-Term Bond 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 BA in
economics from Pacific Lutheran University.
Senior Vice President Donovan "Jerry" Paul: manager, Select Income Fund and
High Yield Fund; co-manager, Short-Term Bond Fund. Jerry began his investment
career in 1976; before joining INVESCO, he worked for Stein, Roe & Farnham Inc.,
<PAGE>
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>
INVESCO Income Funds, Inc.
Statement of Investment Securities
August 31, 1997
<TABLE>
<CAPTION>
Country Shares, Units
Code if or Principal
Description Non US Amount Value
<S> <C> <C> <C>
HIGH YIELD Fund
FIXED INCOME SECURITIES 91.79%
Corporate Bonds 91.79%
AIR FREIGHT 3.25%
Navigator Gas Transport PLC,
1st Priority Ship Mortgage Notes^,
10.500%, 6/30/2007 UK $ 6,750,000 $6,918,750
------------
Statia Terminals International
NV/Statia Terminals Canada
1st Mortgage Notes, Series B,
11.750%, 11/15/2003 $ 3,750,000 3,960,938
------------
Viking Star Shipping, 1st Pfd
Ship Mortgage Notes,
9.625%, 7/15/2003 $ 3,159,000 3,324,847
------------
14,204,535
------------
ALUMINUM 2.17%
Kaiser Aluminum & Chemical, Sr Sub
Notes, 12.750%, 2/1/2003 $ 8,750,000 9,471,875
------------
BROADCASTING 8.14%
Allbritton Communications, Sr Sub Deb
11.500%, 8/15/2004 $ 2,000,000 2,100,000
Series B, 9.750%, 11/30/2007 $ 8,875,000 8,741,875
Capstar Radio Broadcasting Partners,
Sr Sub Notes^, 9.250%, 7/1/2007 $ 2,900,000 2,936,250
Commodore Media, Sr Sub Step-Up Notes,
7.500%^^, 5/1/2003 $ 10,500,000 11,550,000
Granite Broadcasting, Sr Sub Notes,
9.375%, 12/1/2005 $ 4,800,000 4,692,000
Paxson Communications, Sr Sub Notes,
11.625%, 10/1/2002 $ 3,175,000 3,444,875
Young Broadcasting, Gtd Sr Sub Notes,
11.750%, 11/15/2004 $ 1,900,000 2,123,250
------------
35,588,250
------------
<PAGE>
CABLE 13.21%
Century Communications, Sr Notes,
8.875%, 1/15/2007 $ 4,900,000 4,838,750
Diamond Cable Communications PLC,
Sr Discount Step-Up Notes
Zero Coupon^^, 2/15/2007 UK $ 9,000,000 5,557,500
Fox/Liberty Networks LLC/FLN Finance,
Sr Discount Step-Up Notes^
Zero Coupon^^, 8/15/2007 $ 12,500,000 7,687,500
Galaxy Telecom LP/Galaxy Telecom
Capital, Sr Sub Notes,
12.375%, 10/1/2005 $ 5,400,000 5,818,500
Kabelmedia Holding GmbH, Sr Discount
Step-Up Notes, Zero Coupon^^,
8/1/2006 GM $ 6,750,000 4,404,375
Marcus Cable LP/Marcus Cable
Capital III, Sr Deb,
11.875%, 10/1/2005 $ 8,230,000 8,950,125
Multicanal SA, Notes, 10.500%, 2/1/2007 AR $ 1,400,000 1,494,500
NTL Inc, Sr Deferred Coupon
Step-Up Notes, Zero Coupon^^
Series B, 2/1/2006 $ 7,200,000 5,184,000
10/15/2003 $ 2,000,000 1,795,000
OpTel Inc, Sr Notes, Series B,
13.000%, 2/15/2005 $ 2,400,000 2,316,000
Rogers Communications, Sr Notes,
8.875%, 7/15/2007 CA $ 2,800,000 2,775,500
TCI Satellite Entertainment,
Sr Sub Discount Step-Up Notes^,
Zero Coupon^^, 2/15/2007 $ 11,100,000 6,882,000
------------
57,703,750
------------
COMMUNICATIONS - EQUIPMENT
& MANUFACTURING 1.13%
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $ 4,800,000 4,920,000
------------
COMPUTER RELATED 4.40%
Bell & Howell, Sr Discount Step-Up Deb,
Series B, Zero Coupon^^, 3/1/2005 $ 11,850,000 9,909,563
Unisys Corp, Sr Notes, Series B,
12.000%, 4/15/2003 $ 8,500,000 9,328,750
------------
19,238,313
------------
<PAGE>
CONTAINERS 1.10%
Gaylord Container, Sr Notes^,
9.750%, 6/15/2007 $4,750,000 4,821,250
------------
DISTRIBUTION 1.75%
AmeriServe Food Distribution,
Sr Sub Notes^, 10.125%, 7/15/2007 $3,350,000 3,433,750
Di Giorgio Corp, Sr Notes^,
10.000%, 6/15/2007 $4,250,000 4,196,875
------------
7,630,625
ENTERTAINMENT 1.40%
All American Communications,
Sr Sub Notes, Series B,
10.875%, 10/15/2001 $5,750,000 6,109,375
FINANCIAL 1.86%
Delta Financial, Sr Notes,
9.500%, 8/1/2004 $3,800,000 3,771,500
HomeSide Inc, Sr Secured Priority
Notes, Series B, 11.250%, 5/15/2003 $3,750,000 4,364,062
------------
8,135,562
------------
GAMING 5.77%
Alliance Gaming, Sr Sub Notes^,
10.000%, 8/1/2007 $1,900,000 1,843,000
Aztar Corp, Sr Sub Notes,
13.750%, 10/1/2004 $9,500,000 10,877,500
California Hotel Finance, Gtd Sr
Sub Notes, 11.000%, 12/1/2002 $ 250,000 263,750
Mohegan Tribal Gaming Authority,
Sr Secured Notes, Series B,
13.500%, 11/15/2002 $6,605,000 8,652,550
Station Casinos, Sr Sub Notes,
10.125%, 3/15/2006 $3,600,000 3,591,000
------------
25,227,800
------------
HEALTH CARE RELATED 1.08%
Vencor Inc, Sr Sub Notes^,
8.625%, 7/15/2007 $4,750,000 4,738,125
------------
<PAGE>
LODGING - HOTELS 1.53%
Signature Resorts, Sr Sub Notes^,
9.750%, 10/1/2007 $6,750,000 6,665,625
------------
MANUFACTURING 1.18%
International Wire Group, Sr Sub Notes,
Series B^, 11.750%, 6/1/2005 $4,750,000 5,165,625
------------
METALS MINING 2.58%
Haynes International, Sr Notes,
11.625%, 9/1/2004 $4,150,000 4,565,000
Westmin Resources Ltd, Sr Secured
Notes, 11.000%, 3/15/2007 CA $6,250,000 6,687,500
------------
11,252,500
------------
NATURAL GAS 0.69%
Ferrellgas LP/Ferrellgas Finance,
Sr Notes, Series A, 10.000%, 8/1/2001 $2,900,000 3,030,500
------------
OIL & GAS RELATED 4.41%
Dual Drilling, Sr Sub Notes,
9.875%, 1/15/2004 $6,240,000 6,708,000
Energy Corp of America, Sr Sub Notes^,
9.500%, 5/15/2007 $6,000,000 5,940,000
Forcenergy Inc, Sr Sub Notes,
Series A, 8.500%, 2/15/2007 $1,750,000 1,725,938
Magnum Hunter Resources, Sr Sub
Notes^, 10.000%, 6/1/2007 $4,900,000 4,900,000
------------
19,273,938
------------
PAPER & FOREST PRODUCTS 5.05%
Ainsworth Lumber Ltd, Sr Secured Notes^,
12.500%, 7/15/2007 CA $5,750,000 5,692,500
Fort Howard, Sr Sub Notes,
9.000%, 2/1/2006 $4,750,000 5,011,250
Riverwood International, Sr Notes^,
10.625%, 8/1/2007 $3,400,000 3,442,500
Tembec Finance, Gtd Sr Notes,
9.875%, 9/30/2005 CA $7,575,000 7,934,812
------------
22,081,062
------------
<PAGE>
PUBLISHING 4.13%
Affiliated Newspaper Investments,
Sr Discount Step-Up Deb,
Zero Coupon^^, 7/1/2006 $19,618,000 18,048,560
------------
REAL ESTATE INVESTMENT TRUST 1.17%
Saul (B F) REIT, Sr Secured Notes,
Series B, 11.625%, 4/1/2002 $ 4,750,000 5,094,375
------------
RETAIL 0.23%
InterAct Systems, Sr Discount Step-Up
Notes, Zero Coupon^^, 8/1/2003 $ 2,400,000 1,008,000
------------
SAVINGS & LOAN 1.52%
Bayview Capital, Sub Notes,
9.125%, 8/15/2007 $ 3,750,000 3,787,500
Western Financial Savings Bank,
Sub Capital Deb, 8.875%, 8/1/2007 $ 2,900,000 2,840,976
------------
6,628,476
------------
SERVICES 1.32%
Williams Scotsman, Sr Notes^,
9.875%, 6/1/2007 $ 5,750,000 5,750,000
------------
SPECIALTY PRINTING 0.95%
MDC Communications, Sr Sub Notes,
10.500%, 12/1/2006 CA $ 3,900,000 4,143,750
------------
TELECOMMUNICATIONS - CELLULAR
& WIRELESS 9.06%
Centennial Cellular, Sr Notes,
8.875%, 11/1/2001 $ 5,500,000 5,513,750
CommNet Cellular
Sr Sub Discount Step-Up Notes,
Zero Coupon^^, 9/1/2003 $ 8,040,000 7,879,200
Sub Notes, 11.250%, 7/1/2005 $ 3,000,000 3,450,000
Microcell Telecommunications, Sr
Discount Step-Up Notes, Series B
Zero Coupon^^, 6/1/2006 $ 8,500,000 5,588,750
NEXTEL Communications, Sr Discount
Step-Up Notes, Zero Coupon^^,
8/15/2004 $ 6,300,000 5,229,000
PriCellular Wireless, Sr Sub Discount
Step-Up Notes, Zero Coupon^^,
10/1/2003 $12,215,000 11,909,625
------------
39,570,325
------------
<PAGE>
TELECOMMUNICATIONS -
LONG DISTANCE 11.31%
Brooks Fiber Properties
Sr Discount Step-Up Notes,
Zero Coupon^^, 3/1/2006 $ 10,150,000 7,358,750
Sr Notes^, 10.000%, 6/1/2007 $ 6,750,000 7,104,375
Cia Internacional de Telecomunicaciones
SA, Medium-Term Notes^,
8.850%, 8/1/2004 AR $ 2,000,000 2,022,500
Hyperion Telecommunications, Sr
Secured Notes^, 12.250%, 9/1/2004 $ 6,750,000 6,918,750
IXC Communications, Sr Notes,
Series B, 12.500%, 10/1/2005 $ 3,800,000 4,322,500
McLeodUSA Inc
Sr Discount Step-Up Notes^,
Zero Coupon^^, 3/1/2007 $ 10,000,000 6,600,000
Sr Notes^, 9.250%, 7/15/2007 $ 6,000,000 6,105,000
NEXTLINK Communications LLC/
NEXTLINK Capital, Sr Notes,
12.500%, 4/15/2006 $ 8,140,000 8,994,700
------------
49,426,575
------------
TELEPHONE 1.40%
Intermedia Communications, Sr
Discount Step-Up Notes^,
Zero Coupon^^, 7/15/2007 $ 9,700,000 6,135,250
------------
TOTAL FIXED INCOME SECURITIES
(Cost $394,180,099) 401,064,021
------------
COMMON STOCKS & WARRANTS 0.10%
CABLE 0.00%
OpTel Inc*^ 2,400 25
------------
RETAIL 0.00%
InterAct Systems, Warrants^ (Exp 2003)* 2,400 6,000
------------
TELECOMMUNICATIONS - CELLULAR
& WIRELESS 0.10%
Microcell Telecommunications
Conditional Warrants (Exp 1997)*^ 34,000 21,250
<PAGE>
Warrants (Exp 1997)*^ 34,000 425,000
NEXTLINK Communications LLC/NEXTLINK
Capital, Contingent Warrants^
(Exp 2009)* 82,000 829
------------
447,079
------------
TOTAL COMMON STOCKS & WARRANTS
(Cost $341,308) 453,104
------------
PREFERRED STOCKS 3.16%
BROADCASTING 0.70%
Capstar Radio Broadcasting Partners,
Sr Exchangeable Pfd^, 12.000% 29,000 3,059,500
------------
PUBLISHING 1.04%
K-III Communications, Sr Exchangeable
Pfd, 11.500% 169,100 4,544,562
------------
TELECOMMUNICATIONS -
CELLULAR & WIRELESS 0.61%
NEXTLINK Communications LLC/NEXTLINK
Capital, Sr Exchangeable Pfd**,
14.000% 45,264 2,659,260
------------
TELECOMMUNICATIONS -
LONG DISTANCE 0.81%
IXC Communications, Jr Exchangeable
Pfd^**, 12.500% 3,350 3,534,250
------------
TOTAL PREFERRED STOCKS
(Cost $12,793,596) 13,797,572
------------
OTHER SECURITIES 3.00%
SERVICES 0.22%
Verio Inc, Units^ (Each unit consists
of one $1,000 face amount Sr Note,
13.500%
6/15/2004 and 8 wrnts to buy
1.7604 shrs of cmn stock) 900 960,750
------------
TELEPHONE 2.78%
Ionica PLC, Units^ (Each unit consists
of one $1,000 face amount Sr Discount
Note, 13.500% , 5/1/2007 and 1 wrnt to
purchase 19.619 shrs of cmn stock) UK 9,150 4,941,000
<PAGE>
Metronet Communications, Units^
(Each unit consists of one $1,000
face amount Sr
Note 12.000%, 8/15/2007 and 1 wrnt to purchase 3.429 shrs
of cmn stock) CA 6,750 7,222,500
------------
12,163,500
------------
TOTAL OTHER SECURITIES
(Cost $12,308,783) 13,124,250
------------
SHORT-TERM INVESTMENTS -
COMMERCIAL PAPER 1.95%
FINANCIAL 1.95%
Associates Corp of North America,
5.583%, 9/2/1997
(Cost $8,503,000) $8,503,000 8,503,000
------------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $428,126,786)
(Cost for
Income Tax Purposes
$428,232,365) $436,941,947
============
SELECT INCOME Fund
FIXED INCOME SECURITIES 96.04%
US Government Agency Obligations 11.03%
Federal Home Loan Mortgage, Gold,
Participation Certificates
7.000%, 5/1/2024 $ 4,450,670 $ 4,417,423
6.500%, 10/1/2010 $ 4,207,379 $ 4,155,880
6.500%, 9/1/2011 $23,218,699 $22,925,912
------------
TOTAL US GOVERNMENT AGENCY
OBLIGATIONS (Cost $30,863,988) 31,499,215
------------
Corporate Bonds 85.01%
AIR FREIGHT 1.44%
Navigator Gas Transport PLC, 1st
Priority Ship Mortgage Notes^
10.500%, 6/30/2007 UK $ 4,000,000 4,100,000
------------
<PAGE>
BROADCASTING 1.80%
Allbritton Communications, Sr Sub
Deb, 11.500%, 8/15/2004 $ 2,000,000 2,100,000
Capstar Radio Broadcasting Partners,
Sr Sub Notes^, 9.250%, 7/1/2007 $ 3,000,000 3,037,500
------------
5,137,500
------------
BUILDING MATERIALS 3.58%
USG Corp
Deb, 8.750%, 3/1/2017 $ 200,000 206,000
Sr Notes, 8.500%, 8/1/2005 $ 9,340,000 10,017,150
------------
10,223,150
------------
CABLE 2.98%
CF Cable TV, 2nd Priority Sr Secured
Notes, 11.625%, 2/15/2005 CA $ 4,000,000 4,560,000
Fox/Liberty Networks LLC/FLN Finance,
Sr Notes^, 8.875%, 8/15/2007 $ 4,000,000 3,960,000
------------
8,520,000
------------
COMPUTER RELATED 3.63%
Bell & Howell, Sr Discount Step-Up
Deb, Series B, Zero Coupon^^,
3/1/2005 $ 3,000,000 2,508,750
International Business Machines,
Deb, 6.220%, 8/1/2027 $ 8,000,000 7,854,568
------------
10,363,318
------------
ELECTRIC UTILITIES 25.10%
Boston Edison, Deb, 7.800%, 3/15/2023 $ 1,500,000 1,488,969
Carolina Power & Light, 1st Mortgage
8.625%, 9/15/2021 $ 1,000,000 1,156,964
6.875%, 8/15/2023 $ 2,500,000 2,320,852
DQU-II Funding, Collateral Lease,
8.700%, 6/1/2016 $ 8,000,000 8,719,800
Detroit Edison, Secured Medium-Term
Notes, Series 92D, 8.300%, 8/1/2022 $ 3,000,000 3,218,463
El Paso Electric, 1st Mortgage,
Series C, 8.250%, 2/1/2003 $ 3,375,000 3,510,000
Gulf States Utilities, 1st Mortgage,
8.940%, 1/1/2022 $ 1,000,000 1,057,545
Jersey Central Power & Light,
1st Mortgage, 7.500%, 5/1/2023 $ 4,000,000 3,913,191
<PAGE>
Long Island Lighting, Deb,
8.200%, 3/15/2023 $ 7,117,000 7,483,369
Metropolitan Edison, Secured Medium-
Term Notes, Series B, 6.970%,
10/19/2023 $ 3,500,000 3,258,167
PSI Energy, Deb, 6.350%, 11/15/2006 $ 5,750,000 5,731,295
Pacific Gas & Electric, 1st & Ref
Mortgage, Series 91A, 8.800%, 5/1/2024 $ 3,600,000 4,236,372
Pennsylvania Power, 1st Mortgage,
8.500%, 7/15/2022 $ 2,000,000 2,154,950
Pennsylvania Power & Light,
1st Mortgage, 7.875%, 2/1/2023 $ 5,000,000 5,159,910
Philadelphia Electric, 1st & Ref
Mortgage
7.750%, 3/1/2023 $ 5,270,000 5,395,658
7.250%, 11/1/2024 $ 4,500,000 4,381,339
Public Service Electric & Gas,
1st & Ref Mortgage, 7.500%, 3/1/2023 $ 3,124,000 3,081,376
Public Service of New Mexico, 1st
Mortgage Notes, 9.000%, 5/1/2008 $ 3,100,000 3,186,180
Utilicorp United, Sr Notes,
9.000%, 11/15/2021 $ 2,000,000 2,189,084
------------
71,643,484
------------
ENTERTAINMENT 4.90%
Time Warner, Deb, 6.850%, 1/15/2026 $ 5,000,000 4,924,834
Time Warner Entertainment LP, Sr Deb,
8.375%, 3/15/2023 $ 5,000,000 5,283,324
Viacom International, Sub Deb
Series A, 7.000%, 7/1/2003 $ 1,942,000 1,860,218
Series B, 7.000%, 7/1/2003 $ 2,000,000 1,915,776
------------
13,984,152
------------
GAMING 1.54%
Aztar Corp, Sr Sub Notes,
13.750%, 10/1/2004 $ 2,000,000 2,290,000
California Hotel Finance, Gtd
Sr Sub Notes, 11.000%, 12/1/2002 $ 2,000,000 2,110,000
------------
4,400,000
------------
<PAGE>
HEALTH CARE DRUGS -
PHARMACEUTICALS 2.88%
McKesson Corp, Sub Deb,
4.500%, 3/1/2004 $ 9,316,000 8,221,900
------------
HEALTH CARE RELATED 2.28%
FHP International, Sr Notes,
7.000%, 9/15/2003 $ 6,535,000 6,501,011
------------
INSURANCE 2.83%
Berkley (W R) Corp, Sr Notes,
6.250%, 1/15/2006 $ 3,000,000 2,843,829
Veritas Holdings GmbH, Sr Notes^,
9.625%, 12/15/2003 GM $ 5,000,000 5,225,000
------------
8,068,829
------------
INVESTMENT BANK/BROKER FIRM 3.29%
Donaldson Lufkin & Jenrette,
Medium-Term Notes,
5.625%, 2/15/2016 $ 3,000,000 2,911,437
Lehman Brothers Holdings, Sr Notes,
8.800%, 3/1/2015 $ 4,000,000 4,531,623
Salomon Inc, Unsecured Notes,
2.250%, 3/2/2015 $ 4,000,000 1,945,000
------------
9,388,060
------------
MACHINERY 1.72%
AGCO Corp, Sr Sub Notes,
8.500%, 3/15/2006 $ 4,750,000 4,916,250
------------
NATURAL GAS 1.33%
Noram Energy, Conv Sub Deb,
6.000%, 3/15/2012 $ 4,242,000 3,807,195
------------
OFFICE EQUIPMENT & SUPPLIES 1.73%
Xerox Corp, Medium-Term Notes,
Series D, 6.250%, 11/15/2026 $ 5,000,000 4,924,615
------------
OIL & GAS RELATED 4.49%
Atlantic Richfield, Deb
9.125%, 3/1/2011 $ 874,000 1,049,767
9.125%, 8/1/2031 $ 3,650,000 4,530,664
Energy Corp of America, Sr Sub Notes^,
9.500%, 5/15/2007 $ 4,000,000 3,960,000
Sun Inc, Deb, 9.375%, 6/1/2016 $ 3,000,000 3,276,888
<PAGE>
------------
12,817,319
------------
PAPER & FOREST PRODUCTS 4.94%
Champion International, Deb,
6.400%, 2/15/2026 $ 3,000,000 2,908,746
Fort Howard, Sr Sub Notes,
9.000%, 2/1/2006 $ 3,000,000 3,165,000
Quno Corp, Sr Notes,
9.125%, 5/15/2005 CA $ 5,000,000 5,400,000
Tembec Finance, Gtd Sr Notes,
9.875%, 9/30/2005 CA $ 2,500,000 2,618,750
------------
14,092,496
------------
PUBLISHING 2.00%
Affiliated Newspaper Investments,
Sr Discount Step-Up Deb,
Zero Coupon^^, 7/1/2006 $ 3,000,000 2,760,000
Quebecor Printing, Capital Deb,
6.500%, 8/1/2027 CA $ 3,000,000 2,958,750
------------
5,718,750
------------
RAILROADS 2.07%
Ferrovie dello Stato,
9.125%, 7/6/2009 IT $ 5,000,000 5,915,625
------------
REAL ESTATE RELATED 1.20%
Trizec Finance Ltd, Gtd Sr Notes,
10.875%, 10/15/2005 $ 3,000,000 3,416,250
------------
SAVINGS & LOAN 1.79%
Dime Bancorp, Sr Notes,
10.500%, 11/15/2005 $ 2,850,000 3,078,000
Western Financial Savings Bank,
Sub Capital Deb, 8.500%, 7/1/2003 $ 2,000,000 2,037,550
------------
5,115,550
------------
TELECOMMUNICATIONS - CELLULAR
& WIRELESS 0.69%
Microcell Telecommunications, Sr
Discount Step-Up Notes, Series B
Zero Coupon^^, 6/1/2006 $ 3,000,000 1,972,500
------------
<PAGE>
TELECOMMUNICATIONS -
LONG DISTANCE 4.34%
Brooks Fiber Properties, Sr Discount
Step-Up Notes, Zero Coupon^^,
3/1/2006 $ 7,300,000 5,292,500
Cia Internacional de Telecomunicaciones
SA, Medium-Term Notes^
8.850%, 8/1/2004 AR $ 2,000,000 2,022,500
McLeodUSA Inc, Sr Notes^,
9.250%, 7/15/2007 $ 5,000,000 5,087,500
------------
12,402,500
------------
TELEPHONE 0.71%
Frontier Corp, Notes, 7.250%, 5/15/2004 $ 2,000,000 2,034,898
------------
TOBACCO 1.75%
Standard Commercial Tobacco,
Sr Notes^, 8.875%, 8/1/2005 $ 5,000,000 4,987,500
------------
TOTAL CORPORATE BONDS
(Cost $240,630,865) 242,672,852
------------
TOTAL FIXED INCOME SECURITIES
(Cost $271,494,853) 274,172,067
------------
WARRANTS 0.06%
TELECOMMUNICATIONS -
CELLULAR & WIRELESS 0.06%
Microcell Telecommunications
Conditional Warrants (Exp 1997)*^ 12,000 7,500
Warrants (Exp 1997)*^ 12,000 150,000
------------
TOTAL WARRANTS
(Cost $120,626) 157,500
------------
SHORT-TERM INVESTMENTS -
COMMERICAL PAPER 3.90%
FINANCIAL 3.90%
General Electric Capital,
5.590%, 9/2/1997
(Cost $11,127,000) 11,127,000 11,127,000
------------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $282,742,479) (Cost for
Income Tax Purposes $282,751,836) $285,456,567
============
<PAGE>
SHORT-TERM BOND Fund
FIXED INCOME SECURITIES 84.80%
US Government Agency Obligations 52.03%
Federal Home Loan Mortgage, Gold,
Participation Certificates
7.000%, 4/1/2008 $2,286,245 $2,303,300
6.500%, 8/1/2008 $3,804,043 3,776,425
------------
TOTAL US GOVERNMENT AGENCY
OBLIGATIONS
(Cost $6,080,351) 6,079,725
------------
Corporate Bonds 32.77%
AUTOMOBILES 6.43%
General Motors Acceptance, Pass-
Through Trust, Series 1997^,
6.500%, 1/17/2000 $750,000 750,900
------------
BROADCASTING 2.25%
Allbritton Communications, Sr Sub Deb,
11.500%, 8/15/2004 $250,000 262,500
------------
CABLE 1.95%
CF Cable TV, 2nd Priority Sr Secured
Notes, 11.625%, 2/15/2005 $200,000 228,000
------------
COMPUTER RELATED 2.23%
Bell & Howell, Sr Sub Notes, Series B,
10.750%, 10/1/2002 $250,000 261,250
------------
ELECTRIC UTILITIES 2.13%
PSI Energy, Deb, 6.350%, 11/15/2006 $250,000 249,187
------------
FINANCIAL 7.29%
Ford Motor Credit, Medium-Term Notes,
5.969%, 2/1/1999 $450,000 450,866
United States Leasing International,
Medium-Term Notes, 5.878%, 11/16/1998 $400,000 400,541
------------
851,407
------------
<PAGE>
GAMING 2.45%
Aztar Corp, Sr Sub Notes,
13.750%, 10/1/2004 $250,000 286,250
------------
PUBLISHING 1.97%
Affiliated Newspaper Investments,
Sr Discount Step-Up Deb, Zero
Coupon^^, 7/1/2006 $250,000 230,000
------------
REAL ESTATE INVESTMENT TRUST 2.16%
Fisher Brothers Financial Realty,
Secured Notes, 10.750%, 12/17/2000 $250,000 252,500
------------
TELECOMMUNICATIONS - CELLULAR
& WIRELESS 3.91%
Centennial Cellular, Sr Notes,
8.875%, 11/1/2001 $250,000 250,625
Rogers Cantel Mobile, Gtd Sr Sub
Notes, 11.125%, 7/15/2002 $200,000 206,600
------------
457,225
------------
TOTAL CORPORATE BONDS
(Cost $3,818,124) 3,829,219
------------
TOTAL FIXED INCOME SECURITIES
(Cost $9,898,475) 9,908,944
------------
SHORT-TERM INVESTMENTS 15.20%
Corporate Bonds 4.04%
FINANCIAL 4.04%
Chrysler Financial, Notes,
6.500%, 6/15/1998
(Cost $471,354) 470,000 471,952
------------
Repurchase Agreements 11.16%
Repurchase Agreement with State
Street Bank & Trust Co dated
8/29/1997
due 9/2/1997 at 5.500%,
repurchased at $1,304,797
(Collateralized by
US Treasury Notes due 8/15/1998
at 5.875%, value $1,338,078)
Cost $1,304,000) 1,304,000 $ 1,304,000
------------
<PAGE>
TOTAL SHORT-TERM INVESTMENTS
(Cost $1,775,354) 1,775,952
------------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $11,673,829) (Cost for
Income Tax Purposes $11,680,370) $ 11,684,896
============
U.S. GOVERNMENT SECURITIES Fund
FIXED INCOME SECURITIES 99.57%
US Government Obligations 47.65%
US Treasury Bonds
8.125%, 8/15/2019 $ 5,000,000 $ 5,815,625
8.125%, 5/15/2021 $10,000,000 11,675,000
6.375%, 8/15/2027 $11,000,000 10,666,568
------------
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $27,131,266) 28,157,193
------------
US Government Agency Obligations 51.92%
Federal Home Loan Mortgage, Gold,
Participation Certificates
6.500%, 6/1/2010 $ 3,813,052 3,785,369
6.500%, 8/1/2010 $ 4,012,183 3,963,073
6.500%, 10/1/2010 $ 2,575,946 2,544,417
6.500%, 11/1/2010 $ 1,748,212 1,726,813
6.500%, 4/1/2026 $14,448,723 13,961,656
Government National Mortgage
Association I, Pass-Through
Certificates
6.500%, 4/15/2026 $ 4,863,838 4,696,425
------------
TOTAL US GOVERNMENT AGENCY
OBLIGATIONS
(Cost $30,307,176) 30,677,753
------------
TOTAL FIXED INCOME SECURITIES
(Cost $57,438,442) 58,834,946
------------
SHORT-TERM INVESTMENTS -
REPURCHASE AGREEMENTS 0.43%
Repurchase Agreement with State Street
<PAGE>
Bank & Trust Co dated 8/29/1997
due 9/2/1997 at 5.500%, repurchased
at $255,156 (Collateralized
by US Treasury Notes due 8/15/1998 at
5.875%, value $261,579)
(Cost $255,000) $ 255,000 255,000
------------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $57,693,442)
(Cost for Income
Tax Purposes
$57,702,227) $ 59,089,946
============
^ Securities are registered pursuant to Rule 144A and are restricted for resale
to institutional investors.
^^ 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 non-income producing.
** Securities may make dividend payments in other types of securities or cash.
</TABLE>
Summary of Investments by Country
% of
Country Investment
Country Code Securities Value
- --------------------------------------------------------------------------------
High Yield Fund
Argentina AR 0.80% $ 3,517,000
Canada CA 7.89 34,456,562
Germany GM 1.01 4,404,375
United Kingdom UK 3.99 17,417,250
United States US 86.31 377,146,760
--------------------------
100.00% 436,941,947
==========================
Select Income Fund
Argentina AR 0.71% $ 2,022,500
Canada CA 5.44 15,537,500
Germany GM 1.83 5,225,000
<PAGE>
Italy IT 2.07 5,915,625
United Kingdom UK 1.44 4,100,000
United States US 88.51 252,655,942
--------------------------
100.00% $ 285,456,567
==========================
See Notes to Financial Statements
<PAGE>
INVESCO Income Funds, Inc.
Statement of Assets and Liabilities
August 31, 1997
<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~ $428,126,786 $282,742,479 $11,673,829 $57,693,442
=====================================================================
At Value~ $436,941,947 $285,456,567 $11,684,896 $59,089,946
Cash 3,104,798 47,711 6,154 78,549
Receivables:
Investment Securities Sold 24,177,059 3,009,479 525,665 0
Fund Shares Sold 1,518,858 696,370 33,259 237,366
Dividends and Interest 7,340,786 4,382,521 111,667 463,110
Prepaid Expenses and Other Assets 76,285 42,378 15,348 39,671
---------------------------------------------------------------------
TOTAL ASSETS 473,159,733 293,635,026 12,376,989 59,908,642
---------------------------------------------------------------------
LIABILITIES
Payables:
Distributions to Shareholders 538,173 174,368 3,518 16,861
Investment Securities Purchased 282,860 5,174,796 0 0
Fund Shares Repurchased 1,251,766 592,961 14,980 8,292,892
Accrued Distribution Expenses 98,479 60,496 2,590 12,776
Accrued Expenses and Other Payables 23,441 14,322 11,548 5,299
---------------------------------------------------------------------
TOTAL LIABILITIES 2,194,719 6,016,943 32,636 8,327,828
---------------------------------------------------------------------
Net Assets at Value $470,965,014 $287,618,083 $12,344,353 $51,580,814
=====================================================================
<PAGE>
NET ASSETS
Paid-in Capital* $440,202,947 $278,055,066 $12,712,551 $49,528,654
Accumulated Undistributed Net
Investment Income 16,678 37,249 0 0
Accumulated Undistributed Net
Realized Gain (Loss)
on Investment Securities and
Foreign Currency Transactions 21,930,228 6,811,680 (379,265) 655,656
Net Appreciation of Investment
Securities and Foreign
Currency Transactions (See Note 1) 8,815,161 2,714,088 11,067 1,396,504
---------------------------------------------------------------------
Net Assets at Value $470,965,014 $287,618,083 $12,344,353 $51,580,814
=====================================================================
Shares Outstanding 63,206,605 43,176,748 1,297,795 6,882,696
Net Asset Value,
Offering and Redemption
Price per Share $7.45 $6.66 $9.51 $7.49
=====================================================================
~ Investment securities at cost and value at August 31, 1997 include repurchase agreements of $1,304,000
and $255,000 for Short-Term Bond and U.S. Government Securities Funds, respectively.
* The Fund has 600 million authorized shares of common stock, par value of $0.01
per share. Of such shares, 100 million have been allocated to each individual
Fund.
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Income Funds, Inc.
Statement of Operations
Year Ended August 31, 1997
<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 $40,149,033 $21,505,416 $810,659 $3,857,843
Dividends 207,760 0 0 0
----------------------------------------------------------------------
TOTAL INCOME 40,356,793 21,505,416 810,659 3,857,843
----------------------------------------------------------------------
EXPENSES
Investment Advisory Fees 1,964,043 1,477,302 61,150 312,851
Distribution Expenses 1,040,180 671,514 30,574 142,212
Transfer Agent Fees 651,471 786,616 61,050 178,192
Administrative Fees 72,410 50,289 11,833 18,532
Custodian Fees and Expenses 84,987 65,736 7,014 13,688
Directors' Fees and Expenses 26,407 19,950 8,105 10,100
Professional Fees and Expenses 32,607 26,779 12,355 17,736
Registration Fees and Expenses 105,962 62,297 23,730 36,454
Reports to Shareholders 151,542 63,300 6,730 18,757
Other Expenses 26,845 19,233 2,543 3,756
----------------------------------------------------------------------
TOTAL EXPENSES 4,156,454 3,243,016 225,084 752,278
Fees and Expenses Absorbed by
Investment Adviser 0 (490,039) (124,141) (176,398)
Fees and Expenses Paid Indirectly (58,108) (33,305) (2,799) (6,151)
----------------------------------------------------------------------
<PAGE>
NET EXPENSES 4,098,346 2,719,672 98,144 569,729
----------------------------------------------------------------------
NET INVESTMENT INCOME 36,258,447 18,785,744 712,515 3,288,114
----------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on Investment
Securities and Foreign Currency
Transactions 23,000,271 6,970,303 7,626 1,121,369
Change in Net Appreciation
(Depreciation) of Investment
Securities and Foreign Currency
Transactions 14,932,249 6,812,752 99,263 1,720,828
----------------------------------------------------------------------
NET GAIN ON INVESTMENT SECURITIES 37,932,520 13,783,055 106,889 2,842,197
----------------------------------------------------------------------
Net Increase in Net Assets
from Operations $74,190,967 $32,568,799 $819,404 $6,130,311
======================================================================
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
1997 1996 1997 1996
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $36,258,447 $31,275,377 $18,785,744 $18,298,634
Net Realized Gain on Investment Securities
and Foreign Currency Transactions 23,000,271 13,285,701 6,970,303 3,393,400
Change in Net Appreciation (Depreciation)
of Investment Securties and Foreign
Currency Transactions 14,932,249 (8,092,678) 6,812,752 (10,577,175)
------------------------------ ------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 74,190,967 36,468,400 32,568,799 11,114,859
------------------------------ ------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (36,240,760) (31,275,377) (18,772,522) (18,298,634)
In Excess of Net Investment Income 0 (1,009) 0 (236,099)
Net Realized Gain on Investment
Securities and Foreign
Currency Transactions (1,805,972) 0 (1,164,947) (928,028)
------------------------------- -------------------------------
TOTAL DISTRIBUTIONS (38,046,732) (31,276,386) (19,937,469) (19,462,761)
------------------------------- -------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 585,489,350 521,528,845 149,847,293 183,060,076
Reinvestment of Distributions 31,536,903 26,085,121 17,592,021 17,478,881
------------------------------- -------------------------------
617,026,253 547,613,966 167,439,314 200,538,957
<PAGE>
Amounts Paid for Repurchases of Shares (557,406,718) (466,563,331) (150,545,417) (150,695,392)
------------------------------- -------------------------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 59,619,535 81,050,635 16,893,897 49,843,565
------------------------------- -------------------------------
Total Increase in Net Assets 95,763,770 86,242,649 29,525,227 41,495,663
NET ASSETS
Beginning of Period 375,201,244 288,958,595 258,092,856 216,597,193
------------------------------- -------------------------------
End of Period $470,965,014 $375,201,244 $287,618,083 $258,092,856
=============================== ===============================
Accumulated Undistributed (Distributions
in Excess of Net Investment Income
Included in Net Assets at End of Period
(See Note 1) $ 16,678 $ (1,009) $ 37,249 $ 24,027
-------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 82,068,049 76,321,844 22,926,524 27,935,727
Shares Issued from Reinvestment
of Distributions 4,403,579 3,819,405 2,685,959 2,677,261
------------------------------ -------------------------------
86,471,628 80,141,249 25,612,483 30,612,988
Shares Repurchased (78,100,199) (68,212,157) (23,065,551) (23,097,234)
------------------------------ -------------------------------
Net Increase in Fund Shares 8,371,429 11,929,092 2,546,932 7,515,754
============================== ===============================
See Notes to Financial Statements
</TABLE>
<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
---------------------------- ----------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 712,515 $ 518,996 $ 3,288,114 $ 2,440,065
Net Realized Gain (Loss) on
Investment Securities
and Foreign Currency Transactions 7,626 (36,906) 1,121,369 687,053
Change in Net Appreciation (Depreciation)
of Investment Securties and Foreign
Currency Transactions 99,263 (88,336) 1,720,828 (3,007,303)
---------------------------- ----------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 819,404 393,754 6,130,311 119,815
---------------------------- ----------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (712,515) (518,996) (3,288,114) (2,440,065)
In Excess of Net Investment Income 0 (2,069) 0 (57,412)
---------------------------- ----------------------------
TOTAL DISTRIBUTIONS (712,515) (521,065) (3,288,114) (2,497,477)
---------------------------- ----------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 19,388,223 19,759,334 102,864,694 85,568,163
Reinvestment of Distributions 673,216 477,042 3,045,965 2,279,230
---------------------------- ----------------------------
20,061,439 20,236,376 105,910,659 87,847,393
Amounts Paid for Repurchases of Shares (18,558,559) (18,353,980) (111,785,624) (68,943,386)
---------------------------- ----------------------------
<PAGE>
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 1,502,880 1,882,396 (5,874,965) 18,904,007
---------------------------- ----------------------------
Total Increase (Decrease) in Net Assets 1,609,769 1,755,085 (3,032,768) 16,526,345
NET ASSETS
Beginning of Period 10,734,584 8,979,499 54,613,582 38,087,237
---------------------------- ----------------------------
End of Period $12,344,353 $10,734,584 $51,580,814 $54,613,582
============================ ============================
FUND SHARE TRANSACTIONS
Shares Sold 2,048,615 2,075,335 13,984,238 11,508,907
Shares Issued from Reinvestment
of Distributions 71,014 50,130 412,300 305,421
---------------------------- ----------------------------
2,119,629 2,125,465 14,396,538 11,814,328
Shares Repurchased (1,962,721) (1,925,401) (15,152,477) (9,263,315)
---------------------------- ----------------------------
Net Increase (Decrease) in Fund Shares 156,908 200,064 (755,939) 2,551,013
============================ ============================
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Income Funds, Inc.
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Income
Funds, Inc. (the "Fund") is 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 High Yield and Select Income Funds;
to seek a high level of current income with minimum fluctuation in principal
value while maintaining liquidity for 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 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.
Foreign securities are valued at the closing price on the principal
stock exchange on which they are traded. In the event that closing prices
are not available for foreign securities, prices will be obtained from the
principal stock exchange at or prior to the close of the New York Stock
Exchange. Foreign currency exchange rates are determined daily prior to the
close of the New York Stock Exchange.
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.
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.
<PAGE>
Assets and liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing market rates
as quoted by one or more banks or dealers on the date of valuation. The
cost of securities is translated into U.S. dollars at the rates of exchange
prevailing when such securities are acquired. Income and expenses are
translated into U.S. dollars at rates of exchange prevailing when accrued.
B. REPURCHASE AGREEMENTS - Repurchase agreements held by the Fund are fully
collateralized by U.S. Government securities and such collateral is in the
possession of the Fund's custodian. The collateral is evaluated daily to
ensure its market value exceeds the current market value of the repurchase
agreements including accrued interest. In the event of default on the
obligation to repurchase, the Fund has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. In the event of
default or bankruptcy by the other party to the agreement, realization and/
or retention of the collateral or proceeds may be subject to legal
proceedings.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex dividend date. Interest income, which may be comprised of stated coupon
rate, market discount, original issue discount and amortized premium, is
recorded on the accrual basis. Discounts and premiums on debt securities
purchased are amortized over the life of the respective security as
adjustments to interest income. Cost is determined on the specific
identification basis.
Mortgage paydown gain/loss is treated as ordinary income for tax
purposes and is included in interest income on the Statement of Operations.
Effective September 1, 1996, the Fund began accruing income using the
effective interest method which includes amortizing premiums on purchases of
portfolio securities as adjustments to income. This method of recording
income more closely reflects the economics of holding and disposing of debt
instruments. Prior to September 1, 1996, the Fund accrued coupon interest
income, market discount and original issue discount and accounted for
purchased premiums as capital gains or losses when realized upon disposition
of the associated security. The cumulative effect of applying this
accounting change was to decrease accumulated undistributed net investment
income and increase net unrealized appreciation of investment securities by
$161,422, $160,067, $60,089, and $14,584 for High Yield, Select Income,
Short-Term Bond and U.S. Government Securities Funds, respectively. Such
accounting change had no effect on net asset value per share.
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 Fund's use of short-term forward foreign currency contracts may
subject it to certain risks as a result of unanticipated movements in
<PAGE>
foreign exchange rates. The Fund does not hold short-term forward foreign
currency contracts for trading purposes.
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.
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.
D. FEDERAL AND STATE TAXES - The Fund has complied, and continues to comply,
with the provisions of the Internal Revenue Code applicable to regulated
investment companies and, accordingly, has made or intends to make
sufficient distributions of net investment income and net realized capital
gains, if any, to relieve it from all federal and state income taxes and
federal excise taxes. At August 31, 1997, Short-Term Bond Fund had $64,
$285,423, $17,095 and $19,676, in net capital loss carryovers which expire
in the years 2002, 2003, 2004 and 2005, respectively.
Short-Term Bond Fund incurred and elected to defer post-October 31 net
capital losses of $50,466 to the year ended August 31, 1998. 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 1997 by the U.S. Government
Securities Fund amounted to $434,697.
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.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - All of the Fund's net
investment income is distributed to shareholders by dividends declared
daily and paid monthly. Income dividends are reinvested at the ex dividend
date. 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,
amortized premiums, foreign currency transactions, nontaxable dividends, net
operating losses and expired capital loss carryforwards.
<PAGE>
For the year ended August 31, 1997, the effects of such differences
were as follows:
Accumulated
Accumulated Undistributed
Undistributed Net Realized
Net Gain on
Investment Investment Fund
Income Securities
- --------------------------------------------------------------------------------
High Yield Fund $161,422 $(161,422)
Select Income Fund 160,067 (160,067)
Short-Term Bond Fun 60,089 (60,089)
U.S. Government Securities Fund 14,584 (14,584)
Net investment income, net realized gains, paid-in capital and net assets
were not affected.
F. 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. Such credits are included in
Fees and Expenses Paid Indirectly in the Statement of Operations.
NOTE 2 - INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group,
Inc. ("IFG") serves as the 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 receives a transfer agent fee at an annual rate of $26.00 per
shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month.
<PAGE>
A plan of distribution pursuant to Rule 12b-1 of the Act provided for
reimbursement of marketing and advertising expenditures to IFG (the
"Distributor") to a maximum of 0.25% of average annual net assets. Effective
January 1, 1997, the Rule 12b-1 distribution plan was modified by action of the
Board of Directors so that the Fund compensates IFG for permissible activities
and services in connection with the distribution of the Fund's shares. For the
year ended August 31, 1997, High Yield, Select Income, Short-Term Bond and U.S.
Government Securities Funds paid the Distributor $1,020,541, $666,209, $30,227
and $140,631, respectively, under the plan of distribution. Accordingly, the
above amounts reflect reimbursements under the plan for the four months ended
December 31, 1996 and compensation under the plan for the eight months ended
August 31, 1997. Effective September 29, 1997, INVESCO Distributors, Inc., a
wholly owned subsidiary of IFG, replaced IFG as Distributor.
IFG has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by 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.
NOTE 3 - PURCHASES AND SALES OF
INVESTMENT SECURITIES. For the year ended August 31, 1997, 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 $1,479,464,406 $1,457,606,669
Select Income Fund 666,182,781 607,400,187
Short-Term Bond Fund 5,552,202 5,213,285
For the year ended August 31, 1997, the aggregate cost of purchases and
proceeds from sales of U.S. Government securities were as follows:
Fund Purchases Sales
- --------------------------------------------------------------------------------
Select Income Fund $25,601,057 $76,814,246
Short-Term Bond Fund 28,844,581 28,032,128
U.S. Government Securities Fund 82,603,124 71,688,772
NOTE 4 - APPRECIATION AND DEPRECIATION. At August 31, 1997, the gross
appreciation of securities in which there was an excess of value over tax cost,
the gross depreciation of securities in which there was an excess of tax cost
over value and the resulting net appreciation by Fund were as follows:
<PAGE>
Gross Gross Net
Fund Appreciation Depreciation Appreciation
- --------------------------------------------------------------------------------
High Yield Fund $10,632,296 $1,922,714 $8,709,582
Select Income Fund 3,765,960 1,061,229 2,704,731
Short-Term Bond Fund 27,262 22,736 4,526
U.S. Government Securities Fund 1,417,954 30,235 1,387,719
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 are based on an annual rate equal to 40% of the retainer fee at the time of
retirement.
Pension expenses for the year ended August 31, 1997, 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
Expenses Pension Costs Liability
- --------------------------------------------------------------------------------
High Yield Fund $5,415 $12,429 $26,482
Select Income Fund 3,612 6,798 15,876
Short-Term Bond Fund 144 387 806
U.S. Government Securities Fund 724 1,742 3,692
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. At August
31, 1997, there were no such borrowings.
-------------------------------------------------------------
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors 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
31,1997, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended, 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, 1997 by
correspondence with the custodian and the application of alternative auditing
procedures where securities purchased had not been received, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
October 8, 1997
<PAGE>
INVESCO Income Funds, Inc.
Financial Highlights
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Period
Ended Year Ended
Year Ended August 31 August 31 December 31
---------------------------------------------------- ---------- -----------
1997 1996 1995 1994 1993^ 1992
<S> <C> <C> <C> <C> <C> <C>
High Yield Fund
PER SHARE DATA
Net Asset Value -
Beginning of Period $6.84 $6.73 $6.73 $7.32 $6.97 $6.66
---------------------------------------------------- ---------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.62 0.63 0.66 0.62 0.39 0.64
Net Gains or (Losses) on
Securities (Both Realized
and Unrealized) 0.64 0.11 0.03 (0.59) 0.36 0.30
---------------------------------------------------- ---------- -----------
Total from Investment
Operations 1.26 0.74 0.69 0.03 0.75 0.94
---------------------------------------------------- ---------- -----------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.62 0.63 0.66 0.62 0.40 0.63
Distributions from
Capital Gains 0.03 0.00 0.00 0.00 0.00 0.00
In Excess of Capital Gains 0.00 0.00 0.03 0.00 0.00 0.00
---------------------------------------------------- ---------- -----------
<PAGE>
Total Distributions 0.65 0.63 0.69 0.62 0.40 0.63
---------------------------------------------------- ---------- -----------
Net Asset Value -
End of Period 7.45 6.84 6.73 6.73 7.32 6.97
==================================================== ========== ===========
TOTAL RETURN 19.27% 11.38% 11.12% 0.37% 11.01%* 14.53%
RATIOS
Net Assets - End of Period
($000 Omitted) 470,965 375,201 288,959 243,773 308,945 212,172
Ratio of Expenses to
Average Net Assets# 1.00% 0.99%@ 1.00% 0.97% 0.97%~ 1.00%
Ratio of Net Investment
Income to Average
Net Assets# 8.71% 9.13% 10.01% 8.70% 8.28%~ 9.29%
Portfolio Turnover Rate 129% 266% 201% 195% 45%* 120%
^ From January 1, 1993 to August 31, 1993.
+ Distributions in excess of net investment income for the year ended August 31,
1996, 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 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, if applicable, which is before any expense offset
arrangements.
~ Annualized
</TABLE>
<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
---------------------------------------------------- ---------- -----------
1997 1996 1995 1994 1993^ 1992
<S> <C> <C> <C> <C> <C> <C>
Select Income Fund
PER SHARE DATA
Net Asset Value -
Beginning of Period $6.35 $6.54 $6.18 $6.80 $6.53 $6.50
---------------------------------------------------- ---------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.45 0.47 0.47 0.47 0.33 0.52
Net Gains or (Losses) on
Securities (Both Realized
and Unrealized) 0.34 (0.17) 0.36 (0.43) 0.27 0.13
---------------------------------------------------- ---------- -----------
Total from Investment
Operations 0.79 0.30 0.83 0.04 0.60 0.65
---------------------------------------------------- ---------- -----------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.45 0.46 0.47 0.47 0.33 0.52
<PAGE>
In Excess of Net Investment
Income+ 0.00 0.01 0.00 0.00 0.00 0.00
Distributions from Capital
Gains 0.03 0.02 0.00 0.09 0.00 0.10
In Excess of Capital Gains 0.00 0.00 0.00 0.10 0.00 0.00
----------------------------------------------------- ---------- -----------
Total Distributions 0.48 0.49 0.47 0.66 0.33 0.62
----------------------------------------------------- ---------- -----------
Net Asset Value -
End of Period $ 6.66 $ 6.35 $ 6.54 $ 6.18 $ 6.80 $ 6.53
===================================================== ========== ===========
TOTAL RETURN 12.89% 4.78% 14.01% 0.47% 9.42%* 10.38%
RATIOS
Net Assets - End of Period
($000 Omitted) $287,618 $258,093 $216,597 $138,337 $158,780 $123,036
Ratio of Expenses to
Average Net Assets# 1.03%@ 1.01%@ 1.00% 1.11% 1.15%~ 1.14%
Ratio of Net Investment
Income to Average
Net Assets# 6.98% 7.14% 7.38% 7.22% 7.40%~ 7.97%
Portfolio Turnover Rate 263% 210% 181% 135% 105%* 178%
^ From January 1, 1993 to August 31, 1993.
+ 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.
<PAGE>
# Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended August 31, 1997, 1996, 1995 and 1994. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have been
1.21%, 1.16%, 1.22% and 1.15%, respectively, and ratio of net investment
income to average net assets would have been 6.80%, 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
</TABLE>
<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
-------------------------------------- ----------
1997 1996 1995 1994^
<CAPTION>
Short-Term Bond Fund
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $9.41 $9.54 $9.46 $10.00
-------------------------------------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.50 0.56 0.57 0.47
Net Gains or (Losses) on
Securities (Both Realized
and Unrealized) 0.15 (0.13) 0.08 (0.54)
-------------------------------------- ----------
Total from Investment
Operations 0.65 0.43 0.65 (0.07)
-------------------------------------- ----------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.55 0.56 0.57 0.47
-------------------------------------- ----------
Net Asset Value -
End of Period $ 9.51 $ 9.41 $ 9.54 $ 9.46
====================================== ==========
<PAGE>
TOTAL RETURN 7.08% 4.63% 7.16% (0.72%)*
RATIOS
Net Assets - End of Period
($000 Omitted) $ 12,344 $ 10,735 $ 8,979 $ 7,878
Ratio of Expenses to
Average Net Assets# 0.83%@ 0.80%@ 0.46% 0.46%~
Ratio of Net Investment
Income to Average
Net Assets# 5.82% 5.85% 6.05% 5.50%~
Portfolio Turnover Rate 331% 103% 68% 169%*
^ From September 30, 1993, commencement of investment 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.
# Various expenses of the Fund were voluntarily absorbed by IFG and ITC for the
years ended August 31, 1997, 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 1.84%, 2.17%, 2.09% and 2.04%, respectively,
and ratio of net investment income to average net assets would have been 4.81%,
4.48%, 4.42% and 3.92%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
</TABLE>
<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
----------------------------------------------------- ---------- -----------
1997 1996 1995 1994 1993^ 1992
U.S. Government Securities Fund
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $7.15 $7.49 $7.10 $8.19 $7.61 $7.65
----------------------------------------------------- ---------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.43 0.44 0.45 0.41 0.28 0.46
Net Gains or (Losses) on
Securities (Both Realized
and Unrealized) 0.34 (0.34) 0.39 (0.93) 0.58 (0.04)
----------------------------------------------------- ---------- -----------
Total from Investment
Operations 0.77 0.10 0.84 (0.52) 0.86 0.42
----------------------------------------------------- ---------- -----------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.43 0.43 0.45 0.41 0.28 0.46
In Excess of Net
Investment Income+ 0.00 0.01 0.00 0.00 0.00 0.00
<PAGE>
Distributions from
Capital Gains 0.00 0.00 0.00 0.16 0.00 0.00
----------------------------------------------------- ---------- -----------
Total Distributions 0.43 0.44 0.45 0.57 0.28 0.46
----------------------------------------------------- ---------- -----------
Net Asset Value -
End of Period 7.49 7.15 7.49 7.10 8.19 7.61
===================================================== ========== ===========
TOTAL RETURN 11.01% 1.31% 12.37% (6.53%) 11.61%* 5.68%
RATIOS
Net Assets - End of Period
($000 Omitted) $ 51,581 $ 54,614 $ 38,087 $ 36,740 $ 36,391 $ 35,799
Ratio of Expenses to
Average Net Assets# 1.01%@ 1.02%@ 1.00% 1.32% 1.40%~ 1.27%
Ratio of Net Investment
Income to Average
Net Assets# 5.78% 5.76% 6.24% 5.46% 5.36%~ 6.08%
Portfolio Turnover Rate 139% 212% 99% 95% 100%* 115%
^ From January 1, 1993 to August 31, 1993.
+ 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, 1997, 1996, 1995 and 1994. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have been
1.32%, 1.48%, 1.51% and 1.42%, respectively, and ratio of net investment income
to average net assets would have been 5.47%, 5.30%, 5.73% and 5.36%,
respectively.
<PAGE>
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
</TABLE>
<PAGE>
FAMILY OF FUNDS
Newspaper
Fund Name ......................... Fund Code Ticker Symbol Abbreviation
------------
International
International Growth .............. 49 FSIGX IntlGr
Asian Growth ...................... 41 IVAGX AsianGr
European .......................... 56 FEURX Europ
European Small Company ............ 37 IVECX EuroSmCo
Latin American Growth ............. 34 IVSLX LatinAmGr
Pacific Basin ..................... 54 FPBSX PcBas
------------
Sector
Energy ............................ 50 FSTEX Enrgy
Environmental Services ............ 59 FSEVX Envirn
Financial Services ................ 57 FSFSX FinSvc
Gold .............................. 51 FGLDX Gold
Health Sciences ................... 52 FHLSX HlthSc
Leisure ........................... 53 FLISX Leisur
Realty ............................ 42 IVSRX Realty
Technology ........................ 55 FTCHX Tech
Utilities ......................... 58 FSTUX Util
Worldwide Capital Goods ........... 38 ISWGX WldCap
Worldwide Communications .......... 39 ISWCX WldCom
------------
Capital Appreciation
Growth ............................ 10 FLRFX Grwth
Dynamics .......................... 20 FIDYX Dynm
Small Company ..................... 74 IDSCX DivSmCo
Emerging Growth ................... 60 FIEGX Emgrth
------------
Growth & Income
Industrial Income ................. 15 FIIIX IndInc
Value Equity ...................... 46 FSEQX ValEq
Multi-Asset Allocation ............ 70 IMAAX MulAstAl
Balanced .......................... 71 IMABX Bal
Total Return ...................... 48 FSFLX TotRtn
------------
Bond
Short-Term Bond ................... 33 INIBX ShTrBd
Intermediate Government Bond ...... 47 FIGBX IntGov
U.S. Government Securities ........ 32 FBDGX USGvt
Select Income ..................... 30 FBDSX SelInc
High Yield ........................ 31 FHYPX HiYld
------------
Tax-Exempt
Tax-Free Intermediate Bond ........ 36 IVTIX *
Tax-Free Long-Term Bond ........... 35 FTIFX TxFre
------------
Money Market
U.S. Government Money Fund ........ 44 FUGXX InvGvtMF
Cash Reserves ..................... 25 FDSXX InvCshR
Tax-Free Money Fund ............... 40 FFRXX InvTaxFree
* This fund does not meet size requirements to be assigned a ticker symbol in
newspaper listings.
For more information about any of the INVESCO Funds, including management fees
and expenses, please call us at 1-800-525-8085 for a prospectus. Read it
carefully before you invest or send money.
<PAGE>
INVESCO FUNDS
INVESCO Distributors, Inc., (SM)
Distributor (formerly INVESCO
Funds Group, Inc., Distributor)
Post Office Box 173706
Denver, Colorado 80217-3706
1-800-525-8085
PAL (R): 1-800-424-8085
http://www.invesco.com
In Denver, visit one of our convenient Investor Centers:
Cherry Creek,
155-B Fillmore Street
Denver Tech Center,
7800 East Union Avenue,
Lobby Level
