Semiannual Report
February 28, 1998
INVESCO INCOME FUNDS
You should know
what INVESCO knows.
INVESCO FUNDS
<PAGE>
Market Overview March 1998
Like a great prize fighter, it appears that the U.S. economy has taken
Asia's best punch and continues to fight. At the beginning of the Asian
financial crisis, in the summer of 1997, investment professionals postulated
that Asian currency problems were "isolated," and would have little effect on
the U.S. economy. Then, as the contagion spread, market pundits theorized that
the crisis would derail economic growth in the U.S. and possibly devastate most
of the world's financial markets -- wrong again. As with most financial crises,
speculation on the length and severity of the situation varies from extreme
pessimism to extreme optimism, with the truth usually between the two.
Over the last six months, this uncertainty increased volatility in the
equity markets -- producing both the first market correction in more than seven
years and record highs for most indexes. However, as fears of deflation swept
through the economy, fixed-income markets experienced a significant rally, with
high-quality obligations realizing the strongest returns. With so much
uncertainty regarding the direction of the U.S.
economy, it's important to examine the known facts:
- The U.S. economy is still the dominant economy in the world. GDP (Gross
Domestic Product) grew 3.8% last year -- the fastest rate since 1988.
- U.S. exports to the Asian/Pacific Rim region are relatively minimal,
currently representing less than 15% of our total exports.
- Inflation remains subdued, as both consumer and producer prices remain
stable.
- Consumer confidence is at its highest level in more than 27 years.
- Unemployment is at historically low levels, and real wages are
starting to increase.
- The chronic U.S. budget deficit might become a surplus in the next few
years.
It appears that the domestic economy is still poised for growth with benign
inflation. Although the Asian financial crisis will influence the profitability
of certain industries, it will probably have only a minor effect on the U.S.
expansion, as consumer demand remains strong here and in Europe. In fact, the
crisis may have been a positive for the U.S, as it applied the brakes to an
exuberant economy before it had the chance to overheat. Plus, the crisis may
create necessary reforms in Asian economies which could allow for greater global
competition. Nonetheless, 1998 may be a more selective stock market with greater
volatility compared to the last three years.
For fixed-income investors, deflationary pressures produced by the Asian
crisis should keep both consumer and producer prices in check as cheaper foreign
goods flood the U.S. markets. This may keep the Federal Reserve Board from
changing the interest rate environment until the crisis has washed through the
U.S. economy. The one possible inflationary pressure remains increasing real
wages, given low unemployment rates. Nevertheless, the overall outlook for the
fixed-income markets continues to be positive.
INVESCO Income Funds, Inc.
The line graphs on the following pages illustrate the value of a $10,000
investment in each of the INVESCO Income Funds, plus reinvested dividends and
capital gain distributions, for the 10 years ended 2/28/98 (or for Short-Term
<PAGE>
Bond Fund, from inception through 2/28/98). The charts and other total
return figures cited reflect the funds' operating expenses, but the indexes do
not have expenses, which would, of course, have lowered their performance.(2)
Composition of holdings is subject to change.
High Yield Fund
INVESCO High Yield Fund received the prestigious five-star rating for
risk-adjusted performance by Morningstar, for the three-year, five-year,
10-year, and overall periods ended 2/28/98.(3)
For the six-month period ended 2/28/98, INVESCO High Yield Fund achieved a
total return of 8.81%, compared to 6.27% for the Merrill Lynch High Yield Master
Index. The fund also outperformed its peers over the same period, besting the
average fund return of 6.52% for the Lipper High Current Yield objective.
(Lipper Analytical Services, Inc., is an independent mutual fund analyst, which
tracks total return unadjusted for commissions. Of course, past performance is
not a guarantee of future results.)(1)(2)
The fund's strong relative performance originates in our value-oriented bond
management strategy. We attempt to identify corporate securities that are
mispriced by the market, as well as look for obligations that provide the
potential for capital appreciation in multiple ways. This disciplined investment
style tends to focus more on company and industry fundamentals, and less on
interest rates and Federal Reserve Policy.
During the last six months, our thematic approach to investing identified
opportunities in the communications and energy sectors, as well as the
radio/broadcasting industry. At the same time, we reduced our exposure to the
cable television industry, where market pricing has reduced future potential.
High Yield Fund
Average Annual Total Return
as of 2/28/98 (2)
1 Year 16.47%
---------------------------
5 Years 11.39%
---------------------------
10 Years 10.40%
In the communications sector, we continue to favor investments in
competitive local exchange carriers (CLECs) and rural service providers. Both
CLECs and rural service providers are improving fundamentally, and industry
consolidation is intensifying -- enhancing potential returns. Two of our
favorite investments in the communications sector are Intermedia Communications
and MetroNet Communications. Intermedia Communications is experiencing explosive
growth, and is currently the fifth-largest data service provider in the U.S.,
while MetroNet Communications is expanding its network and is presently the
largest Canadian CLEC.
Graph:
This line graph compares the value of a $10,000 investment in INVESCO High
Yield Fund to the value of a $10,000 investment in the Merrill Lynch High
Yield Master Index, assuming in each case reinvestment of all dividends and
capital gain distributions, for the ten year period ended 2/28/98.
<PAGE>
The fundamentals driving the energy sector are similar to those in
communications. We have directed the fund's investments towards natural gas
companies. Many smaller natural gas companies are exploiting proven reserves by
the use of new technology which has enhanced their profitability. This has
increased acquisition activity -- which we feel is in its infancy stages -- and
improved industry fundamentals. In addition, we feel that many small natural gas
firms have had their corporate debt mispriced by the market due to the
relatively small size of these companies. Two firms that we presently favor are
Belco Oil & Gas and Canadian Forest Oil Ltd. Both have high-quality proven
reserves and are improving fundamentally.
The radio/broadcasting industry remains a prominent theme in the portfolio;
deregulation has increased competition as companies try to improve their
nationwide presence. This in turn has intensified the pace of consolidation
within the industry and created enormous opportunities for selected companies.
Looking forward, we believe that the high-yield market offers attractive
returns to investors, regardless of the interest rate environment. This market
has the potential to offer competitive returns with less risk than the broad
equity market, and may be appropriate for more aggressive investors. While the
domestic economy stays strong, the outlook for the high yield market will remain
bright.
Select Income Fund
INVESCO Select Income Fund received the prestigious five-star rating for
risk-adjusted performance by Morningstar, for the five-year, 10-year, and
overall periods ended 2/28/98. For the three-year period, the fund received the
four-star rating for risk-adjusted performance.(3)
For the six-month period ended 2/28/98, INVESCO Select Income Fund achieved
a total return of 6.69%, compared to a total return of 6.09% for the Lehman
Government/Corporate Bond Index. In addition, the fund outperformed its peer
group for the same period, besting the average fund return of 5.57% for the
Lipper Corporate Debt BBB objective. (Lipper Analytical Services, Inc., is an
independent mutual fund analyst, which tracks total return unadjusted for
commissions. Of course, past performance is not a guarantee of future
results.)(1)(2)
During the last six months, interest rates decreased as fears of inflation
subsided, producing strong returns for fixed-income investors. However, the
fund's strong relative performance is mainly attributable to our value-oriented
bond management style which focuses on identification of mispriced fixed-income
securities.
Over the last six months, our disciplined investment approach identified
opportunities in putable and yield-to-call bonds, the "stranded cost" theme of
electric utilities, and selective exposure to the high yield market. Putable and
yield-to-call bonds continue to deliver strong performance for the fund. These
obligations appear undervalued by the broad market, and offer the potential for
higher returns with reduced volatility.
Select Income Fund
Average Annual Total Return
as of 2/28/98 (2)
1 Year 12.09%
----------------------------
5 Years 8.73%
----------------------------
10 Years 9.40%
<PAGE>
The stranded cost theme remains one of our favorite strategies. The electric
utilities industry is in a state of dynamic transition as it moves towards
deregulation and increased competition, ultimately benefiting the low-cost
providers. But deregulation has also created a problem, because many electric
utilities built power plants on the premise of restricted competition and
regulated prices set forth by the government. State legislatures are now
addressing this issue, allowing many utilities to securitize their stranded
costs. This may permit some companies to generate substantial cash flows, which
may reduce their debt levels and possibly improve their credit ratings. One of
our favorite stranded cost investments that has produced strong returns for the
fund is New England Power.
The selected use of high yield securities in the portfolio has also enhanced
the fund's performance. These investments have been directed towards the
communications and energy sectors, with our preferred targets being in the rural
service providers, competitive local exchange carriers, and natural gas
companies.
Graph:
This line graph compares the value of a $10,000 investment in INVESCO Select
Income Fund to the value of a $10,000 investment in the Lehman Government/
Corporate Bond Index, assuming in each case reinvestment of all dividends
and capital gain distributions, for the ten year period ended 2/28/98.
Looking forward, we remain bullish on the long-term fundamentals for the
fixed-income market. Within the current economic environment, bond yields look
quite attractive on an inflation-adjusted basis.
U.S. Government Securities Fund
U.S. Government Securities Fund
Average Annual Total Return
as of 2/28/98 (2)
1 Year 13.51%
-------------------------------
5 Years 6.37%
-------------------------------
10 Years 7.91%
For the six-month period ended 2/28/98, INVESCO U.S. Government Securities
Fund had a total return of 7.99%, compared to a total return of 10.18% for the
Lehman Long Government Bond Index. However, the fund outperformed its peers for
the same period, beating the average fund return of 5.64% for the Lipper General
U.S. Government objective. (Lipper Analytical Services, Inc., is an independent
mutual fund analyst, which tracks total return unadjusted for commissions. Of
course, past performance is not a guarantee of future results.)(1)(2)
Graph:
This line graph compares the value of a $10,000 investment in INVESCO U.S.
Government Securities Fund to the value of a $10,000 investment in the
<PAGE>
Lehman Long Government Bond Index, assuming in each case reinvestment of
all dividends and capital gain distributions, for the ten year period
ended 2/28/98.
The duration of the fund is actively managed, with 7.5 years designated as
its neutral target. This approximates a 10-plus year U.S. Treasury note
investment position, and secures a long-maturity, interest rate-risk/opportunity
for the shareholder. (Duration is the weighted average term-to-maturity of a
security's cash flows, generally used to measure the price volatility of a
bond.)
As fears of inflation subsided during the last six months, investors focused
their attention on the deflationary potential of the Asian financial crisis.
This produced decreasing interest rates, especially for bonds with longer
maturities -- resulting in a flatter yield curve. In response, we increased our
exposure to mortgage-backed securities while reducing our position in
Treasuries. Presently, the fund is equally split between mortgage-backed
securities and Treasury obligations, and its duration is slightly longer than
neutral.
Looking forward, we expect interest rates for longer maturities to stay
within a tight band. Low unemployment and stronger-than-normal growth in GDP
(Gross Domestic Product) has created nervousness in the fixed-income market due
to their textbook linkage to inflation. However, a potential budget surplus and
decreasing consumer prices represent a positive for the bond market. These
cross-currents will continue to weigh on the market, and may keep interest rates
fairly stable.
Short-Term Bond Fund
Short-Term Bond Fund
Average Annual Total Return
as of 2/28/98 (2)
1 Year 7.29%
------------------------------
Since Inception (10/93) 4.92%
For the six-month period ended 2/28/98, INVESCO Short-Term Bond Fund had a
total return of 3.71%, compared to a total return of 3.49% for the Lehman 1-3
Year Government/Corporate Bond Index. The fund outperformed its peers for the
same period, besting the average fund return of 3.16% for the Lipper Short
Investment Grade Debt objective. (Lipper Analytical Services, Inc., is an
independent mutual fund analyst, which tracks total return unadjusted for
commissions. Of course, past performance is not a guarantee of future
results.)(1)(2)
Investors should remember that this fund targets a very specific maturity
segment of the fixed-income market. Because of this narrow focus, the fund's
investments are more sensitive to allocation decisions than to perceptions of
interest rate trends.
Graph:
This line graph compares the value of a $10,000 investment in INVESCO
Short-Term Bond Fund to the value of a $10,000 investment in the Lehman 1-3
Year Government/Corporate Bond Index, assuming in each case reinvestment of
all dividends and capital gain distributions, for the period from inception
(9/30/93) through 2/28/98.
<PAGE>
Over the last six months, we have maintained the average portfolio maturity
between two and three years. We've favored seasoned mortgage-backed securities,
as these obligations provide additional yield spread and increase the underlying
quality of the portfolio.
Although the economy is showing persistent signs of strength on the demand
side, we feel that the Federal Reserve Board will not take action to increase
interest rates given benign inflation data. This should continue to provide a
stable-to-positive backdrop for fixed-income securities with short maturities.
Fund Management
Vice President Richard R. Hinderlie: manager, U.S. Government Securities
Fund; co-manager, Short-Term Bond Fund. Dick began his investment career in
1973, and has extensive experience in fixed-income analysis and portfolio
management. He received his MBA from Arizona State University and BA in
economics from Pacific Lutheran University.
Senior Vice President and Director of Fixed-Income Investments Donovan
"Jerry" Paul: manager, Select Income Fund and High Yield Fund; co-manager,
Short-Term Bond Fund. Jerry began his investment career in 1976. Before joining
INVESCO, he worked for Stein, Roe & Farnham Inc., as well as Quixote Investment
Management. He earned an MBA from the University of Northern Iowa, and a BBA
from the University of Iowa. He is a Chartered Financial Analyst and Certified
Public Accountant.
(1)The Lehman Government/Corporate Bond Index, Lehman 1-3 Year
Government/Corporate Bond Index, Lehman Long Government Bond Index, and Merrill
Lynch High Yield Master Index are unmanaged indexes of securities considered to
be representative of the overall domestic fixed-income, shorter-term bond, high
yield bond, and longer-term government bond markets, respectively.
(2)Total return assumes reinvestment of dividends and capital gain distributions
for the periods indicated. Past performance is not a guarantee of future
results. Investment return and principal value will fluctuate so that, when
redeemed, an investor's shares may be worth more or less than when purchased.
(3)Morningstar proprietary rankings reflect historical risk-adjusted performance
and are subject to change every month. Ratings are calculated for the fund's
three-, five-, and 10-year average annual returns (based on available track
records) in excess of 90-day Treasury bill returns. The top 10% of funds in an
investment category receive 5 stars; the next 22.5%, 4 stars; and the next 35%,
3 stars. As of 2/28/98, High Yield Fund received 5 stars among 1390 funds in the
taxable bond fund category for the 3-year period, 5 stars among 816 for the
5-year, and 5 stars among 325 for the 10-year. Select Income Fund received 4
stars among 1390 funds in the taxable bond fund category for the 3-year period,
5 stars among 816 for the 5-year, and 5 stars among 325 for the 10-year.
<PAGE>
<TABLE>
<CAPTION>
INVESCO Income Funds, Inc.
Statement of Investment Securities
February 28, 1998
UNAUDITED
Shares, Units
or Principal
Description Amount Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
HIGH YIELD Fund
FIXED INCOME SECURITIES 92.57%
Corporate Bonds 92.57%
AIR FREIGHT 0.73%
Navigator Gas Transport PLC, 1st
Priority Ship Mortgage Notes^,
10.500%, 6/30/2007 $ 4,750,000 $ 5,094,375
------------
BIOTECHNOLOGY 0.53%
Packard BioScience, Sr Sub Notes, Series B,
9.375%, 3/1/2007 $ 3,800,000 3,695,500
------------
BROADCASTING 6.41%
Allbritton Communications
Sr Sub Deb, Series B, 9.750%, 11/30/2007 $ 3,625,000 3,824,375
Sr Sub Notes^, 8.875%, 2/1/2008 $ 5,750,000 5,778,750
Commodore Media, Sr Sub Step-Up Notes,
7.500%^^, 5/1/2003 $ 10,500,000 11,760,000
EchoStar Communications, Gtd Sr Secured
Discount Step-Up Notes
Zero Coupon^^, 6/1/2004 $ 8,000,000 7,570,000
Heritage Media, Sr Sub Notes,
8.750%, 2/15/2006 $ 7,045,000 7,555,763
Jacor Communications, Gtd Sr Sub Notes,
8.000%, 2/15/2010 $ 3,750,000 3,750,000
SFX Broadcasting, Sr Sub Notes, Series B,
10.750%, 5/15/2006 $ 1,900,000 2,116,125
Young Broadcasting, Gtd Sr Sub Notes,
11.750%, 11/15/2004 $ 1,900,000 2,099,500
------------
44,454,513
------------
CABLE 4.28%
Diamond Cable Communications PLC, Sr
Discount Step-Up Notes
Zero Coupon^^, 2/15/2007 $ 3,200,000 2,128,000
EchoStar Satellite Broadcasting, Sr Secured
Discount Step-Up Notes
Zero Coupon^^, 3/15/2004 $ 4,300,000 3,816,250
Fox/Liberty Networks LLC Finance, Sr Discount
Step-Up Notes
Zero Coupon^^, 8/15/2007 $ 7,700,000 5,207,125
Galaxy Telecom LP/Galaxy Telecom Capital,
Sr Sub Notes, 12.375%, 10/1/2005 $ 4,750,000 5,248,750
<PAGE>
Marcus Cable LP/Marcus Cable Capital III,
Sr Deb, 11.875%, 10/1/2005 $ 3,230,000 3,504,550
NTL Inc, Sr Deferred Coupon Step-Up Notes,
Series A, Zero Coupon^^, 4/15/2005 $ 11,500,000 9,803,750
------------
29,708,425
------------
CHEMICALS 1.81%
LaRoche Industries, Sr Sub Notes^,
9.500%, 9/15/2007 $ 7,250,000 7,105,000
Terra Industries, Sr Notes, Series B,
10.500%, 6/15/2005 $ 5,075,000 5,481,000
------------
12,586,000
------------
COMMUNICATIONS -- EQUIPMENT &
MANUFACTURING 2.72%
RCN Corp
Sr Discount Step-Up Notes, Zero Coupon^^,
10/15/2007 $ 5,700,000 3,705,000
Sr Discount Step-Up Notes^, Zero Coupon^^,
2/15/2008 $ 25,000,000 15,187,500
------------
18,892,500
------------
COMPUTER RELATED 0.37%
Phase Metrics, Sr Notes^, 10.750%, 2/1/2005 $ 2,500,000 2,537,500
------------
CONTAINERS 2.44%
Gaylord Container
Sr Notes, Series B, 9.750%, 6/15/2007 $ 7,150,000 7,185,750
Sr Sub Notes^, 9.875%, 2/15/2008 $ 10,000,000 9,725,000
------------
16,910,750
------------
DISTRIBUTION 0.41%
Di Giorgio Corp, Sr Notes, Series B,
10.000%, 6/15/2007 $ 2,850,000 $ 2,832,188
------------
ELECTRIC UTILITIES 2.84%
Long Island Lighting, Deb
9.000%, 11/1/2022 $ 5,000,000 5,656,799
8.200%, 3/15/2023 $ 2,097,000 2,253,058
Niagara Mohawk Power, 1st Mortgage,
7.875%, 4/1/2024 $ 6,775,000 6,991,636
Western Massachusetts Electric, 1st Mortgage,
Series V, 7.750%, 12/1/2002 $ 4,750,000 4,795,562
------------
19,697,055
------------
ELECTRICAL EQUIPMENT 0.60%
Alpine Group, Gtd Sr Secured Notes,
Series B, 12.250%, 7/15/2003 $ 3,800,000 4,189,500
------------
<PAGE>
ENTERTAINMENT 3.42%
Fox Kids Worldwide, Sr Discount Step-Up Notes^,
Zero Coupon^^, 11/1/2007 $ 18,000,000 10,980,000
Production Resource Group LLC/Program
Finance, Sr Sub Notes^, 11.500%, 1/15/2008 $ 3,750,000 3,750,000
Six Flags Theme Parks, Sr Sub Discount
Step-Up Notes, Series A
Zero Coupon^^, 6/15/2005 $ 8,135,000 8,979,006
------------
23,709,006
------------
FOODS 1.35%
Borden Inc, Deb, 7.875%, 2/15/2023 $ 2,250,000 2,237,524
Grupo Azucarero Mexico SA de CV, Sr Notes^,
11.500%, 1/15/2005 $ 4,800,000 4,812,000
Keebler Corp, Gtd Sr Sub Notes,
10.750%, 7/1/2006 $ 2,000,000 2,310,000
------------
9,359,524
------------
GAMING 1.30%
Aztar Corp, Sr Sub Notes,
13.750%, 10/1/2004 $ 1,500,000 1,730,625
Station Casinos, Sr Sub Notes,
9.625%, 6/1/2003 $ 7,000,000 7,280,000
------------
9,010,625
------------
HEALTH CARE RELATED 2.47%
Magellan Health Services, Sr Sub Notes^,
9.000%, 2/15/2008 $ 4,750,000 4,785,625
Medaphis Corp, Sr Notes^,
9.500%, 2/15/2005 $ 5,000,000 4,993,750
Universal Hospital Services, Sr Notes^,
10.250%, 3/1/2008 $ 7,250,000 7,322,500
------------
17,101,875
------------
IRON & STEEL 2.93%
Inland Steel, 1st Mortgage, Series R,
7.900%, 1/15/2007 $ 10,000,000 10,175,000
National Steel, 1st Mortgage,
8.375%, 8/1/2006 $ 10,000,000 10,125,000
------------
20,300,000
------------
MANUFACTURING 1.21%
American Standard, Sr Notes,
7.625%, 2/15/2010 $ 4,000,000 3,940,000
Universal Compression, Sr Discount
Step-Up Notes^, Zero Coupon^^, 2/15/2008 $ 7,200,000 4,464,000
------------
8,404,000
------------
<PAGE>
METALS MINING 2.68%
Glencore Nickel Property Ltd, Gtd Sr
Secured Notes^, 9.000%, 12/1/2014 $ 6,750,000 6,615,000
Haynes International, Sr Notes,
11.625%, 9/1/2004 $ 4,150,000 4,731,000
Westmin Resources Ltd, Sr Secured Notes,
11.000%, 3/15/2007 $ 6,250,000 7,250,000
------------
18,596,000
------------
OIL & GAS RELATED 11.82%
Belco Oil & Gas, Sr Sub Notes, Series B,
8.875%, 9/15/2007 $ 6,600,000 6,723,750
Canadian Forest Oil Ltd, Gtd Sr Sub Notes,
8.750%, 9/15/2007 $ 7,200,000 7,264,267
Cliffs Drilling, Gtd Sr Notes, Series B,
10.250%, 5/15/2003 $ 7,650,000 8,338,500
Costilla Energy, Sr Notes^,
10.250%, 10/1/2006 $ 4,150,000 4,191,500
Cross Timbers Oil, Sr Sub Notes,
Series B, 9.250%, 4/1/2007 $ 5,250,000 5,538,750
Energy Corp of America, Sr Sub Notes,
Series A, 9.500%, 5/15/2007 $ 6,000,000 5,985,000
HS Resources, Sr Sub Notes,
9.250%, 11/15/2006 $ 3,000,000 3,060,000
Houston Exploration, Sr Sub Notes^,
8.625%, 1/1/2008 $ 6,750,000 6,648,750
KCS Energy, Sr Sub Notes, 8.875%, 1/15/2008 $ 6,650,000 6,583,500
Magnum Hunter Resources, Gtd Sr Notes,
10.000%, 6/1/2007 $ 6,900,000 6,796,500
PANACO Inc, Sr Notes, 10.625%, 10/1/2004 $ 7,650,000 7,726,500
Petsec Energy, Sr Sub Notes, Series B,
9.500%, 6/15/2007 $ 5,250,000 5,302,500
Snyder Oil, Gtd Sr Sub Notes,
8.750%, 6/15/2007 $ 3,900,000 3,987,750
Stone Energy, Gtd Sr Sub Notes,
8.750%, 9/15/2007 $ 3,750,000 3,862,500
------------
82,009,767
------------
PAPER & FOREST PRODUCTS 2.86%
Ainsworth Lumber Ltd, Sr Secured Notes**,
12.500%, 7/15/2007 $ 6,650,000 6,799,625
Bear Island Paper LLC/Bear Island Finance II,
Sr Secured Notes^, 10.000%, 12/1/2007 $ 3,450,000 3,519,000
Tembec Finance, Gtd Sr Notes,
9.875%, 9/30/2005 $ 9,075,000 9,506,062
------------
19,824,687
------------
<PAGE>
PUBLISHING 3.41%
Affiliated Newspaper Investments, Sr Discount
Step-Up Notes, Zero Coupon^^, 7/1/2006 $ 19,618,000 18,882,325
Liberty Group Operating, Sr Sub Notes^,
9.375%, 2/1/2008 $ 4,750,000 4,797,500
------------
23,679,825
------------
SAVINGS & LOAN 1.05%
Western Financial Savings Bank, Sub
Capital Deb, 8.875%, 8/1/2007 $ 7,500,000 7,288,206
------------
SERVICES 0.70%
Outsourcing Services Group, Sr Sub Notes^,
10.875%, 3/1/2006 $ 4,750,000 4,868,750
------------
SPECIALTY PRINTING 0.61%
MDC Communications, Sr Sub Notes,
10.500%, 12/1/2006 $ 3,900,000 4,212,000
------------
TELECOMMUNICATIONS -- CELLULAR &
WIRELESS 10.76%
CCPR Services, Gtd Sr Sub Notes,
10.000%, 2/1/2007 $ 2,400,000 2,316,000
Cellular Communications International,
Sr Discount Notes, Zero Coupon, 8/15/2000 $ 1,000,000 855,000
Centennial Cellular, Sr Notes,
10.125%, 5/15/2005 $ 6,750,000 7,492,500
Esat Holdings Ltd, Sr Deferred Coupon Step-Up
Notes, Series B, Zero Coupon^^, 2/1/2007 $ 10,500,000 7,875,000
Millicom International Cellular, Sr Sub
Discount Step-Up Notes, Zero Coupon^^,
6/1/2006 $ 6,650,000 5,087,250
Nextel Communications Sr Discount
Step-Up Notes, Zero Coupon^^ 8/15/2004 $ 12,500,000 11,937,500
10/31/2007 $ 6,750,000 4,218,750
Sr Redeemable Discount Step-Up Notes,
Zero Coupon^^, 9/15/2007 $ 7,000,000 4,532,500
Price Communications Cellular Holdings,
Sr Secured Discount Step-Up Notes^
Zero Coupon^^, 8/1/2007 $ 4,750,000 3,087,500
PriCellular Wireless, Sr Sub Discount
Step-Up Notes
Series B, 14.000%^^, 11/15/2001 $ 4,800,000 5,280,000
Zero Coupon^^, 10/1/2003 $ 21,015,000 21,960,675
------------
74,642,675
------------
<PAGE>
TELECOMMUNICATIONS -- LONG DISTANCE 17.55%
BARAK International Telecommunications Services
Sr Sub Discount Step-Up Notes^, Zero Coupon^^, 11/15/2007 $ 6,800,000 3,918,500
Esprit Telecom Group PLC, Sr Notes,
11.500%, 12/15/2007 $ 4,750,000 5,130,000
FLAG Ltd, Sr Notes^, 8.250%, 1/30/2008 $ 4,950,000 5,049,000
Focal Communications, Sr Discount Step-Up
Notes^, Zero Coupon^^, 2/15/2008 $ 21,000,000 11,340,000
fONOROLA Inc, Gtd Sr Secured Notes,
12.500%, 8/15/2002 $ 3,600,000 4,014,000
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $ 9,600,000 10,176,000
IDT Corp, Sr Notes^, 8.750%, 2/15/2006 $ 4,750,000 4,750,000
McLeodUSA Inc, Sr Notes, 9.250%, 7/15/2007 $ 4,000,000 4,280,000
NEXTLINK Communications, Sr Notes,
9.625%, 10/1/2007 $ 5,950,000 6,195,438
NEXTLINK Communications LLC/NEXTLINK
Capital, Sr Notes, 12.500%, 4/15/2006 $ 11,760,000 13,524,000
Qwest Communications International,
Sr Discount Step-Up Notes^
Zero Coupon^^, 2/1/2008 $ 25,000,000 16,250,000
RSL Communications PLC, Sr Discount
Step-Up Notes^, Zero Coupon^^, 3/1/2008 $ 14,750,000 $8,942,187
Rogers Cantel, Sr Sub Notes, 8.800%, 10/1/2007 $ 7,570,000 7,570,000
Sprint Spectrum LP/Sprint Spectrum Finance,
Sr Discount Step-Up Notes
Zero Coupon^^, 8/15/2006 $ 5,180,000 4,195,800
Sygnet Wireless, Sr Notes, 11.500%, 10/1/2006 $ 1,160,000 1,276,000
Teligent Inc
Sr Discount Step-Up Notes^, Zero Coupon^^,
3/1/2008 $ 15,000,000 8,193,750
Sr Notes, 11.500%, 12/1/2007 $ 6,750,000 6,935,625
------------
121,740,300
------------
TELEPHONE 5.31%
Intermedia Communications, Sr Notes^
8.875%, 11/1/2007 $ 5,500,000 5,802,500
8.500%, 1/15/2008 $ 9,500,000 9,820,625
MetroNet Communications
Sr Discount Step-Up Notes, Zero Coupon^^,
11/1/2007 $ 11,500,000 7,532,500
Sr Notes, 12.000%, 8/15/2007 $ 6,750,000 7,796,250
Netia Holdings BV, Gtd Sr Discount Step-Up
Notes^, Zero Coupon^^, 11/1/2007 $ 8,750,000 5,862,500
------------
36,814,375
------------
TOTAL FIXED INCOME SECURITIES
(Cost $634,051,890) 642,159,921
------------
PREFERRED STOCKS & WARRANTS 3.51%
HEALTH CARE RELATED 1.22%
Fresenius Medical Care Capital Trust II,
Gtd Trust, Pfd^, 7.875% 85,000 8,457,500
------------
<PAGE>
PUBLISHING 1.46%
Liberty Group Publishing, Sr Redeemable
Exchangeable Cum Pfd^, 14.750% 170,000 4,420,000
PRIMEDIA Inc, Exchangeable Pfd^,
Series G, 8.625% 57,500 5,742,813
------------
10,162,813
SERVICES 0.72%
Nebco Evans Holding, Exchangable Pfd^**,
11.250% 50,000 5,000,000
------------
TELECOMMUNICATIONS -- CELLULAR & WIRELESS 0.07%
Microcell Telecommunications Warrants*^
(Exp 2006) 34,000 479,060
------------
TELEPHONE 0.04%
MetroNet Communications Warrants*^ (Exp 2007) 6,750 270,000
------------
TOTAL PREFERRED STOCKS & WARRANTS
(Cost $23,812,947) 24,369,373
------------
OTHER SECURITIES 3.31%
COMPUTER RELATED 0.90%
DIVA Systems, Units^ (Each unit consists of one
$1,000 face amount Sr Discount
Step-Up Note, Zero Coupon^^, 3/1/2008 and 3
wrnts to purchase 1 shr of cmn stk) 2,500 1,368,750
WAM!NET Inc, Units^ (Each unit consists of one
$1,000 face amount Sr Discount
Step-Up Note, Zero Coupon^^, 3/1/2005 and 3
wrnts to purchase 6.03 shrs of cmn stk) 8,000 4,880,000
------------
6,248,750
------------
FINANCIAL 1.37%
DTIHoldings, Units^ (Each unit consists of one
$1,000 face amount Sr Discount
Step-Up Note, Zero Coupon^^, 3/1/2008 and
5 wrnts to purchase 7.76 shrs of cmn stk) 17,500 9,537,500
------------
GAMING 0.53%
Aladdin Gaming Holdings LLC/Aladdin Capital,
Units^ (Each unit consists of one
$1,000 face amount Sr Discount
Step-Up Note, Zero Coupon^^, 3/1/2010 and 10
wrnts each to purchase 10 shrs Class B non-voting
cmn stk and wrnts) 7,000 3,657,500
------------
<PAGE>
SERVICES 0.51%
Brill Media LLC/Brill Media Management,
Units^ (Each unit consists of one
$1,000 face amount Sr
Step-Up Note, 7.500%^^, 12/15/2007 and
approximately $28.57 face
amount Appreciation Notes, 12/15/2007) 3,750 3,506,250
------------
TOTAL OTHER SECURITIES
(Cost $22,816,678) $22,950,000
------------
SHORT-TERM INVESTMENTS --
REPURCHASE AGREEMENTS 0.61%
Repurchase Agreement with State Street Bank &
Trust Co dated 2/27/1998 due 3/2/1998 at 5.580%,
repurchased at $4,221,962
(Collateralized by US Treasury Bonds
due 2/15/2020 at 8.500%, value $4,322,933)
(Cost $4,220,000) $ 4,220,000 4,220,000
------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $684,901,515)
(Cost for Income Tax Purposes $684,902,139) $693,699,294
============
SELECT INCOME Fund
FIXED INCOME SECURITIES 97.94%
US Government Agency
Obligations 5.53%
Freddie Mac, Gold, Participation Certificates
7.000%, 5/1/2024 $ 4,022,149 $ 4,085,578
6.500%, 9/1/2011 $ 17,408,866 17,487,902
------------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $20,697,787) 21,573,480
------------
Corporate Bonds 92.41%
AEROSPACE & DEFENSE 0.56%
Litton Industries, Deb, 6.980%, 3/15/2036 $ 2,000,000 2,179,200
------------
AIR FREIGHT 0.83%
Navigator Gas Transport PLC, 1st Priority
Ship Mortgage Notes^, 10.500%, 6/30/2007 $ 3,000,000 3,217,500
------------
AUTOMOBILES 1.86%
Auburn Hills Trust, Gtd Exchangeable Deb
Certificates, 12.000%, 5/1/2020 $ 4,500,000 7,262,432
------------
BROADCASTING 0.83%
Heritage Media, Sr Sub Notes,
8.750%, 2/15/2006 $ 3,000,000 3,217,500
------------
BUILDING MATERIALS 3.50%
USG Corp, Sr Notes, 8.500%, 8/1/2005 $ 12,340,000 13,666,550
------------
<PAGE>
CABLE 4.23%
CF Cable TV, 2nd Priority Sr Secured Notes,
11.625%, 2/15/2005 $ 4,000,000 4,520,000
Continental Cablevision, Sr Deb,
9.500%, 8/1/2013 $ 10,030,000 11,997,846
------------
16,517,846
------------
CHEMICALS 0.55%
Terra Industries, Sr Notes, Series B,
10.500%, 6/15/2005 $ 2,000,000 2,160,000
------------
COMMUNICATIONS -- EQUIPMENT &
MANUFACTURING 0.93%
RCN Corp, Sr Discount Step-Up Notes^,
Zero Coupon^^, 2/15/2008 $ 6,000,000 3,645,000
------------
ELECTRIC UTILITIES 24.01%
Boston Edison, Deb
7.800%, 5/15/2010 $ 1,000,000 1,091,828
7.800%, 3/15/2023 $ 1,500,000 1,562,454
Carolina Power & Light, 1st Mortgage
8.625%, 9/15/2021 $ 1,000,000 1,228,343
6.875%, 8/15/2023 $ 2,500,000 2,465,122
Cleveland Electric Illuminating, 1st Mortgage
Series B, 9.500%, 5/15/2005 $ 477,000 524,700
8.375%, 12/1/2011 $ 3,684,000 3,786,698
DQU-II Funding, Collateral Lease,
8.700%, 6/1/2016 $ 8,000,000 8,953,600
Detroit Edison, Secured Medium-Term Notes,
Series 92D, 8.300%, 8/1/2022 $ 3,000,000 $3,275,805
El Paso Electric, 1st Mortgage, Series C,
8.250%, 2/1/2003 $ 3,375,000 3,552,187
Gulf States Utilities, 1st Mortgage,
8.940%, 1/1/2022 $ 1,000,000 1,060,966
Jersey Central Power & Light, 1st Mortgage,
7.500%, 5/1/2023 $ 4,000,000 4,144,280
Long Island Lighting, Deb
9.000%, 11/1/2022 $ 3,617,000 4,092,129
8.200%, 3/15/2023 $ 7,117,000 7,646,646
Metropolitan Edison, Secured Medium-Term
Notes, Series B
8.150%, 1/30/2023 $ 500,000 539,199
6.970%, 10/19/2023 $ 3,500,000 3,461,268
New England Power, General & Ref Mortgage,
8.000%, 8/1/2022 $ 210,000 226,988
New York State Electric & Gas, 1st Mortgage,
8.300%, 12/15/2022 $ 4,400,000 4,722,057
Niagara Mohawk Power, 1st Mortgage,
8.500%, 7/1/2023 $ 1,000,000 1,071,137
PSI Energy, Deb, 6.350%, 11/15/2006 $ 5,750,000 5,818,200
Pacific Gas & Electric, 1st & Ref Mortgage
Series 91A, 8.800%, 5/1/2024 $ 3,600,000 4,531,287
Series 92B, 8.375%, 5/1/2025 $ 600,000 650,743
Series 92D, 8.250%, 11/1/2022 $ 2,236,000 2,399,798
<PAGE>
Pennsylvania Power, 1st Mortgage,
8.500%, 7/15/2022 $ 2,000,000 2,190,790
Pennsylvania Power & Light, 1st Mortgage,
7.875%, 2/1/2023 $ 5,000,000 5,366,720
Philadelphia Electric, 1st & Ref Mortgage
7.750%, 3/1/2023 $ 5,370,000 5,495,942
7.250%, 11/1/2024 $ 4,500,000 4,531,985
Public Service Electric & Gas, 1st &
Ref Mortgage, 7.500%, 3/1/2023 $ 3,124,000 3,224,886
Western Massachusetts Electric, 1st Mortgage,
Series V, 7.750%, 12/1/2002 $ 6,000,000 6,057,552
------------
93,673,310
------------
ENTERTAINMENT 4.98%
Paramount Communications, Sr Deb,
7.500%, 7/15/2023 $ 5,000,000 4,796,864
Time Warner, Deb, 6.850%, 1/15/2026 $ 5,000,000 5,067,294
Time Warner Entertainment LP, Sr Deb,
8.375%, 3/15/2023 $ 5,000,000 5,717,175
Viacom International, Sub Deb
Series A, 7.000%, 7/1/2003 $ 1,942,000 1,905,348
Series B, 7.000%, 7/1/2003 $ 2,000,000 1,962,254
------------
19,448,935
------------
FOODS 1.69%
Borden Inc, Deb, 7.875%, 2/15/2023 $ 3,557,000 3,537,276
Keebler Corp, Gtd Sr Secured Sub Notes,
10.750%, 7/1/2006 $ 2,650,000 3,060,750
------------
6,598,026
------------
HEALTH CARE DRUGS -- PHARMACEUTICALS 2.47%
McKesson Corp, Sub Deb, 4.500%, 3/1/2004 $ 10,409,000 9,624,869
------------
HEALTH CARE RELATED 2.10%
FHP International, Sr Notes,
7.000%, 9/15/2003 $ 6,535,000 6,713,516
Medaphis Corp, Sr Notes^, 9.500%, 2/15/2005 $ 1,500,000 1,498,125
------------
8,211,641
------------
INSURANCE 8.59%
Equitable Cos, Sr Notes, 9.000%, 12/15/2004 $ 16,000,000 18,323,086
Travelers Group, Deb, 6.625%, 1/15/2028 $ 10,000,000 9,681,329
Veritas Holdings GmbH, Sr Notes,
9.625%, 12/15/2003 $ 5,115,000 5,511,412
------------
33,515,827
------------
<PAGE>
INVESTMENT BANK/BROKER FIRM 1.95%
Donaldson Lufkin & Jenrette, Medium-Term
Notes, 5.625%, 2/15/2016 $ 3,000,000 2,975,532
Lehman Brothers Holdings, Sr Notes,
8.800%, 3/1/2015 $ 4,000,000 4,643,240
------------
7,618,772
------------
IRON & STEEL 1.04%
National Steel, 1st Mortgage,
8.375%, 8/1/2006 $ 4,000,000 $4,050,000
------------
MACHINERY 1.31%
AGCO Corp, Sr Sub Notes, 8.500%, 3/15/2006 $ 4,900,000 5,096,000
------------
METALS MINING 0.75%
Glencore Nickel Property Ltd, Gtd Sr
Secured Notes^, 9.000%, 12/1/2014 $ 3,000,000 2,940,000
------------
NATURAL GAS 1.57%
Noram Energy, Conv Sub Deb,
6.000%, 3/15/2012 $ 6,579,000 6,118,470
------------
OIL & GAS RELATED 7.40%
Atlantic Richfield, Deb
9.125%, 3/1/2011 $ 874,000 1,093,684
9.125%, 8/1/2031 $ 3,650,000 4,826,990
Belco Oil & Gas, Sr Sub Notes, Series B,
8.875%, 9/15/2007 $ 3,750,000 3,820,312
Canadian Forest Oil Ltd, Gtd Sr Sub Notes,
8.750%, 9/15/2007 $ 3,500,000 3,531,241
Cliffs Drilling, Gtd Sr Notes, Series B,
10.250%, 5/15/2003 $ 1,500,000 1,635,000
Gulf Canada Resources Ltd, Sr Notes,
8.250%, 3/15/2017 $ 5,000,000 5,524,750
SEACOR SMIT, Sr Notes, 7.200%, 9/15/2009 $ 4,000,000 3,977,944
Snyder Oil, Gtd Sub Notes, 8.750%, 6/15/2007 $ 1,000,000 1,022,500
Sun Inc, Deb, 9.375%, 6/1/2016 $ 3,000,000 3,435,870
------------
28,868,291
------------
PAPER & FOREST PRODUCTS 3.44%
Champion International, Deb,
6.400%, 2/15/2026 $ 4,185,000 4,249,809
Quno Corp, Sr Notes, 9.125%, 5/15/2005 $ 5,000,000 5,512,500
Tembec Finance, Gtd Sr Notes,
9.875%, 9/30/2005 $ 3,500,000 3,666,250
------------
13,428,559
------------
<PAGE>
PUBLISHING 2.55%
Affiliated Newspaper Investments, Sr Discount
Step-Up Deb, Zero Coupon^^, 7/1/2006 $ 3,000,000 2,887,500
PRIMEDIA Inc, Sr Notes^, 7.625%, 4/1/2008 $ 4,000,000 3,950,000
Quebecor Printing, Capital Deb,
6.500%, 8/1/2027 $ 3,000,000 3,109,242
------------
9,946,742
------------
REAL ESTATE INVESTMENT TRUST 0.76%
Spieker Properties LP, Deb,
7.350%, 12/1/2017 $ 3,000,000 2,981,361
------------
REAL ESTATE RELATED 0.87%
Trizec Finance Ltd, Gtd Sr Notes,
10.875%, 10/15/2005 $ 3,000,000 3,397,500
------------
SAVINGS & LOAN 1.27%
Dime Bancorp, Sr Notes, 10.500%, 11/15/2005 $ 2,850,000 3,042,375
Western Financial Savings Bank,
Sub Capital Deb, 8.500%, 7/1/2003 $ 2,000,000 1,924,676
------------
4,967,051
------------
TELECOMMUNICATIONS -- CELLULAR &
WIRELESS 2.43%
360 Communications, Notes, 6.650%, 1/15/2008 $ 7,000,000 6,911,947
Centennial Cellular, Sr Notes,
8.875%, 11/1/2001 $ 2,500,000 2,581,250
------------
9,493,197
------------
TELECOMMUNICATIONS -- LONG DISTANCE 7.01%
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $ 2,000,000 2,120,000
NEXTLINK Communications LLC/NEXTLINK
Capital, Sr Notes, 12.500%, 4/15/2006 $ 3,000,000 3,450,000
Qwest Communications International,
Sr Discount Step-Up Notes^
Zero Coupon^^, 2/1/2008 $ 7,500,000 4,875,000
RSL Communications PLC, Sr Notes^,
9.125%, 3/1/2008 $ 1,000,000 995,000
Rogers Cantel, Sr Secured Deb,
9.750%, 6/1/2016 $ 4,000,000 4,330,000
WorldCom Inc, Sr Notes, 8.875%, 1/15/2006 $ 10,624,000 11,593,440
------------
27,363,440
------------
TELEPHONE 2.93%
Frontier Corp, Notes, 7.250%, 5/15/2004 $ 3,000,000 3,152,208
Intermedia Communications, Sr Notes^,
8.500%, 1/15/2008 $ 4,000,000 $4,135,000
<PAGE>
US WEST Capital Funding, Gtd Deb,
6.950%, 1/15/2037 $ 4,000,000 4,131,340
------------
11,418,548
------------
TOTAL CORPORATE BONDS (Cost $353,595,198) 360,626,567
------------
TOTAL FIXED INCOME SECURITIES
(Cost $374,292,985) 382,200,047
------------
SHORT-TERM INVESTMENTS --
COMMERICAL PAPER 2.06%
FINANCIAL 2.06%
Associates Corp of North America,
5.670%, 3/2/1998 (Cost $8,025,000) $ 8,025,000 8,025,000
------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $382,317,985#) $390,225,047
============
SHORT-TERM BOND Fund
FIXED INCOME SECURITIES 85.85%
US Government Agency
Obligations 65.85%
Freddie Mac, Gold, Participation Certificates
7.000%, 4/1/2008 $ 2,059,341 $2,097,047
6.500%, 7/1/2008 $ 2,658,397 2,675,703
6.500%, 8/1/2008 $ 3,055,311 3,075,201
------------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $7,770,995) 7,847,951
------------
Corporate Bonds 20.00%
BROADCASTING 2.20%
Allbritton Communications, Sr Sub Deb,
11.500%, 8/15/2004 $ 250,000 262,500
------------
CABLE 1.90%
CF Cable TV, 2nd Priority Sr Secured Notes,
11.625%, 2/15/2005 $ 200,000 226,000
------------
ELECTRIC UTILITIES 6.98%
Cleveland Electrical Illuminating,
1st Mortgage, 8.375%, 12/1/2011 $ 200,000 205,575
PSI Energy, Deb, 6.350%, 11/15/2006 $ 250,000 252,965
Public Service of New Mexico, 1st Mortgage
Notes, 9.000%, 5/1/2008 $ 117,000 120,075
Tucson Electrical Power, 1st Mortgage,
7.650%, 5/1/2003 $ 250,000 253,007
------------
831,622
------------
<PAGE>
GAMING 4.73%
Aztar Corp, Sr Sub Notes,
13.750%, 10/1/2004 $ 250,000 288,438
Horseshoe Gaming LLC, Sr Notes, Series B,
12.750%, 9/30/2000 $ 250,000 275,625
------------
564,063
------------
PUBLISHING 2.02%
Affiliated Newspaper Investments, Sr Discount
Step-Up Deb, Zero Coupon^^, 7/1/2006 $ 250,000 240,625
------------
TELECOMMUNICATIONS -- CELLULAR &
WIRELESS 2.17%
Centennial Cellular, Sr Notes,
8.875%, 11/1/2001 $ 250,000 258,125
------------
TOTAL CORPORATE BONDS
(Cost $2,355,808) 2,382,935
------------
TOTAL FIXED INCOME SECURITIES
(Cost $10,126,803) 10,230,886
------------
SHORT-TERM INVESTMENTS 14.15%
Corporate Bonds 11.08%
FINANCIAL 11.08%
Chrysler Financial, Notes, 6.500%, 6/15/1998 $ 470,000 470,674
Ford Motor Credit, Medium-Term Notes,
5.902%, 2/1/1999 $ 450,000 $ 450,087
United States Leasing International,
Medium-Term Notes, 5.288%, 11/16/1998 $ 400,000 399,716
------------
TOTAL CORPORATE BONDS
(Cost $1,320,937) 1,320,477
------------
Repurchase Agreements 3.07%
Repurchase Agreement with State Street
Bank & Trust Co dated 2/27/1998
due 3/2/1998 at 5.580%,
repurchased at $366,170
(Collateralized by US Treasury Bonds
due 2/15/2023 at 7.125%, value $378,674)
(Cost $366,000) $ 366,000 366,000
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $1,686,937) 1,686,477
------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $11,813,740#) $11,917,363
============
<PAGE>
U.S. GOVERNMENT SECURITIES Fund
FIXED INCOME SECURITIES 97.44%
US Government Obligations 48.03%
US Treasury Bonds
8.125%, 8/15/2019 $ 5,000,000 $6,270,315
6.125%, 11/15/2027 $ 16,000,000 16,450,000
------------
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $21,970,748) 22,720,315
------------
US Government Agency Obligations 49.41%
Freddie Mac, Gold, Participation Certificates
6.500%, 7/1/2008 $ 11,165,267 11,237,951
6.500%, 12/1/2027 $ 7,482,007 7,418,334
Government National Mortgage Association I,
Pass-Through Certificates
6.500%, 4/15/2026 $ 4,760,915 4,718,162
------------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $22,970,308) 23,374,447
------------
TOTAL FIXED INCOME SECURITIES
(Cost $44,941,056) 46,094,762
------------
SHORT-TERM INVESTMENTS --
REPURCHASE AGREEMENTS 2.56%
Repurchase Agreement with State Street
Bank & Trust Co dated 2/27/1998
<PAGE>
due 3/2/1998 at 5.580%, repurchased at
$1,210,563 (Collateralized by
US Treasury Bonds due 2/15/2023 at 7.125%,
value $1,244,877)
(Cost $1,210,000) $ 1,210,000 1,210,000
------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $46,151,056)
(Cost for Income Tax Purposes $46,157,111) $47,304,762
============
</TABLE>
^ Securities are registered pursuant to Rule 144A and may be deemed
restricted for resale to institutional investors.
^^ Step up bonds are obligations which increase the interest payment rate
at a specific point in time. Rate shown reflects current rate which may
step up at a future date.
* Security is non-income producing.
** Securities may make dividend payments in other types of securities or
cash.
# Also represents cost for income tax purposes.
See Notes to Financial Statements
<TABLE>
<CAPTION>
Summary of Investments by Country
% of
Country Investment
Country Code Securities Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Fund
Australia AS 1.72% $ 11,917,500
Bermuda BD 1.29 8,942,187
Canada CA 9.04 62,693,764
Ireland IR 1.14 7,875,000
Israel IS 0.56 3,918,500
Luxembourg LX 0.73 5,087,250
Mexico MX 0.69 4,812,000
Poland PO 0.85 5,862,500
Puerto Rico PR 0.33 2,316,000
United Kingdom UK 2.46 17,061,750
United States US 81.19 563,212,843
-------------------------
100.00% $693,699,294
<PAGE>
Select Income Fund
Australia AS 0.75% $ 2,940,000
Bermuda BD 0.26 995,000
Canada CA 7.74 30,193,983
Germany GM 1.41 5,511,412
United States US 89.84 350,584,652
-------------------------
100.00% $390,225,047
See Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
INVESCO Income Funds, Inc.
Statement of Assets and Liabilities
February 28, 1998
UNAUDITED
U.S.
High Select Short-Term Government
Yield Income Bond Securities
Fund Fund Fund Fund
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment Securities:
At Cost~ $684,901,515 $382,317,985 $11,813,740 $46,151,056
===================================================================
At Value~ $693,699,294 $390,225,047 $11,917,363 $47,304,762
Cash 2,296,347 0 286 0
Receivables:
Investment Securities Sold 38,224,687 6,015,687 0 0
Fund Shares Sold 3,666,556 2,477,550 56,723 80,770
Dividends and Interest 9,251,543 6,456,999 108,359 429,842
Prepaid Expenses and Other Assets 106,813 163,322 76,041 127,019
-------------------------------------------------------------------
TOTAL ASSETS 747,245,240 405,338,605 12,158,772 47,942,393
-------------------------------------------------------------------
LIABILITIES
Payables:
Custodian 0 10,893 0 36,873
Distributions to Shareholders 716,102 197,318 3,282 16,513
Investment Securities Purchased 32,280,092 9,659,961 0 0
Fund Shares Repurchased 4,218,381 1,121,985 173,238 165,291
Accrued Distribution Expenses 129,173 71,967 2,470 9,242
Accrued Expenses and Other Payables 34,901 22,318 11,564 9,639
-------------------------------------------------------------------
TOTAL LIABILITIES 37,378,649 11,084,442 190,554 237,558
-------------------------------------------------------------------
Net Assets at Value $709,866,591 $394,254,163 $11,968,218 $47,704,835
===================================================================
NET ASSETS
Paid-in Capital* $687,760,221 $383,069,166 $12,228,729 $44,234,580
<PAGE>
Accumulated Undistributed Net
Investment Income 16,678 37,335 0 0
Accumulated Undistributed Net Realized
Gain (Loss) on Investment Securities
and Foreign Currency Transactions 13,291,913 3,240,600 (364,134) 2,316,549
Net Appreciation of Investment Securities
and Foreign Currency Transactions 8,797,779 7,907,062 103,623 1,153,706
-------------------------------------------------------------------
Net Assets at Value $709,866,591 $394,254,163 $11,968,218 $47,704,835
===================================================================
Shares Outstanding 96,472,493 58,797,643 1,249,293 6,189,681
Net Asset Value, Offering and Redemption
Price per Share $7.36 $6.71 $9.58 $7.71
===================================================================
</TABLE>
~ Investment securities at cost and value at February 28, 1998 include
repurchase agreements of $4,220,000, $366,000 and $1,210,000 for High Yield,
Short-Term Bond and U.S. Government Securities Funds, respectively.
* The Fund has 600 million authorized shares of common stock, par value $0.01
per share. Of such shares, 100 million have been allocated to each individual
Fund.
See Notes to Financial Statements
<TABLE>
<CAPTION>
INVESCO Income Funds, Inc.
Statement of Operations
Six Months Ended February 28, 1998
UNAUDITED
U.S.
High Select Short-Term Government
Yield Income Bond Securities
Fund Fund Fund Fund
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $ 27,278,283 $ 12,569,620 $ 468,284 $ 1,655,054
Dividends 135,091 0 0 0
-------------------------------------------------------------------
TOTAL INCOME 27,413,374 12,569,620 468,284 1,655,054
-------------------------------------------------------------------
EXPENSES
Investment Advisory Fees 1,249,244 892,181 34,831 141,999
Distribution Expenses 711,491 413,171 17,415 64,545
Transfer Agent Fees 348,301 408,814 32,041 88,315
<PAGE>
Administrative Fees 47,689 29,790 6,045 8,873
Custodian Fees and Expenses 21,470 23,954 2,876 5,545
Directors' Fees and Expenses 21,356 14,656 4,938 6,385
Professional Fees and Expenses 18,943 14,534 9,821 8,975
Registration Fees and Expenses 65,685 31,122 14,529 26,043
Reports to Shareholders 40,634 33,828 3,571 8,810
Other Expenses 8,386 5,830 713 1,543
-------------------------------------------------------------------
TOTAL EXPENSES 2,533,199 1,867,880 126,780 361,033
Fees and Expenses Absorbed by
Investment Adviser 0 (109,439) (66,030) (98,761)
Fees and Expenses Paid Indirectly (12,376) (11,155) (1,163) (2,129)
-------------------------------------------------------------------
NET EXPENSES 2,520,823 1,747,286 59,587 260,143
-------------------------------------------------------------------
NET INVESTMENT INCOME 24,892,551 10,822,334 408,697 1,394,911
-------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on Investment
Securities and Foreign
Currency Transactions 21,629,620 4,530,344 15,131 2,763,587
Change in Net Appreciation of Investment
Securities and Foreign Currency
Transactions (17,382) 5,192,974 92,556 (242,798)
-------------------------------------------------------------------
NET GAIN ON INVESTMENT SECURITIES 21,612,238 9,723,318 107,687 2,520,789
-------------------------------------------------------------------
Net Increase in Net Assets from
Operations $ 46,504,789 $ 20,545,652 $ 516,384 $ 3,915,700
===================================================================
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INVESCO Income Funds, Inc.
Statement of Changes in Net Assets
High Yield Fund Select Income Fund
Six Months Year Six Months Year
Ended Ended Ended Ended
February 28 August 31 February 28 August 31
------------------------------ ------------------------------
1998 1997 1998 1997
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 24,892,551 $ 36,258,447 $ 10,822,334 $ 18,785,744
Net Realized Gain on Investment
Securities and Foreign Currency
Transactions 21,629,620 23,000,271 4,530,344 6,970,303
Change in Net Appreciation of Investment
Securities and Foreign Currency
Transactions (17,382) 14,932,249 5,192,974 6,812,752
------------------------------- -------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS 46,504,789 74,190,967 20,545,652 32,568,799
------------------------------- -------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (24,892,551) (36,240,760) (10,822,248) (18,772,522)
Net Realized Gain on Investment
Securities and Foreign Currency
Transactions (30,267,935) (1,805,972) (8,101,424) (1,164,947)
------------------------------- -------------------------------
TOTAL DISTRIBUTIONS (55,160,486) (38,046,732) (18,923,672) (19,937,469)
------------------------------- -------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 481,748,356 585,489,350 203,810,699 149,847,293
Reinvestment of Distributions 47,141,060 31,536,903 16,985,738 17,592,021
------------------------------- -------------------------------
528,889,416 617,026,253 220,796,437 167,439,314
Amounts Paid for Repurchases of Shares (281,332,142) (557,406,718) (115,782,337) (150,545,417)
------------------------------- -------------------------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 247,557,274 59,619,535 105,014,100 16,893,897
------------------------------- -------------------------------
Total Increase in Net Assets 238,901,577 95,763,770 106,636,080 29,525,227
NET ASSETS
Beginning of Period 470,965,014 375,201,244 287,618,083 258,092,856
------------------------------- -------------------------------
End of Period $709,866,591 $470,965,014 $394,254,163 $287,618,083
=============================== ===============================
<PAGE>
Accumulated Undistributed Net Investment
Income Included in Net Assets at
End of Period $ 16,678 $ 16,678 $ 37,335 $ 37,249
FUND SHARE TRANSACTIONS
Shares Sold 64,538,258 82,068,049 30,289,882 22,926,524
Shares Issued from Reinvestment
of Distributions 6,440,599 4,403,579 2,535,166 2,685,959
------------------------------- -------------------------------
70,978,857 86,471,628 32,825,048 25,612,483
Shares Repurchased (37,712,969) (78,100,199) (17,204,153) (23,065,551)
------------------------------- -------------------------------
Net Increase in Fund Shares 33,265,888 8,371,429 15,620,895 2,546,932
=============================== ===============================
See Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
INVESCO Income Funds, Inc.
Statement of Changes in Net Assets (Continued)
Short-Term U.S. Government
Bond Fund Securities Fund
Six Months Year Six Months Year
Ended Ended Ended Ended
February 28 August 31 February 28 August 31
------------------------------- -------------------------------
1998 1997 1998 1997
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C>
Net Investment Income $ 408,697 $ 712,515 $ 1,394,911 $ 3,288,114
Net Realized Gain on Investment Securities
and Foreign Currency Transactions 15,131 7,626 2,763,587 1,121,369
Change in Net Appreciation of Investment
Securities and Foreign Currency
Transactions 92,556 99,263 (242,798) 1,720,828
------------------------------- -------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS 516,384 819,404 3,915,700 6,130,311
------------------------------- -------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (408,697) (712,515) (1,394,911) (3,288,114)
Net Realized Gain on Investment
Securities and Foreign Currency
Transactions 0 0 (1,102,694) 0
------------------------------- -------------------------------
TOTAL DISTRIBUTIONS (408,697) (712,515) (2,497,605) (3,288,114)
------------------------------- -------------------------------
<PAGE>
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 15,708,929 19,388,223 74,798,521 102,864,694
Reinvestment of Distributions 374,913 673,216 2,255,144 3,045,965
------------------------------- -------------------------------
16,083,842 20,061,439 77,053,665 105,910,659
Amounts Paid for Repurchases of Shares (16,567,664) (18,558,559) (82,347,739) (111,785,624)
------------------------------- -------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (483,822) 1,502,880 (5,294,074) (5,874,965)
------------------------------- -------------------------------
Total Increase (Decrease) in Net Assets (376,135) 1,609,769 (3,875,979) (3,032,768)
NET ASSETS
Beginning of Period 12,344,353 10,734,584 51,580,814 54,613,582
------------------------------- -------------------------------
End of Period $ 11,968,218 $ 12,344,353 $ 47,704,835 $ 51,580,814
=============================== ===============================
FUND SHARE TRANSACTIONS
Shares Sold 1,641,031 2,048,615 9,657,268 13,984,238
Shares Issued from Reinvestment
of Distributions 39,202 71,014 292,238 412,300
------------------------------- -------------------------------
1,680,233 2,119,629 9,949,506 14,396,538
Shares Repurchased (1,728,735) (1,962,721) (10,642,521) (15,152,477)
------------------------------- -------------------------------
Net Increase (Decrease) in Fund Shares (48,502) 156,908 (693,015) (755,939)
=============================== ===============================
See Notes to Financial Statements
</TABLE>
INVESCO Income Funds, Inc.
Notes to Financial Statements
UNAUDITED
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Income
Funds, Inc. (the "Fund") is incorporated in Maryland and presently consists of
four separate Funds: High Yield Fund, Select Income Fund, Short-Term Bond Fund
and U.S. Government Securities Fund. The investment objectives are: to seek a
high level of current income for High Yield and Select Income Funds; to seek a
high level of current income with minimum fluctuation in principal value while
maintaining liquidity for Short-Term Bond Fund; and to seek a high level of
current income by investing in debt obligations issued by the U.S. Government or
its agencies for U.S. Government Securities Fund. The Fund is registered under
the Investment Company Act of 1940 (the "Act") as a diversified, open-end
management investment company.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
<PAGE>
A. SECURITY VALUATION -- Debt securities are valued at evaluated bid prices
as determined by a pricing service approved by the Fund's board of
directors. If evaluated bid prices are not available, debt securities are
valued by averaging the bid prices obtained from one or more dealers making
a market for such securities.
Equity securities traded on national securities exchanges or in the
over-the-counter market are valued at the last sales price in the market
where such securities are primarily traded. If last sales prices are not
available, securities are valued at the highest closing bid price obtained
from one or more dealers making a market for such securities or by a pricing
service approved by the Fund's board of directors.
Foreign securities are valued at the closing price on the principal
stock exchange on which they are traded. In the event that closing prices
are not available for foreign securities, prices will be obtained from the
principal stock exchange at or prior to the close of the New York Stock
Exchange. Foreign currency exchange rates are determined daily prior to the
close of the New York Stock Exchange.
If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good faith
by the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates
market value) if maturity is 60 days or less at the time of purchase, or
market value if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the date of
valuation. The cost of securities is translated into U.S. dollars at
the rates of exchange prevailing when such securities are acquired.
Income and expenses are translated into U.S. dollars at the rates of
exchange prevailing when accrued.
B. REPURCHASE AGREEMENTS _ Repurchase agreements held by the Fund are fully
collateralized by U.S. Government securities and such collateral is in the
possession of the Fund's custodian. The collateral is evaluated daily to
ensure its market value exceeds the current market value of the repurchase
agreements including accrued interest. In the event of default on the
obligation to repurchase, the Fund has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. In the event of
default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date and dividend income is
recorded on the ex dividend date. Certain dividends from foreign
securities will be recorded as soon as the Fund is informed of the
dividend if such information is obtained subsequent to the ex dividend
date. Interest income, which may be comprised of stated coupon rate,
market discount, original issue discount and amortized premium, is
recorded on the accrual basis. Discounts and premiums on debt
securities purchased are amortized over the life of the respective
security as adjustments to interest income. Cost is determined on the
specific identification basis.
Mortgage paydown gain/loss is treated as ordinary income for tax
purposes and is included in interest income on the Statement of Operations.
The Fund may have elements of risk due to concentrated investments in
foreign issuers located in a specific country. Such concentrations may
subject the Fund to additional risks resulting from future political or
economic conditions and/or possible impositions of adverse foreign
governmental laws or currency exchange restrictions. Net realized and
<PAGE>
unrealized gain or loss from investment securities includes fluctuations
from currency exchange rates and fluctuations in market value.
High Yield Fund invests primarily in high yield bonds, some of which
may be rated below investment grade. These high yield bonds may be more
susceptible than higher grade bonds to real or perceived adverse economic or
industry conditions. The secondary market, on which high yield bonds are
traded, may also be less liquid than the market for higher grade bonds.
The Fund's use of short-term forward foreign currency contracts may
subject it to certain risks as a result of unanticipated movements in
foreign exchange rates. The Fund does not hold short-term forward foreign
currency contracts for trading purposes. The Fund may hold foreign currency
in anticipation of settling foreign security transactions and not for
investment purposes.
Investments in securities of governmental agencies may only be
guaranteed by the respective agency's limited authority to borrow from the
U.S. Government and may not be guaranteed by the full faith and credit of
the United States.
D. FEDERAL AND STATE TAXES -- The Fund has complied, and continues to comply,
with the provisions of the Internal Revenue Code applicable to regulated
investment companies and, accordingly, has made or intends to make
sufficient distributions of net investment income and net realized capital
gains, if any, to relieve it from all federal and state income taxes and
federal excise taxes. At August 31, 1997, Short-Term Bond Fund had $64,
$285,423, $17,095 and $19,676, in net capital loss carryovers which expire
in the years 2002, 2003, 2004 and 2005,respectively.
Short-Term Bond Fund incurred and elected to defer post-October 31 net
capital losses of $50,466 to the year ended August 31, 1998. To the extent
future capital gains are offset by capital loss carryovers and deferred post
October 31 losses, such gains will not be distributed to shareholders.
Net capital loss carryovers utilized in 1997 by U.S. Government
Securities Fund amounted to $434,697.
Dividends paid by the Fund from net investment income and distributions
of net realized short-term capital gains are, for federal income tax
purposes, taxable as ordinary income to shareholders.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- All of the Fund's net
investment income is distributed to shareholders by dividends declared
daily and paid monthly. Income dividends are reinvested at the month-end
net asset value. The Fund distributes net realized capital gains, if
any, to its shareholders at least annually, if not offset by capital
loss carryovers. Income distributions and capital gain distributions
are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences
are primarily due to differing treatments for mortgage-backed securities,
market discounts, amortized premiums, foreign currency transactions,
nontaxable dividends, net operating losses and expired capital loss
carryforwards.
F. EXPENSES -- Each of the Funds bears expenses incurred specifically on its
behalf and, in addition, each Fund bears a portion of general expenses,
based on the relative net assets of each Fund.
Under an agreement between each Fund and the Fund's Custodian, agreed
upon Custodian Fees and Expenses are reduced by credits granted by the
Custodian from any temporarily uninvested cash. Such credits are included in
Fees and Expenses Paid Indirectly in the Statement of Operations.
<PAGE>
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group,
Inc. ("IFG") serves as the Fund's investment adviser. As compensation for
its services to the Fund, IFG receives an investment advisory fee which is
accrued daily at the applicable rate and paid monthly. The fee is based
on the annual rate of each Fund's average net assets as follows:
AVERAGE NET ASSETS
------------------------------------------------
$0 to $300 Million Over
$300 to $500 $500
Fund Million Million Million
- ----------------------------------------------------------------------------
High Yield Fund 0.50% 0.40% 0.30%
Select Income Fund 0.55% 0.45% 0.35%
Short-Term Bond Fund 0.50% 0.40% 0.30%
U.S. Government Securities Fund 0.55% 0.45% 0.35%
In accordance with a Sub-Advisory Agreement between IFG and INVESCO Trust
Company ("ITC"), a wholly owned subsidiary of IFG, investment decisions of each
Fund are made by ITC. Effective February 4, 1998, such responsibilities were
transferred to IFG. Fees for such sub-advisory services are paid by IFG.
In accordance with an Administrative Agreement, each Fund pays IFG an annual
fee of $10,000, plus an additional amount computed at an annual rate of 0.015%
of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG receives a transfer agent fee at an annual rate of $26.00 per
shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month.
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to IFG (the
"Distributor") to a maximum of 0.25% of average annual net assets. For the six
months ended February 28, 1998, High Yield, Select Income, Short- Term Bond and
U.S. Government Securities Funds paid the Distributor $680,646, $401,652,
$17,538 and $68,074, respectively, under the plan of distribution. Effective
September 29, 1997, INVESCO Distributors, Inc., a wholly owned subsidiary of
IFG, replaced IFG as Distributor.
IFG has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by Select Income and U.S. Government Securities Funds, and IFG
and ITC have voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by Short-Term Bond Fund.
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the six months
ended February 28, 1998, the aggregate cost of purchases and proceeds from sales
of investment securities (excluding all U.S. Government securities and
short-term securities) were as follows:
Fund Purchases Sales
- --------------------------------------------------------------------------------
High Yield Fund $ 1,097,747,788 $ 865,831,601
Select Income Fund 334,341,797 234,319,948
Short-Term Bond Fund 1,626,734 2,243,200
<PAGE>
The aggregate cost of purchases and proceeds from sales of U.S. Government
securities were as follows:
Fund Purchases Sales
- --------------------------------------------------------------------------------
Short-Term Bond Fund $ 4,923,275 $ 2,706,970
U.S. Government Securities Fund 63,546,214 77,479,164
NOTE 4 -- APPRECIATION AND DEPRECIATION. At February 28, 1998, the gross
appreciation of securities in which there was an excess of value over tax cost,
the gross depreciation of securities in which there was an excess of tax cost
over value and the resulting net appreciation by Fund were as follows:
Gross Gross Net
Fund Appreciation Depreciation Appreciation
- --------------------------------------------------------------------------------
High Yield Fund $12,435,949 $3,638,794 $8,797,155
<PAGE>
Select Income Fund 8,908,209 1,001,147 7,907,062
Short-Term Bond Fund 109,751 6,128 103,623
U.S. Government Securities Fund 1,358,619 210,968 1,147,651
NOTE 5 -- TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or ITC.
The Fund has adopted an unfunded deferred compensation plan covering all
independent directors of the Fund who will have served as an independent
director for at least five years at the time of retirement. Benefits under this
plan are based on an annual rate equal to 40% of the retainer fee at the time of
retirement.
Pension expenses for the six months ended February 28, 1998, included in
Directors' Fees and Expenses in the Statement of Operations, and unfunded
accrued pension costs and pension liability included in Prepaid Expenses and
Accrued Expenses, respectively, in the Statement of Assets and Liabilities were
as follows:
Unfunded
Pension Accrued Pension
Fund Expenses Pension Costs Liability
- --------------------------------------------------------------------------------
High Yield Fund $ 5,155 $ 16,868 $ 36,089
Select Income Fund 3,137 9,444 21,667
Short-Term Bond Fund 133 499 1,051
U.S. Government Securities Fund 611 2,196 4,758
NOTE 6 -- LINE OF CREDIT. The Fund has available a Redemption Line of Credit
Facility "LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the Net Assets at Value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. At
February 28, 1998, there were no such borrowings.
<TABLE>
<CAPTION>
INVESCO Income Funds, Inc.
Financial Highlights
(For a Fund Share Outstanding Throughout Each Period)
Six Months Period
Ended Ended Year Ended
February 28 Year Ended August 31 August 31 December 31
------------ ----------------------------------------------- ---------- ------------
1998 1997 1996 1995 1994 1993^ 1992
UNAUDITED
High Yield Fund
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $7.45 $6.84 $6.73 $6.73 $7.32 $ 6.97 $ 6.66
----- ----------------------------------------------- ------- --------
<PAGE>
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.32 0.62 0.63 0.66 0.62 0.39 0.64
Net Gains or (Losses)
on Securities (Both
Realized and
Unrealized) 0.31 0.64 0.11 0.03 (0.59) 0.36 0.30
----- ---------------------------------------------- -------- ---------
Total from Investment
Operations 0.63 1.26 0.74 0.69 0.03 0.75 0.94
----- ---------------------------------------------- -------- ---------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.32 0.62 0.63 0.66 0.62 0.40 0.63
Distributions from
Capital Gains 0.40 0.03 0.00 0.00 0.00 0.00 0.00
In Excess of Capital
Gains 0.00 0.00 0.00 0.03 0.00 0.00 0.00
----- ---------------------------------------------- -------- ---------
<PAGE>
Total Distributions 0.72 0.65 0.63 0.69 0.62 0.40 0.63
----- ---------------------------------------------- -------- --------
Net Asset Value --
End of Period $7.36 $7.45 $6.84 $6.73 $6.73 $7.32 $6.97
===== ============================================== ======== ========
TOTAL RETURN 8.81%* 19.27% 11.38% 11.12% 0.37% 11.01%* 14.53%
RATIOS
Net Assets --
End of Period
($000 Omitted) $709,867 $470,965 $375,201 $288,959 $243,773 $308,945 $212,172
Ratio of Expenses to
Average Net Assets# 0.44%*@ 1.00%@ 0.99%@ 1.00% 0.97% 0.97%~ 1.00%
Ratio of Net Investment
Income to Average
Net Assets# 4.34%* 8.71% 9.13% 10.01% 8.70% 8.28%~ 9.29%
Portfolio Turnover Rate 158%* 129% 266% 201% 195% 45%* 120%
</TABLE>
^ From January 1, 1993 to August 31, 1993.
+ Distributions in excess of net investment income for the year ended August 31,
1996, aggregated less than $0.01 on a per share basis.
<PAGE>
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended August 31, 1996, 1995 and 1994. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 0.99%, 1.07%
and 0.98%, respectively, and ratio of net investment income to average net
assets would have been 9.13%, 9.94% and 8.69%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements.
~ Annualized
<TABLE>
<CAPTION>
INVESCO Income Funds, Inc.
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout Each Period)
Six Months Period
Ended Ended Year Ended
February 28 Year Ended August 31 August 31 December 31
------------ -------------------------------------------------------------- -----------
1998 1997 1996 1995 1994 1993^ 1992
UNAUDITED
Select Income Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $6.66 $6.35 $6.54 $6.18 $6.80 $6.53 $6.50
-------- ---------------------------------------------------- ----- -----
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.22 0.45 0.47 0.47 0.47 0.33 0.52
Net Gains or (Losses)
on Securities (Both
Realized and
Unrealized) 0.22 0.34 (0.17) 0.36 (0.43) 0.27 0.13
-------- ---------------------------------------------------- ----- -----
Total from Investment
Operations 0.44 0.79 0.30 0.83 0.04 0.60 0.65
-------- ---------------------------------------------------- ----- -----
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.22 0.45 0.46 0.47 0.47 0.33 0.52
In Excess of Net
Investment Income+ 0.00 0.00 0.01 0.00 0.00 0.00 0.00
Distributions from
Capital Gains 0.17 0.03 0.02 0.00 0.09 0.00 0.10
<PAGE>
In Excess of Capital
Gains 0.00 0.00 0.00 0.00 0.10 0.00 0.00
-------- ---------------------------------------------------- ----- -----
Total Distributions 0.39 0.48 0.49 0.47 0.66 0.33 0.62
-------- ---------------------------------------------------- ----- -----
Net Asset Value --
End of Period $6.71 $6.66 $6.35 $6.54 $6.18 $6.80 $6.53
======== ==================================================== ===== =====
TOTAL RETURN 6.69%* 12.89% 4.78% 14.01% 0.47% 9.42%* 10.38%
RATIOS
Net Assets --
End of Period
($000 Omitted) $394,254 $287,618 $258,093 $216,597 $138,337 $158,780 $123,036
Ratio of Expenses to
Average Net Assets# 0.53%*@ 1.03%@ 1.01%@ 1.00% 1.11% 1.15%~ 1.14%
Ratio of Net Investment
Income to Average
Net Assets# 3.25%* 6.98% 7.14% 7.38% 7.22% 7.40%~ 7.97%
Portfolio Turnover Rate 73%* 263% 210% 181% 135% 105%* 178%
</TABLE>
^ From January 1, 1993 to August 31, 1993.
+ Distributions in excess of net investment income for the year ended August 31,
1995, aggregated less than $0.01 on a per share basis.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG for the six
months ended February 28, 1998 and for the years ended August 31, 1997, 1996,
1995 and 1994. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 0.56% (not annualized), 1.21%,
1.16%, 1.22% and 1.15%, respectively, and ratio of net investment income to
average net assets would have been 3.22% (not annualized), 6.80%, 6.99%, 7.16%
and 7.18%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
<TABLE>
<CAPTION>
INVESCO Income Funds, Inc.
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout Each Period)
Six Months Period
Ended Ended
February 28 Year Ended August 31 August 31
----------- -------------------------------- ---------
1998 1997 1996 1995 1994^
UNAUDITED
Short-Term Bond Fund
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value-- Beginning of Period $9.51 $9.41 $9.54 $9.46 $10.00
----- --------------------------------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.28 0.50 0.56 0.57 0.47
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.07 0.15 (0.13) 0.08 (0.54)
----- --------------------------------- ---------
Total from Investment Operations 0.35 0.65 0.43 0.65 (0.07)
----- --------------------------------- ---------
LESS DISTRIBUTIONS
Dividends from Net Investment Income+ 0.28 0.55 0.56 0.57 0.47
----- --------------------------------- ---------
Net Asset Value-- End of Period $9.58 $9.51 $9.41 $9.54 $9.46
===== ================================= =========
TOTAL RETURN 3.71%* 7.08% 4.63% 7.16% (0.72%)*
RATIOS
Net Assets-- End of Period ($000 Omitted) $11,968 $12,344 $10,735 $8,979 $7,878
<PAGE>
Ratio of Expenses to Average Net Assets# 0.42%*@ 0.83%@ 0.80%@ 0.46% 0.46%~
Ratio of Net Investment Income to
Average Net Assets# 2.92%* 5.82% 5.85% 6.05% 5.50%~
Portfolio Turnover Rate 42%* 331% 103% 68% 169%*
</TABLE>
^ From September 30, 1993, commencement of investment operations, to August 31,
1994.
+ Distributions in excess of net investment income for the years ended
August 31, 1996 and 1995, aggregated less than $0.01 on a per share basis.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG and ITC for the
six months ended February 28, 1998, for the years ended August 31, 1997, 1996
and 1995 and for the period ended August 31, 1994. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have been
0.90% (not annualized), 1.84%, 2.17%, 2.09% and 2.04% (annualized),
respectively, and ratio of net investment income to average net assets would
have been 2.44% (not annualized), 4.81%, 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
<TABLE>
<CAPTION>
INVESCO Income Funds, Inc.
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout Each Period)
Six Months Period
Ended Ended Year Ended
February 28 Year Ended August 31 August 31 December 31
----------- --------------------------------------------- --------- -----------
1998 1997 1996 1995 1994 1993^ 1992
UNAUDITED
U.S. Government Securities Fund
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value --
Beginning of Period $7.49 $7.15 $7.49 $7.10 $8.19 $7.61 $7.65
----- ----------------------------------------------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.21 0.43 0.44 0.45 0.41 0.28 0.46
<PAGE>
Net Gains or (Losses)
on Securities (Both
Realized and
Unrealized) 0.38 0.34 (0.34) 0.39 (0.93) 0.58 (0.04)
----- ----------------------------------------------- --------- ---------
Total from Investment
Operations 0.59 0.77 0.10 0.84 (0.52) 0.86 0.42
----- ----------------------------------------------- --------- ---------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.21 0.43 0.43 0.45 0.41 0.28 0.46
In Excess of Net
Investment Income+ 0.00 0.00 0.01 0.00 0.00 0.00 0.00
Distributions from
Capital Gains 0.16 0.00 0.00 0.00 0.16 0.00 0.00
----- ----------------------------------------------- --------- ---------
Total Distributions 0.37 0.43 0.44 0.45 0.57 0.28 0.46
----- ----------------------------------------------- --------- ---------
Net Asset Value --
End of Period $7.71 $7.49 $7.15 $7.49 $7.10 $8.19 $7.61
===== =============================================== ========= =========
TOTAL RETURN 7.99%* 11.01% 1.31% 12.37% (6.53%) 11.61%* 5.68%
RATIOS
Net Assets --
End of Period
($000 Omitted) $47,705 $51,581 $54,614 $38,087 $36,740 $36,391 $35,799
Ratio of Expenses to
Average Net Assets# 0.50%*@ 1.01%@ 1.02%@ 1.00% 1.32% 1.40%~ 1.27%
Ratio of Net Investment
Income to Average
Net Assets# 2.68%* 5.78% 5.76% 6.24% 5.46% 5.36%~ 6.08%
Portfolio Turnover Rate 125%* 139% 212% 99% 95% 100%* 115%
</TABLE>
^ From January 1, 1993 to August 31, 1993.
+ Distributions in excess of net investment income for the year ended August 31,
1995, aggregated less than $0.01 on a per share basis.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG for the six
months ended February 28, 1998 and for the years ended August 31, 1997, 1996,
1995 and 1994. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 0.69% (not annualized), 1.32%,
1.48%, 1.51% and 1.42%, respectively, and ratio of net investment income to
average net assets would have been 2.49% (not annualized), 5.47%, 5.30%, 5.73%
and 5.36%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualize
<PAGE>
FAMILY OF FUNDS
Newspaper
Fund Name Fund Code Ticker Symbol Abbreviation
- --------------------------------------------------------------------------------
International
International Growth 49 FSIGX IntlGr
Emerging Markets 43 * *
Asian Growth 41 IVAGX AsianGr
Pacific Basin 54 FPBSX PcBas
European 56 FEURX Europ
European Small Company 37 IVECX EuroSmCo
Latin American Growth 34 IVSLX LatinAmGr
- --------------------------------------------------------------------------------
Sector
Energy 50 FSTEX Enrgy
Environmental Services 59 FSEVX Envirn
Financial Services 57 FSFSX FinSvc
Gold 51 FGLDX Gold
Health Sciences 52 FHLSX HlthSc
Leisure 53 FLISX Leisur
Realty 42 IVSRX Realty
Technology 55 FTCHX Tech
Utilities 58 FSTUX Util
Worldwide Capital Goods 38 ISWGX WldCap
Worldwide Communications 39 ISWCX WldCom
- --------------------------------------------------------------------------------
Equity
Growth 10 FLRFX Grwth
Dynamics 20 FIDYX Dynm
Small Company Growth 60 FIEGX SmCoGth
Value Equity 46 FSEQX ValEq
Small Company Value 74 IDSCX SmCoVal
S&P 500 Index Fund Class II 23 * *
- --------------------------------------------------------------------------------
All-Weather
Industrial Income 15 FIIIX IndInc
Multi-Asset Allocation 70 IMAAX MulAstAl
Total Return 48 FSFLX TotRtn
Balanced 71 IMABX Bal
- --------------------------------------------------------------------------------
Bond
Short-Term Bond 33 INIBX ShTrBd
Intermediate Government Bond 47 FIGBX IntGov
U.S. Government Securities 32 FBDGX USGvt
Select Income 30 FBDSX SelInc
High Yield 31 FHYPX HiYld
- --------------------------------------------------------------------------------
Tax-Exempt
Tax-Free Intermediate Bond 36 IVTIX *
Tax-Free Long-Term Bond 35 FTIFX TxFre
- --------------------------------------------------------------------------------
<PAGE>
Money Market
U.S. Government Money Fund 44 FUGXX InvGvtMF
Cash Reserves 25 FDSXX InvCshR
Tax-Free Money Fund 40 FFRXX InvTaxFree
* This fund does not meet size requirements to be assigned a ticker symbol in
newspaper listings.
For more information about any of the INVESCO Funds, including management
fees and expenses, please call us at 1-800-525-8085 for a prospectus. Read it
carefully before you invest or send money.
<PAGE>
INVESCO FUNDS
INVESCO Distributors, Inc.,(SM)
Distributor
Post Office Box 173706
Denver, CO 80217-3706
1-800-525-8085
PAL(R): 1-800-424-8085
http://www.invesco.com
In Denver, visit one of our
convenient Investor Centers:
Cherry Creek,
155-B Fillmore Street
Denver Tech Center,
7800 East Union Avenue,
Lobby Level
This information must be
preceded or accompanied
by a current prospectus.
