SEMIANNUAL REPORT
February 28, 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 March 1997
Fueled by a stronger-than-expected economy and improving corporate
earnings, the stock market catapulted to new highs over the last six months.
During the fourth quarter of 1996, the growth rate (as measured by the Gross
Domestic Product) accelerated to a revised level of 3.9%. This surpassed most
analysts' expectations, as the expansion had slowed to a rate of 2.2% in the
previous quarter. The vibrant economy has rekindled fears that tightness in the
labor market could lead to renewed inflation. However, gains in productivity
thus far have offset wage increases and allowed companies to maintain profit
margins without raising prices. This has helped keep inflation under control. In
fact, the consumer price index rose just 0.1% in the month of January (the
smallest gain since June 1996) and finished 1996 at an annualized rate of 3.3%
- -- in line with historical averages.
In the middle of March, the investment environment shifted as increased
consumer spending reignited fears of inflation. Consequently, the Federal
Reserve Board increased short-term interest rates by 0.25%. This preemptive
strike against wage and price hikes was the first rate increase in more than two
years, and led to increased negative sentiment in the market, producing a sharp
5% to 10% pullback in many stocks.
A moderate inflation level represents a positive factor for the economy. At
the same time, though, the longevity of the current expansion -- over six years
<PAGE>
- -- remains a cause for concern; the post-World War II average is only four and a
half years. Negative growth hasn't been experienced since the first quarter of
1993. If the growth rate does not slow, many economists expect the Fed to
continue raising short-term interest rates, with the concomitant danger of
cutting the expansion short.
In fact, despite the positive economic growth and inflation news, concerns
over inflation, interest rates, and the possibility of continued Fed
intervention led to extreme volatility in bond prices. This volatility, coupled
with a change in the risk/reward relationship for most bonds, caused nervousness
for most fixed-income investors. Many took on considerably more risk for less
reward as spreads narrowed between the yields on junk bonds and government
bonds. This spread has fallen to a little more than three percentage points from
almost five percentage points in late 1995, and, compared to historic
measurements, it is well below its long-term average.
INVESCO Income Funds, Inc.
The line graphs on following pages 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 2/28/97 (or for Short-Term
Bond Fund, from inception through 2/28/97). 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)
Composition of holdings is subject to change.
High Yield Fund
For the six-month period ended 2/28/97, INVESCO High Yield Fund achieved a
total return of 11.43%, compared to a total return of 8.70% for the Merrill
Lynch High Yield Master Index. In addition, the fund outperformed its peers for
the one-year period ended 2/28/97, as the fund's return of 14.06% bested the
average fund return of 13.38% 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)
For the one-, three-, and five-year periods ended 2/28/97, the fund received
the prestigious five star rating for risk-adjusted performance by independent
mutual fund analyst Morningstar.(3)
The high-yield sector again led the fixed-income market over the last six
months. Tightening spreads in fixed-income securities have changed the
risk/reward relationship for bond investors, making fundamental research even
more important to evaluating the credit risk of high-yield securities.
High-yield bonds are securities that trade primarily on their creditworthiness,
as opposed to the level of interest rates. Consequently, the yields on these
securities reflect a variety of circumstances, such as the small size of the
firm or its lack of credit history. Many rating agencies often penalize such
firms by assigning them low credit ratings, even though these firms may exhibit
good credit quality in many areas. Thus, our in-depth research has been crucial
in identifying undervalued high-yield securities whose fundamentals may be
improving. This approach has also helped limit our exposure to risk of defaults.
Over the last six months, the fund's performance was positively influenced by
holdings in the broadcast radio and communications industries. We believe that
these two areas will continue to experience consolidation and improving
fundamentals. An example of a high-yield security in the fund's portfolio that
benefited from consolidation and enhanced performance was Chancellor
Broadcasting; Chancellor was acquired by Evergreen Media. Another company that
produced positive results for the portfolio was EZ Communications, which was
acquired by American Radio Systems.
<PAGE>
High Yield Fund
Average Annual Total Return
as of 2/28/97(2)
1 year 14.06%
-----------------------------------
5 years 11.17%
-----------------------------------
10 years 9.15%
-----------------------------------
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the 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 2/28/97.
Looking Forward
We will remain cautious in regard to high-yield securities for 1997. Given
concerns about their narrow spreads -- that is, the relatively low yields
available for taking on the additional risk of high-yield bonds -- we have
structured the portfolio somewhat defensively. However, despite narrow spreads,
we continue to identify opportunities that may enjoy capital appreciation and/or
credit improvement. This may help to reduce the portfolio's sensitivity to
interest rate movements and ultimately enhance returns (though, of course,
future performance cannot be guaranteed).
Select Income Fund
Select Income Fund
Average Annual Total Return
as of 2/28/97(2)
1 year 6.84%
-----------------------------------
5 years 8.99%
-----------------------------------
10 years 8.08%
-----------------------------------
For the six-month period ended 2/28/97, INVESCO Select Income Fund achieved a
total return of 7.45%, compared to a total return of 5.23% for the Lehman
Government/Corporate Bond Index. In addition, the fund outperformed its peer
group for the one-year period ended 2/28/97, as its return of 6.84% bested the
average fund return of 5.65% 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)
The strong relative performance of the fund can be attributed to several
factors. First, we increased our exposure to mortgage-backed securities over the
last six months, as we felt that investment grade corporate bonds were generally
unattractive or on a risk/reward basis.
<PAGE>
Second, we added putable bonds to the portfolio for their structural value.
(Putable bonds are debt obligations that allow the holder to redeem the issue at
specified intervals before maturity and receive full face value.) This provided
defensive performance for the portfolio as interest rates were volatile over the
last six months.
Graph:
This line graph represents a comparison of the value of a $10,000 investment
in the INVESCO Select Income Fund to the value of a $10,000 investment in the
Lehman Government/Corporate Index, assuming in each case reinvestment of all
dividends and capital gain distributions, for the ten year period ended
2/28/97.
Finally, the fund benefited from its exposure to high-yield securities, which
outperformed the broad fixed-income market. Thorough research identified
securities that experienced positive credit risk movements and capital
appreciation. For example, the fund's holdings in EZ Communications provided
both a high yield and capital appreciation resulting from a credit upgrade as it
was acquired by a stronger company, American Radio Systems.
Looking Forward
We will continue to increase our exposure to putable investment grade bonds
over the next several months. This strategy reflects our belief that investment
grade corporate bonds are relatively unattractive and that interest rates may
continue to be volatile. We are presently overweighted in mortgage-backed
securities, but tightening spreads may lead us to reduce our position in the
future.
One industry that we are optimistic about for 1997 is electric utilities.
Deregulation in the electric utility industry has created a situation in which
many electric companies have incurred astronomical costs associated with the
building of new power plants. These plants were built on the premise that
prices, set by the regulators, would continue in the future. However, with the
industry now moving towards competitive pricing, many electric companies have
enormous "stranded" costs associated with the building of new power plants that
are liabilities on their books for years into the future. In order to help
alleviate the potential problem associated with these stranded costs, several
states have created mechanisms for securitizing the debt and marketing it to the
public. This should create enormous cash flows for certain electric companies
which could allow them to pay down debt and possibly improve their credit
ratings. Thus, we plan to increase our exposure to this industry on a selective
basis, as we feel that specific firms have the potential for credit upgrades
over the next year.
U.S. Government Securities Fund
For the six-month period ended 2/28/97, INVESCO U.S. Government Securities
Fund had a total return of 5.61%, compared to a total return of 7.03% for the
Lehman Long Government Bond Index. (Of course, past performance is not a
guarantee of future results.)(1),(2)
<PAGE>
U.S. Government Securities Fund
Average Annual Total Return
as of 2/28/97(2)
1 year 3.50%
-----------------------------------
5 years 6.32%
-----------------------------------
10 years 6.20%
-----------------------------------
Concerns about interest rate volatility and the potential for inflation
strongly influenced the fixed-income market and the fund over recent months. In
this uncertain interest rate environment, we chose to remain neutral with regard
to duration. Presently, we have positioned the duration of the fund slightly
above our neutral target of 7.5 years. (Duration is a weighted average
term-to-maturity of the security's cash flows, generally used to measure the
price volatility of a bond.)
Over the last six months, we have invested 40% to 60% of the portfolio's
assets in U.S. Treasuries and mortgage-backed securities. Currently, the fund
has 48% of its assets in U.S. Treasuries and 44% in mortgage-backed securities.
We plan to shift assets between these two security classes in the future,
depending on the current market environment.
Looking forward, we will continue to evaluate economic trends developing in
the interest rate market, while adjusting the duration of the fund accordingly.
It is important for shareholders to remember that the fund targets a very
specific sector of the fixed-income market. Typically, this area is highly
sensitive to movements in interest rates. However, in the immediate future it
appears that the six- to nine-year section of the yield curve could be less
susceptible to volatility.
Graph:
This line graph represents a comparison of the value of a $10,000 investment
in the 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 capital gain distributions, for the ten
year period ended 2/28/97.
Short-Term Bond Fund
Short-Term Bond Fund
Average Annual Total Return
as of 2/28/97(2)
1 year 5.07%
-----------------------------------
Since Inception (10/93) 4.23%
-----------------------------------
<PAGE>
For the six-month period ended 2/28/97, INVESCO Short-Term Bond Fund achieved
a total return of 3.51%, compared to a total return of 1.51% for the Lehman 1-3
Year Government/Corporate Bond Index. (Of course, past performance is not a
guarantee of future results.)(1),(2)
Over the last six-month period, the fund's performance was influenced by
three key factors. First, the fund primarily invested in mortgage-backed
securities and U.S. Treasuries, as we felt that investment grade corporate bonds
were generally unattractive due to their narrow spreads. Second, we increased
our position in LIBOR floating rate securities. (These are floating rate
securities tied to the London Interbank Offered Rate, which is usually the base
for large Eurodollar loans.) Finally, in light of the volatile interest rate
environment, we structured the fund somewhat defensively, which affected
performance.
Graph:
This line graph represents a comparison of the value of a $10,000 investment
in the 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
10/93 (inception)
through 2/28/97.
Looking forward, the fund will continue to seek a high current yield, while
keeping the average portfolio maturity from one to three years to help reduce
volatility. We will monitor the interest rate environment and adjust the
duration of the fund accordingly.
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 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.
(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 indices 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.
<PAGE>
(3)Morningstar proprietary ratings reflect historical risk-adjusted performance
and are subject to change every month. Overall ratings are calculated for the
fund's one-, 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. As
of 2/28/97, High Yield Fund received 5 stars among 1670 funds in the taxable
bond fund category for the 1-year period, 5 stars among 1104 for the 3-year, 5
stars among 597 for the 5-year, and 4 stars among 242 for the 10-year.
<PAGE>
INVESCO Income Funds, Inc.
Statement of Investment Securities
February 28, 1997
UNAUDITED
<TABLE>
<CAPTION>
Country Shares, Units
Code if or Principal
Description Non US Amount Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HIGH YIELD Fund
FIXED INCOME SECURITIES 78.43%
AEROSPACE & DEFENSE 0.42%
Howmet Corp, Sr Sub Notes, 10.000%, 12/1/2003 $ 1,750,000 $ 1,916,250
------------
ALUMINUM 3.23%
Kaiser Aluminum & Chemical, Sr Sub Notes, 12.750%, 2/1/2003 $ 13,500,000 14,715,000
------------
BROADCASTING 14.41%
Benedek Broadcasting, Sr Secured Notes, 11.875%, 3/1/2005 $ 6,800,000 7,616,000
Benedek Communications, Sr Sub Discount Step-Up Notes, Zero Coupon^^, 5/15/2006 $ 8,000,000 5,120,000
Commodore Media, Sr Sub Step-Up Notes, 7.500%^^, 5/1/2003 $ 10,500,000 11,471,250
EchoStar Communications, Gtd Sr Discount Step-Up Notes, Zero Coupon^^, 6/1/2004 $ 6,000,000 5,160,000
EchoStar Satellite Broadcasting, Sr Secured Discount Step-Up Notes
Zero Coupon^^, 3/15/2004 $ 4,450,000 3,571,125
Granite Broadcasting, Sr Sub Notes, 9.375%, 12/1/2005 $ 6,800,000 6,732,000
Grupo Televisa SA, Sr Discount Step-Up Deb, Zero Coupon^^, 5/15/2008 MX $ 3,300,000 2,244,000
TCI Satellite Entertainment, Sr Sub Discount Step-Up Notes^, Zero Coupon^^, 2/15/2007 $ 14,500,000 8,011,250
Videotron Holdings PLC, Sr Discount Step-Up Notes, Zero Coupon^^
7/1/2004 UK $ 6,000,000 5,235,000
8/5/2005 UK $ 12,950,000 10,424,750
------------
65,585,375
------------
CABLE 8.09%
Allbritton Communications, Sr Sub Deb
11.500%, 8/15/2004 $ 5,185,000 5,509,063
Series B, 9.750%, 11/30/2007 $ 3,775,000 3,746,688
Diamond Cable Communications PLC,
Sr Discount Step-Up Notes^
Zero Coupon^^, 2/15/2007 UK $ 12,000,000 7,200,000
International CableTel, Sr Deferred
Step-Up Notes, Series B
Zero Coupon^^, 2/1/2006 UK $ 11,200,000 7,532,000
Kabelmedia Holding GmbH, Sr
Discount Step-Up Notes, Zero
Coupon^^, 8/1/2006 GM $ 6,750,000 3,982,500
<PAGE>
Marcus Cable LP/Marcus Cable Capital III, Sr Deb, 11.875%, 10/1/2005 $ 8,230,000 8,826,675
-------------
36,796,926
-------------
CONGLOMERATES 2.22%
Jordan Industries, Sr Notes, 10.375%, 8/1/2003 $ 10,070,000 10,095,175
-------------
CONTAINERS 2.73%
Gaylord Container, Sr Sub Discount Deb, 12.750%, 5/15/2005 $ 11,223,000 12,415,444
-------------
DISTRIBUTION 0.66%
Core-Mark International, Sr Sub Notes, 11.375%, 9/15/2003 $ 2,900,000 3,016,000
-------------
ELECTRIC UTILITIES 1.16%
Niagara Mohawk Power, Secured Facil, 8.770%, 1/1/2018 $ 5,500,000 5,281,199
-------------
ENTERTAINMENT 1.13%
All American Communications, Sr Sub Notes, Series B, 10.875%, 10/15/2001 $ 5,000,000 5,137,500
-------------
FOODS 0.89%
Borden Inc, Deb, 9.250%, 6/15/2019 $ 3,250,000 3,203,665
Gorges/Quick-to-Fix Foods, Sr Sub Notes^, 11.500%, 12/1/2006 $ 800,000 832,000
-------------
4,035,665
-------------
GAMING 7.71%
Aztar Corp, Sr Sub Notes, 13.750%, 10/1/2004 $ 4,750,000 5,409,062
Boyd Gaming, Sr Notes, 9.250%, 10/1/2003 $ 4,400,000 4,356,000
California Hotel Finance, Gtd Sr Sub Notes, 11.000%, 12/1/2002 $ 3,900,000 4,109,625
Casino America, Gtd Sr Secured Notes, 12.500%, 8/1/2003 $ 2,400,000 2,448,000
Mohegan Tribal Gaming Auth, Sr Secured Notes, Series B, 13.500%, 11/15/2002 $ 4,400,000 5,852,000
Trump Hotels & Casino Resorts Holdings LP/Trump Hotels & Casino Resorts Funding
Sr Secured Notes, 15.500%, 6/15/2005 $ 5,800,000 6,612,000
Trump's Castle Funding, Mortgage Notes, 11.750%, 11/15/2003 $ 7,150,000 6,309,875
-------------
35,096,562
-------------
IRON & STEEL 0.87%
ACINDAR Industria Argentina de Aceros SA, Notes, 11.250%, 2/15/2004 AR $ 3,750,000 3,965,625
-------------
MACHINERY 1.32%
Fairfield Manufacturing, Sr Sub Notes, 11.375%, 7/1/2001 $ 800,000 854,000
Goss Graphic Systems, Sr Sub Notes, 12.000%, 10/15/2006 $ 4,850,000 5,165,250
-------------
6,019,250
-------------
METALS MINING 1.00%
Haynes International, Sr Notes, 11.625%, 9/1/2004 $ 4,150,000 4,533,875
-------------
OIL & GAS RELATED 2.65%
Clark Oil & Refining, Sr Notes, 10.500%, 12/1/2001 $ 5,000,000 5,187,500
Dual Drilling, Sr Sub Notes, 9.875%, 1/15/2004 $ 4,740,000 5,131,050
Forcenergy Inc, Sr Sub Notes^, 8.500%, 2/15/2007 $ 1,750,000 1,732,500
-------------
12,051,050
-------------
<PAGE>
PAPER & FOREST PRODUCTS 2.65%
Repap New Brunswick, 2nd Priority Sr Secured Notes, 10.625%, 4/15/2005 CA $ 1,900,000 1,909,500
Stone Consolidated, Sr Secured Notes, 10.250%, 12/15/2000 $ 7,800,000 8,346,000
Tembec Finance, Gtd Sr Notes, 9.875%, 9/30/2005 CA $ 1,790,000 1,807,900
-------------
12,063,400
-------------
PERSONAL CARE 1.91%
Calmar Inc, Sr Sub Notes, Series B, 11.500%, 8/15/2005 $ 3,300,000 3,465,000
Revlon Worldwide, Sr Secured Discount Notes^, Zero Coupon, 3/15/2001 $ 8,000,000 5,250,000
-------------
8,715,000
-------------
PUBLISHING 3.29%
Affiliated Newspapers Investments, Sr Discount Step-Up Notes, Zero Coupon^^, 7/1/2006 $ 17,618,000 14,975,300
-------------
REAL ESTATE INVESTMENT TRUST 1.14%
Saul (B F) REIT, Sr Secured Notes, 11.625%, 4/1/2002 $ 4,750,000 5,165,625
-------------
SPECIALTY PRINTING 0.91%
MDC Communications, Sr Sub Notes, 10.500%, 12/1/2006 CA $ 3,900,000 4,124,250
-------------
TELECOMMUNICATIONS -
CELLULAR & WIRELESS 9.15%
Comcast Cellular, Sr Participating Redeemable Notes
Series A, Zero Coupon, 3/5/2000 $ 1,000,000 727,500
Series B, Zero Coupon, 3/5/2000 $ 5,400,000 3,915,000
CommNet Cellular
Sr Sub Discount Step-Up Notes, Zero Coupon^^, 9/1/2003 $ 5,540,000 5,138,350
Sub Notes, 11.250%, 7/1/2005 $ 3,150,000 3,370,500
Dial Call Communications, Sr Redeemable Discount Step-Up Notes
Zero Coupon^^, 4/15/2004 $ 4,000,000 3,170,000
GST USA, Gtd Sr Discount Step-Up Notes, Zero Coupon^^, 12/15/2005 $ 2,400,000 1,560,000
Microcell Telecommunications, Sr Discount Step-Up Notes, Series B
Zero Coupon^^, 6/1/2006 $ 8,500,000 4,760,000
NEXTEL Communications, Sr
Redeemable Discount Step-Up Notes
Zero Coupon^^, 8/15/2004 $ 6,300,000 4,646,250
PanAmSat LP/PanAmSat Capital, Sr Sub Discount Step-Up Notes
Zero Coupon^^, 8/1/2003 $ 5,800,000 5,481,000
PriCellular Wireless, Sr Sub Discount Step-Up Notes, Zero Coupon^^, 10/1/2003 $ 4,050,000 3,645,000
Western Wireless, Sr Sub Notes, 10.500%, 6/1/2006 $ 5,000,000 5,225,000
-------------
41,638,600
-------------
<PAGE>
TELECOMMUNICATIONS - LONG DISTANCE 7.80%
Brooks Fiber Properties, Sr Discount Step-Up Notes, Zero Coupon^^
3/1/2006 $ 2,000,000 1,360,000
11/1/2006 $ 7,750,000 5,037,500
McLeod Inc, Sr Discount Step-Up Notes^, Zero Coupon^^, 3/1/2007 $ 14,000,000 8,470,000
NEXTLINK Communications LLC, Sr Notes, 12.500%, 4/15/2006 $ 8,140,000 8,872,600
Omnipoint Corp, Sr Notes
11.625%, 8/15/2006 $ 7,950,000 7,989,750
Series A^, 11.625%, 8/15/2006 $ 3,750,000 3,768,750
-------------
35,498,600
-------------
TEXTILE - APPAREL MANUFACTURING 0.78%
Reeves Industries, Sr Notes, 11.000%, 7/15/2002 $ 3,700,000 3,542,750
-------------
TRANSPORTATION 2.31%
Statia Terminals International NV/Statia Terminals Canada, 1st Mortgage Notes, Series A^
11.750%, 11/15/2003 $ 4,750,000 5,058,750
Viking Star Shipping, 1st Pfd Ship Mortgage Notes, 9.625%, 7/15/2003 $ 5,200,000 5,447,000
-------------
10,505,750
-------------
TOTAL FIXED INCOME SECURITIES
(Cost $350,752,256) 356,890,171
-------------
COMMON STOCKS & WARRANTS 0.32%
BROADCASTING 0.20%
Park Communications, Warrants^ (Exp 2004) $ 45,000 908,100
-------------
RESTAURANTS 0.01%
AmeriKing Inc* $ 750 37,500
TELECOMMUNICATIONS - CELLULAR & WIRELESS 0.11%
Microcell Telecommunications
Conditional Warrants (Exp 2006)*^ $ 34,000 21,250
Warrants (Exp 2006)*^ $ 34,000 497,250
-------------
518,500
-------------
TOTAL COMMON STOCKS & WARRANTS
(Cost $1,125,078) 1,464,100
-------------
PREFERRED STOCKS 11.22%
BROADCASTING 5.99%
Chancellor Broadcasting, Conv Pfd^, 7.000% $ 72,500 3,779,062
Chancellor Radio Broadcasting
Exchangeable Pfd^, 12.000% $ 31,000 3,224,000
Sr Cum Exchangeable Pfd, Series A, 12.250%~ $ 39,000 4,602,000
Granite Broadcasting, Exchangeable Pfd^, 12.750%~ $ 6,000 5,940,000
Paxson Communications, Cum Exchangeable Pfd, 12.500%~ $ 4,750 4,773,750
SFX Broadcasting, Pfd, Series E, 12.625%~ $ 47,500 4,916,250
-------------
27,235,062
-------------
<PAGE>
CABLE 1.54%
Cablevision Systems, Cum Exchangeable Pfd, Series H, 11.750%~ $ 73,741 7,005,381
-------------
COMMUNICATIONS - EQUIPMENT & MANUFACTURING 1.23%
PanAmSat Corp, Mandatory Sr Redeemable Exchangeable Pfd, 12.750%~ $ 4,643 5,612,734
-------------
RESTAURANTS 0.18%
AmeriKing Inc, Sr Cum Exchangeable Pfd, 13.000%~ $ 30,000 810,000
-------------
RETAIL 0.60%
Jitney-Jungle Stores of America, Sr Exchangeable Pfd, Class A^, 15.000% $ 21,000 2,730,000
-------------
TELECOMMUNICATIONS - LONG DISTANCE 0.79%
ICG Holdings, Mandatory Redeemable Exchangeable Pfd, 14.250% $ 3,221 3,607,520
-------------
TOTAL PREFERRED STOCKS
(Cost $48,815,505) 51,060,697
-------------
OTHER SECURITIES 4.91%
BROADCASTING 1.10%
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 $ 6,800 5,032,000
-------------
ELECTRONICS 0.65%
Electronic Retailing Systems International, Units^ (Each unit consists of one $1,000 face
amount Sr Discount Step-Up Note, Zero Coupon^^, 2/1/2004 and 1 wrnt to purchase
17.23 shrs of cmn stock) $ 4,300 2,945,500
-------------
RETAIL 0.28%
InterAct Systems, Units^ (Each unit consists of one $1,000 face amount Sr Discount
Step-Up Note, Zero Coupon^^, 8/1/2003 and 1 wrnt to purchase 1 shr of cmn stock) $ 2,400 1,272,000
-------------
TELECOMMUNICATIONS - CELLULAR & WIRELESS 2.88%
Globalstar LP/Globalstar Capital, Units^ (Each unit consists of one $1,000 face amount Sr
Note, 11.375%, 2/15/2004 and 1 wrnt to purchase 2.0645 shrs of cmn stock) $ 6,750 7,087,500
NEXTLINK Communications, Sr Exchangeable Units^ (Each unit consists of 1 shr of
pfd stock and 1 warrant) $ 80,000 4,060,000
OpTel Inc, Units^ (Each unit consists of one $1,000 face amount Sr Note, 13.000%
2/15/2005 and 1 shr of non-voting cmn stock) $ 6,000 6,015,000
-------------
13,102,500
-------------
TOTAL OTHER SECURITIES
(Cost $22,340,534) 22,352,000
-------------
<PAGE>
SHORT-TERM INVESTMENTS -
COMMERCIAL PAPER 5.12%
FINANCIAL 5.12%
Associates Corp of North America, 5.400%, 3/31/1997
(Amortized Cost $23,284,000) $ 23,284,000 23,284,000
-------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $446,317,373#) 455,050,968
=============
SELECT INCOME Fund
FIXED INCOME SECURITIES 95.43%
US Government Obligations 1.78%
US Treasury Notes, 6.250%, 2/15/2007
(Cost $4,888,921)
US Government Agency Obligations 24.42% $ 5,000,000 4,890,625
Federal Home Loan Mortgage, Gold,Participation Certificates
7.000%, 4/1/2008 $ 4,401,901 4,407,271
7.000%, 4/1/2024 $ 4,450,231 4,363,941
7.000%, 5/1/2024 $ 8,589,823 8,423,267
7.000%, 6/1/2024 $ 4,208,378 4,126,777
6.500%, 6/1/2010 $ 2,452,835 2,415,699
6.500%, 10/1/2010 $ 4,414,71 4,338,866
6.500%, 9/1/2011 $ 24,250,456 23,760,839
Federal National Mortgage Association, Gtd Mortgage Pass-Through
Certificates, 7.500%, 12/1/2024 $ 2,587,378 2,593,148
Government National Mortgage Association I, Pass-Through Certificates
7.500%, 5/15/2022 $ 4,173,062 4,191,716
7.500%, 11/15/2023 $ 8,345,959 8,374,752
-------------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $65,140,728) 66,996,276
-------------
AEROSPACE & DEFENSE 1.20%
Howmet Corp, Sr Sub Notes,
10.000%, 12/1/2003 $ 3,000,000 3,285,000
-------------
AIRLINES 1.16%
Delta Air Lines, Equipment Trust Certificates, Series 1992C, 9.300%, 1/2/2010 $ 2,800,000 3,169,860
-------------
AUTOMOBILES 1.82%
General Motors Acceptance, Medium-Term Notes, 6.700%, 4/25/2001 $ 5,000,000 4,985,770
-------------
BROADCASTING 7.27%
Benedek Broadcasting, Sr Secured Notes, 11.875%, 3/1/2005 $ 2,600,000 2,912,000
EchoStar Communications, Sr Secured Discount Step-Up Notes, Zero Coupon^^, 6/1/2004 $ 7,000,000 6,020,000
TCI Satellite Entertainment, Sr Sub Notes^, 10.875%, 2/15/2007 $ 4,000,000 4,040,000
Videotron Holdings PLC, Sr Discount Step-Up Notes, Zero Coupon^^, 7/1/2004 UK $ 8,000,000 6,980,000
-------------
19,952,000
-------------
BUILDING MATERIALS 2.48%
USG Corp
Deb, 8.750%, 3/1/2017 $ 200,000 207,500
Sr Notes, 8.500%, 8/1/2005 $ 6,340,000 6,593,600
-------------
6,801,100
-------------
<PAGE>
CABLE 5.90%
Allbritton Communications, Sr Sub Deb, 11.500%, 8/15/2004 $ 3,225,000 3,426,562
Continental Cablevision, Sr Sub Deb, 11.000%, 6/1/2007 $ 5,200,000 5,902,385
Diamond Cable Communications PLC, Sr Discount Step-Up Notes^
Zero Coupon^^, 2/15/2007 UK $ 3,000,000 1,800,000
International CableTel, Sr Notes^, 10.000%, 2/15/2007 UK $ 5,000,000 5,075,000
-------------
16,203,947
-------------
COMPUTER RELATED 2.73%
International Business Machines, Deb, 7.125%, 12/1/2096 $ 8,000,000 7,498,864
-------------
ELECTRIC UTILITIES 19.95%
Commonwealth Edison, Notes, 7.625%, 1/15/2007 $ 3,500,000 3,504,347
DQU-II Funding, Collateral Lease, 8.700%, 6/1/2016 $ 8,000,000 8,607,152
Enersis SA, Notes, 6.900%, 12/1/2006 CI $ 5,250,000 5,076,304
New England Power, General & Refunding Mortgage, 8.000%, 8/1/2022 $ 7,000,000 7,350,504
Niagara Mohawk Power, Secured Facil, 8.770%, 1/1/2018 $ 3,000,000 2,880,654
North Atlantic Energy, 1st Mortgage Notes, Series A, 9.050%, 6/1/2002 $ 5,662,000 5,746,930
PSI Energy, Deb, 6.350%, 11/15/2006 $ 4,750,000 4,700,358
Pennsylvania Power, 1st Mortgage, 6.375%, 9/1/2004 $ 5,000,000 4,726,930
Philadelphia Electric, 1st & Refunding Mortgage
7.750%, 3/1/2023 $ 5,000,000 4,942,345
7.250%, 11/1/2024 $ 4,500,000 4,245,993
Public Service of New Mexico, 1st Mortgage Notes, 9.000%, 5/1/2008 $ 3,000,000 2,968,299
-------------
54,749,816
-------------
ENTERTAINMENT 3.24%
Time Warner Entertainment, Sr Deb, 8.375%, 3/15/2023 $ 5,000,000 5,081,720
Viacom International, Sub Deb
Series A, 7.000%, 7/1/2003 $ 2,000,000 1,902,198
Series B, 7.000%, 7/1/2003 $ 2,000,000 1,902,198
-------------
8,886,116
-------------
FINANCIAL 1.83%
Abbey National PLC, Sub Notes, 7.350%, 10/29/2049 UK $ 5,000,000 5,019,900
-------------
FOODS 1.09%
Fage Dairy Industries SA, Sr Notes^, 9.000%, 2/1/2007 GR $ 3,000,000 2,977,500
-------------
GOLD & PRECIOUS METALS MINING 1.80%
Freeport McMoRan Copper & Gold, Sr Notes, 7.200%, 11/15/2026 $ 5,000,000 4,949,755
-------------
HEALTH CARE DRUGS - PHARMACEUTICALS 2.66%
McKesson Corp, Sub Deb, 4.500%, 3/1/2004 $ 8,430,000 7,286,791
-------------
INSURANCE 2.89%
Berkley (W R) Corp, Sr Notes, 6.250%, 1/15/2006 $ 3,000,000 2,798,085
Veritas Holdings GmbH, Sr Notes^, 9.625%, 12/15/2003 GM $ 5,000,000 5,137,500
-------------
7,935,585
-------------
<PAGE>
INVESTMENT BANK/BROKER FIRM 1.85%
Donaldson Lufkin & Jenrette, Medium-Term Notes, 5.625%, 2/15/2016 $ 3,000,000 2,850,087
Lehman Brothers Holdings, Sr Notes, 8.800%, 3/1/2015 $ 2,000,000 2,222,714
-------------
5,072,801
-------------
MACHINERY 1.29%
Perez Companc SA, Sr Unsecured Bonds^, 9.000%, 1/30/2004 AR $ 3,500,000 3,552,500
-------------
OIL & GAS RELATED 0.75%
Clark Oil & Refining, Sr Notes, 10.500%, 12/1/2001 $ 1,990,000 2,064,625
-------------
PERSONAL CARE 0.72%
Revlon Worldwide, Sr Secured Discount Notes^, Zero Coupon, 3/15/2001 $ 3,000,000 1,968,750
-------------
PUBLISHING 3.82%
Affiliated Newspaper Investments, Sr Discount Step-Up Deb, Zero Coupon^^, 7/1/2006 $ 3,000,000 2,550,000
News America Holdings, Sr Deb, 7.430%, 10/1/2026 $ 3,000,000 3,057,270
Time Warner, Deb, 6.850%, 1/15/2026 $ 5,000,000 4,868,190
-------------
10,475,460
-------------
REAL ESTATE INVESTMENT TRUST 1.43%
CEI Citicorp Holdings, Bonds^, 9.750%, 2/14/2007 AR $ 4,000,000 3,930,000
-------------
SAVINGS & LOAN 0.74%
Western Financial Savings Bank, Sub Capital Deb, 8.500%, 7/1/2003 $ 2,000,000 2,038,168
-------------
TELECOMMUNICATIONS - CELLULAR & WIRELESS 1.40%
Comcast Cellular, Sr Participating Redeemable Notes, Series B, Zero Coupon, 3/5/2000 $ 3,000,000 2,175,000
Microcell Telecommunications, Sr Discount Step-Up Notes, Series B
Zero Coupon^^, 6/1/2006 $ 3,000,000 1,680,000
-------------
3,855,000
-------------
TELECOMMUNICATIONS - LONG DISTANCE 1.21%
McLeod Inc, Sr Discount Step-Up Notes^, Zero Coupon^^, 3/1/2007 $ 5,500,000 3,327,500
TOTAL CORPORATE BONDS -------------
(Cost $189,753,066) 189,986,808
-------------
TOTAL FIXED INCOME SECURITIES
(Cost $259,782,715) 261,873,709
-------------
WARRANTS 0.07%
TELECOMMUNICATIONS - CELLULAR & WIRELESS 0.07%
Microcell Telecommunications
Conditional Warrants (Exp 2006)*^ $ 12,000 7,500
Warrants (Exp 2006)*^ $ 12,000 175,500
-------------
TOTAL WARRANTS
(Cost $120,626) 183,000
-------------
<PAGE>
OTHER SECURITIES 0.75%
TELECOMMUNICATIONS - CELLULAR & WIRELESS 0.75%
Globalstar LP/Globalstar Capital, Units^ (Each unit consists of one $1,000 face amount Sr
Note, 11.375%, 2/15/2004 and 1 wrnt to purchase 2.0645 shrs of cmn stock) $ 1,000 1,050,000
OpTel Inc, Units^ (Each unit consists of one $1,000 face amount Sr Note, 13.000%
2/15/2005 and 1 wrnt to purchase 1 shr of non-voting cmn stock) $ 1,000 1,002,500
-------------
TOTAL OTHER SECURITIES
(Cost $2,000,000) 2,052,500
-------------
SHORT-TERM INVESTMENTS -
COMMERCIAL PAPER 3.75%
FINANCIAL 3.75%
American General, 5.350%, 3/3/1997
(Amortized Cost $10,306,000) $ 10,306,000 10,306,000
-------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $272,209,341#) 274,415,209
=============
SHORT-TERM BOND Fund
FIXED INCOME SECURITIES 80.88%
US Government Obligations 25.33%
US Treasury Notes
5.875%, 11/15/1999 $ 2,500,000 2,481,250
5.875%, 2/15/2000 $ 1,000,000 990,937
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $3,494,829) 3,472,187
-------------
US Government Agency Obligations 26.96%
Federal Home Loan Mortgage, Gold, Participation Certificates
7.000%, 6/1/2009 $ 1,210,434 1,209,816
7.000%, 1/1/2012 $ 2,492,308 2,485,299
-------------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $3,691,927) 3,695,115
-------------
Corporate Bonds 28.59%
AUTOMOBILES 5.47%
General Motors Acceptance, Pass-Through Trust, Series 1997^, 6.500%, 1/17/2000 $ 750,000 749,063
-------------
CABLE 3.47%
Allbritton Communications, Sr Sub Deb, 11.500%, 8/15/2004 $ 250,000 265,625
Century Communications, Sr Sub Notes, 11.875%, 10/15/2003 $ 200,000 210,000
-------------
475,625
-------------
ELECTRIC UTILITIES 1.81%
PSI Energy, Deb, 6.350%, 11/15/2006 $ 250,000 247,387
-------------
<PAGE>
FINANCIAL 9.65%
Chrysler Financial, Notes, 6.500%, 6/15/1998 $ 470,000 472,034
Ford Motor Credit, Medium-Term Notes, 5.813%, 2/1/1999 $ 450,000 451,134
United States Leasing International, Medium-Term Notes, 5.828%, 11/16/1998 $ 400,000 399,920
-------------
1,323,088
-------------
OIL & GAS RELATED 1.51%
Clark Oil & Refining, Sr Notes, 10.500%, 12/1/2001 $ 200,000 207,500
-------------
PERSONAL CARE 1.92%
Revlon Worldwide, Sr Secured Discount Notes^, Zero Coupon, 3/15/2001 $ 400,000 262,500
-------------
REAL ESTATE INVESTMENT TRUST 1.86%
Fisher Brothers Financial Realty, Secured Notes, 10.750%, 12/17/2000 $ 250,000 254,713
-------------
TELECOMMUNICATIONS - CELLULAR & WIRELESS 2.90%
PanAmSat LP/PanAmSat Capital,
Sr Sub Discount Step-Up Notes Zero Coupon^^, 8/1/2003 $ 200,000 189,000
Rogers Cantel Mobile, Gtd Sr Sub Notes, 11.125%, 7/15/2002 $ 200,000 209,000
-------------
398,000
TOTAL CORPORATE BONDS -------------
(Cost $3,926,936) 3,917,876
TOTAL FIXED INCOME SECURITIES
(Cost $11,113,692) 11,085,178
-------------
SHORT-TERM INVESTMENTS-
REPURCHASE AGREEMENTS 19.12%
due 3/3/1997 at 5.280%, repurchased at $2,621,153 (Collateralized by
US Treasury Bonds due 11/15/2009 at 10.375%, value $2,739,036)
(Cost $2,620,000) $ 2,620,000 2,620,000
-------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $13,733,692)
(Cost for Income Tax Purposes $13,736,583) 13,705,178
-------------
U.S. GOVERNMENT SECURITIES Fund
FIXED INCOME SECURITIES 92.43%
US Government Obligations 48.34%
US Treasury Bonds
8.125%, 8/15/2019 $ 5,000,000 5,668,750
8.125%, 5/15/2021 $ 10,000,000 11,365,620
6.500%, 11/15/2026 $ 9,000,000 8,600,625
-------------
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $25,272,299) 25,634,995
-------------
US Government Agency Obligations 44.09%
Federal Home Loan Mortgage, Gold, Participation Certificates
6.500%, 4/1/2026 $ 14,715,314 14,023,841
<PAGE>
Government National Mortgage Association I, Pass-Through Certificates
6.500%, 4/15/2026 $ 9,856,570 9,361,178
-------------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $23,149,439) 23,385,019
-------------
TOTAL FIXED INCOME SECURITIES
(Cost $48,421,738) 49,020,014
-------------
SHORT-TERM INVESTMENTS -
REPURCHASE AGREEMENTS 7.57%
Repurchase Agreement with State Street Trust Co dated 2/28/1997
due 3/3/1997 at 5.280%, repurchased at $4,015,766 (Collateralized by
US Treasury Notes due 11/15/2009 at 10.375%, value $4,201,566)
(Cost $4,014,000) $ 4,014,000 4,014,000
-------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $52,435,738)
(Cost for Income Tax Purposes $52,495,269) 53,034,014
-------------
</TABLE>
^^ 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.
~ Security may make interest payments in other types of securities or cash.
# Also represents cost for income tax purposes.
^ The following are restricted securities at February 28, 1997:
<TABLE>
<CAPTION>
Value as
Acquisition Acquisition % of
Description Date(s) Cost Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Fund
Chancellor Broadcasting, Conv Pfd, 7.000% 1/17/97 $3,625,000 0.83%
Chancellor Radio Broadcasting, Exchangeable Pfd, 12.000% 1/17/97-
2/18/97 3,125,000 0.71
Diamond Cable Communications PLC, Sr Discount Step-Up Notes
Zero Coupon, 2/15/2007 2/21/97 7,133,760 1.58
Electronic Retailing Systems International, Units 1/21/97 2,918,969 0.65
Forcenergy Inc, Sr Sub Notes, 8.500%, 2/15/2007 2/11/97 1,738,415 0.38
Globalstar LP/Globalstar Capital, Units 2/13/97 6,750,000 1.56
Gorges/Quick-to-Fix Foods, Sr Sub Notes, 11.500%, 12/1/2006 11/21/96-
12/12/96 816,000 0.18
Granite Broadcasting, Exchangeable Pfd, 12.750% 1/28/97-
2/25/97 5,980,000 1.31
InterAct Systems, Units 7/30/96 1,599,816 0.28
Jitney-Jungle Stores of America, Sr Exchangeable Pfd, Class A, 15.000% 1/23/97 2,731,260 0.60
McLeod Inc, Sr Discount Step-Up Notes, Zero Coupon, 3/1/2007 2/27/97 8,400,000 1.86
Microcell Telecommunications
Conditional Warrants 11/20/96 170,210 0.00
Warrants 11/20/96 170,210 0.11
NEXTLINK Communications, Sr Exchangeable Units 1/21/97 4,000,000 0.89
Omnipoint Corp, Sr Notes, Series A, 11.625%, 8/15/2006 11/21/96-
11/22/96 3,931,425 0.83
Optel Inc, Units 2/7/97 6,000,000 1.32
Park Communications, Warrants 11/7/96 752,050 0.20
Revlon Worldwide, Sr Secured
Discount Notes, Zero Coupon,
3/15/2001 2/28/97 5,247,200 1.15
Statia Terminals International
NV/Statia Terminals Canada
1st Mortgage Notes, Series A,
11.750%, 11/15/2003 2/27/97 5,076,563 1.11
<PAGE>
TCI Satellite Entertainment, Sr Sub Discount Step-Up Notes
Zero Coupon, 2/15/2007 2/14/97-
2/24/97 8,035,400 1.76
-------------
17.31%
=============
Select Income Fund
CEI Citicorp Holdings, Bonds, 9.750%, 2/14/2007 2/14/97 3,989,720 1.46%
Diamond Cable Communications PLC, Sr Discount Step-Up Notes
Zero Coupon, 2/15/2007 2/21/97 1,783,440 0.67
Fage Dairy Industries SA, Sr Notes, 9.000%, 2/1/2007 2/6/97 2,940,000 1.11
Globalstar LP/Globalstar Capital, Units 2/13/97 1,000,000 0.39
International CableTel, Sr Notes, 10.000%, 2/15/2007 2/7/97 5,000,000 1.89
McLeod Inc, Sr Discount Step-Up Notes, Zero Coupon, 3/1/2007 2/27/97 3,300,000 1.24
Microcell Telecommunications
Conditional Warrants 11/20/96 60,313 0.00
Warrants 11/20/96 60,313 0.07
OpTel Inc, Units 2/7/97 1,000,000 0.37
Perez Companc SA, Sr Unsecured Bonds, 9.000%, 1/30/2004 1/23/97 3,500,000 1.32
Revlon Worldwide, Sr Secured Discount Notes, Zero Coupon, 3/15/2001 2/28/97 1,967,700 0.73
TCI Satellite Entertainment, Sr Sub Notes, 10.875%, 2/15/2007 2/14/97 4,000,000 1.50
Veritas Holdings GmbH, Sr Notes, 9.625%, 12/15/2003 12/11/96 5,000,000 1.91
-------------
12.66%
=============
Short-Term Bond Fund
General Motors Acceptance, Pass-Through Trust, Series 1997
6.500%, 1/17/2000 1/8/97 749,055 5.56%
Revlon Worldwide, Sr Secured Discount Notes, Zero Coupon, 3/15/2001 2/28/97 262,360 1.95
-------------
7.51%
=============
</TABLE>
<TABLE>
<CAPTION>
Summary of Investments by Country
% of
Country Investment
Country Code Securities Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Fund
Argentina AR 0.87% $ 3,965,625
Canada CA 1.72 7,841,650
Germany GM 0.88 3,982,500
Mexico MX 0.49 2,244,000
United Kingdom UK 6.68 30,391,750
United States US 89.36 406,625,443
-----------------------------
100.00% $455,050,968
<PAGE>
=============================
Select Income Fund
Argentina AR 2.73% $ 7,482,500
Chile CI 1.85 5,076,304
Germany GM 1.87 5,137,500
Greece GR 1.08 2,977,500
United Kingdom UK 6.88 18,874,900
United States US 85.59 234,866,505
-----------------------------
100.00% $274,415,209
=============================
</TABLE>
See Notes to Financial Statements
<PAGE>
INVESCO Income Funds, Inc.
Statement of Assets and Liabilities
February 28, 1997
UNAUDITED
<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~ $ 446,317,373 $ 272,209,341 $ 13,733,692 $ 52,435,738
===================================================================
At Value~ $ 455,050,968 $ 274,415,209 $ 13,705,178 $ 53,034,014
Cash 2,019,444 8 9,988 0 20,008
Receivables:
Investment Securities Sold 20,855,608 8,041,311 256,085 134,408
Fund Shares Sold 2,411,681 940,187 5,310 589,922
Dividends and Interest 5,989,597 3,120,693 3,713 445,521
Prepaid Expenses and Other Assets 95,167 319,015 75,749 115,918
-------------------------------------------------------------------
TOTAL ASSETS 486,422,465 286,926,403 14,136,035 54,339,791
-------------------------------------------------------------------
LIABILITIES
Payables:
Custodian 0 0 259,476 0
Distributions to Shareholders 435,256 177,745 2,586 18,854
Investment Securities Purchased 29,298,103 17,039,325 262,360 0
Fund Shares Repurchased 1,364,082 627,644 125,064 276,450
Accrued Distribution Expenses 85,418 51,630 2,568 10,381
Accrued Expenses and Other Payables 37,726 23,044 9,627 8,523
-------------------------------------------------------------------
TOTAL LIABILITIES 31,220,585 17,919,388 661,681 314,208
-------------------------------------------------------------------
Net Assets at Value $ 455,201,880 $269,007,015 $ 13,474,354 $ 54,025,583
===================================================================
NET ASSETS
Paid-in Capital* $ 435,030,466 $263,737,408 $ 13,888,741 $ 53,375,293
Accumulated Undistributed (Distributions
in Excess of) Net Investment Income
(See Note 1) (157,793) (100,882) (60,089) 13,766
Accumulated Undistributed Net Realized
Gain (Loss) on Investment Securities
and Foreign Currency Transactions 11,595,612 3,164,621 (325,784) 38,248
<PAGE>
Net Appreciation (Depreciation) of Investment Securities
and Foreign Currency Transactions 8,733,595 2,205,868 (28,514) 598,276
-------------------------------------------------------------------
Net Assets at Value 455,201,880 269,007,015 13,474,354 54,025,583
===================================================================
Shares Outstanding 62,583,010 41,012,859 1,423,185 7,364,596
Net Asset Value, Offering and Redemption
Price per Share 7.27 6.56 9.47 7.34
===================================================================
</TABLE>
~ Investment securities at cost and value at February 28, 1997 include
repurchase agreements of $2,620,000 and $4,014,000 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
INVESCO Income Funds, Inc.
Statement of Operations
Six Months Ended February 28, 1997
UNAUDITED
<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 $ 20,130,928 $ 10,740,418 $ 378,492 $ 1,896,742
Dividends 95,279 0 0 0
---------------------------------------------------------------------
TOTAL INCOME 20,226,207 10,740,418 378,492 1,896,742
---------------------------------------------------------------------
EXPENSES
Investment Advisory Fees 983,497 727,418 29,067 154,437
Distribution Expenses 520,832 330,658 14,533 70,207
Transfer Agent Fees 326,331 397,491 29,503 93,025
Administrative Fees 36,309 24,898 5,930 9,272
Custodian Fees and Expenses 37,486 32,354 3,331 6,730
Directors' Fees and Expenses 13,316 9,977 3,791 4,816
Professional Fees and Expenses 17,555 14,247 6,271 9,122
<PAGE>
Registration Fees and Expenses 45,913 31,062 11,835 16,111
Reports to Shareholders 107,487 30,955 2,684 8,183
Other Expenses 11,285 8,174 1,904 1,626
---------------------------------------------------------------------
TOTAL EXPENSES 2,100,011 1,607,234 108,849 373,529
Fees and Expenses Absorbed by
Investment Adviser 0 (265,988) (60,401) (89,683)
Fees and Expenses Paid Indirectly (26,570) (15,955) (1,647) (3,087)
---------------------------------------------------------------------
NET EXPENSES 2,073,441 1,325,291 46,801 280,759
---------------------------------------------------------------------
NET INVESTMENT INCOME 18,152,766 9,415,127 331,691 1,615,983
---------------------------------------------------------------------
<PAGE>
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities
and Foreign Currency Transactions 12,509,261 3,164,295 1,018 489,377
Change in Net Appreciation of Investment
Securities and Foreign Currency Transactions 15,012,105 6,464,599 119,771 937,184
--------------------------------------------------------------------
NET GAIN ON INVESTMENT SECURITIES 27,521,366 9,628,894 120,789 1,426,561
--------------------------------------------------------------------
Net Increase in Net Assets from Operations 45,674,132 19,044,021 452,480 3,042,544
====================================================================
</TABLE>
See Notes to Financial Statements
INVESCO Income Funds, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
High Yield Fund Select Income Fund
Six Months Year Six Months Year
Ended Ended Ended Ended
February 28 August 31 February 28 August 31
------------------------------- --------------------------------
1997 1996 1997 1996
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 18,152,766 $ 31,275,377 $ 9,415,127 $ 18,298,634
Net Realized Gain on Investment Securities
and Foreign Currency Transactions 12,509,261 13,285,701 3,164,295 3,393,400
Change in Net Appreciation (Depreciation) of
Investment Securities and Foreign
Currency Transactions 15,012,105 (8,092,678) 6,464,599 (10,577,175)
-------------------------------- --------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS 45,674,132 36,468,400 19,044,021 11,114,859
------------------------------- --------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (18,309,550) (31,275,377) (9,540,036) (18,298,634)
In Excess of Net Investment Income 0 (1,009) 0 (236,099)
Net Realized Gain on Investment Securities (1,811,000) 0 (1,166,065) (928,028)
-------------------------------- --------------------------------
TOTAL DISTRIBUTIONS (20,120,550) (31,276,386) (10,706,101) (19,462,761)
-------------------------------- --------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 298,812,973 521,528,845 68,098,625 183,060,076
Reinvestment of Distributions 16,517,064 26,085,121 9,380,784 17,478,881
-------------------------------- --------------------------------
315,330,037 547,613,966 77,479,409 200,538,957
-------------------------------- --------------------------------
Amounts Paid for Repurchases of Shares (260,882,983) (466,563,331) (74,903,170) (150,695,392)
NET INCREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 54,447,054 81,050,635 2,576,239 49,843,565
-------------------------------- --------------------------------
<PAGE>
Total Increase in Net Assets 80,000,636 86,242,649 10,914,159 41,495,663
NET ASSETS
Beginning of Period 375,201,244 288,958,595 258,092,856 216,597,193
-------------------------------- --------------------------------
End of Period $ 455,201,880 $ 375,201,244 $269,007,015 $ 258,092,856
================================ ================================
Accumulated Undistributed (Distributions
in Excess of) Net Investment Income
Included in Net Assets at End of Period
(See Note 1) $ (157,793) $ (1,009) $ (100,882) $ 24,027
------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 42,302,993 76,321,844 10,452,411 27,935,727
Shares Issued from Reinvestment of
Distributions 2,354,696 3,819,405 1,434,260 2,677,261
-------------------------------- --------------------------------
44,657,689 80,141,249 11,886,671 30,612,988
Shares Repurchased (36,909,855) (68,212,157) (11,503,628) (23,097,234)
-------------------------------- --------------------------------
Net Increase in Fund Shares 7,747,834 11,929,092 383,043 7,515,754
================================ ================================
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Income Funds, Inc.
Statement of Changes in Net Assets (Continued)
<TABLE>
<CAPTION>
Short-Term U.S. Government
Bond Fund Securities Fund
Six Months Year Six Months Year
Ended Ended Ended Ended
February 28 August 31 February 28 August 31
------------------------------- -------------------------------
1997 1996 1997 1996
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 331,691 $ 518,996 $ 1,615,983 $ 2,440,065
Net Realized Gain (Loss) on Investment
Securities and Foreign Currency
Transactions 1,018 (36,906) 489,377 687,053
Change in Net Appreciation (Depreciation)
of Investment Securities and Foreign
Currency Transactions 119,771 (88,336) 937,184 (3,007,303)
------------------------------- -------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS 452,480 393,754 3,042,544 119,815
------------------------------- -------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (391,780) (518,996) (1,602,217) (2,440,065)
In Excess of Net Investment Income 0 (2,069) 0 (57,412)
------------------------------- -------------------------------
TOTAL DISTRIBUTIONS (391,780) (521,065) (1,602,217) (2,497,477)
------------------------------- -------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 8,982,229 19,759,334 56,283,245 85,568,163
Reinvestment of Distributions 317,353 477,042 1,479,461 2,279,230
------------------------------- -------------------------------
9,299,582 20,236,376 57,762,706 87,847,393
Amounts Paid for Repurchases of Shares (6,620,512) (18,353,980) (59,791,032) (68,943,386)
------------------------------- -------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 2,679,070 1,882,396 (2,028,326) 18,904,007
------------------------------- -------------------------------
Total Increase (Decrease) in Net Assets 2,739,770 1,755,085 (587,999) 16,526,345
NET ASSETS
Beginning of Period 10,734,584 8,979,499 54,613,582 38,087,237
------------------------------- -------------------------------
End of Period 13,474,354 10,734,584 54,025,583 54,613,582
=============================== ===============================
Accumulated Undistributed Net Investment
Income Included in Net Assets at
End of Period (See Note 1) $ (60,089) $ 0 $ 13,766 $ 0
<PAGE>
FUND SHARE TRANSACTIONS
Shares Sold 947,004 2,075,335 7,553,879 11,508,907
Shares Issued from Reinvestment
of Distributions 33,422 50,130 199,554 305,421
------------------------------- -------------------------------
980,426 2,125,465 7,753,433 11,814,328
Shares Repurchased (698,128) (1,925,401) (8,027,472) (9,263,315)
------------------------------- -------------------------------
Net Increase (Decrease) in Fund Shares 282,298 200,064 (274,039) 2,551,013
=============================== ===============================
See Notes to Financial Statements
</TABLE>
INVESCO Income Funds, Inc.
Notes to Financial Statements
UNAUDITED
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 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
<PAGE>
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. 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.
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 were acquired. Income and expenses are
translated into U.S. dollars at the 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.
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.
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.
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
foreign exchange rates. The Fund does not hold short-term forward foreign
<PAGE>
currency contracts for trading purposes. The Fund may hold foreign
currency in anticipation of settling foreign security transactions and not
for investment purposes.
Investments in securities of governmental agencies may only be
guaranteed by the respective agency's limited authority to borrow from the
U.S. Government and may not be guaranteed by the full faith and credit of
the United States.
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 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 (distributions in excess
of) net investment income by $165,928, $145,676, $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.
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, 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 High Yield and U.S.
Government Securities Funds amounted to $6,030,690 and $646,073,
respectively.
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. 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, premiums, foreign currency transactions,
nontaxable dividends, net operating losses and expired capital loss
carryforwards.
<PAGE>
F. FORWARD FOREIGN CURRENCY CONTRACTS - The Fund enters into short-term
forward foreign currency contracts in connection with planned purchases or
sales of securities as a hedge against fluctuations in foreign exchange
rates pending the settlement of transactions in foreign securities. A
forward foreign currency contract is an agreement between contracting
parties to exchange an amount of currency at some future time at an agreed
upon rate. These contracts are marked-to-market daily and the related
appreciation or depreciation of the contracts is presented in the
Statement of Assets and Liabilities.
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. 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:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS
----------------------------------------------
$0 to $300 Million Over
$300 to $500 $500
Fund Million Million Million
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
</TABLE>
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.
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 six months
ended February 28, 1997, High Yield, Select Income, Short-Term Bond and U.S.
Government Securities Funds paid the Distributor $514,253, $334,219, $14,208 and
<PAGE>
$71,021, respectively, for reimbursement of expenses incurred. 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 permissable activities and
services in connection with the distribution of each Fund's shares. Accordingly,
the above amounts reflect reimbursements under the plan for the four months
ended December 31, 1996 and compensation under the plan for the two months ended
February 1997.
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.
NOTE 3 - PURCHASES AND SALES OF INVESTMENT SECURITIES. For the six months ended
February 28, 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:
<TABLE>
<CAPTION>
Fund Purchases Sales
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Fund $878,599,524 $836,112,221
Select Income Fund 356,198,266 343,238,044
Short-Term Bond Fund 3,360,257 3,315,273
The aggregate cost of purchases and proceeds from sales of U.S. Government
securities were as follows:
Fund Purchases Sales
- ---------------------------------------------------------------------------------------------
Select Income Fund $19,847,619 $30,160,854
Short-Term Bond Fund 9,482,984 7,979,967
U.S. Government Securities Fund 33,097,421 30,540,481
NOTE 4 - APPRECIATION AND DEPRECIATION. At February 28, 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 (depreciation) by Fund were as
follows:
Net
Gross Gross Appreciation
Fund Appreciation Depreciation (Depreciation)
- ---------------------------------------------------------------------------------------------
High Yield Fund $11,377,831 $2,644,236 $8,733,595
Select Income Fund 4,253,333 2,047,465 2,205,868
Short-Term Bond Fund 9,818 41,223 (31,405)
U.S. Government Securities Fund 741,886 203,141 538,745
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 of 40% of the retainer fee at the time of
retirement.
<PAGE>
Pension expenses for the six months ended February 28, 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
Fund Expenses Pension Costs Liability
- ---------------------------------------------------------------------------------------------
High Yield Fund $3,101 $12,429 $24,168
Select Income Fund 2,178 6,798 14,442
Short-Term Bond Fund 84 387 745
U.S. Government Securities Fund 417 1742 3,385
</TABLE>
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
February 28, 1997, there were no such borrowings.
---------------------------------------------------------
Other Information
UNAUDITED
On October 22, 1996, a special meeting of the shareholders of High Yield Fund
was held at which approval of the modification of the Fund's fundamental
investment policy concerning illiquid and Rule 144A securities (Proposal 1),
unseasoned issuers (Proposal 2) and holding equity securities (Proposal 3) were
ratified. The following is a report of the votes cast:
<TABLE>
<CAPTION>
Proposal For Against Withheld/Abstain Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Proposal 1 22,870,928 2,387,924 1,622,252 26,881,104
Proposal 2 22,653,291 2,579,717 1,648,095 26,881,103
Proposal 3 23,250,368 2,016,355 1,614,381 26,881,104
On January 31, 1997, a special meeting of the shareholders of the Fund was held
at which the eleven directors identified below were elected, the selection of
Price Waterhouse LLP as independent accountants (Proposal 1), the approval of a
<PAGE>
new invesment advisory agreement with INVESCO Funds Group, Inc. ("IFG")
(Proposal 2) and a new sub-advisory agreement between IFG and INVESCO Trust
Company (Proposal 3) were ratified. The following is a report of the votes cast:
Nominee/Proposal For Against Withheld/Abstain Total
- ------------------------------------------------------------------------------------------------
High Yield Fund
Charles W. Brady 43,882,057 0 1,476,938 45,358,995
Dan J. Hesser 43,898,111 0 1,460,884 45,358,995
Fred A. Deering 43,916,024 0 1,442,971 45,358,995
Victor L. Andrews 43,879,675 0 1,479,320 45,358,995
Bob R. Baker 43,837,411 0 1,521,584 45,358,995
Lawrence H. Budner 43,888,671 0 1,470,324 45,358,995
Daniel D. Chabris 43,865,646 0 1,493,349 45,358,995
A.D. Frazier, Jr. 43,898,607 0 1,460,388 45,358,995
Hubert L. Harris, Jr. 43,983,343 0 1,375,652 45,358,995
Kenneth T. King 43,842,718 0 1,516,277 45,358,995
John W. McIntyre 43,885,404 0 1,473,591 45,358,995
Proposal 1 43,148,906 685,723 1,524,365 45,358,994
Proposal 2 42,067,083 1,316,563 1,975,349 45,358,995
Proposal 3 41,973,001 1,355,285 2,030,709 45,358,995
Select Income Fund
Charles W. Brady 26,089,541 0 675,833 26,765,374
Dan J. Hesser 26,099,723 0 665,651 26,765,374
Fred A. Deering 26,072,995 0 692,379 26,765,374
Victor L. Andrews 26,064,029 0 701,345 26,765,374
Bob R. Baker 26,024,311 0 741,063 26,765,374
Lawrence H. Budner 26,062,380 0 702,994 26,765,374
Daniel D. Chabris 26,029,325 0 736,049 26,765,374
A.D. Frazier, Jr. 26,097,516 0 667,858 26,765,374
Hubert L. Harris, Jr. 26,100,155 0 665,219 26,765,374
Kenneth T. King 26,046,669 0 718,705 26,765,374
John W. McIntyre 26,073,901 0 691,473 26,765,374
Proposal 1 25,979,691 225,567 560,117 26,765,375
Proposal 2 25,426,341 489,759 849,273 26,765,373
Proposal 3 25,402,489 516,755 846,129 26,765,373
Short-Term Bond Fund
Charles W. Brady 823,370 0 20,385 843,755
Dan J. Hesser 824,072 0 19,683 843,755
Fred A. Deering 825,107 0 18,648 843,755
Victor L. Andrews 824,973 0 18,782 843,755
Bob R. Baker 825,509 0 18,246 843,755
Lawrence H. Budner 824,973 0 18,782 843,755
Daniel D. Chabris 823,555 0 20,200 843,755
A.D. Frazier, Jr. 825,643 0 18,112 843,755
Hubert L. Harris, Jr. 823,938 0 19,817 843,755
Kenneth T. King 824,124 0 19,631 843,755
John W. McIntyre 824,404 0 19,351 843,755
Proposal 1 818,819 11,217 13,718 843,754
Proposal 2 816,401 9,835 17,519 843,755
Proposal 3 817,482 8,710 17,562 843,754
<PAGE>
U.S. Government Securities Fund
Charles W. Brady 4,447,104 0 138,108 4,585,212
Dan J. Hesser 4,447,104 0 138,108 4,585,212
Fred A. Deering 4,442,913 0 142,299 4,585,212
Victor L. Andrews 4,447,084 0 138,128 4,585,212
Bob R. Baker 4,447,084 0 138,128 4,585,212
Lawrence H. Budner 4,447,084 0 138,128 4,585,212
Daniel D. Chabris 4,428,192 0 157,020 4,585,212
A.D. Frazier, Jr. 4,444,032 0 141,180 4,585,212
Hubert L. Harris, Jr. 4,449,767 0 135,445 4,585,212
Kenneth T. King 4,427,627 0 157,585 4,585,212
John W. McIntyre 4,443,094 0 142,118 4,585,212
Proposal 1 4,394,460 37,604 153,148 4,585,212
Proposal 2 4,297,384 115,899 171,930 4,585,213
Proposal 3 4,310,912 106,192 168,107 4,585,211
</TABLE>
<PAGE>
INVESCO Income Funds, Inc.
Financial Highlights
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Six Months Period
Ended Ended Year Ended
February 28 Year Ended August 31 August 31 December 31
------------ ------------------------- --------- ----------------
1997 1996 1995 1994 1993>> 1992 1991
UNAUDITED
High Yield Fund
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $6.84 $6.73 $6.73 $7.32 $6.97 $6.66 $6.00
------- -------------------------- ------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.31 0.63 0.66 0.62 0.39 0.64 0.70
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.46 0.11 0.03 (0.59) 0.36 0.30 0.64
------- -------------------------- ------- ----------------
Total from Investment Operations 0.77 0.74 0.69 0.03 0.75 0.94 1.34
------- -------------------------- ------- ----------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income+ 0.31 0.63 0.66 0.62 0.40 0.63 0.68
Distributions from Capital Gains 0.03 0.00 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 0.00
------- -------------------------- ------- ----------------
Total Distributions 0.34 0.63 0.69 0.62 0.40 0.63 0.68
------- -------------------------- ------- ----------------
Net Asset Value - End of Period 7.27 6.84 6.73 6.73 7.32 6.97 6.66
======= ========================== ======= ================
TOTAL RETURN 11.43%* 11.38% 11.12% 0.37% 11.01%* 14.53% 23.51%
RATIOS
Net Assets - End of Period ($000 Omitted) $455,202 $375,201 $288,959 $243,773 $308,945 $212,172 $99,103
Ratio of Expenses to Average Net Assets# 0.50%*@ 0.99%@ 1.00% 0.97% 0.97%~ 1.00% 1.05%
Ratio of Net Investment Income to Average
Net Assets# 4.36%* 9.13% 10.01% 8.70% 8.28%~ 9.29% 10.57%
Portfolio Turnover Rate 212%* 266% 201% 195% 45%* 120% 64%
</TABLE>
>> 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,
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.
<PAGE>
@ 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
<PAGE>
INVESCO Income Funds, Inc.
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Six Months Period
Ended Ended Year Ended
February 28 Year Ended August 31 August 31 December 31
------------ ------------------------- --------- ----------------
1997 1996 1995 1994 1993>> 1992 1991
UNAUDITED
Select Income Fund
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $6.35 $6.54 $6.18 $6.80 $6.53 $6.50 $5.96
------- ------------------------- --------- -----------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.23 0.47 0.47 0.47 0.33 0.52 0.53
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.24 (0.17) 0.36 (0.43) 0.27 0.13 0.53
------- ------------------------- --------- -----------------
Total from Investment Operations 0.47 0.30 0.83 0.04 0.60 0.65 1.06
------- ------------------------- --------- -----------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.23 0.46 0.47 0.47 0.33 0.52 0.52
In Excess of Net Investment Income+ 0.00 0.01 0.00 0.00 0.00 0.00 0.00
Distributions from Capital Gains 0.03 0.02 0.00 0.09 0.00 0.10 0.00
In Excess of Capital Gains 0.00 0.00 0.00 0.10 0.00 0.00 0.00
------- ------------------------- --------- ----------------
Total Distributions 0.26 0.49 0.47 0.66 0.33 0.62 0.52
------- ------------------------- --------- ----------------
Net Asset Value - End of Period 6.56 6.35 6.54 6.18 6.80 6.53 6.50
======= ========================= ========= ================
TOTAL RETURN 7.45%* 4.78% 14.01% 0.47% 9.42%* 10.38% 18.57%
RATIOS
Net Assets - End of Period ($000 Omitted) $269,007 $258,093 $216,597 $138,337 $158,780 $123,03 $93,827
Ratio of Expenses to Average Net Assets# 0.51%*@ 1.01%@ 1.00% 1.11% 1.15%~ 1.14% 1.15%
Ratio of Net Investment Income to Average
Net Assets# 3.56%* 7.14% 7.38% 7.22% 7.40%~ 7.97% 8.57%
Portfolio Turnover Rate 146%* 210% 181% 135% 105%* 178% 117%
</TABLE>
>> 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.
<PAGE>
* 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 six
months ended February 28, 1997 and 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 0.61% (not annualized), 1.16%, 1.22% and
1.15%, respectively, and ratio of net investment income to average net assets
would have been 3.46% (not annualized), 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>
Six Months Period
Ended Year Ended Ended
February 28 August 31 August 31
------------ ----------------- ---------
1997 1996 1995 1994>>
UNAUDITED
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 0.27 0.56 0.57 0.47
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.06 (0.13) 0.08 (0.54)
------- ----------------- ---------
Total from Investment Operations 0.33 0.43 0.65 (0.07)
------- ----------------- ---------
LESS DISTRIBUTIONS
Dividends from Net Investment Income+ 0.27 0.56 0.57 0.47
------- ----------------------------
Net Asset Value - End of Period $9.47 $9.41 $9.54 $9.46
======= ============================
TOTAL RETURN 3.51%* 4.63% 7.16% (0.72%)*
RATIOS
Net Assets - End of Period
($000 Omitted) $13,474 $10,735 $8,979 $7,878
Ratio of Expenses to Average Net Assets# 0.42%*@ 0.80%@ 0.46% 0.46%~
Ratio of Net Investment Income to
Average Net Assets# 2.86%* 5.85% 6.05% 5.50%~
Portfolio Turnover Rate 121%* 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.
# Various expenses of the Fund were voluntarily absorbed by IFG for the six
months ended February 28, 1997, the years ended August 31, 1996 and 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 0.94% (not
<PAGE>
annualized), 2.17%, 2.09% and 2.04% (annualized), respectively, and ratio of net
investment income to average net assets would have been 2.34% (not annualized),
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>
Six Months Period
Ended Ended Year Ended
February 28 Year Ended August 31 August 31 December 31
------------ ---------------------- ----------- ---------------
1997 1996 1995 1994 1993>> 1992 1991
UNAUDITED
U.S. Government Securities Fund
<S> <C> <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 $7.09
----- ----------------------- ----------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.21 0.44 0.45 0.41 0.28 0.46 0.48
Net Gains or Losses on Securities
(Both Realized and Unrealized) 0.19 (0.34) 0.39 (0.93) 0.58 (0.04) 0.57
----- ------------------------ ----------- ---------------
Total from Investment Operations 0.40 0.10 0.84 (0.52) 0.86 0.42 1.05
----- ------------------------------------- ---------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.21 0.43 0.45 0.41 0.28 0.46 0.49
In Excess of Net Investment Income 0.00 0.01 0.00 0.00 0.00 0.00 0.00
Distributions from Capital Gains 0.00 0.00 0.00 0.16 0.00 0.00 0.00
----- ------------------------------------- ---------------
Total Distributions 0.21 0.44 0.45 0.57 0.28 0.46 0.49
----- ------------------------------------- ---------------
Net Asset Value - End of Period $7.34 $7.15 $7.49 $7.10 $8.19 $7.61 $7.65
===== ===================================== ===============
TOTAL RETURN 5.61%* 1.31% 12.37% (6.53%) 11.61%* 5.68% 15.56%
RATIOS
Net Assets - End of Period ($000 Omitted) $54,026 $54,614 $38,087 $36,740 $36,391 $35,799 $29,229
Ratio of Expenses to Average Net Assets# 0.51%*@ 1.02%@ 1.00% 1.32% 1.40%~ 1.27% 1.27%
Ratio of Net Investment Income to Average
Net Assets# 2.88%* 5.76% 6.24% 5.46% 5.36%~ 6.08% 6.78%
Portfolio Turnover Rate 63%* 212% 99% 95% 100%* 115% 67%
</TABLE>
>> 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 six
months ended February 28, 1997 and 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 0.67% (not
<PAGE>
annualized), 1.48%, 1.51% and 1.42%, respectively, and ratio of net investment
income to average net assets would have been 2.72% (not annualized), 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>
INVESCO FUNDS
We're easy to stay in touch with:
Investor Services Representatives,
1-800-525-8085
PAL(R), your Personal Account Line,
1-800-424-8085
On the World Wide Web:
http://www.invesco.com
Denver Investor Centers:
Cherry Creek, 155-B Fillmore Street;
Denver Tech Center, 7800 E. Union
Avenue, Lobby Level
INVESCO Funds Group, Inc.,(SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or
accompanied by a current prospectus.
