PROSPECTUS
^ January 1, 1997
INVESCO SELECT INCOME FUND
INVESCO Select Income Fund (the "Fund") is actively managed to seek as high
a level of current income as is consistent with the risk involved in investing
substantially all of its assets in bonds and other debt securities. Potential
capital appreciation is a factor in the selection of investments, but is
secondary to the Fund's primary objective. The Fund's holdings ordinarily
consist of corporate bonds plus U.S. government and U.S. government agency and
instrumentality debt obligations.
This prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated ^ January 1, 1997, has been filed with the Securities and
Exchange Commission and is incorporated by reference into this prospectus. To
obtain a free copy, write to INVESCO Funds Group, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; on the World Wide Web: http://www.invesco.com; or call
1-800-525-8085.
THE FUND MAY INVEST UP TO 50% OF ITS TOTAL ASSETS IN LOWER RATED BONDS,
COMMONLY KNOWN AS "HIGH YIELD" OR "JUNK BONDS." THESE INVESTMENTS ARE SUBJECT TO
GREATER RISKS, INCLUDING THE RISK OF DEFAULT, THAN HIGHER RATED SECURITIES. YOU
SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND. SEE
"INVESTMENT OBJECTIVE AND STRATEGY" AND "INVESTMENT POLICIES AND RISKS."
<PAGE>
CONTENTS
ESSENTIAL INFORMATION................................................ 2
ANNUAL FUND EXPENSES................................................. 3
FINANCIAL HIGHLIGHTS................................................. 4
INVESTMENT OBJECTIVE AND STRATEGY.................................... 5
INVESTMENT POLICIES AND RISKS........................................ 5
THE FUND AND ITS MANAGEMENT.......................................... 8
FUND PRICE AND PERFORMANCE........................................... 10
HOW TO BUY SHARES.................................................... 10
FUND SERVICES........................................................ 13
HOW TO SELL SHARES................................................... 13
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS...................... 14
ADDITIONAL INFORMATION............................................... 15
APPENDIX - RATINGS SERVICES.......................................... 15
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
ESSENTIAL INFORMATION
Investment Goal And Strategy. INVESCO Select Income Fund is a diversified
mutual fund that seeks as high a level of current income as is consistent with
the risk involved in investing in the types of securities in which the Fund
invests. The maturity of the securities in which the Fund invests will vary with
interest rates. In selecting investments, we consider potential capital
appreciation as a secondary factor . There is no guarantee that the Fund will
meet its objective. See "Investment Objective And Strategy."
Designed For: Investors primarily seeking daily income, paid monthly. While
not a complete investment program, the Fund may be a valuable element of your
investment portfolio. You may also wish to consider the Fund as part of a
Uniform Gifts/Transfers to Minors Account or systematic investment strategy. The
Fund may be a suitable investment for tax-sheltered retirement programs such as
the IRA, SEP-IRA, SARSEP, 401(k), Profit Sharing, Money Purchase Pension, or
403(b) plans.
Time Horizon. The Fund is primarily managed for current income, with the
secondary potential for capital growth. Investors should not consider this Fund
for the portion of their savings devoted to capital appreciation, or for that
portion focused on liquidity and stable principal value.
Risks. The Fund's investments in debt securities are subject to credit risk
and market risk, both of which are increased by investing in lower rated
securities. The returns on foreign investments may be influenced by the risks of
investing overseas. The Fund uses a moderate investment strategy, but may invest
up to 50% of its total assets in securities rated below investment grade and up
to 25% of its total assets in dollar-denominated foreign debt securities. The
Fund may experience rapid portfolio turnover that may result in higher brokerage
commissions and the acceleration of taxable capital gains. See "Investment
Policies and Risks."
Organization and Management. The Fund is a series of INVESCO Income Funds,
Inc. (the "Company"), a diversified, managed, no-load mutual fund. The Fund is
owned by its shareholders. It employs INVESCO Funds Group, Inc. ("IFG"), founded
in 1932, to serve as investment adviser, administrator, distributor, and
transfer agent; and INVESCO Trust Company ("INVESCO Trust"), founded in 1969, as
sub-adviser. Together, IFG and INVESCO Trust constitute "Fund Management."
The Fund's investments are selected by INVESCO ^ Senior Vice President
Donovan "Jerry" Paul. A Chartered Financial Analyst, Mr. Paul earned his MBA
from the University of Northern Iowa and a BBA from the University of Iowa. See
"The Fund And Its Management."
<PAGE>
IFG and INVESCO Trust are part of a global firm that managed approximately
$90 billion as of June 30, 1996. The parent company, INVESCO PLC, is based in
London, with money managers located in Europe, North America, and the Far East.
This Fund offers all of the following services at no charge:
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
Regular investment plans such as EasiVest (the Fund's
automatic monthly investment program), Direct Payroll
Purchase, and Automatic Monthly Exchange^
Periodic withdrawal plans
See "How To Buy Shares" and "How To Sell Shares."
Minimum Initial Investment: $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans.
Minimum Subsequent Investment: $50 ^(Minimums are lower for certain
retirement plans).
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares. The Fund is authorized to pay a Rule 12b-1 distribution fee up to one
quarter of one percent of the Fund's average net assets each year. (See "How To
Buy Shares --Distribution Expenses.")
Like any company, the Fund has operating expenses -- such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts, and other expenses. These expenses are paid from the Fund's assets.
Lower expenses therefore benefit investors by increasing the Fund's total
return.
We calculate annual operating expenses as a percentage of the Fund's
average annual net assets. To keep expenses competitive, the Fund's manager
voluntarily reimburses the Fund for amounts in excess of 1.00% of average net
assets.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.55%
12b-1 Fees 0.25%
Other Expenses 0.21%
Total Fund Operating Expenses (1)(2) 1.01%
<PAGE>
(1) ^ It should be noted that the Fund's actual total operating expenses were
lower than the figures shown because the Fund's custodian ^ and pricing expenses
were reduced under an expense offset arrangement. However, as a result of ^ an
SEC requirement, the figures shown above do not reflect these reductions. In
comparing expenses for different years, please note that the ratios of Expenses
to Average Net Assets shown under "Financial Highlights" do reflect reductions
for periods prior to the fiscal year ended August 31, 1996. See "The Fund and
Its Management."
(2) Certain Fund expenses are being voluntarily absorbed by INVESCO Funds
Group, Inc. ("INVESCO"). In the absence of such absorbed expenses, the Fund's
"Other Expenses" and "Total Fund Operating Expenses" would have been 0.36% and
1.16%, respectively, based on the Fund's actual expenses for the fiscal year
ended August 31, 1996. See "The Fund and Its Management."
Example
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming a hypothetical 5% annual return and redemption at
the end of each time period. (Of course, actual operating expenses are paid from
the Fund's assets, and are deducted from the amount of income available for
distribution to shareholders; they are not charged directly to shareholder
accounts.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$10 $32 $56 $124
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE OR EXPENSES,
AND ACTUAL ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
For more information on the Fund's expenses, see "The Fund and Its Management"
and "How to Buy Shares - Distribution Expenses."
Since the Fund pays a distribution fee, investors who own Fund shares for a
long period of time may pay more than the economic equivalent of the maximum
front-end sales charge permitted for mutual funds by the National Association of
Securities Dealers, Inc.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by Price Waterhouse LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the independent accountant's report thereon
appearing in the Fund's 1996 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IFG at the address or telephone number on
the cover of this prospectus. The Annual Report also contains more information
about the Fund's performance.
<TABLE>
<CAPTION>
Period
Ended
Year Ended August 31 August 31 Year Ended December 31
--------------------------- --------- -------------------------------------------------------------
1996 1995 1994 1993> 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $6.54 $6.18 $6.80 $6.53 $6.50 $5.96 $6.26 $6.39 $6.36 $7.10 $6.84
--------------------------- --------- -------------------------------------------------------------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.47 0.47 0.47 0.33 0.52 0.53 0.59 0.63 0.61 0.63 0.67
Net Gains or (Losses) on
Securities (Both Realized
and Unrealized) (0.17) 0.36 (0.43) 0.27 0.13 0.53 (0.30) (0.13) 0.03 (0.74) 0.60
---------------------------- --------- -------------------------------------------------------------
Total from Investment
Operations 0.30 0.83 0.04 0.60 0.65 1.06 0.29 0.50 0.64 (0.11) 1.27
---------------------------- --------- -------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.46 0.47 0.47 0.33 0.52 0.52 0.59 0.63 0.61 0.63 0.68
In Excess of Net
Investment Income+ 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions from
Capital Gains 0.02 0.00 0.09 0.00 0.10 0.00 0.00 0.00 0.00 0.00 0.33
<PAGE>
In Excess of Capital
Gains 0.00 0.00 0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
----------------------------- --------- -------------------------------------------------------------
Total Distributions 0.49 0.47 0.66 0.33 0.62 0.52 0.59 0.63 0.61 0.63 1.01
Net Asset Value -
End of Period $6.35 $6.54 $6.18 $6.80 $6.53 $6.50 $5.96 $6.26 $6.39 $6.36 $7.10
============================= ========= =============================================================
TOTAL RETURN 4.78% 14.01% 0.47% 9.42%* 10.38% 18.57% 4.86% 8.17% 10.52% (1.63%) 18.99%
RATIOS
Net Assets -
End of Period
($000 Omitted) $258,093 $216,597 $138,337 $158,780 $123,036 $93,827 $46,423 $32,783 $29,902 $19,751 $24,724
Ratio of Expenses to
Average Net Assets# 1.01%@ 1.00% 1.11% 1.15%~ 1.14% 1.15% 1.01% 0.99% 1.00% 0.99% 0.85%
Ratio of Net Investment
Income to Average
Net Assets# 7.14% 7.38% 7.22% 7.40%~ 7.97% 8.57% 9.67% 9.92% 9.47% 9.36% 9.19%
Portfolio Turnover Rate 210% 181% 135% 105%* 178% 117% 38% 121% 143% 131% 153%
</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 years
ended August 31, 1996, 1995 and 1994. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.16%, 1.22%
and 1.15%, respectively, and ratio of net investment income to average net
assets would have been 6.99%, 7.16% and 7.18%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
The Fund seeks as high a level of current income as is consistent with the
risk involved in investing in the types of securities in which the Fund invests.
This investment objective is fundamental and cannot be changed without the
approval of the Fund's shareholders. There is no assurance that the Fund's
investment objective will be met.
The Fund normally invests at least 90% of its assets in bonds and
marketable debt securities (including convertible issues) of established
companies which Fund Management believes may provide high current income and
which, consistent with this objective, may have the potential to provide capital
appreciation. Under normal circumstances, at least 50% of the Fund's assets are
invested in investment grade debt securities -- those rated Baa or higher by
Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard &
Poor's ("S&P"). No more than 50% of the Fund's assets may consist of corporate
bonds rated below investment grade. (See the Appendix to this Prospectus for a
description of bond ratings.)
The Fund also may invest in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities (which may or may not be backed by
the full faith and credit of the United States) and bank certificates of
deposit. In addition, the Fund may invest in municipal obligations when we
believe that their potential returns are better than those that might be
achieved by investing in securities of corporate or U.S. governmental issuers.
As a matter of policy, which may be changed without a vote of
shareholders, at least 65% of the Fund's total assets normally will be invested
in debt securities maturing at least three years after they are issued. However,
there are no limitations on the maturities of the securities held by the Fund,
and the Fund's average maturity will vary as Fund Management responds to changes
in interest rates.
When we believe market or economic conditions are adverse, the Fund may
act defensively -- that is, temporarily invest up to 100% of its total assets in
cash and debt securities having maturities of less than three years at the time
of issuance, seeking to protect its assets until conditions stabilize.
INVESTMENT POLICIES AND RISKS
Investors should expect to see their price per share vary with moves in
the fixed-income market, economic conditions and other factors. The Fund invests
in many different companies in a variety of industries; this diversification
reduces the Fund's overall exposure to investment and market risks, but cannot
eliminate these risks.
Corporate Bonds. When we assess an issuer's ability to meet its interest
rate obligations and repay its debt when due, we are referring to "credit risk."
Debt obligations are rated based on their estimated credit risk by independent
services such as S&P or Moody's. "Market risk" refers to sensitivity to changes
in interest rates: For instance, when interest rates go up, the market value of
a previously issued bond generally declines; on the other hand, when interest
rates go down, bonds generally see their prices increase.
<PAGE>
Risks of Lower Rated Bonds. The lower a bond's quality, the more it is
subject to credit risk and market risk and the more speculative it becomes; this
is also true of most unrated securities. To reduce these risks, at least 50% of
the Fund's assets normally are invested in debt securities rated AAA, AA, A or
BBB by S&P or Aaa, Aa, A or Baa by Moody's. In addition, the Fund may invest in
corporate short-term notes rated at least A-1 by S&P or Prime-1 by Moody's.
Overall, these bonds and notes enjoy strong to adequate capacity to pay
principal and interest.
No more than 50% of assets may be invested in issues rated below investment
grade quality (commonly called "junk bonds," and rated BB or lower by S&P or Ba
or lower by Moody's or, if unrated, are judged by Fund Management to be of
equivalent quality); these include issues which are of poorer quality and may
have some speculative characteristics, according to the ratings services.
Investments in unrated securities may not exceed 25% of the Fund's total assets.
Never, under any circumstances, is the Fund permitted to invest in bonds which
are rated below B by Moody's or B- by S&P. Bonds rated B or B- generally lack
characteristics of a desirable investment and are deemed speculative with
respect to the issuer's capacity to pay interest and repay principal over a long
period of time. While Fund Management continuously monitors all of the corporate
bonds in the Fund's portfolio for the issuer's ability to make required
principal and interest payments and other quality factors, it may retain a bond
whose rating is changed to one below the minimum rating required for purchase of
the security.
Because investment in medium and lower rated securities involves both
greater credit risk and market risk, achievement of the Fund's investment
objectives may be more dependent on Fund Management's own credit analysis than
is the case for funds investing in higher quality securities. In addition, the
share price and yield of the Fund may be expected to fluctuate more than in the
case of funds investing in higher quality, shorter term securities. Moreover, a
significant economic downturn or major increase in interest rates may result in
issuers of lower rated securities experiencing increased financial stress, which
would adversely affect their ability to service their principal, dividend and
interest obligations, meet projected business goals, and obtain additional
financing. In this regard, it should be noted that while the market for high
yield corporate bonds has been in existence for many years and from time to time
has experienced economic downturns, this market has involved a significant
increase in the use of high yield corporate debt securities to fund highly
leveraged corporate acquisitions and restructurings. Past experience may not,
therefore, provide an accurate indication of future performance of the high
yield bond market, particularly during periods of economic recession.
Furthermore, expenses incurred to recover an investment in a defaulted security
may adversely affect the Fund's net asset value. Finally, while Fund Management
attempts to limit purchases of medium and lower rated securities to securities
having an established secondary market, the secondary market for such securities
<PAGE>
may be less liquid than the market for higher quality securities. The
reduced liquidity of the secondary market for such securities may adversely
affect the market price of, and ability of the Fund to value, particular
securities at certain times, thereby making it difficult to make specific
valuation determinations.
For the fiscal year ended August 31, 1996, the following percentages of the
Fund's total assets were invested in corporate bonds rated investment grade (BBB
by S&P or Baa by Moody's and above) at the time they were purchased: AAA--0.18%;
AA--0.49%; A-- 3.21%; and BBB--10.42%, and the following percentages were
invested in corporate bonds rated below investment grade at the time of
purchase: BB--24.40%; B--18.61%; CCC--0.02%; and D--0.00%. Finally, 0.03% of
total assets were invested in unrated corporate bonds. All of these percentages
were determined on a dollar-weighted basis, calculated by averaging the Fund's
month-end portfolio holdings during the fiscal year. Keep in mind that the
Fund's holdings are actively traded, and bond ratings are occasionally adjusted
by ratings services, so these figures do not represent the Fund's actual
holdings or quality ratings as of August 31, 1996.
For a detailed description of corporate bond ratings, see the Appendix of
this prospectus and the Statement of Additional Information.
Foreign Securities. The Fund's investments in debt obligations may include
securities issued by foreign governments and foreign corporations. As a matter
of policy, which may be changed without a vote of shareholders, up to 25% of the
Fund's total assets, measured at the time of purchase, may be invested directly
in foreign debt securities, provided that all such securities are denominated
and pay interest in U.S. dollars (such as Eurobonds and Yankee bonds).
Securities of Canadian issuers are not subject to this 25% limitation.
Investments in foreign debt securities involve certain risks.
For U.S. investors, the returns on foreign debt securities are influenced
not only by the returns on the foreign investments themselves, but also by
currency fluctuations. That is, when the U.S. dollar generally rises against
foreign currencies, returns on foreign securities for a U.S. investor may
decrease. By contrast, in a period when the U.S. dollar generally declines,
those returns may increase. The Fund attempts to minimize these risks by
limiting its investments in foreign debt securities to those which are
denominated and pay interest in U.S. dollars.
Other aspects of international investing to consider include:
-less publicly available information than is generally available about U.S.
issuers;
-differences in accounting, auditing and financial reporting standards;
-generally higher commission rates on foreign portfolio transactions and
longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility; and
<PAGE>
-investments in certain countries may be subject to foreign withholding
taxes, which may reduce dividends or capital gains payable to shareholders.
There is also the possibility of expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations; political
instability; potential restrictions on the flow of international capital; and
the possibility of the Fund experiencing difficulties in pursuing legal remedies
and collecting judgments.
Rule 144A Securities. The Fund may not purchase securities that are not
readily marketable. However, the Fund may purchase certain securities that are
not registered for sale to the general public, but that can be resold to
institutional investors ("Rule 144A Securities") if a liquid trading market
exists. The Company's board of directors has delegated to Fund Management the
authority to determine the liquidity of Rule 144A Securities pursuant to
guidelines approved by the board. In the event that a Rule 144A Security held by
the Fund is subsequently determined to be illiquid, the security will be sold as
soon as that can be done in an orderly fashion consistent with the best
interests of the Fund's shareholders. For more information concerning Rule 144A
Securities, see "Investment Policies and Restrictions" in the Statement of
Additional Information.
Zero Coupon Bonds and Pay-In-Kind Bonds. The Fund may invest in zero coupon
bonds and pay-in-kind bonds if Fund Management determines that the risk of a
default on the security, which could result in adverse tax consequences, is not
significant. Zero coupon bonds make no periodic interest payments. Instead, they
are sold at a discount from their face value. The buyer of the security receives
the rate of return by the gradual appreciation in the price of the security,
which is redeemed at face value at maturity. Pay-in-kind ("PIK") bonds pay
interest in cash or additional securities, at the issuer's option, for a
specified period. Being extremely responsive to changes in interest rates, the
market price of zero coupon and PIK securities may be more volatile than other
bonds. The Fund may be required to distribute income recognized on these bonds,
even though no cash interest payments are received, which could reduce the
amount of cash available for investment by the Fund.
Delayed Delivery or When-Issued Purchases. Debt securities may at times be
purchased or sold by the Fund with settlement taking place in the future. The
Fund may invest, and hold, up to 10% of its net assets in when-issued
securities. The payment obligation and the interest rate that will be received
on the securities generally are fixed at the time the Fund enters into the
commitment. Between the date of purchase and the settlement date, the value of
the securities is subject to market fluctuations, and no interest is payable to
the Fund prior to the settlement date.
Securities Lending. The Fund may seek to earn additional income by lending
securities to qualified brokers, dealers, banks, or other financial
institutions, on a fully collateralized basis. For further information on this
policy, see "Investment Policies and Restrictions" in the Statement of
Additional Information.
<PAGE>
Repurchase Agreements. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price. The Fund could incur costs or delays in seeking to sell
the security if the prior owner defaults on its repurchase obligation. To reduce
that risk, the securities underlying each repurchase agreement will be
maintained with the Fund's custodian in an amount at least equal to the
repurchase price under the agreement (including accrued interest). These
agreements are entered into only with member banks of the Federal Reserve
System, registered broker-dealers, and registered U.S. government securities
dealers that are deemed creditworthy under standards set by the Company's board
of directors.
Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover for the Fund; securities may be sold without regard to the time they
have been held when investment considerations warrant such action. Increased
turnover may result in greater transaction costs and acceleration of capital
gains which are taxable when distributed to shareholders. The Statement of
Additional Information includes an expanded discussion of the Fund's portfolio
turnover rate, its brokerage practices and certain federal income tax matters.
For a further discussion of risks associated with an investment in the
Fund, see "Investment Policies and Restrictions" and "Investment Practices" in
the Statement of Additional Information.
Investment Restrictions. Certain restrictions, which are set forth in the
Statement of Additional Information, may not be altered without the approval of
the Fund's shareholders. For example, the Fund limits to 5% the portion of its
total assets which may be invested in a single issuer, and to 25% the portion
that may be invested in any one industry (other than U.S. government
securities). The Fund's ability to borrow money is limited to borrowings from
banks for temporary or emergency purposes in amounts not exceeding 10% of net
assets. Additionally, except where indicated to the contrary, the investment
objectives and policies described in this prospectus are fundamental and may not
be changed without a vote of the Fund's shareholders.
THE FUND AND ITS MANAGEMENT
On November 4, 1996 an Agreement and Plan of Merger among INVESCO PLC,
INVESCO Group Services, Inc. ("Services") and AIM Management Group, Inc. ("AIM")
was signed under which AIM will be merged with Services. When this merger takes
effect, which is expected to occur in the first part of 1997, the Fund's
Investment Advisory, Sub-Advisory, Distribution, Administrative Services,
Transfer Agency and Rule 12b-1 Agreements (the "Agreements") will automatically
terminate. Consummation of this merger is conditional, among other things, on
new Agreements, essentially identical to the existing Agreements, including the
provisions governing fees, being presented to and approved by, the Company's
board of directors, and, where necessary, the Fund's shareholders prior to this
merger taking effect. The meeting of the Fund's shareholders to consider
approving the necessary new Agreements is expected to occur in early 1997. Fund
Management anticipates that the key personnel responsible for providing services
to the Fund will remain unchanged.
<PAGE>
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as a diversified, open-end, management investment company.
It was incorporated on August 20, 1976, under the laws of Colorado and was
reorganized as a Maryland corporation on April 2, 1993.
The Company's board of directors has responsibility for overall supervision
of the Fund, and reviews the services provided by the adviser and sub-adviser.
Under an agreement with the Company, INVESCO Funds Group, Inc. ("IFG"), 7800 E.
Union Avenue, Denver, Colorado 80237, serves as the Fund's investment manager;
it is primarily responsible for providing the Fund with various administrative
services. IFG's wholly-owned subsidiary, INVESCO Trust, is the Fund's
sub-adviser and is primarily responsible for managing the Fund's investments.
Together, IFG and INVESCO Trust constitute "Fund Management."
Donovan "Jerry" Paul, portfolio manager for the Fund since 1994, has
responsibility for the day-to-day management of the Fund's holdings. He also
manages INVESCO High Yield Fund and INVESCO VIF-High Yield Portfolio; further,
he is co-manager of INVESCO Short-Term Bond Fund, INVESCO Industrial Income
Fund, INVESCO Balanced Fund, and INVESCO VIF-Industrial Income Portfolio. A
Chartered Financial Analyst and Certified Public Accountant, Mr.Paul is a senior
vice president and director of fixed-income research of INVESCO Trust. His
investment career was launched in 1976, and has included these highlights: He
was a senior vice president and director of fixed-income research (1989 to 1992)
and portfolio manager (1987 to 1992) with Stein, Roe & Farnham Inc; from 1993 to
1994, he was president of Quixote Investment Management, Inc. He holds an MBA
from the University of Northern Iowa and BBA from the University of Iowa.
Fund Management permits investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires Fund Management's personnel to conduct
their personal investment activities in a manner that Fund Management believes
is not detrimental to the Fund or Fund Management's other advisory clients. See
the Statement of Additional Information for more detailed information.
The Fund pays IFG a monthly management fee which is based upon a percentage
of the Fund's average net assets determined daily; in turn, IFG pays INVESCO
Trust a sub-advisory fee out of its management fee. The management fee is
computed at the annual rate of 0.55% on the first $300 million of the Fund's
average net assets; 0.45% on the next $200 million of the Fund's average net
assets; and 0.35% on the Fund's average net assets over $500 million. For the
fiscal year ended August 31, 1996, investment management fees paid by the Fund
amounted to 0.55% (prior to the voluntary absorption of certain Fund expenses by
INVESCO) of its average net assets. Out of this fee, IFG paid an amount equal to
0.24% of the Fund's average net assets to INVESCO Trust as a sub- advisory fee.
No fee is paid by the Fund to INVESCO Trust.
Under a Transfer Agency Agreement, IFG acts as registrar, transfer agent,
and dividend disbursing agent for the Fund. The Fund pays an annual fee of
$26.00 per shareholder account or omnibus account participant for these
services. Registered broker-dealers, third party administrators of tax-qualified
retirement plans and other entities, including affiliates of IFG, may provide
equivalent services to the Fund. In these cases, IFG may pay, out of the fee it
receives from the Fund, an annual sub-transfer agency or record-keeping fee to
the third party.
<PAGE>
In addition, under an Administrative Services Agreement, IFG handles
additional administrative, record-keeping, and internal sub-accounting services
for the Fund. For the fiscal year ended August 31, 1996, the Fund paid IFG a fee
for these services equal to 0.02% (prior to the voluntary absorption of certain
fund expenses by IFG) of the Fund's average net assets.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. Total expenses of the Fund (prior to any
expense offset) for the fiscal year ended August 31, 1996, including investment
management fees (but excluding brokerage commissions, which are a cost of
acquiring securities), amounted to 1.01% of the Fund's average net assets.
Certain Fund expenses are absorbed voluntarily by IFG pursuant to a commitment
to the Fund in order to ensure that the Fund's total operating expenses do not
exceed 1.00% of the Fund's average net assets. This commitment may be changed
following consultation with the Company's board of directors. In the absence of
this voluntary expense limitation, the Fund's total operating expenses would
have been 1.16% of its average net assets.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of
their financial responsibility coupled with their ability to effect transactions
at the best available prices. As discussed under "How to Buy Shares --
Distribution Expenses," the Fund may market its shares through intermediary
brokers or dealers that have entered into Dealer Agreements with IFG, as the
Fund's Distributor. The Fund may place orders for portfolio transactions with
qualified broker-dealers that recommend the Fund, or sell shares of the Fund, to
clients, or act as agent in the purchase of Fund shares for clients, if Fund
Management believes that the quality of the execution of the transaction and
level of commission are comparable to those available from other qualified
brokerage firms. For further information, see "Investment Practices -- Placement
of Portfolio Brokerage" in the Statement of Additional Information.
The parent company for IFG and INVESCO Trust is INVESCO PLC, a publicly
traded holding company whose subsidiaries provide investment services around the
world. IFG was established in 1932 and, as of August 31, 1996, managed 14 mutual
funds, consisting of 39 separate portfolios, with combined assets of
approximately $12.8 billion on behalf of over 827,000 shareholders. INVESCO
Trust (founded in 1969) served as adviser or sub-adviser to 46 investment
portfolios as of August 31, 1996, including 27 portfolios in the INVESCO group.
These 46 portfolios had aggregate assets of approximately $12.0 billion as of
August 31, 1996. In addition, INVESCO Trust provides investment management
services to private clients, including employee benefit plans that may be
invested in a collective trust sponsored by INVESCO Trust.
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the Fund will vary
daily. The price per share is also known as the Net Asset Value ("NAV"). IFG
prices the Fund every day that the New York Stock Exchange is open, as of the
close of regular trading (normally, 4:00 p.m., New York time). NAV is calculated
by adding together the current market value of all of the Fund's assets,
including accrued interest and dividends; then subtracting liabilities,
including accrued expenses; and finally dividing that dollar amount by the total
number of shares outstanding.
<PAGE>
Performance Data. To keep shareholders and potential investors informed, we
will occasionally advertise the Fund's total return and yield. Total return
figures show the average annual rate of return on a $1,000 investment in the
Fund, assuming reinvestment of all dividends and capital gain distributions for
one-, five- and ten-year periods. Cumulative total return shows the actual rate
of return on an investment; average annual total return represents the average
annual percentage change in the value of an investment. Both cumulative and
average annual total returns tend to "smooth out" fluctuations in the Fund's
investment results, not showing the interim variations in performance over the
periods cited.
The yield of the Fund ^ is calculated by utilizing the Fund's calculated
income, expenses and average outstanding shares for the most recent 30-day or
one-month period, dividing it by the month end net asset value and annualizing
the resulting number.
More information about the Fund's recent and historical performance is
contained in the Fund's Annual Report to shareholders. You can get a free copy
by calling or writing to IFG using the telephone number or address on the cover
of this prospectus.
When we quote mutual fund rankings published by Lipper Analytical Services,
Inc., we may compare the Fund to others in its category of Corporate Bond
Funds--BBB Rated, as well as the broad-based Lipper general fund groupings.
These rankings allow you to compare the Fund to its peers. Other independent
financial media also produce performance- or service-related comparisons, which
you may see in our promotional materials. For more information see "Fund
Performance" in the Statement of Additional Information.
Performance figures are based on historical investment results and are not
intended to suggest future performance.
HOW TO BUY SHARES
The following chart ^ shows several convenient ways to invest in the Fund.
Your new Fund shares will be priced at the NAV next determined after your order
is received in proper form. There is no charge to invest, exchange, or redeem
shares when you make transactions directly through IFG. However, if you invest
in the Fund through a securities broker, you may be charged a commission or
transaction fee. For all new accounts, please send a completed application form.
Please specify which Fund you wish to purchase.
Fund Management reserves the right to increase, reduce or waive the minimum
investment requirements in its sole discretion, where it determines this action
is in the best interests of the Fund. Further, Fund Management reserves the
right in its sole discretion to reject any order for the purchase of Fund shares
(including purchases by exchange) when, in its judgment, such rejection is in
the Fund's best interests.
<PAGE>
HOW TO BUY SHARES
================================================================================
Method Investment Minimum Please Remember
- --------------------------------------------------------------------------------
By Check $1,000 for regular If your check does
Mail to: account; not clear, you will
INVESCO Funds $250 for an Indivi- be responsible for
Group, Inc. dual Retirement any related loss
P.O. Box 173706 Account; the Fund or IFG
Denver, CO 80217- $50 minimum for incurs. If you are
3706. each subsequent already a
Or you may send investment. shareholder in the
your check by INVESCO funds, the
overnight courier Fund may seek
to: 7800 E. Union reimbursement from
Ave., your existing
Denver, CO 80237. account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
By Telephone or $1,000. Payment must be
Wire received within 3
Call 1-800-525-8085 business days, or
to request your the transaction may
purchase. Then send be cancelled. If a
your check by telephone purchase
overnight courier is cancelled due to
to our street nonpayment, you
address: will be responsible
7800 E. Union Ave., for any related
Denver, CO 80237. loss the Fund or
Or you may transmit IFG incurs. If you
your payment by are already a
bank wire (call IFG shareholder in the
for instructions). INVESCO funds, the
Fund may seek
reimbursement from
your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
With EasiVest or $50 per month for Like all regular
Direct Payroll EasiVest; $50 per investment plans,
Purchase pay period for neither EasiVest
You may enroll on Direct Payroll nor Direct Payroll
the fund Purchase. You may Purchase ensures a
application, or start or stop your profit or protects
call us for the regular investment against loss in a
correct form and plan at any time, falling market.
more details. with two weeks' Because you'll
Investing the same notice to IFG. invest continually,
amount on a monthly regardless of
basis allows you to varying price
buy more shares levels, consider
<PAGE>
- --------------------------------------------------------------------------------
when prices are low your financial
and fewer shares ability to keep
when prices are buying through low
high. This "dollar- price levels. And
cost averaging" may remember that you
help offset market will lose money if
fluctuations. Over you redeem your
a period of time, shares when the
your average cost market value of all
per share may be your shares is less
less than the than their cost.
actual average
price per share.
- --------------------------------------------------------------------------------
By PAL $1,000. Be sure to write
Your "Personal down the
Account Line" is confirmation number
available for provided by PAL.
subsequent Payment must be
purchases and received within 3
exchanges 24-hours business days, or
a day. Simply call the transaction may
1-800-424-8085. be cancelled. If a
telephone purchase
is cancelled due to
nonpayment, you
will be responsible
for any related
loss the Fund or
IFG incurs. If you
are already a
shareholder in the
INVESCO funds, the
Fund may seek
reimbursement from
your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
By Exchange $1,000 to open a See "Exchange
Between this and new account; $50 Privilege," ^ page
another of the for written 12.
INVESCO funds. Call requests to
1-800-525-8085 for purchase additional
prospectuses of shares for an
other INVESCO existing account.
funds. You may also (The exchange
establish an minimum is $250 for
Automatic Monthly purchases requested
Exchange service by telephone.)
between two INVESCO
funds; call IFG for
further details and
the correct form.
================================================================================
<PAGE>
Your order to purchase Fund shares will not begin earning dividends or
other distributions until your payment can be converted into available federal
funds under regular banking procedures or, if you are acquiring shares in an
exchange from another INVESCO fund, the Fund receives the proceeds of the
exchange. Checks normally are converted into federal funds (moneys held on
deposit within the Federal Reserve System) within two or three business days
after we receive them, although this period may be longer for checks drawn on
banks that are not members of the Federal Reserve System.
Exchange Privilege. You may exchange your shares in this Fund for those in
another INVESCO fund, on the basis of their respective net asset values at the
time of the exchange. Before making any exchange, be sure to review the
prospectuses of the funds involved and consider their differences.
Please note these policies regarding exchanges of fund shares:
1) The fund accounts must be identically registered.
2) You may make four exchanges out of each fund during each calendar year.
3) An exchange is the redemption of shares from one fund followed by the
purchase of shares in another. Therefore, any gain or loss realized
on the exchange is recognizable for federal income tax purposes (unless,
of course, your account is tax-deferred).
4) The Fund reserves the right to reject any exchange request, or to modify
or terminate exchange privileges, in the best interests of the Fund
and its shareholders. Notice of all such modifications or termination
will be given at least 60 days prior to the effective date of the change
in privilege, except for unusual instances (such as when redemptions of
the exchanged shares are suspended under Section 22(e) of the Investment
Company Act of 1940, or when sales of the fund into which you are
exchanging are temporarily stopped).
Distribution Expenses. The Fund is authorized under a Plan and Agreement of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Plan") to use its assets to finance certain activities relating to the
distribution of shares. These expenditures may include compensation (including
incentive compensation and/or continuing compensation based on the amount of
customer assets maintained in the Fund) to securities dealers and other
financial institutions and organizations, which may include IFG-affiliated
companies, to obtain various distribution-related and/or administrative services
for the Fund. Such services may include, among other things, processing new
shareholder account applications, preparing and transmitting to the Fund's
transfer agent computer-processable tapes of all transactions by customers, and
serving as the primary source of information to customers in answering questions
concerning the Fund and their transactions.
In addition, other reimbursable expenditures include advertising,
preparation and distribution of sales literature, printing and distribution of
prospectuses to prospective investors, public relations efforts, marketing
programs and such other services and promotional activities agreed upon from
time to time by the Fund and its board of directors. These services and
activities may be conducted by the staff of IFG or its affiliates or by third
parties.
<PAGE>
IFG is not entitled to reimbursement for overhead expenses under the Plan,
but may be reimbursed for all or a portion of the compensation paid for salaries
and other employee benefits for IFG personnel whose primary responsibilities
involve marketing shares of the INVESCO funds, including the Fund. Also, any
payments made by the Fund may not be used to finance the distribution of shares
of any other mutual fund advised by IFG. Payments made by the Fund under the
Plan for compensation of marketing personnel, as noted above, are based on an
allocation formula designed to ensure that all such payments are appropriate.
Under the Plan, the Fund's reimbursement to IFG is limited to an amount
computed at a maximum annual rate of 0.25% of the Fund's average net assets.
Payments by the Fund under the Plan, for any month, may only be made to
reimburse expenditures incurred during the rolling 12-month period in which that
month falls. Therefore, any reimbursable expenses incurred by IFG in excess of
the limitation described above are not reimbursable and will be borne by IFG. In
addition, IFG may from time to time make additional payments from its revenues
to securities dealers and other financial institutions that provide
distribution-related and/or administrative services for the Fund. No further
payments will be made by the Fund under the Plan in the event of its
termination.
FUND SERVICES
Shareholder Accounts. IFG will maintain a share account that reflects your
current holdings. Share certificates will be issued only upon specific request.
You will have greater flexibility to conduct transactions if you do not request
certificates.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges, and redemptions. If you choose certain
recurring transaction plans (for instance, EasiVest), your transactions will be
confirmed on your quarterly Investment Summary.
Investment Summaries. Each calendar quarter, shareholders receive a written
statement which consolidates and summarizes account activity and value at the
beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and capital gain distributions are
automatically invested in additional fund shares at the NAV on the ex-dividend
date, unless you choose to have dividends and/or capital gain distributions
automatically reinvested in another INVESCO fund or paid by check (minimum of
$10.00).
Telephone Transactions. All shareholders may exchange and redeem Fund
shares by telephone, unless they expressly decline these privileges. By signing
the new account Application, a Telephone Transaction Authorization Form, or
otherwise using these privileges, the investor has agreed that, if the Fund has
followed reasonable procedures, such as recording telephone instructions and
sending written transaction confirmations, it will not be liable for following
telephoned instructions that it believes to be genuine. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions.
<PAGE>
Retirement Plans and IRAs. Fund shares may be purchased for Individual
Retirement Accounts ("IRAs") and many types of tax-deferred retirement plans.
IFG can supply you with information and forms to establish or transfer your
existing plan or account.
HOW TO SELL SHARES
The following chart shows several convenient ways to redeem your Fund
shares. Shares of the Fund may be redeemed at any time at their current NAV next
determined after a request in proper form is received at the Fund's office. The
NAV at the time of the redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the Fund's investment
performance.
Please specify from which fund you wish to redeem shares. Shareholders have
a separate account for each fund in which they invest.
HOW TO SELL SHARES
================================================================================
Method Minimum Redemption Please Remember
================================================================================
By Telephone $250 (or, if less, These telephone
Call us toll-free full liquidation of redemption
at 1-800-525-8085. the account) for a privileges may be
redemption check; modified or
$1,000 for a wire terminated in the
to bank of record. future at the
The maximum amount discretion of IFG.
which may be
redeemed by
telephone is
generally $25,000.
- --------------------------------------------------------------------------------
In Writing Any amount. The If the shares to be
Mail your request redemption request redeemed are
to INVESCO Funds must be signed by represented by
Group, Inc., P.O. all registered stock certificates,
Box 173706 shareholders(s). the certificates
Denver, CO 80217- Payment will be must be sent to
3706. You may also mailed to your IFG.
send your request address of record,
by overnight or to a pre-
courier to 7800 E. designated bank.
Union Ave., Denver,
CO 80237.
- --------------------------------------------------------------------------------
By Exchange $1,000 to open a See "Exchange
Between this and new account; $50 Privilege," page ^
another of the for written 12.
INVESCO funds. Call requests to
1-800-525-8085 for purchase additional
<PAGE>
- --------------------------------------------------------------------------------
prospectuses of shares for an
other INVESCO existing account.
funds. You may also (The exchange
establish an minimum is $250 for
automatic monthly exchanges requested
exchange service by telephone.)
between two INVESCO
funds; call IFG for
further details and
the correct form.
- --------------------------------------------------------------------------------
Periodic Withdrawal $100 per payment, You must have at
Plan on a monthly or least $10,000 total
You may call us to quarterly basis. invested with the
request the The redemption INVESCO funds, with
appropriate form check may be made at least $5,000 of
and more payable to any that total invested
information at 1- party you in the fund from
800-525-8085. designate. which withdrawals
will be made.
- --------------------------------------------------------------------------------
Payment To Third Any amount. All registered
Party owners of the
Mail your request account must sign
to INVESCO Funds the request, with a
Group, Inc., P.O. signature guarantee
Box 173706 from an eligible
Denver, CO 80217- guarantor financial
3706. institution, such
as a commercial
bank or recognized
national or
regional securities
firm.
================================================================================
While the Fund will attempt to process telephone redemptions promptly,
there may be times -- particularly in periods of severe economic or market
disruption -- when you may experience delays in redeeming shares by phone.
Payments of redemption proceeds will be mailed within seven days following
receipt of the redemption request in proper form. However, payment may be
postponed under unusual circumstances -- for instance, if normal trading is not
taking place on the New York Stock Exchange or during an emergency as defined by
the Securities and Exchange Commission. If your shares were purchased by a check
which has not yet cleared, payment will be made promptly upon clearance of the
purchase check (which may take up to 15 days).
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate any
further EasiVest purchases unless you instruct us otherwise.
<PAGE>
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to involuntarily redeem all shares in such
account, in which case the account would be liquidated and the proceeds
forwarded to the shareholder. Prior to any such redemption, a shareholder will
be notified and given 60 days to increase the value of the account to $250 or
more.
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders substantially all of
its net investment income, net capital gains and net gains from foreign currency
transactions, if any, in order to continue to qualify for tax treatment as a
regulated investment company. Thus, the Fund does not expect to pay any federal
income or excise taxes.
Unless shareholders are exempt from income taxes, they must include all
dividends and capital gain distributions in taxable income for federal, state,
and local income tax purposes. Dividends and other distributions are taxable
whether they are received in cash or automatically distributed in shares of the
Fund or another fund in the INVESCO group.
The Fund may be subject to withholding of foreign taxes on dividends or
interest it receives on foreign securities. Foreign taxes withheld will be
treated as an expense of the Fund unless the Fund meets the qualifications to
enable it to pass these taxes through to shareholders for use by them as a
foreign tax credit or deduction.
Shareholders may be subject to backup withholding of 31% on dividends,
capital gain distributions and redemption proceeds. Unless you are subject to
backup withholding for other reasons, you can avoid backup withholding on your
Fund account by ensuring that we have a correct, certified tax identification
number.
Dividends and Capital Gain Distributions. The Fund earns ordinary or net
investment income in the form of dividends and interest on its investments. The
Fund's policy is to distribute substantially all of this income, less Fund
expenses, to shareholders on a monthly basis, at the discretion of the Company's
board of directors.
In addition, the Fund realizes capital gains and losses when it sells
securities for more or less than it paid. If total gains on sales exceed total
losses (including losses carried forward from previous years), the Fund has a
net realized capital gain. Net realized capital gains, if any, are distributed
to shareholders at least annually, usually in December.
Dividends and capital gain distributions are paid to shareholders who hold
shares on the record date of distribution regardless of how long the shares have
been held. The Fund's share price will then drop by the amount of the
distribution on the day the distribution is made. If a shareholder purchases
shares immediately prior to the distribution, the shareholder will, in effect,
have "bought" the distribution by paying the full purchase price, a portion of
which is then returned in the form of a taxable distribution.
<PAGE>
At the end of each year, information regarding the tax status of dividends
and capital gain distributions is provided to shareholders. Net realized capital
gains are divided into short-term and long-term gains depending upon how long
the Fund held the security which gave rise to the gains. The capital gains
distribution consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest as ordinary income and are paid to shareholders as taxable dividends.
Shareholders also may realize capital gains or losses when they sell their
Fund shares at more or less than the price originally paid.
We encourage you to consult a tax adviser with respect to these matters.
For further information see "Dividends, Capital Gain Distributions and Taxes" in
the Statement of Additional Information.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Company have equal voting rights based on
one vote for each share owned. Voting with respect to certain matters, such as
ratification of independent accountants and the election of directors, will be
by all the funds of the Company voting together. In other cases, such as voting
upon an investment advisory contract, voting is on a fund-by-fund basis. To the
extent permitted by law, when not all funds are affected by a matter to be voted
upon, only shareholders of the fund or funds affected by the matter will be
entitled to vote thereon. The Company is not generally required and does not
expect to hold regular annual meetings of shareholders. However, when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Company or as may be required by applicable law or the Company's Articles of
Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Company. The Fund will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
<PAGE>
APPENDIX - RATINGS SERVICES
There are several independent ratings services that analyze debt
obligations issued by corporations. The two most frequently used services are
Moody's Investors Service, Inc. ("Moody's"), and Standard & Poor's Ratings Group
("S&P").
The chart below shows the various ratings used by each service for the
categories of bonds in which the Fund may invest. There are additional
refinements to each rating system: Moody's may use the modifier 1 to indicate
that the security ranks in the higher end of its generic ratings category;
modifier 2 indicates a mid-range rank, and 3 indicates the issue ranks at the
lower end of its category. Similarly, S&P may use a + or - sign to indicate a
security's relative standing within its generic category.
================================================================================
Moody's S&P Bond Description
- --------------------------------------------------------------------------------
Aaa AAA Highest quality, often referred to as
"gilt edged." Carries the smallest
degree of investment risk: Interest
payments are protected by a large or
exceptionally stable margin and
principal is secure.
- --------------------------------------------------------------------------------
Aa AA High quality or high grade. Margins of
protection may be smaller than those
above, or fluctuation of protective
elements may be of greater amplitude.
Other elements may be present which
make long-term risks somewhat larger
than in Aaa or AAA securities.
- --------------------------------------------------------------------------------
A A Upper medium-grade obligations.
Adequate to strong capacity to pay
principal and interest, but somewhat
more susceptible to adverse effects of
changes in circumstances and economic
conditions.
- --------------------------------------------------------------------------------
Baa BBB Medium-grade obligations. Neither
highly protected nor poorly secured.
Interest and principal security
currently appear adequate, but certain
protective elements may be lacking or
characteristically unreliable over the
longer-term. May have speculative
characteristics.
<PAGE>
- --------------------------------------------------------------------------------
Ba BB Speculative, but less near-term
vulnerability to default than those
below. These bonds face major ongoing
uncertainties or exposure to adverse
business, financial or economic
conditions that could lead to
inadequate capacity to make timely
interest and principal payments.
- --------------------------------------------------------------------------------
B B Generally lack characteristics of a
desirable investment. Greater
vulnerability to default: currently
have capacity to meet timely interest
and principal payments, but assurance
of payments over any extended period of
time may be small, and/or other terms
of the bond contract may be in
jeopardy.
================================================================================
<PAGE>
INVESCO SELECT INCOME FUND
A no-load mutual fund seeking a high level of
current income.
PROSPECTUS
^ January 1, 1997
To receive general information and prospectuses on any of INVESCO's funds or
retirement plans, or to obtain current account or price information or responses
to other questions, call toll-free:
1-800-525-8085
To reach PAL, your 24-hour Personal Account Line call:
1-800-424-8085
You can find us on the World Wide Web:
http://www.invesco.com
Or write to:
INVESCO Funds Group, Inc., Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street;
Denver Tech Center
7800 East Union Avenue
Lobby Level
<PAGE>
PROSPECTUS
^ January 1, 1997
INVESCO HIGH YIELD FUND
INVESCO HIGH YIELD Fund (the "Fund") is actively managed to seek as high a
level of current income as is consistent with the risk involved in investing
substantially all of its assets in bonds and other debt securities and in
preferred stocks. Such securities ordinarily include those rated in lower
categories by established ratings services.
This prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated ^ January 1, 1997, has been filed with the Securities and
Exchange Commission and is incorporated by reference into this prospectus. To
obtain a free copy, write to INVESCO Funds Group, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; on the World Wide Web: http://www.invesco.com; or call
1-800-525-8085.
THE FUND INVESTS PRIMARILY IN LOWER-RATED BONDS, COMMONLY KNOWN AS "HIGH
YIELD" OR "JUNK BONDS." THESE INVESTMENTS ARE SUBJECT TO GREATER RISKS,
INCLUDING THE RISK OF DEFAULT, THAN HIGHER RATED SECURITIES. YOU SHOULD
CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND. SEE
"INVESTMENT OBJECTIVE AND STRATEGY" AND "INVESTMENT POLICIES AND RISKS."
<PAGE>
CONTENTS
ESSENTIAL INFORMATION...................................................... 2
ANNUAL FUND EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS....................................................... 4
INVESTMENT OBJECTIVE AND STRATEGY.......................................... 5
INVESTMENT POLICIES AND RISKS.............................................. 5
THE FUND AND ITS MANAGEMENT................................................ 8
FUND PRICE AND PERFORMANCE................................................. 10
HOW TO BUY SHARES.......................................................... 10
FUND SERVICES.............................................................. 13
HOW TO SELL SHARES......................................................... 13
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS............................ 14
ADDITIONAL INFORMATION..................................................... 15
APPENDIX -- RATINGS SERVICES............................................... 15
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
ESSENTIAL INFORMATION
Investment Goal And Strategy. INVESCO High Yield Fund is a diversified
mutual fund that seeks as high a level of current income as is consistent with
the risk involved in investing substantially all of its assets in bonds and
other debt securities and in preferred stocks. Such securities ordinarily
include those rated in lower categories by established ratings services. In
selecting investments, we consider potential capital appreciation as a secondary
factor . There is no guarantee that the Fund will meet its objective. See
"Investment Objective And Strategy."
Designed For: Investors seeking high daily income, paid monthly, who can
tolerate greater fluctuations in principal value than those associated with more
conservative bond funds. While not a complete investment program, the Fund may
be a valuable element of your investment portfolio. You may also wish to
consider the Fund as part of a Uniform Gifts/Transfers to Minors Account or
systematic investment strategy. The Fund may be a suitable investment for
tax-sheltered retirement programs such as the IRA, SEP-IRA, SARSEP, 401(k),
Profit Sharing, Money Purchase Pension, or 403(b) plans.
Time Horizon. The Fund is primarily managed for current income, with the
secondary potential for long-term capital growth. Investors should not consider
this Fund for the portion of their savings devoted to capital appreciation, or
for that portion focused on liquidity and stable principal value.
Risks. The Fund uses a moderately aggressive investment strategy, focusing
on lower quality bonds and preferred stocks. The Fund's investments are subject
to both credit risk and market risk, both of which are increased by investing in
lower rated securities. The Fund may invest up to 25% of its total assets in
dollar-denominated foreign debt securities, the returns on which may be
influenced by the risks of investing overseas. The Fund may experience rapid
portfolio turnover that may result in higher brokerage commissions and the
acceleration of taxable capital gains. See "Investment Policies ^ And Risks."
Organization and Management. The Fund is a series of INVESCO Income Funds,
Inc. (the "Company"), a diversified, managed, no-load mutual fund. The Fund is
owned by its shareholders. It employs INVESCO Funds Group, Inc. ("IFG"), founded
in 1932, to serve as investment adviser, administrator, distributor, and
transfer agent; and INVESCO Trust Company ("INVESCO Trust"), founded in 1969, as
sub-adviser. Together, IFG and INVESCO Trust constitute "Fund Management."
<PAGE>
The Fund's investments are selected by INVESCO ^ Senior Vice President
Donovan "Jerry" Paul. A Chartered Financial Analyst, Mr. Paul earned his MBA
from the University of Northern Iowa and a BBA from the University of Iowa. See
"The Fund And Its Management."
IFG and INVESCO Trust are part of a global firm that managed approximately
$90 billion as of June 30, 1996 The parent company, INVESCO PLC, is based in
London, with money managers located in Europe, North America, and the Far East.
This Fund offers all of the following services at no charge:
-----------------------------------------------------------
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
Regular investment plans such as EasiVest (the Fund's automatic monthly
investment program), Direct Payroll
Purchase, and Automatic Monthly Exchange^
Periodic withdrawal plans
See "How To Buy Shares" and "How To Sell Shares."
Minimum Initial Investment: $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans.
Minimum Subsequent Investment: $50 ^(Minimums are lower for certain
retirement plans).
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares. The Fund is authorized to pay a Rule 12b-1 distribution fee of up to one
quarter of one percent of the Fund's average net assets each year. (See "How To
Buy Shares --Distribution Expenses.")
Like any company, the Fund has operating expenses -- such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts, and other expenses. These expenses are paid from the Fund's assets.
Lower expenses therefore benefit investors by increasing the Fund's investment
return.
We calculate annual operating expenses as a percentage of the Fund's
average annual net assets. To keep expenses competitive, the Fund's manager
voluntarily reimbursed the Fund for amounts in excess of 1.00% of average net
assets from July 1, 1994 through April 30, 1996, and reimburses the Fund for
amounts in excess of 1.25% of average net assets effective May 1, 1996.
<PAGE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.49%
12b-1 Fees 0.25%
Other Expenses 0.25%
Total Fund Operating Expenses(1)(2) 0.99%
(1) ^ It should be noted that the Fund's actual total operating expenses were
lower than the figures shown because the Fund's custodian ^ and pricing expenses
were reduced under an expense offset arrangement. However, as a result of ^ an
SEC requirement, the figures shown above do not reflect these reductions. In
comparing expenses for different years, please note that the ratios of Expenses
to Average Net Assets shown under "Financial Highlights" do reflect reductions
for periods prior to the fiscal year ended August 31, 1996. See "The Fund And
Its Management."
(2) Certain Fund expenses are being voluntarily absorbed by INVESCO Funds
Group, Inc. ("IFG"). In the absence of such absorbed expenses, the Fund's "Other
Expenses" and "Total Fund Operating Expenses" would have been 0.25% and 0.99%,
respectively, based on the Fund's actual expenses for the fiscal year ended
August 31, 1996. See "The Fund ^ And Its Management."
Example
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming a hypothetical 5% annual return and redemption at
the end of each time period. (Of course, actual operating expenses are paid from
the Fund's assets, and are deducted from the amount of income available for
distribution to shareholders; they are not charged directly to shareholder
accounts.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$10 $32 $55 $122
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE OR EXPENSES,
AND ACTUAL ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
For more information on the Fund's expenses, see "The Fund and Its Management"
and "How to Buy Shares -- Distribution Expenses."
Since the Fund pays a distribution fee, investors who own Fund shares for a
long period of time may pay more than the economic equivalent of the maximum
front-end sales charge permitted for mutual funds by the National Association of
Securities Dealers, Inc.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by Price Waterhouse LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the independent accountant's report thereon
appearing in the Fund's 1996 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IFG at the address or telephone number on
the cover of this prospectus. The Annual Report also contains more information
about the Fund's performance.
<TABLE>
<CAPTION>
Period
Ended
Year Ended August 31 August 31 Year Ended December 31
-------------------------- --------- ----------------------------------------------------------
1996 1995 1994 1993> 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $6.73 $6.73 $7.32 $6.97 $6.66 $6.00 $7.16 $7.82 $7.75 $8.38 $8.37
-------------------------- --------- ----------------------------------------------------------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.63 0.66 0.62 0.39 0.64 0.70 0.83 0.95 0.93 0.94 1.00
Net Gains or (Losses)
on Securities
(Both Realized
and Unrealized) 0.11 0.03 (0.59) 0.36 0.30 0.64 (1.14) (0.66) 0.07 (0.63) 0.19
-------------------------- --------- ----------------------------------------------------------
Total from Investment
Operations 0.74 0.69 0.03 0.75 0.94 1.34 (0.31) 0.29 1.00 0.31 1.19
-------------------------- --------- ----------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.63 0.66 0.62 0.40 0.63 0.68 0.85 0.95 0.93 0.94 1.01
Distributions from
Capital Gains 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.17
<PAGE>
In Excess of
Capital Gains 0.00 0.03 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
---------------------------- --------- ----------------------------------------------------------
Total Distributions 0.63 0.69 0.62 0.40 0.63 0.68 0.85 0.95 0.93 0.94 1.18
============================ ========= ==========================================================
Net Asset Value -
End of Period $6.84 $6.73 $6.73 $7.32 $6.97 $6.66 $6.00 $7.16 $7.82 $7.75 $8.38
TOTAL RETURN 11.38% 11.12% 0.37% 11.01%* 14.53% 23.51% (4.57%) 3.72% 13.54% 3.52% 14.64%
RATIOS
Net Assets -
End of Period
($000 Omitted) $375,201 $288,959 $243,773 $308,945 $212,172 $99,103 $40,380 $49,017 $60,470 $37,848 $46,587
Ratio of Expenses
to Average
Net Assets# 0.99%@ 1.00% 0.97% 0.97%~ 1.00% 1.05% 0.94% 0.83% 0.82% 0.86% 0.76%
Ratio of Net
InvestmentIncome
to Average Net
Assets# 9.13% 10.01% 8.70% 8.28%~ 9.29% 10.57% 12.57% 12.27% 11.72% 11.22% 11.35%
Portfolio Turnover Rate 266% 201% 195% 45%* 120% 64% 28% 53% 42% 89% 134%
</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.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
The Fund seeks to achieve as high a level of current income as is
consistent with the risk involved in investing substantially all of its assets
in bonds and other debt securities and in preferred stocks. This investment
objective is fundamental and cannot be changed without the approval of the
Fund's shareholders. There is no assurance that the Fund's investment objective
will be met.
The Fund invests primarily in higher yielding corporate bonds (including
convertible issues) and preferred stocks with medium to lower credit ratings.
These securities are generally rated Ba or lower by Moody's Investors Service,
Inc. ("Moody's") or BB or lower by Standard & Poor's Ratings Services, a
division of McGraw-Hill Companies, Inc. ("S&P"). However, under no circumstances
will the Fund invest in any issue rated lower than Caa by Moody's or CCC by S&P,
or any issue that is in default. Potential capital appreciation is a factor in
the selection of investments, but is secondary to the Fund's primary objective.
(See "Investment Policies and Risks" below and the Appendix to this prospectus
for a description of bond ratings.)
The Fund also may invest in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities (which may or may not be backed by
the full faith and credit of the United States) and bank certificates of
deposit. In addition, the Fund may invest in corporate short-term notes rated at
least A-1 by S&P or Prime-1 by Moody's. In addition, the Fund may invest in
municipal obligations, including municipal short-term notes rated at least SP-1
by S&P or MIG-1 by Moody's, when we believe that their potential returns are
better than those that might be achieved by investing in securities of corporate
or U.S. governmental issuers.
As a matter of policy, which may be changed without a vote of shareholders,
at least 65% of the Fund's total assets normally will be invested in debt
securities maturing at least three years after they are issued. However, there
are no limitations on the maturities of the securities held by the Fund, and the
Fund's average maturity will vary as Fund Management responds to changes in
interest rates.
When we believe market or economic conditions are adverse, the Fund may act
defensively -- that is, temporarily invest up to 100% of its assets in cash and
debt securities having maturities of less than three years at the time of
issuance, seeking to protect its assets until conditions stabilize.
INVESTMENT POLICIES AND RISKS
Investors should expect to see their price per share vary with moves in the
fixed-income market, economic conditions and other factors. The Fund invests in
many different companies in a variety of industries; this diversification
<PAGE>
reduces the Fund's overall exposure to investment and market risks, but
cannot eliminate these risks.
Corporate Bonds. When we assess an issuer's ability to meet its interest
rate obligations and repay its debt when due, we are referring to "credit risk."
Debt obligations are rated based on their estimated credit risk by independent
services such as S&P or Moody's. "Market risk" refers to sensitivity to changes
in interest rates: For instance, when interest rates go up, the market value of
a previously issued bond generally declines; on the other hand, when interest
rates go down, bonds generally see their prices increase.
Risks of Lower Rated Bonds. The lower a bond's quality, the more it is
subject to credit risk and market risk and the more speculative it becomes; this
is also true of most unrated securities. Since the Fund normally invests
primarily in issues rated below investment grade quality (commonly called "junk
bonds," and rated BB or lower by S&P or Ba or lower by Moody's or, if unrated,
are judged by Fund Management to be of equivalent quality), the securities held
by the Fund generally will be subject to greater credit and market risks. These
securities include issues which are of poorer quality and may have some
speculative characteristics, according to the ratings services. Never, under any
circumstances, is the Fund permitted to invest in bonds that are in default or
are rated below Caa by Moody's or CCC by S&P or, if unrated, are judged by Fund
Management to be of equivalent quality. Bonds rated Caa or CCC are predominantly
speculative and may be in default or may have present elements of danger with
respect to the repayment of principal or interest. While Fund Management
continuously monitors all of the corporate bonds in the Fund's portfolio for the
issuer's ability to make required principal and interest payments and other
quality factors, it may retain a bond whose rating is changed to one below the
minimum rating required for purchase of the security. The Fund is not required
to sell immediately debt securities that go into default, but may continue to
hold such securities until such time as Fund Management determines it is in the
best interests of the Fund to sell the securities.
Because investment in medium and lower rated securities involves both
greater credit risk and market risk, achievement of the Fund's investment
objectives may be more dependent on Fund Management's own credit analysis than
is the case for funds investing in higher quality securities. In addition, the
share price and yield of the Fund may be expected to fluctuate more than in the
case of funds investing in higher quality, shorter term securities. Moreover, a
significant economic downturn or major increase in interest rates may result in
issuers of lower rated securities experiencing increased financial stress, which
would adversely affect their ability to service their principal, dividend and
interest obligations, meet projected business goals, and obtain additional
financing. In this regard, it should be noted that while the market for high
yield corporate bonds has been in existence for many years and from time to time
has experienced economic downturns, there has been a significant increase in the
use of high yield corporate debt securities to fund highly leveraged corporate
acquisitions and restructurings. Past experience may not, therefore, provide an
accurate indication of future performance of the high yield bond market,
particularly during periods of economic recession. Furthermore, expenses
incurred to recover an investment in a defaulted security may adversely affect
the Fund's net asset value. Finally, while Fund Management attempts to limit
purchases of medium and lower rated securities to securities having an
<PAGE>
established secondary market, the secondary market for such securities may be
less liquid than the market for higher quality securities. The reduced liquidity
of the secondary market for such securities may adversely affect the market
price of, and ability of the Fund to value, particular securities at certain
times, thereby making it difficult to make specific valuation determinations.
For the fiscal year ended August 31, 1996, the following percentages of the
Fund's total assets were invested in corporate bonds rated investment grade (BBB
by S&P or Baa by Moody's and above) at the time they were purchased: AAA--0.00%;
AA--0.00%; A-- 0.09%; and BBB--1.49%, and the following percentages were
invested in corporate bonds rated below investment grade at the time of
purchase: BB--20.46%; B--58.65%; CCC--5.87%; and D--0.00%. Finally, 1.71% of
total assets were invested in unrated corporate bonds. All of these percentages
were determined on a dollar-weighted basis, calculated by averaging the Fund's
month-end portfolio holdings during the fiscal year. Keep in mind that the
Fund's holdings are actively traded, and bond ratings are occasionally adjusted
by ratings services, so these figures do not represent the Fund's actual
holdings or quality ratings as of August 31, 1996.
For a detailed description of corporate bond ratings, see the Appendix of
this prospectus and the Statement of Additional Information.
Foreign Securities. The Fund's investments in debt obligations may include
securities issued by foreign governments and foreign corporations. As a matter
of policy, which may be changed without a vote of shareholders, up to 25% of the
Fund's total assets, measured at the time of purchase, may be invested directly
in foreign debt securities, provided that all such securities are denominated
and pay interest in U.S. dollars (such as Eurobonds and Yankee bonds).
Securities of Canadian issuers are not subject to this 25% limitation.
Investments in foreign debt securities involve certain risks.
For U.S. investors, the returns on foreign debt securities are influenced
not only by the returns on the foreign investments themselves, but also by
currency fluctuations. That is, when the U.S. dollar generally rises against
foreign currencies, returns on foreign securities for a U.S. investor may
decrease. By contrast, in a period when the U.S. dollar generally declines,
those returns may increase. The Fund attempts to minimize these risks by
limiting its investments in foreign debt securities to those which are
denominated and pay interest in U.S. dollars.
Other aspects of international investing to consider include:
-less publicly available information than is generally available about U.S.
issuers;
-differences in accounting, auditing and financial reporting standards;
-generally higher commission rates on foreign portfolio transactions and
longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility; and
<PAGE>
-investments in certain countries may be subject to foreign withholding
taxes, which may reduce dividend income or capital gains payable to
shareholders.
There is also the possibility of expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations; political
instability; potential restrictions on the flow of international capital; and
the possibility of the Fund experiencing difficulties in pursuing legal remedies
and collecting judgments.
Illiquid and Rule 144A Securities. The Fund may invest up to 15% of its net
assets in securities that are illiquid because they are subject to restrictions
on resale ("restricted securities") or because they are not readily marketable.
The Fund may not be able to dispose of illiquid securities at the time desired
or at a reasonable price. In addition, if the securities are not registered,
their marketability and value could be adversely affected. The Fund may purchase
certain securities that are not registered for sale to the general public, but
that can be resold to institutional investors ("Rule 144A Securities"), if a
liquid trading market exists for such securities. The liquidity of the Fund's
investments in Rule 144A Securities could be impaired if dealers or
institutional investors become uninterested in purchasing these securities. The
Company's board of directors has delegated to Fund Management the authority to
determine the liquidity of Rule 144A Securities pursuant to guidelines approved
by the board and therefore to conclude that such securities are not subject to
the foregoing 15% limitation. For more information concerning illiquid Rule 144A
Securities, see "Investment Policies and Restrictions" in the Statement of
Additional Information.
Zero Coupon Bonds and Pay-In-Kind Bonds. The Fund may invest in zero coupon
bonds and pay-in-kind bonds if Fund Management determines that the risk of a
default on the security, which could result in adverse tax consequences, is not
significant. Zero coupon bonds make no periodic interest payments. Instead, they
are sold at a discount from their face value. The buyer of the security receives
the rate of return by the gradual appreciation in the price of the security,
which is redeemed at face value at maturity. Pay-in-kind ("PIK") bonds pay
interest in cash or additional securities, at the issuer's option, for a
specified period. Being extremely responsive to changes in interest rates, the
market price of zero coupon and PIK securities may be more volatile than other
bonds. The Fund may be required to distribute income recognized on these bonds,
even though no cash interest payments are received, which could reduce the
amount of cash available for investment by the Fund.
Delayed Delivery or When-Issued Purchases. Debt securities may at times be
purchased or sold by the Fund with settlement taking place in the future. The
Fund may invest up to 10% of its net assets in when-issued securities. The
payment obligation and the interest rate that will be received on the securities
generally are fixed at the time the Fund enters into the commitment. Between the
date of purchase and the settlement date, the value of the securities is subject
to market fluctuations, and no interest is payable to the Fund prior to the
settlement date.
<PAGE>
Securities Lending. The Fund may seek to earn additional income by lending
securities to qualified brokers, dealers, banks, or other financial
institutions, on a fully collateralized basis. For further information on this
policy, see "Investment Policies and Restrictions" in the Statement of
Additional Information.
Repurchase Agreements. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price. The Fund could incur costs or delays in seeking to sell
the security if the prior owner defaults on its repurchase obligation. To reduce
that risk, the securities underlying each repurchase agreement will be
maintained with the Fund's custodian in an amount at least equal to the
repurchase price under the agreement (including accrued interest). These
agreements are entered into only with member banks of the Federal Reserve
System, registered broker-dealers, and registered U.S. government securities
dealers that are deemed creditworthy under standards set by the Company's board
of directors.
Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover for the Fund; securities may be sold without regard to the time they
have been held when investment considerations warrant such action. Increased
turnover may result in greater brokerage commissions and acceleration of capital
gains that are taxable when distributed to shareholders. The Statement of
Additional Information includes an expanded discussion of the Fund's portfolio
turnover rate, its brokerage practices and certain federal income tax matters.
For a further discussion of risks associated with an investment in the
Fund, see "Investment Policies and Restrictions" and "Investment Practices" in
the Statement of Additional Information.
Investment Restrictions. Certain restrictions, which are set forth in the
Statement of Additional Information, may not be altered without the approval of
the Fund's shareholders. For example, the Fund limits to 5% the portion of its
total assets which may be invested in a single issuer, and to 25% the portion
that may be invested in any one industry (other than U.S. government
securities). The Fund's ability to borrow money is limited to borrowings from
banks for temporary or emergency purposes in amounts not exceeding 10% of net
assets. Additionally, except where indicated to the contrary, the investment
objectives and policies described in this prospectus are fundamental and may not
be changed without a vote of the Fund's shareholders.
THE FUND AND ITS MANAGEMENT
On November 4, 1996, an Agreement and Plan of Merger among INVESCO PLC,
INVESCO Group Services, Inc. ("Services") and AIM Management Group, Inc. ("AIM")
was signed under which AIM will be merged with Services. When this merger takes
effect, which is expected to occur in the first part of 1997, the Fund's
Investment Advisory, Sub-Advisory, Distribution, Administrative Services,
Transfer Agency and Rule 12b-1 Agreements (the "Agreements") will automatically
terminate. Consummation of this merger is conditional, among other things, on
new Agreements, essentially identical to the existing Agreements, including the
<PAGE>
provisions governing fees, being presented to and approved by, the
Company's board of directors, and, where necessary, the Fund's shareholders
prior to this merger taking effect. The meeting of the Fund's shareholders to
consider approving the necessary new Agreements is expected to occur in early
1997. Fund Management anticipates that the key personnel responsible for
providing services to the Fund will remain unchanged.
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as a diversified, open-end, management investment company.
It was incorporated on August 20, 1976, under the laws of Colorado and was
reorganized as a Maryland corporation on April 2, 1993.
The Company's board of directors has responsibility for overall supervision
of the Fund, and reviews the services provided by the adviser and sub-adviser.
Under an agreement with the Company, INVESCO Funds Group, Inc. ("IFG"), 7800 E.
Union Avenue, Denver, Colorado 80237, serves as the Fund's investment manager;
it is primarily responsible for providing the Fund with various administrative
services. IFG's wholly-owned subsidiary, INVESCO Trust, is the Fund's
sub-adviser and is primarily responsible for managing the Fund's investments.
Together, IFG and INVESCO Trust constitute "Fund Management."
Donovan "Jerry" Paul, portfolio manager for the Fund since 1994, has
responsibility for the day-to-day management of the Fund's holdings. He also
manages INVESCO Select Income Fund and INVESCO VIF-High Yield Portfolio;
further, he is co-manager of INVESCO Short-Term Bond Fund, INVESCO Industrial
Income Fund, INVESCO Balanced Fund, and INVESCO VIF-Industrial Income Portfolio.
A Chartered Financial Analyst and Certified Public Accountant, Mr. Paul is a
senior vice president and director of fixed-income research of INVESCO Trust.
His investment career was launched in 1976, and has included these highlights:
He was a senior vice president and director of fixed-income research (1989 to
1992) and portfolio manager (1987 to 1992) with Stein, Roe & Farnham Inc; from
1993 to 1994, he was president of Quixote Investment Management, Inc. He holds
an MBA from the University of Northern Iowa and BBA from the University of Iowa.
Fund Management permits investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires Fund Management's personnel to conduct
their personal investment activities in a manner that Fund Management believes
is not detrimental to the Fund or Fund Management's other advisory clients. See
the Statement of Additional Information for more detailed information.
The Fund pays IFG a monthly management fee which is based upon a percentage
of the Fund's average net assets determined daily; in turn, IFG pays INVESCO
Trust a sub-advisory fee out of its management fee. The management fee is
computed at the annual rate of 0.50% on the first $300 million of the Fund's
average net assets; 0.40% on the next $200 million of the Fund's average net
assets; and 0.30% on the Fund's average net assets over $500 million. For the
fiscal year ended August 31, 1996, investment management fees paid by the Fund
amounted to 0.49% (prior to the voluntary absorption of certain Fund expenses by
INVESCO) of its average net assets. Out of this fee, IFG paid an amount equal to
0.23% of the Fund's average net assets to INVESCO Trust as a sub- advisory fee.
No fee is paid by the Fund to INVESCO Trust.
<PAGE>
Under a Transfer Agency Agreement, IFG acts as registrar, transfer agent,
and dividend disbursing agent for the Fund. The Fund pays an annual fee of
$26.00 per shareholder account or omnibus account participant for these
services. Registered broker-dealers, third party administrators of tax-qualified
retirement plans and other entities, including affiliates of IFG, may provide
equivalent services to the Fund. In these cases, IFG may pay, out of the fee it
receives from the Fund, an annual sub-transfer agency or record-keeping fee to
the third party.
In addition, under an Administrative Services Agreement, IFG handles
additional administrative, record-keeping, and internal sub-accounting services
for the Fund. For the fiscal year ended August 31, 1996, the Fund paid IFG a fee
for these services equal to 0.02% (prior to the voluntary absorption of certain
fund expenses by IFG) of the Fund's average net assets.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. Total expenses of the Fund (prior to any
expense offset) for the fiscal year ended August 31, 1996, including investment
management fees (but excluding brokerage commissions, which are a cost of
acquiring securities), amounted to 0.99% of the Fund's average net assets.
Certain Fund expenses are absorbed voluntarily by IFG pursuant to a commitment
to the Fund in order to ensure that the Fund's total operating expenses did not
exceed 1.00% of the Fund's average net assets (from July 1, 1994 through April
30, 1996) and do not exceed 1.25% of the Fund's average net assets (beginning
May 1, 1996). This commitment may be changed following consultation with the
Company's board of directors. In the absence of this voluntary expense
limitation, the Fund's total operating expenses would have been 0.99% of its
average net assets.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of
their financial responsibility coupled with their ability to effect transactions
at the best available prices. As discussed under "How to Buy Shares --
Distribution Expenses," the Fund may market its shares through intermediary
brokers or dealers that have entered into Dealer Agreements with IFG, as the
Fund's Distributor. The Fund may place orders for portfolio transactions with
qualified broker-dealers that recommend the Fund, or sell shares of the Fund, to
clients, or act as agent in the purchase of Fund shares for clients, if Fund
Management believes that the quality of the execution of the transaction and
level of commission are comparable to those available from other qualified
brokerage firms. For further information, see "Investment Practices -- Placement
of Portfolio Brokerage" in the Statement of Additional Information.
The parent company for IFG and INVESCO Trust is INVESCO PLC, a publicly
traded holding company whose subsidiaries provide investment services around the
world. IFG was established in 1932 and, as of August 31, 1996, managed 14 mutual
funds, consisting of 39 separate portfolios, with combined assets of
approximately $12.8 billion on behalf of over 827,000 shareholders. INVESCO
Trust (founded in 1969) served as adviser or sub-adviser to 46 investment
portfolios as of August 31, 1996, including 27 portfolios in the INVESCO group.
These 46 portfolios had aggregate assets of approximately $12.0 billion as of
August 31, 1996. In addition, INVESCO Trust provides investment management
services to private clients, including employee benefit plans that may be
invested in a collective trust sponsored by INVESCO Trust.
<PAGE>
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the Fund will vary
daily. The price per share is also known as the Net Asset Value ("NAV"). IFG
prices the Fund every day that the New York Stock Exchange is open, as of the
close of regular trading (normally, 4:00 p.m., New York time). NAV is calculated
by adding together the current market value of all of the Fund's assets,
including accrued interest and dividends; then subtracting liabilities,
including accrued expenses; and finally dividing that dollar amount by the total
number of shares outstanding.
Performance Data. To keep shareholders and potential investors informed, we
will occasionally advertise the Fund's total return and yield. Total return
figures show the average annual rate of return on a $1,000 investment in the
Fund, assuming reinvestment of all dividends and capital gain distributions for
one-, five- and ten-year periods. Cumulative total return shows the actual rate
of return on an investment; average annual total return represents the average
annual percentage change in the value of an investment. Both cumulative and
average annual total returns tend to "smooth out" fluctuations in the Fund's
investment results, not showing the interim variations in performance over the
periods cited.
The yield of the Fund ^ is calculated by utilizing the Fund's calculated
income, expenses and average outstanding shares for the most recent 30-day or
one-month period, dividing it by the month and net asset value and annualizing
the resulting number.
More information about the Fund's recent and historical performance is
contained in the Fund's Annual Report to ^ Shareholders. You can get a free copy
by calling or writing to IFG using the telephone number or address on the cover
of this prospectus.
When we quote mutual fund rankings published by Lipper Analytical Services,
Inc., we may compare the Fund to others in its category of High Current Yield
Funds, as well as the broad-based Lipper general fund groupings. These rankings
allow you to compare the Fund to its peers. Other independent financial media
also produce performance- or service-related comparisons, which you may see in
our promotional materials. For more information see "Fund Performance" in the
Statement of Additional Information.
Performance figures are based on historical investment results and are not
intended to suggest future performance.
HOW TO BUY SHARES
The following chart ^ shows several convenient ways to invest in the Fund.
Your new Fund shares will be priced at the NAV next determined after your order
is received in proper form. There is no charge to invest, exchange, or redeem
shares when you make transactions directly through IFG. However, if you invest
in the Fund through a securities broker, you may be charged a commission
<PAGE>
or transaction fee. For all new accounts, please send a completed
application form. Please specify which Fund you wish to purchase.
Fund Management reserves the right to increase, reduce or waive the minimum
investment requirements in its sole discretion, where it determines this action
is in the best interests of the Fund. Further, Fund Management reserves the
right in its sole discretion to reject any order for the purchase of Fund shares
(including purchases by exchange) when, in its judgment, such rejection is in
the Fund's best interests.
HOW TO BUY SHARES
================================================================================
Method Investment Minimum Please Remember
- --------------------------------------------------------------------------------
By Check $1,000 for regular If your check does
Mail to: account; not clear, you will
INVESCO Funds $250 for an be responsible for
Group, Inc. Individual any related loss
P.O. Box 173706 Retirement Account; the Fund or IFG
Denver, CO 80217- $50 minimum for incurs. If you are
3706. each subsequent already a
Or you may send investment. shareholder in the
your check by INVESCO funds, the
overnight courier Fund may seek
to: 7800 E. Union reimbursement from
Ave., your existing
Denver, CO 80237. account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
By Telephone or $1,000. Payment must be
Wire received within 3
Call 1-800-525-8085 business days, or
to request your the transaction may
purchase. Then send be cancelled. If a
your check by telephone purchase
overnight courier is cancelled due to
to our street nonpayment, you
address: will be responsible
7800 E. Union Ave., for any related
Denver, CO 80237. loss the Fund or
Or you may transmit IFG incurs. If you
your payment by are already a
bank wire (call IFG shareholder in the
for instructions). INVESCO funds, the
Fund may seek
reimbursement from
your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
With EasiVest or $50 per month for Like all regular
Direct Payroll EasiVest; $50 per investment plans,
Purchase pay period for neither EasiVest
You may enroll on Direct Payroll nor Direct Payroll
<PAGE>
- --------------------------------------------------------------------------------
the fund Purchase. You may Purchase ensures a
application, or start or stop your profit or protects
call us for the regular investment against loss in a
correct form and plan at any time, falling market.
more details. with two weeks' Because you'll
Investing the same notice to IFG. invest continually,
amount on a monthly regardless of
basis allows you to varying price
buy more shares levels, consider
when prices are low your financial
and fewer shares ability to keep
when prices are buying through low
high. This "dollar- price levels. And
cost averaging" may remember that you
help offset market will lose money if
fluctuations. Over you redeem your
a period of time, shares when the
your average cost market value of all
per share may be your shares is less
less than the than their cost.
actual average
price per share.
- --------------------------------------------------------------------------------
By PAL $1,000. Be sure to write
Your "Personal down the
Account Line" is confirmation number
available for provided by PAL.
subsequent Payment must be
purchases and received within 3
exchanges 24-hours business days, or
a day. Simply call the transaction may
1-800-424-8085. be cancelled. If a
telephone purchase
is cancelled due to
nonpayment, you
will be responsible
for any related
loss the Fund or
IFG incurs. If you
are already a
shareholder in the
INVESCO funds, the
Fund may seek
reimbursement from
your existing
account(s) for any
loss incurred.
<PAGE>
- --------------------------------------------------------------------------------
By Exchange $1,000 to open a See "Exchange
Between this and new account; $50 Privilege," ^ page
another of the for written 12.
INVESCO funds. Call requests to
1-800-525-8085 for purchase additional
prospectuses of shares for an
other INVESCO existing account.
funds. You may also (The exchange
establish an minimum is $250 for
Automatic Monthly purchases requested
Exchange service by telephone.)
between two INVESCO
funds; call IFG for
further details and
the correct form.
================================================================================
Your order to purchase Fund shares will not begin earning dividends or
other distributions until your payment can be converted into available federal
funds under regular banking procedures or, if you are acquiring shares in an
exchange from another INVESCO fund, the Fund receives the proceeds of the
exchange. Checks normally are converted into federal funds (moneys held on
deposit within the Federal Reserve System) within two or three business days
after we receive them, although this period may be longer for checks drawn on
banks that are not members of the Federal Reserve System.
Exchange Privilege. You may exchange your shares in this Fund for those in
another INVESCO fund, on the basis of their respective net asset values at the
time of the exchange. Before making any exchange, be sure to review the
prospectuses of the funds involved and consider their differences.
Please note these policies regarding exchanges of fund shares:
1) The fund accounts must be identically registered.
2) You may make four exchanges out of each fund during each
calendar year.
3) An exchange is the redemption of shares from one fund followed by the
purchase of shares in another. Therefore, any gain or loss realized on the
exchange is recognizable for federal income tax purposes (unless, of course,
your account is tax-deferred).
4) The Fund reserves the right to reject any exchange request, or to modify
or terminate exchange privileges, in the best interests of the Fund and its
shareholders. Notice of all such modifications or termination will be given at
least 60 days prior to the effective date of the change in privilege, except for
unusual instances (such as when redemptions of the exchanged shares are
suspended under Section 22(e) of the Investment Company Act of 1940, or when
sales of the fund into which you are exchanging are temporarily stopped).
<PAGE>
Distribution Expenses. The Fund is authorized under a Plan and Agreement of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Plan") to use its assets to finance certain activities relating to the
distribution of shares. These expenditures may include compensation (including
incentive compensation and/or continuing compensation based on the amount of
customer assets maintained in the Fund) to securities dealers and other
financial institutions and organizations, which may include IFG-affiliated
companies, to obtain various distribution-related and/or administrative services
for the Fund. Such services may include, among other things, processing new
shareholder account applications, preparing and transmitting to the Fund's
transfer agent computer-processable tapes of all transactions by customers, and
serving as the primary source of information to customers in answering questions
concerning the Fund and their transactions.
In addition, other reimbursable expenditures include advertising,
preparation and distribution of sales literature, printing and distribution of
prospectuses to prospective investors, public relations efforts, marketing
programs and such other services and promotional activities agreed upon from
time to time by the Fund and its board of directors. These services and
activities may be conducted by the staff of IFG or its affiliates or by third
parties.
IFG is not entitled to reimbursement for overhead expenses under the Plan,
but may be reimbursed for all or a portion of the compensation paid for salaries
and other employee benefits for IFG personnel whose primary responsibilities
involve marketing shares of the INVESCO funds, including the Fund. Also, any
payments made by the Fund may not be used to finance the distribution of shares
of any other mutual fund advised by IFG. Payments made by the Fund under the
Plan for compensation of marketing personnel, as noted above, are based on an
allocation formula designed to ensure that all such payments are appropriate.
Under the Plan, the Fund's reimbursement to IFG is limited to an amount
computed at a maximum annual rate of 0.25% of the Fund's average net assets.
Payments by the Fund under the Plan, for any month, may only be made to
reimburse expenditures incurred during the rolling 12-month period in which that
month falls. Therefore, any reimbursable expenses incurred by IFG in excess of
the limitation described above are not reimbursable and will be borne by IFG. In
addition, IFG may from time to time make additional payments from its revenues
to securities dealers and other financial institutions that provide
distribution-related and/or administrative services for the Fund. No further
payments will be made by the Fund under the Plan in the event of its
termination.
FUND SERVICES
Shareholder Accounts. IFG will maintain a share account that reflects your
current holdings. Share certificates will be issued only upon specific request.
You will have greater flexibility to conduct transactions if you do not request
certificates.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges, and redemptions. If you choose certain
recurring transaction plans (for instance, EasiVest), your transactions will be
confirmed on your quarterly Investment Summary.
<PAGE>
Investment Summaries. Each calendar quarter, shareholders receive a written
statement which consolidates and summarizes account activity and value at the
beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and capital gain distributions are
automatically invested in additional fund shares at the NAV on the ex-dividend
date, unless you choose to have dividends and/or capital gain distributions
automatically reinvested in another INVESCO fund or paid by check (minimum of
$10.00).
Telephone Transactions. All shareholders may exchange and redeem Fund
shares by telephone, unless they expressly decline these privileges. By signing
the new account Application, a Telephone Transaction Authorization Form, or
otherwise using these privileges, the investor has agreed that, if the Fund has
followed reasonable procedures, such as recording telephone instructions and
sending written transaction confirmations, it will not be liable for following
telephoned instructions that it believes to be genuine. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions.
Retirement Plans and IRAs. Fund shares may be purchased for Individual
Retirement Accounts ("IRAs") and many types of tax-deferred retirement plans.
IFG can supply you with information and forms to establish or transfer your
existing plan or account.
HOW TO SELL SHARES
The following chart shows several convenient ways to redeem your Fund
shares. Shares of the Fund may be redeemed at any time at their current NAV next
determined after a request in proper form is received at the Fund's office. The
NAV at the time of the redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the Fund's investment
performance.
Please specify from which fund you wish to redeem shares. Shareholders have
a separate account for each fund in which they invest.
HOW TO SELL SHARES
================================================================================
Method Minimum Redemption Please Remember
================================================================================
By Telephone $250 (or, if less, These telephone
Call us toll-free full liquidation of redemption
at 1-800-525-8085. the account) for a privileges may be
redemption check; modified or
$1,000 for a wire terminated in the
to bank of record. future at the
The maximum amount discretion of IFG.
which may be
redeemed by
telephone is
generally $25,000.
<PAGE>
- --------------------------------------------------------------------------------
In Writing Any amount. The If the shares to be
Mail your request redemption request redeemed are
to INVESCO Funds must be signed by represented by
Group, Inc., P.O. all registered stock certificates,
Box 173706 shareholders(s). the certificates
Denver, CO 80217- Payment will be must be sent to
3706. You may also mailed to your IFG.
send your request address of record,
by overnight or to a pre-
courier to 7800 E. designated bank.
Union Ave., Denver,
CO 80237.
- --------------------------------------------------------------------------------
By Exchange $1,000 to open a See "Exchange
Between this and new account; $50 Privilege," page
another of the for written 12.
INVESCO funds. Call requests to
1-800-525-8085 for purchase additional
prospectuses of shares for an
other INVESCO existing account.
funds. You may also (The exchange
establish an minimum is $250 for
automatic monthly exchanges requested
exchange service by telephone.)
between two INVESCO
funds; call IFG for
further details and
the correct form.
- --------------------------------------------------------------------------------
Periodic Withdrawal $100 per payment, You must have at
Plan on a monthly or least $10,000 total
You may call us to quarterly basis. invested with the
request the The redemption INVESCO funds, with
appropriate form check may be made at least $5,000 of
and more payable to any that total invested
information at 1- party you in the fund from
800-525-8085. designate. which withdrawals
will be made.
- --------------------------------------------------------------------------------
Payment To Third Any amount. All registered
Party owners of the
Mail your request account must sign
to INVESCO Funds the request, with a
Group, Inc., P.O. signature guarantee
Box 173706 from an eligible
Denver, CO 80217- guarantor financial
3706. institution, such
as a commercial
bank or recognized
national or
regional securities
firm.
================================================================================
<PAGE>
While the Fund will attempt to process telephone redemptions promptly,
there may be times -- particularly in periods of severe economic or market
disruption -- when you may experience delays in redeeming shares by phone.
Payments of redemption proceeds will be mailed within seven days following
receipt of the redemption request in proper form. However, payment may be
postponed under unusual circumstances -- for instance, if normal trading is not
taking place on the New York Stock Exchange or during an emergency as defined by
the Securities and Exchange Commission. If your shares were purchased by a check
which has not yet cleared, payment will be made promptly upon clearance of the
purchase check (which may take up to 15 days).
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate any
further EasiVest purchases unless you instruct us otherwise.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to involuntarily redeem all shares in such
account, in which case the account would be liquidated and the proceeds
forwarded to the shareholder. Prior to any such redemption, a shareholder will
be notified and given 60 days to increase the value of the account to $250 or
more.
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders substantially all of
its net investment income, net capital gains and net gains from foreign currency
transactions, if any, in order to continue to qualify for tax treatment as a
regulated investment company. Thus, the Fund does not expect to pay any federal
income or excise taxes.
Unless shareholders are exempt from income taxes, they must include all
dividends and capital gain distributions in taxable income for federal, state,
and local income tax purposes. Dividends and other distributions are taxable
whether they are received in cash or automatically distributed in shares of the
Fund or another fund in the INVESCO group.
The Fund may be subject to withholding of foreign taxes on dividends or
interest it receives on foreign securities. Foreign taxes withheld will be
treated as an expense of the Fund unless the Fund meets the qualifications to
enable it to pass these taxes through to shareholders for use by them as a
foreign tax credit or deduction.
Shareholders may be subject to backup withholding of 31% on dividends,
capital gain distributions and redemption proceeds. Unless you are subject to
backup withholding for other reasons, you can avoid backup withholding on your
Fund account by ensuring that we have a correct, certified tax identification
number.
Dividends and Capital Gain Distributions. The Fund earns ordinary or net
investment income in the form of dividends and interest on its investments. The
Fund's policy is to distribute substantially all of this income, less Fund
expenses, to shareholders on a monthly basis, at the discretion of the Company's
board of directors.
<PAGE>
In addition, the Fund realizes capital gains and losses when it sells
securities for more or less than it paid. If total gains on sales exceed total
losses (including losses carried forward from previous years), the Fund has a
net realized capital gain. Net realized capital gains, if any, are distributed
to shareholders at least annually, usually in December.
Dividends and capital gain distributions are paid to shareholders who hold
shares on the record date of distribution regardless of how long the shares have
been held. The Fund's share price will then drop by the amount of the
distribution on the day the distribution is made. If a shareholder purchases
shares immediately prior to the distribution, the shareholder will, in effect,
have "bought" the distribution by paying the full purchase price, a portion of
which is then returned in the form of a taxable distribution.
At the end of each year, information regarding the tax status of dividends
and capital gain distributions is provided to shareholders. Net realized capital
gains are divided into short-term and long-term gains depending upon how long
the Fund held the security which gave rise to the gains. The capital gains
distribution consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest as ordinary income and are paid to shareholders as taxable dividends.
Shareholders also may realize capital gains or losses when they sell their
Fund shares at more or less than the price originally paid.
We encourage you to consult a tax adviser with respect to these matters.
For further information see "Dividends, Capital Gain Distributions and Taxes" in
the Statement of Additional Information.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Company have equal voting rights based on
one vote for each share owned. Voting with respect to certain matters, such as
ratification of independent accountants and the election of directors, will be
by all the funds of the Company voting together. In other cases, such as voting
upon an investment advisory contract, voting is on a fund-by-fund basis. To the
extent permitted by law, when not all funds are affected by a matter to be voted
upon, only shareholders of the fund or funds affected by the matter will be
entitled to vote thereon. The Company is not generally required and does not
expect to hold regular annual meetings of shareholders. However, when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Company or as may be required by applicable law or the Company's Articles of
Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Company. The Fund will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
<PAGE>
APPENDIX -- RATINGS SERVICES
There are several independent ratings services that analyze debt
obligations and preferred stock issued by corporations. The two most frequently
used services are Moody's Investors Service, Inc. ("Moody's"), and Standard &
Poor's Ratings Services ("S&P").
The charts below shows the various ratings used by each service for the
categories of bonds and preferred stock in which the Fund may invest. There are
additional refinements to each rating system: Moody's may use the modifier 1 to
indicate that the security ranks in the higher end of its generic ratings
category; modifier 2 indicates a mid-range rank, and 3 indicates the issue ranks
at the lower end of its category. Similarly, S&P may use a + or - sign to
indicate a security's relative standing within its generic category.
================================================================================
Moody's S&P Bond Description
- --------------------------------------------------------------------------------
Aaa AAA Highest quality, often referred to as
"gilt edged." Carries the smallest
degree of investment risk: Interest
payments are protected by a larger or
exceptionally stable margin and
principal is secure.
- --------------------------------------------------------------------------------
Aa AA High quality or high grade. Margins of
protection may be smaller than those
above, or fluctuation of protective
elements may be of greater amplitude.
Other elements may be present which
make long-term risks somewhat larger
than in Aaa or AAA securities.
- --------------------------------------------------------------------------------
A A Upper medium-grade obligations.
Adequate to strong capacity to pay
principal and interest, but somewhat
more susceptible to adverse effects of
changes in circumstances and economic
conditions.
- --------------------------------------------------------------------------------
Baa BBB Medium-grade obligations. Neither
highly protected nor poorly secured.
Interest and principal security
currently appear adequate, but certain
protective elements may be lacking or
characteristically unreliable over the
longer-term. May have speculative
characteristics.
<PAGE>
- --------------------------------------------------------------------------------
Ba BB Speculative, but less near-term
vulnerability to default than those
below. These bonds face major ongoing
uncertainties or exposure to adverse
business, financial or economic
conditions that could lead to
inadequate capacity to make timely
interest and principal payments.
- --------------------------------------------------------------------------------
B B Generally lack characteristics of a
desirable investment. Greater
vulnerability to default: currently
have capacity to meet timely interest
and principal payments, but assurance
of payments over any extended period of
time may be small, and/or other terms
of the bond contract may be in
jeopardy.
- --------------------------------------------------------------------------------
Caa CCC Bonds in poor standing. These bonds may be
in default or there may be present elements of
danger with respect to principal or interest.
- --------------------------------------------------------------------------------
aaa AAA Top-quality. Good asset protection and
extremely strong capacity for dividend
payment.
- --------------------------------------------------------------------------------
aa AA High-grade. Offers reasonable assurance
that earnings and asset protection will
remain relatively well-maintained in
the foreseeable future.
- --------------------------------------------------------------------------------
a A Upper medium-grade. Earnings and asset
protection are expected to remain at
adequate levels.
- --------------------------------------------------------------------------------
baa BBB Medium-grade. Neither highly protected
nor poorly secured. Backed by adequate
capacity to maintain dividend payments,
but susceptible to adverse economic
conditions or changing circumstances.
- --------------------------------------------------------------------------------
ba BB Has speculative elements and its future
is not well assured. Earnings and
asset protection may be very moderate
and not well safeguarded during adverse
periods.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
b B Lacks the characteristics of a
desirable investment. Assurance of
dividend payments over any extended
period of time may be small.
================================================================================
<PAGE>
INVESCO HIGH YIELD FUND
A no-load mutual fund seeking a high level of
current income from lower rated securities.
PROSPECTUS
^ January 1, 1997
To receive general information and prospectuses on any of INVESCO's funds
or retirement plans, or to obtain current account or price information or
responses to other questions, call toll-free:
1-800-525-8085
To reach PAL, your 24-hour Personal Account Line call:
1-800-424-8085
You can find us on the World Wide Web:
http://www.invesco.com
Or write to:
INVESCO Funds Group, Inc., Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street;
Denver Tech Center
7800 East Union Avenue
Lobby Level
<PAGE>
PROSPECTUS
^ January 1, 1997
INVESCO U.S. GOVERNMENT SECURITIES FUND
INVESCO U.S. Government Securities Fund (the "Fund") is actively managed
to seek as high a level of current income as is consistent with the risk
involved in investing in bonds and other debt obligations issued or guaranteed
by the U.S. government, its agencies and instrumentalities, and in repurchase
agreements and futures contracts with respect to such securities. Potential
capital appreciation is a factor in the selection of investments, but is
secondary to the Fund's primary objective.
This prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated ^ January 1, 1997, has been filed with the Securities and
Exchange Commission and is incorporated by reference into this prospectus. To
obtain a free copy, write to INVESCO Funds Group, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; on the World Wide Web:http://www.invesco.com; or call
1-800-525-8085.
<PAGE>
CONTENTS
ESSENTIAL INFORMATION...................................................... 2
ANNUAL FUND EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS....................................................... 4
INVESTMENT OBJECTIVE AND STRATEGY.......................................... 5
INVESTMENT POLICIES AND RISKS.............................................. 5
THE FUND AND ITS MANAGEMENT................................................ 6
FUND PRICE AND PERFORMANCE................................................. 8
HOW TO BUY SHARES.......................................................... 9
FUND SERVICES.............................................................. 11
HOW TO SELL SHARES......................................................... 11
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS............................ 13
ADDITIONAL INFORMATION..................................................... 13
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
ESSENTIAL INFORMATION
Investment Goal And Strategy. INVESCO U.S. Government Securities Fund is a
diversified mutual fund that seeks as high a level of current income as is
consistent with the risk involved in investing in bonds and other debt
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities, and in repurchase agreements and futures contracts with
respect to such securities. The securities in which the Fund invests offer a
wide range of maturities. In selecting investments, we consider potential
capital appreciation as a secondary factor. There is no guarantee that the Fund
will meet its objective. See "Investment Objective And Strategy."
Designed For: Investors primarily seeking daily income, paid monthly. While
not a complete investment program, the Fund may be a valuable element of your
investment portfolio. You may also wish to consider the Fund as part of a
Uniform Gifts/Transfers to Minors Account or systematic investment strategy. The
Fund may be a suitable investment for tax-sheltered retirement programs such as
the IRA, SEP-IRA, SARSEP, 401(k), Profit Sharing, Money Purchase Pension, or
403(b) plans.
Time Horizon. The Fund is primarily managed for current income, with the
secondary potential for capital growth. Investors should not consider this Fund
for the portion of their savings devoted to capital appreciation, or for that
portion focused on liquidity and stable principal value.
Risks. The Fund uses a moderate investment strategy, focusing on U.S.
government and government agency securities. These investments are subject to
both credit and market risk. See "Investment Policies and Risks."
Organization and Management. The Fund is a series of INVESCO Income Funds,
Inc. (the "Company"), a diversified, managed, no-load mutual fund. The Fund is
owned by its shareholders. It employs INVESCO Funds Group, Inc. ("IFG"), founded
in 1932, to serve as investment adviser, administrator, distributor, and
transfer agent; and INVESCO Trust Company ("INVESCO Trust"), founded in 1969, as
sub-adviser. Together, IFG and INVESCO Trust constitute "Fund Management."
Richard R. Hinderlie selects the Fund's investments. Mr. Hinderlie earned
his MBA from the Arizona State University and a BA from Pacific Lutheran
University. See "The Fund And Its Management."
IFG and INVESCO Trust are part of a global firm that managed approximately
$90 billion as of June 30, 1996. The parent company, INVESCO PLC, is based in
London, with money managers located in Europe, North America, and the Far East.
<PAGE>
This Fund offers all of the following services at no charge:
-----------------------------------------------------------
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
Regular investment plans such as EasiVest (the Fund's
automatic monthly investment program), Direct Payroll
Purchase, and Automatic Monthly Exchange^
Periodic withdrawal plans
See "How To Buy Shares" and "How To Sell Shares."
Minimum Initial Investment: $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans.
Minimum Subsequent Investment: $50 ^(Minimums are lower for certain
retirement plans).
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares. The Fund is authorized to pay a Rule 12b-1 distribution fee of up to one
quarter of one percent of the Fund's average net assets each year. (See "How To
Buy Shares --Distribution Expenses.")
Like any company, the Fund has operating expenses -- such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts, and other expenses. These expenses are paid from the Fund's assets.
Lower expenses therefore benefit investors by increasing the Fund's total
return.
We calculate annual operating expenses as a percentage of the Fund's
average annual net assets. To keep expenses competitive, the Fund's manager
voluntarily reimburses the Fund for amounts in excess of 1.00% of average net
assets.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.55%
12b-1 Fees 0.25%
Other Expenses 0.22%
Total Fund Operating Expenses (1)(2) 1.02%
(1) ^ It should be noted that the Fund's actual total operating expenses
were lower than the figures shown because the Fund's custodian ^ and pricing
expenses were reduced under an expense offset arrangement. However, as a result
of ^ an SEC requirement, the figures shown above do not reflect these
reductions. In comparing expenses for different years, please note that the
ratios of Expenses to Average Net Assets shown under "Financial Highlights" do
reflect reductions for periods prior to the fiscal year ended August 31, 1996.
See "The Fund and Its Management."
<PAGE>
(2) Certain Fund expenses are being voluntarily absorbed by INVESCO Funds
Group, Inc. ("IFG). In the absence of such absorbed expenses, the Fund's "Other
Expenses" and "Total Fund Operating Expenses" would have been 0.68% and 1.48%,
respectively, based on the Fund's actual expenses for the fiscal year ended
August 31, 1996. See "The Fund and Its Management."
Example
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming a hypothetical 5% annual return and redemption at
the end of each time period. (Of course, actual operating expenses are paid from
the Fund's assets, and are deducted from the amount of income available for
distribution to shareholders; they are not charged directly to shareholder
accounts.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$10 $33 $57 $125
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. The example should
not be considered a representation of past or future performance or expenses,
and actual annual returns and expenses may be greater or less than those shown.
For more information on the Fund's expenses, see "The Fund ^ And Its Management"
and "How ^ To Buy Shares -- Distribution Expenses."
Since the Fund pays a distribution fee, investors who own Fund shares for a
long period of time may pay more than the economic equivalent of the maximum
front-end sales charge permitted for mutual funds by the National Association of
Securities Dealers, Inc.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by Price Waterhouse LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the independent accountant's report thereon
appearing in the Fund's 1996 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IFG at the address or telephone number on
the cover of this prospectus. The Annual Report also contains more information
about the Fund's performance.
<TABLE>
<CAPTION>
Period
Period Ended
Ended December
Year Ended August 31 August 31 Year Ended December 31 31
------------------------ --------- -------------------------------------------------- -----
1996 1995 1994 1993> 1992 1991 1990 1989 1988 1987 1986^
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $7.49 $7.10 $8.19 $7.61 $7.65 $7.09 $7.14 $6.87 $6.98 $7.90 $7.50
------------------------- --------- -------------------------------------------------- -----
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.44 0.45 0.41 0.28 0.46 0.48 0.53 0.56 0.54 0.53 0.61
Net Gains or (Losses)
on Securities (Both
Realized and
Unrealized) (0.34) 0.39 (0.93) 0.58 (0.04) 0.57 (0.05) 0.26 (0.11) (0.92) 0.43
------------------------- --------- -------------------------------------------------- -----
Total from Investment
Operations 0.10 0.84 (0.52) 0.86 0.42 1.05 0.48 0.82 0.43 (0.39) 1.04
------------------------- --------- ------------------------------------------------ -----
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.43 0.45 0.41 0.28 0.46 0.49 0.53 0.55 0.54 0.53 0.61
In Excess of Net
Investment Income+ 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
<PAGE>
Distributions from
Capital Gains 0.00 0.00 0.16 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.03
------------------------ --------- -------------------------------------------------- -----
Total Distributions 0.44 0.45 0.57 0.28 0.46 0.49 0.53 0.55 0.54 0.53 0.64
------------------------ --------- -------------------------------------------------- -----
Net Asset Value -
End of Period $7.15 $7.49 $7.10 $8.19 $7.61 $7.65 $7.09 $7.14 $6.87 $6.98 $7.90
======================== ======== ================================================== =====
TOTAL RETURN 1.31% 12.37% (6.53%) 11.61%* 5.68% 15.56% 7.23% 12.40% 6.39% (5.10%) 14.23%*
RATIOS
Net Assets -
End of Period
($000 Omitted) $54,614 $38,087 $36,740 $36,391 $35,799 $29,229 $21,247 $19,293 $9,388 $7,848 $7,165
Ratio of Expenses
to Average Net
Assets# 1.02%@ 1.00% 1.32% 1.40%~ 1.27% 1.27% 1.07% 1.04% 1.19% 1.29% 0.74%~
Ratio of Net Investment
Income to Average
Net Assets# 5.76% 6.24% 5.46% 5.36%~ 6.08% 6.78% 7.58% 7.98% 7.75% 7.06% 7.53%~
Portfolio Turnover Rate 212% 99% 95% 100%* 115% 67% 38% 159% 221% 284% 61%*
</TABLE>
> From January 1, 1993 to August 31, 1993, the Fund's current fiscal year-end.
^ From January 2, 1986, commencement of operations, to December 31, 1986.
+ Distributions in excess of net investment income for the year ended August 31,
1995, aggregated less than $0.01 on a per share basis.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended August 31, 1996, 1995 and 1994 and for the period ended December 31, 1986.
If such expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 1.48%, 1.51%, 1.42% and 1.11%, respectively, and
ratio of net investment income to average net assets would have been 5.30%,
5.73%, 5.36% and 7.16%, 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>
INVESTMENT OBJECTIVE AND STRATEGY
The Fund seeks a high level of income by investing in bonds and other debt
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities, and in repurchase agreements and futures contracts with
respect to such securities. This investment objective is fundamental and cannot
be changed without the approval of the Fund's shareholders. Potential capital
appreciation is a factor in the selection of investments, but is secondary to
the Fund's primary objective. There is no assurance that the Fund's investment
objective will be met.
The Fund invests substantially all (and in no event less than 65%) of its
assets in government and government agency debt securities, government agency
and instrumentality securities. Some of these portfolio holdings -- Treasury
bonds, bills, and notes -- may be issued directly by the U.S. government and are
backed by the full faith and credit of the federal government. Similar
protection is offered by securities of certain agencies, which include, among
others, the Government National Mortgage Association (GNMA), the Department of
Housing and Urban Development, the Small Business Administration, and the
Farmers' Home Administration. In addition, the Fund may hold U.S. government
agency securities not supported by the U.S. government, but only by the credit
of the issuer. These include securities issued by the Federal National Mortgage
Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), the
Federal Home Loan Bank and the Student Loan Marketing Association. The value of
the Fund's shares is not guaranteed by the U.S. government.
As a matter of policy, which may be changed without a vote of shareholders,
at least 65% of the Fund's total assets normally will be invested in debt
securities maturing at least three years after they are issued. However, there
are no limitations on the maturities of the securities held by the Fund, and the
Fund's average maturity will vary as Fund Management responds to changes in
interest rates.
When we believe market or economic conditions are adverse, the Fund may act
defensively -- that is, temporarily invest up to 100% of its assets in cash and
debt securities having maturities of less than three years at the time of
issuance, seeking to protect its assets until conditions stabilize.
INVESTMENT POLICIES AND RISKS
Investors should expect to see their price per share vary with moves in the
fixed-income market, economic conditions and other factors.
When we assess an issuer's ability to meet its interest rate obligations
and repay its debt when due, we are referring to "credit risk." Debt securities
issued by the U.S. government, its agencies and instrumentalities carry a low
level of credit risk compared to higher yielding corporate bonds.
"Market risk" refers to sensitivity to changes in interest rates: For
instance, when interest rates go up, the market value of a previously issued
bond generally declines; on the other hand, when interest rates go down, bonds
generally see their prices increase. All bonds, including government and
government agency securities, are subject to market risk.
<PAGE>
Mortgage-Backed Securities. The Fund may invest in mortgage-backed
securities issued or guaranteed by the U.S. government or federal agencies such
as GNMA, FNMA and FHLMC. Some of these securities, such as GNMA certificates,
are backed by the full faith and credit of the U.S. Treasury while others, such
as FHLMC certificates, are not. Mortgage-backed securities represent interests
in pools of mortgages which have been purchased from loan institutions such as
banks and savings & loans, and packaged for resale in the secondary market.
Interest and principal are "passed through" to the holders of the securities.
The timely payment of interest and principal is guaranteed by a federal agency,
but the market value of the security is not guaranteed and will vary. When
interest rates drop, many home buyers choose to refinance their mortgages. These
prepayments may shorten the average weighted lives of mortgage-backed securities
and may lower their returns.
Interest Rate Futures Contracts. The Fund may buy and sell interest rate
futures contracts relating to U.S. government securities for the purpose of
hedging the value of its securities portfolio. These practices and their risks
are discussed under "Investment Policies and Restrictions" in the Statement of
Additional Information.
Delayed Delivery or When-Issued Purchases. Debt securities may at times be
purchased or sold by the Fund with settlement taking place in the future. The
payment obligation and the interest rate that will be received on the securities
generally are fixed at the time the Fund enters into the commitment. Between the
date of purchase and the settlement date, the value of the securities is subject
to market fluctuations, and no interest is payable to the Fund prior to the
settlement date.
Securities Lending. The Fund may seek to earn additional income by lending
securities to qualified brokers, dealers, banks, or other financial
institutions, on a fully collateralized basis. For further information on this
policy, see "Investment Policies and Restrictions" in the Statement of
Additional Information.
Repurchase Agreements. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price. The Fund could incur costs or delays in seeking to sell
the security if the prior owner defaults on its repurchase obligation. To reduce
that risk, the securities underlying each repurchase agreement will be
maintained with the Fund's custodian in an amount at least equal to the
repurchase price under the agreement (including accrued interest). These
agreements are entered into only with member banks of the Federal Reserve
System, registered broker-dealers, and registered U.S. government securities
dealers that are deemed creditworthy under standards set by the Company's board
of directors.
Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover for the Fund; securities may be sold without regard to the time they
have been held when investment considerations warrant such action. Increased
turnover may result in greater brokerage commissions and acceleration of capital
gains which are taxable when distributed to shareholders. The Statement of
Additional Information includes an expanded discussion of the Fund's portfolio
turnover rate, its brokerage practices and certain federal income tax matters.
<PAGE>
For a further discussion of risks associated with an investment in the
Fund, see "Investment Policies and Restrictions" and "Investment Practices" in
the Statement of Additional Information.
Investment Restrictions. Certain restrictions, which are set forth in the
Statement of Additional Information, may not be altered without the approval of
the Fund's shareholders. For example, the Fund's ability to borrow money is
limited to borrowings from banks for temporary or emergency purposes in amounts
not exceeding 10% of net assets. Additionally, except where indicated to the
contrary, the investment objectives and policies described in this prospectus
are fundamental and may not be changed without a vote of the Fund's
shareholders.
THE FUND AND ITS MANAGEMENT
On November 4, 1996, an Agreement and Plan of Merger among INVESCO PLC,
INVESCO Group Services, Inc. ("Services") and AIM Management Group, Inc. ("AIM")
was signed under which AIM will be merged with Services. When this merger takes
effect, which is expected to occur in the first part of 1997, the Fund's
Investment Advisory, Sub-Advisory, Distribution, Administrative Services,
Transfer Agency and Rule 12b-1 Agreements (the "Agreements") will automatically
terminate. Consummation of this merger is conditional, among other things, on
new Agreements, essentially identical to the existing Agreements, including the
provisions governing fees, being presented to and approved by, the Company's
board of directors, and, where necessary, the Fund's shareholders prior to this
merger taking effect. The meeting of the Fund's shareholders to consider
approving the necessary new Agreements is expected to occur in early 1997. Fund
Management anticipates that the key personnel responsible for providing services
to the Fund will remain unchanged.
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as a diversified, open-end, management investment company.
It was incorporated on August 20, 1976, under the laws of Colorado and was
reorganized as a Maryland corporation on April 2, 1993.
The Company's board of directors has responsibility for overall supervision
of the Fund, and reviews the services provided by the adviser and sub-adviser.
Under an agreement with the Company, INVESCO Funds Group, Inc. ("IFG"), 7800 E.
Union Avenue, Denver, Colorado 80237, serves as the Fund's investment manager;
it is primarily responsible for providing the Fund with various administrative
services. IFG's wholly-owned subsidiary, INVESCO Trust, is the Fund's
sub-adviser and is primarily responsible for managing the Fund's investments.
Together, IFG and INVESCO Trust constitute "Fund Management."
Richard R. Hinderlie, portfolio manager for the Fund since 1994, has
responsibility for the day-to-day management of the Fund's holdings. He also
manages INVESCO U.S. Government Money Fund, INVESCO Cash Reserves Fund and
INVESCO Short-Term Bond Fund. Mr. Hinderlie has been a ^ vice president of
INVESCO Trust since 1996 and a portfolio manager since 1993. Before joining
INVESCO Trust, he was a securities analyst with Bank Western from 1987 to 1993.
He earned an MBA from Arizona State University and BA from Pacific Lutheran
University.
<PAGE>
Fund Management permits investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires Fund Management's personnel to conduct
their personal investment activities in a manner that Fund Management believes
is not detrimental to the Fund or Fund Management's other advisory clients. See
the Statement of Additional Information for more detailed information.
The Fund pays IFG a monthly management fee which is based upon a percentage
of the Fund's average net assets determined daily; in turn, IFG pays INVESCO
Trust a sub-advisory fee out of its management fee. The management fee is
computed at the annual rate of 0.55% on the first $300 million of the Fund's
average net assets; 0.45% on the next $200 million of the Fund's average net
assets; and 0.35% on the Fund's average net assets over $500 million. For the
fiscal year ended August 31, 1996, investment management fees paid by the Fund
amounted to 0.55% (prior to the voluntary absorption of certain Fund expenses by
INVESCO) of its average net assets. Out of this fee, IFG paid an amount equal to
0.25% of the Fund's average net assets to INVESCO Trust as a sub- advisory fee.
No fee is paid by the Fund to INVESCO Trust.
Under a Transfer Agency Agreement, IFG acts as registrar, transfer agent,
and dividend disbursing agent for the Fund. The Fund pays an annual fee of
$26.00 per shareholder account or omnibus account participant for these
services. Registered broker-dealers, third party administrators of tax-qualified
retirement plans and other entities, including affiliates of IFG, may provide
equivalent services to the Fund. In these cases, IFG may pay, out of the fee it
receives from the Fund, an annual sub-transfer agency or record-keeping fee to
the third party.
In addition, under an Administrative Services Agreement, IFG handles
additional administrative, record-keeping, and internal sub-accounting services
for the Fund. For the fiscal year ended August 31, 1996, the Fund paid IFG a fee
for these services equal to 0.04% (prior to the voluntary absorption of certain
fund expenses by IFG) of the Fund's average net assets.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. Total expenses of the Fund (prior to any
expense offset) for the fiscal year ended August 31, 1996, including investment
management fees (but excluding brokerage commissions, which are a cost of
acquiring securities), amounted to 1.02% of the Fund's average net assets.
Certain Fund expenses are absorbed voluntarily by IFG pursuant to a commitment
to the Fund in order to ensure that the Fund's total operating expenses do not
exceed 1.00% of the Fund's average net assets. This commitment may be changed
following consultation with the Company's board of directors. In the absence of
this voluntary expense limitation, the Fund's total operating expenses would
have been 1.48% of its average net assets.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of
their financial responsibility coupled with their ability to effect transactions
at the best available prices. As discussed under "How to Buy Shares --
Distribution Expenses," the Fund may market its shares through intermediary
brokers or dealers that have entered into Dealer Agreements with IFG, as the
Fund's Distributor. The Fund may place orders for portfolio transactions with
qualified broker-dealers that recommend the Fund, or sell shares of the Fund, to
clients, or act as agent in the purchase of Fund shares for clients, if Fund
<PAGE>
Management believes that the quality of the execution of the transaction and
level of commission are comparable to those available from other qualified
brokerage firms. For further information, see "Investment Practices -- Placement
of Portfolio Brokerage" in the Statement of Additional Information.
The parent company for IFG and INVESCO Trust is INVESCO PLC, a publicly
traded holding company whose subsidiaries provide investment services around the
world. IFG was established in 1932 and, as of August 31, 1996, managed 14 mutual
funds, consisting of 39 separate portfolios, with combined assets of
approximately $12.8 billion on behalf of over 827,000 shareholders. INVESCO
Trust (founded in 1969) served as adviser or sub-adviser to 46 investment
portfolios as of August 31, 1996, including 27 portfolios in the INVESCO group.
These 46 portfolios had aggregate assets of approximately $12.0 billion as of
August 31, 1996. In addition, INVESCO Trust provides investment management
services to private clients, including employee benefit plans that may be
invested in a collective trust sponsored by INVESCO Trust.
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the Fund will vary
daily. The price per share is also known as the Net Asset Value ("NAV"). IFG
prices the Fund every day that the New York Stock Exchange is open, as of the
close of regular trading (normally, 4:00 p.m., New York time). NAV is calculated
by adding together the current market value of all of the Fund's assets,
including accrued interest and dividends; then subtracting liabilities,
including accrued expenses; and finally dividing that dollar amount by the total
number of shares outstanding.
Performance Data. To keep shareholders and potential investors informed, we
will occasionally advertise the Fund's total return and yield. Total return
figures show the average annual rate of return on a $1,000 investment in the
Fund, assuming reinvestment of all dividends and capital gain distributions for
one-, five- and ten-year periods. Cumulative total return shows the actual rate
of return on an investment; average annual total return represents the average
annual percentage change in the value of an investment. Both cumulative and
average annual total returns tend to "smooth out" fluctuations in the Fund's
investment results, not showing the interim variations in performance over the
periods cited.
The yield of the Fund refers to the income generated by an investment in
the Fund over a 30-day or one month period, and is computed by dividing the net
investment income per share earned during the period by the net asset value per
share at the end of the period, then adjusting the result to provide for
semi-annual compounding.
More information about the Fund's recent and historical performance is
contained in the Fund's Annual Report to ^ Shareholders. You can get a free copy
by calling or writing to IFG using the telephone number or address on the cover
of this prospectus.
<PAGE>
When we quote mutual fund rankings published by Lipper Analytical Services,
Inc., we may compare the Fund to others in its category of U.S. Government
Funds, as well as the broad-based Lipper general fund groupings. These rankings
allow you to compare the Fund to its peers. Other independent financial media
also produce performance- or service-related comparisons, which you may see in
our promotional materials. For more information see "Fund Performance" in the
Statement of Additional Information.
Performance figures are based on historical investment results and are not
intended to suggest future performance.
HOW TO BUY SHARES
The following chart ^ shows several convenient ways to invest in the Fund.
Your new Fund shares will be priced at the NAV next determined after your order
is received in proper form. There is no charge to invest, exchange, or redeem
shares when you make transactions directly through IFG. However, if you invest
in the Fund through a securities broker, you may be charged a commission or
transaction fee. For all new accounts, please send a completed application form.
Please specify which Fund you wish to purchase.
Fund Management reserves the right to increase, reduce or waive the minimum
investment requirements in its sole discretion, where it determines this action
is in the best interests of the Fund. Further, Fund Management reserves the
right in its sole discretion to reject any order for the purchase of Fund shares
(including purchases by exchange) when, in its judgment, such rejection is in
the Fund's best interests.
HOW TO BUY SHARES
================================================================================
Method Investment Minimum Please Remember
- --------------------------------------------------------------------------------
By Check $1,000 for regular If your check does
Mail to: account; $250 for not clear, you will
INVESCO Funds an Individual be responsible for
Group, Inc. Retirement Account; any related loss
P.O. Box 173706 $50 minimum for the Fund or IFG
Denver, CO 80217- each subsequent incurs. If you are
3706. investment. already a
Or you may send shareholder in the
your check by INVESCO funds, the
overnight courier Fund may seek
to: 7800 E. Union reimbursement from
Ave., your existing
Denver, CO 80237. account(s) for any
loss incurred.
<PAGE>
- --------------------------------------------------------------------------------
By Telephone or $1,000. Payment must be
Wire received within 3
Call 1-800-525-8085 business days, or
to request your the transaction may
purchase. Then send be cancelled. If a
your check by purchase is
overnight courier cancelled due to
to our street nonpayment, you
address: will be responsible
7800 E. Union Ave., for any related
Denver, CO 80237. loss the Fund or
Or you may transmit IFG incurs. If you
your payment by are already a
bank wire (call IFG shareholder in the
for instructions). INVESCO funds, the
Fund may seek
reimbursement from
your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
With EasiVest or $50 per month for Like all regular
Direct Payroll EasiVest; $50 per investment plans,
Purchase pay period for neither EasiVest
You may enroll on Direct Payroll nor Direct Payroll
the fund Purchase. You may Purchase ensures a
application, or start or stop your profit or protects
call us for the regular investment against loss in a
correct form and plan at any time, falling market.
more details. with two weeks' Because you'll
Investing the same notice to IFG. invest continually,
amount on a monthly regardless of
basis allows you to varying price
buy more shares levels, consider
when prices are low your financial
and fewer shares ability to keep
when prices are buying through low
high. This "dollar- price levels. And
cost averaging" may remember that you
help offset market will lose money if
fluctuations. Over you redeem your
a period of time, shares when the
your average cost market value of all
per share may be your shares is less
less than the than their cost.
actual average
price per share.
<PAGE>
- --------------------------------------------------------------------------------
By PAL $1,000. Be sure to write
Your "Personal down the
Account Line" is confirmation number
available for provided by PAL.
subsequent Payment must be
purchases and received within 3
exchanges 24-hours business days, or
a day. Simply call the transaction may
1-800-424-8085. be cancelled. If a
telephone purchase
is cancelled due to
nonpayment, you
will be responsible
for any related
loss the Fund or
IFG incurs. If you
are already a
shareholder in the
INVESCO funds, the
Fund may seek
reimbursement from
your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
By Exchange $1,000 to open a See "Exchange
Between this and new account; $50 Privilege," ^ page
another of the for written 9.
INVESCO funds. Call requests to
1-800-525-8085 for purchase additional
prospectuses of shares for an
other INVESCO existing account.
funds. You may also (The exchange
establish an minimum is $250 for
Automatic Monthly purchases requested
Exchange service by telephone.)
between two INVESCO
funds; call IFG for
further details and
the correct form.
================================================================================
Your order to purchase Fund shares will not begin earning dividends or
other distributions until your payment can be converted into available federal
funds under regular banking procedures or, if you are acquiring shares in an
exchange from another INVESCO fund, the Fund receives the proceeds of the
exchange. Checks normally are converted into federal funds (moneys held on
deposit within the Federal Reserve System) within two or three business days
after we receive them, although this period may be longer for checks drawn on
banks that are not members of the Federal Reserve System.
<PAGE>
Exchange Privilege. You may exchange your shares in this Fund for those in
another INVESCO fund, on the basis of their respective net asset values at the
time of the exchange. Before making any exchange, be sure to review the
prospectuses of the funds involved and consider their differences.
Please note these policies regarding exchanges of fund shares:
1) The fund accounts must be identically registered.
2) You may make four exchanges out of each fund during each
calendar year.
3) An exchange is the redemption of shares from one fund followed by
the purchase of shares in another. Therefore, any gain or loss
realized on the exchange is recognizable for federal income tax
purposes (unless, of course, your account is tax-deferred).
4) The Fund reserves the right to reject any exchange
request, or to modify or terminate exchange privileges,
in the best interests of the Fund and its shareholders.
Notice of all such modifications or termination will be
given at least 60 days prior to the effective date of the
change in privilege, except for unusual instances (such
as when redemptions of the exchanged shares are suspended
under Section 22(e) of the Investment Company Act of
1940, or when sales of the fund into which you are
exchanging are temporarily stopped).
Distribution Expenses. The Fund is authorized under a Plan and Agreement
of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Plan") to use its assets to finance certain activities relating to the
distribution of shares. These expenditures may include compensation (including
incentive compensation and/or continuing compensation based on the amount of
customer assets maintained in the Fund) to securities dealers and other
financial institutions and organizations, which may include IFG-affiliated
companies, to obtain various distribution-related and/or administrative services
for the Fund. Such services may include, among other things, processing new
shareholder account applications, preparing and transmitting to the Fund's
transfer agent computer-processable tapes of all transactions by customers, and
serving as the primary source of information to customers in answering questions
concerning the Fund and their transactions.
In addition, other reimbursable expenditures include advertising,
preparation and distribution of sales literature, printing and distribution of
prospectuses to prospective investors, public relations efforts, marketing
programs and such other services and promotional activities agreed upon from
time to time by the Fund and its board of directors. These services and
activities may be conducted by the staff of IFG or its affiliates or by third
parties.
<PAGE>
IFG is not entitled to reimbursement for overhead expenses under the Plan,
but may be reimbursed for all or a portion of the compensation paid for salaries
and other employee benefits for IFG personnel whose primary responsibilities
involve marketing shares of the INVESCO funds, including the Fund. Also, any
payments made by the Fund may not be used to finance the distribution of shares
of any other mutual fund advised by IFG. Payments made by the Fund under the
Plan for compensation of marketing personnel, as noted above, are based on an
allocation formula designed to ensure that all such payments are appropriate.
Under the Plan, the Fund's reimbursement to IFG is limited to an amount
computed at a maximum annual rate of 0.25% of the Fund's average net assets.
Payments by the Fund under the Plan, for any month, may only be made to
reimburse expenditures incurred during the rolling 12-month period in which that
month falls. Therefore, any reimbursable expenses incurred by IFG in excess of
the limitation described above are not reimbursable and will be borne by IFG. In
addition, IFG may from time to time make additional payments from its revenues
to securities dealers and other financial institutions that provide
distribution-related and/or administrative services for the Fund. No further
payments will be made by the Fund under the Plan in the event of its
termination.
FUND SERVICES
Shareholder Accounts. IFG will maintain a share account that reflects your
current holdings. Share certificates will be issued only upon specific request.
You will have greater flexibility to conduct transactions if you do not request
certificates.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges, and redemptions. If you choose certain
recurring transaction plans (for instance, EasiVest), your transactions will be
confirmed on your quarterly Investment Summary.
Investment Summaries. Each calendar quarter, shareholders receive a written
statement which consolidates and summarizes account activity and value at the
beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and capital gain distributions are
automatically invested in additional fund shares at the NAV on the ex-dividend
date, unless you choose to have dividends and/or capital gain distributions
automatically reinvested in another INVESCO fund or paid by check (minimum of
$10.00).
<PAGE>
Telephone Transactions. All shareholders may exchange and redeem Fund
shares by telephone, unless they expressly decline these privileges. By signing
the new account Application, a Telephone Transaction Authorization Form, or
otherwise using these privileges, the investor has agreed that, if the Fund has
followed reasonable procedures, such as recording telephone instructions and
sending written transaction confirmations, it will not be liable for following
telephoned instructions that it believes to be genuine. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions.
Retirement Plans and IRAs. Fund shares may be purchased for Individual
Retirement Accounts ("IRAs") and many types of tax-deferred retirement plans.
IFG can supply you with information and forms to establish or transfer your
existing plan or account.
HOW TO SELL SHARES
The following chart shows several convenient ways to redeem your Fund
shares. Shares of the Fund may be redeemed at any time at their current NAV next
determined after a request in proper form is received at the Fund's office. The
NAV at the time of the redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the Fund's investment
performance.
Please specify from which fund you wish to redeem shares. Shareholders have
a separate account for each fund in which they invest.
HOW TO SELL SHARES
================================================================================
Method Minimum Redemption Please Remember
================================================================================
By Telephone $250 (or, if less, These telephone
Call us toll-free full liquidation of redemption
at 1-800-525-8085. the account) for a privileges may be
redemption check; modified or
$1,000 for a wire terminated in the
to bank of record. future at the
The maximum amount discretion of IFG.
which may be
redeemed by
telephone is
generally $25,000.
- --------------------------------------------------------------------------------
In Writing Any amount. The If the shares to be
Mail your request redemption request redeemed are
to INVESCO Funds must be signed by represented by
Group, Inc., P.O. all registered stock certificates,
Box 173706 shareholders(s). the certificates
Denver, CO 80217- Payment will be must be sent to
3706. You may also mailed to your IFG.
<PAGE>
send your request address of record,
by overnight or to a pre-
courier to 7800 E. designated bank.
Union Ave., Denver,
CO 80237.
- --------------------------------------------------------------------------------
By Exchange $1,000 to open a See "Exchange
Between this and new account; $50 Privilege," page ^
another of the for written 9.
INVESCO funds. Call requests to
1-800-525-8085 for purchase additional
prospectuses of shares for an
other INVESCO existing account.
funds. You may also (The exchange
establish an minimum is $250 for
automatic monthly exchanges requested
exchange service by telephone.)
between two INVESCO
funds; call IFG for
further details and
the correct form.
- --------------------------------------------------------------------------------
Periodic Withdrawal $100 per payment, You must have at
Plan on a monthly or least $10,000 total
You may call us to quarterly basis. invested with the
request the The redemption INVESCO funds, with
appropriate form check may be made at least $5,000 of
and more payable to any that total invested
information at 1- party you in the fund from
800-525-8085. designate. which withdrawals
will be made.
- --------------------------------------------------------------------------------
Payment To Third Any amount. All registered
Party owners of the
Mail your request account must sign
to INVESCO Funds the request, with a
Group, Inc., P.O. signature guarantee
Box 173706 from an eligible
Denver, CO 80217- guarantor financial
3706. institution, such
as a commercial
bank or recognized
national or
regional securities
firm.
================================================================================
While the Fund will attempt to process telephone redemptions promptly,
there may be times -- particularly in periods of severe economic or market
disruption -- when you may experience delays in redeeming shares by phone.
<PAGE>
Payments of redemption proceeds will be mailed within seven days following
receipt of the redemption request in proper form. However, payment may be
postponed under unusual circumstances -- for instance, if normal trading is not
taking place on the New York Stock Exchange or during an emergency as defined by
the Securities and Exchange Commission. If your shares were purchased by a check
which has not yet cleared, payment will be made promptly upon clearance of the
purchase check (which may take up to 15 days).
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate any
further EasiVest purchases unless you instruct us otherwise.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to involuntarily redeem all shares in such
account, in which case the account would be liquidated and the proceeds
forwarded to the shareholder. Prior to any such redemption, a shareholder will
be notified and given 60 days to increase the value of the account to $250 or
more.
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders substantially all of
its net investment income and net capital gains, if any, in order to continue to
qualify for tax treatment as a regulated investment company. Thus, the Fund does
not expect to pay any federal income or excise taxes.
Unless shareholders are exempt from income taxes, they must include all
dividends and capital gain distributions in taxable income for federal, state,
and local income tax purposes. Dividends and other distributions are taxable
whether they are received in cash or automatically distributed in shares of the
Fund or another fund in the INVESCO group.
Shareholders may be subject to backup withholding of 31% on dividends,
capital gain distributions and redemption proceeds. Unless you are subject to
backup withholding for other reasons, you can avoid backup withholding on your
Fund account by ensuring that we have a correct, certified tax identification
number.
Dividends and Capital Gain Distributions. The Fund earns ordinary or net
investment income in the form of dividends and interest on its investments. The
Fund's policy is to distribute substantially all of this income, less Fund
expenses, to shareholders on a monthly basis, at the discretion of the Company's
board of directors.
In addition, the Fund realizes capital gains and losses when it sells
securities for more or less than it paid. If total gains on sales exceed total
losses (including losses carried forward from previous years), the Fund has a
net realized capital gain. Net realized capital gains, if any, are distributed
to shareholders at least annually, usually in December.
Dividends and capital gain distributions are paid to shareholders who hold
shares on the record date of distribution regardless of how long the shares have
been held. The Fund's share price will then drop by the amount of the
distribution on the day the distribution is made. If a shareholder purchases
<PAGE>
shares immediately prior to the distribution, the shareholder will, in
effect, have "bought" the distribution by paying the full purchase price, a
portion of which is then returned in the form of a taxable distribution.
At the end of each year, information regarding the tax status of dividends
and capital gain distributions is provided to shareholders. Net realized capital
gains are divided into short-term and long-term gains depending upon how long
the Fund held the security which gave rise to the gains. The capital gains
distribution consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest as ordinary income and are paid to shareholders as taxable dividends.
Shareholders also may realize capital gains or losses when they sell their
Fund shares at more or less than the price originally paid.
We encourage you to consult a tax adviser with respect to these matters.
For further information see "Dividends, Capital Gain Distributions and Taxes" in
the Statement of Additional Information.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Company have equal voting rights based on
one vote for each share owned. Voting with respect to certain matters, such as
ratification of independent accountants and the election of directors, will be
by all the funds of the Company voting together. In other cases, such as voting
upon an investment advisory contract, voting is on a fund-by-fund basis. To the
extent permitted by law, when not all funds are affected by a matter to be voted
upon, only shareholders of the fund or funds affected by the matter will be
entitled to vote thereon. The Company is not generally required and does not
expect to hold regular annual meetings of shareholders. However, when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Company or as may be required by applicable law or the Company's Articles of
Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Company. The Fund will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
<PAGE>
INVESCO U.S. GOVERNMENT SECURITIES FUND
A no-load mutual fund seeking a high level of
current income from government and government
agency debt obligations.
PROSPECTUS
^ January 1, 1997
To receive general information and prospectuses on any of INVESCO's funds
or retirement plans, or to obtain current account or price information or
responses to other questions, call toll-free:
1-800-525-8085
To reach PAL, your 24-hour Personal Account Line call:
1-800-424-8085
You can find us on the World Wide Web:
http://www.invesco.com
Or write to:
INVESCO Funds Group, Inc., Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street;
Denver Tech Center
7800 East Union Avenue
Lobby Level
<PAGE>
PROSPECTUS
^ January 1, 1997
INVESCO SHORT-TERM BOND FUND
INVESCO Short-Term Bond Fund (the "Fund") is actively managed to seek the
highest level of current income as is consistent with minimum fluctuation in
principal value and with maintaining liquidity. The Fund invests in a
diversified portfolio of short-and intermediate-term debt obligations issued by
corporations, as well as the U.S. government and its agencies, with a
dollar-weighted average maturity of not more than three years.
This prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated ^ January 1, 1997 has been filed with the Securities and
Exchange Commission and is incorporated by reference into this prospectus. To
obtain a free copy, write to INVESCO Funds Group, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; on the World Wide Web: http://www.invesco.com; or call
1-800-525-8085.
<PAGE>
CONTENTS
ESSENTIAL INFORMATION...................................................... 2
ANNUAL FUND EXPENSES....................................................... 3
FINANCIAL HIGHLIGHTS....................................................... 4
INVESTMENT OBJECTIVE AND STRATEGY.......................................... 5
INVESTMENT POLICIES AND RISKS.............................................. 5
THE FUND AND ITS MANAGEMENT................................................ 7
FUND PRICE AND PERFORMANCE................................................. 9
HOW TO BUY SHARES.......................................................... 10
FUND SERVICES.............................................................. 12
HOW TO SELL SHARES......................................................... 13
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS............................ 14
ADDITIONAL INFORMATION..................................................... 15
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
<PAGE>
ESSENTIAL INFORMATION
Investment Goal And Strategy. INVESCO Short-Term Bond Fund is a diversified
mutual fund that seeks to achieve the highest level of current income as is
consistent with minimum fluctuation in principal value and with maintaining
liquidity. The Fund invests in corporate and government and government agency
debt securities; the average dollar-weighted maturity of holdings is no more
than three years. There is no guarantee that the Fund will meet its objective.
See "Investment Objective And Strategy."
Designed For: Investors seeking higher yields than those available from
shorter-term, higher quality money market funds and who can tolerate modest
price fluctuations. While not a complete investment program, the Fund may be a
valuable element of your investment portfolio. You may also wish to consider the
Fund as part of a Uniform Gifts/Transfers to Minors Account or systematic
investment strategy. The Fund may be a suitable investment for tax-sheltered
retirement programs such as the IRA, SEP-IRA, SARSEP, 401(k), Profit Sharing,
Money Purchase Pension, or 403(b) plans.
Time Horizon. The Fund is primarily managed for current income. Investors
should not consider this Fund for the portion of their savings devoted to
long-term capital appreciation.
Risks. The Fund uses a moderate investment strategy, focusing on
shorter-term obligations which fluctuate less in value than long-term bonds, but
may hold securities rated below investment grade. The Fund's investments are
subject to credit risk and market risk, both of which are increased by investing
in lower rated securities. The Fund will not provide the same stability of
principal as money market funds. See "Investment Policies and Risks."
Organization and Management. The Fund is a series of INVESCO Income Funds,
Inc. (the "Company"), a diversified, managed, no-load mutual fund. The Fund is
owned by its shareholders. It employs INVESCO Funds Group, Inc. ("IFG"), founded
in 1932, to serve as investment adviser, administrator, distributor, and
transfer agent; and INVESCO Trust Company ("INVESCO Trust"), founded in 1969, as
sub-adviser. Together, IFG and INVESCO Trust constitute "Fund Management."
The Fund's investments are selected by two INVESCO portfolio managers:
INVESCO ^ Senior Vice President Donovan J. (Jerry) Paul and INVESCO ^ Vice
President Richard R. Hinderlie. Mr Paul, a Chartered Financial Analyst, holds an
MBA from the University of Northern Iowa and a BBA from the University of Iowa.
Mr. Hinderlie earned his MBA from Arizona State University and his BA from
Pacific Lutheran University.
<PAGE>
IFG and INVESCO Trust are part of a global firm that managed approximately
$74 billion as of June 30, 1995. The parent company, INVESCO PLC, is based in
London, with money managers located in Europe, North America, and the Far East.
This Fund offers all of the following services at no charge:
-----------------------------------------------------------
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
Regular investment plans such as EasiVest (the Fund's
automatic monthly investment program), Direct Payroll
Purchase, and Automatic Monthly Exchange
Periodic withdrawal plans
See "How To Buy Shares" and "How To Sell Shares."
Minimum Initial Investment: $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase and certain retirement
plans.
Minimum Subsequent Investment: $50 ^(Minimums are lower for certain
retirement plans).
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares. The Fund, however, is authorized to pay a Rule 12b-1 distribution fee of
up to one quarter of one percent of the Fund's average net assets, each year.
(See "How To Buy Shares --Distribution Expenses.")
Like any company, the Fund has operating expenses -- such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts, and other expenses. These expenses are paid from the Fund's assets.
Lower expenses therefore benefit investors by increasing the Fund's investment
return.
We calculate annual operating expenses as a percentage of the Fund's
average annual net assets. To keep expenses competitive, the Fund's manager
voluntarily reimbursed the Fund for amounts in excess of 0.75% of average net
assets from May 1, 1995 through April 30, 1996, and reimburses the Fund for
amounts in excess of 0.80% of average net assets effective May 1, 1996.
<PAGE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.50%
12b-1 Fees 0.25%
Other Expenses 0.05%
Total Fund Operating Expenses (1) (2) 0.80%
(1) ^ It should be noted that the Fund's actual total operating expenses were
lower than the figures shown because the Fund's custodian ^ and pricing expenses
were reduced under an expense offset arrangement. However, as a result of ^ an
SEC requirement, the figures shown above do not reflect these reductions. In
comparing expenses for different years, please note that the ratios of Expenses
to Average Net Assets shown under "Financial Highlights" do reflect reductions
for periods prior to the fiscal year ended August 31, 1996. See "The Fund and
Its Management."
(2) Certain Fund expenses are being voluntarily absorbed by INVESCO Funds
Group, Inc. ("IFG"). In the absence of such absorbed expenses, the Fund's "Other
Expenses" and "Total Fund Operating Expenses" would have been 1.42% and 2.17%,
respectively, based on the Fund's actual expenses for the fiscal year ended
August 31, 1996. See "The Fund and Its Management."
Example
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming a hypothetical 5% annual return and redemption at
the end of each time period. (Of course, actual operating expenses are paid from
the Fund's assets, and are deducted from the amount of income available for
distribution to shareholders; they are not charged directly to shareholder
accounts.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$8 $26 $45 $99
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE OR EXPENSES,
AND ACTUAL ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
For more information on the Fund's expenses, see "The Fund and Its Management"
and "How to Buy Shares -- Distribution Expenses."
Since the Fund pays a distribution fee, investors who own Fund shares for a
long period of time may pay more than the economic equivalent of the maximum
front-end sales charge permitted for mutual funds by the National Association of
Securities Dealers, Inc.
*The expense information in the above tables has been presented on a basis
that assumes that the Fund's current 0.80% expense limitation had been in effect
during the entire year ended August 31, 1996.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by Price Waterhouse LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the independent accountant's report thereon
appearing in the Fund's 1996 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IFG at the address or telephone number on
the cover of this prospectus. The Annual Report also contains more information
about the Fund's performance.
Period
Ended
Year Ended August 31 August 31
---------------------- ---------
1996 1995 1994^
PER SHARE DATA
Net Asset Value -
Beginning of Period $9.54 $9.46 $10.00
---------------------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.56 0.57 0.47
Net Gains or (Losses)
on Securities (Both Realized
and Unrealized) (0.13) 0.08 (0.54)
---------------------- --------
Total from Investment Operations 0.43 0.65 (0.07)
---------------------- --------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.56 0.57 0.47
---------------------- --------
Net Asset Value
End of Period $9.41 $ 9.54 $ 9.46
====================== ========
TOTAL RETURN 4.63% 7.16% (0.72%)*
RATIOS
Net Assets - End of Period
($000 Omitted) $10,735 $8,979 $7,878
Ratio of Expenses to Average
Net Assets# 0.80%@ 0.46% 0.46%~
<PAGE>
Ratio of Net Investment
Income to Average
Net Assets# 5.85% 6.05% 5.50%~
Portfolio Turnover Rate 103% 68% 169%*
^ 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 that $0.01 on a per share basis.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG and ITC for
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 2.17%, 2.09% and 2.04% (annualized),
respectively, and ratio of net investment income to average net assets would
have been 4.48%, 4.42% and 3.92% (annualized), respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
The Fund seeks to achieve the highest level of current income as is
consistent with minimum fluctuation in principal value and with maintaining
liquidity. This investment objective is fundamental and cannot be changed
without the approval of the Fund's shareholders. There is no assurance that the
Fund's investment objective will be met.
The Fund normally invests at least 65% of its total assets in bonds and
debentures. The Fund may invest in all types of variable and fixed rate
corporate, government and government agency debt securities. The government and
government agency securities in which the Fund invests may or may not be backed
by the full faith and credit of the United States.
Holdings are selected primarily from two maturity ranges: short-term
(obligations maturing in under three years) and intermediate-term (obligations
maturing in three to 10 years). The Fund maintains a diversified portfolio with
a dollar-weighted average maturity of three years or less. This average is based
on the actual stated maturity dates of the debt securities in the Fund's
portfolio, except for debt securities having special features that give them the
characteristics of shorter-term obligations. For example, variable rate
securities, on which coupon rates of interest are adjusted on specified dates in
response to changes in interest rates, are deemed to mature at their next
interest rate adjustment date. In addition, debt securities with "put" features
entitling the Fund to repayment of principal on specified dates are deemed to
mature at the next put exercise date. When Fund Management deems it appropriate,
the Fund may invest in debt securities having maturities in excess of 10 years.
Debt securities will be selected based on Fund Management's assessment of
interest rate trends and the liquidity of various instruments under prevailing
market conditions. The potential for capital appreciation is an incidental
factor that also may be considered. When we believe market or economic
conditions are adverse, the Fund may seek to protect its assets by investing to
a greater extent in cash securities and shorter-term securities such as
commercial paper and notes, bank certificates of deposit and other financial
institution obligations and repurchase agreements.
INVESTMENT POLICIES AND RISKS
Investors should expect to see their price per share vary with moves in the
stock market, economic conditions and other factors. Fund Management seeks to
temper volatility through diversification and credit analysis, as well as by
maintaining an average dollar-weighted maturity of three years or less. These
strategies can help reduce, but not eliminate, market and credit risk.
Corporate Debt Securities. When we assess an issuer's ability to meet its
interest rate obligations and repay its debt when due, we are referring to
"credit risk." Debt obligations are rated based on their estimated credit risk
by independent services such as Standard & Poor's Ratings Services, a division
of McGraw-Hill Companies, Inc. ("S&P"), Moody's Investors Service Inc.
<PAGE>
("Moody's"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc.
("D&P"). "Market risk" refers to sensitivity to changes in interest rates: For
instance, when interest rates go up, the market value of a previously issued
bond generally declines; on the other hand, when interest rates go down, bonds
generally see their prices increase.
The lower a bond's quality rating, the more it is believed by the rating
service to be subject to credit risk and market risk and the more speculative it
becomes; this is also true of most unrated securities. Therefore, the Fund does
not invest in obligations it believes to be highly speculative. Corporate bonds
rated investment grade (AAA, AA, A or BBB by S&P, Fitch, or D&P or, Aaa, Aa, A
or Baa by Moody's) are believed to enjoy strong to adequate capacity to pay
principal and interest. No more than 15% of the Fund's total assets may be
invested in issues rated below investment grade quality (commonly called "junk
bonds," and rated BB or below by S&P, Fitch or D&P or Ba or below by Moody's);
these include issues which are of poorer quality and may have speculative
characteristics, according to the ratings services. Never, under any
circumstances, does the Fund invest in securities rated below B. Although bonds
rated B are believed to have the current capacity to meet principal and interest
payments, they are believed to be subject to a greater extent than higher rated
instruments, to the risk that adverse business, financial or economic conditions
will impair this capacity. In addition, the Fund may invest in corporate
short-term notes rated at least A-1 by S&P, Prime-1 by Moody's, F-1 by Fitch or
Duff 1 by D&P, and municipal short-term notes rated at least SP-1 by S&P, MIG-1
by Moody's, F-1 by Fitch or Duff 1 by D&P (the highest rating categories for
such notes). Overall, these securities enjoy strong to adequate capacity to pay
principal and interest. While Fund Management continuously monitors all of the
corporate bonds in the Fund's portfolio for the issuer's ability to make
required principal and interest payments and other quality factors, it may
retain a bond whose rating is changed to one below the minimum rating required
for purchase of the security. For more information on the foregoing bond rating
categories, see the Statement of Additional Information.
For the fiscal year ended August 31, 1996, the following percentages of the
Fund's total assets were invested in corporate bonds rated investment grade (BBB
by S&P or Baa by Moody's and above) at the time they were purchased: AAA --
0.00%; AA -- 0.00%; A -- 27.89%; and BBB -- 7.75%, and the following percentages
were invested in corporate bonds rated below investment grade at the time of
purchase: BB -- 2.57%; B -- 2.24%; CCC -- 0.00%; and D -- 0.00%. Finally, none
of the Fund's total assets were invested in unrated corporate bonds. All of
these percentages were determined on a dollar-weighted basis, calculated by
averaging the Fund's month-end portfolio holdings during the fiscal year. Keep
in mind that the Fund's holdings are actively traded, and bond ratings are
occasionally adjusted by ratings services, so these figures do not represent the
Fund's actual holdings or quality ratings as of August 31, 1996.
The Fund's investments in debt securities may include investments in zero
coupon bonds, step-up bonds, mortgage-backed securities and asset-backed
securities. Zero coupon bonds ("zeros") make no periodic interest payments.
Instead, they are sold at a discount from their face value. The buyer of the
zero receives the rate of return by the gradual appreciation in the price of the
security, which is redeemed at face value at maturity. Zeros can be originally
issued in zero coupon form or created by separating the interest and principal
components of outstanding securities. Step-up bonds initially make no (or low)
<PAGE>
cash interest payments, but begin paying interest (or a higher rate of
interest) at a fixed time after issuance of the bond. Being extremely responsive
to changes in interest rates, the market prices of both zeros and step-up bonds
may be more volatile than other bonds. The Fund may be required to distribute
income recognized on these bonds, even though no cash interest payments may be
received, which could reduce the amount of cash available for investment by the
Fund.
Mortgage-backed securities represent interests in pools of mortgages.
Asset-backed securities generally represent interests in pools of consumer
loans. Both usually are structured as pass-through securities. Interest and
principal payments ultimately depend on payment of the underlying loans,
although the securities may be supported, at least in part, by letters of credit
or other credit enhancements or, in the case of mortgage-backed securities,
guarantees by the U.S. government, its agencies or instrumentalities. The
underlying loans are subject to prepayments that may shorten the securities'
weighted average lives and may lower their return.
The Fund also may invest in stripped mortgage- or asset-backed securities,
in which the principal and interest payments on the underlying pool of loans are
separated or "stripped" to create two classes of securities. In general, the
interest-only, or IO, class receives all of the interest payments and the
principal-only, or PO, class receives all of the principal payments. The market
prices of these securities generally are more sensitive to changes in interest
and prepayment rates than traditional mortgage and asset-backed securities, such
purchases are used to help the Fund maintain stability.
Foreign Securities. The Fund's investments in debt obligations may include
securities issued by foreign governments and foreign corporations. Up to 25% of
the Fund's total assets, measured at the time of purchase, may be invested
directly in foreign debt securities; securities of Canadian issuers are not
subject to this limitation. See "Investment Policies and Restrictions" in the
Statement of Additional Information for a discussion of the risks involved in
investing in foreign debt securities.
Rule 144A Securities. The Fund may not purchase securities that are not
readily marketable. However, the Fund may purchase certain securities that are
not registered for sale to the general public, but that can be resold to
institutional investors ("Rule 144A Securities") if a liquid trading market
exists. For more information concerning Rule 144A Securities, see "Investment
Policies and Restrictions" in the Statement of Additional Information.
Interest Rate Futures Contracts. The Fund may buy and sell interest rate
futures contracts relating to the debt securities in which it invests for the
purpose of hedging the value of its securities portfolio. These practices and
their risks are discussed under "Investment Policies and Restrictions" in the
Statement of Additional Information.
Delayed Delivery or When-Issued Purchases. Debt securities may at times be
purchased or sold by the Fund with settlement taking place in the future. The
Fund may invest up to 10% of its net assets in when-issued securities. The
payment obligation and the interest rate that will be received on the securities
generally are fixed at the time the Fund enters into the commitment. Between the
date of purchase and the settlement date, the value of the securities is subject
to market fluctuations, and no interest is payable to the Fund prior to the
settlement date.
<PAGE>
Securities Lending. The Fund may seek to earn additional income by lending
securities to qualified brokers, dealers, banks, or other financial
institutions, on a fully collateralized basis. For further information on this
policy, see "Investment Policies and Restrictions" in the Statement of
Additional Information.
Repurchase Agreements. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price. The Fund could incur costs or delays in seeking to sell
the security if the prior owner defaults on its repurchase obligation. To reduce
that risk, the securities underlying each repurchase agreement will be
maintained with the Fund's custodian in an amount at least equal to the
repurchase price under the agreement (including accrued interest). These
agreements are entered into only with member banks of the Federal Reserve
System, registered broker-dealers, and registered U.S. government securities
dealers that are deemed creditworthy under standards set by the Company's board
of directors.
Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover for the Fund; securities may be sold without regard to the time they
have been held when investment considerations warrant such action. Increased
turnover may result in greater brokerage commissions and acceleration of capital
gains which are taxable when distributed to shareholders. The Statement of
Additional Information includes an expanded discussion of the Fund's portfolio
turnover rate, its brokerage practices and certain federal income tax matters.
For a further discussion of risks associated with an investment in the
Fund, see "Investment Policies and Restrictions" and "Investment Practices" in
the Statement of Additional Information.
Investment Restrictions. Certain restrictions, which are set forth in the
Statement of Additional Information, may not be altered without the approval of
the Fund's shareholders. For example, the Fund limits to 5% the portion of its
total assets that may be invested in a single issuer, and to 25% the portion
that may be invested in any one industry (other than U.S. government
securities). The Fund's ability to borrow money is limited to borrowings from
banks for temporary or emergency purposes in amounts not exceeding 10% of net
assets. Except where indicated to the contrary, the investment objectives and
policies described in this prospectus are not fundamental and may be changed
without a vote of the Fund's shareholders.
THE FUND AND ITS MANAGEMENT
On November 4, 1996, an Agreement and Plan of Merger among INVESCO PLC,
INVESCO Group Services, Inc. ("Services") and AIM Management Group, Inc. ("AIM")
was signed under which AIM will be merged with Services. When this merger takes
effect, which is expected to occur in the first part of 1997, the Fund's
Investment Advisory, Sub-Advisory, Distribution, Administrative Services,
Transfer Agency and Rule 12b-1 Agreements (the "Agreements") will automatically
terminate. Consummation of this merger is conditional, among other things, on
<PAGE>
new Agreements, essentially identical to the existing Agreements, including
the provisions governing fees, being presented to and approved by, the Company's
board of directors, and, where necessary, the Fund's shareholders prior to this
merger taking effect. The meeting of the Fund's shareholders to consider
approving the necessary new Agreements is expected to occur in early 1997. Fund
Management anticipates that the key personnel responsible for providing services
to the Fund will remain unchanged.
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as a diversified, open-end, management investment company.
It was incorporated on August 20, 1976, under the laws of Colorado and was
reorganized as a Maryland corporation on April 2, 1993.
The Company's board of directors has responsibility for overall supervision
of the Fund, and reviews the services provided by the adviser and sub-adviser.
Under an agreement with the Company, INVESCO Funds Group, Inc. ("IFG"), 7800 E.
Union Avenue, Denver, Colorado 80237, serves as the Fund's investment manager;
it is primarily responsible for providing the Fund with various administrative
services. IFG's wholly-owned subsidiary, INVESCO Trust, is the Fund's
sub-adviser and is primarily responsible for managing the Fund's investments.
Together, IFG and INVESCO Trust constitute "Fund Management."
The following managers share responsibility for the day-to-day management
of the Fund's holdings:
Donovan J. (Jerry) Paul has served as co-portfolio manager for the Fund
since 1996. He is also the portfolio manager of the INVESCO High Yield Fund,
INVESCO Select Income Fund, and INVESCO VIF-High Yield Portfolio, as well as
co-portfolio manager of INVESCO Industrial Income Fund, INVESCO VIF-Industrial
Income Portfolio and INVESCO Balanced Fund. A Chartered Financial Analyst and
Certified Public Accountant, Mr. Paul is a senior vice president and director of
fixed-income research of INVESCO Trust. His investment career was launched in
1976, and has included these highlights: He was a senior vice president and
director of fixed-income research (1989 to 1992) and portfolio manager (1987 to
1992) with Stein, Roe & Farnham Inc; from 1993 to 1994, he was president of
Quixote Investment Management, Inc. He holds an MBA from the University of
Northern Iowa and a BBA from the University of Iowa.
Richard R. Hinderlie has served as co-portfolio manager for the Fund since
1996 and portfolio manager for the Fund from 1994 to 1996. He also manages
INVESCO U.S. Government Money Fund, INVESCO Cash Reserves Fund and INVESCO U.S.
Government Securities Fund. Mr. Hinderlie has been a vice president of INVESCO
Trust since 1996 and a portfolio manager since 1993. Before joining INVESCO
Trust, he was a securities analyst with Bank Western from 1987 to 1993. He
earned an MBA from Arizona State University and a BA from Pacific Lutheran
University.
Fund Management permits investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires Fund Management's personnel to conduct
their personal investment activities in a manner that Fund Management believes
is not detrimental to the Fund or Fund Management's other advisory clients. See
the Statement of Additional Information for more detailed information.
<PAGE>
The Fund pays IFG a monthly management fee which is based upon a percentage
of the Fund's average net assets determined daily; in turn, IFG pays INVESCO
Trust a sub-advisory fee out of its management fee. The management fee is
computed at the annual rate of 0.50% on the first $300 million of the Fund's
average net assets; 0.40% on the next $200 million of the Fund's average net
assets; and 0.30% on the Fund's average net assets over $500 million. For the
fiscal year ended August 31, 1996, investment management fees paid by the Fund
amounted to 0.50% (prior to the voluntary absorption of certain Fund expenses by
INVESCO) of its average net assets. Out of this fee, IFG paid an amount equal to
0.25% of the Fund's average net assets to INVESCO Trust as a sub- advisory fee.
No fee is paid by the Fund to INVESCO Trust.
Under a Transfer Agency Agreement, IFG acts as registrar, transfer agent,
and dividend disbursing agent for the Fund. The Fund pays an annual fee of
$26.00 per shareholder account or omnibus account participant for these
services. Registered broker-dealers, third party administrators of tax-qualified
retirement plans and other entities, including affiliates of IFG, may provide
equivalent services to the Fund. In these cases, IFG may pay, out of the fee it
receives from the Fund, an annual sub-transfer agency or record-keeping fee to
the third party.
In addition, under an Administrative Services Agreement, IFG handles
additional administrative, record-keeping, and internal sub-accounting services
for the Fund. For the fiscal year ended August 31, 1996, the Fund paid IFG a fee
for these services equal to 0.13% (prior to the voluntary absorption of certain
fund expenses by IFG) of the Fund's average net assets.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. Total expenses of the Fund (prior to any
expense offset) for the fiscal year ended August 31, 1996, including investment
management fees (but excluding brokerage commissions, which are a cost of
acquiring securities), amounted to 0.80% of the Fund's average net assets.
Certain Fund expenses are absorbed voluntarily by IFG pursuant to a commitment
to the Fund in order to ensure that the Fund's total operating expenses do not
exceed 0.75% of the Fund's average net assets (through April 30, 1996) and will
not exceed 0.80% of the Fund's average net assets (beginning May 1, 1996). This
commitment may be changed following consultation with the Company's board of
directors. In the absence of this voluntary expense limitation, the Fund's total
operating expenses would have been 2.17% of its average net assets.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of
their financial responsibility coupled with their ability to effect transactions
at the best available prices. As discussed under "How to Buy Shares --
Distribution Expenses," the Fund may market its shares through intermediary
brokers or dealers that have entered into Dealer Agreements with IFG, as the
Fund's Distributor. The Fund may place orders for portfolio transactions with
qualified broker-dealers that recommend the Fund, or sell shares of the Fund, to
clients, or act as agent in the purchase of Fund shares for clients, if Fund
Management believes that the quality of the execution of the transaction and
level of commission are comparable to those available from other qualified
brokerage firms. For further information, see "Investment Practices -- Placement
of Portfolio Brokerage" in the Statement of Additional Information.
<PAGE>
The parent company for IFG and INVESCO Trust is INVESCO PLC, a publicly
traded holding company whose subsidiaries provide investment services around the
world. IFG was established in 1932 and, as of August 31, 1996, managed 14 mutual
funds, consisting of 39 separate portfolios, with combined assets of
approximately $12.8 billion on behalf of over 827,000 shareholders. INVESCO
Trust (founded in 1969) served as adviser or sub-adviser to 46 investment
portfolios as of August 31, 1996, including 27 portfolios in the INVESCO group.
These 46 portfolios had aggregate assets of approximately $12.0 billion as of
August 31, 1996. In addition, INVESCO Trust provides investment management
services to private clients, including employee benefit plans that may be
invested in a collective trust sponsored by INVESCO Trust.
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the Fund will vary
daily. The price per share is also known as the Net Asset Value ("NAV"). IFG
prices the Fund every day that the New York Stock Exchange is open, as of the
close of regular trading (normally, 4:00 p.m., New York time). NAV is calculated
by adding together the current market value of all of the Fund's assets,
including accrued interest and dividends; then subtracting liabilities,
including accrued expenses; and finally dividing that dollar amount by the total
number of shares outstanding.
Performance Data. To keep shareholders and potential investors informed, we
will occasionally advertise the Fund's total return and yield. Total return
figures show the average annual rate of return on a $1,000 investment in the
Fund, assuming reinvestment of all dividends and capital gain distributions for
one-, five- and ten-year periods. Cumulative total return shows the actual rate
of return on an investment; average annual total return represents the average
annual percentage change in the value of an investment. Both cumulative and
average annual total returns tend to "smooth out" fluctuations in the Fund's
investment results, not showing the interim variations in performance over the
periods cited.
The yield of the Fund ^ is calculated by utilizing the Fund's calculated
income, expenses and average outstanding shares for the most recent 30-day or
one-month period, dividing it by the month end net asset value and annualizing
the resulting numbers.
More information about the Fund's recent and historical performance is
contained in the Fund's Annual Report to ^ Shareholders. You can get a free copy
by calling or writing to IFG using the telephone number or address on the cover
of this prospectus.
When we quote mutual fund rankings published by Lipper Analytical Services,
Inc., we may compare the Fund to others in its category of Short Investment
Grade Debt, as well as the broad-based Lipper general fund groupings. These
rankings allow you to compare the Fund to its peers. Other independent financial
media also produce performance- or service-related comparisons, which you may
see in our promotional materials. For more information see "Fund Performance" in
the Statement of Additional Information.
Performance figures are based on historical investment results and are not
intended to suggest future performance.
<PAGE>
HOW TO BUY SHARES
The following chart ^ shows several convenient ways to invest in the Fund.
Your new Fund shares will be priced at the NAV next determined after your order
is received in proper form. There is no charge to invest, exchange, or redeem
shares when you make transactions directly through IFG. However, if you invest
in the Fund through a securities broker, you may be charged a commission or
transaction fee. For all new accounts, please send a completed application form.
Please specify which Fund you wish to purchase.
Fund Management reserves the right to increase, reduce or waive the minimum
investment requirements in its sole discretion, where it determines this action
is in the best interests of the Fund. Further, Fund Management reserves the
right in its sole discretion to reject any order for the purchase of Fund shares
(including purchases by exchange) when, in its judgment, such rejection is in
the Fund's best interests.
<PAGE>
HOW TO BUY SHARES
================================================================================
Method Investment Minimum Please Remember
- --------------------------------------------------------------------------------
By Check $1,000 for regular If your check does
Mail to: account; $250 for not clear, you will
INVESCO Funds an Individual be responsible for
Group, Inc. Retirement Account any related loss
P.O. Box 173706 $50 minimum for the Fund or IFG
Denver, CO 80217- each subsequent incurs. If you are
3706. investment. already a
Or you may send shareholder in the
your check by INVESCO funds, the
overnight courier Fund may seek
to: 7800 E. Union reimbursement from
Ave., your existing
Denver, CO 80237. account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
By Telephone or $1,000. Payment must be
Wire received within 3
Call 1-800-525-8085 business days, or
to request your the transaction may
purchase. Then send be cancelled. If a
your check by purchase is
overnight courier cancelled due to
to our street nonpayment, you
address: will be responsible
7800 E. Union Ave., for any related
Denver, CO 80237. loss the Fund or
Or you may transmit IFG incurs. If you
your payment by are already a
bank wire (call IFG shareholder in the
for instructions). INVESCO funds, the
Fund may seek
reimbursement from
your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
With
EasiVest or $50 per month for Like all regular
Direct Payroll EasiVest; $50 per investment plans,
Purchase pay period for neither EasiVest
You may enroll on Direct Payroll nor Direct Payroll
the fund Purchase. You may Purchase ensures a
application, or start or stop your profit or protects
call us for the regular investment against loss in a
correct form and plan at any time, falling market.
more details. with two weeks' Because you'll
Investing the same notice to IFG. invest continually,
amount on a monthly regardless of
basis allows you to varying price
<PAGE>
- --------------------------------------------------------------------------------
buy more shares levels, consider
when prices are low your financial
and fewer shares ability to keep
when prices are buying through low
high. This "dollar- price levels. And
cost averaging" may remember that you
help offset market will lose money if
fluctuations. Over you redeem your
a period of time, shares when the
your average cost market value of all
per share may be your shares is less
less than the than their cost.
actual average
price per share.
- --------------------------------------------------------------------------------
By PAL $1,000. Be sure to write
Your "Personal down the
Account Line" is confirmation number
available for provided by PAL.
subsequent Payment must be
purchases and received within 3
exchanges 24-hours business days, or
a day. Simply call the transaction may
1-800-424-8085. be cancelled. If a
purchase is
cancelled due to
nonpayment, you
will be responsible
for any related
loss the Fund or
IFG incurs. If you
are already a
shareholder in the
INVESCO funds, the
Fund may seek
reimbursement from
your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
By Exchange $1,000 to open a See "Exchange
Between this and new account; $50 Privilege," below.
another of the for written
INVESCO funds. Call requests to
1-800-525-8085 for purchase additional
prospectuses of shares for an
other INVESCO existing account.
funds. You may also (The exchange
establish an minimum is $250 for
Automatic Monthly purchases requested
Exchange service by telephone.)
between two INVESCO
funds; call IFG for
further details and
the correct form.
================================================================================
<PAGE>
Your order to purchase Fund shares will not begin earning dividends or
other distributions until your payment can be converted into available federal
funds under regular banking procedures or, if you are acquiring shares in an
exchange from another INVESCO fund, the Fund receives the proceeds of the
exchange. Checks normally are converted into federal funds (moneys held on
deposit within the Federal Reserve System) within two or three business days
after we receive them, although this period may be longer for checks drawn on
banks that are not members of the Federal Reserve System.
Exchange Privilege. You may exchange your shares in this Fund for those in
another INVESCO fund, on the basis of their respective net asset values at the
time of the exchange. Before making any exchange, be sure to review the
prospectuses of the funds involved and consider their differences.
Please note these policies regarding exchanges of fund shares:
1) The fund accounts must be identically registered.
2) You may make four exchanges out of each fund during each calendar year.
3) An exchange is the redemption of shares from one fund followed by the
purchase of shares in another. Therefore, any gain or loss realized on the
exchange is recognizable for federal income tax purposes (unless, of course,
your account is tax-deferred).
4) The Fund reserves the right to reject any exchange request, or to modify
or terminate exchange privileges, in the best interests of the Fund and its
shareholders. Notice of all such modifications or termination will be given at
least 60 days prior to the effective date of the change in privilege, except for
unusual instances (such as when redemptions of the exchanged shares are
suspended under Section 22(e) of the Investment Company Act of 1940, or when
sales of the fund into which you are exchanging are temporarily stopped).
Distribution Expenses. The Fund is authorized under a Plan and Agreement of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Plan") to use its assets to finance certain activities relating to the
distribution of shares. These expenditures may include compensation (including
incentive compensation and/or continuing compensation based on the amount of
customer assets maintained in the Fund) to securities dealers and other
financial institutions and organizations, which may include IFG-affiliated
companies, to obtain various distribution-related and/or administrative services
for the Fund. Such services may include, among other things, processing new
shareholder account applications, preparing and transmitting to the Fund's
transfer agent computer-processable tapes of all transactions by customers, and
serving as the primary source of information to customers in answering questions
concerning the Fund and their transactions.
In addition, other reimbursable expenditures include advertising,
preparation and distribution of sales literature, printing and distribution of
prospectuses to prospective investors, public relations efforts, marketing
programs and such other services and promotional activities agreed upon from
time to time by the Fund and its board of directors. These services and
activities may be conducted by the staff of IFG or its affiliates or by third
parties.
<PAGE>
IFG is not entitled to reimbursement for overhead expenses under the Plan,
but may be reimbursed for all or a portion of the compensation paid for salaries
and other employee benefits for IFG personnel whose primary responsibilities
involve marketing shares of the INVESCO funds, including the Fund. Also, any
payments made by the Fund may not be used to finance the distribution of shares
of any other mutual fund advised by IFG. Payments made by the Fund under the
Plan for compensation of marketing personnel, as noted above, are based on an
allocation formula designed to ensure that all such payments are appropriate.
Under the Plan, the Fund's reimbursement to IFG is limited to an amount
computed at a maximum annual rate of 0.25% of the Fund's average net assets.
Payments by the Fund under the Plan, for any month, may only be made to
reimburse expenditures incurred during the rolling 12-month period in which that
month falls. Therefore, any reimbursable expenses incurred by IFG in excess of
the limitation described above are not reimbursable and will be borne by IFG. In
addition, IFG may from time to time make additional payments from its revenues
to securities dealers and other financial institutions that provide
distribution-related and/or administrative services for the Fund. No further
payments will be made by the Fund under the Plan in the event of its
termination.
FUND SERVICES
Shareholder Accounts. IFG will maintain a share account that reflects your
current holdings. Share certificates will be issued only upon specific request.
You will have greater flexibility to conduct transactions if you do not request
certificates.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges, and redemptions. If you choose certain
recurring transaction plans (for instance, EasiVest), your transactions will be
confirmed on your quarterly Investment Summary.
Investment Summaries. Each calendar quarter, shareholders receive a written
statement which consolidates and summarizes account activity and value at the
beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and capital gain distributions are
automatically invested in additional fund shares at the NAV on the ex-dividend
date, unless you choose to have dividends and/or capital gain distributions
automatically reinvested in another INVESCO fund or paid by check (minimum of
$10.00).
Telephone Transactions. All shareholders may exchange and redeem Fund
shares by telephone, unless they expressly decline these privileges. By signing
the new account Application, a Telephone Transaction Authorization Form, or
otherwise using these privileges, the investor has agreed that, if the Fund has
followed reasonable procedures, such as recording telephone instructions and
sending written transaction confirmations, it will not be liable for following
telephoned instructions that it believes to be genuine. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions.
<PAGE>
Retirement Plans and IRAs. Fund shares may be purchased for Individual
Retirement Accounts ("IRAs") and many types of tax-deferred retirement plans.
IFG can supply you with information and forms to establish or transfer your
existing plan or account.
HOW TO SELL SHARES
The above chart ^ shows several convenient ways to redeem your Fund shares.
Shares of the Fund may be redeemed at any time at their current NAV next
determined after a request in proper form is received at the Fund's office. The
NAV at the time of the redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the Fund's investment
performance.
Please specify from which fund you wish to redeem shares. Shareholders have
a separate account for each fund in which they invest.
HOW TO SELL SHARES
================================================================================
Method Minimum Redemption Please Remember
================================================================================
By Telephone $250 (or, if less, These telephone
Call us toll-free full liquidation of redemption
at 1-800-525-8085. the account) for a privileges may be
redemption check; modified or
$1,000 for a wire terminated in the
to bank of record. future at the
The maximum amount discretion of IFG.
which may be
redeemed by
telephone is
generally $25,000.
- --------------------------------------------------------------------------------
In Writing Any amount. The If the shares to be
Mail your request redemption request redeemed are
to INVESCO Funds must be signed by represented by
Group, Inc., P.O. all registered stock certificates,
Box 173706 shareholders(s). the certificates
Denver, CO 80217- Payment will be must be sent to
3706. You may also mailed to your IFG.
send your request address of record,
by overnight or to a pre-
courier to 7800 E. designated bank.
Union Ave., Denver,
CO 80237.
- --------------------------------------------------------------------------------
By Exchange $1,000 to open a See "Exchange
Between this and new account; $50 Privilege," page ^
another of the for written 10.
INVESCO funds. Call requests to
1-800-525-8085 for purchase additional
prospectuses of shares for an
<PAGE>
- --------------------------------------------------------------------------------
other INVESCO existing account.
funds. You may also (The exchange
establish an minimum is $250 for
automatic monthly exchanges requested
exchange service by telephone.)
between two INVESCO
funds; call IFG for
further details and
the correct form.
- --------------------------------------------------------------------------------
Periodic Withdrawal $100 per payment, You must have at
Plan on a monthly or least $10,000 total
You may call us to quarterly basis. invested with the
request the The redemption INVESCO funds, with
appropriate form check may be made at least $5,000 of
and more payable to any that total invested
information at 1- party you in the fund from
800-525-8085. designate. which withdrawals
will be made.
- --------------------------------------------------------------------------------
Payment To Third Any amount. All registered
Party owners of the
Mail your request account must sign
to INVESCO Funds the request, with a
Group, Inc., P.O. signature guarantee
Box 173706 from an eligible
Denver, CO 80217- guarantor financial
3706. institution, such
as a commercial
bank or recognized
national or
regional securities
firm.
================================================================================
While the Fund will attempt to process telephone redemptions promptly,
there may be times -- particularly in periods of severe economic or market
disruption -- when you may experience delays in redeeming shares by phone.
Payments of redemption proceeds will be mailed within seven days following
receipt of the redemption request in proper form. However, payment may be
postponed under unusual circumstances -- for instance, if normal trading is not
taking place on the New York Stock Exchange or during an emergency as defined by
the Securities and Exchange Commission. If your shares were purchased by a check
which has not yet cleared, payment will be made promptly upon clearance of the
purchase check (which may take up to 15 days).
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate any
further EasiVest purchases unless you instruct us otherwise.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to involuntarily redeem all shares in such
account, in which case the account would be liquidated and the proceeds
forwarded to the shareholder. Prior to any such redemption, a shareholder will
be notified and given 60 days to increase the value of the account to $250 or
more.
<PAGE>
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders substantially all of
its net investment income, net capital gains and net gains from foreign currency
transactions, if any, in order to continue to qualify for tax treatment as a
regulated investment company. Thus, the Fund does not expect to pay any federal
income or excise taxes.
Unless shareholders are exempt from income taxes, they must include all
dividends and capital gain distributions in taxable income for federal, state,
and local income tax purposes. Dividends and other distributions are taxable
whether they are received in cash or automatically distributed in shares of the
Fund or another fund in the INVESCO group.
The Fund may be subject to withholding of foreign taxes on dividends or
interest it receives on foreign securities. Foreign taxes withheld will be
treated as an expense of the Fund unless the Fund meets the qualifications to
enable it to pass these taxes through to shareholders for use by them as a
foreign tax credit or deduction.
Shareholders may be subject to backup withholding of 31% on dividends,
capital gain distributions and redemption proceeds. Unless you are subject to
backup withholding for other reasons, you can avoid backup withholding on your
Fund account by ensuring that we have a correct, certified tax identification
number.
Dividends and Capital Gain Distributions. The Fund earns ordinary or net
investment income in the form of dividends and interest on its investments. The
Fund's policy is to distribute substantially all of this income, less Fund
expenses, to shareholders on a monthly basis, at the discretion of the Company's
board of directors.
In addition, the Fund realizes capital gains and losses when it sells
securities for more or less than it paid. If total gains on sales exceed total
losses (including losses carried forward from previous years), the Fund has a
net realized capital gain. Net realized capital gains, if any, are distributed
to shareholders at least annually, usually in December.
Dividends and capital gain distributions are paid to shareholders who hold
shares on the record date of distribution regardless of how long the shares have
been held. The Fund's share price will then drop by the amount of the
distribution on the day the distribution is made. If a shareholder purchases
shares immediately prior to the distribution, the shareholder will, in effect,
have "bought" the distribution by paying the full purchase price, a portion of
which is then returned in the form of a taxable distribution.
At the end of each year, information regarding the tax status of dividends
and capital gain distributions is provided to shareholders. Net realized capital
gains are divided into short-term and long-term gains depending upon how long
the Fund held the security which gave rise to the gains. The capital gains
distribution consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest as ordinary income and are paid to shareholders as taxable dividends.
<PAGE>
Shareholders also may realize capital gains or losses when they sell their
Fund shares at more or less than the price originally paid.
We encourage you to consult a tax adviser with respect to these matters.
For further information see "Dividends, Capital Gain Distributions and Taxes" in
the Statement of Additional Information.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Company have equal voting rights based on
one vote for each share owned. Voting with respect to certain matters, such as
ratification of independent accountants and the election of directors, will be
by all the funds of the Company voting together. In other cases, such as voting
upon an investment advisory contract, voting is on a fund-by-fund basis. To the
extent permitted by law, when not all funds are affected by a matter to be voted
upon, only shareholders of the fund or funds affected by the matter will be
entitled to vote thereon. The Company is not generally required and does not
expect to hold regular annual meetings of shareholders. However, when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Company or as may be required by applicable law or the Company's Articles of
Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Company. The Fund will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
<PAGE>
INVESCO SHORT-TERM BOND FUND
A no-load mutual fund seeking current income with
liquidity and low volatility.
PROSPECTUS
^ January 1, 1997
To receive general information and prospectuses on any of INVESCO's funds or
retirement plans, or to obtain current account or price information or responses
to other questions, call toll-free:
1-800-525-8085
To reach PAL, your 24-hour Personal Account Line call:
1-800-424-8085
You can find us on the World Wide Web:
http://www.invesco.com
Or write to:
INVESCO Funds Group, Inc., Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street;
Denver Tech Center
7800 East Union Avenue
Lobby Level
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
^ January 1, 1997
INVESCO INCOME FUNDS, INC.
Four no-load portfolios seeking
a high level of current income
Address: Mailing Address:
7800 E. Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
- -------------------------------------------------------------------------------
INVESCO INCOME FUNDS, INC., (the "Company") is a diversified, managed,
no-load mutual fund consisting of four separate portfolios of investments:
INVESCO Select Income Fund, INVESCO High Yield Fund, INVESCO U.S. Government
Securities Fund, and INVESCO Short- Term Bond Fund (collectively, the "Funds"
and individually, a "Fund"). The investment objective of each Fund is to provide
investors with as high a level of current income as is consistent with the risk
involved in investing in the types of securities in which each Fund invests.
Potential capital appreciation is a factor in the selection of investments, but
is secondary to each Fund's primary objective. Investors may purchase shares of
any or all Funds. Additional Funds may be added in the future.
INVESCO SELECT INCOME FUND
The INVESCO Select Income Fund seeks to achieve its investment objective
through the investment of substantially all of its assets in bonds and other
debt securities. It is anticipated that at least 50% of such securities will be
rated in medium and higher categories by an established rating service.
INVESCO HIGH YIELD FUND
The INVESCO High Yield Fund seeks to achieve its investment objective
through the investment of substantially all of its assets in bonds and other
debt securities and in preferred stock. Such securities ordinarily include those
rated in lower categories by established rating services.
INVESCO U.S. GOVERNMENT SECURITIES FUND
The INVESCO U.S. Government Securities Fund seeks to achieve its investment
objective by investing in bonds and other debt obligations issued or guaranteed
by the U.S. Government or its agencies, which are supported by the full faith
and credit of the United States, and in repurchase agreements and futures
contracts with respect thereto.
<PAGE>
INVESCO SHORT-TERM BOND FUND
The INVESCO Short-Term Bond Fund (the "Fund") seeks to achieve the highest
level of current income as is consistent with minimum fluctuation in principal
value and with liquidity. The Fund invests primarily in short-term debt
securities (having maturities of 3 years or less) and intermediate-term debt
securities (having maturities of 3 to 10 years) and maintains a diversified
portfolio with a dollar-weighted average maturity of not more than three years.
The Fund pursues its investment objective by investing in a variety of debt
securities consistent with the policies of this Fund.
Separate Prospectuses for each of the Funds dated January 1, 1997, which
provide the basic information you should know before investing in a Fund may be
obtained without charge from INVESCO Funds Group, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706. This Statement of Additional Information is not a
Prospectus, but contains information in addition to and more detailed than that
set forth in each Prospectus. It is intended to provide you with additional
information regarding the activities and operations of the Fund and should be
read in conjunction with the Prospectus.
Investment Adviser and Distributor: INVESCO FUNDS GROUP, INC.
<PAGE>
TABLE OF CONTENTS Page
INVESTMENT POLICIES AND RESTRICTIONS....................................... 4
THE FUNDS AND THEIR MANAGEMENT............................................. 18
HOW SHARES CAN BE PURCHASED................................................ 32
HOW SHARES ARE VALUED...................................................... 36
FUND PERFORMANCE........................................................... 37
SERVICES PROVIDED BY THE FUND.............................................. 40
TAX-DEFERRED RETIREMENT PLANS.............................................. 41
HOW TO REDEEM SHARES....................................................... 41
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES............................ 42
INVESTMENT PRACTICES....................................................... 44
ADDITIONAL INFORMATION..................................................... 48
APPENDIX - GNMA CERTIFICATES, AND FUTURES CONTRACTS........................ 50
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
As discussed in their respective Prospectuses in the sections entitled
"Investment Objective and Strategy" and "Investment Policies and Risks," the
INVESCO Select Income Fund and the INVESCO High Yield Fund may invest in bonds
and other debt securities. Such securities include corporate bonds and
debentures (including convertible issues), equipment trust certificates and
promissory notes, and, where the yields are competitive with those of corporate
debt securities, obligations issued or guaranteed by the U.S. government or its
agencies, and obligations of any state, municipality or political subdivision
thereof. Generally, corporate bonds and equipment trust certificates are secured
obligations, whereas debentures and notes are unsecured. In addition, the
INVESCO High Yield Fund may invest in preferred stock. Preferred stock generally
entitles holders thereof to certain preferences in payment of dividends and
assets in priority to holders of common stock. As discussed in its Prospectus,
the INVESCO Short-Term Bond Fund may invest in investment-grade debt securities
of all types in any proportion.
Subject to complying with applicable investment policies, in recognition of
changing fiscal policies and economic conditions, each of the Funds may vary the
proportions of its holdings in intermediate, long-term, and short-term
obligations, and they may dispose of any such securities prior to maturity and
reinvest on the basis of yield disparities. The value of the debt securities in
each of the Funds will vary inversely with changes in prevailing interest rates.
Thus, when interest rates decline, the market value of a portfolio security
already invested at higher yields can be expected to rise if such security is
protected against early call. Conversely, when interest rates increase, the
market value of a portfolio security already invested at lower yields can be
expected to decline. When it appears to the Funds' investment adviser or
sub-adviser that interest rates may change, the composition of the Funds'
portfolios may be adjusted should such anticipated changes offer the opportunity
to further their investment objectives.
Foreign Securities. As discussed in the Prospectuses of INVESCO Select
Income Fund, INVESCO Short-Term Bond Fund and INVESCO High Yield Fund, these
Funds may invest up to 25% of their respective total assets, at the time of
purchase, in foreign securities; securities of Canadian issuers are not subject
to this limitation. There is generally less publicly available information,
reports and ratings about foreign companies and other foreign issuers than that
which is available about companies and issuers in the United States. Foreign
issuers are also generally subject to fewer uniform accounting and auditing and
financial reporting standards, practices, and requirements as compared to those
applicable to United States issuers.
For U.S. investors, the returns on foreign debt securities are influenced
not only by the returns on the foreign investments themselves, but also by
currency fluctuations. That is, when the U.S. dollar generally rises against
foreign currencies, returns on foreign securities for a U.S. investor may
decrease. By contrast, in a period when the U.S. dollar generally declines,
those returns may increase. The Select Income and High Yield Funds attempt to
minimize these risks by limiting their investments in foreign debt securities to
those which are denominated and pay interest in U.S. dollars.
<PAGE>
The investment adviser or sub-adviser will normally purchase foreign
securities in over-the-counter markets or on exchanges located in the countries
in which the respective principal offices of the issuers of the various debt
securities are located, as such markets or exchanges are generally the best
available market for foreign securities. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Select Income, Short- Term Bond or High Yield Funds, political or social
instability, or diplomatic developments which could affect United States
investments in those countries. Moreover, the foreign economics of individual
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payment position.
The interest payable on certain foreign debt securities may be subject to
foreign withholding taxes, thus reducing the net amount of income available for
distribution to the shareholders of these Funds.
When-Issued and Delayed Delivery Securities. As discussed in the section of
each Fund's Prospectus entitled "Investment Policies and Risks," the Funds may
purchase and sell securities on a when-issued or delayed delivery basis.
When-issued or delayed delivery transactions arise when securities (normally,
debt obligations of issuers eligible for investment by the Funds) are purchased
or sold by the Funds with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield.
However, the yield on a comparable security available when delivery takes place
may vary from the yield on the security at the time that the when-issued or
delayed delivery transaction was entered into. When the Funds engage in
when-issued and delayed delivery transactions, they rely on the seller or buyer,
as the case may be, to consummate the sale. Failure to do so may result in the
Funds missing the opportunity of obtaining a price or yield considered to be
advantageous. When-issued and delayed delivery transactions may generally be
expected to settle within one month from the date the transactions are entered
into, but in no event later than 90 days. However, no payment or delivery is
made by the Funds until they receive delivery or payment from the other party to
the transaction.
To the extent that a Fund remains substantially fully invested at the same
time that it has purchased when-issued securities, as it would normally expect
to do, there may be greater fluctuations in its net assets than if the Fund sets
aside cash to satisfy its purchase commitments.
When a Fund purchases securities on a when-issued basis, it will maintain
in a segregated account with their Custodian cash, U.S. Government securities or
other high-grade debt obligations readily convertible into cash having an
<PAGE>
aggregate value equal to the amount of such purchase commitments, until
payment is made. If necessary, additional assets will be placed in the account
daily so that the value of the account will equal or exceed the amount of the
Fund's purchase commitments.
Repurchase Agreements. As discussed in each Fund's Prospectus, the Funds
may invest in repurchase agreements with commercial banks, registered
brokers-dealers and registered government securities dealers that are deemed
creditworthy under standards established by the Fund's board of directors. A
repurchase agreement is an agreement under which the Funds acquire a debt
instrument (generally a security issued by the U.S. government or an agency
thereof, a banker's acceptance or a certificate of deposit) from a commercial
bank, broker or dealer, subject to resale to the seller at an agreed upon price
and date (normally, the next business day). A repurchase agreement may be
considered a loan collateralized by securities. The resale price reflects an
agreed upon interest rate effective for the period the instrument is held by the
Funds and is unrelated to the interest rate on the underlying instrument. In
these transactions, the securities acquired by the Funds (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement and are held as collateral by the Funds' Custodian Bank
until the repurchase agreement is completed. A Fund will not enter into a
repurchase agreement maturing in more than seven days if as a result more than
10% of the Fund's net assets would be invested in such repurchase agreements and
other illiquid securities.
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Funds may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Funds not within the control
of the Funds and therefore the obtainment by the Funds of such collateral may
automatically be stayed. Finally, it is possible that a Fund may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Funds'
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.
Loans of Portfolio Securities. The Funds also may lend their portfolio
securities to qualified brokers, dealers, banks, or other financial
institutions. This practice permits the Funds to earn income which, in turn, can
be invested in additional securities to pursue the Funds' investment objectives.
Loans of securities by the Funds will be collateralized by cash, letters of
credit or securities issued or guaranteed by the U. S. government or its
agencies equal to at least 100% of the current market value of the loaned
securities, determined on a daily basis. Lending securities involves certain
risks, the most significant of which is the risk that a borrower may fail to
return a portfolio security. The Fund monitors the creditworthiness of borrowers
in order to minimize such risks. A Fund will not lend any security if, as a
result of such loan, the aggregate value of securities then on loan would exceed
33-1/3% of the Fund's net assets (taken at market value). While voting rights
may pass with the loaned securities, if a material event (e.g., proposed merger,
sale of assets, or liquidation) is to occur affecting an investment on loan, the
<PAGE>
loan must be called and the securities voted. Loans of securities made by the
Funds will comply with all other applicable regulatory requirements, including
the rules of the New York Stock Exchange and the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules of the
Securities and Exchange Commission (the "SEC") thereunder.
At the present time, a Fund may pay reasonable negotiated finder fees in
connection with loaned securities, so long as such fees are set forth in a
written contract and are in compliance with guidelines with respect to such fees
established by the investment company's directors or trustees.
Illiquid and 144A Securities. The High Yield Fund may invest in securities
that are illiquid because they are subject to restrictions on their resale
("restricted securities") or because, based upon their nature or the market for
such securities, they are not readily marketable. However, the High Yield Fund
will not purchase any such security if the purchase would cause the Fund to
invest more than 15% of its net assets, measured at the time of purchase, in
illiquid securities. Repurchase agreements maturing in more than seven days will
be considered as illiquid for purposes of this restriction. Investments in
illiquid securities involve certain risks to the extent that the High Yield Fund
may be unable to dispose of such a security at the time desired or at a
reasonable price. In addition, in order to resell a restricted security, the
High Yield Fund might have to bear the expense and incur the delays associated
with effecting registration.
Each Fund also may invest in restricted securities that can be resold to
institutional investors pursuant to Rule 144A under the Securities Act of 1933,
as amended (the "1933 Act") (hereinafter referred to as "Rule 144A Securities").
These securities may be purchased by the Funds if a liquid institutional trading
market exists subject only to the State of Ohio's 15% of net assets limit on
such securities. The Company's board of directors has delegated to Fund
management the authority to determine the liquidity of Rule 144A Securities
pursuant to guidelines approved by the board.
In recent years, a large institutional market has developed for Rule 144A
Securities. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend on an efficient
institutional market in which Rule 144A Securities can readily be resold or on
an issuer's ability to honor a demand for repayment. Therefore, the fact that
there are contractual or legal restrictions on resale to the general public or
certain institutions is not dispositive of the liquidity of such investments.
Institutional markets for Rule 144A Securities may provide both readily
ascertainable values for Rule 144A Securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing a Rule 144A Security
held by a Fund, however, could adversely affect the marketability of such
security and the Fund might be unable to dispose of such security promptly or at
reasonable prices.
Euro/Yankee Bonds. The INVESCO Select Income, High Yield and Short-Term
Bond Funds may invest in dollar-denominated bonds issued by foreign branches of
domestic banks ("Eurobonds") and dollar-denominated bonds issued by a U.S.
branch of a foreign bank and sold in the United States ("Yankee bonds").
<PAGE>
Investment in Eurobonds and Yankee bonds entail certain risks similar to
investment in foreign securities in general. For information on these risks see
"Investment Policies and Risks" in the relevant Prospectuses.
U.S. Government Obligations. These securities consist of treasury bills,
treasury notes, and treasury bonds, which differ only in their interest rates,
maturities, and dates of issuance. Treasury bills have a maturity of one year or
less. Treasury notes generally have a maturity of one to ten years, and treasury
bonds generally have maturities of more than ten years. As discussed in each
Fund's Prospectus, U.S. government obligations also include securities issued or
guaranteed by agencies or instrumentalities of the U.S. government.
Some obligations of United States government agencies, which are
established under the authority of an act of Congress, such as Government
National Mortgage Association (GNMA) participation certificates, are supported
by the full faith and credit of the United States Treasury. GNMA Certificates
are mortgage-backed securities representing part ownership of a pool of mortgage
loans. These loans -- issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations -- are either insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. A "pool" or
group of such mortgages is assembled and, after being approved by GNMA, is
offered to investors through securities dealers. Once approved by GNMA, the
timely payment of interest and principal on each mortgage is guaranteed by GNMA
and backed by the full faith and credit of the United States government. The
market value of GNMA Certificates is not guaranteed. GNMA Certificates differ
from bonds in that principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA Certificates
are called "pass-through" securities because both interest and principal
payments (including prepayments) are passed through to the holder of the
Certificate. Upon receipt, principal payments will be used by each Fund to
purchase additional securities under its investment objective and investment
policies.
Other United States government obligations, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury to repay its obligations. Still others, such as bonds issued by the
Federal National Mortgage Association, a federally chartered private
corporation, are supported only by the credit of the instrumentality.
Obligations of Domestic Banks. These obligations consist of certificates of
deposit ("CDs") and bankers' acceptances issued by domestic banks (including
their foreign branches) having total assets in excess of $5 billion, which meet
the Funds' minimum rating requirements. CDs are issued against deposits in a
commercial bank for a specified period and rate and are normally negotiable.
Eurodollar CDs are certificates issued by a foreign branch (usually London) of a
U.S. Domestic bank, and, as such, the credit is deemed to be that of the
domestic bank.
Bankers' acceptances are short-term credit instruments evidencing the
promise of the bank (by virtue of the bank's "acceptance") to pay at maturity a
draft which has been drawn on it by a customer (the "drawer"). These instruments
are used to finance the import, export, transfer, or storage of goods and
reflect the obligation of both the bank and the drawer to pay the face amount.
<PAGE>
Commercial Paper. These obligations are short-term promissory notes issued
by domestic corporations to meet current working capital requirements. Such
paper may be unsecured or backed by a bank letter of credit. Commercial paper
issued with a letter of credit is, in effect, "two party paper," with the issuer
directly responsible for payment, plus a bank's guarantee that if the note is
not paid at maturity by the issuer, the bank will pay the principal and interest
to the buyer. Commercial paper is sold either as interest-bearing or on a
discounted basis, with maturities not exceeding 270 days.
Futures Contracts. As discussed in the Prospectuses of the INVESCO U.S.
Government Securities Fund and the INVESCO Short-Term Bond Fund, those Funds may
engage in buying and selling interest rate futures contracts; however, the
INVESCO U.S. Government Securities Fund may buy and sell only interest rate
futures contracts relating to U.S. government securities ("Government Securities
Futures"). This limitation on this Fund's engaging in interest rate futures
contracts to those relating to U.S. government securities is a fundamental
policy which may be changed only by holders of a majority, as defined in the
1940 Act, of that Fund's outstanding shares. The INVESCO Short-Term Bond Fund
may engage in buying and selling interest rate futures contracts relating to the
debt securities in which it invests for the purpose of hedging the value of its
securities portfolio. The U.S. Government Securities Fund and Short-Term Bond
Funds have no other fundamental policies as to their use of futures contracts
and thus no fundamental policy as to a percentage limit thereon; however, see
below for limitations relating to the Commodity Futures Trading Commission (the
"CFTC") and a percentage restriction adopted by the board of directors.
In connection with hedging (a "long futures position"), the INVESCO U.S.
Government Securities Fund and Short-Term Bond Fund, respectively, would take a
long futures position with the intention of doing so as a temporary substitute
for the purchase of long-term U.S. government securities, and any debt
securities in which the Short-Term Bond Fund invests, which may then be
purchased in an orderly fashion. These Funds expect that they would, in the
ordinary course, purchase such long-term securities upon termination of the long
futures position a substantial majority of the time, but under unusual market
conditions, a long futures position may be terminated without the corresponding
purchase of long-term U.S. government securities or other long-term debt
securities. These Funds will deposit in a segregated account with their
custodian bank U.S. government securities maturing in one year or less, or cash,
in an amount equal to the fluctuating market value of long futures contracts
they have purchased, less any margin deposited on their long position. They may
hold cash or acquire such government securities for the purpose of making these
deposits.
The "sale" of a Government Securities Future by the INVESCO U.S. Government
Securities Fund, or "sale" of a debt security future by the INVESCO Short-Term
Bond Fund, means the acquisition by these Funds of an obligation to deliver the
related U.S. government securities or other debt securities (i.e., those called
for by the contract) at a specified price on a specified date. The "purchase" of
a Government Securities Future by the INVESCO U.S. Government Securities Fund,
or "purchase" of a debt security future by the INVESCO Short-Term Bond Fund,
means the acquisition by these Funds of an obligation to acquire the related
U.S. government securities or other debt securities at a specified price on a
specified date.
<PAGE>
Unlike when the INVESCO U.S. Government Securities Fund purchases or sells
a U.S. government security, or when the INVESCO Short-Term Bond Fund purchases
or sells a debt security, no price is paid or received by these Funds upon the
purchase or sale of a Government Securities Future or a debt security future.
Initially, these Funds will be required to deposit with the futures commission
merchant (the "broker") an amount of cash or U.S. Treasury Bills equal to a
varying specified percentage of the contract amount. This amount is known as
initial margin. Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the underlying U.S.
government securities or debt securities fluctuates, making the Government
Securities Future or debt security future more or less valuable, a process known
as mark to the market. Changes in variation margin are recorded by these Funds
as unrealized gains or losses. Initial margin payments will be deposited in the
Company's custodian bank in an account registered in the broker's name; access
to the assets in that account may be made by the broker only under specified
conditions. At any time prior to expiration of the Government Securities Future
or debt security future, these Funds may elect to close the position by taking
an opposite position which will operate to terminate the Funds' position on the
Government Securities Future or debt security future. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to these Funds, and the Funds realize a loss or a gain. Although
Government Securities Futures or debt security futures by their terms call for
the actual delivery or acquisition of the related U.S. government securities or
debt securities, in most cases the contractual obligation is so fulfilled
without having to make or take delivery of the related U.S. government
securities or debt securities. These Funds do not intend to make or take
delivery of these securities. All transactions in the futures markets, including
transactions in Government Securities Futures or debt security futures, are
made, offset or fulfilled through a clearing house associated with the exchange
on which the contracts are traded.
One risk in employing Government Securities Futures or debt security
futures to attempt to protect against the price volatility of the U.S.
government securities or debt securities held in the INVESCO U.S. Government
Securities Fund or INVESCO Short-Term Bond Fund is the prospect that the prices
of Government Securities Futures or debt security futures will correlate
imperfectly with the behavior of the cash (i.e., market value) prices of these
Funds' U.S. government securities or debt securities. For a hedge to be
completely effective, the price change of the hedging instrument should equal
the price change of the security being hedged. Such equal price changes are not
always possible because the investment underlying the hedging instrument may not
be the same investment that is being hedged. The adviser will attempt to create
a closely correlated hedge, but hedging activity may not be completely
successful in eliminating market value fluctuation. The ordinary spreads between
prices in the cash and futures markets, due to differences in the natures of
those markets, may be subject to distortions in the following manners. First,
all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close future contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
<PAGE>
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions. Due to the possibility of distortion, a correct forecast of
general interest trends by the adviser may still not result in a successful
transaction.
Another risk is that the adviser would be incorrect in its expectations as
to the extent of various interest rate movements or the time span within which
the movements take place. For example, if the INVESCO U.S. Government Securities
Fund sold a Government Securities Future, or the INVESCO Short-Term Bond Fund
sold a debt security future in anticipation of an increase in interest rates,
and then interest rates went down instead, these Funds would lose money on the
sale. Any gains or losses on futures transactions will not be tax-exempt.
The use of futures to attempt to protect against the market risk of a
decline in the value of portfolio securities is referred to as having a "short
futures position." The use of futures to attempt to protect against the market
risk that portfolio securities are not fully included in an increase in value is
referred to as having a "long futures position." The INVESCO U.S. Government
Securities Fund and the INVESCO Short-Term Bond Fund must operate within certain
restrictions as to their long and short positions in futures under a rule (the
"CFTC Rule") adopted by the CFTC under the Commodity Exchange Act (the "CEA") to
be eligible for the exclusion provided by the CFTC Rule from registration by
these Funds with the CFTC as a "commodity pool operator" (as defined under the
CEA), and they must represent to the CFTC that they will operate within such
restrictions. Under these restrictions, these Funds will not, as to any
positions, whether long, short or a combination thereof, enter into futures for
which the aggregate initial margins exceed 5% of this fair market value of the
Funds' assets. Under the applicable restrictions, these Funds also must, as to
their short positions, use futures solely for bona fide hedging purposes within
the meaning and intent of the applicable provisions under the CEA; see the
second paragraph under "Futures Contracts" as to the meaning of "hedging" in the
case of these Funds. As to their long positions which are used as part of these
Funds' strategies and are incidental to the Funds' activities in the underlying
cash market, the "underlying commodity value" (see below) of these Funds'
futures must not exceed the sum of (i) cash set aside in an identifiable manner,
or short-term U.S. debt obligations or other U.S. dollar-denominated high
quality short-term money market instruments so set aside, plus any funds
deposited as margin; (ii) cash proceeds from existing investments due in 30
days, and (iii) accrued profits held at the futures commission merchant. (There
are described above the various segregated accounts which these Funds must
maintain with their custodian bank as to their futures activities due to
requirements other than those of the CFTC Rule; these Funds will, as to their
long positions, be required to abide by the more restrictive of these other
requirements or the above requirements of the CFTC Rule.) The "underlying
commodity value" of a future is computed by multiplying the size of the future
by the daily settlement price of the future.
Although these Funds have no fundamental policy restricting the use of
futures, the Company's board of directors has adopted a restriction that the
aggregate market value of the Futures Contracts the INVESCO U.S. Government
Securities Fund or the INVESCO Short-Term Bond Fund holds not exceed 20% of the
market value of the respective Fund's total assets. This restriction would not
be changed by the Company's board of directors without considering the policies
and concerns of federal and state regulatory agencies.
<PAGE>
Investment Restrictions
As described in each Fund's Prospectus, the Funds operate under certain
investment restrictions that are fundamental and may not be changed with respect
to a particular Fund without the prior approval of the holders of a majority, as
defined in the 1940 Act, of the outstanding voting securities of that Fund. For
purposes of the following limitations, all percentage limitations apply
immediately after a purchase or initial investment. Any subsequent change in a
particular percentage resulting from fluctuations in value does not require
elimination of any security from a Fund.
Under these fundamental investment restrictions, each Fund may not:
(1) sell short or buy on margin;
(2) mortgage, pledge or hypothecate portfolio securities or
borrow money, except from banks for temporary or emergency
purposes (but not for investment) and then in an amount
not exceeding 10% of the value of its total net assets.
A Fund will not purchase additional securities while any
borrowings on behalf of such Fund exist; provided,
however, that this restriction shall not be deemed to
affect the INVESCO U.S. Government Securities Fund's
entering into futures contracts in accordance with that
Fund's investment policies, or the INVESCO Short-Term Bond
Fund's entering into futures contracts or options
transactions in accordance with that Fund's investment
policies.
(3) invest in the securities of any other investment company except for a
purchase or acquisition in accordance with a plan of reorganization,
merger or consolidation;
(4) purchase securities if the purchase would cause the Fund
to have at the time more than 5% of the value of its total
assets invested in securities of any one issuer or to own
more than 10% of the outstanding voting securities of any
one issuer (except obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities*). For
this purpose, all indebtedness of an issuer shall be
deemed a single class of security;
(5) make loans to any person, except through the purchase of
debt securities in accordance with the investment policies
of the Funds, or the lending of portfolio securities to
broker-dealers or other institutional investors, or the
entering into repurchase agreements with member banks of
the Federal Reserve System, registered broker-dealers and
registered government securities dealers. The aggregate
value of all portfolio securities loaned may not exceed
33-1/3% of a Fund's total net assets (taken at current
<PAGE>
value). No more than 10% of a Fund's total net assets may be
invested in repurchase agreements maturing in more than seven days;
(6) other than the INVESCO U.S. Government Securities Fund entering into
futures contracts or the INVESCO Short-Term Bond Fund entering into
futures contracts or options transactions in accordance with those
Funds' investment policies, buy or sell commodities, commodity
contracts or real estate (however, securities of companies investing
in real estate may be purchased);
(7) invest in any company for the purpose of exercising control or
management;
(8) other than the INVESCO High Yield Fund, buy other than readily
marketable securities;
(9) engage in the underwriting of any securities;
(10) purchase securities of any company in which any officer or director
of the Fund or of its investment adviser beneficially owns more than
1/2 of 1% of the outstanding securities or in which all of the
officers or directors of the Fund and its investment adviser, as a
group, own more than 5% of such securities;
(11) purchase equity securities; provided, however, that the
INVESCO High Yield Fund may purchase convertible and
non-convertible preferred stock. This shall not be
deemed to prohibit the acquisition of equity securities
resulting from the ownership of debt securities, as, for
example, the conversion of convertible bonds or an
exchange in connection with a corporate reorganization;
(12) other than the INVESCO High Yield Fund, purchase the securities of
any issuer having a record, together with predecessors, of less than
three years continuous operation;
(13) buy or sell oil, gas or other mineral interest or
exploration programs;
(14) participate on a joint or joint and several basis in any securities
trading account, or purchase warrants, or, except for the INVESCO
Short-Term Bond Fund, write, purchase or sell puts, calls, straddles
or any other option contract or combination thereof;
(15) other than the INVESCO High Yield Fund, enter into repurchase
agreements maturing in more than seven days if, as a result, such
repurchase agreements, together with securities for which there are
no readily available market quotations, would constitute more than
10% of that Fund's total net assets;
<PAGE>
(16) include, as an investment of each Fund, more than 25% of that Fund's
total net assets in any one industry, excluding government
securities. Telephone utilities, water, gas, and electric utilities
shall be considered separate industries.
*If an entity, other than the U.S. government, its agencies or
instrumentalities, guarantees a security, such guarantee is considered a
separate security which must be valued and included in the five percent
limitation, subject to those exceptions allowed by Rule 5b-2 under the 1940 Act.
In addition to the above restrictions, a fundamental policy of the Funds is
not to invest more than 25% of their total net assets (taken at market value at
the time of each investment) in the securities of issuers in any one industry.
In applying this restriction, the Funds use an industry classification system
based on, where applicable, the O'Neil Database published by William O'Neal &
Co., Inc.
In applying restriction (8) above, the Funds also include illiquid
securities (those which cannot be sold in the ordinary course of business within
seven days at approximately the valuation given to them by the Fund) among the
securities subject to the limitations of that paragraph. The Company's board of
directors has delegated to the Funds' investment adviser the authority to
determine that a liquid market exists for securities eligible for resale
pursuant to Rule 144A under the 1933 Act, or any successor to such rule, and
that such securities are not subject to the Funds' limitations on investing in
illiquid securities or securities that are not readily marketable. Under
guidelines established by the board of directors, the adviser will consider the
following factors, among others, in making this determination: (1) the
unregistered nature of a Rule 144A security, (2) the frequency of trades and
quotes for the security; (3) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (4) dealer
undertakings to make a market in the security; and (5) the nature of the
security and the nature of marketplace trades (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics of transfer).
In applying restriction (11) above, the Funds consider acquisitions of
equity securities as components of units which consist primarily of debt
securities as permissible acquisitions resulting from the ownership of debt
securities.
In applying restriction (14) above, the Funds consider warrants acquired as
components of units consisting primarily of debt securities to be permissible
investments as contemplated by restriction (11) above.
The INVESCO Short-Term Bond Fund does not currently intend to buy or sell
put or call options or option contracts, and will not do so until the Company's
board of directors adopts an investment policy governing such purchases or
sales.
<PAGE>
^
In addition to the foregoing, the Funds may not issue preference shares or
create any funded debt. "Fund shares," the only means of participating in the
ownership of a Fund, are all nonassessable, and have equal rights, within each
class, as to dividends, voting power and asset value. No shareholder of a Fund,
as such, has any preemptive right to purchase or subscribe for any Fund shares
which may be issued; however, the board of directors, in its discretion, may
extend purchase or subscription rights pro rata to all shareholders.
Additional investment restrictions adopted by the Company on behalf of the
Funds and which may be changed by the directors, at their discretion, without
shareholder approval, include the following:
(1) The High Yield Fund will not purchase any security or
enter into a repurchase agreement if, as a result, more
than 15% of its net assets would be invested in
repurchase agreements not entitling the holder to payment
of principal and interest within seven days and in
securities that are illiquid by virtue of legal or
contractual restrictions on resale that offered liquidity
or the absence of a readily available market. The board
of directors, or the Fund's investment adviser acting
pursuant to authority delegated by the board of
directors, may determine that a readily available market
exists for securities that are not registered under the
Securities Act of 1933 but are nevertheless eligible for
resale pursuant to Rule 144A under the Securities Act of
1933, or any successor to such rule, and therefore that
such securities are not subject to the foregoing
limitation.
With respect to the non-fundamental investment restriction (1)
above, the board of directors has delegated to the Fund's investment
adviser the authority to determine whether a liquid market exists
for securities eligible for resale pursuant to Rule 144A under the
1933 Act, or any successor to such rule, and whether such securities
are subject to the non- fundamental restriction (1) above. Under
guidelines established by the board of directors, the adviser will
consider the following factors, among others, in making this
determination: (1) the unregistered nature of a Rule 144A security;
(2) the frequency of trades and quotes for the security; (3) the
number of dealers willing to purchase or sell the security and the
number of other potential purchasers; (4)dealer undertakings to make
a market in the security; and (5) the nature of the security and
the nature of marketplace trades (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics
of transfer).
<PAGE>
(2) The High Yield Fund will not purchase securities of any
issuer (other than the U.S. government, its agencies and
instrumentalities or instruments guaranteed by the U.S.
government or any such agency or instrumentality with a
record of more than three years' continuous operation
(including that of predecessors) with a record of less
than three years' continuous operation (including that of
predecessors) if such purchase would cause the Fund's
investments in all such issuers to exceed 5% of the
Fund's total assets taken at market value at the time of
such purchases.
THE FUNDS AND THEIR MANAGEMENT
The Company. The Company was incorporated on April 2, 1993, under the laws
of Maryland.
The Investment Adviser. INVESCO Funds Group, Inc., a Delaware corporation
("INVESCO"), is employed as the Company's investment adviser. INVESCO was
established in 1932 and also serves as an investment adviser to INVESCO
Diversified Funds, Inc., INVESCO Dynamics Fund, Inc., INVESCO Emerging
Opportunity Funds, Inc., INVESCO Growth Fund, Inc., INVESCO Industrial Income
Fund, Inc., INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc.,
INVESCO Multiple Asset Funds, Inc., INVESCO Specialty Funds, Inc., INVESCO
Strategic Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc., INVESCO Value
Trust, and INVESCO Variable Investment Funds, Inc.
The Sub-Adviser. INVESCO Trust Company ("INVESCO Trust") serves as the
sub-adviser to the Funds, pursuant to an agreement between INVESCO and INVESCO
Trust. INVESCO Trust, a trust company founded in 1969, is a wholly-owned
subsidiary of INVESCO.
INVESCO is an indirect, wholly-owned subsidiary of INVESCO PLC, a
publicly-traded holding company organized in 1935. Through subsidiaries located
in London, Denver, Atlanta, Boston, Louisville, Dallas, Tokyo, Hong Kong, and
the Channel Islands, INVESCO PLC provides investment services around the world.
INVESCO was acquired by INVESCO PLC in 1982 and, as of August 31, 1996, managed
14 mutual funds, consisting of 39 separate portfolios, on behalf of over 827,000
shareholders. INVESCO PLC's other North American subsidiaries include the
following:
--INVESCO Capital Management, Inc. of Atlanta, Georgia manages
institutional investment portfolios, consisting primarily of discretionary
employee benefit plans for corporations and state and local governments, and
endowment funds. INVESCO Capital Management, Inc. is the sole shareholder of
INVESCO Services, Inc., a registered broker-dealer whose primary business is the
distribution of shares of two registered investment companies.
--INVESCO Management & Research, Inc. (formerly, Gardner and Preston Moss,
Inc.) of Boston, Massachusetts, primarily manages pension and endowment
accounts.
<PAGE>
--PRIMCO Capital Management, Inc. of Louisville, Kentucky, specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
--INVESCO Realty Advisors, Inc. of Dallas, Texas is responsible for
providing advisory services in the U.S. real estate markets for INVESCO PLC's
clients worldwide. Clients include corporate plans, public pension funds as well
as endowment and foundation accounts.
The corporate headquarters of INVESCO PLC are located at 11 Devonshire
Square, London, EC2M 4YR, England.
As indicated in the Prospectuses, INVESCO permits investment and other
personnel to purchase and sell securities for their own accounts in accordance
with a compliance policy governing personal investing by directors, officers and
employees of INVESCO and its North American affiliates. The policy requires
officers, inside directors, investment and other personnel of INVESCO and its
North American affiliates to pre-clear all transactions in securities not
otherwise exempt under the policy. Requests for trading authority will be denied
when, among other reasons, the proposed personal transaction would be contrary
to the provisions of the policy or would be deemed to adversely affect any
transaction then known to be under consideration for or to have been effected on
behalf of any client accounts, including the Funds.
In addition to the pre-clearance requirement described above, the policy
subjects officers, inside directors, investment and other personnel of INVESCO
and its North American affiliates to various trading restrictions and reporting
obligations. All reportable transactions are reviewed for compliance with the
policy. The provisions of the policy are administered by and subject to
exceptions authorized by INVESCO.
Investment Advisory Agreement. INVESCO serves as investment adviser
pursuant to an investment advisory agreement (the "Agreement") with the Company
which was approved on April 21, 1993, by a vote cast in person by a majority of
the directors of the Company, including a majority of the directors who are not
"interested persons" of the Company or INVESCO at a meeting called for such
purpose. Pursuant to authorizations granted by the public shareholders of the
Select Income Portfolio and U.S. Government Securities Portfolio of FBS on May
24, 1993, and by the public shareholders of the High Yield Portfolio of FBS on
June 21, 1993, such Portfolios, as the initial shareholders of the Company
approved the Agreement for an initial term expiring April 30, 1995. The
Agreement was approved by INVESCO on September 29, 1993, as the then sole
shareholder of the INVESCO Short-Term Bond Fund. The Agreement has been
continued by action of the board of directors through April 30, 1997.
Thereafter, the Agreement may be continued from year to year as to each Fund as
long as each such continuance is specifically approved at least annually by the
board of directors of the Company, or by a vote of the holders of a majority, as
defined in the 1940 Act, of the outstanding shares of the Fund. Any such
continuance also must be approved by a majority of the Company's directors who
are not parties to the Agreement or interested persons (as defined in the 1940
Act) of any such party, cast in person at a meeting called for the purpose of
voting on such continuance. The Agreement may be terminated at any time without
penalty by either party upon sixty (60) days' written notice and terminates
automatically in the event of an assignment to the extent required by the 1940
Act and the rules thereunder.
<PAGE>
The Agreement provides that INVESCO shall manage the investment portfolios
of the Funds in conformity with the Funds' investment policies (either directly
or by delegation to a sub-adviser, which may be a party affiliated with
INVESCO). Further, INVESCO shall perform all administrative, internal accounting
(including computation of net asset value), clerical, statistical, secretarial
and all other services necessary or incidental to the administration of the
affairs of the Funds excluding, however, those services that are the subject of
separate agreement between the Company and INVESCO or any affiliate thereof,
including the distribution and sale of Fund shares and provision of transfer
agency, dividend disbursing agency, and registrar services, and services
furnished under an Administrative Services Agreement with INVESCO discussed
below. Services provided under the Agreement include, but are not limited to:
supplying the Company with officers, clerical staff and other employees, if any,
who are necessary in connection with the Funds' operations; furnishing office
space, facilities, equipment, and supplies; providing personnel and facilities
required to respond to inquiries related to shareholder accounts; conducting
periodic compliance reviews of the Funds' operations; preparation and review of
required documents, reports and filings by INVESCO's in-house legal and
accounting staff (including the prospectus, statement of additional information,
proxy statements, shareholder reports, tax returns, reports to the SEC, and
other corporate documents of the Funds), except insofar as the assistance of
independent accountants or attorneys is necessary or desirable; supplying basic
telephone service and other utilities; and preparing and maintaining certain of
the books and records required to be prepared and maintained by the Funds under
the 1940 Act. Expenses not assumed by INVESCO are borne by the Funds.
As full compensation for its advisory services to the Company, INVESCO
receives a monthly fee. The fee with respect to the INVESCO Select Income Fund
and INVESCO U.S. Government Securities Fund is calculated daily at an annual
rate of: 0.55% of average net assets of each such Fund up to $300 million;
reduced to 0.45% of average net assets of each such Fund exceeding $300 million
but not exceeding $500 million; and further reduced to 0.35% of average net
assets of each such Fund in excess of $500 million. The fees for the INVESCO
High Yield Fund and the INVESCO Short-Term Bond Fund also are calculated daily
but are reduced by 0.05% at each level in the above fee schedule.
^
Sub-Advisory Agreement. INVESCO Trust serves as sub-adviser to the Funds
pursuant to a sub-advisory agreement (the "Sub-Agreement") with INVESCO which
was approved on April 21, 1993, by a vote cast in person by a majority of the
directors of the Company, including a majority of the directors who are not
"interested persons" of the Company, INVESCO, or INVESCO Trust at a meeting
called for such purpose. Pursuant to authorizations granted by the public
shareholders of the Select Income Portfolio and U.S. Government Securities
Portfolio of FBS on May 24, 1993, and by the public shareholders of the High
Yield Portfolio of FBS on June 21, 1993, such Portfolios, as the initial
shareholders of the Company, approved the Sub-Agreement on June 24, 1993, for an
initial term expiring April 30, 1996. The Sub-Agreement was approved by INVESCO
on September 29, 1993, as the then sole shareholder of the INVESCO Short-Term
Bond Fund. The Sub-Agreement has been continued by action of the board of
<PAGE>
directors until April 30, 1997. Thereafter, the Sub-Agreement may be
continued from year to year as to each Fund as long as each such continuance is
specifically approved by the board of directors of the Company, or by a vote of
the holders of a majority, as defined in the 1940 Act, of the outstanding shares
of the Fund. Each such continuance also must be approved by a majority of the
directors who are not parties to the Sub-Agreement or interested persons (as
defined in the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such continuance. The Sub-Agreement may be
terminated at any time without penalty by either party or the Company upon sixty
(60) days' written notice, and terminates automatically in the event of an
assignment to the extent required by the 1940 Act and the rules thereunder.
The Sub-Agreement provides that INVESCO Trust, subject to the supervision
of INVESCO, shall manage the investment portfolios of the Funds in conformity
with each Fund's investment policies. These management services would include:
(a) managing the investment and reinvestment of all the assets, now or hereafter
acquired, of the Funds, and executing all purchases and sales of portfolio
securities; (b) maintaining a continuous investment program for the Funds,
consistent with (i) each Fund's investment policies as set forth in the
Company's Articles of Incorporation, Bylaws, and Registration Statement, as from
time to time amended, under the 1940 Act, as amended, and in any prospectus
and/or statement of additional information of the Company, as from time to time
amended and in use under the 1933 Act, as amended, and (ii) the Company's status
as a regulated investment company under the Internal Revenue Code of 1986, as
amended; (c) determining what securities are to be purchased or sold for each of
the Funds, unless otherwise directed by the directors of the Company or INVESCO,
and executing transactions accordingly; (d) providing the Funds the benefit of
all of the investment analysis and research, the reviews of current economic
conditions and trends, and the consideration of long-range investment policy now
or hereafter generally available to investment advisory customers of the
Sub-Adviser; (e) determining what portion of each of the Funds should be
invested in the various types of securities authorized for purchase by each
Fund; and (f) making recommendations as to the manner in which voting rights,
rights to consent to Company action and any other rights pertaining to the
portfolio securities of each Fund shall be exercised.
The Sub-Agreement provides that with respect to the INVESCO Select Income
Fund, INVESCO High Yield Fund, and INVESCO U.S. Government Securities Fund, as
compensation for its services, INVESCO Trust shall receive from INVESCO, at the
end of each month, a fee based upon the average daily value of each such Fund's
net assets at the following annual rates: 0.25% on each such Fund's average net
assets up to $200 million, and 0.20% on each such Fund's average net assets in
excess of $200 million. The Sub- Agreement provides that with respect to the
INVESCO Short-Term Bond Fund, as compensation for its services, INVESCO Trust
shall receive from INVESCO, at the end of each month, a fee based upon the
average daily value of such Fund's net assets at the following annual rates:
0.25% of the first $300 million of such Fund's average net assets, 0.20% of the
next $200 million of such Fund's average net assets and 0.15% of such Fund's
average net assets in excess of $500 million. The Sub-Advisory fee is paid by
INVESCO, NOT the Funds.
Administrative Services Agreement. INVESCO, either directly or through
affiliated companies, provides certain administrative, sub-accounting, and
recordkeeping services to the Funds pursuant to an Administrative Services
Agreement dated April 30, 1993 (the "Administrative Agreement"). The
Administrative Agreement was approved on April 21, 1993, by a vote cast in
<PAGE>
person by all of the directors of the Company, including all of the
directors who are not "interested persons" of the Company or INVESCO at a
meeting called for such purpose. The Administrative Agreement was for an initial
term of one year expiring April 30, 1994, and has been continued by action of
the board of directors through April 30, 1997. The Administrative Agreement may
be continued from year to year as long as each such continuance is specifically
approved by the board of directors of the Company, including a majority of the
directors who are not parties to the Administrative Agreement or interested
persons (as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such continuance. The Administrative
Agreement may be terminated at any time without penalty by INVESCO on sixty (60)
days' written notice, or by the Company upon thirty (30) days' written notice,
and terminates automatically in the event of an assignment unless the Company's
board of directors approves such assignment.
The Administrative Agreement provides that INVESCO shall provide the
following services to the Funds: (A) such sub-accounting and recordkeeping
services and functions as are reasonably necessary for the operation of the
Funds; and (B) such sub-accounting, recordkeeping, and administrative services
and functions, which may be provided by affiliates of INVESCO, as are reasonably
necessary for the operation of Fund shareholder accounts maintained by certain
retirement plans and employee benefit plans for the benefit of participants in
such plans.
As full compensation for services provided under the Administrative
Agreement, each Fund pays a monthly fee to INVESCO consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
monthly at an annual rate of 0.015% per year of the average net assets of the
Fund.
Transfer Agency Agreement. INVESCO also performs transfer agent, dividend
disbursing agent, and registrar services for the Funds pursuant to a Transfer
Agency Agreement which was approved by the board of directors of the Company,
including a majority of the Company's directors who are not parties to the
Transfer Agency Agreement or "interested persons" of any such party, on April
21, 1993, for an initial term expiring April 30, 1994. The Transfer Agency
Agreement has been continued by action of the board of directors until April 30,
1997, and thereafter may be continued from year to year as to each Fund as long
as such continuance is specifically approved at least annually by the board of
directors of the Company, or by a vote of the holders of a majority of the
outstanding shares of the Fund. Any such continuance also must be approved by a
majority of the Company's directors who are not parties to the Transfer Agency
Agreement or interested persons (as defined by the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such
continuance. The Transfer Agency Agreement may be terminated at any time without
penalty by either party upon sixty (60) days' written notice and terminates
automatically in the event of assignment.
The Transfer Agency Agreement provides that the Funds will pay to INVESCO a
fee of $26.00 per shareholder account or omnibus account participant per year.
This fee is paid monthly at 1/12 of the annual fee and is based upon the number
of shareholder accounts or omnibus account participants in existence at any time
during each month.
<PAGE>
Set forth below is a table showing the advisory fees, administrative
services fees, and transfer agency fees paid by each of the Funds for the
periods shown.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
August 31, 1996(1) August 31, 1995(1) August 31, 1994(1)
------------------ ------------------ ------------------
Adminis- Adminis- Adminis-
Transfer trative Transfer trative Transfer trative
Advisory Agency Services Advisory Agency Services Advisory Agency Services
Fees Fees Fees Fees Fees Fees Fees Fees Fees
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Select Income $1,410,937 $614,471 $48,480 $946,146 $518,379 $35,804 $800,176 $287,082 $31,823
High Yield 1,671,610 532,180 61,443 1,290,879 555,664 48,750 1,366,598 310,712 51,127
U.S. Government
Securities 233,025 177,086 16,355 219,925 177,310 15,998 181,704 92,445 14,956
Short-Term Bond 44,394 51,685 11,332 43,277 47,595 11,298 31,920 16,627 10,124
(1) These amounts do not reflect the voluntary expense limitations described in the Funds' prospectuses.
<PAGE>
Officers and Directors of the Company. The overall direction and
supervision of the Company is the responsibility of the board of directors,
which has the primary duty of seeing that the general investment policies and
programs of each of the Funds are carried out and that the Funds are properly
administered. The officers of the Company, all of whom are officers and
employees of, and paid by, INVESCO, are responsible for the day-to-day
administration of the Company and each of the Funds. The investment adviser for
each Fund has the primary responsibility for making investment decisions on
behalf of that Fund. These investment decisions are reviewed by the investment
committee of INVESCO.
All of the officers and directors of the Company hold comparable positions
with INVESCO Diversified Funds, Inc., INVESCO Dynamics Fund, Inc., INVESCO
Emerging Opportunity Funds, Inc., INVESCO Growth Fund, Inc., INVESCO Industrial
Income Fund, Inc., INVESCO International Funds, Inc., INVESCO Money Market
Funds, Inc., INVESCO Multiple Asset Funds, Inc., INVESCO Specialty Funds, Inc.,
INVESCO Strategic Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc., and
INVESCO Variable Investment Funds, Inc. All of the directors of the Company also
serve as trustees of INVESCO Value Trust. In addition, all of the directors of
the Company also are directors of INVESCO Advisor Funds, Inc. (formerly known as
"The EBI Funds, Inc."); and, with the exception of Mr. Hesser, trustees of
INVESCO Treasurer's Series Trust. All of the officers of the Company also hold
comparable positions with INVESCO Value Trust. Set forth below is information
with respect to each of the Company's officers and directors. Unless otherwise
indicated, the address of the directors and officers is Post Office Box 173706,
Denver, Colorado 80217-3706. Their affiliations represent their principal
occupations during the past five years.
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive Officer and
Director of INVESCO PLC, London, England, and of various subsidiaries thereof;
Chairman of the Board of The EBI Funds, Inc., INVESCO Treasurer's Series Trust,
and The Global Heath Sciences Fund. Address: 1315 Peachtree Street, NE, Atlanta,
Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. Vice Chairman of INVESCO
Advisor Funds, Inc. and INVESCO Treasurer's Series Trust. Trustee of The Global
Health Sciences Fund. Formerly, Chairman of the Executive Committee and Chairman
of the Board of Security Life of Denver Insurance Company, Denver, Colorado;
Director of ING America Life Insurance Company, Urbaine Life Insurance Company
and Midwestern United Life Insurance Company. Address: Security Life Center,
1290 Broadway, Denver, Colorado. Born: January 12, 1928.
DAN J. HESSER,+* President and Director. Chairman of the Board, President
and Chief Executive Officer of INVESCO Funds Group, Inc.; Director of INVESCO
Trust Company. Trustee of The Global Health Sciences Fund. Born: December 27,
1939.
VICTOR L. ANDREWS,** Director. Professor Emeritus, Chairman Emeritus and
Chairman of the CFO Roundtable of the Department of Finance at Georgia State
University, Atlanta, Georgia; President, Andrews Financial Associates, Inc.
(consulting firm); formerly, member of the faculties of the Harvard Business
School and the Sloan School of Management of MIT. Dr. Andrews is also a Director
of The Southeastern Thrift and Bank Fund, Inc. and The Sheffield Funds, Inc.
Address: 4625 Jettridge Drive, Atlanta, Georgia. Born: June 23, 1930.
<PAGE>
BOB R. BAKER,+** Director. President and Chief Executive Officer of AMC
Cancer Research Center, Denver, Colorado, since January 1989; until mid-December
1988, Vice Chairman of the Board of First Columbia Financial Corporation (a
financial institution), Englewood, Colorado. Formerly, Chairman of the Board and
Chief Executive Officer of First Columbia Financial Corporation. Address: 1775
Sherman Street, #1000, Denver, Colorado. Born: August 7, 1936.
LAWRENCE H. BUDNER,# Director. Trust Consultant; prior to June 30, 1987,
Senior Vice President and Senior Trust Officer of InterFirst Bank, Dallas,
Texas. Address: 7608 Glen Albens Circle, Dallas, Texas. Born: July 25, 1930.
DANIEL D. CHABRIS,+# Director. Financial Consultant; Assistant Treasurer of
Colt Industries Inc., New York, New York, from 1966 to 1988. Address: 15
Sterling Road, Armonk, New York. Born: August 1, 1923.
A. D. FRAZIER, JR.,*,** Director. Executive vice president of INVESCO PLC
(since November 1996). Formerly, senior executive vice president and Chief
Operating Officer of the Atlanta Committee for the Olympic Games. From 1982 to
1991, Mr. Frazier was employed in various capacities by First Chicago American
Banking Group. Trustee of The Global Health Sciences Fund. Director of Magellan
Health Services, Inc. and of Charter Medical Corp. Address: 250 Williams Street,
Suite 6000, Atlanta, Georgia 30301. Born: June 29, 1944.
HUBERT L. HARRIS, JR.,* Director. Chairman (since May 1996), President
(January 1990 to April 1996) of INVESCO Services, Inc. Director of INVESCO PLC
and Chief Financial Officer of INVESCO Individual Services Group. Member of the
Executive Committee of the Alumni Board of Trustees of Georgia Institute of
Technology. Address: 1315 Peachtree Street, NE, Atlanta, Georgia. Born: July 15,
1943.
KENNETH T. KING,** Director. Formerly, Chairman of the Board of The Capitol
Life Insurance Company, Providence Washington Insurance Company, and Director of
numerous subsidiaries thereof in the U.S. Formerly, Chairman of the Board of The
Providence Capitol Companies in the United Kingdom and Guernsey. Chairman of the
Board of the Symbion Corporation (a high technology company) until 1987.
Address: 4080 North Circulo Manzanillo, Tucson, Arizona. Born: November 16,
1925.
JOHN W. MCINTYRE,# Director. Retired. Formerly, Vice Chairman of the Board
of Directors of the Citizens and Southern Corporation and Chairman of the Board
and Chief Executive Officer of The Citizens and Southern Georgia Corporation and
Citizens and Southern National Bank. Director of Golden Poultry Co., Inc.
Trustee of The Global Health Sciences Fund and Gables Residential Trust.
Address: 7 Piedmont Center, Suite 100, Atlanta, Georgia. Born: September 14,
1930.
GLEN A. PAYNE, Secretary. Senior Vice President, General Counsel and
Secretary of INVESCO Funds Group, Inc. and INVESCO Trust Company since April
1995 and formerly (May 1989 to April 1995) Vice President, Secretary and General
Counsel of INVESCO Funds Group, Inc. and INVESCO Trust Company. Formerly,
employee of a U.S. regulatory agency, Washington, D.C., (June 1973 through May
1989). Born: September 25, 1947.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
Funds Group, Inc. and INVESCO Trust Company since January 1988. Born: October 1,
1946.
<PAGE>
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO Funds Group, Inc. and Trust Officer of INVESCO Trust Company since July
1995 and formerly (August 1992 to July 1995), Vice President of INVESCO Funds
Group, Inc. and trust officer of INVESCO Trust Company. Formerly, Vice President
of 440 Financial Group from June 1990 to August 1992 and Assistant Vice
President of Putnam Companies from November 1986 to June 1990. Born: August 21,
1956.
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO Funds Group,
Inc. and Trust Officer of INVESCO Trust Company. Born: September 14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO Funds Group,
Inc. and Trust Officer of INVESCO Trust Company. Born: February 3, 1948.
#Member of the audit committee of the Company.
+Member of the executive committee of the Company. On occasion, the
executive committee acts upon the current and ordinary business of the Company
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
*These directors are "interested persons" of the Company as defined in the
1940 Act.
**Member of the management liaison committee of the Company.
As of October 29, 1996, officers and directors of the Company, as a group,
beneficially owned less than 1% of the Company's outstanding shares and less
than 1% of each Fund's outstanding shares.
Director Compensation
The following table sets forth, for the fiscal year ended August 31, 1996:
the compensation paid by the Company to its eight eligible independent directors
for services rendered in their capacities as directors of the Company; the
benefits accrued as Company expenses with respect to the Defined Benefit
Deferred Compensation Plan discussed below; and the estimated annual benefits to
be received by these directors upon retirement as a result of their service to
the Company. In addition, the table sets forth the total compensation paid by
all of the mutual funds distributed by INVESCO Funds Group, Inc. (including the
Company), INVESCO Advisor Funds, Inc., INVESCO Treasurer's Series Trust and The
Global Health Sciences Fund (collectively, the "INVESCO Complex") to these
directors for services rendered in their capacities as directors or trustees
during the year ended December 31, 1995. As of December 31, 1995, there were 48
funds in the INVESCO Complex.
<PAGE>
Total
Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
tion From Company Upon Paid To
Company1 Expenses2 Retirement3 Directors1
Fred A.Deering, $5,642 $1,076 $896 $87,350
Vice Chairman of
the Board
Victor L. Andrews 5,372 948 987 68,000
Bob R. Baker 5,431 977 1,323 73,000
Lawrence H. Budner 5,289 1,017 987 68,350
Daniel D. Chabris 5,448 1,160 702 73,350
A. D. Frazier, Jr.4,5 5,219 0 0 63,500
Kenneth T. King 5,392 1,118 812 70,000
John W. McIntyre4 5,237 0 0 67,850
Total $43,030 $6,296 $5,707 $571,400
% of Net Assets 0.0062%6 0.0009%6 0.0043%7
1The vice chairman of the board, the chairmen of the audit, management
liaison and compensation committees, and the members of the executive and
valuation committees each receive compensation for serving in such capacities in
addition to the compensation paid to all independent directors.
2Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the election
of the directors.
3These amounts represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding The Global Health Sciences
Fund which does not participate in any retirement plan) upon the directors'
retirement, calculated using the current method of allocating director
compensation among the funds in the INVESCO Complex. These estimated benefits
assume retirement at age 72 and that the basic retainer payable to the directors
will be adjusted periodically for inflation, for increases in the number of
funds in the INVESCO Complex, and for other reasons during the period in which
retirement benefits are accrued on behalf of the respective directors. This
results in lower estimated benefits for directors who are closer to retirement
and higher estimated benefits for directors who are further from retirement.
With the exception of Messrs. Frazier and McIntyre, each of these directors has
served as a director/trustee of one or more of the funds in the INVESCO Complex
for the minimum five-year period required to be eligible to participate in the
Defined Benefit Deferred Compensation Plan.
<PAGE>
4Messrs. Frazier and McIntyre began serving as directors of
the Company on April 19, 1995.
5Effective November 1, 1996, A.D. Frazier, Jr. was employed by INVESCO
PLC, a company affiliated with INVESCO. Because it was possible that Mr. Frazier
would be employed with INVESCO PLC effective May 1, 1996, he was deemed to be an
"interested person" of the Company and of the other funds in the INVESCO
Complex. Effective November 1, 1996, Mr. Frazier will no longer receive any
director's fees or other compensation from the Company or other funds in the
INVESCO Complex for his service as a director.
6Total as a percentage of the Company's net assets as of
August 31, 1996.
7Total as a percentage of the net assets of the INVESCO
Complex as of December 31, 1995.
Messrs. Brady, Harris, Hesser and, effective November 1, 1996, Frazier, as
"interested persons" of the Company and other funds in the INVESCO Complex,
receive compensation as officers or employees of INVESCO or its affiliated
companies, and do not receive any director's fees or other compensation from the
Company or other funds in the INVESCO Complex for their services as directors.
The boards of directors/trustees of the mutual funds managed by INVESCO,
INVESCO Advisor Funds, Inc. and INVESCO Treasurer's Series Trust have adopted a
Defined Benefit Deferred Compensation Plan for the non-interested directors and
trustees of the funds. Under this plan, each director or trustee who is not an
interested person of the funds (as defined in the 1940 Act) and who has served
for at least five years (a "qualified director") is entitled to receive, upon
retiring from the boards at the retirement age of 72 (or the retirement age of
73 to 74, if the retirement date is extended by the boards for one or two years,
but less than three years) continuation of payment for one year (the "first year
retirement benefit") of the annual basic retainer payable by the funds to the
qualified director at the time of his retirement (the "basic retainer").
Commencing with any such director's second year of retirement, and commencing
with the first year of retirement of a director whose retirement has been
extended by the board for three years, a qualified director shall receive
quarterly payments at an annual rate equal to 25% of the basic retainer. These
payments will continue for the remainder of the qualified director's life or ten
years, whichever is longer (the "reduced retainer payments"). If a qualified
director dies or becomes disabled after age 72 and before age 74 while still a
director of the funds, the first year retirement benefit and the reduced
retainer payments will be made to him or to his beneficiary or estate. If a
qualified director becomes disabled or dies either prior to age 72 or during
his/her 74th year while still a director of the funds, the director will not be
entitled to receive the first year retirement benefit; however, the reduced
retainer payments will be made to his beneficiary or estate. The plan is
administered by a committee of three directors who are also participants in the
plan and one director who is not a plan participant. The cost of the plan will
be allocated among the INVESCO, INVESCO Advisor and Treasurer's Series funds in
a manner determined to be fair and equitable by the committee. The Company is
not making any payments to directors under the plan as of the date of this
Statement of Additional Information. The Company has no stock options or other
pension or retirement plans for management or other personnel and pays no salary
or compensation to any of its officers.
<PAGE>
The Company has an audit committee comprised of four of the directors who
are not interested persons of the Company. The committee meets periodically with
the Company's independent accountants and officers to review accounting
principles used by the Company, the adequacy of internal controls, the
responsibilities and fees of the independent accountants, and other matters.
The Company also has a management liaison committee which meets quarterly
with various management personnel of INVESCO in order (a) to facilitate better
understanding of management and operations of the Company, and (b) to review
legal and operational matters which have been assigned to the committee by the
board of directors, in furtherance of the board of directors' overall duty of
supervision.
HOW SHARES CAN BE PURCHASED
Shares of each Fund are sold on a continuous basis at the respective net
asset value per share of the Fund next calculated after receipt of a purchase
order in good form. The net asset value per share is computed separately for
each Fund and is determined once each day that the New York Stock Exchange is
open as of the close of regular trading on that Exchange, but may also be
computed at other times. See "How Shares Are Valued." INVESCO acts as the Funds'
Distributor under a distribution agreement with the Company under which it
receives no compensation and bears all expenses, including the costs of printing
and distributing prospectuses, incident to marketing of the Funds' shares,
except for such distribution expenses which are paid out of Fund assets under
the Company's Plan of Distribution which has been adopted by the Company
pursuant to Rule 12b-1 under the 1940 Act.
Distribution Plan. As discussed under "How To Buy Shares Distribution
Expenses" in the Prospectus, the Company has adopted a Plan and Agreement of
Distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. The Plan
provides that each of the Funds may make monthly payments to INVESCO of amounts
computed at an annual rate no greater than 0.25% of the Fund's average net
assets to reimburse it for expenses incurred by it in connection with the
distribution of each Fund's shares to investors. Payment amounts by a Fund under
the Plan, for any month, may only be made to reimburse or pay expenditures
incurred during the rolling 12-month period in which that month falls, although
this period is expanded to 24 months for expenses incurred during the first 24
months of the Fund's operations. During the fiscal year ended August 31, 1996,
the Company made payments to INVESCO under the Plan (prior to the voluntary
absorption of certain Fund expenses by INVESCO) in the amount of $630,553,
$842,755, $102,611, and $21,828 for INVESCO Select Income Fund, INVESCO High
Yield Fund, INVESCO U.S. Government Securities Fund, and INVESCO Short-Term Bond
Fund, respectively. In addition, as of August 31, 1996, $55,191, $78,839,
$11,195, and $2,243 of additional distribution expenses had been incurred for
INVESCO Select Income Fund, INVESCO High Yield Fund, INVESCO U.S. Government
Securities Fund, and INVESCO Short-Term Bond Fund, respectively, subject to
payment upon approval by the Company's directors, which payments are scheduled
to be approved on October 30, 1996. As noted in the Prospectuses, one type of
<PAGE>
reimbursable expenditure is the payment of compensation to securities
companies and other financial institutions and organizations, which may include
INVESCO-affiliated companies, in order to obtain various distribution-related
and/or administrative services for the Funds. Each Fund is authorized by the
Plan to use its assets to finance the payments made to obtain those services.
Payments will be made by INVESCO to broker-dealers who sell shares of the Funds
and may be made to banks, savings and loan associations and other depository
institutions. Although the Glass-Steagall Act limits the ability of certain
banks to act as underwriters of mutual fund shares, the Company does not believe
that these limitations would affect the ability of such banks to enter into
arrangements with INVESCO, but can give no assurance in this regard. However, to
the extent it is determined otherwise in the future, arrangements with banks
might have to be modified or terminated, and, in that case, the size of one or
more of the Funds possibly could decrease to the extent that the banks would no
longer invest customer assets in a particular Fund. Neither the Company nor its
investment adviser will give any preference to banks or other depository
institutions which enter into such arrangements when selecting investments to be
made by each Fund.
For the fiscal year ended August 31, 1996, allocation of 12b-1 amounts paid
by the Select Income Fund for the following categories of expenses were:
advertising--$77,628; sales literature, printing, and postage--$140,677; direct
mail--$58,036 public relations/promotion--$23,560; compensation to securities
dealers and other organizations--$233,879; marketing personnel--$96,773. For the
fiscal year ended August 31, 1996, allocation of 12b-1 amounts paid by the High
Yield Fund for the following categories of expenses were: advertising--$31,532;
sales literature, printing and postage--$100,242; direct mail--$34,046; public
relations/promotion--$37,923; compensation to securities dealers and other
organizations--$438,241; marketing personnel--$200,771. For the fiscal year
ended August 31, 1996, allocation of 12b-1 amounts paid by the U.S. Government
Securities Fund were: advertising--$37,150; sales literature, printing and
postage-- $14,396; direct mail--$3,303; public relations/promotion--$3,273;
compensation to securities dealers and other organizations-- $26,717; marketing
personnel--$17,772. For the fiscal year ended August 31, 1996, allocation of
12b-1 amounts paid by the Short-Term Bond Fund were: advertising--$1,067; sales
literature, printing and postage--$9,332; direct mail--$1,112; public
relations/promotion--$1,162; compensation to securities dealers and other
organizations--$3,847; marketing personnel--$5,309.
The nature and scope of services which are provided by securities dealers
and other organizations may vary by dealer but include, among other things,
processing new stockholder account applications, preparing and transmitting to
the Company's Transfer Agent computer-processable tapes of each Fund's
transactions by customers, serving as the primary source of information to
customers in answering questions concerning each Fund, and assisting in other
customer transactions with each Fund.
The Plan was approved on April 21, 1993, at a meeting called for such
purpose by a majority of the directors of the Company, including a majority of
the directors who neither are "interested persons" of the Company nor have any
financial interest in the operation of the Plan ("12b-1 directors"). Pursuant to
authorizations granted by the public shareholders of the Select Income Portfolio
and U.S. Government Securities Portfolio of FBS on May 24, 1993, and by the
public shareholders of the High Yield Portfolio of FBS on June 21, 1993, such
<PAGE>
Portfolios, as the initial shareholders of the Company, approved the Plan for an
initial term expiring April 30, 1994. The Plan was approved by INVESCO on
September 29, 1993, as the then sole shareholder of the INVESCO Short-Term Bond
Fund. The Plan has been continued by action of the board of directors until
April 30, 1997.
The Plan provides that it shall continue in effect with respect to each
Fund for so long as such continuance is approved at least annually by the vote
of the board of directors of the Company cast in person at a meeting called for
the purpose of voting on such continuance. The Plan also can be terminated at
any time with respect to any Fund, without penalty, if a majority of the 12b-1
directors, or shareholders of such Fund, vote to terminate the Plan. The Company
may, in its absolute discretion, suspend, discontinue or limit the offering of
the shares of any Fund at any time. In determining whether any such action
should be taken, the board of directors intends to consider all relevant factors
including, without limitation, the size of the Funds, the investment climate for
any particular Fund, general market conditions, and the volume of sales and
redemptions of Fund shares. The Plan may continue in effect and payments may be
made under the Plan following any such temporary suspension or limitation of the
offering of a Fund's shares; however, the Company is not contractually obligated
to continue the Plan for any particular period of time. Suspension of the
offering of a Fund's shares would not, of course, affect a shareholder's ability
to redeem his shares. So long as the Plan is in effect, the selection and
nomination of persons to serve as independent directors of the Company shall be
committed to the independent directors then in office at the time of such
selection or nomination. The Plan may not be amended to increase materially the
amount of any Fund's payments thereunder without approval of the shareholders of
that Fund, and all material amendments to the Plan must be approved by the board
of directors of the Company, including a majority of the 12b-1 directors. Under
the agreement implementing the Plan, INVESCO or the Funds, the latter by vote of
a majority of the 12b-1 directors or of the holders of a majority of a Fund's
outstanding voting securities, may terminate such agreement as to that Fund
without penalty upon 30 days' written notice to the other party. No further
payments will be made by a Fund under the Plan in the event of its termination
as to that Fund.
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it shall remain in effect as such, so
as to authorize the use of each Fund's assets in the amounts and for the
purposes set forth therein, notwithstanding the occurrence of an assignment, as
defined by the 1940 Act, and rules thereunder. To the extent it constitutes an
agreement pursuant to a plan, each Fund's obligation to make payments to INVESCO
shall terminate automatically, in the event of such "assignment," in which event
the Funds may continue to make payments, pursuant to the Plan, to INVESCO or
<PAGE>
another organization only upon the approval of new arrangements, which may
or may not be with INVESCO, regarding the use of the amounts authorized to be
paid by it under the Plan, by the directors, including a majority of the 12b-1
directors, by a vote cast in person at a meeting called for such purpose.
Information regarding the services rendered under the Plan and the amounts
paid therefor by each Fund are provided to, and reviewed by, the directors on a
quarterly basis. In the quarterly review, the directors determine whether, and
to what extent, INVESCO will be reimbursed for expenditures which it has made
that are reimbursable under the Company's Rule 12b-1 Plan. On an annual basis,
the directors consider the continued appropriateness of the Plan at the level of
compensation provided therein.
The only directors or interested persons, as that term is defined in
Section 2(a)(19) of the 1940 Act, of the Company who have a direct or indirect
financial interest in the operation of the Plan are the officers and directors
of the Company listed under "The Funds and Their Management - Officers and
Directors of the Company" who are also officers either of INVESCO or companies
affiliated with INVESCO. The benefits which the Company believes will be
reasonably likely to flow to the Funds and their shareholders under the Plan
include the following:
(1) Enhanced marketing efforts, if successful, should result in an
increase in net assets through the sale of additional shares and
afford greater resources with which to pursue the investment
objectives of the Funds;
(2) The sale of additional shares reduces the likelihood that redemption
of shares will require the liquidation of securities of the Funds in
amounts and at times that are disadvantageous for investment
purposes;
(3) The positive effect which increased Fund assets will have on its
revenues could allow INVESCO:
(a) To have greater resources to make the financial commitments
necessary to improve the quality and level of each Fund's
shareholder services (in both systems and personnel),
(b) To increase the number and type of mutual funds available to
investors from INVESCO (and support them in their infancy),
and thereby expand the investment choices available to all
shareholders, and
(c) To acquire and retain talented employees who desire
to be associated with a growing organization; and
(4) Increased Fund assets may result in reducing each investor's share
of certain expenses through economies of scale (e.g. exceeding
established breakpoints in the advisory fee schedule and allocating
fixed expenses over a larger asset base), thereby partially
offsetting the costs of the Plan.
<PAGE>
HOW SHARES ARE VALUED
As described in the section of each Fund's Prospectus entitled "Fund Price
and Performance," the net asset value of shares of each Fund of the Company is
computed once each day that the New York Stock Exchange is open as of the close
of regular trading on that Exchange (generally 4:00 p.m., New York time) and
applies to purchase and redemption orders received prior to that time. Net asset
value per share is also computed on any other day on which there is a sufficient
degree of trading in the securities held by a Fund that the current net asset
value per share of such Fund might be materially affected by changes in the
value of the securities held, but only if on such day the Fund receives a
request to purchase or redeem shares. Net asset value per share is not
calculated on days the New York Stock Exchange is closed, such as federal
holidays, including New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas.
The net asset value per share of each Fund is calculated by dividing the
value of all securities held by the Fund and its other assets (including
dividends and interest accrued but not collected), less the Fund's liabilities
(including accrued expenses), by the number of outstanding shares of the Fund.
Securities traded on national securities exchanges, the NASDAQ National Market
System, the NASDAQ Small Cap Market and foreign markets are valued at their last
sale prices on the exchanges or markets where such securities are primarily
traded. Securities traded in the over-the-counter market for which last sale
prices are not available, and listed securities for which no sales were reported
on a particular date, are valued at their highest closing bid prices (or, for
debt securities, yield equivalents thereof) obtained from one or more dealers
making markets for such securities. If market quotations are not readily
available, securities will be valued at their fair values as determined in good
faith by the Company's board of directors or pursuant to procedures adopted by
the board of directors. The above procedures may include the use of valuations
furnished by a pricing service which employs a matrix to determine valuations
for normal institutional-size trading units of debt securities. Prior to
utilizing a pricing service, the Company's board of directors reviews the
methods used by such service to assure itself that securities will be valued at
their fair values. The Company's board of directors also periodically monitors
the methods used by such pricing services. Debt securities with remaining
maturities of 60 days or less at the time of purchase are normally valued at
amortized cost.
The values of securities held by the Funds, and other assets used in
computing net asset value, generally are determined as of the time regular
trading in such securities or assets is completed each day. Since regular
trading in most foreign securities markets is completed simultaneously with, or
prior to, the close of regular trading on the New York Stock Exchange, closing
prices for foreign securities usually are available for purposes of computing
the Fund's net asset value on a particular day. However, in the event that the
closing price of a foreign security is not available in time to calculate a
Fund's net asset value on a particular day the Company's board of directors has
authorized the use of the market price for the established time during the day
which may be prior to the close of regular trading in the security. The value of
all assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the spot rates of such currencies against U.S.
dollars provided by an approved pricing service.
<PAGE>
FUND PERFORMANCE
As discussed in the section of each Fund's Prospectus entitled "Fund Price
and Performance," the Funds advertise their yield and total return performance.
In calculating yield quotations for the Funds, except for asset-backed
securities, such as GNMA certificates, interest earned is determined by
computing yield to maturity (or yield to call, if applicable) of each obligation
held by a Fund, based upon market value of each obligation (including actual
accrued interest) at the close of business on the last business day of each
month, or, with respect to an obligation purchased during the month, the
purchase price plus accrued interest. The resultant yield to maturity is divided
by 360 and multiplied by the market value of the obligation (including actual
accrued interest), and the result is multiplied by the number of days in the
subsequent month that the obligation is in the Fund (assuming that each month
has 30 days). Dividends received on the preferred stocks held by the INVESCO
High Yield Fund are recognized, for purposes of yield calculations, on a daily
accrual basis. As discussed in each Prospectus, and in the Appendix of this
Statement of Additional Information, the GNMA Certificates held by the INVESCO
U.S. Government Securities and Select Income Funds are generally subject to
monthly payments of principal and interest ("paydowns"). In computing these
Funds' yields, gain or loss attributable to actual monthly paydowns is accounted
for as an increase or decrease to interest income during the period. The Funds
amortize the discount and premium on the remaining security, based on the cost
of the security, to the weighted average maturity date, if such information is
available, or to the remaining term of the GNMA Certificate, if the weighted
average maturity date is not available. Yield quotations for each Fund for the
30 days ended August 31, 1996, were as follows: INVESCO Select Income Fund,
7.70%; INVESCO High Yield Fund, 9.37%; INVESCO U.S. Government Securities Fund,
5.76%; and INVESCO Short-Term Bond Fund, 5.64%.
Average annual total return performance for each of the Funds for the
indicated periods ended August 31, 1996, was as follows:
1 3 5 10
Fund Year Years Years Years
- ---- ---- ----- ----- -----
INVESCO Select Income 4.78% 6.27% 9.17% 8.14%
INVESCO High Yield 11.38% 7.50% 10.85% 8.66%
INVESCO U.S.
Government Securities(2) 1.31% 2.09% 6.33% 6.16%(1)
INVESCO Short-Term
Bond(3) 4.63% N/A N/A 3.74%(1)
- ---------------------------
(1) Life of Fund.
(2) The INVESCO U.S. Government Securities Fund did not commence
operations until January 2, 1986.
(3) The INVESCO Short-Term Bond Fund did not commence operations until
September 30, 1993.
<PAGE>
Average annual total return performance for each of the periods indicated
was computed by finding the average annual compounded rates of return that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1 + T)n = ERV
where: P = initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown above were
determined by solving the above formula for "T" for each time period and Fund
indicated.
In conjunction with performance reports and/or analyses for the Funds,
comparative data between a Fund's performance for a given period and recognized
indices of investment results for the same period, and/or assessments of the
quality of shareholder service, may be provided to shareholders. Such indices
include indices provided by Dow Jones & Company, Standard & Poor's, Lipper
Analytical Services, Inc., Lehman Brothers, National Association of Securities
Dealers Automated Quotations, Frank Russell Company, Value Line Investment
Survey, the American Stock Exchange, Morgan Stanley Capital International,
Wilshire Associates, the Financial Times Stock Exchange, the New York Stock
Exchange, the Nikkei Stock Average and Deutcher Aktienindex, all of which are
unmanaged market indicators. In addition, rankings, ratings, and comparisons of
investment performance and/or assessments of the quality of shareholder service
made by independent sources may be used in advertisements, sales literature or
shareholder reports, including reprints of, or selections from, editorials or
articles about the Funds. These sources utilize information compiled (i)
internally; (ii) by Lipper Analytical Services, Inc.; or (iii) by other
recognized analytical services. The Lipper Analytical Services, Inc. mutual fund
rankings and comparisons which may be used by the Funds in performance reports
will be drawn from the mutual fund groupings listed in each Fund's prospectus,
in addition to the broad-based Lipper general fund groupings. Sources for Fund
performance information and articles about the Funds include, but are not
limited to, the following:
American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
CNBC
CNN
Consumer Digest
Financial Times
Financial World
Forbes
Fortune
Ibbotson Associates, Inc.
Institutional Investor
Investment Company Data, Inc.
Investor's Business Daily
<PAGE>
Kiplinger's Personal Finance
Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis
Money
Morningstar
Mutual Fund Forecaster
No-Load Analyst
No-Load Fund X
Personal Investor
Smart Money
The New York Times
The No-Load Fund Investor
U.S. News and World Report
United Mutual Fund Selector
USA Today
Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
SERVICES PROVIDED BY THE FUND
Periodic Withdrawal Plan. As described in the section of each Fund's
Prospectus entitled "How to Sell Shares," each Fund offers a Periodic Withdrawal
Plan. All dividends and distributions on shares owned by shareholders
participating in this Plan are reinvested in additional shares. Since withdrawal
payments represent the proceeds from sales of shares, the amount of
shareholders' investments in a Fund will be reduced to the extent that
withdrawal payments exceed dividends and other distributions paid and
reinvested. Any gain or loss on such redemptions must be reported for tax
purposes. In each case, shares will be redeemed at the close of business on or
about the 20th day of each month preceding payment and payments will be mailed
within five business days thereafter.
The Periodic Withdrawal Plan involves the use of principal and is not a
guaranteed annuity. Payments under such Plan do not represent income or a return
on investment.
A Periodic Withdrawal Plan may be terminated at any time by sending a
written request to INVESCO. Upon termination, all future dividends and capital
gain distributions will be reinvested in additional shares unless a shareholder
requests otherwise.
Exchange Privilege. As discussed in the section of each Fund's Prospectus
entitled "How to Buy Shares - Exchange Privilege," the Funds offer shareholders
the privilege of exchanging shares of the Funds for shares of another Fund or
for shares of certain other no-load mutual funds advised by INVESCO. Exchange
requests may be made either by telephone or by written request to INVESCO Funds
Group, Inc., using the telephone number or address on the cover of this
Statement of Additional Information.
<PAGE>
Exchanges made by telephone must be in an amount of at least $250, if the
exchange is being made into an existing account of one of the INVESCO funds. All
exchanges that have established a new account must meet the fund's applicable
minimum initial investment requirements. Written exchange requests into an
existing account have no minimum requirements other than the fund's applicable
minimum subsequent investment requirements. Any gain or loss realized on such an
exchange is recognized for federal income tax purposes. This privilege is not an
option or right to purchase securities, but is a revocable privilege permitted
under the present policies of each of the funds and is not available in any
state or other jurisdiction where the shares of the mutual fund into which
transfer is to be made are not qualified for sale, or when the net asset value
of the shares presented for exchange is less than the minimum dollar purchase
required by the appropriate prospectus.
TAX-DEFERRED RETIREMENT PLANS
As described in the section of each Fund's Prospectus entitled "Fund
Services," shares of a Fund may be purchased as the investment medium for
various tax-deferred retirement plans. Persons who request information regarding
these plans from INVESCO will be provided with prototype documents and other
supporting information regarding the type of Plan requested. Each of these plans
involves a long-term commitment of assets and is subject to possible regulatory
penalties for excess contributions, premature distributions or for insufficient
distributions after age 70-1/2. The legal and tax implications may vary
according to the circumstances of the individual investor. Therefore, the
investor is urged to consult with an attorney or tax adviser prior to the
establishment of such a plan.
HOW TO REDEEM SHARES
Normally, payments for shares redeemed will be mailed within seven (7) days
following receipt of the required documents as described in the section of each
Fund's Prospectus entitled "How to Sell Shares." The right of redemption may be
suspended and payment postponed when: (a) the New York Stock Exchange is closed
for other than customary weekends and holidays; (b) trading on that exchange is
restricted; (c) an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets; or (d)
the SEC by order so permits.
It is possible that in the future conditions may exist which would, in the
opinion of the Company's investment adviser, make it undesirable for a Fund to
pay for redeemed shares in cash. In such cases, the investment adviser may
authorize payment to be made in portfolio securities or other property of the
Fund. However, the Company has obligated itself under the 1940 Act to redeem for
cash all shares of a Fund presented for redemption by any one
<PAGE>
shareholder having a value up to $250,000 (or 1% of the Fund's net assets
if that is less) in any 90-day period. Securities delivered in payment of
redemptions are selected entirely by the investment adviser based on what is in
the best interests of the Fund and its shareholders, and are valued at the value
assigned to them in computing the Fund's net asset value per share. Shareholders
receiving such securities are likely to incur brokerage costs on their
subsequent sales of the securities.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
Each Fund intends to continue to conduct its business and satisfy the
applicable diversification of assets and source of income requirements to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. Each Fund so qualified in the fiscal year
ended August 31, 1996, and intends to continue to qualify during its current
fiscal year. As a result, it is anticipated that the Funds will pay no federal
income or excise taxes and will be accorded conduit or "pass through" treatment
for federal income tax purposes.
Dividends paid by the Funds from net investment income, as well as
distributions of net realized short-term capital gains are, for federal income
tax purposes, taxable as ordinary income to shareholders. After the end of each
calendar year, each Fund sends shareholders information regarding the amount and
character of dividends paid in the year, including the dividends eligible for
the dividends-received deduction for corporations. Such amounts will be limited
to the aggregate amount of qualifying dividends which the Fund derives from its
portfolio investments.
Distributions by the Funds of net capital gains (the excess of long-term
capital gain over net short-term capital loss) are, for federal income tax
purposes, taxable to the shareholder as long-term capital gain regardless of how
long a shareholder has held shares of a Fund. Such distributions are identified
as such and are not eligible for the dividends-received deduction.
All dividends and other distributions are regarded as taxable to the
investor, whether or not such dividends and distributions are reinvested in
additional shares. If the net asset value of the shares of the Funds should be
reduced below a shareholder's cost as a result of a distribution, such
distribution would be taxable to the shareholder although a portion would be, in
effect, a return of invested capital. The net asset value of shares of the Funds
reflects accrued net investment income and undistributed realized capital gains;
therefore, when a distribution is made, the net asset value is reduced by the
amount of the distribution. If shares are purchased shortly before a
distribution, the full price for the shares will be paid and some portion of the
price may then be returned to the shareholder as a taxable dividend or capital
gain. However, the net asset value per share will be reduced by the amount of
the distribution, which would reduce any gain (or increase any loss) for tax
purposes on any subsequent redemption of shares.
<PAGE>
INVESCO may provide Fund shareholders with information concerning the
average cost basis of their shares in order to help them prepare their tax
returns. This information is intended as a convenience to shareholders, and will
not be reported to the Internal Revenue Service (the "IRS"). The IRS permits the
use of several methods to determine the cost basis of mutual fund shares. The
cost basis information provided by INVESCO will be computed using the
single-category average cost method, although neither INVESCO nor the Fund
recommends any particular method of determining cost basis. Other methods may
result in different tax consequences. If a shareholder has reported gains or
losses for a Fund in past years, the shareholder must continue to use the method
previously used, unless the shareholder applies to the IRS for permission to
change methods.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares.
A Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of a
Fund's total assets at the close of any taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the IRS that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign and U.S.
possessions income taxes paid by it. The Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's income
from sources within, and taxes paid to, foreign countries and U.S. possessions
if it makes this election.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Although dividend distributions
by the INVESCO U.S. Government Securities Fund may be exempt from state and
local taxes in certain states, dividends and capital gain distributions will
generally be subject to applicable state and local taxes. Qualification as a
regulated investment company under the Internal Revenue Code of 1986, as amended
for income tax purposes does not entail government supervision of management or
investment policies.
INVESTMENT PRACTICES
Portfolio Turnover. There are no fixed limitations regarding the portfolio
turnover of the Funds. The rate of portfolio turnover has fluctuated under
constantly changing economic conditions and market circumstances. During the
fiscal years ended August 31, 1996, 1995 and 1994, the INVESCO Select Income
Fund's portfolio turnover rates were 210%, 181% and 135%, respectively, the
INVESCO High Yield Fund's turnover rates were 266%, 201% and 195%, respectively,
and the INVESCO U.S. Government Securities Fund's portfolio turnover rates were
<PAGE>
212%, 99% and 95%, respectively. During the fiscal years ended August 31, 1996
and 1995 and the eleven-month period ended August 31, 1994, the INVESCO
Short-Term Bond Fund's portfolio turnover rates were 103%, 68% and 169%. The
portfolio turnover rate for the Short-Term Bond Fund for the eleven months ended
August 31, 1994 is not annualized. Securities initially satisfying the basic
policies and objectives of a Fund may be disposed of when they are no longer
suitable. Brokerage costs to these Funds are commensurate with the rate of
portfolio activity. In computing the above portfolio turnover rates, all
investments with maturities or expiration dates at the time of acquisition of
one year or less were excluded. Subject to this exclusion, the turnover rate was
calculated by dividing (A) the lesser of purchases or sales of portfolio
securities for the fiscal year by (B) the monthly average of the value of
portfolio securities owned by the Fund during the fiscal year.
Placement of Portfolio Brokerage. Either INVESCO, as the Company's
investment adviser, or INVESCO Trust, as the Company's sub-adviser, places
orders for the purchase and sale of securities with brokers and dealers based
upon INVESCO's or INVESCO Trust's evaluation of their financial responsibility,
subject to their ability to effect transactions at the best available prices.
INVESCO or INVESCO Trust evaluates the overall reasonableness of brokerage
commissions or underwriting discounts (the difference between the full
acquisition price to acquire the new offering and the discount offered to
members of the underwriting syndicate) paid by reviewing the quality of
executions obtained on portfolio transactions of each Fund, viewed in terms of
the size of transactions, prevailing market conditions in the security purchased
or sold, and general economic and market conditions. In seeking to ensure that
the commissions or discounts charged the Fund are consistent with prevailing and
reasonable commissions or discounts, INVESCO or INVESCO Trust also endeavors to
monitor brokerage industry practices with regard to the commissions or discounts
charged by brokers and dealers on transactions effected for other comparable
institutional investors. While INVESCO or INVESCO Trust seeks reasonably
competitive rates, the Funds do not necessarily pay the lowest commission,
spread or discount available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, INVESCO or INVESCO Trust may select brokers that provide
research services to effect such transactions. Research services consist of
statistical and analytical reports relating to issuers, industries, securities
and economic factors and trends, which may be of assistance or value to INVESCO
or INVESCO Trust in making informed investment decisions. Research services
prepared and furnished by brokers through which the Funds effect securities
transactions may be used by INVESCO or INVESCO Trust in servicing all of their
respective accounts and not all such services may be used by INVESCO or INVESCO
Trust in connection with the Funds.
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, INVESCO or INVESCO Trust, consistent with
the standard of seeking to obtain the best execution on portfolio transactions,
may place orders with such brokers for the execution of transactions for the
Funds on which the commissions or discounts are in excess of those which other
brokers might have charged for effecting the same transactions.
<PAGE>
Portfolio transactions may be effected through qualified broker-dealers who
recommend the Funds to their clients, or who act as agent in the purchase of any
of the Fund's shares for their clients. When a number of brokers and dealers can
provide comparable best price and execution on a particular transaction, the
Company's adviser may consider the sale of Fund shares by a broker or dealer in
selecting among qualified broker-dealers.
Certain financial institutions (including brokers who may sell shares of
the Funds, or affiliates of such brokers) are paid a fee (the "Services Fee")
for recordkeeping, shareholder communications and other services provided by the
brokers to investors purchasing shares of the Funds through no transaction fee
programs ("NTF Programs") offered by the financial institution or its affiliated
broker (an "NTF Program Sponsor"). The Services Fee is based on the average
daily value of the investments in each Fund made in the name of such NTF Program
Sponsor and held in omnibus accounts maintained on behalf of investors
participating in the NTF Program. With respect to certain NTF Programs, the
directors of the Company have authorized the Funds to apply dollars generated
from the Company's Plan and Agreement of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan") to pay the entire Services Fee, subject to the
maximum Rule 12b-1 fee permitted by the Plan. With respect to other NTF
Programs, the Company's directors have authorized the Funds to pay transfer
agency fees to INVESCO based on the number of investors who have beneficial
interests in the NTF Program Sponsor's omnibus accounts in the Funds. INVESCO,
in turn, pays these transfer agency fees to the NTF Program Sponsor as a
sub-transfer agency or recordkeeping fee in payment of all or a portion of the
Services Fee. In the event that the sub-transfer agency or recordkeeping fee is
insufficient to pay all of the Services Fee with respect to these NTF Programs,
the directors of the Company have authorized the Company to apply dollars
generated from the Plan to pay the remainder of the Services Fee, subject to the
maximum Rule 12b-1 fee permitted by the Plan. INVESCO itself pays the portion of
each Fund's Services Fee, if any, that exceeds the sum of the sub-transfer
agency or recordkeeping fee and Rule 12b-1 fee. The Company's directors have
further authorized INVESCO to place a portion of each Fund's brokerage
transactions with certain NTF Program Sponsors or their affiliated brokers, if
INVESCO reasonably believes that, in effecting the Fund's transactions in
portfolio securities, the broker is able to provide the best execution of orders
at the most favorable prices. A portion of the commissions earned by such a
broker from executing portfolio transactions on behalf of the Funds may be
credited by the NTF Program Sponsor against its Services Fee. Such credit shall
be applied first against any sub-transfer agency or recordkeeping fee payable
with respect to the Funds, and second against any Rule 12b-1 fees used to pay a
portion of the Services Fee, on a basis which has resulted from negotiations
between INVESCO and the NTF Program Sponsor. Thus, the Funds pay sub- transfer
agency or recordkeeping fees to the NTF Program Sponsor in payment of the
Services Fee only to the extent that such fees are not offset by a Fund's
credits. In the event that the transfer agency fee paid by the Funds to INVESCO
with respect to investors who have beneficial interests in a particular NTF
Program Sponsor's omnibus accounts in a Fund exceeds the Services Fee applicable
to the Fund, after application of credits, INVESCO may carry forward the excess
and apply it to future Services Fees payable to that NTF Program Sponsor with
respect to that Fund. The amount of excess transfer agency fees carried forward
will be reviewed for possible adjustment by INVESCO prior to each fiscal
year-end of the Funds. The Company's board of directors has also authorized the
Funds to pay to INVESCO the full Rule 12b-1 fees contemplated by the Plan in
<PAGE>
reimbursement of expenses incurred by INVESCO in engaging in the activities and
providing the services on behalf of the Funds contemplated by the Plan, subject
to the maximum Rule 12b-1 fee permitted by the Plan, notwithstanding that
credits have been applied to reduce the portion of the 12b-1 fee that would have
been used to reimburse INVESCO for payments to such NTF Program Sponsor absent
such credits.
The aggregate dollar amount of underwriting discounts and brokerage
commissions paid by the Company for the fiscal years ended August 31, 1996, 1995
and 1994 were $3,611,046, $1,481,550 and $685,631, respectively. For the fiscal
year ended August 31, 1996, brokers providing research services received $1,300
in commissions on portfolio transactions effected for the Funds. On a
Fund-by-Fund basis this figure breaks down as follows: Select Income Fund, $0;
High Yield Fund, $1,300; U.S. Government Securities Fund, $0; and Short-Term
Bond Fund, $0. The aggregate dollar amount of such portfolio transactions was
$538,682. As a result of selling shares of the Fund, brokers received $0 in
commissions on portfolio transactions effected for the Funds during the fiscal
year ended August 31, 1996.
At August 31, 1996, the Funds held securities of their regular brokers or
dealers, or their parents, as follows:
Value of
Securities
Fund Broker or Dealer at 08/31/96
- ---- ---------------- -----------
INVESCO Select Income Associates Corporation 8,100,000
of North America
General Electric Capital 8,100,000
Donaldson, Lufkin, and 2,801,000
Jenrette Fixed Income
INVESCO High Yield Associates Corporation 13,500,000
of North America
Chevron Oil Finance 12,383,000
INVESCO U.S. Gov't. State Street Bank 9,190,000
Securities and Trust North America
INVESCO Short-Term Bond State Street Bank and 1,030,000
Trust North America
Merrill Lynch 400,000
Fixed Income
Neither INVESCO nor INVESCO Trust receives any brokerage commissions on
portfolio transactions effected on behalf of the Fund, and there is no
affiliation between INVESCO, INVESCO Trust, or any person affiliated with
INVESCO, INVESCO Trust, or the Fund and any broker or dealer that executes
transactions for the Fund.
<PAGE>
ADDITIONAL INFORMATION
Common Stock. The Company has 600,000,000 authorized shares of common stock
with a par value of $0.01 per share. Of the Company's authorized shares,
100,000,000 shares have been allocated to each of four classes, representing the
Company's four Funds. As of August 31, 1996, 40,629,816 shares of the INVESCO
Select Income Fund; 54,835,176 shares of the INVESCO High Yield Fund; 7,638,635
shares of the INVESCO U.S. Government Securities Fund; and 1,140,887 shares of
the INVESCO Short-Term Bond Fund were outstanding. All shares issued and
outstanding are, and all shares offered hereby, when issued, will be fully paid
and nonassessable. The board of directors has the authority to designate
additional classes of common stock without seeking the approval of shareholders,
and may classify and reclassify any authorized but unissued shares.
Shares of each class represent the interests of the shareholders of such
class in a particular portfolio of investments of the Company. Each class of the
Company's shares is preferred over all other classes with respect to the assets
specifically allocated to that class, and all income, earnings, profits and
proceeds from such assets, subject only to the rights of creditors, are
allocated to shares of that class. The assets of each class are segregated on
the books of account and are charged with the liabilities of that class and with
a share of the Company's general liabilities. The board of directors determines
those assets and liabilities deemed to be general assets or liabilities of the
Company, and those items are allocated among classes in a manner deemed by the
board to be fair and equitable. Generally, such allocation will be made based
upon the relative total net assets of each class. In the unlikely event that a
liability allocable to one class exceeds the assets belonging to the class, all
or a portion of such liability may have to be borne by the holders of shares of
the Company's other classes.
All dividends on shares of a particular class shall be paid only out of the
income belonging to that class, pro rata to the holders of that class. In the
event of the liquidation or dissolution of the Company or of a particular class,
the shareholders of each class that is being liquidated shall be entitled to
receive, as a class, when and as declared by the board of directors, the excess
of the assets belonging to that class over the liabilities belonging to that
class. The holders of shares of any class shall not be entitled to any
distribution upon liquidation of any other class. The assets so distributable to
the shareholders of any particular class shall be distributed among such
shareholders in proportion to the number of shares of that class held by them
and recorded on the books of the Company.
All Fund shares, regardless of class, have equal voting rights. Voting with
respect to certain matters, such as ratification of independent accountants or
election of directors, will be by all classes of the Company. When not all
classes are affected by a matter to be voted upon, such as approval of an
investment advisory contract or changes in a Fund's investment policies, only
shareholders of the class affected by the matter will be entitled to vote.
Company shares have noncumulative voting rights, which means that the holders of
a majority of the shares voting for the election of directors of the Company can
elect 100% of the directors if they choose to do so. In such event, the holders
of the remaining shares voting for the election of directors will not be able to
<PAGE>
elect any person or persons to the board of directors. After they have been
elected by shareholders, the directors will continue to serve until their
successors are elected and have qualified or they are removed from office, in
either case by a shareholder vote, or until death, resignation or retirement.
They may appoint their own successors, provided that always at least a majority
of the directors have been elected by the Company's shareholders. It is the
intention of the Company not to hold annual meetings of shareholders. The
directors will call annual or special meetings of shareholders for action by
shareholder vote as may be required by the 1940 Act or the Company's Articles of
Incorporation, or at their discretion.
Principal Shareholders. As of October 1, 1996, the following entities held
more than 5% of the outstanding securities of the Funds listed below.
Amount and Nature Percent
Name and Address of Ownership of Class
- ---------------- ----------------- --------
INVESCO Select Income Fund
Charles Schwab & Co. Inc. 8,269,046.0130 20.804%
Special Custody Acct. for Record
the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Resources Trust 2,754,788.1250 6.931%
Meridian Accts. Record
P.O. Box 3865
Englewood, CO 80155
INVESCO High Yield Fund
Charles Schwab & Co. Inc. 22,436,516.3510 38.150%
Special Custody Acct. for Record
the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
INVESCO U.S. Government
Securities Fund
Resources Trust Co. Cust. for 3,420,326.2630 45.443%
The Exclusive Benefit of the Record
Customers of Meridian
Investment Management Corp.
P.O. Box 3865
Englewood, CO 80155
<PAGE>
Charles Schwab & Co. Inc. 496,431.7360 6.596%
Special Custody Acct. for Record
the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
INVESCO Short-Term Bond Fund
Amalgamated Bank of NY Cust. 143,158.6430 12.583%
TWU Private Busline Record
Pension Trust
Amnivest Discretionary Inv. Mgr.
P.O. Box 370 Cooper Station
New York, NY 10276
Charles Schwab & Co., Inc. 143,158.6430 12.462%
Special Custody Acct. for Record
the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Amalgamated Bank of NY Cust. 80,810.2160 7.035%
Local 917 Pension Annuity & Record
Health Funds Amnivest Corp.
Dis. Inv. Management
P.O. Box 370 Cooper Station
New York, NY 10286
Amalgamated Bank of NY Cust. 62,139.8590 5.409%
Elevator Div. Ret. Benefit Plan Record
Amnivest Corp. Discretionary
Investment Mgr.
P.O. Box 370 Cooper Station
New York, NY 10003
Independent Accountants. Price Waterhouse LLP, 950 Seventeenth Street,
Denver, Colorado, has been selected as the independent accountants of the
Company. The independent accountants are responsible for auditing the financial
statements of the Company.
Custodian. State Street Bank and Trust Company, P.O. Box 351, Boston,
Massachusetts, has been designated as custodian of the cash and investment
securities of the Company. The bank is also responsible for, among other things,
receipt and delivery of the investment securities of the Company's Funds in
accordance with procedures and conditions specified in the custody agreement.
Transfer Agent. The Company is provided with transfer agent, registrar, and
dividend disbursing agent services by INVESCO Funds Group, Inc., 7800 E. Union
Avenue, Denver, Colorado 80237, pursuant to the Transfer Agency Agreement
described herein. Such services include the issuance, cancellation and transfer
of shares of the Funds, and the maintenance of records regarding the ownership
of such shares.
<PAGE>
Reports to Shareholders. The Company's fiscal year ends on August 31. The
Company distributes reports at least semiannually to its shareholders. Financial
statements regarding the Company, audited by the independent accountants, are
sent to shareholders annually.
Legal Counsel. The firm of Kirkpatrick & Lockhart, Washington, D.C. is
legal counsel for the Company. The firm of Moye, Giles, O'Keefe, Vermeire &
Gorrell, Denver, Colorado, acts as special counsel to the Company.
Financial Statements. The Company's audited financial statements and the
notes thereto for the fiscal year ended August 31, 1996, and the report of Price
Waterhouse LLP with respect to such financial statements, are incorporated
herein by reference from the Company's Annual Report to Shareholders for the
fiscal year ended August 31, 1996.
Prospectuses. The Company will furnish, without charge, a copy of the
applicable Prospectus for each of its Funds upon request. There is a separate
Prospectus available for each Fund. Such requests should be made to the Company
at the mailing address or telephone number set forth on the first page of this
Statement of Additional Information.
Registration Statement. This Statement of Additional Information and the
Prospectuses do not contain all of the information set forth in the Registration
Statement the Company has filed with the SEC. The complete Registration
Statement may be obtained from the SEC upon payment of the fee prescribed by the
rules and regulations of the SEC.
<PAGE>
APPENDIX - GNMA CERTIFICATES, AND FUTURES CONTRACTS
GNMA Certificates
Government National Mortgage Association. The Government National Mortgage
Association is a wholly-owned corporate instrumentality of the United States
within the U.S. Department of Housing and Urban Development. GNMA's principal
programs involve its guarantees of privately issued securities backed by pools
of mortgages.
Nature of GNMA Certificates. GNMA Certificates are mortgage-backed
securities. The Certificates evidence part ownership of a pool of mortgage
loans. The Certificates which the Company purchases are of the modified
pass-through type. Modified pass-through Certificates entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
fees paid to the GNMA Certificate issuer and GNMA, regardless of whether or not
the mortgagor actually makes the payment.
GNMA Certificates are backed by mortgages and, unlike most bonds, their
principal amount is paid back by the borrower over the length of the loan rather
than in a lump sum at maturity. Principal payments received by the Company will
be reinvested in additional GNMA Certificates or in other permissible
investments.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal of and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. The GNMA guarantee
is backed by the full faith and credit of the United States. GNMA is also
empowered to borrow without limitation from the U.S. Treasury if necessary to
make any payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA Certificate is likely
to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will result in the return of a portion of principal invested before
the maturity of the mortgages in the pool.
As prepayment of individual mortgage pools will vary widely, it is not
possible to predict accurately the average life of a particular issue of GNMA
Certificates. However, statistics published by the Federal Housing
Administration are normally used as an indicator of the expected average life of
GNMA Certificates. These statistics indicate that the average life of
single-family dwelling mortgages with 25-30 year maturities (the type of
mortgages backing the vast majority of GNMA Certificates) is approximately 12
years. For this reason, it is customary for pricing purposes to consider GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year.
Yield Characteristics of GNMA Certificates. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the GNMA Certificate issuer. For the most common type of
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mortgage pool, containing single-family dwelling mortgages, GNMA receives an
annual fee of 0.06 of 1% of the outstanding principal for providing its
guarantee, and the GNMA Certificate issuer is paid an annual servicing fee of
0.44 of 1% for assembling the mortgage pool and for passing through monthly
payments of interest and principal to Certificate holders.
The coupon rate by itself, however, does not indicate the yield which will
be earned on the Certificates for the following reasons:
1. Certificates are usually issued at a premium or discount, rather than at
par.
2. After issuance, Certificates usually trade in the secondary market at a
premium or discount.
3. Interest is paid monthly rather than semiannually as is the case for
traditional bonds. Monthly compounding has the effect of raising the effective
yield earned on GNMA Certificates.
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate. If
mortgagors prepay their mortgages, the principal returned to Certificate holders
may be reinvested at higher or lower rates.
In quoting yields for GNMA Certificates, the customary practice is to
assume that the Certificates will have a 12-year life. Compared on this basis,
GNMA Certificates have historically yielded roughly 1/4 of 1% more than high
grade corporate bonds and 1/2 of 1% more than U.S. Government and U.S.
Government agency bonds. As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA Certificates may differ
significantly from the yield estimated on the assumption of a 12-year life.
Market for GNMA Certificates. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make GNMA Certificates highly liquid instruments. Quotes for GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the Certificates' coupon rates and the
prepayment experience of the pool of mortgages backing each Certificate.
Futures Contracts
A futures contract is an agreement between two parties for the future
acquisition or delivery of fixed income securities. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities called for by the contract at a specified price on a specified date.
A "purchase" of a futures contract means the acquisition of a contractual
obligation to acquire the securities called for by the contract at a specified
price on a specified date. The purpose of the acquisition or sale of a futures
contract, in the case of a Fund holding long-term debt securities, is to protect
the portfolio from fluctuations in interest rates without actually buying or
selling long-term debt securities. For example, when a Fund owns long-term U.S.
treasury bonds, if interest rates were expected to increase, the Fund might
enter into futures contracts for the sale of such bonds. Such a sale would have
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much the same effect as selling some of the long-term U.S. treasury bonds owned
by the Fund. If interest rates did increase, the value of the bonds in the Fund
would decline, but the value of the Fund's futures contracts would increase at
approximately the same rate, thereby keeping the net asset value of the Fund
from declining as much as it otherwise would have. Similarly, when it is
expected that interest rates may decline, futures contracts may be purchased to
hedge against anticipated purchases of long-term bonds at higher prices. Since
fluctuations in the value of futures contracts should be similar to that of
long-term bonds, the Fund could take advantage of the anticipated rise in the
value of long-term bonds without actually buying them until the market had
stabilized. At that time, the futures contracts could be liquidated and the
Fund's cash reserves could then be used to buy long-term bonds on the cash
market. The Fund could accomplish similar results by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase. However, since the futures contract market is more liquid
than the cash market, the use of futures contracts as an investment technique
allows the Fund to maintain a defensive position without having to sell its
portfolio securities.
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