Annual Report
August 31, 1998
INVESCO
Income Funds
High Yield Fund
Select Income Fund
U.S. Government
Securities Fund
Short-Term Bond Fund
INVESCO
You should know
what INVESCO knows.(TM)
<PAGE>
Market Overview September 1998
What a difference a year makes. In the summer of 1997, market pundits were
concerned that the Federal Reserve Board would have to raise interest rates to
cool an overheating economy. Now, speculation has intensified that the Fed will
continue to lower interest rates to address worldwide liquidity problems and
keep the U.S. economy growing in the face of a global slowdown brought about by
the emerging market currency crisis. But what has really changed in the last 12
months?
Market psychology for equities has deteriorated. After more than
seven years of a bull market producing strong returns with limited volatility,
equity markets experienced two painful corrections in the last 12 months. In
fact, August 1998 was the worst month for equities since October 1987, as many
equity indexes experienced declines over 15%.
Corporate earnings have slowed in 1998, as the strong dollar and
slower global growth have made it difficult for many U.S. companies to sell
their products overseas. In addition, intense global competition has kept prices
in check -- making it difficult for companies to enhance earnings by increasing
prices.
Inflation appears to be comatose. Although real wages are starting to
increase, declining commodity prices and a flood of cheaper products from the
world's emerging markets have decreased consumer prices and reduced the threat
of inflation.
Interest rates have declined significantly. The implied yield on a
30-year U.S. government bond reached 7.17% in April 1997, and the economy
appeared on the verge of overheating. But, as the Asian currency crisis
intensified, a flight to quality occurred in the fixed-income market in the fall
of 1997, and the yield on the 30-year bond dropped to 5.97% by year-end. As the
global currency turmoil continued in 1998, the yield on the 30-year bond
decreased and ended September at 4.95%. Interest rates are presently at levels
not seen in the last three decades.
The next six to 12 months may be difficult for equity investors.
Although the economy still appears to be in good shape fundamentally, the
emerging market turmoil has spread from Asia to Russia and is attempting to
infect Latin America -- which is a large trade partner of the U.S. Investors
should be prepared for continued volatility for the rest of 1998. However, once
the turmoil passes, it could create enormous opportunities for U.S. companies to
increase their global presence.
For fixed-income investors, global currency problems will continue to
exert deflationary pressures on the U.S. economy, increasing the potential for
lower interest rates. With inflation hibernating, the risks associated with
owning fixed-income securities have decreased -- especially for high quality
obligations.
If you're an investor concerned about the recent volatility in the
equity markets, it may be an appropriate time to re-evaluate your financial
goals and increase your exposure to bonds. History has shown that bond and
equity markets do not always move in sync, and fixed-income securities may help
temper the overall day-to-day volatility of your portfolio.
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 8/31/98 (or for
Short-Term Bond Fund, from inception through 8/31/98). 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)
High Yield Fund
For the one-year period ended 8/31/98, INVESCO High Yield Fund had a
total return of 4.44%, compared to 4.87% for the Merrill Lynch High Yield Master
Index. However, the fund outperformed its peers for the same time period,
beating the average fund return of 1.26% 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)
<PAGE>
Review & Outlook
A discussion with Portfolio Manager and Director of Fixed-Income Investments
Jerry Paul.
What has changed in the high yield market in the last 12 months?
The global currency crisis has increased fears that the U.S. economy
may slow and slip into a recession in 1999. This has negatively influenced high
yield securities, as these companies depend on a robust economy to fuel future
growth. In addition, in August 1998 high yield securities experienced their
worst month in eight years.
High Yield Fund
Average Annual Total Return
As of 8/31/98(2)
1 Year 4.44%
----------------------------------------
5 Years 9.12%
----------------------------------------
10 Years 9.41%
----------------------------------------
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO High Yield Fund to the value of a $10,000
investment in the Merrill Lynch High Yield Master Index, assuming in
each case reinvestment of all dividends and capital gain distributions,
for the ten year period ended 8/31/98.
Although default rates on high yield issues have recently increased,
they still remain below historical averages. We maintain our belief that the
U.S. economy, although slowing, remains fundamentally sound. Presently, the
continued flight to quality towards Treasuries has left high yield securities
very attractively priced compared to historical measures.
Have you made any changes in High Yield Fund's portfolio in the last 12 months?
We have made only minor changes in the portfolio. For instance, we
reduced the fund's exposure to the cable TV industry while increasing our
presence in the energy sector. Also, our thematic approach continues to identify
investment opportunities in the communications and radio/broadcasting
industries.
What industries have produced the strongest returns?
The telecommunications sector continues to produce strong returns for
the fund. Both competitive local exchange providers (CLECs) and rural service
providers are improving fundamentally, and industry consolidation is enhancing
potential returns. Although many of these companies have experienced some recent
volatility, we believe their long-term potential is great.
In addition, Iowa farmers don't pay their phone bills in Russian rubles
- -- which is important to remember in a time of global currency problems.
What's your outlook for high yield securities?
This market recently experienced a re-pricing of both credit risk and
the premiums that investors are willing to pay for less-liquid obligations. The
re-pricing of credit risk is not likely to be quickly recovered and will
probably exist until the extent and depth of the economic slowdown becomes
clearer. Although we believe that we have approached the bottom, things could
get worse in this market if the economy moves into a recession.
We feel that the Federal Reserve Board may decrease interest rates to
stimulate economic growth and address ongoing worldwide liquidity problems. If
the economy avoids a recession and stays strong, high yield securities may have
significant upside potential.
Select Income Fund
INVESCO Select Income Fund received the prestigious five-star rating
for risk-adjusted performance by Morningstar, for the three-year, five-year, and
10-year periods ended 8/31/98, among 1,484, 912, and 344 taxable bond funds,
respectively. (Of course, past performance is not guarantee of future
results.)(3)
<PAGE>
For the one-year period ended 8/31/98, INVESCO Select Income Fund
achieved a total return of 9.58%, compared to a total return of 11.43% for the
Lehman Government/Corporate Bond Index.(1),(2)
Review & Outlook
A discussion with Portfolio Manager and Director of Fixed-Income Investments
Jerry Paul.
Has the market environment changed in the last 12 months for Select Income
Fund?
As international currency problems intensified over the last year,
high-quality obligations experienced significant returns, especially Treasury
securities. This flight to quality has left corporate investment grade
securities seriously undervalued for the first time in six to seven years. In
addition, high yield securities significantly underperformed many other
fixed-income obligations during this time period.
Select Income Fund
Average Annual Total Return
As of 8/31/98(2)
1 Year 9.58%
--------------------------------------------------
5 Years 8.22%
--------------------------------------------------
10 Years 9.49%
--------------------------------------------------
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Select Income Fund to the value of a $10,000
investment in the Lehman Government/Corporate Bond Index, assuming in
each case reinvestment of all dividends and capital gain distributions,
for the ten year period ended 8/31/98.
In this environment, what changes did you make to the portfolio?
Our value-oriented investment style, which focuses on the
identification of mispriced fixed-income securities, identified corporate
investment grade securities as attractive investments, and we increased the
fund's allocation to these obligations. Further, we reduced the fund's exposure
to mortgage-backed securities throughout the year as lower interest rates
increased the risk of mortgage prepayments and made these instruments
unattractive. We continue to be heavily invested in the electric utility
industry, and have maintained our exposure to high yield securities.
What fixed-income securities have produced the strongest returns for the fund?
Our "stranded cost" theme of the electric utilities sector continues to
deliver strong performance for the fund as developments within the electric
utility deregulation environment continue to validate our large allocation to
this sector. The electric utilities industry is in a state of dynamic transition
as the industry moves towards deregulation and increased competition, ultimately
benefiting 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. We have skewed investments towards those states that are the furthest
along in the deregulation process -- California, New York, and Pennsylvania.
In addition, electric utilities are not dependent on the direction of
the economy, which makes these investments somewhat insensitive toward economic
cycles. We believe that this theme is only in its infancy stages, and could
prove rewarding for the portfolio for years to come.
Have you had any disappointments in the last year?
The fund's exposure to high yield securities has somewhat hindered
performance, but we remain confident in their long-term potential. Currently, we
have approximately 35% of the portfolio exposed to these securities.
What's your outlook for this area of the fixed-income market?
<PAGE>
We have lowered our expectations on the 30-year Treasury yield to a
range of 5% to 6% for the rest of 1998. We are optimistic on the long-term
outlook for bonds, and continue to believe that the yield on the 30-year
Treasury will approach and perhaps decline below 5% within the next year. The
recent flight to quality in the fixed-income market has created value
opportunities in many obligations and we plan to exploit these opportunities
accordingly.
U.S. Government Securities Fund
For the one-year period ended 8/31/98, INVESCO U.S. Government
Securities Fund had a total return of 14.75%, compared to a total return of
20.84% for the Lehman Long Government Bond Index. However, the fund outperformed
its peers for the same time period, beating the average fund return of 10.72%
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)
U.S. Government Securities Fund
Average Annual Total Return
As of 8/31/98(2)
1 Year 14.75%
---------------------------------------------
5 Years 6.27%
---------------------------------------------
10 Years 8.65%
---------------------------------------------
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO U.S. Government Securities Fund to the value
of a $10,000 investment in the Lehman Government/Corporate Bond Index,
assuming in each case reinvestment of all dividends and capital gain
distributions, for the ten year period ended 8/31/98.
Review & Outlook
An interview with Portfolio Manager Dick Hinderlie.
What has changed in the last 12 months?
In the latter half of 1997, declining interest rates created a flatter
yield curve, and we increased the U.S. Government Securities Fund's position in
mortgage-backed securities. However, as the currency crisis spread outside the
Asian/Pacific Rim region, we decreased the fund's exposure to mortgage-backed
securities and increased the fund's allocation to Treasuries. During the last
six months, we have also been very responsive to changes in the market,
adjusting the portfolio mix depending on the environment.
In addition, the duration of the fund is actively managed with 7.5
years designated as its neutral target. This approximates a 10-plus year
Treasury note investment position, which is much shorter than our comparative
index. As the threat of inflation diminished during the last year, we increased
the fund's duration. (Duration is the weighted average term-to-maturity of
security's cash flows, generally used to measure the price volatility of a
bond.)
Is the flat yield curve a problem?
The flat to inverted yield curve is a problem for some financial
institutions, such as banks. However, I believe the flattening creates a greater
risk for fixed-income investors in the short-end of the yield curve than those
with longer maturities.
What's your outlook going forward?
We are presently in a very difficult economic environment, and we plan
to actively manage both the duration and allocation decisions on the fund
depending on changes in this environment. The two major problems that we will
continue to be monitoring will be:
Global capital and currency problems
The political leadership problems
<PAGE>
If the emerging markets currency crisis spreads to Latin America, then
the chances for a recession in the U.S. economy in 1999 increase. This could
cause investors to favor Treasuries versus AAA corporate bonds, and would
probably drive interest rates on Treasuries even lower.
Historically, as political uncertainty increases, the fixed-income
market exhibits increased sensitivity. Monitoring the issue of political
leadership and public confidence has become more critical to our potential
prosperity -- requiring more frequent portfolio adjustments.
Either way, the prospects for low interest rates remain good, and we
believe the U.S. government fixed-income securities sector remains attractive in
the present environment.
Short-Term Bond Fund
For the one-year period ended 8/31/98, INVESCO Short-Term Bond Fund
had a total return of 6.76%, compared to a total return of 7.23% for the Lehman
1-3 Year Government/Corporate Bond Index.(1),(2)
Review & Outlook
An interview with Portfolio Manager Dick Hinderlie
What has changed in Short-Term Bond Fund's portfolio in the last 12 months?
The fund targets a very specific maturity segment of the fixed-income
market. Because of this narrow focus, this fund's investments are more sensitive
to allocation decisions then to perceptions of interest rate trends.
During the last 12 months, we have had an average portfolio maturity
between two and three years. We continue to favor seasoned mortgage-backed
securities in this environment, as short duration mortgage-backed securities
have limited repayment risk associated with them. In contrast, longer duration
mortgage-backed securities have substantial prepayment risk in a declining
interest rate environment. In addition, the fund's limited exposure to high
yield securities has somewhat hindered fund performance during the last six
months.
Short-Term Bond Fund
Average Annual Total Return
as of 8/31/98(2)
1 Year 6.76%
-------------------------------------------------
Since Inception (10/93) 5.02%
-------------------------------------------------
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Short-Term Bond Fund to the value of a
$10,000 investment in the Lehman 1-3 Government/Corporate Bond Index,
assuming in each case reinvestment of all dividends and capital gain
distributions, for the period from inception through 8/31/98.
Fund Management
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.
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.
<PAGE>
- --------------------------------------------------------------------------------
(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 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 investors 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.
<PAGE>
<TABLE>
<CAPTION>
Statement of Investment Securities
August 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------
Shares, Units
or Principal
% Description Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
High Yield Fund
94.10 FIXED INCOME SECURITIES
94.10 Corporate Bonds
0.75 AIR FREIGHT
TBS Shipping International Ltd, 1st Pfd Ship Mortgage Notes(a), 10.000%, 5/1/2005 $ 5,750,000 $ 4,715,000
- ----------------------------------------------------------------------------------------------------------------------------
1.20 BIOTECHNOLOGY
Packard BioScience, Sr Sub Notes, Series B, 9.375%, 3/1/2007 $ 8,100,000 7,533,000
- ----------------------------------------------------------------------------------------------------------------------------
American Radio Systems, Gtd Sr Sub Notes, 9.000%, 2/1/2006 $ 810,000 850,500
Brill Media LLC/Brill Media Management
Appreciation Notes (Exp 2007) $ 107,143 1,071
Gtd Sr Step-Up Notes, Series B, 7.500%(b), 12/15/2007 $ 3,750,000 3,300,000
Capstar Broadcasting Partners, Sr Sub Notes, 9.250%, 7/1/2007 $ 3,000,000 3,000,000
EchoStar Communications, Gtd Sr Secured Discount Step-Up Notes, Zero Coupon(b)
6/1/2004 $ 6,750,000 6,480,000
JCAC Inc, Gtd Sr Sub Notes, 10.125%, 6/15/2006 $ 5,500,000 5,802,500
Telemundo Holdings, Sr Discount Step-Up Notes(a), Zero Coupon(b), 8/15/2008 $ 5,000,000 2,675,000
- ----------------------------------------------------------------------------------------------------------------------------
22,109,071
1.76 CABLE
NTL Inc, Sr Deferred Coupon Step-Up Notes, Series A, Zero Coupon(b), 4/15/2005 $ 13,150,000 11,046,000
- ----------------------------------------------------------------------------------------------------------------------------
2.07 CHEMICALS
Borden Inc, Deb, 7.875%, 2/15/2023 $ 1,750,000 1,664,908
LaRoche Industries, Sr Sub Notes, Series B, 9.500%, 9/15/2007 $ 1,250,000 1,075,000
Terra Industries, Sr Notes, Series B, 10.500%, 6/15/2005 $ 9,875,000 10,245,313
- ----------------------------------------------------------------------------------------------------------------------------
12,985,221
1.01 COMPUTER RELATED
Verio Inc, Sr Notes(a), 13.500%, 6/15/2004 $ 2,850,000 3,135,000
WAM!NET, Sr Discount Step-Up Notes(a), Zero Coupon(b), 3/1/2005 $ 5,700,000 3,192,000
- ----------------------------------------------------------------------------------------------------------------------------
6,327,000
0.76 ELECTRIC UTILITIES
Western Massachusetts Electric, 1st Mortgage, Series V, 7.750%, 12/1/2002 $ 4,750,000 4,795,823
- ----------------------------------------------------------------------------------------------------------------------------
0.63 ELECTRICAL EQUIPMENT
Alpine Group, Gtd Sr Secured Notes, Series B, 12.250%, 7/15/2003 $ 3,800,000 3,980,500
- ----------------------------------------------------------------------------------------------------------------------------
0.84 ENGINEERING & CONSTRUCTION
Ryland Group, Sr Sub Notes, 8.250%, 4/1/2008 $ 5,750,000 5,290,000
- ----------------------------------------------------------------------------------------------------------------------------
0.55 ENTERTAINMENT
Production Resource Group LLC/Program Finance, Sr Sub Notes, 11.500%, 1/15/2008 $ 3,750,000 3,468,750
- ----------------------------------------------------------------------------------------------------------------------------
0.72 FOODS
Favorite Brands International, Sr Notes(a), 10.750%, 5/15/2006 $ 4,250,000 3,102,500
Grupo Azucarero Mexico SA de CV, Sr Notes(a), 11.500%, 1/15/2005 $ 2,800,000 1,400,000
- ----------------------------------------------------------------------------------------------------------------------------
4,502,500
5.78 GAMING
Circus Circus Enterprises, Sr Sub Notes, 6.750%, 7/15/2003 $ 4,750,000 4,560,294
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------
Shares, Units
or Principal
% Description Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
Grand Casinos
Gtd 1st Mortgage, 10.125%, 12/1/2003 $ 7,925,000 $ 8,400,500
Gtd Sr Notes, Series B, 9.000%, 10/15/2004 $ 5,250,000 5,512,500
Players International, Sr Notes, 10.875%, 4/15/2005 $ 8,000,000 8,320,000
Station Casinos, Sr Sub Notes, 9.625%, 6/1/2003 $ 9,800,000 9,506,000
- ----------------------------------------------------------------------------------------------------------------------------
36,299,294
4.13 IRON & STEEL
Inland Steel, 1st Mortgage, Series R, 7.900%, 1/15/2007 $ 10,000,000 9,800,000
Metal Management, Sr Sub Notes(a), 10.000%, 5/15/2008 $ 7,600,000 6,308,000
National Steel, 1st Mortgage, 8.375%, 8/1/2006 $ 10,000,000 9,800,000
- ----------------------------------------------------------------------------------------------------------------------------
25,908,000
1.32 LEISURE TIME
Bally Total Fitness Holdings, Sr Sub Notes, Series B, 9.875%, 10/15/2007 $ 8,750,000 8,312,500
- ----------------------------------------------------------------------------------------------------------------------------
2.95 LODGING N HOTELS
HMH Properties, Gtd Sr Secured Notes, Series B, 7.875%, 8/1/2008 $ 3,250,000 3,071,250
Hilton Hotels, Sr Notes, 7.200%, 12/15/2009 $ 9,500,000 9,502,374
Signature Resorts, Sr Sub Notes, 9.750%, 10/1/2007 $ 6,750,000 5,973,750
- ----------------------------------------------------------------------------------------------------------------------------
18,547,374
1.25 MANUFACTURING
Home Products International, Gtd Sr Sub Notes, 9.625%, 5/15/2008 $ 8,600,000 7,826,000
- ----------------------------------------------------------------------------------------------------------------------------
0.96 METALS MINING
Glencore Nickel Property Ltd, Gtd Sr Secured Notes, 9.000%, 12/1/2014 $ 7,750,000 6,006,250
- ----------------------------------------------------------------------------------------------------------------------------
13.43 OIL & GAS RELATED
Belco Oil & Gas, Sr Sub Notes, Series B, 8.875%, 9/15/2007 $ 7,550,000 6,266,500
Canadian Forest Oil Ltd, Gtd Sr Sub Notes, 8.750%, 9/15/2007 $ 9,200,000 8,004,000
Chiles Offshore LLC/Chiles Offshore Finance, Sr Notes(a), 10.000%, 5/1/2008 $ 3,750,000 3,000,000
Cliffs Drilling, Gtd Sr Notes, Series B, 10.250%, 5/15/2003 $ 5,650,000 5,989,000
Coda Energy, Gtd Sr Sub Notes, Series B, 10.500%, 4/1/2006 $ 6,000,000 5,775,000
Continental Resources, Sr Sub Notes(a), 10.250%, 8/1/2008 $ 4,750,000 4,227,500
Cross Timbers Oil, Sr Sub Notes, Series B
9.250%, 4/1/2007 $ 5,250,000 4,935,000
8.750%, 11/1/2009 $ 1,000,000 900,000
Energy Corp of America, Sr Sub Notes, Series A, 9.500%, 5/15/2007 $ 3,250,000 2,957,500
GulfMark Offshore, Gtd Sr Notes, 8.750%, 6/1/2008 $ 5,250,000 4,567,500
HS Resources, Gtd Sr Sub Notes, 9.250%, 11/15/2006 $ 3,000,000 2,730,000
Houston Exploration, Sr Sub Notes, Series B, 8.625%, 1/1/2008 $ 5,750,000 5,232,500
KCS Energy, Gtd Sr Sub Notes, 8.875%, 1/15/2008 $ 6,650,000 5,436,375
Northern Offshore ASA, Gtd Sr Notes(a), 10.000%, 5/15/2005 $ 9,500,000 7,908,750
Nuevo Energy, Sr Sub Notes(a), 8.875%, 6/1/2008 $ 1,800,000 1,638,000
Ocean Energy , Sr Sub Notes(a), 8.375%, 7/1/2008 $ 7,000,000 6,160,000
Petsec Energy, Sr Sub Notes, Series B, 9.500%, 6/15/2007 $ 4,750,000 4,465,000
Stone Energy, Gtd Sr Sub Notes, 8.750%, 9/15/2007 $ 4,750,000 4,132,500
- ----------------------------------------------------------------------------------------------------------------------------
84,325,125
1.57 PAPER & FOREST PRODUCTS
Ainsworth Lumber Ltd, Sr Secured Notes(d), 12.500%, 7/15/2007 $ 4,300,000 4,343,000
Doman Industries Ltd, Sr Notes, Series B, 9.250%, 11/15/2007 $ 7,150,000 5,505,500
- ----------------------------------------------------------------------------------------------------------------------------
9,848,500
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------
Shares, Units
or Principal
% Description Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
2.91 PUBLISHING
Affiliated Newspaper Investments, Sr Discount Step-Up Notes,
Zero Coupon(b), 7/1/2006 $18,618,000 $ 18,245,640
- ----------------------------------------------------------------------------------------------------------------------------
0.84 RETAIL
Sonic Automotive, Sr Sub Notes(a), 11.000%, 8/1/2008 $ 5,700,000 5,301,000
- ----------------------------------------------------------------------------------------------------------------------------
1.06 SAVINGS & LOAN
Western Financial Savings Bank, Sub Capital Deb, 8.875%, 8/1/2007 $ 7,500,000 6,673,785
- ----------------------------------------------------------------------------------------------------------------------------
4.40 SERVICES
Heritage Media, Sr Sub Notes, 8.750%, 2/15/2006 $ 7,045,000 7,326,800
Loewen Group International, Gtd Sr Notes, Series 4, 8.250%, 10/15/2003 $ 11,955,000 11,399,690
United Rentals, Sr Sub Notes(a)
9.500%, 6/1/2008 $ 5,500,000 5,362,500
8.800%, 8/15/2008 $ 3,750,000 3,525,000
- ----------------------------------------------------------------------------------------------------------------------------
27,613,990
- ----------------------------------------------------------------------------------------------------------------------------
0.73 SHIPPING
Navigator Gas Transport PLC,
1st Priority Ship Mortgage Notes(a), 10.500%, 6/30/2007 $ 4,750,000 4,607,500
- ----------------------------------------------------------------------------------------------------------------------------
0.63 SPECIALTY PRINTING
MDC Communications, Sr Sub Notes, 10.500%, 12/1/2006 $ 3,900,000 3,939,000
- ----------------------------------------------------------------------------------------------------------------------------
9.76 TELECOMMUNICATIONS -- CELLULAR & WIRELESS
AMSC Acquisition, Gtd Sr Notes, Series B, 12.250%, 4/1/2008 $ 7,400,000 5,032,000
Centennial Cellular, Sr Notes, 10.125%, 5/15/2005 $ 9,993,000 11,741,775
Dolphin Telecom PLC, Sr Discount Step-Up Notes(a), Zero Coupon(b), 6/1/2008 $ 3,000,000 1,470,000
Esat Holdings Ltd, Sr Deferred Step-Up Notes, Series B, Zero Coupon(b), 2/1/2007 $ 12,500,000 8,500,000
Nextel Communications, Sr Discount Step-Up Notes, Zero Coupon(b), 8/15/2004 $ 2,750,000 2,667,500
Rogers Cantel, Sr Secured Deb, 9.375%, 6/1/2008 $ 4,000,000 3,920,000
Sprint Spectrum LP/Sprint Spectrum Finance, Sr Notes, 11.000%, 8/15/2006 $ 5,402,000 6,077,250
Teligent Inc
Sr Discount Step-Up Notes, Series B, Zero Coupon(b), 3/1/2008 $ 11,000,000 5,060,000
Sr Notes, 11.500%, 12/1/2007 $ 6,750,000 6,142,500
Triton PCS, Sr Sub Discount Step-Up Notes(a), Zero Coupon(b), 5/1/2008 $ 18,750,000 9,187,500
Vanguard Cellular Systems, Sr Deb, 9.375%, 4/15/2006 $ 1,500,000 1,515,000
- ----------------------------------------------------------------------------------------------------------------------------
61,313,525
8.98 TELECOMMUNICATIONS -- LONG DISTANCE
BARAK International Telecommunications Services, Sr Sub Discount Step-Up Notes
Series B, Zero Coupon(b), 11/15/2007 $ 9,800,000 5,047,000
DTI Holdings, Sr Discount Step-Up Notes(a), Zero Coupon(b), 3/1/2008 $ 14,250,000 5,985,000
Esprit Telecom Group PLC, Sr Notes, 11.500%, 12/15/2007 $ 4,750,000 4,607,500
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $ 7,000,000 6,720,000
GST Telecommunications/GST Network Funding, Sr Secured Discount Step-Up Notes(a)
Zero Coupon(b), 5/1/2008 $ 6,700,000 3,417,000
IDT Corp, Sr Notes, 8.750%, 2/15/2006 $ 9,500,000 8,193,750
Level 3 Communications, Sr Notes, 9.125%, 5/1/2008 $ 10,500,000 9,345,000
Primus Telecommunications Group, Sr Notes, Series B, 9.875%, 5/15/2008 $ 6,000,000 5,400,000
RSL Communications PLC, Sr Discount Step-Up Notes, Zero Coupon(b), 3/1/2008 $ 14,750,000 7,670,000
- ----------------------------------------------------------------------------------------------------------------------------
56,385,250
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------
Shares, Units
or Principal
% Description Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
17.20 TELEPHONE
Diamond Cable Communications PLC, Sr Discount Step-Up Notes, Zero Coupon(b)
2/15/2007 $ 6,100,000 $ 4,270,000
e.spire Communications, Sr Discount Step-Up Notes(a), Zero Coupon(b), 7/1/2008 $ 7,600,000 3,534,000
FaciliCom International, Sr Notes, Series B, 10.500%, 1/15/2008 $ 6,750,000 6,075,000
Intermedia Communications, Sr Notes, Series B
8.600%, 6/1/2008 $ 8,750,000 8,268,750
8.500%, 1/15/2008 $ 8,500,000 7,947,500
McLeodUSA Inc
Sr Discount Step-Up Notes, Zero Coupon(b), 3/1/2007 $ 7,800,000 5,460,000
Sr Notes, 9.250%, 7/15/2007 $ 4,000,000 3,880,000
MetroNet Communications
Sr Discount Step-Up Notes, Zero Coupon(b), 11/1/2007 $ 11,500,000 6,785,000
Sr Discount Step-Up Notes(a), Zero Coupon(b), 6/15/2008 $ 14,650,000 7,691,250
Sr Notes, 12.000%, 8/15/2007 $ 6,750,000 7,155,000
Netia Holdings BV, Gtd Sr Discount Step-Up Notes, Series B,
Zero Coupon(b), 11/1/2007 $ 5,900,000 3,422,000
NEXTLINK Communications
Sr Discount Step-Up Notes, Zero Coupon(b), 4/15/2008 $ 11,250,000 5,850,000
Sr Notes, 9.625%, 10/1/2007 $ 5,950,000 5,533,500
NEXTLINK Communications LLC/NEXTLINK Capital, Sr Notes, 12.500%, 4/15/2006 $ 11,760,000 12,524,400
RCN Corp, Sr Discount Step-Up Notes, Zero Coupon(b)
7/1/2008 $ 11,900,000 6,307,000
Series B, 2/15/2008 $ 25,000,000 13,250,000
- ----------------------------------------------------------------------------------------------------------------------------
107,953,400
- ----------------------------------------------------------------------------------------------------------------------------
2.37 TEXTILE -- APPAREL MANUFACTURING
Haynes International, Sr Notes, 11.625%, 9/1/2004 $ 13,855,000 14,859,487
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $651,177,142) 590,718,485
1.49 PREFERRED STOCKS & WARRANTS
0.00 COMPUTER RELATED
WAM!NET Warrants(a)(c)(Exp 2005) 17,100 171
- ----------------------------------------------------------------------------------------------------------------------------
1.38 PUBLISHING
PRIMEDIA Inc, Exchangeable Pfd, Series H, 8.625% 91,500 8,692,500
- ----------------------------------------------------------------------------------------------------------------------------
0.07 TELECOMMUNICATIONS -- CELLULAR & WIRELESS
American Mobile Satellite Warrants(a)(c)(Exp 2008) 7,400 51,800
Microcell Telecommunications Warrants(a)(c)(Exp 2006) 34,000 392,360
- ----------------------------------------------------------------------------------------------------------------------------
444,160
0.00 TELECOMMUNICATIONS -- LONG DISTANCE
DTI Holdings Warrants(a)(c)(Exp 2008) 71,250 713
- ----------------------------------------------------------------------------------------------------------------------------
0.04 TELEPHONE
MetroNet Communications Warrants(a)(c)(Exp 2007) 6,750 217,651
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS & WARRANTS (Cost $9,495,054) 9,355,195
3.22 OTHER SECURITIES
0.95 COMPUTER RELATED
Rhythms NetConnections, Units(a)(Each unit consists of one $1,000 face
amount Sr Discount Step-Up Note, Zero Coupon(b), 5/15/2008 and 4 wrnts
to purchase 6.80
shrs of cmn stk) 14,500 5,981,250
- ----------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------
Shares, Units
or Principal
% Description Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
0.24 GAMING
Aladdin Gaming Holdings LLC/Aladdin Capital, Units(a)(Each unit consists
of one $1,000 face amount Sr Discount Step-Up Note, Zero Coupon(b),
3/1/2010 and 10 wrnts to
purchase 10 shrs of Class B non-voting cmn stk) 4,000 $ 1,480,000
- ----------------------------------------------------------------------------------------------------------------------------
0.37 SERVICES
SpinCycle Inc, Units(a)(Each unit consists of $1,000 face amount Sr Discount
Step-Up Note, Zero Coupon(b), 5/1/2005 and one wrnt to purchase 0.18 shrs of cmn stk) 4,000 2,320,000
- ----------------------------------------------------------------------------------------------------------------------------
0.76 TELECOMMUNICATIONS -- LONG DISTANCE
FirstWorld Communications, Units(a)(Each unit consists of one $1,000 face
amount Sr Discount Step-Up Note, Zero Coupon(b), 4/15/2008 and one wrnt
to purchase 7.90
shrs of Series B cmn stk) 4,500 1,350,000
Startec Global Communications, Units(a)(Each unit consists of one $1,000 face amount
Sr Note, 12.000%, 5/15/2008 and one wrnt to purchase 1.25 shrs of cmn stk) 3,850 3,426,500
- ----------------------------------------------------------------------------------------------------------------------------
4,776,500
0.90 TELEPHONE
Convergent Communications, Units(a) (Each unit consists of one $1,000 face amount
Sr Note, 13.000%, 4/1/2008 and 4 wrnts to purchase 10.80 shrs of cmn stk) 6,750 5,670,000
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER SECURITIES (Cost $26,054,282) 20,227,750
1.19 SHORT-TERM INVESTMENTS -- COMMERCIAL PAPER
1.19 INSURANCE
American General, 5.830%, 9/1/1998 (Cost $7,444,000) $ 7,444,000 7,444,000
- ----------------------------------------------------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $694,170,478)
(Cost for Income Tax Purposes $694,252,960) $627,745,430
============================================================================================================================
Select Income Fund
93.53 FIXED INCOME SECURITIES
1.42 US Government Obligations
US Treasury Notes, 6.125%, 8/15/2007 (Cost $7,352,306) $ 7,000,000 $ 7,492,191
- ----------------------------------------------------------------------------------------------------------------------------
3.76 US Government Agency Obligations
Freddie Mac, Gold, Participation Certificates
7.000%, 5/1/2024 $ 3,601,729 3,670,918
6.500%, 9/1/2011 $ 15,998,483 16,222,620
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS (Cost $18,946,499)
19,893,538
- ----------------------------------------------------------------------------------------------------------------------------
88.35 Corporate Bonds
1.99 BROADCASTING
American Radio Systems, Gtd Sr Sub Notes, 9.000%, 2/1/2006 $ 4,000,000 4,200,000
CBS Inc, Sr Deb, 8.875%, 6/1/2022 $ 3,000,000 3,272,448
Jacor Communications, Gtd Sr Sub Notes, 9.750%, 12/15/2006 $ 2,915,000 3,075,325
- ----------------------------------------------------------------------------------------------------------------------------
10,547,773
3.18 BUILDING MATERIALS
USG Corp, Sr Notes, 8.500%, 8/1/2005 $ 15,820,000 16,828,525
- ----------------------------------------------------------------------------------------------------------------------------
5.29 CABLE
CF Cable TV, 2nd Priority Sr Secured Notes, 11.625%, 2/15/2005 $ 4,000,000 4,430,000
Continental Cablevision, Sr Deb, 9.500%, 8/1/2013 $ 10,030,000 11,979,421
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------
Shares, Units
or Principal
% Description Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
NTL Inc, Sr Deferred Step-Up Notes, Series A, Zero Coupon(b), 4/15/2005 $ 3,000,000 $ 2,520,000
Tele-Communications Inc, Sr Deb, 9.800%, 2/1/2012 $ 6,950,000 9,070,480
- ----------------------------------------------------------------------------------------------------------------------------
27,999,901
1.12 CHEMICALS
Lyondell Petrochemical, Deb, 7.550%, 2/15/2026 $ 4,050,000 3,862,144
Terra Industries, Sr Notes, Series B, 10.500%, 6/15/2005 $ 2,000,000 2,075,000
- ----------------------------------------------------------------------------------------------------------------------------
5,937,144
23.10 ELECTRIC UTILITIES
Boston Edison, Deb
8.250%, 9/15/2022 $ 3,000,000 3,270,432
7.800%, 5/15/2010 $ 1,200,000 1,338,804
7.800%, 3/15/2023 $ 6,000,000 6,402,378
Carolina Power & Light, 1st Mortgage, 6.875%, 8/15/2023 $ 1,500,000 1,527,850
Cleveland Electric Illuminating
1st Mortgage, Series B, 9.500%, 5/15/2005 $ 477,000 505,620
Sr Secured Notes, Series D, 7.430%, 11/1/2009 $ 5,400,000 5,708,815
Commonwealth Edison, 1st Mortgage
Series 76, 8.250%, 10/1/2006 $ 500,000 566,461
Series 83, 8.000%, 5/15/2008 $ 6,100,000 6,870,088
Connecticut Light & Power, 1st & Ref Mortgage, Series 94D, 7.875%, 10/1/2024 $ 1,000,000 1,046,774
Consumers Energy, 1st Mortgage, 7.375%, 9/15/2023 $ 8,000,000 8,374,111
DQU-II Funding, Collateral Lease, 8.700%, 6/1/2016 $ 8,000,000 9,052,959
Detroit Edison, Secured Medium-Term Notes, Series 92D, 8.300%, 8/1/2022 $ 3,000,000 3,323,148
El Paso Electric, 1st Mortgage, Series C, 8.250%, 2/1/2003 $ 3,375,000 3,442,500
Illinois Power, Mortgage, 7.500%, 7/15/2025 $ 4,350,000 4,460,533
Jersey Central Power & Light, 1st Mortgage, 7.500%, 5/1/2023 $ 4,000,000 4,191,664
Metropolitan Edison, Secured Medium-Term Notes, Series B
8.150%, 1/30/2023 $ 500,000 548,405
6.970%, 10/19/2023 $ 3,500,000 3,554,330
New York State Electric & Gas, 1st Mortgage, 8.300%, 12/15/2022 $ 4,800,000 5,243,260
Niagara Mohawk Power
1st Mortgage
9.750%, 11/1/2005 $ 3,000,000 3,564,033
8.500%, 7/1/2023 $ 1,000,000 1,069,043
Sr Notes, Series G, 7.750%, 10/1/2008 $ 3,750,000 3,750,000
PSI Energy, Deb, 6.350%, 11/15/2006 $ 5,750,000 5,855,345
Pacific Gas & Electric, 1st & Ref Mortgage
Series 91A, 8.800%, 5/1/2024 $ 3,600,000 4,683,870
Series 92B, 8.375%, 5/1/2025 $ 5,322,000 5,867,122
Series 92D, 8.250%, 11/1/2022 $ 2,068,000 2,298,966
Pennsylvania Power, 1st Mortgage, 8.500%, 7/15/2022 $ 2,000,000 2,214,728
Pennsylvania Power & Light, 1st Mortgage, 7.875%, 2/1/2023 $ 5,000,000 5,497,065
Philadelphia Electric, 1st & Ref Mortgage
7.750%, 3/1/2023 $ 5,370,000 5,640,320
7.250%, 11/1/2024 $ 4,740,000 4,895,946
Public Service of New Mexico, Sr Notes, 7.500%, 8/1/2018 $ 1,400,000 1,403,035
Western Massachusetts Electric, 1st Mortgage, Series V, 7.750%, 12/1/2002 $ 6,000,000 6,057,881
- ----------------------------------------------------------------------------------------------------------------------------
122,225,486
0.52 ENGINEERING & CONSTRUCTION
Ryland Group, Sr Sub Notes, 8.250%, 4/1/2008 $ 3,000,000 2,760,000
- ----------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------
Shares, Units
or Principal
% Description Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
0.75 ENTERTAINMENT
Viacom International, Sub Deb
Series A, 7.000%, 7/1/2003 $ 1,942,000 $ 1,947,659
Series B, 7.000%, 7/1/2003 $ 2,000,000 2,005,828
- ----------------------------------------------------------------------------------------------------------------------------
3,953,487
- ----------------------------------------------------------------------------------------------------------------------------
0.97 FOODS
Keebler Corp, Gtd Sr Secured Sub Notes, 10.750%, 7/1/2006 $ 4,650,000 5,115,000
- ----------------------------------------------------------------------------------------------------------------------------
1.93 GAMING
Grand Casinos
Gtd 1st Mortgage Notes, 10.125%, 12/1/2003 $ 7,900,000 8,374,000
Gtd Sr Notes, Series B, 9.000%, 10/15/2004 $ 1,750,000 1,837,500
- ----------------------------------------------------------------------------------------------------------------------------
10,211,500
- ----------------------------------------------------------------------------------------------------------------------------
2.90 HEALTH CARE RELATED
FHP International, Sr Notes, 7.000%, 9/15/2003 $ 6,535,000 6,833,767
US Surgical, Sr Notes, 7.250%, 3/15/2008 $ 8,000,000 8,483,512
- ----------------------------------------------------------------------------------------------------------------------------
15,317,279
5.43 INSURANCE
Aetna Services, Gtd Deb, 6.970%, 8/15/2036 $ 3,000,000 3,145,212
Equitable Cos, Sr Notes, 9.000%, 12/15/2004 $ 17,508,000 20,400,461
Veritas Holdings GmbH, Sr Notes, 9.625%, 12/15/2003 $ 5,115,000 5,166,150
- ----------------------------------------------------------------------------------------------------------------------------
28,711,823
1.99 INVESTMENT BANK/BROKER FIRM
Lehman Brothers, Sr Sub Deb, 11.625%, 5/15/2005 $ 4,500,000 5,732,068
Lehman Brothers Holdings, Sr Notes, 8.800%, 3/1/2015 $ 4,000,000 4,812,876
- ----------------------------------------------------------------------------------------------------------------------------
10,544,944
0.74 IRON & STEEL
National Steel, 1st Mortgage, 8.375%, 8/1/2006 $ 4,000,000 3,920,000
- ----------------------------------------------------------------------------------------------------------------------------
3.14 LODGING -- HOTELS
HMH Properties, Gtd Sr Secured Notes, Series B, 7.875%, 8/1/2008 $ 7,000,000 6,615,000
Hilton Hotels, Sr Notes, 7.200%, 12/15/2009 $ 10,000,000 10,002,499
- ----------------------------------------------------------------------------------------------------------------------------
16,617,499
0.79 MACHINERY
AGCO Corp, Sr Sub Notes, 8.500%, 3/15/2006 $ 4,290,000 4,161,300
- ----------------------------------------------------------------------------------------------------------------------------
0.44 METALS MINING
Glencore Nickel Property Ltd, Gtd Sr Secured Notes, 9.000%, 12/1/2014 $ 3,000,000 2,325,000
- ----------------------------------------------------------------------------------------------------------------------------
0.92 NATURAL GAS
Noram Energy, Conv Sub Deb, 6.000%, 3/15/2012 $ 5,111,000 4,868,227
- ----------------------------------------------------------------------------------------------------------------------------
9.92 OIL & GAS RELATED
Atlantic Richfield, Deb
10.875%, 7/15/2005 $ 3,000,000 3,844,656
9.875%, 3/1/2016 $ 3,151,000 4,339,103
9.125%, 3/1/2011 $ 1,569,000 2,000,415
9.125%, 8/1/2031 $ 4,650,000 6,339,289
9.000%, 5/1/2031 $ 4,250,000 5,718,260
8.750%, 3/1/2032 $ 500,000 656,681
Belco Oil & Gas, Sr Sub Notes, Series B, 8.875%, 9/15/2007 $ 3,750,000 3,112,500
Canadian Forest Oil Ltd, Gtd Sr Sub Notes, 8.750%, 9/15/2007 $ 3,500,000 3,045,000
- ----------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------
Shares, Units
or Principal
% Description Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
Cliffs Drilling, Gtd Sr Notes, Series B, 10.250%, 5/15/2003 $ 1,500,000 $ 1,590,000
Gulf Canada Resources Ltd, Sr Notes, 8.250%, 3/15/2017 $ 5,900,000 6,385,393
Houston Exploration, Sr Sub Notes, Series B, 8.625%, 1/1/2008 $ 3,950,000 3,594,500
Northern Offshore ASA, Gtd Sr Notes(a), 10.000%, 5/15/2005 $ 3,000,000 2,497,500
Ocean Energy, Sr Sub Notes(a), 8.375%, 7/1/2008 $ 2,000,000 1,760,000
SEACOR SMIT, Sr Notes, 7.200%, 9/15/2009 $ 4,000,000 4,111,120
Sun Inc, Deb, 9.375%, 6/1/2016 $ 3,000,000 3,519,810
- ----------------------------------------------------------------------------------------------------------------------------
52,514,227
1.96 PAPER & FOREST PRODUCTS
Champion International, Deb, 6.400%, 2/15/2026 $ 3,500,000 3,468,605
Quno Corp, Sr Notes, 9.125%, 5/15/2005 $ 5,000,000 5,350,000
Tembec Finance, Gtd Sr Notes, 9.875%, 9/30/2005 $ 1,500,000 1,526,250
- ----------------------------------------------------------------------------------------------------------------------------
10,344,855
2.78 PUBLISHING
Affiliated Newspaper Investments, Sr Discount Step-Up Notes,
Zero Coupon(b), 7/1/2006 $ 8,000,000 7,840,000
PRIMEDIA Inc, Sr Notes, 7.625%, 4/1/2008 $ 4,000,000 3,780,000
Quebecor Printing, Capital Deb, 6.500%, 8/1/2027 $ 3,000,000 3,087,027
- ----------------------------------------------------------------------------------------------------------------------------
14,707,027
2.30 RETAIL
American Stores, Deb, 7.500%, 5/1/2037 $ 6,000,000 6,653,321
Federated Department Stores, Deb, 6.790%, 7/15/2027 $ 3,000,000 3,109,475
Renters Choice, Sr Sub Notes(a), 11.000%, 8/15/2008 $ 2,500,000 2,387,500
- ----------------------------------------------------------------------------------------------------------------------------
12,150,296
0.37 SAVINGS & LOAN
Western Financial Savings Bank, Sub Capital Deb, 8.500%, 7/1/2003 $ 2,000,000 1,983,322
- ----------------------------------------------------------------------------------------------------------------------------
2.11 SERVICES
Heritage Media, Sr Sub Notes, 8.750%, 2/15/2006 $ 3,000,000 3,120,000
Loewen Group International, Gtd Sr Notes, Series 4, 8.250%, 10/15/2003 $ 5,500,000 5,244,525
United Rentals, Sr Sub Notes(a), 8.800%, 8/15/2008 $ 3,000,000 2,820,000
- ----------------------------------------------------------------------------------------------------------------------------
11,184,525
0.55 SHIPPING
Navigator Gas Transport PLC, 1st Priority Ship Mortgage Notes(a),
10.500%, 6/30/2007 $3,000,000 2,910,000
- ----------------------------------------------------------------------------------------------------------------------------
1.45 TELECOMMUNICATIONS -- CELLULAR & WIRELESS
360 Communications, Notes, 6.650%, 1/15/2008 $ 7,500,000 7,661,370
- ----------------------------------------------------------------------------------------------------------------------------
6.91 TELECOMMUNICATIONS -- LONG DISTANCE
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $ 3,000,000 2,880,000
Level 3 Communications, Sr Notes, 9.125%, 5/1/2008 $ 8,000,000 7,120,000
MCI WorldCom Inc, Sr Notes
7.750%, 4/1/2027 $ 5,000,000 5,678,000
6.950%, 8/15/2028 $ 5,000,000 4,997,950
6.400%, 8/15/2005 $ 7,400,000 7,476,693
Qwest Communications International, Sr Discount Step-Up Notes
Zero Coupon(b), 10/15/2007 $ 4,975,000 3,619,312
RSL Communications PLC, Sr Discount Step-Up Notes(a),Zero Coupon(b), 3/1/2008 $ 1,000,000 870,000
Rogers Cantel, Sr Secured Deb, 9.750%, 6/1/2016 $ 4,000,000 3,920,000
- ----------------------------------------------------------------------------------------------------------------------------
<PAGE>
36,561,955
- ----------------------------------------------------------------------------------------------------------------------------
Shares, Units
or Principal
% Description Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
4.80 TELEPHONE
Centel Capital, Deb, 9.000%, 10/15/2019 $ 4,550,000 $ 5,827,362
Frontier Corp, Notes, 7.250%, 5/15/2004 $ 3,000,000 3,204,957
Intermedia Communications, Sr Notes, Series B, 8.500%, 1/15/2008 $ 3,250,000 3,038,750
McLeodUSA Inc, Sr Notes, 8.375%, 3/15/2008 $ 3,450,000 3,208,500
MetroNet Communications, Sr Notes, 12.000%, 8/15/2007 $ 3,525,000 3,736,500
NEXTLINK Communications LLC/NEXTLINK Capital, Sr Notes, 12.500%, 4/15/2006 $ 3,000,000 3,195,000
RCN Corp, Sr Discount Step-Up Notes, Series B, Zero Coupon(b), 2/15/2008 $ 6,000,000 3,180,000
- ----------------------------------------------------------------------------------------------------------------------------
25,391,069
TOTAL CORPORATE BONDS (Cost $468,550,063) 467,453,534
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $494,848,868) 494,839,263
- ----------------------------------------------------------------------------------------------------------------------------
6.47 SHORT-TERM INVESTMENTS -- COMMERCIAL PAPER
2.64 INSURANCE
American General, 5.831%, 9/1/1998 $ 13,997,000 13,997,000
- ----------------------------------------------------------------------------------------------------------------------------
3.83 RETAIL
Sears Roebuck Acceptance, 5.575%, 9/1/1998 $ 20,256,000 20,256,000
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost $34,253,000)
34,253,000
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $529,101,868)
(Cost for Income Tax Purposes $529,108,274) $529,092,263
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Fund
78.28 FIXED INCOME SECURITIES
64.65 US Government Agency Obligations
Freddie Mac, Gold, Participation Certificates
6.500%, 7/1/2008 $ 11,150,966 $ 11,324,140
6.500%, 8/1/2008 $ 2,836,795 2,880,850
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS (Cost $14,102,018) 14,204,990
13.63 Corporate Bonds
1.19 BROADCASTING
American Radio Systems, Gtd Sr Sub Notes, 9.000%, 2/1/2006 $ 250,000 262,500
- ----------------------------------------------------------------------------------------------------------------------------
1.01 CABLE
CF Cable TV, 2nd Priority Sr Secured Notes, 11.625%, 2/15/2005 $ 200,000 221,500
- ----------------------------------------------------------------------------------------------------------------------------
2.31 ELECTRIC UTILITIES
PSI Energy, Deb, 6.350%, 11/15/2006 $ 250,000 254,580
Tucson Electric Power, 1st Mortgage, 7.650%, 5/1/2003 $ 250,000 254,217
- ----------------------------------------------------------------------------------------------------------------------------
508,797
3.98 GAMING
Grand Casinos, Gtd 1st Mortgage Notes, 10.125%, 12/1/2003 $ 350,000 371,000
Players International, Sr Notes, 10.875%, 4/15/2005 $ 250,000 260,000
Station Casinos, Sr Sub Notes, 9.625%, 6/1/2003 $ 250,000 242,500
- ----------------------------------------------------------------------------------------------------------------------------
873,500
2.33 OIL & GAS RELATED
Atlantic Richfield, Deb, 10.875%, 7/15/2005 $ 400,000 512,621
- ----------------------------------------------------------------------------------------------------------------------------
1.11 PUBLISHING
Affiliated Newspaper Investments, Sr Discount Step-Up Deb,
Zero Coupon(b), 7/1/2006 $ 250,000 245,000
- ----------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------
Shares, Units
or Principal
% Description Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
1.21 TELEPHONE
MetroNet Communications, Sr Notes, 12.000%, 8/15/2007 $ 250,000 $ 265,000
- ----------------------------------------------------------------------------------------------------------------------------
0.49 TEXTILE -- APPAREL MANUFACTURING
Haynes International, Sr Notes, 11.625%, 9/1/2004 $ 100,000 107,250
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (Cost $3,051,654) 2,996,168
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED INCOME SECURITIES (Cost $17,153,672) 17,201,158
- ----------------------------------------------------------------------------------------------------------------------------
21.72 SHORT-TERM INVESTMENTS
1.82 Corporate Bonds
1.82 FINANCIAL
United States Leasing International, Medium-Term Notes, 5.278%, 11/16/1998
(Cost $400,054) $ 400,000 400,304
- ----------------------------------------------------------------------------------------------------------------------------
19.90 Repurchase Agreements
Repurchase Agreement with State Street dated 8/31/1998 due 9/1/1998 at
5.730%, repurchased at $4,372,696 (Collateralized by US Treasury Bonds
due 8/15/2021 at 8.125%, value $4,498,093)
(Cost $4,372,000) $ 4,372,000 4,372,000
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $4,772,054) 4,772,304
- ----------------------------------------------------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $21,925,726)
(Cost for Income Tax Purposes $21,925,745) $ 21,973,462
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund
95.27 FIXED INCOME SECURITIES
53.46 US Government Obligations
US Treasury Bonds
8.125%, 8/15/2019 $ 20,000,000 $ 26,606,259
5.500%, 8/15/2028 $ 12,000,000 12,360,000
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT OBLIGATIONS (Cost $38,635,832) 38,966,259
41.81 US Government Agency Obligations
Freddie Mac, Gold, Participation Certificates
6.500%, 7/1/2008 $ 929,247 943,678
6.000%, 5/1/2013 $ 9,868,095 9,853,687
6.000%, 7/1/2013 $ 4,982,230 4,974,955
6.000%, 4/1/2028 $ 9,928,008 9,789,412
6.000%, 6/1/2028 $ 4,983,068 4,913,504
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS (Cost $30,095,075)
30,475,236
TOTAL FIXED INCOME SECURITIES (Cost $68,730,907)
69,441,495
- ----------------------------------------------------------------------------------------------------------------------------
4.73 SHORT-TERM INVESTMENTS -- REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated 8/31/1998 due 9/1/1998 at
5.730%, repurchased at $3,450,549 (Collateralized by US Treasury Bonds
due 8/15/2021 at 8.125%, value $3,553,965)
(Cost $3,450,000) $ 3,450,000 3,450,000
- ----------------------------------------------------------------------------------------------------------------------------
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $72,180,907)(e)
$ 72,891,495
============================================================================================================================
</TABLE>
<PAGE>
(a)Securities are aquired pursuant to Rule 144A. The Fund deems such securities
to be "liquid" since an institutional market exists.
(b)Step-up bonds are obligations which increase the interest payment rate at a
specified point in time. Rate shown reflects current rate which may step up
at a future date.
(c)Security is non-income producing.
(d)Security is a payment-in-kind (PIK) bond. PIK bonds may make interest
payments in additional securities.
(e) Also represents cost for income tax purposes.
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
August 31, 1998
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(a) $ 694,170,478 $ 529,101,868 $ 21,925,726 $ 72,180,907
==================================================================================================================
At Value(a) $ 627,745,430 $ 529,092,263 $ 21,973,462 $ 72,891,495
Cash 1,539,133 0 112,191 322,275
Receivables:
Investment Securities Sold 11,540,136 0 0 0
Fund Shares Sold 3,615,667 3,566,389 2,371,921 6,659,278
Dividends and Interest 12,369,519 8,814,233 129,138 259,947
Prepaid Expenses and Other Assets 77,222 56,132 8,619 16,985
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 656,887,107 541,529,017 24,595,331 80,149,980
LIABILITIES
Payables:
Custodian 0 234,087 0 0
Distributions to Shareholders 550,794 156,576 10,572 10,736
Investment Securities Purchased 0 22,966,957 0 0
Fund Shares Repurchased 14,715,515 15,402,912 104,572 634,169
Accrued Distribution Expenses 153,387 97,910 3,270 12,020
Accrued Expenses and Other Payables 73,400 46,295 9,753 8,215
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 15,493,096 38,904,737 128,167 665,140
- ------------------------------------------------------------------------------------------------------------------
Net Assets at Value $ 641,394,011 $ 502,624,280 $ 24,467,164 $ 79,484,840
==================================================================================================================
NET ASSETS
Paid-in Capital(b) $ 683,269,484 $ 494,279,085 $ 24,709,331 $ 74,013,705
Accumulated Undistributed (Distributions in
Excess of) Net Investment Income 18,665 69,972 (601) 7,539
Accumulated Undistributed Net Realized Gain
(Loss) on Investment Securities 24,530,910 8,284,828 (289,302) 4,753,008
Net Appreciation (Depreciation)of Investment
Securities (66,425,048) (9,605) 47,736 710,588
- ------------------------------------------------------------------------------------------------------------------
Net Assets at Value $ 641,394,011 $ 502,624,280 $ 24,467,164 $ 79,484,840
==================================================================================================================
Shares Outstanding 94,943,777 75,300,011 2,550,753 9,950,826
Net Asset Value, Offering and Redemption
Price per Share $ 6.76 $ 6.68 $ 9.59 $ 7.99
==================================================================================================================
(a)Investment securities at cost and value at August 31, 1998 include
repurchase agreements of $4,372,000 and $3,450,000 for Short-Term Bond and
U.S. Government Securities Funds, respectively.
(b)The Fund has 600 million authorized shares of common stock, par value of
$0.01 per share. Of such shares, 300 million have been allocated to High
Yield Fund and 100 million each have been allocated to Select Income,
Short-Term Bond and U.S. Government Securities Funds.
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended August 31, 1998
U.S.
High Select Short-Term Government
Yield Income Bond Securities
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Interest $ 64,747,847 $ 28,413,787 $ 898,033 $ 3,219,001
Dividends 519,220 0 0 0
- ------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 65,267,067 28,413,787 898,033 3,219,001
- ------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees 2,842,990 2,023,679 68,131 284,609
Distribution Expenses 1,703,540 957,916 34,066 129,368
Transfer Agent Fees 778,174 895,360 68,560 186,705
Administrative Fees 112,212 67,475 12,044 17,762
Custodian Fees and Expenses 77,823 63,292 6,412 11,946
Directors' Fees and Expenses 38,316 26,077 9,672 11,844
Professional Fees and Expenses 37,910 28,905 16,283 18,095
Registration Fees and Expenses 131,034 63,466 28,766 48,471
Reports to Shareholders 87,269 68,532 7,599 18,858
Other Expenses 56,660 17,833 2,087 3,291
- ------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 5,865,928 4,212,535 253,620 730,949
Fees and Expenses
Absorbed by Investment Adviser 0 (151,971) (133,999) (207,740)
Fees and Expenses Paid Indirectly (58,909) (30,462) (3,616) (4,504)
- ------------------------------------------------------------------------------------------------------------------
NET EXPENSES 5,807,019 4,030,102 116,005 518,705
NET INVESTMENT INCOME 59,460,048 24,383,685 782,028 2,700,296
- ------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities 32,888,835 9,584,731 89,145 5,191,748
Change in Net Appreciation (Depreciation) of
Investment Securities (75,240,209) (2,723,693) 36,669 (685,916)
- ------------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENT
SECURITIES (42,351,374) 6,861,038 125,814 4,505,832
Net Increase in Net Assets from
Operations $ 17,108,674 $ 31,244,723 $ 907,842 $ 7,206,128
==================================================================================================================
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Year Ended August 31
High Yield Fund Select Income Fund
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 59,460,048 $ 36,258,447 $ 24,383,685 $ 18,785,744
Net Realized Gain on Investment Securities 32,888,835 23,000,271 9,584,731 6,970,303
Change in Net Appreciation (Depreciation)
of Investment Securities (75,240,209) 14,932,249 (2,723,693) 6,812,752
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS 17,108,674 74,190,967 31,244,723 32,568,799
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (59,476,726) (36,240,760) (24,420,934) (18,772,522)
Net Realized Gain on Investment Securities (30,288,153) (1,805,972) (8,101,485) (1,164,947)
- -------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (89,764,879) (38,046,732) (32,522,419) (19,937,469)
- -------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 1,042,691,975 585,489,350 447,676,089 149,847,293
Reinvestment of Distributions 76,691,873 31,536,903 29,357,565 17,592,021
- -------------------------------------------------------------------------------------------------------------------
1,119,383,848 617,026,253 477,033,654 167,439,314
Amounts Paid for Repurchases of Shares (876,298,646) (557,406,718) (260,749,761) (150,545,417)
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 243,085,202 59,619,535 216,283,893 16,893,897
- ------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 170,428,997 95,763,770 215,006,197 29,525,227
NET ASSETS
Beginning of Period 470,965,014 375,201,244 287,618,083 258,092,856
- -------------------------------------------------------------------------------------------------------------------
End of Period $ 641,394,011 $ 470,965,014 $ 502,624,280 $ 287,618,083
===================================================================================================================
Accumulated Undistributed Net Investment
Income Included in Net Assets at End
of Period $ 18,665 $ 16,678 $ 69,972 $ 37,249
- -------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 140,608,922 82,068,049 66,530,497 22,926,524
Shares Issued from Reinvestment
of Distributions 10,496,776 4,403,579 4,376,447 2,685,959
- -------------------------------------------------------------------------------------------------------------------
151,105,698 86,471,628 70,906,944 25,612,483
Shares Repurchased (119,368,526) (78,100,199) (38,783,681) (23,065,551)
- -------------------------------------------------------------------------------------------------------------------
Net Increase in Fund Shares 31,737,172 8,371,429 32,123,263 2,546,932
- -------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets (Continued)
Year Ended August 31
Short-Term Bond Fund U.S. Government Securities Fund
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 782,028 $ 712,515 $ 2,700,296 $ 3,288,114
Net Realized Gain (Loss) on Investment Securities 89,145 7,626 5,191,748 1,121,369
Change in Net Appreciation (Depreciation) of
Investment Securities 36,669 99,263 (685,916) 1,720,828
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS 907,842 819,404 7,206,128 6,130,311
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (782,028) (712,515) (2,700,296) (3,288,114)
Net Realized Gain on Investment Securities 0 0 (1,103,906) 0
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (782,028) (712,515) (3,804,202) (3,288,114)
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 48,037,682 19,388,223 161,798,727 102,864,694
Reinvestment of Distributions 699,014 673,216 3,423,772 3,045,965
- -----------------------------------------------------------------------------------------------------------------------------
48,736,696 20,061,439 165,222,499 105,910,659
Amounts Paid for Repurchases of Shares (36,739,699) (18,558,559) (140,720,399) (111,785,624)
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 11,996,997 1,502,880 24,502,100 (5,874,965)
Total Increase (Decrease) in Net Assets 12,122,811 1,609,769 27,904,026 (3,032,768)
NET ASSETS
Beginning of Period 12,344,353 10,734,584 51,580,814 54,613,582
- -----------------------------------------------------------------------------------------------------------------------------
End of Period $ 24,467,164 $ 12,344,353 $ 79,484,840 $ 51,580,814
=============================================================================================================================
Accumulated Undistributed (Distributions
in Excess of) Net Investment Income $ (601) $ 0 $ 7,539 $ 0
- -----------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 5,013,098 2,048,615 20,773,244 13,984,238
Shares Issued from Reinvestment of Distributions 73,017 71,014 441,618 412,300
- -----------------------------------------------------------------------------------------------------------------------------
5,086,115 2,119,629 21,214,862 14,396,538
Shares Repurchased (3,833,157) (1,962,721) (18,146,732) (15,152,477)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Fund Shares 1,252,958 156,908 3,068,130 (755,939)
- -----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
</TABLE>
<PAGE>
Notes to Financial Statements
NOTE 1 --ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Income Funds,
Inc. (the "Fund") is incorporated in Maryland and presently consists of four
separate Funds: High Yield Fund, Select Income Fund, Short-Term Bond Fund and
U.S. Government Securities Fund. The investment objectives of each Fund are: to
seek a high level of current income for High Yield and Select Income Funds; to
seek a high level of current income with minimum fluctuation in principal value
while maintaining liquidity for Short-Term Bond Fund; and to seek a high level
of current income by investing in debt obligations issued by the U.S. Government
or its agencies for U.S. Government Securities Fund. The Fund is registered
under the Investment Company Act of 1940 (the "Act") as a diversified, open-end
management investment company.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
A. SECURITY VALUATION --Debt securities are valued at evaluated bid prices as
determined by a pricing service approved by the Fund's board of directors.
If evaluated bid prices are not available, debt securities are valued by
averaging the bid prices obtained from one or more dealers making a market
for such securities.
Equity securities traded on national securities exchanges or in the
over-the-counter market are valued at the last sales price in the market
where such securities are primarily traded. If last sales prices are not
available, securities are valued at the highest closing bid price obtained
from one or more dealers making a market for such securities or by a
pricing service approved by the Fund's board of directors.
If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good faith
under procedures established by the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates
market value) if maturity is 60 days or less at the time of purchase, or
market value if maturity is greater than 60 days.
B. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by U.S. Government securities and such collateral is in the
possession of the Fund's custodian. The collateral is evaluated daily to
ensure its market value exceeds the current market value of the repurchase
agreements including accrued interest. In the event of default on the
obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. In the
event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral or proceeds may be subject
to legal proceedings.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security
transactions are accounted for on the trade date and dividend income is
recorded on the ex-dividend date. Interest income, which may be comprised
of stated coupon rate, market discount, original issue discount and
amortized premium, is recorded on the accrual basis. Interest on
payment-in-kind debt securities is accrued based on the yield to
maturity at purchased date method. 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.
<PAGE>
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.
High Yield Fund may have elements of risk due to concentrated
investments in specific industries. Such concentrations may subject the
Fund to additional risks resulting from future political or economic
conditions.
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 U.S. Government.
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, 1998, Short-Term Bond Fund had
$252,513, $17,095 and $19,676 in net capital loss carryovers which expire
in the years 2002, 2003, 2004 and 2005, respectively.
To the extent future capital gains are offset by capital loss
carryovers, such gains will not be distributed to shareholders.
Net capital loss carryovers utilized in 1998 by the Short-Term Bond
Fund amounted to $32,974.
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, nontaxable dividends, net operating losses
and expired capital loss carryforwards.
For the year ended August 31, 1998, the effects of such differences were
as follows:
<TABLE>
<CAPTION>
Accumulated
Accumulated Undistributed
Undistributed Net Realized Gain
Net Investment on Investment Paid-in
Fund Income Securities Capital
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Fund $ 18,665 $ 0 $ (18,665)
Select Income Fund 69,972 (10,098) (859,874)
Short-Term Bond Fund (601) 818 (217)
U.S. Government Securities Fund 7,539 9,510 (17,049)
Net investment income, net realized gains, paid-in capital and net
assets were not affected.
</TABLE>
<PAGE>
F. EXPENSES -- Each of the Funds bears expenses incurred specifically on its
behalf and, in addition, each Fund bears a portion of general expenses,
based on the relative net assets of each Fund.
Under an agreement between each Fund and the Fund's Custodian, agreed
upon Custodian Fees and Expenses are reduced by credits granted by the
Custodian from any temporarily uninvested cash. Such credits are included
in Fees and Expenses Paid Indirectly in the Statement of Operations.
NOTE 2 --INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group, Inc.
(IFG) serves as the Fund's investment adviser. As compensation for its
services to the Fund, IFG receives an investment advisory fee which is accrued
daily at the applicable rate and paid monthly. The fee is based on the annual
rate of each Fund's average net assets as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
$0 to $300 Million Over
$300 to $500 $500
Fund Million Million Million
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Fund 0.50% 0.40% 0.30%
Select Income Fund 0.55% 0.45% 0.35%
Short-Term Bond Fund 0.50% 0.40% 0.30%
U.S. Government Securities Fund 0.55% 0.45% 0.35%
</TABLE>
In accordance with a Sub-Advisory Agreement between IFG and INVESCO Trust
Company (ITC), a wholly owned subsidiary of IFG, investment decisions of each
Fund were made by ITC. Fees for such sub-advisory services were paid by IFG.
Effective February 4 , 1998, such responsibilities were transferred to IFG.
A plan of distribution pursuant to Rule 12b-1 of the Act provided for
compensation of marketing and advertising expenditures to IFG (the
"Distributor") to a maximum of 0.25% of annual average net assets. For the year
ended August 31, 1998, High Yield, Select Income, Short-Term Bond and U.S.
Government Securities Funds paid the Distributor $1,648,632, $920,502, $33,386
and $130,124, respectively, under the plan of distribution. Effective September
29, 1997, INVESCO Distributors, Inc. ("IDI"), a wholly owned subsidiary of IFG,
replaced IFG as Distributor.
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.
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 has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by Select Income, Short-Term Bond and U.S. Government
Securities Funds.
<PAGE>
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended
August 31, 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:
<TABLE>
<CAPTION>
Fund Purchases Sales
- -----------------------------------------------------------------------------------------------------------------
<C> <C>
High Yield Fund $ 2,017,314,073 $ 1,801,600,155
Select Income Fund 719,408,519 501,052,779
Short-Term Bond Fund 4,506,613 5,373,114
For the year ended August 31, 1998, the aggregate cost of purchases and
proceeds from sales of U.S. Government securities were as follows:
Fund Purchases Sales
- -----------------------------------------------------------------------------------------------------------------
Select Income Fund $ 15,493,438 $ 16,503,434
Short-Term Bond Fund 19,597,516 10,285,957
U.S. Government Securities Fund 172,320,097 163,231,929
NOTE 4 -- APPRECIATION AND DEPRECIATION. At August 31, 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 (depreciation) by Fund were as
follows:
Net
Gross Gross Appreciation
Fund Appreciation Depreciation (Depreciation)
- -----------------------------------------------------------------------------------------------------------------
High Yield Fund $ 1,707,782 $ 68,215,312 $ (66,507,530)
Select Income Fund 8,961,198 8,977,209 (16,011)
Short-Term Bond Fund 118,652 70,935 47,717
U.S. Government Securities Fund 710,588 0 710,588
NOTE 5 -- TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or IDI. The Fund has adopted an
unfunded deferred compensation plan covering all independent directors of the
Fund who will have served as an independent director for at least five years at
the time of retirement. Benefits under this plan were based on an annual rate
equal to 40% of the retainer fee at the time of retirement. As of July 1, 1998,
benefits are based on an annual rate of 50% of the sum of the retainer fee at
the time of retirement plus the annual meeting fee.
Pension expenses for the year ended August 31, 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 $ 8,706 $ 16,868 $ 39,640
Select Income Fund 5,254 9,444 23,784
Short-Term Bond Fund 222 499 1,140
U.S. Government Securities Fund 974 2,196 5,120
NOTE 6 -- LINE OF CREDIT. The Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the Net Assets at Value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. At August
31, 1998, there were no such borrowings.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights -- High Yield Fund
(For a Fund Share Outstanding Throughout Each Period)
Year Ended August 31
- ---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 7.45 $ 6.84 $ 6.73 $ 6.73 $ 7.32
- ---------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.64 0.62 0.63 0.66 0.62
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.29) 0.64 0.11 0.03 (0.59)
- ---------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.35 1.26 0.74 0.69 0.03
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income(a) 0.64 0.62 0.63 0.66 0.62
Distributions from Capital Gains 0.40 0.03 0.00 0.00 0.00
In Excess of Capital Gains 0.00 0.00 0.00 0.03 0.00
- ---------------------------------------------------------------------------------------------------------
Total Distributions 1.04 0.65 0.63 0.69 0.62
- ---------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 6.76 $ 7.45 $ 6.84 $ 6.73 $ 6.73
=========================================================================================================
TOTAL RETURN 4.44% 19.27% 11.38% 11.12% 0.37%
RATIOS
Net Assets -- End of Period ($000 Omitted) $641,394 $470,965 $375,201 $288,959 $243,773
Ratio of Expenses to Average Net Assets(b) 0.86%(c) 1.00%(c) 0.99%(c) 1.00% 0.97%
Ratio of Net Investment Income to
Average Net Assets(b) 8.72% 8.71% 9.13% 10.01% 8.70%
Portfolio Turnover Rate 282% 129% 266% 201% 195%
</TABLE>
(a)Distributions in excess of net investment income for the year ended
August 31, 1996, aggregated less than $0.01 on a per share basis.
(b)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.
(c)Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (Continued) --Select Income Fund
(For a Fund Share Outstanding Throughout Each Period)
Year Ended August 31
- ---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 6.66 $ 6.35 $ 6.54 $ 6.18 $ 6.80
- ---------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.43 0.45 0.47 0.47 0.47
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.19 0.34 (0.17) 0.36 (0.43)
- ---------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.62 0.79 0.30 0.83 0.04
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.43 0.45 0.46 0.47 0.47
In Excess of Net Investment Income(a) 0.00 0.00 0.01 0.00 0.00
Distributions from Capital Gains 0.17 0.03 0.02 0.00 0.09
In Excess of Capital Gains 0.00 0.00 0.00 0.00 0.10
- ---------------------------------------------------------------------------------------------------------
Total Distributions 0.60 0.48 0.49 0.47 0.66
- ---------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 6.68 $ 6.66 $ 6.35 $ 6.54 $ 6.18
=========================================================================================================
TOTAL RETURN 9.58% 12.89% 4.78% 14.01% 0.47%
RATIOS
Net Assets -- End of Period ($000 Omitted) $502,624 $287,618 $258,093 $216,597 $138,337
Ratio of Expenses to Average Net Assets(b) 1.06%(c) 1.03%(c) 1.01%(c) 1.00% 1.11%
Ratio of Net Investment Income to
Average Net Assets(b) 6.36% 6.98% 7.14% 7.38% 7.22%
Portfolio Turnover Rate 140% 263% 210% 181% 135%
</TABLE>
(a)Distributions in excess of net investment income for the year ended
August 31, 1995, aggregated less than $0.01 on a per share basis.
(b)Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended August 31, 1998, 1997, 1996, 1995 and 1994. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would have
been 1.10%, 1.21%, 1.16%, 1.22% and 1.15%, respectively, and ratio of net
investment income to average net assets would have been 6.32%, 6.80%, 6.99%,
7.16% and 7.18%, respectively.
(c)Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (Continued) -- Short-Term Bond Fund
(For a Fund Share Outstanding Throughout Each Period)
Period
Ended
Year Ended August 31 August 31
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994(a)
<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 0.55 0.50 0.56 0.57 0.47
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.08 0.15 (0.13) 0.08 (0.54)
- ----------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.63 0.65 0.43 0.65 (0.07)
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income(b) 0.55 0.55 0.56 0.57 0.47
- ----------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 9.59 $ 9.51 $ 9.41 $ 9.54 $ 9.46
==========================================================================================================
TOTAL RETURN 6.76% 7.08% 4.63% 7.16% (0.72%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $24,467 $12,344 $10,735 $8,979 $7,878
Ratio of Expenses to Average Net Assets(d) 0.88%(e) 0.83%(e) 0.80%(e) 0.46% 0.46%(f)
Ratio of Net Investment Income to
Average Net Assets(d) 5.74% 5.82% 5.85% 6.05% 5.50%(f)
Portfolio Turnover Rate 135% 331% 103% 68% 169%(c)
</TABLE>
(a) From September 30, 1993, commencement of investment operations, to August
31, 1994.
b) 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.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(d) Various expenses of the Fund were voluntarily absorbed by IFG for the
years ended August 31, 1998, 1997, 1996, 1995 and for the period ended
August 31, 1994. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 1.86%, 1.84%,
2.17%, 2.09% and 2.04%, respectively, and ratio of net investment income
to average net assets would have been 4.76%, 4.81%, 4.48%, 4.42% and 3.92%,
respectively.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
(f) Annualized
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (Continued) -- U.S. Government Securities Fund
(For a Fund Share Outstanding Throughout Each Period)
Year Ended August 31
- ---------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 7.49 $ 7.15 $ 7.49 $ 7.10 $ 8.19
- ---------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.40 0.43 0.44 0.45 0.41
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.67 0.34 (0.34) 0.39 (0.93)
- ---------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.07 0.77 0.10 0.84 (0.52)
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.40 0.43 0.43 0.45 0.41
In Excess of Net Investment Income (a) 0.00 0.00 0.01 0.00 0.00
Distributions from Capital Gains 0.17 0.00 0.00 0.00 0.16
- ---------------------------------------------------------------------------------------------------------
Total Distributions 0.57 0.43 0.44 0.45 0.57
- ---------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 7.99 $ 7.49 $ 7.15 $ 7.49 $ 7.10
=========================================================================================================
TOTAL RETURN 14.75% 11.01% 1.31% 12.37% (6.53%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $79,485 $51,581 $54,614 $38,087 $36,740
Ratio of Expenses to Average Net Assets(b) 1.01%(c) 1.01%(c) 1.02%(c) 1.00% 1.32%
Ratio of Net Investment Income to
Average Net Assets(b) 5.22% 5.78% 5.76% 6.24% 5.46%
Portfolio Turnover Rate 323% 139% 212% 99% 95%
</TABLE>
(a)Distributions in excess of net investment income for the year ended
August 31, 1995, aggregated less than $0.01 on a per share basis.
(b)Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended August 31, 1998, 1997, 1996, 1995 and 1994. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would have
been 1.41%, 1.32%, 1.48%, 1.51% and 1.42%, respectively, and ratio of net
investment income to average net assets would have been 4.82%, 5.47%, 5.30%,
5.73% and 5.36%, respectively.
(c)Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
INVESCO Income Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of High Yield Fund, Select Income
Fund, Short-Term Bond Fund and U.S. Government Securities Fund (constituting
INVESCO Income Funds, Inc., hereafter referred to as the "Fund") at August 31,
1998, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the five years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
October 2, 1998
<PAGE>
EasiVest makes it easy to pay yourself first.
It seems that for most of us the hardest part of investing at regular
intervals comes down to simply writing the check, finding the stamp, and putting
it in the mail. But with INVESCO's EasiVest it's so easy that we'll do almost
all the work for you.
After you fill out the authorization and return it with a voided check,
the exact dollar amount you specify will be electronically transferred from your
bank account to your designated fund on the same day each month.
Using EasiVest is one of the few time when you'll find the easy way may also be
one of the best.
For years smart investors have used an investment strategy known as
dollar-cost averaging. It only makes sense that when prices are high an investor
will want to buy fewer shares, and when prices are low he will want to buy more.
By investing a fixed amount at regular intervals with INVESCO's EasiVest, you
can take advantage of these market fluctuations.
Over a sufficient period of time, dollar-cost averaging may make the
average price you pay per share less than the actual average price per share. So
follow the lead of successful investors and take advantage of dollar-cost
averaging with INVESCO's EasiVest.
Like other investment systems, periodic investment plans to not insure
a profit, nor do they protect against loss in a falling market. Since these
plans involve continuous investment in securities regardless of fluctuating
price levels in the market, you should consider your financial ability to
continue purchases through low price levels. Finally, be aware that you will
incur a loss under the plan if you decide to liquidate your account when the
market value of accumulated shares is less than their cost.
Just follow these simple authorization instructions and let INVESCO's
EasiVest help you build for your future.
1. Call your bank for their ABA and account numbers. Then
complete the EasiVest authorization and sign it the same way
you would your personal checks.
2. Enclose an unsigned, personal check or savings deposit slip
marked "Void."
3. Place a voided check or savings deposit slip and signed
authorization form in an envelope; then mail it to us.
It's that easy to start building your mutual fund portfolio. And you
can take advantage of INVESCO's EasiVest with as little as $50 a month.
Questions? Call us at 1-800-525-8085.
Start building for your future today.
<PAGE>
EASIVEST AUTHORIZATION FOR AUTOMATIC INVESTMENTS
Before returning this Authorization, please be sure to contact your
bank for the correct ABA number and account number.
I authorize INVESCO Funds Group to transfer money from my checking or savings
account on or about the 7th or 21st (check one) day of each month for the
amounts and funds indicated below:
Fund------------------------------------- Acct.#--------------------------------
$------------------------ ($50 minimum) ----7th ----1st
- --------------------------------------------------------------------------------
Bank Name
- --------------------------------------------------------------------------------
Bank Street Address
- --------------------------------------------------------------------------------
City, State, Zip
( )
- ---------------------------------- ---------------------------------------
ABA Number (available from your bank) Bank Phone Number
- --------------------------------------- This is a ---Checking Account
---Savings Account
Bank Account Number
- --------------------------------------------------------------------------------
Owner's Name (First, Middle Initial, Last)
- --------------------------------------------------------------------------------
Joint Owner's Name (First, Middle Initial, Last)
- --------------------------------------------------------------------------------
Owner Street Address
- --------------------------------------------------------------------------------
City, State, Zip
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Daytime Telephone Number Evening Telephone Number
Don't forget to attach a voided check or deposit slip.
This authority is to remain in effect until I revoke it in writing and, until
INVESCO receives such notification, I agree INVESCO will be fully protected in
honoring any such electronic debit. I further agree that if any such electronic
debit is not honored, whether with cause or without cause and whether
intentionally or unintentionally, INVESCO will not be liable whatsoever. This
authorization will become a part of the fund application subject to the terms,
representations and conditions thereof.
Like other investment systems, period investment plans do not insure a profit,
nor do they protect against loss in a falling market. Since these plans involve
continuous investment in securities regardless of fluctuating price levels in
the market, you should consider your financial ability to continue purchases
through low price levels. Finally, be aware that you will incur a loss under the
plan if you decide to liquidate your account when the market value of
accumulated shares is less than their cost.
<PAGE>
INVESCO
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.
