As filed on August 30, 1999                                   File No. 002-57151

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933              X
      Pre-Effective Amendment No.  ____
      Post-Effective Amendment No.  40                               X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940      X
      Amendment No.  29                                              X

                            INVESCO BOND FUNDS, INC.
               (Exact Name of Registrant as Specified in Charter)
                  7800 E. Union Avenue, Denver, Colorado 80237
                    (Address of Principal Executive Offices)
                  P.O. Box 173706, Denver, Colorado 80217-3706
                                (Mailing Address)
       Registrant's Telephone Number, including Area Code: (303) 930-6300
                               Glen A. Payne, Esq.
                              7800 E. Union Avenue
                             Denver, Colorado 80237
                     (Name and Address of Agent for Service)
                                  ------------
                                   Copies to:
                             Ronald M. Feiman, Esq.
                              Mayer, Brown & Platt
                                  1675 Broadway
                          New York, New York 10019-5820
                                  ------------

Approximate Date of Proposed Public Offering:  As soon as practicable after this
post-effective amendment becomes effective.

It is proposed that this filing will become effective (check appropriate box)


____  immediately upon filing pursuant to paragraph (b)
____  on ______________, pursuant to paragraph (b)
____  60 days after filing pursuant to paragraph (a)(1)
 X    on October 29, 1999, pursuant to paragraph (a)(1)
____  75 days after filing pursuant to paragraph (a)(2)
____  on ______________, pursuant to paragraph (a)(2) of rule 485

If appropriate, check the following box:
____  this post-effective amendment designates a new effective date for a
      previously filed post-effective amendment.


<PAGE>

PROSPECTUS | October 31, 1999
-------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
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INVESCO BOND FUNDS, INC.

INVESCO HIGH YIELD FUND
INVESCO SELECT INCOME FUND
INVESCO TAX-FREE BOND FUND
INVESCO U.S. GOVERNMENT SECURITIES FUND

FOUR NO-LOAD MUTUAL FUNDS SEEKING A HIGH LEVEL OF CURRENT INCOME.

 TABLE OF CONTENTS

 Investment Goals And Strategies...................3
 Fund Performance..................................5
 Fees And Expenses.................................7
 Investment Risks..................................9
 Risks Associated With Particular Investments......9
 Temporary Defensive Positions....................14
 Portfolio Turnover...............................14
 Fund Management..................................15
 Portfolio Managers...............................16
 Potential Rewards................................16
 Share Price......................................16
 How To Buy Shares................................17
 Your Account Services............................20
 How To Sell Shares...............................21
 Taxes............................................24
 Dividends And Capital Gain Distributions.........25
 Financial Highlights.............................26



                                 [INVESCO ICON]
                                    INVESCO


The  Securities  and Exchange  Commission  has not approved or  disapproved  the
shares of these Funds.  Likewise,  the  Commission  has not  determined  if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.


<PAGE>

THIS PROSPECTUS WILL TELL YOU MORE ABOUT:

[KEY ICON]      Investment Objectives & Strategies

[ARROW ICON]    Potential Investment Risks

[GRAPH ICON]    Past Performance & Potential Advantages

[INVESCO ICON]  Working With INVESCO
--------------------------------------------------------------------------------

[KEY ICON] INVESTMENT GOALS AND STRATEGIES

FOR MORE  DETAILS  ABOUT EACH FUND'S  CURRENT  INVESTMENTS  AND MARKET  OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.

FACTORS  COMMON TO ALL THE FUNDS
INVESCO Funds Group, Inc.  ("INVESCO") is the investment  adviser for the Funds.
Together with our affiliated companies,  we at INVESCO direct all aspects of the
management and sale of the Funds.

The Funds  attempt to provide  you with a high level of current  income  through
investments in debt securities.  High Yield,  Select Income and U.S.  Government
Securities Funds also seek capital  appreciation.  The Funds invest in bonds and
other debt securities,  as well as in preferred  stocks.  Often, but not always,
when stock markets are up, debt markets are down and vice versa.

[ARROW  ICON]  Although  the Funds are  subject to a number of risks that could
affect their performance, their principal risk is interest rate risk -- that is,
the value of the  securities in a portfolio will rise and fall due to changes in
interest  rates.  In general,  as interest  rates rise, the resale value of debt
securities  decreases;  as  interest  rates  decline,  the resale  value of debt
securities generally  increases.  Debt securities with longer maturities usually
are more sensitive to interest rate movements.

Other  principal  risks  involved in investing  in the funds are interest  rate,
credit, debt securities, foreign securities,  duration, liquidity,  counterparty
and lack of timely  information  risks.  These risks are described and discussed
later in the  Prospectus  under  the  headings  "Investment  Risks"  and  "Risks
Associated  With  Particular  Investments."  An  investment  in a Fund  is not a
deposit of any bank and is not  insured or  guaranteed  by the  Federal  Deposit
Insurance Corporation ("FDIC") or any other government agency. As with any other
mutual fund,  there is always a risk that you can lose money on your  investment
in a Fund.

[KEY ICON] INVESCO HIGH YIELD FUND

The Fund invests  primarily in a diversified  portfolio of high yield  corporate
bonds, commonly known as "junk bonds," and preferred stocks with medium to lower
credit ratings.  These investments  generally offer higher rates of return,  but
are riskier  than  investments  in  securities  of issuers  with  higher  credit
ratings.

<PAGE>

The rest of the Fund's assets are invested in securities issued or guaranteed by
the U.S.  government,  its agencies or  instrumentalities,  bank CDs,  corporate
short-term notes and municipal obligations. Normally, at least 65% of the Fund's
total assets will be invested in debt  securities  maturing at least three years
after  they are  issued.  There  are no  limitations  on the  maturities  of the
securities  held by the  Fund,  and the  Fund's  average  maturity  will vary as
INVESCO responds to changes in interest rates.

[KEY ICON] INVESCO SELECT INCOME FUND

The  Fund  invests   primarily  in  bonds  and  marketable  debt  securities  of
established companies.  Normally, at least 50% of the Fund's assets are invested
in  investment  grade  securities.  While an  investment  grade  rating does not
guarantee that a security will be profitable,  such  securities  generally carry
less risk than securities that are not investment grade. No more than 50% of the
Fund's assets may consist of corporate bonds rated below investment grade ("junk
bonds").

The rest of the Fund's assets are invested in securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities,  bank CDs, and municipal
obligations.  Normally,  the Fund's total  assets will be invested  primarily in
debt securities  maturing at least three years after they are issued.  There are
no limitations  on the  maturities of the  securities  held by the Fund, and the
Fund's  average  maturity  will vary as INVESCO  responds to changes in interest
rates.

[KEY ICON] INVESCO TAX-FREE BOND FUND

The Fund invests primarily in municipal  securities issued by state, county, and
city  governments,  including  industrial  development  obligations  and private
activity  bonds which  generally are not guaranteed by the  governmental  entity
that issues them.  The  interest on these  securities  is generally  exempt from
federal income tax,  although the interest may be included in your income if you
are  subject to the  federal  alternative  minimum  tax.  The  interest on these
securities may be subject to state and/or local income taxes.  These  securities
include  municipal  notes,  short-term  municipal  bonds, and variable rate debt
obligations.  Municipal  obligations  may be  purchased  or  sold  on a  delayed
delivery or a when-issued basis with settlement taking place in the future.  The
Fund may  purchase  securities  together  with the right to  resell  them to the
seller at an  agreed-upon  price or yield within a specific time period prior to
the  maturity  date of the  securities.  This is  commonly  known  as a  "demand
feature" or a "put."

The rest of the  Fund's  investment  portfolio  may be  invested  in  short-term
taxable  instruments.   These  may  include  corporate  debt  securities,   bank
obligations,  commercial paper, U.S. government debt, and repurchase agreements.
The circumstances under which the Fund will invest in taxable securities include
but are not limited to: (a) pending investment of proceeds or sales of shares of
portfolio securities;  (b) pending settlement of portfolio  securities;  and (c)
maintaining liquidity to meet the need for anticipated  redemptions.  We seek to
manage the Fund so that  substantially all of the income produced is exempt from
federal income tax when paid to you, although we cannot guarantee this result.


<PAGE>

[KEY ICON] INVESCO U.S. GOVERNMENT SECURITIES FUND

The Fund invests  primarily in debt securities  issued or guaranteed by the U.S.
government or its agencies.  Direct U.S. government obligations include Treasury
bonds,  bills and notes, and are backed by the full faith and credit of the U.S.
Treasury.  Federal  agency  securities  are direct  obligations  of the  issuing
agency,  such as GNMA,  FNMA and FHLMC,  and may or may not be guaranteed by the
U.S.  government.  Treasury bills,  notes,  bonds and some agency securities are
exempt from state income tax.

In  addition  to U.S.  government  debt,  the  Fund may  invest  in bank CDs and
municipal  obligations.  Normally,  the Fund's  total  assets  will be  invested
primarily  in debt  securities  maturing  at least  three  years  after they are
issued. There are no limitations on the maturities of the securities held by the
Fund, and the Fund's average  maturity will vary as INVESCO  responds to changes
in interest rates.

[GRAPH ICON] FUND PERFORMANCE

The bar charts below show each Fund's  actual yearly  performance  for the years
ended December 31 (commonly known as their "total return") over the past decade.
The table below shows  average  annual  total return for various  periods  ended
December  31 for each Fund  compared  to the  Merrill  Lynch High Yield  Master,
Lehman  Government/Corporate  Bond,  Lehman Municipal Bond and Lehman Government
Long Bond  Indexes.  The  information  in the charts and table  illustrates  the
variability  of each Fund's return and how its  performance  compared to a broad
measure of market performance.  Remember, past performance does not indicate how
a Fund will perform in the future.(1)


     --------------------------------------------------------------------
      Actual Annual Total Return(2)(3)   Actual Annual Total Return(2)(3)
     --------------------------------------------------------------------
      Best Calendar Qtr.                 Best Calendar Qtr.
      Worst Calendar Qtr.                Worst Calendar Qtr.
     --------------------------------------------------------------------



     --------------------------------------------------------------------
      Actual Annual Total Return(2)(3)   Actual Annual Total Return(2)(3)
     --------------------------------------------------------------------
      Best Calendar Qtr.                 Best Calendar Qtr.
      Worst Calendar Qtr.                Worst Calendar Qtr.
     --------------------------------------------------------------------



<PAGE>

-------------------------------------------------------------------------
                                       AVERAGE ANNUAL TOTAL RETURN(2),(3)
                                                 AS OF 12/31/98
-------------------------------------------------------------------------
                                          1 YEAR     5 YEARS     10 YEARS
-------------------------------------------------------------------------
High Yield Fund                            ____%      ____%       ____%
Select Income Fund                         ____%      ____%       ____%
Tax-Free Bond Fund                         ____%      ____%       ____%
U.S. Government Securities Fund            ____%      ____%       ____%
Merrill Lynch High Yield Master Index(1)   ____%      ____%       ____%
Lehman Government/Corporate Bond Index(1)  ____%      ____%       ____%
Lehman Municipal Bond Index(1)             ____%      ____%       ____%
Lehman Governmant Long Bond Index(1)       ____%      ____%       ____%

(1) The Merrill Lynch High Yield Master Index, Lehman  Government/Corporate Bond
Index,  Lehman  Municipal Bond Index and Lehman  Government  Long Bond Index are
unmanaged   indexes   indicative  of  the  high  yield  bond,   broad   domestic
fixed-income, municipal government bond and longer-term government bond markets.
Please  keep  in  mind  that  the  indexes  do not  pay  brokerage,  management,
administrative or distribution  expenses, all of which are paid by the Funds and
are reflected in their annual returns.

(2)  Total  return  figures  include  reinvested   dividends  and  capital  gain
distributions, and include the effect of the Fund's expenses.

(3) Year-to-date  return for High Yield Fund, Select Income Fund,  Tax-Free Bond
Fund and U.S.  Government  Securities Fund were ____%,  ____%,  ____% and ____%,
respectively, for the quarter ended September 30, 1999.



<PAGE>

FEES AND EXPENSES

This table  describes the fees and expenses that you may pay if you buy and hold
shares of the Funds:

     HIGH YIELD FUND

         Shareholder Fees (fees paid directly from your investment):
         Maximum Sales Charge (Load) Imposed on Purchases
           (as a percentage of offering price)                          None
         Maximum Deferred Sales Charge (Load)                           None
         Maximum Sales Charge (Load) Imposed on Reinvested
           Dividends and Other Distributions                            None
         Redemption Fee (as a percentage of amount redeemed)            2.00%*
         Exchange Fee                                                   None
         Maximum Account Fee                                            None

     * High  Yield  Fund  retains  a fee to offset  transaction  costs and other
     expenses  associated  with  short-term  redemptions  and exchanges from the
     Fund. A 2% fee shall be imposed on  redemptions or exchanges of shares held
     three months or less. This fee may be waived at INVESCO's discretion.

     ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS

     HIGH YIELD FUND
     Management Fees                                              ___%
     Distribution and Service (12b-1) Fees(1)                    0.25%
     Other Expenses(2)(3)                                         ___%
     Total Annual Fund Operating Expenses(2)(3)(4)                ___%

     SELECT INCOME FUND
     Management Fees                                              ___%
     Distribution and Service (12b-1) Fees(1)                    0.25%
     Other Expenses (2)(3)                                        ___%
     Total Annual Fund Operating Expenses(2)(3)(4)                ___%

     TAX-FREE BOND FUND
     Management Fees                                              ___%
     Distribution and Service (12b-1) Fees(1)                    0.25%
     Other Expenses(2)(3)                                         ___%
     Total Annual Fund Operating Expenses(2)(3)(4)                ___%

     U.S. GOVERNMENT SECURITIES FUND
     Management Fee                                               ___%
     Distribution and Services (12b-1) Fees (1)                  0.25%
     Other Expenses(2)(3)                                         ___%
     Total Annual Fund Operating Expenses(2)(3)(4)                ___%



<PAGE>

     (1)  Because  the Funds pay 12b-1  distribution  fees  which are based upon
          each Fund's  assets,  if you own shares of a Fund for a long period of
          time,  you may pay more than the  economic  equivalent  of the maximum
          front-end  sales  charge  permitted  for mutual  funds by the National
          Association of Securities Dealers, Inc.

     (2)  Each Fund's  actual Total Annual Fund  Operating  Expenses  were lower
          than the  figures  shown,  because  their  transfer  agent fees and/or
          custodian fees were reduced under expense offset arrangements.

     (3)  The expense  information  presented in the table has been  restated to
          reflect a change in the administrative services fee.

     (4)  Certain  expenses  of each  Fund are  being  absorbed  voluntarily  by
          INVESCO  pursuant  to a  commitment  to the Funds.  After  absorption,
          Select Income Fund's "Other Expenses" and "Total Annual Fund Operating
          Expenses" were ____% and ____%,  respectively,  Tax-Free Bond Fund's "
          Other Expenses" and "Total Annual Fund Operating  Expenses" were ____%
          and ____%,  respectively and U.S. Government  Securities Fund's "Other
          Expenses" and " Total Annnual Fund  Operating  Expenses" were ___% and
          ____%, respectively.

INVESCO has voluntarily  agreed to absorb certain expenses of the Funds, so that
each Fund's total operating  expenses  (excluding  excess amounts that have been
offset by the expense offset arrangements  described above) do not exceed 1.25%,
1.05%, 0.90%, and 1.00%,  respectively,  of High Yield, Select Income,  Tax-Free
Bond and U.S.  Government  Securities Funds' average net assets. This commitment
may be changed at any time following consultation with the board of directors.

EXAMPLE

This  Example is intended to help you compare the cost of investing in the Funds
to the cost of investing in other mutual funds.

The Example  assumes  that you  invested  $10,000 in a Fund for the time periods
indicated and redeemed all of your shares at the end of each period. The Example
also assumes that your  investment had a  hypothetical  5% return each year, and
assumes that a Fund's expenses remained the same. Although a Fund's actual costs
and performance may be higher or lower,  based on these  assumptions  your costs
would have been:


                                       1 year    3 years   5 years  10 years

High Yield Fund                        $___      $___      $___     $____
Select Income Fund                     $___      $___      $___     $____
Tax-Free Bond Fund                     $___      $___      $___     $____
U.S. Government Securities Fund        $___      $___      $___     $____



<PAGE>

[ARROW ICON] INVESTMENT RISKS

BEFORE  INVESTING IN A FUND,  YOU SHOULD  DETERMINE THE LEVEL OF RISK WITH WHICH
YOU ARE  COMFORTABLE.  TAKE INTO ACCOUNT FACTORS LIKE YOUR AGE,  CAREER,  INCOME
LEVEL, AND TIME HORIZON.

You should determine the level of risk with which you are comfortable before you
invest.  The principal  risks of investing in any mutual fund,  including  these
Funds, are:

NOT  INSURED.  Mutual  funds are not  insured by the Federal  Deposit  Insurance
Corporation  ("FDIC") or any other  agency,  unlike bank deposits such as CDs or
savings accounts.

NO  GUARANTEE.  No mutual fund can  guarantee  that it will meet its  investment
objectives.

POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its performance, nor
assure you that the market value of your investment will increase.  You may lose
the money you  invest,  and the Funds  will not  reimburse  you for any of these
losses.

VOLATILITY.  The price of your mutual fund shares will increase or decrease with
changes  in the value of a Fund's  underlying  investments  and  changes  in the
equity markets as a whole.

NOT A COMPLETE  INVESTMENT  PLAN.  An  investment  in any  mutual  fund does not
constitute a complete  investment plan. The Funds are designed to be only a part
of your personal investment plan.

YEAR 2000.  Many computer  systems in use today may not be able to recognize any
date after December 31, 1999. If these systems are not fixed by that date, it is
possible that they could  generate  erroneous  information  or fail  altogether.
INVESCO has committed  substantial  resources in an effort to make sure that its
own major  computer  systems will  continue to function on and after  January 1,
2000.  Of course,  INVESCO  cannot fix systems that are beyond its  control.  If
INVESCO's own systems,  or the systems of third parties upon which it relies, do
not perform  properly  after  December  31,  1999,  the Funds could be adversely
affected.

In addition, the markets for, or values of, securities in which the Funds invest
may possibly be hurt by computer  failures  affecting  portfolio  investments or
trading  of  securities  beginning  January  1, 2000.  For  example,  improperly
functioning  computer  systems  could  result  in  securities  trade  settlement
problems and liquidity issues,  production  issues for individual  companies and
overall economic uncertainties.  Individual issuers may incur increased costs in
making  their  own  systems  Year  2000  compliant.  The  combination  of market
uncertainty and increased costs means that there is a possibility that Year 2000
computer issues may adversely affect the Funds' investments. At this time, it is
generally  believed  that foreign  issuers,  particularly  those in emerging and
other markets,  may be more vulnerable to Year 2000 problems than issuers in the
U.S.

[ARROW ICON] RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS

You should consider the special factors  associated with the policies  discussed
below  in  determining  the  appropriateness  of  investing  in a Fund.  See the
Statement of Additional Information for a discussion of additional risk factors.



<PAGE>

INTEREST RATE RISK

Changes in interest rates will affect the resale value of debt  securities  held
in a Fund's portfolio.  In general,  as interest rates rise, the resale value of
debt securities  decreases;  as interest rates decline, the resale value of debt
securities generally  increases.  Debt securities with longer maturities usually
are more sensitive to interest rate movements.

CREDIT RISK

The Funds invest in debt instruments, such as notes, bonds and commercial paper.
There is a possibility  that the issuers of these  instruments will be unable to
meet interest payments or repay principal.  Changes in the financial strength of
an issuer may reduce the credit  rating of its debt  instruments  and may affect
their value.

DEBT SECURITIES RISKS

Debt securities  include bonds,  notes and other securities that give the holder
the right to receive fixed amounts of principal,  interest, or both on a date in
the future or on demand.  Debt  securities  also are often  referred to as fixed
income  securities,  even if the rate of  interest  varies  over the life of the
security.

Debt  securities  are generally  subject to credit risk and market risk.  Credit
risk is the risk that the issuer of the security may be unable to meet  interest
or principal payments or both as they come due. Market risk is the risk that the
market  value of the  security  may decline for a variety of reasons,  including
interest rate risk.

Moody's  Investor  Services,  Inc.  ("Moody's")  and  Standard & Poor's  ("S&P")
ratings  provide a useful but not certain  guide to the credit risk of many debt
securities. The lower the rating of a debt security, the greater the credit risk
the  rating  service  assigns  to the  security.  To  compensate  investors  for
accepting  that  greater  risk,  lower-rated  securities  tend to  offer  higher
interest  rates.  Lower-rated  debt  securities  are often  referred to as "junk
bonds." A debt security is  considered  lower grade if it is rated Ba or less by
Moody's or BB or less by S&P.

Lower-rated and non-rated debt  securities of comparable  quality are subject to
wider fluctuations in yields and market values than higher-rated debt securities
and may be  considered  speculative.  Junk bonds are  perceived  by  independent
rating  agencies as having a greater risk that their issuers will not be able to
pay the interest and  principal as they become due over the life of the bond. In
addition to the loss of interest payments,  the market value of a defaulted bond
would  likely  drop,  and a Fund  would  be  forced  to sell it at a loss.  Debt
securities rated lower than B by either S&P or Moody's are usually considered to
be highly speculative.

In addition to poor individual company  performance in the marketplace or in its
internal  management,  a significant  economic  downturn or increase in interest
rates may cause issuers of debt  securities to  experience  increased  financial
problems   which  could  hurt  their  ability  to  pay  principal  and  interest
obligations,  to  meet  projected  business  goals,  and  to  obtain  additional
financing.  These  conditions more severely  impact issuers of lower-rated  debt
securities.  The market for  lower-rated  straight debt securities may not be as
liquid as the market  for  higher-rated  straight  debt  securities.  Therefore,
INVESCO  attempts to limit  purchases of  lower-rated  securities  to securities
having an established secondary market.



<PAGE>

Debt  securities  rated Caa by Moody's may be in default or may present risks of
non-payment of principal or interest.  Lower-rated securities by S&P (categories
BB, B and CCC) include those which are predominantly  speculative because of the
issuer's  perceived  capacity to pay interest and repay  principal in accordance
with their terms;  BB indicates the lowest degree of speculation  and CCC a high
degree of  speculation.  While such  bonds will  likely  have some  quality  and
protective characteristics,  these are usually outweighed by large uncertainties
or major risk exposures to adverse conditions.

FOREIGN SECURITIES RISKS

Investments  in foreign and emerging  markets  carry  special  risks,  including
currency,  political,  regulatory  and diplomatic  risks.  High Yield and Select
Income Funds may invest up to 25% of their  assets in foreign  debt  securities,
provided  that all such  securities  are  denominated  and pay  interest in U.S.
dollars (such as Eurobonds and Yankee bonds).

     CURRENCY  RISK.  A change in the exchange  rate between U.S.  dollars and a
     foreign currency may reduce the value of a Fund's  investment in a security
     valued in the foreign currency, or based on that currency value.

     POLITICAL  RISK.  Political  actions,  events or instability  may result in
     unfavorable changes in the value of a security.

     REGULATORY RISK. Government regulations may affect the value of a security.
     In foreign countries, securities markets that are less regulated than those
     in the U.S. may permit trading practices that are not allowed in the U.S.

     DIPLOMATIC  RISK. A change in diplomatic  relations  between the U.S. and a
     foreign country could affect the value or liquidity of investments.

     EUROPEAN ECONOMIC AND MONETARY UNION. Austria,  Belgium,  Finland,  France,
     Germany,  Ireland, Italy, Luxembourg,  The Netherlands,  Portugal and Spain
     are  presently  members of the European  Economic  and Monetary  Union (the
     "EMU") which as of January 1, 1999,  adopted the euro as a common currency.
     The national  currencies will be  sub-currencies  of the euro until July 1,
     2002,  at which  time  these  currencies  will  disappear  entirely.  Other
     European countries may adopt the euro in the future.

     The  introduction  of the euro  presents  some  uncertainties  and possible
     risks,  which could  adversely  affect the value of securities  held by the
     Funds.

     EMU countries,  as a single market, may affect future investment  decisions
     of the  Funds.  As the euro is  implemented,  there may be  changes  in the
     relative  strength and value of the U.S. dollar and other major currencies,
     as well as possible  adverse tax  consequences.  The euro transition by EMU
     countries - present and future - may affect the fiscal and monetary  levels
     of those  participating  countries.  There may be increased levels of price
     competition   among   business  firms  within  EMU  countries  and  between
     businesses in EMU and non-EMU countries. The outcome of these uncertainties
     could  have  unpredictable  effects  on trade and  commerce  and  result in
     increased volatility for all financial markets.

DURATION RISK

Duration is a measure of a debt security's sensitivity to interest rate changes.
Duration is usually  expressed in terms of years,  with longer durations usually
more sensitive to interest rate fluctuations.



<PAGE>

LIQUIDITY RISK

A Fund's  portfolio is liquid if the Fund is able to sell the securities it owns
at a fair price within a reasonable time.  Liquidity is generally related to the
market  trading  volume  for  a  particular  security.  Investments  in  smaller
companies or in foreign  companies or companies in emerging  markets are subject
to a variety of risks, including potential lack of liquidity.

COUNTERPARTY RISK

This  is a  risk  associated  primarily  with  repurchase  agreements  and  some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual  obligation to complete the transaction  with a
Fund.

LACK OF TIMELY INFORMATION RISK

Timely information about a security or its issuer may be unavailable, incomplete
or  inaccurate.  This  risk is more  common  to  securities  issued  by  foreign
companies  and  companies in emerging  markets than it is to the  securities  of
U.S.-based companies.

The  Funds  generally  invest  in debt  securities.  However,  in an  effort  to
diversify their holdings and provide some  protection  against the risk of other
investments,  the Funds also may invest in other types of  securities  and other
financial instruments, as indicated in the chart below. These investments, which
at any given time may  constitute a significant  portion of a Fund's  portfolio,
have their own risks.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                                                                    U.S.
                                                                 HIGH       SELECT    TAX-FREE      GOVERNMENT
 INVESTMENT                        RISKS                         YIELD      INCOME      BOND        SECURITIES
--------------------------------------------------------------------------------------------------------------
 <S>                                <C>                           <C>        <C>       <C>           <C>
 AMERICAN DEPOSITORY
 RECEIPTS (ADRS)
 These are securities              Market, Information,            X          X
 issued by U.S. banks that         Political, Regulatory,
 represent shares of               Diplomatic,Liquidity and
 foreign corporations held         Currency Risks
 by those banks.  Although
 traded in U.S. securities
 markets and valued in U.S.
 dollars, ADRs carry most
 of the risks of investing
 directly in foreign
 securities.
--------------------------------------------------------------------------------------------------------------
 DEBT SECURITIES
 Securities issued by              Market, Credit,                 X          X           X              X
 private companies or              Interest Rate
 governments representing          and Duration Risks
 an obligation to pay
 interest and to repay
 principal when the security
 matures.
--------------------------------------------------------------------------------------------------------------



<PAGE>

--------------------------------------------------------------------------------------------------------------
                                                                                                    U.S.
                                                                 HIGH       SELECT    TAX-FREE      GOVERNMENT
 INVESTMENT                        RISKS                         YIELD      INCOME      BOND        SECURITIES
--------------------------------------------------------------------------------------------------------------
 EUROBONDS AND YANKEE
 BONDS
 Bonds issued by                   Market, Information,            X          X
 foreign banches of                Currency, Political,
 U.S. banks ("Euro-                Diplomatic, Regulatory,
 bonds) and bonds                  Liquidity, Credit,
 issued by a U.S.                  Interest Rate and
 branch of a foreign               Duration Risks
 bank and sold in the
 United States ("Yankee
 bonds"). These bonds
 are bought and sold in
 U.S. dollars, but
 generally carry with
 them the same risks as
 investing in foreign
 securities.
--------------------------------------------------------------------------------------------------------------
 JUNK BONDS
 Debt securities that              Market, Credit,                 X          X           X
 are rated BB or lower             Interest Rate and
 by S&P or Ba or lower             Duration Risks
 by Moody's.  Tend to
 pay higher interest
 rates than
 higher-rated debt
 securities, but carry
 a higher credit risk.
--------------------------------------------------------------------------------------------------------------
 REPURCHASE AGREEMENTS
 A contract under which            Credit and                      X          X           X              X
 the seller of a                   Counterparty
 security agrees to buy            Risks
 it back at an
 agreed-upon price and
 time in the future.
--------------------------------------------------------------------------------------------------------------
 RULE 144A SECURITIES
 Securities that are               Liquidity                       X          X           X              X
 not registered, but               Risk
 which are bought and
 sold solely by
 institutional
 investors.  These may
 include debt
 securities, and if so,
 will have the
 characteristics of
 debt securities listed
 above. The Fund
 considers many Rule
 144A securities to be
 "liquid," although the
 market for such
 securities typically
 is less active than
 the public securities
 markets.
--------------------------------------------------------------------------------------------------------------
</TABLE>



<PAGE>

[ARROW ICON] TEMPORARY DEFENSIVE POSITIONS

When securities markets or economic conditions are unfavorable or unsettled,  we
might try to protect the assets of a Fund by  investing in  securities  that are
highly liquid such as high quality  money market  instruments,  like  short-term
U.S. government obligations,  commercial paper or repurchase agreements. We have
the right to invest up to 100% of a Fund's assets in these securities,  although
we are unlikely to do so. Even though the  securities  purchased  for  defensive
purposes often are  considered the equivalent of cash,  they also have their own
risks.  Investments that are highly liquid or  comparatively  safe tend to offer
lower returns.  Therefore,  a Fund's performance could be comparatively lower if
it concentrates in defensive holdings.

[ARROW ICON] PORTFOLIO TURNOVER

We actively  manage and trade the Funds'  portfolios.  Therefore,  the Funds may
have a higher  portfolio  turnover rate compared to many other mutual funds. The
Funds' portfolio turnover rates for the year ended August 31, 1999 were:


INVESCO High Yield Fund        ____%
INVESCO Select Income Fund     ____%
INVESCO Tax-Free Bond Fund*    ____%
INVESCO U.S. Government        ____%
 Securities Fund


*Annualized

A portfolio  turnover rate of 200%, for example,  is equivalent to a Fund buying
and selling all of the  securities in its portfolio two times in the course of a
year.  A  comparatively  high  turn-  over rate may  result in higher  brokerage
commissions and taxable capital gain distributions to a Fund's shareholders.



<PAGE>

[INVESCO ICON] FUND MANAGEMENT

INVESTMENT ADVISER

INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL  INVESTMENT MANAGEMENT
COMPANY THAT MANAGES  MORE THAN $296  BILLION IN ASSETS  WORLDWIDE.  AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.

INVESCO,  located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the  Funds.  INVESCO  was  founded in 1932 and  manages  over  $_____
billion for more than _______  shareholders of 42 INVESCO mutual funds.  INVESCO
performs  a  wide   variety  of  other   services   for  the  Funds,   including
administrative and transfer agency functions (the processing of purchases, sales
and exchanges of Fund  shares).

A wholly owned subsidiary of INVESCO, INVESCO Distributors, Inc. ("IDI"), is the
Funds' distributor and is responsible for the sale of the Funds' shares.

INVESCO and IDI are subsidiaries of AMVESCAP PLC.

The  following  table shows the fees the Funds paid to INVESCO for its  advisory
services in the fiscal year ended August 31, 1999:


--------------------------------------------------------------------------------
                                          ADVISORY FEE AS A PERCENTAGE OF
 FUND                                     AVERAGE ANNUAL ASSETS UNDER MANAGEMENT
--------------------------------------------------------------------------------
 INVESCO High Yield Fund                                 _____%
 INVESCO Select Income Fund                              _____%
 INVESCO Tax-Free Bond Fund                              _____%
 INVESCO U.S. Government Securities Fund                 _____%
-------------------------------------------------------------------------------



<PAGE>

[INVESCO ICON] PORTFOLIO MANAGERS

The  following   individuals  are  primarily   responsible  for  the  day-to-day
management of each Fund's portfolio holdings:

     FUND                           PORTFOLIO MANAGER(S)
     High Yield                     Donovan J. (Jerry) Paul
     Select Income                  Donovan J. (Jerry) Paul
     Tax-Free Bond                  Dawn Daggy-Mangerson
     U.S. Government Securities     Richard R. Hinderlie

DONOVAN J. (JERRY) PAUL, Director of Fixed-Income Investments,  is the portfolio
manager of High Yield and Select  Income  Funds and a senior vice  president  of
INVESCO.  Jerry also  manages the  fixed-income  investments  for other  INVESCO
funds. He is a Chartered  Financial  Analyst and a Certified Public  Accountant.
Before  joining  INVESCO in 1994,  he was with Stein,  Roe & Farnham,  Inc.  and
Quixote Investment Management.  Jerry received his M.B.A. from the University of
Northern Iowa and his B.B.A. from the University of Iowa.

RICHARD R. HINDERLIE is the portfolio manager of U.S. Government Securities Fund
and is a vice president of INVESCO.  Before joining INVESCO in 1993, he was with
Bank Western.  Dick received his M.B.A.  from Arizona State  University  and his
B.A. in Economics from Pacific Lutheran University.

DAWN  DAGGY-MANGERSON  is the portfolio manager of Tax-Free Bond Fund and a vice
president  of  INVESCO.   Before   joining   INVESCO  in  1998,   she  was  with
NationsBank/Tradestreet  Investment  Associates,  Inc., Boatmen's Trust Company,
Stein Roe & Farnham and E.F. Hutton & Co. She received her B.S. in Commerce with
a concentration in Finance from DePaul University.

Dick  Hinderlie  and  Dawn  Daggy-Mangerson  are  each  members  of the  INVESCO
Fixed-Income Team, which is led by Jerry Paul.

[INVESCO ICON] POTENTIAL REWARDS

NO SINGLE FUND SHOULD REPRESENT YOUR COMPLETE  INVESTMENT PROGRAM NOR SHOULD YOU
ATTEMPT TO USE THE FUNDS FOR SHORT-TERM TRADING PURPOSES.

The Funds offer  shareholders  the  opportunity  for current  income.  Like most
mutual funds,  each Fund seeks to provide  higher returns than the market or its
competitors, but cannot guarantee that performance.  Each Fund seeks to minimize
risk by investing in debt securities of a variety of issuers.

SUITABILITY FOR INVESTORS

Only you can  determine if an  investment  in a Fund is right for you based upon
your own economic  situation,  the risk level with which you are comfortable and
other factors. In general, the Funds are most suitable for investors who:
o    are willing to grow their  capital over the  long-term  (at least five
     years).

o    understand  that  shares of a Fund can,  and likely  will,  have daily
     price fluctuations.


<PAGE>
o    are investing in tax-deferred retirement accounts, such as Traditional
     and  Roth  Individual   Retirement  Accounts  ("IRAs"),   as  well  as
     employer-sponsored  qualified retirement plans,  including 401(k)s and
     403(b)s, all of which have longer investment horizons.

You probably do not want to invest in the Funds if you are:
o    primarily seeking high rates of capital appreciation or total return.
o    unwilling  to accept  potentially  daily  changes in the price of Fund
     shares.
o    speculating on short-term fluctuations in the securities markets.

[INVESCO ICON] SHARE PRICE

CCURRENT  MARKET  VALUE OF FUND ASSETS
+ ACCRUED  INTEREST  AND  DIVIDENDS
- FUND DEBTS,
INCLUDING ACCRUED EXPENSES
--------------------------------------
/ NUMBER OF SHARES
= YOUR SHARE PRICE (NAV).

The value of your Fund shares is likely to change daily.  This value is known as
the Net Asset Value per share,  or NAV.  INVESCO  determines the market value of
each  investment  in each  Fund's  portfolio  each day  that the New York  Stock
Exchange  ("NYSE") is open, at the close of trading on that  exchange  (normally
4:00 p.m. Eastern time).  Therefore,  shares of the Funds are not priced on days
when the NYSE is closed, which generally is on weekends and national holidays in
the U.S.

NAV is calculated by adding together the current market price of all of a Fund's
investments  and  other  assets,   including  accrued  interest  and  dividends;
subtracting  the Fund's debts,  including  accrued  expenses;  and dividing that
dollar amount by the total number of the Fund's outstanding shares.

All purchases, sales and exchanges of Fund shares are made by INVESCO at the NAV
next calculated after INVESCO receives proper instructions from you to purchase,
redeem or  exchange  shares of a Fund.  Your  instructions  must be  received by
INVESCO no later than the close of the NYSE to effect transactions at that day's
NAV.  If  INVESCO  hears from you after that  time,  your  instructions  will be
processed  at the NAV  calculated  at the end of the  next  day that the NYSE is
open.

Foreign securities  exchanges,  which set the prices for foreign securities held
by the Funds, are not always open the same days as the NYSE, and may be open for
business on days the NYSE is not.  For  example,  Thanksgiving  Day is a holiday
observed by the NYSE and not by overseas exchanges. In this situation, the Funds
would not calculate NAV on Thanksgiving  Day (and INVESCO would not buy, sell or
exchange shares for you on that day), even though activity on foreign  exchanges
could result in changes in the value of investments held by a Fund on that day.

[INVESCO ICON] HOW TO BUY SHARES

TO BUY SHARES AT THAT DAY'S CLOSING PRICE,  YOU MUST CONTACT US BEFORE THE CLOSE
OF THE NYSE, NORMALLY, 4:00 P.M. EASTERN TIME.

The following chart shows several  convenient ways to invest in the Funds. There
is no charge to invest  directly  through  INVESCO.  With  regard to all  Funds,
except High Yield Fund, there is no charge to exchange or redeem shares when you
make transactions directly through INVESCO.  However, with respect to High Yield
Fund,  upon a  redemption  or an exchange  of shares  held three  months or less
(other  than  shares  acquired  through   reinvestment  of  dividends  or  other


<PAGE>

distributions),  a fee of 2% of the current net asset value of the shares  being
exchanged  will be  assessed  and  retained  by that Fund for the benefit of the
remaining shareholders. If you invest in a Fund through a securities broker, you
may be charged a commission or transaction fee for either  purchases or sales of
Fund shares. For all new accounts, please send a completed application form, and
specify the fund or funds you wish to purchase.

INVESCO  reserves  the right to  increase,  reduce or waive each Fund's  minimum
investment requirements in its sole discretion,  if it determines this action is
in the best  interests of that Fund's  shareholders.  INVESCO also  reserves the
right in its sole  discretion to reject any order to buy Fund shares,  including
purchases by exchange.

MINIMUM  INITIAL  INVESTMENT.  $1,000,  which is waived for  regular  investment
plans,  including  EasiVest and Direct Payroll Purchase,  and certain retirement
plans, including IRAs.

MINIMUM  SUBSEQUENT  INVESTMENT.  $50 (Minimums are lower for certain retirement
plans.)

EXCHANGE  POLICY.  You may exchange your shares in any of the Funds for those in
another INVESCO mutual fund on the basis of their respective NAVs at the time of
the exchange.

FUND EXCHANGES CAN BE A CONVENIENT WAY FOR YOU TO DIVERSIFY YOUR INVESTMENTS, OR
TO REALLOCATE YOUR INVESTMENTS WHEN YOUR OBJECTIVES CHANGE.

Before  making any  exchange,  be sure to review the  prospectuses  of the funds
involved and consider the differences  between the funds.  Also, be certain that
you qualify to purchase  certain  classes of shares in the new fund. An exchange
is the sale of shares  from one fund  immediately  followed  by the  purchase of
shares in  another.  Therefore,  any gain or loss  realized  on the  exchange is
recognizable  for federal income tax purposes  (unless,  of course,  you or your
account  qualifies as  tax-deferred  under the Internal  Revenue  Code).  If the
shares of the fund you are selling  have gone up in value since you bought them,
the sale portion of an exchange may result in taxable income to you.

We have the following policies governing exchanges:

o    Both fund  accounts  involved in the exchange  must be  registered  in
     exactly  the same  name(s)  and Social  Security  or federal  tax I.D.
     number(s).
o    You may make up to four exchanges out of each Fund per year.
o    Each Fund  reserves  the right to reject any exchange  request,  or to
     modify  or  terminate  the  exchange  policy,  if it is  in  the  best
     interests  of the  Fund  and  its  shareholders.  Notice  of all  such
     modifications  or termination that affect all shareholders of the Fund
     will be  given at least  60 days  prior to the  effective  date of the
     change,  except  in  unusual  instances,  including  a  suspension  of
     redemption  of the  exchanged  security  under  Section  22(e)  of the
     Investment Company Act of 1940.

In addition,  the ability to exchange may be  temporarily  suspended at any time
that sales of the Fund into which you wish to exchange are temporarily stopped.

REDEMPTION FEE (HIGH YIELD FUND ONLY). If you exchange shares of High Yield Fund
after  holding  them three  months or less (other than shares  acquired  through
reinvestment  of dividends or other  distributions),  a fee of 2% of the current
net asset value of the shares being  exchanged  will be assessed and retained by


<PAGE>

the Fund for the benefit of the remaining shareholders.  This fee is intended to
encourage  long-term  investment  in High Yield Fund, to avoid  transaction  and
other  expenses  caused  by  early  redemptions,  and  to  facilitate  portfolio
management.  This fee may be waived at INVESCO's  discretion.  This fee is not a
deferred sales charge,  is not a commission paid to INVESCO and does not benefit
INVESCO in any way. The fee applies to  redemptions  from the Fund and exchanges
into any of the other no-load mutual funds which are also advised by INVESCO and
distributed by IDI. High Yield Fund will use the "first-in, first-out" method to
determine  your holding  period.  Under this method,  the date of  redemption or
exchange will be compared with the earliest purchase date of shares held in your
account.   If  your   holding   period   is  less   than   three   months,   the
redemption/exchange fee will be assessed on the current net asset value of those
shares.

Please  remember  that if you pay by check or wire and your  funds do not clear,
you will be  responsible  for any related loss to a Fund or INVESCO.  If you are
already an INVESCO funds  shareholder,  the Fund may seek  reimbursement for any
loss from your existing account(s).

<TABLE>
<CAPTION>
METHOD                                  INVESTMENT MINIMUM                 PLEASE REMEMBER
------------------------------------------------------------------------------------------------------------
<S>                                     <C>                                <C>
BY CHECK                                $1,000 for regular accounts;
Mail to:                                $250 for an IRA; $50
INVESCO Funds Group, Inc.,              minimum for each subsequent
P.O. Box 173706,                        investment.
Denver, CO 80217-3706.
You may send your check
by overnight courier to:
7800 E. Union Ave.
Denver, CO 80237.
------------------------------------------------------------------------------------------------------------
BY TELEPHONE OR WIRE                    $1,000                             Payment must be received within 3
Call 1-800-525-8085 to request                                             business days, or the transaction
your purchase. Then send your                                              may be cancelled.
check by overnight courier to our
street address: 7800 E. Union Ave.,
Denver, CO 80237. Or you may
send your payment by
bank wire (call INVESCO for
instructions).
------------------------------------------------------------------------------------------------------------
BY TELEPHONE WITH ACH                   $50                                You must forward your bank
Call 1-800-525-8085 to request your                                        account information to
purchase.  INVESCO will move money                                         INVESCO prior to using this
from your designated bank/credit                                           option.
union checking or savings account
in order to purchase shares, upon
your telephone instructions,
whenever you wish.



<PAGE>

METHOD                                  INVESTMENT MINIMUM                 PLEASE REMEMBER
------------------------------------------------------------------------------------------------------------
REGULAR INVESTING WITH EASIVEST         $50 per month for EasiVest;        Like all regular investment
OR DIRECT PAYROLL PURCHASE              $50 per pay period for Direct      plans, neither EasiVest nor
You may enroll on your fund             Payroll Purchase. You may          Direct Payroll Purchase ensures
application, or call us for a           start or stop your regular         a profit or protects against loss
separate form and more details.         investment plan at anytime,        in a falling market. Because
Investing  the same amount on a         with two weeks' notice to          you'll invest continually,
monthly basis allows you to buy         INVESCO.                           regardless of varying price
more shares when prices are low                                            levels, consider your financial
and fewer shares when prices are                                           ability to keep buying through
high. This "dollar cost averaging"                                         low price levels. And remember
may help offset market fluctuations.                                       that you will lose money if you
Over a period of time, your average                                        redeem your shares when the
cost per share may be less than                                            market value of all your shares
the actual average value per share.                                        is less than their cost.
------------------------------------------------------------------------------------------------------------
BY PAL(R)                               $1,000 (The exchange               Be sure to write down the
Your "Personal Account Line" is         minimum is $250 for                confirmation number provided by
available for subsequent purchases      subsequent purchases               PAL(R). Payment must be received
and exchanges 24 hours a day.           requested by telephone.)           within 3 business days, or the
Simply call 1-800-525-8085.                                                transaction may be cancelled.
------------------------------------------------------------------------------------------------------------
BY EXCHANGE                             $1,000 to open a new               See "Exchange Policy."
Between two INVESCO funds. Call         account; $50 for written
1-800-525-8085 for prospectuses of      requests to purchase
other INVESCO funds. Exchanges          additional shares for an
may be made by phone or at our          existing account. (The
Web site at www.invesco.com. You        exchange minimum is $250
may also establish an automatic         for exchanges requested by
monthly exchange service between        telephone.)
two INVESCO funds; call us for
further details and the correct
form.
</TABLE>


DISTRIBUTION  EXPENSES.  We have adopted a Plan and  Agreement  of  Distribution
(commonly  known as a "12b-1  Plan") for the Funds.  The 12b-1 fees paid by each
Fund are used to defray all or part of the cost of  preparing  and  distributing
prospectuses  and  promotional  materials,   as  well  as  to  pay  for  certain
distribution-related  and other services. These services include compensation to
third party brokers,  financial  advisers and financial  services companies that
sell Fund shares and/or service shareholder accounts.

Under the Plan,  each Fund's  payments  are limited to an amount  computed at an
annual rate of 0.25% of the Fund's average net assets. If distribution  expenses
for a Fund exceed these computed amounts, INVESCO pays the difference.

[INVESCO ICON] YOUR ACCOUNT SERVICES

INVESCO  PROVIDES YOU WITH  SERVICES  DESIGNED TO MAKE IT SIMPLE FOR YOU TO BUY,
SELL OR EXCHANGE YOUR SHARES OF ANY INVESCO MUTUAL FUND.

SHAREHOLDER ACCOUNTS.  INVESCO maintains your share account, which contains your
current Fund holdings. The Funds do not issue share certificates.

QUARTERLY  INVESTMENT  SUMMARIES.  Each calendar quarter,  you receive a written
statement which  consolidates  and summarizes  account activity and value at the
beginning and end of the period for each of your INVESCO funds.



<PAGE>

TRANSACTION  CONFIRMATIONS.  You receive  detailed  confirmations  of individual
purchases,  exchanges and sales.  If you choose  certain  recurring  transaction
plans  (for  instance,  EasiVest),  your  transactions  are  confirmed  on  your
quarterly Investment Summaries.

TELEPHONE TRANSACTIONS. You may buy, exchange and sell Fund shares by telephone,
unless you  specifically  decline these privileges when you fill out the INVESCO
new account application.

YOU CAN  CONDUCT  MOST  TRANSACTIONS  AND  CHECK  ON YOUR  ACCOUNT  THROUGH  OUR
TOLL-FREE  TELEPHONE NUMBER. YOU MAY ALSO ACCESS PERSONAL ACCOUNT INFORMATION AT
OUR WEB SITE, WWW.INVESCO.COM.

Unless you decline the telephone transaction  privileges,  when you fill out and
sign the new account Application, a Telephone Transaction Authorization Form, or
use your telephone  transaction  privileges,  you lose certain rights if someone
gives  fraudulent or unauthorized  instructions to INVESCO that result in a loss
to you.  In general,  if INVESCO has  followed  reasonable  procedures,  such as
recording telephone instructions and sending written transaction  confirmations,
INVESCO is not liable for following  telephone  instructions that it believes to
be  genuine.  Therefore,  you  have  the  risk of loss  due to  unauthorized  or
fraudulent instructions.

IRAS AND OTHER  RETIREMENT  PLANS.  Shares  of any  INVESCO  mutual  fund may be
purchased for IRAs and many other types of tax-deferred retirement plans. Please
call INVESCO for  information  and forms to establish or transfer  your existing
retirement plan or account.

[INVESCO ICON] HOW TO SELL SHARES

TO SELL SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE 4:00 P.M.
EASTERN TIME.

The  following  chart shows  several  convenient  ways to sell your Fund shares.
Shares  of the Funds  may be sold at any time at the next NAV  calculated  after
your  request to sell in proper form is received by INVESCO.  Depending  on Fund
performance,  the NAV at the time you sell your  shares may be more or less than
the price you paid to purchase your shares.

If you own shares in more than one INVESCO fund,  please  specify the fund whose
shares  you wish to sell.  Remember  that any sale or  exchange  of  shares in a
non-retirement  account  will  likely  result in a taxable  gain or loss.

While INVESCO attempts to process telephone redemptions  promptly,  there may be
times - particularly in periods of severe  economic or market  disruption - when
you may experience delays in redeeming shares by phone.

INVESCO usually mails you the proceeds from the sale of Fund shares within seven
days after we receive your request to sell in proper form. However,  payment may
be postponed under unusual  circumstances -- for instance,  if normal trading is
not  taking  place on the  NYSE,  or  during  an  emergency  as  defined  by the
Securities and Exchange  Commission.  If your INVESCO fund shares were purchased
by a check which has not yet cleared,  payment will be made  promptly  when your
purchase check does clear; that can take up to 15 days.


<PAGE>

If you participate in EasiVest, the Funds' automatic monthly investment program,
and sell all of the  shares  in your  account,  we will not make any  additional
EasiVest purchases unless you give us other instructions.

Because  of the  Funds'  expense  structure,  it costs as much to handle a small
account  as it does to handle a large one.  If the value of your  account in any
Fund falls below $250 as a result of your  actions  (for  example,  sale of your
Fund shares),  each Fund reserves the right to sell all of your shares, send the
proceeds of the sale to you and close your  account.  Before  this is done,  you
will be notified and given 60 days to increase the value of your account to $250
or more.

REDEMPTION FEE (HIGH YIELD FUND ONLY).  If you exchange or redeem shares of High
Yield Fund after  holding them three months or less (other than shares  acquired
through  reinvestment of dividends or other  distributions),  a fee of 2% of the
current  net asset  value of the shares  being  exchanged  or  redeemed  will be
assessed and retained by the Fund for the benefit of the remaining shareholders.
This fee is intended to encourage  long-term  investment  in High Yield Fund, to
avoid  transaction  and  other  expenses  caused  by early  redemptions,  and to
facilitate  portfolio  management.  This fee may be waived at the  discretion of
INVESCO.  This fee is not a deferred sales charge,  is not a commission  paid to
INVESCO, and does not benefit INVESCO in any way. The fee applies to redemptions
from High Yield Fund and exchanges  into any of the other  no-load  mutual funds
which are also advised by INVESCO and  distributed  by IDI. High Yield Fund will
use the "first-in,  first-out"  method to determine your holding  period.  Under
this  method,  the date of  redemption  or exchange  will be  compared  with the
earliest purchase date of shares held in your account. If your holding period is
less than three  months,  the  redemption/  exchange fee will be assessed on the
current net asset value of those shares.



<PAGE>
--------------------------------------------------------------------------------
METHOD                     MINIMUM REDEMPTION        PLEASE REMEMBER
--------------------------------------------------------------------------------
BY TELEPHONE               $250 (or, if less, full   INVESCO's telephone
Call us toll-free at:      liquidation of the        redemption privileges may
1-800-525-8085.            account) for a redemption be modified or terminated
                           check; $1,000 for a wire  in the future at INVESCO's
                           to your bank of record.   discretion.
                           The maximum amount which
                           may be redeemed by
                           telephone is generally
                           $25,000.
--------------------------------------------------------------------------------
IN WRITING                 Any amount.               The redemption request
Mail your request to                                 must be signed by all
INVESCO Funds Group, Inc.,                           registered account owners.
P.O. Box 173706, Denver,                             Payment will be mailed to
CO 80217-3706. You may                               your address as it appears
also send your request by                            on INVESCO's records, or
overnight courier to 7800                            to a bank designated by
E. Union Ave.,                                       you in  writing.
Denver, CO 80237.
--------------------------------------------------------------------------------
BY TELEPHONE WITH ACH      $50                       You must forward your
Call 1-800-525-8085                                  bank account information
to request your                                      to INVESCO prior to using
redemption.  INVESCO                                 this option.
will automatically
pay the proceeds into
your designated bank
account.
--------------------------------------------------------------------------------
BY EXCHANGE                $250 for exchanges        See "Exchange Policy."
Between two INVESCO funds. requested by telephone.   When opening a new
Call                                                 account, investment
1-800-525-8085 for                                   minimums apply.
prospectuses of other
INVESCO funds. Exchanges
may be made by phone or at
our Web site at
www.invesco.com. You may
also establish an
automatic monthly exchange
service between two
INVESCO funds; call us for
further details and the
correct form.
--------------------------------------------------------------------------------
PERIODIC WITHDRAWAL PLAN   $100 per payment on a     You must have at least
You may call us to request monthly or quarterly      $10,000 total invested
the appropriate form and   basis. The redemption     with the INVESCO funds
more information at        check may be made payable with at least $5,000 of
1-800-525-8085.            to any party you          that total invested in the
                           designate.                fund from which
                                                     withdrawals will be made.
--------------------------------------------------------------------------------
PAYMENT TO THIRD PARTY     Any amount.               All registered account
Mail your request to                                 owners must
INVESCO Funds Group, Inc.,                           sign the request, with
P.O. Box 173706,                                     signature guarantees from
Denver, CO  80217-3706.                              an eligible guarantor
                                                     financial institution,
                                                     such as a commercial bank
                                                     or a recognized national or
                                                     regional securities firm.

<PAGE>

[GRAPH ICON] TAXES

TO AVOID BACKUP  WITHHOLDING,  BE SURE WE HAVE YOUR CORRECT  SOCIAL  SECURITY OR
TAXPAYER IDENTIFICATION NUMBER.

Everyone's  tax  status is unique.  We  encourage  you to  consult  your own tax
adviser on the tax impact to you of investing in the Funds.

Each Fund customarily  distributes to its shareholders  substantially all of its
net  investment  income,  net capital gains and net gains from foreign  currency
transactions,  if any. You receive a proportionate part of these  distributions,
depending  on  the  percentage  of  each  Fund's  shares  that  you  own.  These
distributions  are required under federal tax laws governing mutual funds. It is
the policy of each Fund to distribute all investment  company taxable income and
net capital gains. As a result of this policy and each Fund's qualification as a
regulated  investment company, it is anticipated that none of the Funds will pay
any federal income or excise taxes.  Instead, each Fund will be accorded conduit
or "pass through" treatment for federal income tax purposes.

However,  unless you are (or your account is) exempt from income taxes, you must
include all  dividends and capital gain  distributions  paid to you by a Fund in
your taxable income for federal,  state and local income tax purposes.  You also
may  realize  capital  gains or losses when you sell shares of a Fund at more or
less than the price you  originally  paid. An exchange is treated as a sale, and
is a taxable  event.  Dividends  and other  distributions  usually  are  taxable
whether you receive them in cash or automatically reinvest them in shares of the
distributing Fund(s) or other INVESCO funds.

If you have not provided INVESCO with complete,  correct tax information, a Fund
is required by law to withhold 31% of your  distributions and any money that you
receive from the sale of shares of the Fund as a backup withholding tax.

We will provide you with detailed  information  every year about your  dividends
and capital gain  distributions.  Depending  on the activity in your  individual
account,  we may also be able to assist  with cost basis  figures for shares you
sell.



<PAGE>

[GRAPH ICON] DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS

NET  INVESTMENT  INCOME  AND NET  REALIZED  CAPITAL  GAINS  ARE  DISTRIBUTED  TO
SHAREHOLDERS AT LEAST ANNUALLY.  DISTRIBUTIONS ARE TAXABLE WHETHER REINVESTED IN
ADDITIONAL  SHARES  OR PAID TO YOU IN CASH  (EXCEPT  FOR  TAX-EXEMPT  ACCOUNTS).
TAX-EXEMPT ACCOUNTS).

The Funds earn  ordinary or  investment  income from  dividends  and interest on
their  investments.  The Funds expect to  distribute  substantially  all of this
investment  income,  less Fund  expenses,  to  shareholders.  Dividends from net
investment  income are declared  daily and paid monthly at the discretion of the
Company's board of directors.

A Fund also realizes  capital  gains and losses when it sells  securities in its
portfolio  for more or less than it had paid for them.  If total  gains on sales
exceed total losses  (including  losses carried forward from previous  years), a
Fund has a net realized  capital gain. Net realized  capital gains,  if any, are
distributed to shareholders at least annually, usually in December.

Under present federal income tax laws, capital gains may be taxable at different
rates,  depending  on how  long a  Fund  has  held  the  underlying  investment.
Short-term capital gains which are derived from the sale of assets held one year
or less are taxed as ordinary income.  Long-term capital gains which are derived
from the sale of assets  held for more  than one year are  taxed at the  maximum
capital gains rate,  currently 20% for  individuals.

Dividends and capital gain  distributions  are paid to you if you hold shares on
the record date of the  distribution  regardless  of how long you have held your
shares.  A Fund's NAV will drop by the amount of the distribution on the day the
distribution  is  declared.   If  you  buy  shares  of  a  Fund  just  before  a
distribution,  you may wind up "buying a dividend."  This means that if the Fund
makes a dividend or capital gain  distribution  shortly  after you buy, you will
receive  some  of  your  investment  back  as  a  taxable   distribution.   Most
shareholders  want to avoid this. And, if you sell your shares at a loss for tax
purposes and purchase a substantially identical investment within 30 days before
or after that sale, the transaction is usually  considered a "wash sale" and you
will not be able to claim a tax loss.

Dividends  and capital gain  distributions  paid by each Fund are  automatically
reinvested in additional Fund shares at the NAV on the ex-dividend  date, unless
you choose to have them automatically reinvested in another INVESCO fund or paid
to you by check or electronic funds transfer. If you choose to be paid by check,
the  minimum  amount of the check must be at least $10;  amounts  less than that
will be automatically  reinvested.  Dividends and other  distributions,  whether
received in cash or  reinvested  in  additional  Fund shares,  may be subject to
federal income tax.

<PAGE>

FINANCIAL HIGHLIGHTS

The  financial  highlights  table is  intended to help you  understand  a Fund's
financial performance for the past five years (or, if shorter, the period of the
Fund's operations).  Certain information reflects financial results for a single
Funds share.  The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming  reinvestment
of all dividends and distributions). This following information has been audited
by PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the financial  statements,  are included in the INVESCO Bond Funds,  Inc.'s 1999
Annual  Report to  Shareholders,  which is  incorporated  by reference  into the
Statement  of  Additional   Information  and  is  available  without  charge  by
contacting  IDI at the  address  or  telephone  number on the back cover of this
Prospectus.

<TABLE>
<CAPTION>
                                                                 YEAR ENDED AUGUST 31
----------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>           <C>           <C>           <C>
HIGH YIELD FUND                              1999          1998          1997          1996          1995
PER SHARE DATA
Net Asset Value-Beginning of Period                        $7.45         $6.84         $6.73         $6.73
----------------------------------------------------------------------------------------------------------
INCOME FROM
  INVESTMENT OPERATIONS
Net Investment Income                                       0.64          0.62          0.63          0.66
Net Gains on Securities
   (Both Realized and Unrealized)                          (0.29)         0.64          0.11          0.03
----------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS                            0.35          1.26          0.74          0.60
----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment                               0.64          0.62          0.63          0.66
   Income(a)
Distributions from Capital Gains                            0.40          0.03          0.00          0.00
In Excess of Capital Gains                                  0.00          0.00          0.00          0.03
----------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS                                         1.04          0.65          0.63          0.69
----------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period                           $6.76         $7.45         $6.84         $6.73
==========================================================================================================

TOTAL RETURN                                                4.44%        19.27%        11.38%        11.12%

RATIOS
Net Assets -- End of Period                              $641,394      $470,965      $375,201      $288,959
  ($000 Omitted)
Ratio of Expenses to Average                                0.86%(c)      1.00%(c)      0.99%(c)      1.00%
  Net Assets(b)
Ratio of Net Investment Income                              8.72%         8.71%         9.13%        10.01%
  to Average Net Assets(b)
Portfolio Turnover Rate                                      282%          129%          266%          201%


<FN>
(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 INVESCO for the years ended August
     31,  1996and  1995. If such expenses had not been  voluntarily  absorbed,  ratio of expenses to
     average net assets would have been 0.99% and 1.07%,  respectively,  and ratio of net investment
     income to average net assets would have been 9.13% and 9.94%, respectively.
(c)  Ratio is based on Total  Expenses of the Fund,  less Expenses  Absorbed by Investment  Adviser,
     which is before any expense offset arrangements.
</FN>
</TABLE>


<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED AUGUST 31
----------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>           <C>           <C>           <C>
SELECT INCOME FUND                           1999          1998          1997          1996          1995
PER SHARE DATA
Net Asset Value -- Beginning of Period                     $6.66         $6.35         $6.54         $6.18
----------------------------------------------------------------------------------------------------------
INCOME FROM
  INVESTMENT OPERATIONS
Net Investment Income                                       0.43          0.45          0.47          0.47
Net Gains on Securities
   (Both Realized and Unrealized)                           0.19          0.34         (0.17)         0.36
----------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS                            0.62          0.79          0.30          0.83
----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net                                          0.43          0.45          0.46          0.47
  Investment Income
In Excess of Net Investment                                 0.00          0.00          0.01          0.00
  Income(a)
Distributions from Capital                                  0.17          0.03          0.02          0.00
  Gains
In Excess of Capital Gains                                  0.00          0.00          0.00          0.00
----------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS                                         0.60          0.48          0.49          0.47
----------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period                           $6.68         $6.66         $6.35         $6.54
==========================================================================================================

TOTAL RETURN                                                9.58%        12.89%         4.78%        14.01%

RATIOS
Net Assets -- End of Period                              $502,624      $287,618      $258,093      $216,597
  ($000 Omitted)
Ratio of Expenses to
  Average Net Assets(b)                                     1.06%(c)      1.03%(c)   1.01%(c)         1.00%
Ratio of Net Investment Income                              6.36%         6.98%      7.14%            7.38%
  to Average Net Assets(b)
Portfolio Turnover Rate                                      140%          263%       210%             181%

<FN>
(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 INVESCO for the years ended August
     31, 1998,  1997, 1996 and 1995. If such expenses had not been  voluntarily  absorbed,  ratio of
     expenses to average net assets would have been 1.10%, 1.21%, 1.16% and 1.22%, respectively, and
     ratio of net investment  income to average net assets would have been 6.32%,  6.80%,  6.99% and
     7.16%, respectively.
(c)  Ratio is based on Total  Expenses of the Fund,  less Expenses  Absorbed by Investment  Adviser,
     which is before any expense offset arrangements.
</FN>
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
                                             PERIOD ENDED
                                             AUGUST 31                   YEAR ENDED JUNE 30
----------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>           <C>           <C>           <C>
TAX-FREE BOND FUND                           1999(a)       1998          1997          1996          1995
PER SHARE DATA
Net Asset Value-Beginning of Period                       $15.34        $15.20        $15.07        $15.29
----------------------------------------------------------------------------------------------------------
INCOME FROM
  INVESTMENT OPERATIONS
Net Investment Income                                       0.63          0.66          0.73          0.80
Net Gains on Securities
 (Both Realized and Unrealized)                             0.40          0.38          0.32          0.09
----------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS                            1.03          1.04          1.05          0.89
----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment                               0.63          0.66          0.73          0.80
  Income
In Excess of Net Investment                                 0.00          0.01          0.00          0.00
  Income
Distributions from Capital Gains                            0.17          0.23          0.19          0.31
----------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS                                         0.80          0.90          0.92          1.11
----------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period                          $15.57        $15.34        $15.20        $15.07
==========================================================================================================

TOTAL RETURN                                                6.87%         7.05%         7.01%         6.16%

RATIOS
Net Assets - End of Period
   ($000 Omitted)                                        $211,471      $220,410      $250,890      $254,584
Ratio of Expenses to
   Average Net Assets(b)                                    0.91%(c)      0.90%(c)      0.91%(c)      0.92%
Ratio of Net Investment Income
   to Average Net Assets(b)                                 4.06%         4.36%         4.76%         5.31%
Portfolio Turnover Rate                                      173%          123%          146%           99%

<FN>
(a)  From July 1, 1999 to August 31, 1999, the Fund's new fiscal year end.
(b)  Various expenses of the Fund were voluntarily  absorbed by INVESCO for the years ended June 30,
     1998,  1997,  1996 and 1995.  If such  expenses  had not been  voluntarily  absorbed,  ratio of
     expenses to average net assets would have been 1.04%,  1.05%,  1.04%, and 1.05%,  respectively,
     and ratio of net investment  income to average net assets would have been 3.93%,  4.21%,  4.63%
     and  5.18%,  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.
</FN>
</TABLE>
<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED AUGUST 31
----------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>           <C>           <C>           <C>
U.S. GOVERNMENT
  SECURITIES FUND                            1999          1998          1997          1996          1995
PER SHARE DATA
Net Asset Value -- Beginning of Period                     $7.49         $7.15         $7.49         $7.10
----------------------------------------------------------------------------------------------------------
INCOME FROM
  INVESTMENT OPERATIONS
Net Investment Income                                       0.40          0.43          0.44          0.45
Net Gains on Securities
   (Both Realized and Unrealized)                           0.67          0.34         (0.34)         0.39
----------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS                            1.07          0.77          0.10          0.84
----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
  Investment Income                                         0.40          0.43          0.43          0.45
In Excess of Net Investment
  Income(a)                                                 0.00          0.00          0.00          0.00
Distributions from Capital
  Gains                                                     0.17          0.00          0.00          0.00
----------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS                                         0.57          0.43          0.44          0.45
----------------------------------------------------------------------------------------------------------
Net Asset Value -- End of Period                           $7.99         $7.49         $7.15         $7.49
==========================================================================================================

TOTAL RETURN                                               14.75%        11.01%         1.31%        12.37%

RATIOS
Net Assets -- End of Period                               $79,485       $51,581       $54,614       $38,087
  ($000 Omitted)
Ratio of Expenses to
  Average Net Assets(b)                                     1.01%(c)      1.01%(c)   1.02%(c)         1.00%
Ratio of Net Investment Income                              5.22%         5.78%      5.76%            6.24%
  to Average Net Assets(b)
Portfolio Turnover Rate                                      323%          139%       212%              99%

<FN>
(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 INVESCO for the years ended August
     31, 1998,  1997, 1996 and 1995. If such expenses had not been  voluntarily  absorbed,  ratio of
     expenses to average net assets would have been 1.10%, 1.21%, 1.16% and 1.22%, respectively, and
     ratio of net investment  income to average net assets would have been 6.32%,  6.80%,  6.99% and
     7.16%, respectively.
(c)  Ratio is based on Total  Expenses of the Fund,  less Expenses  Absorbed by Investment  Adviser,
     which is before any expense offset arrangements.
</FN>
</TABLE>

<PAGE>

OCTOBER 31, 1999

INVESCO BOND FUNDS, INC.
   INVESCO HIGH YIELD FUND
   INVESCO SELECT INCOME FUND
   INVESCO TAX-FREE BOND FUND
   INVESCO U.S. GOVERNMENT SECURITIES FUND

You may obtain additional information about the Funds from several sources:

FINANCIAL  REPORTS.  Although this Prospectus  describes the Funds'  anticipated
investments and operations, the Funds also prepare annual and semiannual reports
that detail the Funds'  actual  investments  at the report date.  These  reports
include  discussion  of each Fund's  recent  performance,  as well as market and
general  economic trends  affecting each Fund's  performance.  The annual report
also includes the report of the Funds' independent accountants.

STATEMENT  OF  ADDITIONAL  INFORMATION.  The SAI, dated  October  31,  1999 is a
supplement to this Prospectus and has detailed  information  about the Funds and
their investment policies and practices.  A current SAI for the Funds is on file
with the  Securities  and  Exchange  Commission  and is  incorporated  into this
Prospectus  by  reference;  in other  words,  the SAI is  legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.

INTERNET.  The  current  Prospectus  of the Funds may be  accessed  through  the
INVESCO Web site at www.invesco.com.  In addition,  the Prospectus,  SAI, annual
report and  semiannual  report of the Funds are available on the SEC Web site at
www.sec.gov.

To  obtain  a free  copy  of the  current  Prospectus,  SAI,  annual  report  or
semiannual  report , write to  INVESCO  Distributors,  Inc.,  P.O.  Box  173706,
Denver, Colorado 80217-3706;  or call 1-800-525-8085.  Copies of these materials
are also  available  (with a copying  charge)  from the SEC's  Public  Reference
Section at 450 Fifth Street,  N.W.,  Washington,  D.C. Information on the Public
Reference  Section  can be  obtained  by  calling  1-800-SEC-0330.  The SEC file
numbers for the Funds are 811-2674 and 002-57151.















811-2674
<PAGE>

                     STATEMENT OF ADDITIONAL INFORMATION

                           INVESCO BOND FUNDS, INC.

                           INVESCO High Yield Fund
                          INVESCO Select Income Fund
                          INVESCO Tax-Free Bond Fund
                   INVESCO U.S. Government Securities Fund




     Address:                               Mailing Address:

     7800 E. Union Ave.,                    P.O. Box 173706,
     Denver, CO 80237                       Denver, CO 80217-3706

                                  Telephone:

                     In continental U.S., 1-800-525-8085




                               October 31, 1999
--------------------------------------------------------------------------------

A Prospectus for INVESCO High Yield Fund,  INVESCO  Select Income Fund,  INVESCO
Tax-Free Bond Fund (formerly INVESCO Tax-Free  Long-Term Bond Fund), and INVESCO
U.S.  Government  Securities  Fund dated  October  31, 1999  provides  the basic
information  you should know  before  investing  in a Fund.  This  Statement  of
Additional  Information  ("SAI") is  incorporated  by reference  into the Funds'
Prospectus,  in other words, this SAI is legally part of the Funds'  Prospectus.
Although this SAI is not a prospectus,  it contains  information  in addition to
that  set  forth  in  the  Prospectus.  It is  intended  to  provide  additional
information  regarding the  activities and operations of the Funds and should be
read in conjunction with the Prospectus.

You may obtain,  without charge,  copies of the current Prospectus of the Funds,
SAI  and  current   annual  and   semiannual   reports  by  writing  to  INVESCO
Distributors,  Inc.,  P.O.  Box 173706,  Denver,  CO  80217-3706 , or by calling
1-800-525-8085.  Copies of the current Prospectus also are available through the
INVESCO Web site at www.invesco.com.




<PAGE>


TABLE OF CONTENTS

The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Investments, Policies and Risks . . . . . . . . . . . . . . . . . . . . . 33

Management of the Funds . . . . . . . . . . . . . . . . . . . . . . . . . 55

Other Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . 78

Brokerage Allocation and Other Practices. . . . . . . . . . . . . . . . . 79

Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Tax Consequences of Owning Shares of a Fund . . . . . . . . . . . . . . . 82

Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88


<PAGE>

THE COMPANY

The Company was  incorporated  under the laws of Colorado on August 20, 1976 and
was reorganized as a Maryland corporation on April 2, 1993. On October 29, 1998,
the name of the Company was  changed to INVESCO  Bond Funds,  Inc. On August 16,
1999, the Company assumed all of the assets and liabilities of INVESCO  Tax-Free
Bond Fund (formerly,  INVESCO Tax-Free Long-Term Bond Fund), a series of INVESCO
Tax-Free Income Funds, Inc.

The Company is an open-end,  diversified,  no-load management investment company
currently consisting of four portfolios of investments: INVESCO High Yield Fund,
INVESCO  Select  Income  Fund,  INVESCO  Tax-Free  Bond  Fund and  INVESCO  U.S.
Government Securities Fund (the "Funds"). Additional funds may be offered in the
future.

"Open-end"  means that each Fund issues an indefinite  number of shares which it
continuously  offers  to  redeem  at  net  asset  value  per  share  ("NAV").  A
"management"  investment  company  actively buys and sells  securities  for each
portfolio  at the  direction  of a  professional  manager.  Open-end  management
investment  companies  (or one or more  series  of such  companies,  such as the
Funds) are commonly  referred to as mutual funds.  The Funds do not charge sales
fees to purchase their shares.  However,  the Funds do pay a 12b-1  distribution
fee which is computed and paid monthly at an annual rate of 0.25% of each Fund's
average net assets.

INVESTMENTS, POLICIES AND RISKS

The  principal  investments  and  policies  of the  Funds are  discussed  in the
Prospectus of the Funds.  The Funds also may invest in the following  securities
and engage in the following practices.

ADRS (HIGH YIELD AND SELECT INCOME FUNDS ONLY) -- American Depository  Receipts,
or ADRs,  are  securities  issued by American  banks.  ADRs are receipts for the
shares of foreign corporations that are held by the bank issuing the receipt. An
ADR entitles its holder to all  dividends  and capital  gains on the  underlying
foreign securities, less any fees paid to the bank. Purchasing ADRs gives a Fund
the ability to purchase the functional  equivalent of foreign securities without
going to the  foreign  securities  markets to do so. ADRs are bought and sold in
U.S. dollars, not foreign currencies.  An ADR that is "sponsored" means that the
foreign corporation whose shares are represented by the ADR is actively involved
in the issuance of the ADR, and generally  provides  material  information about
the corporation to the U.S. market.  An "unsponsored" ADR program means that the
foreign  corporation  whose  shares  are  held by the bank is not  obligated  to
disclose material  information in the United States, and, therefore,  the market
value of the ADR may not  reflect  important  facts  known  only to the  foreign
company.  Since they mirror their underlying foreign securities,  ADRs generally
have the same risks as investing directly in the underlying foreign securities.

AMT BONDS (TAX-FREE BOND FUND ONLY) -- These are "private activity bonds" issued
after  August 7, 1986;  the proceeds are directed in full or in part to private,
for-profit  organizations.  The  income  from AMT Bonds is exempt  from  federal
income tax,  but may be subject to the  alternative  minimum tax - a special tax
that  applies  to  taxpayers  who have  certain  adjustments  to  income  or tax
preference items.


<PAGE>

CERTIFICATES  OF DEPOSIT IN FOREIGN BANKS AND U.S.  BRANCHES OF FOREIGN BANKS --
The Funds may maintain  time deposits in and invest in U.S.  dollar  denominated
CDs issued by foreign banks and U.S.  branches of foreign banks. The Funds limit
investments in foreign bank obligations to U.S. dollar  denominated  obligations
of foreign  banks which have more than $10 billion in assets,  have  branches or
agencies  in the  U.S.,  and meet  other  criteria  established  by the board of
directors.  Investments in foreign  securities  involve special  considerations.
There is generally less publicly  available  information  about foreign  issuers
since many  foreign  countries  do not have the same  disclosure  and  reporting
requirements  as are  imposed by the U.S.  securities  laws.  Moreover,  foreign
issuers are generally not bound by uniform accounting and auditing and financial
reporting  requirements and standards of practice comparable to those applicable
to  domestic  issuers.  Such  investments  may also entail the risks of possible
imposition of dividend  withholding or  confiscatory  taxes,  possible  currency
blockage  or  transfer  restrictions,  expropriation,  nationalization  or other
adverse  political or economic  developments,  and the  difficulty  of enforcing
obligations in other countries.

The  Funds  may  also  invest  in  bankers'   acceptances,   time  deposits  and
certificates of deposit of U.S.  branches of foreign banks and foreign  branches
of U.S. banks. Investments in instruments of U.S. branches of foreign banks will
be made only with  branches  that are  subject to the same  regulations  as U.S.
banks. Investments in instruments issued by a foreign branch of a U.S. bank will
be made only if the investment  risk associated with such investment is the same
as that involving an investment in instruments  issued by the U.S. parent,  with
the U.S.  parent  unconditionally  liable in the event that the  foreign  branch
fails to pay on the investment for any reason.

COMMERCIAL PAPER -- Commercial paper is the term for short-term promissory notes
issued  by  domestic   corporations  to  meet  current  working  capital  needs.
Commercial paper may be unsecured by the corporation's  assets but may be backed
by a letter of credit from a bank or other financial institution.  The letter of
credit enhances the paper's creditworthiness. The issuer is directly responsible
for payment but the bank  "guarantees"  that if the note is not paid at maturity
by the  issuer,  the bank will pay the  principal  and  interest  to the  buyer.
INVESCO Funds Group,  Inc.  ("INVESCO"),  investment  adviser to the Funds, will
consider the  creditworthiness  of the institution issuing the letter of credit,
as well as the  creditworthiness  of the issuer of the  commercial  paper,  when
purchasing paper enhanced by a letter of credit. Commercial paper is sold either
as  interest-bearing or on a discounted basis, with maturities not exceeding 270
days.

DEBT SECURITIES -- Debt  securities  include bonds,  notes and other  securities
that give the holder the right to receive fixed amounts of principal,  interest,
or both on a date in the future or on  demand.  Debt  securities  also are often
referred to as fixed income securities, even if the rate of interest varies over
the life of the security.

Debt  securities  are generally  subject to credit risk and market risk.  Credit
risk is the risk that the issuer of the security may be unable to meet  interest
or principal payments or both as they come due. Market risk is the risk that the
market  value of the  security  may decline for a variety of reasons,  including
changes in interest  rates.  An  increase in interest  rates tends to reduce the
market  values of debt  securities  in which a Fund has  invested.  A decline in
interest rates tends to increase the market values of debt securities in which a
Fund has invested.

<PAGE>

Moody's  Investor  Services,  Inc.  ("Moody's")  and  Standard & Poor's  ("S&P")
ratings provide a useful guide to the credit risk of many debt  securities.  The
lower the rating of a debt  security,  the  greater  the credit  risk the rating
service  assigns to the  security.  To compensate  investors for accepting  that
greater risk,  lower-rated  debt securities tend to offer higher interest rates.
High Yield invests  primarily in lower-rated  securities  commonly known as junk
bonds,  Select  Income may invest up to 50% of its  portfolio  and Tax-Free Bond
Fund may invest up to 10% of its portfolio in such securities. Although Tax-Free
Bond Fund may invest in debt  securities  assigned lower grade ratings by S&P or
Moody's  at  the  time  of  purchase,   the  Fund's  investments  are  generally
concentrated in debt  securities  rated BBB or higher by S&P or Baa or higher by
Moody's.  U.S.  Government  Securities Fund may invest only in investment  grade
debt securities,  which are those rated BBB or higher by S&P or Baa or higher by
Moody's,  or if  unrated,  are judged by INVESCO  to be of  equivalent  quality.
Increasing the amount of Fund assets invested in unrated or lower-grade straight
debt  securities may increase the yield  produced by the Fund's debt  securities
but will also increase the credit risk of those  securities.  A debt security is
considered  lower-grade  if it is rated Ba or less by  Moody's  or BB or less by
S&P. Lower-rated and non-rated debt securities of comparable quality are subject
to wider  fluctuations  in yields  and  market  values  than  higher-rated  debt
securities and may be considered speculative.

A significant  economic downturn or increase in interest rates may cause issuers
of debt  securities  to  experience  increased  financial  problems  which could
adversely  affect their ability to pay principal  and interest  obligations,  to
meet  projected  business  goals,  and to  obtain  additional  financing.  These
conditions  more severely  impact issuers of lower-rated  debt  securities.  The
market for  lower-rated  straight  debt  securities  may not be as liquid as the
market for higher-rated straight debt securities.  Lower-rated securities by S&P
(categories  BB, B, CCC)  include  those  which  are  predominantly  speculative
because of the issuer's  perceived  capacity to pay interest and repay principal
in accordance  with their terms;  BB indicates the lowest degree of  speculation
and CCC a high  degree of  speculation.  While such bonds will  likely have some
quality and protective  characteristics,  these are usually  outweighed by large
uncertainties or major risk exposures to adverse conditions.

Although bonds in the lowest  investment grade debt category (those rated BBB by
S&P,  Baa  by  Moody's  or the  equivalent)  are  regarded  as  having  adequate
capability to pay principal and interest, they have speculative characteristics.
Adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case for
higher-rated bonds.  Lower-rated bonds by Moody's (categories Ba, B, Caa) are of
poorer  quality  and  also  have  speculative   characteristics.   Bonds  having
equivalent ratings from other ratings services will have characteristics similar
to  those  of  the  corresponding  S&P  and  Moody's  ratings.  For  a  specific
description of S&P and Moody's corporate bond rating categories, please refer to
Appendix A.

The Funds may  invest  in zero  coupon  bonds,  step-up  bonds,  mortgage-backed
securities and  asset-backed  securities.  Zero coupon bonds do not make regular
interest  payments.  Zero coupon  bonds are sold at a discount  from face value.
Principal and accrued discount  (representing  interest earned but not paid) are
paid at maturity in the amount of the face value.  Step-up bonds  initially make
no (or low) cash interest  payments but begin paying  interest (or a higher rate
of interest) at a fixed time after  issuance of the bond.  The market  values of

<PAGE>

zero coupon and step-up bonds generally fluctuate more in response to changes in
interest rates than interest-paying securities of comparable term and quality. A
Fund may be required to distribute income recognized on these bonds, even though
no cash may be paid to a Fund  until the  maturity  or call  date of a bond,  in
order  for a Fund  to  maintain  its  qualification  as a  regulated  investment
company.  These required distributions could reduce the amount of cash available
for  investment by a Fund.  Mortgage-backed  securities  represent  interests in
pools of mortgages while asset-backed  securities  generally represent interests
in pools of consumer  loans.  Both of these are  usually set up as  pass-through
securities.  Interest and principal payments ultimately depend on payment of the
underlying loans, although the securities may be supported, at least in part, by
letters   of  credit  or  other   credit   enhancements   or,  in  the  case  of
mortgage-backed  securities,  guarantees by the U.S. government, its agencies or
instrumentalities.  The  underlying  loans are subject to  prepayments  that may
shorten the securities' weighted average lives and may lower their returns.

DOMESTIC BANK OBLIGATIONS -- U.S. banks (including their foreign branches) issue
certificates of deposit (CDs) and bankers' acceptances which may be purchased by
the Funds if an issuing  bank has total  assets in excess of $5 billion  and the
bank otherwise meets a Fund's credit rating requirements. CDs are issued against
deposits in a commercial  bank for a specified  period and rate and are normally
negotiable.  Eurodollar CDs are certificates issued by a foreign branch (usually
London) of a U.S.  domestic bank,  and, as such, the credit is deemed to be that
of the domestic bank.  Bankers'  acceptances are short-term  credit  instruments
evidencing the promise of the bank (by virtue of the bank's "acceptance") to pay
at  maturity a draft  which has been drawn on it by a customer  (the  "drawer").
Bankers'  acceptances  are used to finance  the  import,  export,  transfer,  or
storage of goods and reflect the  obligation  of both the bank and the drawer to
pay the face amount.  Both types of securities are subject to the ability of the
issuing  bank to meet its  obligations,  and are subject to risks  common to all
debt  securities.  In addition,  banker's  acceptances may be subject to foreign
currency risk and certain other risks of investment in foreign securities.

FOREIGN  SECURITIES  (HIGH YIELD AND SELECT INCOME FUNDS) --  Investments in the
securities of foreign companies, or companies that have their principal business
activities outside the United States,  involve certain risks not associated with
investment in U.S.  companies.  Non-U.S.  companies generally are not subject to
the same uniform  accounting,  auditing and financial  reporting  standards that
apply  to  U.S.  companies.   Therefore,  financial  information  about  foreign
companies  may be  incomplete,  or  may  not be  comparable  to the  information
available  on  U.S.  companies.  There  may  also  be  less  publicly  available
information about a foreign company.

Although  the  volume of  trading in  foreign  securities  markets  is  growing,
securities of many non-U.S. companies may be less liquid and have greater swings
in price than securities of comparable U.S.  companies.  The costs of buying and
selling  securities on foreign securities  exchanges is generally  significantly
higher  than  similar  costs  in the  United  States.  There is  generally  less
government  supervision  and  regulation  of  exchanges,  brokers and issuers in
foreign  countries  than there is in the United  States.  Investment in non-U.S.
securities  may also be subject to other risks  different  from those  affecting
U.S.   investments,   including  local   political  or  economic   developments,
expropriation  or  nationalization  of  assets,   confiscatory   taxation,   and
imposition of withholding taxes on dividends or interest payments. If it becomes
necessary,  it may be  more  difficult  for a Fund to  obtain  or to  enforce  a
judgment against a foreign issuer than against a domestic issuer.


<PAGE>

Securities  traded on  foreign  markets  are  usually  bought  and sold in local
currencies,  not in  U.S.  dollars.  Therefore,  the  market  value  of  foreign
securities  acquired by a Fund can be affected -- favorably or unfavorably -- by
changes in currency rates and exchange control  regulations.  Costs are incurred
in  converting  money from one currency to another.  Foreign  currency  exchange
rates are  determined  by supply and  demand on the  foreign  exchange  markets.
Foreign exchange markets are affected by the  international  balance of payments
and  other   economic  and  financial   conditions,   government   intervention,
speculation  and other  factors,  all of which are  outside  the control of each
Fund.  Generally,  a  Fund's  foreign  currency  exchange  transactions  will be
conducted on a cash or "spot" basis at the spot rate for  purchasing  or selling
currency in the foreign currency exchange markets.

FUTURES, OPTIONS AND OTHER FINANCIAL INSTRUMENTS

GENERAL.  As discussed in the  Prospectus,  the adviser may use various types of
financial instruments,  some of which are derivatives,  to attempt to manage the
risk of a Fund's investments or, in certain circumstances, for investment (E.G.,
as a  substitute  for  investing in  securities).  These  financial  instruments
include options, futures contracts (sometimes referred to as "futures"), forward
contracts,   swaps,   caps,   floors  and  collars   (collectively,   "Financial
Instruments").  The  policies  in this  section  do not apply to other  types of
instruments  sometimes referred to as derivatives,  such as indexed  securities,
mortgage-backed  and other  asset-backed  securities,  and stripped interest and
principal of debt.

Hedging  strategies  can be broadly  categorized as "short" hedges and "long" or
"anticipatory"  hedges. A short hedge involves the use of a Financial Instrument
in order to partially or fully offset  potential  variations in the value of one
or more investments  held in a Fund's  portfolio.  A long or anticipatory  hedge
involves the use of a Financial Instrument in order to partially or fully offset
potential  increases in the acquisition cost of one or more investments that the
Fund intends to acquire. In an anticipatory hedge transaction, the Fund does not
already own a corresponding  security.  Rather, it relates to a security or type
of security that the Fund intends to acquire. If the Fund does not eliminate the
hedge by  purchasing  the  security  as  anticipated,  the  effect on the Fund's
portfolio  is the  same  as if a long  position  were  entered  into.  Financial
Instruments may also be used, in certain circumstances, for investment (E.G., as
a substitute for investing in securities).

Financial  Instruments on individual securities generally are used to attempt to
hedge against price  movements in one or more  particular  securities  positions
that a Fund  already  owns or  intends  to  acquire.  Financial  Instruments  on
indexes, in contrast, generally are used to attempt to hedge all or a portion of
a portfolio  against price movements of the securities within a market sector in
which the Fund has invested or expects to invest.

The use of Financial  Instruments  is subject to applicable  regulations  of the
Securities and Exchange  Commission  ("SEC"),  the several  exchanges upon which
they are traded,  and the Commodity  Futures  Trading  Commission  ("CFTC").  In
addition, the Funds' ability to use Financial Instruments will be limited by tax
considerations. See "Tax Consequences of Owning Shares of the Funds."


<PAGE>

In addition to the instruments and strategies  described  below, the adviser may
use other similar or related  techniques to the extent that they are  consistent
with a Fund's investment  objective and permitted by its investment  limitations
and applicable  regulatory  authorities.  The Funds'  Prospectus or Statement of
Additional  Information  ("SAI")  will be  supplemented  to the extent  that new
products or techniques become employed involving materially different risks than
those described below or in the Prospectus.

Special   Risks.   Financial   Instruments   and  their  use   involve   special
considerations and risks, certain of which are described below.

(1) Financial  Instruments may increase the volatility of a Fund. If the adviser
employs  a  Financial  Instrument  that  correlates  imperfectly  with a  Fund's
investments, a loss could result, regardless of whether or not the intent was to
manage risk. In addition,  these  techniques  could result in a loss if there is
not a liquid market to close out a position that a Fund has entered.

(2) There might be imperfect  correlation between price movements of a Financial
Instrument and price movement of the investment(s) being hedged. For example, if
the value of a Financial Instrument used in a short hedge increased by less than
the decline in value of the hedged  investment(s),  the hedge would not be fully
successful.  This might be caused by  certain  kinds of  trading  activity  that
distorts the normal price relationship between the security being hedged and the
Financial  Instrument.  Similarly,  the  effectiveness of hedges using Financial
Instruments  on indexes will depend on the degree of  correlation  between price
movements in the index and price movements in the securities being hedged.

The Funds are  authorized  to use  options  and  futures  contracts  related  to
securities with issuers,  maturities or other characteristics different from the
securities in which it typically invests.  This involves a risk that the options
or  futures  position  will not  track  the  performance  of a Fund's  portfolio
investments.

The direction of options and futures  price  movements can also diverge from the
direction of the movements of the prices of their underlying  instruments,  even
if the  underlying  instruments  match a Fund's  investments  well.  Options and
futures  prices  are  affected  by  such  factors  as  current  and  anticipated
short-term interest rates,  changes in volatility of the underlying  instrument,
and the time remaining  until  expiration of the contract,  which may not affect
security  prices  the same  way.  Imperfect  correlation  may also  result  from
differing levels of demand in the options and futures markets and the securities
markets,  from structural  differences in how options and futures and securities
are traded,  or from  imposition  of daily price  fluctuation  limits or trading
halts.  The Funds may take  positions  in options and futures  contracts  with a
greater or lesser face value than the  securities  it wishes to hedge or intends
to purchase in order to attempt to  compensate  for  differences  in  volatility
between the contract and the securities,  although this may not be successful in
all cases.

(3) If successful,  the  above-discussed  hedging  strategies can reduce risk of
loss by wholly or partially  offsetting the negative effect of unfavorable price
movements of portfolio  securities.  However,  such  strategies  can also reduce
opportunity  for gain by  offsetting  the  positive  effect of  favorable  price
movements. For example, if a Fund entered into a short hedge because the adviser


<PAGE>

projected a decline in the price of a security in the Fund's portfolio,  and the
price of that security  increased  instead,  the gain from that  increase  would
likely  be  wholly or  partially  offset by a decline  in the value of the short
position in the Financial  Instrument.  Moreover,  if the price of the Financial
Instrument declined by more than the increase in the price of the security,  the
Fund could suffer a loss.

(4) A Fund's ability to close out a position in a Financial  Instrument prior to
expiration  or maturity  depends on the degree of liquidity of the market or, in
the absence of such a market,  the ability and willingness of the other party to
the transaction (the "counterparty") to enter into a transaction closing out the
position.  Therefore,  there is no assurance that any position can be closed out
at a time and price that is favorable to a Fund.

(5) As described  below,  the Funds are required to maintain  assets as "cover,"
maintain segregated accounts or make margin payments when they take positions in
Financial Instruments  involving  obligations to third parties (I.E.,  Financial
Instruments other than purchased options).  If a Fund is unable to close out its
positions  in such  Financial  Instruments,  it might be required to continue to
maintain  such assets or  segregated  accounts or make such  payments  until the
position  expired.  These  requirements  might impair a Fund's ability to sell a
portfolio  security or make an investment  at a time when it would  otherwise be
favorable  to do so, or require  that the Fund sell a  portfolio  security  at a
disadvantageous time.

Cover. Positions in Financial Instruments,  other than purchased options, expose
the Funds to an obligation to another party. A Fund will not enter into any such
transaction unless it owns (1) an offsetting ("covered") position in securities,
currencies or other options, futures contracts or forward contracts, or (2) cash
and liquid assets with a value,  marked-to-market daily, sufficient to cover its
obligations  to the extent not covered as provided in (1) above.  The Funds will
comply with SEC guidelines  regarding  cover for these  instruments and will, if
the guidelines so require,  designate cash or liquid assets as segregated in the
prescribed amount as determined daily.

Assets used as cover or held as segregated  cannot be sold while the position in
the  corresponding  Financial  Instrument  is open unless they are replaced with
other appropriate  assets.  As a result,  the commitment of a large portion of a
Fund's  assets  to  cover  or to  hold  as  segregated  could  impede  portfolio
management or the Fund's  ability to meet  redemption  requests or other current
obligations.

Options. Each Fund may engage in certain strategies involving options to attempt
to  manage  the  risk of its  investments  or,  in  certain  circumstances,  for
investment  (E.G., as a substitute for investing in  securities).  A call option
gives the  purchaser  the right to buy,  and  obligates  the  writer to sell the
underlying  investment  at the  agreed-upon  exercise  price  during  the option
period.  A put option gives the purchaser  the right to sell,  and obligates the
writer to buy the underlying investment at the agreed-upon exercise price during
the option period.  Purchasers of options pay an amount,  known as a premium, to
the option  writer in  exchange  for the right  under the option  contract.  See
"Options on Indexes" below with regard to cash settlement of option contracts on
index values.


<PAGE>

The  purchase of call  options can serve as a hedge  against a price rise of the
underlier  and the purchase of put options can serve as a hedge  against a price
decline of the  underlier.  Writing  call  options can serve as a limited  short
hedge because declines in the value of the hedged  investment would be offset to
the extent of the premium  received  for writing  the  option.  However,  if the
security or currency  appreciates  to a price higher than the exercise  price of
the call option, it can be expected that the option will be exercised and a Fund
will be  obligated  to sell the  security  or  currency  at less than its market
value.

Writing put options can serve as a limited long or  anticipatory  hedge  because
increases in the value of the hedged investment would be offset to the extent of
the  premium  received  for  writing the  option.  However,  if the  security or
currency depreciates to a price lower than the exercise price of the put option,
it can be  expected  that the put option  will be  exercised  and a Fund will be
obligated to purchase the security or currency at more than its market value.

The value of an option  position will reflect,  among other things,  the current
market value of the underlying investment,  the time remaining until expiration,
the  relationship  of the exercise  price to the market price of the  underlying
investment, the price volatility of the underlying investment and general market
and interest rate conditions. Options that expire unexercised have no value.

A Fund may  effectively  terminate  its right or  obligation  under an option by
entering  into a closing  transaction.  For example,  the Fund may terminate its
obligation  under a call or put  option  that it had  written by  purchasing  an
identical call or put option, which is known as a closing purchase  transaction.
Conversely,  the Fund may  terminate  a position  in a put or call option it had
purchased  by  writing  an  identical  put or call  option,  which is known as a
closing sale transaction.  Closing transactions permit a Fund to realize profits
or limit losses on an option position prior to its exercise or expiration.

Risks of Options on Securities.  Options embody the possibility of large amounts
of exposure,  which will result in a Fund's net asset value being more sensitive
to changes in the value of the related investment.  A Fund may purchase or write
both  exchange-traded  and OTC  options.  Exchange-traded  options in the United
States are issued by a clearing  organization  affiliated  with the  exchange on
which the option is listed  that,  in  effect,  guarantees  completion  of every
exchange-traded  option  transaction.  In  contrast,  OTC options are  contracts
between a Fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization  guarantee.  Thus, when a Fund purchases an OTC option,
it relies on the counterparty  from whom it purchased the option to make or take
delivery of the underlying  investment  upon exercise of the option.  Failure by
the counterparty to do so would result in the loss of any premium paid by a Fund
as well as the loss of any expected benefit of the transaction.

The Funds'  ability to establish and close out  positions in options  depends on
the existence of a liquid market. However, there can be no assurance that such a
market will exist at any particular time.  Closing  transactions can be made for
OTC  options  only  by  negotiating  directly  with  the  counterparty,  or by a
transaction in the secondary  market if any such market exists.  There can be no
assurance  that a Fund will in fact be able to close out an OTC option  position
at a favorable  price prior to  expiration.  In the event of  insolvency  of the
counterparty,  a Fund might be unable to close out an OTC option position at any
time prior to the  option's  expiration.  If a Fund is not able to enter into an


<PAGE>

offsetting closing  transaction on an option it has written, it will be required
to maintain the securities  subject to the call or the liquid assets  underlying
the put until a closing  purchase  transaction can be entered into or the option
expires. However, there can be no assurance that such a market will exist at any
particular time.

If a Fund  were  unable to  effect a  closing  transaction  for an option it had
purchased,  it would have to  exercise  the option to realize  any  profit.  The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause  material  losses because the Fund would be unable
to sell the  investment  used as cover for the written  option  until the option
expires or is exercised.

Options on  Indexes.  Puts and calls on indexes are similar to puts and calls on
securities  or futures  contracts  except that all  settlements  are in cash and
changes in value depend on changes in the index in question.  When a Fund writes
a call on an  index,  it  receives  a  premium  and  agrees  that,  prior to the
expiration  date, upon exercise of the call, the purchaser will receive from the
Fund an amount of cash equal to the  positive  difference  between  the  closing
price of the index and the exercise price of the call times a specified multiple
("multiplier"),  which  determines the total dollar value for each point of such
difference.  When a Fund buys a call on an index,  it pays a premium and has the
same rights as to such call as are indicated above. When a Fund buys a put on an
index,  it pays a premium and has the right,  prior to the  expiration  date, to
require  the seller of the put to deliver to the Fund an amount of cash equal to
the positive  difference  between the exercise  price of the put and the closing
price of the index times the  multiplier.  When a Fund writes a put on an index,
it receives a premium and the  purchaser of the put has the right,  prior to the
expiration date, to require the Fund to deliver to it an amount of cash equal to
the positive  difference  between the exercise  price of the put and the closing
level of the index times the multiplier.

The risks of  purchasing  and  selling  options on indexes  may be greater  than
options on  securities.  Because index options are settled in cash,  when a Fund
writes a call on an index it cannot fulfill its potential settlement obligations
by delivering the underlying  securities.  A Fund can offset some of the risk of
writing a call index option by holding a  diversified  portfolio  of  securities
similar to those on which the underlying index is based. However, a Fund cannot,
as a practical matter,  acquire and hold a portfolio containing exactly the same
securities  as underlie the index and, as a result,  bears a risk that the value
of the securities held will vary from the value of the index.

Even  if  a  Fund  could  assemble  a  portfolio  that  exactly  reproduced  the
composition of the underlying  index, it still would not be fully covered from a
risk standpoint  because of the "timing risk" inherent in writing index options.
When an index  option  is  exercised,  the  amount  of cash  that the  holder is
entitled to receive is determined by the  difference  between the exercise price
and the closing index level. As with other kinds of options,  a Fund as the call
writer will not learn what it has been assigned until the next business day. The
time lag between  exercise and notice of assignment poses no risk for the writer
of a covered  call on a  specific  underlying  security,  such as common  stock,
because  in that case the  writer's  obligation  is to  deliver  the  underlying
security,  not to pay its  value as of a moment in the past.  In  contrast,  the
writer of an index call will be required  to pay cash in an amount  based on the
difference between the closing index value on the exercise date and the exercise
price.  By the time a Fund learns what it has been assigned,  the index may have
declined.  This "timing risk" is an inherent  limitation on the ability of index
call writers to cover their risk exposure.


<PAGE>

If a Fund has  purchased  an index  option and  exercises  it before the closing
index  value for that day is  available,  it runs the risk that the level of the
underlying index may subsequently  change. If such a change causes the exercised
option to fall  out-of-the-money,  the Fund nevertheless will be required to pay
the  difference  between the closing  index value and the exercise  price of the
option (times the applicable multiplier) to the assigned writer.

OTC Options. Unlike exchange-traded options, which are standardized with respect
to the underlying instrument,  expiration date, contract size, and strike price,
the terms of OTC  options  (options  not  traded  on  exchanges)  generally  are
established  through  negotiation  with the other party to the option  contract.
While this type of  arrangement  allows a Fund great  flexibility  to tailor the
option  to  its  needs,  OTC  options   generally   involve  greater  risk  than
exchange-traded  options,  which are guaranteed by the clearing  organization of
the exchange where they are traded.

Generally,  OTC  foreign  currency  options  used by a Fund  are  European-style
options. This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.

Futures  Contracts and Options on Futures  Contracts.  When a Fund  purchases or
sells a futures contract,  it incurs an obligation  respectively to take or make
delivery of a specified  amount of the  obligation  underlying the contract at a
specified time and price. When a Fund writes an option on a futures contract, it
becomes  obligated  to assume a position in the futures  contract at a specified
exercise  price at any time  during the term of the  option.  If a Fund writes a
call,  on exercise it assumes a short futures  position.  If it writes a put, on
exercise it assumes a long futures position.

The  purchase  of futures or call  options on futures  can serve as a long or an
anticipatory  hedge,  and the sale of futures or the  purchase of put options on
futures can serve as a short hedge.  Writing  call options on futures  contracts
can serve as a limited  short hedge,  using a strategy  similar to that used for
writing call options on securities or indexes. Similarly, writing put options on
futures contracts can serve as a limited long or anticipatory hedge.

In addition,  futures strategies can be used to manage the "duration" (a measure
of  anticipated  sensitivity  to changes in interest  rates,  which is sometimes
related to the weighted average maturity of a portfolio) and associated interest
rate risk of a Fund's fixed-income  portfolio.  If the adviser wishes to shorten
the  duration  of a Fund's  fixed-income  portfolio  (i.e.,  reduce  anticipated
sensitivity),  the Fund may sell an appropriate  debt futures contract or a call
option  thereon,  or  purchase a put  option on that  futures  contract.  If the
adviser  wishes to  lengthen  the  duration of a Fund's  fixed-income  portfolio
(i.e., increase anticipated  sensitivity),  the Fund may buy an appropriate debt
futures contract or a call option thereon, or sell a put option thereon.

At the inception of a futures  contract,  a Fund is required to deposit "initial
margin"  in an  amount  generally  equal to 10% or less of the  contract  value.
Initial  margin must also be  deposited  when  writing a call or put option on a
futures  contract,  in accordance  with applicable  exchange  rules.  Subsequent
"variation margin" payments are made to and from the futures broker daily as the
value of the  futures or written  option  position  varies,  a process  known as
"marking-to-market." Unlike margin in securities transactions, initial margin on


<PAGE>

futures  contracts and written options on futures contracts does not represent a
borrowing  on  margin,  but  rather is in the  nature of a  performance  bond or
good-faith  deposit  that is  returned  to the  Fund at the  termination  of the
transaction if all contractual  obligations  have been satisfied.  Under certain
circumstances,  such as periods of high  volatility,  a Fund may be  required to
increase the level of initial margin payments. If the Fund has insufficient cash
to meet daily variation margin requirements, it might need to sell securities in
order to do so at a time when such sales are disadvantageous.

Purchasers  and  sellers of futures  contracts  and options on futures can enter
into  offsetting  closing  transactions,  similar  to  closing  transactions  on
options, by selling or purchasing,  respectively, an instrument identical to the
instrument  purchased or sold. However,  there can be no assurance that a liquid
market will exist for a particular contract at a particular time. In such event,
it may not be possible to close a futures contract or options position.

Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a futures  contract or an option on a futures  contract
can vary from the previous day's settlement  price;  once that limit is reached,
no trades may be made that day at a price  beyond the limit.  Daily price limits
do not limit  potential  losses because prices could move to the daily limit for
several  consecutive  days  with  little  or  no  trading,   thereby  preventing
liquidation of unfavorable positions.

If a Fund were unable to liquidate a futures  contract or an option on a futures
contract  position due to the absence of a liquid  market or the  imposition  of
price limits, it could incur substantial  losses.  The Fund would continue to be
subject to market risk with respect to the position. In addition,  except in the
case of purchased options,  the Fund would continue to be required to make daily
variation  margin  payments  and might be required  to continue to maintain  the
position  being  hedged by the  futures  contract  or option or to  continue  to
maintain cash or securities in a segregated account.

To the extent  that a Fund  enters into  futures  contracts,  options on futures
contracts and options on foreign currencies traded on a CFTC-regulated exchange,
in each case that is not for BONA  FIDE  hedging  purposes  (as  defined  by the
CFTC),  the aggregate  initial margin and premiums  required to establish  these
positions  (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after  taking  into  account  unrealized  profits and  unrealized  losses on any
contracts  the Fund has  entered  into.  This  policy  does not  limit to 5% the
percentage of the Fund's assets that are at risk in futures  contracts,  options
on futures contracts and currency options.

Risks of Futures Contracts and Options Thereon.  The ordinary spreads at a given
time between  prices in the cash and futures  markets  (including the options on
futures  markets),  due to  differences  in the  natures of those  markets,  are
subject to the following factors.  First, all participants in the futures market
are subject to margin deposit and maintenance requirements.  Rather than meeting
additional  margin deposit  requirements,  investors may close futures contracts
through  offsetting  transactions,  which could distort the normal  relationship
between the cash and  futures  markets.  Second,  the  liquidity  of the futures
market depends on participants entering into offsetting transactions rather than
making or taking  delivery.  To the extent  participants  decide to make or take


<PAGE>

delivery,  liquidity  in the futures  market  could be reduced,  thus  producing
distortion. Due to the possibility of distortion, a hedge may not be successful.
Although stock index futures contracts do not require physical  delivery,  under
ordinary market  conditions,  liquidity of such futures  contracts also could be
reduced.  Additionally,  the adviser may be incorrect in its  expectations as to
the extent of various  interest rates,  currency  exchange rates or stock market
movements or the time span within which the movements take place.

Index Futures. The risk of imperfect  correlation between movements in the price
of index  futures  and  movements  in the price of the  securities  that are the
subject of a hedge increases as the composition of a Fund's  portfolio  diverges
from the index.  The price of the index  futures may move  proportionately  more
than or less than the price of the securities being hedged.  If the price of the
index futures moves  proportionately  less than the price of the securities that
are the subject of the hedge,  the hedge will not be fully  effective.  Assuming
the price of the securities being hedged has moved in an unfavorable  direction,
as anticipated  when the hedge was put into place, the Fund would be in a better
position  than if it had not  hedged at all,  but not as good as if the price of
the index  futures moved in full  proportion  to that of the hedged  securities.
However,  if the price of the  securities  being hedged has moved in a favorable
direction,  this advantage will be partially  offset by movement of the price of
the futures  contract.  If the price of the futures contract moves more than the
price of the securities, the Fund will experience either a loss or a gain on the
futures contract that will not be completely offset by movements in the price of
the securities that are the subject of the hedge.

Where index futures are purchased in an anticipatory  hedge, it is possible that
the market may  decline  instead.  If a Fund then  decides  not to invest in the
securities at that time because of concern as to possible further market decline
or for other reasons, it will realize a loss on the futures contract that is not
offset  by a  reduction  in the  price  of  the  securities  it had  anticipated
purchasing.

Foreign  Currency  Hedging  Strategies--Special  Considerations.  A Fund may use
options and futures contracts on foreign  currencies,  as mentioned  previously,
and forward currency contracts,  as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are  denominated  or, in  certain  circumstances,  for  investment  (E.G.,  as a
substitute  for  investing  in  securities  denominated  in  foreign  currency).
Currency  hedges can protect  against price  movements in a security that a Fund
owns or intends to acquire that are  attributable to changes in the value of the
currency in which it is denominated.

A Fund might seek to hedge against changes in the value of a particular currency
when no Financial  Instruments  on that currency are available or such Financial
Instruments are more expensive than certain other Financial Instruments. In such
cases,  a Fund may seek to hedge  against  price  movements in that  currency by
entering into transactions using Financial  Instruments on another currency or a
basket of currencies,  the value of which the adviser  believes will have a high
degree of positive  correlation to the value of the currency  being hedged.  The
risk that movements in the price of the Financial  Instrument will not correlate
perfectly  with  movements in the price of the  currency  subject to the hedging
transaction may be increased when this strategy is used.

The value of Financial Instruments on foreign currencies depends on the value of
the underlying  currency  relative to the U.S. dollar.  Because foreign currency
transactions  occurring  in the  interbank  market might  involve  substantially


<PAGE>

larger amounts than those involved in the use of such Financial  Instruments,  a
Fund could be disadvantaged  by having to deal in the odd-lot market  (generally
consisting of transactions  of less than $1 million) for the underlying  foreign
currencies at prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market  sources  be firm or  revised on a timely  basis.  Quotation  information
generally is representative  of very large  transactions in the interbank market
and thus  might not  reflect  odd-lot  transactions  where  rates  might be less
favorable.   The   interbank   market  in  foreign   currencies   is  a  global,
round-the-clock  market.  To the extent the U.S.  options or futures markets are
closed while the markets for the underlying currencies remain open,  significant
price and rate movements might take place in the underlying  markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.

Settlement  of  hedging  transactions  involving  foreign  currencies  might  be
required to take place within the country issuing the underlying currency. Thus,
a Fund might be required to accept or make  delivery of the  underlying  foreign
currency  in  accordance  with any U.S.  or foreign  regulations  regarding  the
maintenance  of foreign  banking  arrangements  by U.S.  residents  and might be
required  to pay any  fees,  taxes and  charges  associated  with such  delivery
assessed in the issuing country.

Forward Currency  Contracts and Foreign Currency  Deposits.  The Funds may enter
into forward  currency  contracts to purchase or sell foreign  currencies  for a
fixed amount of U.S.  dollars or another foreign  currency.  A forward  currency
contract  involves an  obligation  to purchase or sell a specific  currency at a
future  date,  which may be any fixed number of days (term) from the date of the
forward currency contract agreed upon by the parties, at a price set at the time
the forward  currency  contract  is  entered.  Forward  currency  contracts  are
negotiated  directly between  currency traders (usually large commercial  banks)
and their customers.

Such transactions may serve as long or anticipatory  hedges. For example, a Fund
may purchase a forward  currency  contract to lock in the U.S. dollar price of a
security  denominated  in a foreign  currency  that the Fund intends to acquire.
Forward currency  contracts may also serve as short hedges.  For example, a Fund
may sell a forward  currency  contract to lock in the U.S. dollar  equivalent of
the proceeds from the  anticipated  sale of a security or a dividend or interest
payment denominated in a foreign currency.

The Funds may also use forward currency  contracts to hedge against a decline in
the value of existing investments  denominated in foreign currency. Such a hedge
would tend to offset both positive and negative currency fluctuations, but would
not offset changes in security values caused by other factors. A Fund could also
hedge the position by entering into a forward currency  contract to sell another
currency  expected  to perform  similarly  to the  currency  in which the Fund's
existing investments are denominated.  This type of hedge could offer advantages
in terms of cost,  yield or efficiency,  but may not hedge currency  exposure as
effectively  as a simple  hedge  against  U.S.  dollars.  This type of hedge may
result in losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.


<PAGE>

The Funds may also use forward currency contracts in one currency or a basket of
currencies to attempt to hedge against  fluctuations  in the value of securities
denominated in a different  currency if the adviser  anticipates that there will
be a positive correlation between the two currencies.

The cost to a Fund of engaging in forward currency contracts varies with factors
such as the currency involved,  the length of the contract period and the market
conditions  then  prevailing.  Because  forward  currency  contracts are usually
entered into on a principal  basis, no fees or commissions are involved.  When a
Fund enters into a forward currency  contract,  it relies on the counterparty to
make  or  take  delivery  of the  underlying  currency  at the  maturity  of the
contract.  Failure by the counterparty to do so would result in the loss of some
or all of any expected benefit of the transaction.

As is the case  with  futures  contracts,  purchasers  and  sellers  of  forward
currency  contracts can enter into offsetting closing  transactions,  similar to
closing   transactions   on  futures   contracts,   by  selling  or  purchasing,
respectively,  an  instrument  identical  to the  instrument  purchased or sold.
Secondary  markets generally do not exist for forward currency  contracts,  with
the result that closing transactions  generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no  assurance  that a Fund will in fact be able to close out a forward  currency
contract at a favorable  price prior to maturity.  In addition,  in the event of
insolvency of the counterparty,  the Fund might be unable to close out a forward
currency  contract.  In either event,  the Fund would  continue to be subject to
market risk with respect to the position,  and would  continue to be required to
maintain a position in  securities  denominated  in the  foreign  currency or to
segregate cash or liquid assets.

The precise matching of forward  currency  contract amounts and the value of the
securities,  dividends  or  interest  payments  involved  generally  will not be
possible because the value of such securities,  dividends or interest  payments,
measured  in the  foreign  currency,  will  change  after the  forward  currency
contract  has been  established.  Thus,  a Fund might need to  purchase  or sell
foreign  currencies  in the  spot  (cash)  market  to the  extent  such  foreign
currencies  are not covered by forward  currency  contracts.  The  projection of
short-term currency market movements is extremely difficult,  and the successful
execution of a short-term hedging strategy is highly uncertain.

Forward currency contracts may substantially change a Fund's investment exposure
to changes in currency  exchange rates and could result in losses to the Fund if
currencies do not perform as the adviser anticipates. There is no assurance that
the adviser's use of forward  currency  contracts will be advantageous to a Fund
or that it will hedge at an appropriate time.

The Funds may also  purchase  and sell  foreign  currency  and invest in foreign
currency deposits.  Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.

Combined  Positions.  A Fund may  purchase  and  write  options  or  futures  in
combination  with each other, or in combination with futures or forward currency
contracts,  to  manage  the  risk  and  return  characteristics  of its  overall
position.  For example, a Fund may purchase a put option and write a call option
on the same  underlying  instrument,  in order to construct a combined  position
whose risk and return characteristics are similar to selling a futures contract.


<PAGE>

Another  possible  combined  position would involve writing a call option at one
strike price and buying a call option at a lower  price,  in order to reduce the
risk of the written call option in the event of a  substantial  price  increase.
Because combined  options  positions  involve  multiple  trades,  they result in
higher transaction costs.

Turnover.  The Funds'  options and futures  activities may affect their turnover
rates and brokerage commission  payments.  The exercise of calls or puts written
by a Fund, and the sale or purchase of futures  contracts,  may cause it to sell
or purchase related investments,  thus increasing its turnover rate. Once a Fund
has received an exercise notice on an option it has written,  it cannot effect a
closing  transaction in order to terminate its  obligation  under the option and
must deliver or receive the  underlying  securities at the exercise  price.  The
exercise  of puts  purchased  by a Fund  may  also  cause  the  sale of  related
investments,  increasing  turnover.  Although such exercise is within the Fund's
control, holding a protective put might cause it to sell the related investments
for  reasons  that would not exist in the  absence of the put. A Fund will pay a
brokerage  commission  each time it buys or sells a put or call or  purchases or
sells a futures  contract.  Such commissions may be higher than those that would
apply to direct purchases or sales.

Swaps,  Caps, Floors and Collars.  The Funds are authorized to enter into swaps,
caps,  floors and collars.  Swaps involve the exchange by one party with another
party of their  respective  commitments  to pay or receive cash flows,  E.G., an
exchange of floating  rate payments for fixed rate  payments.  The purchase of a
cap or a floor  entitles  the  purchaser,  to the extent that a specified  index
exceeds  in the  case  of a cap,  or  falls  below  in the  case of a  floor,  a
predetermined value, to receive payments on a notional principal amount from the
party selling such  instrument.  A collar combines  elements of buying a cap and
selling a floor.

ILLIQUID  SECURITIES -- Securities  which do not trade on stock  exchanges or in
the over the counter  market,  or have  restrictions on when and how they may be
sold, are generally  considered to be  "illiquid."  An illiquid  security is one
that a Fund may have  difficulty  -- or may even be  legally  precluded  from --
selling at any  particular  time.  The Funds may invest in illiquid  securities,
including  restricted  securities  and other  investments  which are not readily
marketable.  A Fund will not  purchase any such  security if the purchase  would
cause the Fund to invest more than 15% of its net  assets,  measured at the time
of purchase, in illiquid securities. Repurchase agreements maturing in more than
seven days are considered illiquid for purposes of this restriction.

The  principal  risk of investing in illiquid  securities  is that a Fund may be
unable to  dispose  of them at the time  desired or at a  reasonable  price.  In
addition,  in order to resell a restricted  security,  a Fund might have to bear
the expense and incur the delays  associated with  registering the security with
the SEC, and otherwise obtaining listing on a securities exchange or in the over
the counter market.

INVESTMENT COMPANY SECURITIES -- To manage their daily cash positions, the Funds
may invest in securities  issued by other  investment  companies  that invest in
short-term  debt  securities and seek to maintain a net asset value of $1.00 per
share ("money market  funds").  The Funds also may invest in SPDRs and shares of
other  investment  companies.  SPDRs are investment  companies whose  portfolios
mirror the compositions of specific S&P indices, such as the S&P 500 and the S&P
400.  SPDRs are traded on the American  Stock  Exchange.  SPDR holders such as a


<PAGE>

Fund are paid a "Dividend  Equivalent  Amount" that corresponds to the amount of
cash dividends accruing to the securities held by the SPDR Trust, net of certain
fees and expenses.  The  Investment  Company Act of 1940 limits  investments  in
securities  of  other  investment  companies,  such  as the  SPDR  Trust.  These
limitations include, among others, that, subject to certain exceptions,  no more
than 10% of a  Fund's  total  assets  may be  invested  in  securities  of other
investment  companies and no more than 5% of its total assets may be invested in
the  securities  of any one  investment  company.  As a  shareholder  of another
investment  company,  a Fund  would  bear  its pro  rata  portion  of the  other
investment  company's  expenses,  including  advisory  fees,  in addition to the
expenses the Fund bears directly in connection with its own operations.

MUNICIPAL  OBLIGATIONS -- Municipal debt securities  including  municipal bonds,
notes and commercial paper. It is a policy of the Tax-Free Bond Fund that, under
normal market  conditions,  it will have at least 80% of its net assets invested
in municipal  obligations  that,  based on the opinion of counsel to the issuer,
pay interest free from federal income tax. It is the Fund's present intention to
invest  its  assets  so that  substantially  all of its  annual  income  will be
tax-exempt.  The Fund may invest in municipal  obligations whose interest income
may be specially treated as a tax preference item under the alternative  minimum
tax ("AMT").  Securities  that generate income that is a tax preference item may
not be counted towards the 80% tax exempt threshold described above.  Tax-exempt
income may result in an indirect tax preference item for corporations, which may
subject an investor  to  liability  under the AMT  depending  on its  particular
situation. Tax-Free Bond Fund, however, will not invest more than 20% of its net
assets in  obligations  the interest from which gives rise to a preference  item
for the purpose of the AMT and in other  investments  subject to federal  income
tax.  Distributions  from this Fund may be subject to state and local taxes. The
other Funds may invest in municipal obligations,  but under normal circumstances
do not intend to make significant investment in these securities.

The Funds may invest in the following types of municipal obligations:

        Municipal Bonds -- Municipal bonds are classified as general  obligation
        or revenue bonds.  General obligations bonds are secured by the issuer's
        pledge of its full  faith,  credit and  unlimited  taxing  power for the
        payment of principal and  interest.  Revenue bonds are payable only from
        the revenues generated by a particular facility or class of facility, or
        in some  cases from the  proceeds  of a special  excise tax or  specific
        revenue source. Industrial development obligations are a particular kind
        of municipal bond which are issued by or on behalf of public authorities
        to obtain funds for many kinds of local,  privately operated facilities.
        Such  obligations  are, in most cases,  revenue bonds that generally are
        secured by a lease with a particular private corporation.

        Municipal  Notes --  Municipal  notes are  short-term  debt  obligations
        issued by  municipalities  which normally have a maturity at the time of
        issuance  of  six  months  to  three  years.   Such  notes  include  tax
        anticipation notes, bond anticipation notes,  revenue anticipation notes
        and project notes.  Notes sold in anticipation of collection of taxes, a
        bond sale or receipt of other  revenues are normally  obligations of the
        issuing municipality or agency.

        Municipal  Commercial Paper -- Municipal  commercial paper is short-term
        debt  obligations  issued  by  municipalities  which  may be issued at a


<PAGE>

        discount  (sometimes  referred to as Short-Term  Discount Notes).  These
        obligations  are  issued to meet  seasonal  working  capital  needs of a
        municipality  or  interim  construction  financing  and are paid  from a
        municipality's  general  revenues or  refinanced  with  long-term  debt.
        Although  the  availability  of  municipal  commercial  paper  has  been
        limited,  from time to time the amounts of such debt obligations offered
        have increased, and INVESCO believes that this increase may continue.

        Variable  Rate  Obligations  -- The interest  rate payable on a variable
        rate municipal  obligation is adjusted either at predetermined  periodic
        intervals  or whenever  there is a change in the market rate of interest
        upon  which  the  interest  rate  payable  is  based.  A  variable  rate
        obligation may include a demand feature pursuant to which the Fund would
        have the  right to  demand  prepayment  of the  principal  amount of the
        obligation prior to its stated maturity. The issuer of the variable rate
        obligation may retain the right to prepay the principal  amount prior to
        maturity.

Municipal obligations purchased by a Fund must be rated by at least two NRSROs -
generally S&P and Moody's - in the highest rating category (AAA, AA, A or BBB by
S&P or Aaa,  Aa, A or Baa by  Moody's),  or by one NRSRO in the  highest  rating
category if such  obligations  are rated by only one NRSRO.  No more than 10% of
Tax-Free Bond Fund's total assets may be invested in junk bonds. Never under any
circumstances  will  Tax-Free Bond Fund invest in bonds which are rated below B-
or B by S&P or Moody's,  respectively.  Municipal notes or municipal  commercial
paper must be rated in the two highest rating categories by at least two NRSROs,
or where the note or paper is rated only by one NRSRO, in the two highest rating
categories by that NRSRO. If a security is unrated,  the Fund may invest in such
security if INVESCO  determines,  in an analysis  similar to that  performed  by
Moody's or S&P in rating similar  securities  and issuers,  that the security is
comparable  to that  eligible  for  investment  by the Fund.  After the Fund has
purchased an issue of municipal obligations,  such issue might cease to be rated
or its rating might be reduced  below the minimum  required for  purchase.  If a
security  originally  rated in the highest  rating  category by a NRSRO has been
downgraded to the second highest rating  category,  INVESCO must assess promptly
whether the security presents minimal credit risk and must take such action with
respect to the security as it determines to be in the best interest of the Fund.
If a security is downgraded  below the second highest rating of an NRSRO,  is in
default,  or no longer  presents a minimal  credit risk,  the  security  must be
disposed of either within five business  days of INVESCO  becoming  aware of the
new rating, the default or the credit risk, or as soon as practicable consistent
with achieving an orderly disposition of the security, whichever is the first to
occur,  unless the  executive  committee  of the  Company's  board of  directors
determines  within the aforesaid five business days that holding the security is
in the best interest of a Fund.

REITS -- Real  Estate  Investment  Trusts  are  investment  trusts  that  invest
primarily  in real estate and  securities  of  businesses  connected to the real
estate industry.

REPURCHASE AGREEMENTS -- A Fund may enter into repurchase agreements,  or REPOs,
on debt securities that the Fund is allowed to hold in its portfolio.  This is a
way to invest money for short  periods.  A REPO is an agreement  under which the
Fund  acquires  a  debt  security  and  then  resells  it to  the  seller  at an
agreed-upon  price and date  (normally,  the next business  day). The repurchase

<PAGE>

price  represents  an  interest  rate  effective  for the short  period the debt
security  is held by the Fund,  and is  unrelated  to the  interest  rate on the
underlying debt security.  A repurchase  agreement is often considered as a loan
collateralized  by securities.  The collateral  securities  acquired by the Fund
(including accrued interest earned thereon) must have a total value in excess of
the value of the repurchase agreement. The collateral securities are held by the
Fund's custodian bank until the repurchase agreement is completed.

The Funds may enter into repurchase agreements with commercial banks, registered
broker-dealers or registered government securities dealers that are creditworthy
under standards  established by the Company's board of directors.  The Company's
board of directors has  established  standards that the investment  adviser must
use to review the creditworthiness of any bank, broker or dealer that is a party
to a REPO.  REPOs  maturing  in more than  seven  days are  considered  illiquid
securities.  A Fund will not enter into repurchase  agreements  maturing in more
than seven days if as a result  more than 15% of the Fund's net assets  would be
invested in these repurchase agreements and other illiquid securities.

As noted  above,  the  Funds use  REPOs as a means of  investing  cash for short
periods  of  time.  Although  REPOs  are  considered  to be  highly  liquid  and
comparatively  low-risk,  the use of REPOs does involve some risks. For example,
if the other party to the agreement defaults on its obligation to repurchase the
underlying  security at a time when the value of the security has declined,  the
Fund may incur a loss on the sale of the collateral security. If the other party
to the agreement  becomes insolvent and subject to liquidation or reorganization
under  the  Bankruptcy  Code or  other  laws,  a court  may  determine  that the
underlying  security is collateral for a loan by the Fund not within the control
of the Fund and therefore the  realization  by the Fund on such  collateral  may
automatically be stayed.  Finally,  it is possible that the Fund may not be able
to  substantiate  its interest in the  underlying  security and may be deemed an
unsecured creditor of the other party to the agreement.

RULE 144A  SECURITIES -- A Fund also may invest in securities that can be resold
to  institutional  investors  pursuant to Rule 144A under the  Securities Act of
1933, as amended (the "1933 Act"). In recent years, a large institutional market
has developed for many Rule 144A Securities.  Institutional  investors generally
cannot sell these securities to the general public but instead will often depend
on an efficient  institutional  market in which Rule 144A Securities can readily
be resold to other institutional investors, or on an issuer's ability to honor a
demand for repayment.  Therefore,  the fact that there are  contractual or legal
restrictions  on resale to the general public or certain  institutions  does not
necessarily  mean that a Rule 144A Security is illiquid.  Institutional  markets
for Rule 144A  Securities may provide both reliable  market values for Rule 144A
Securities and enable a Fund to sell a Rule 144A  investment  when  appropriate.
For this reason,  the  Company's  board of  directors  has  concluded  that if a
sufficient  institutional  trading market exists for a given Rule 144A security,
it may be  considered  "liquid,"  and not  subject  to a Fund's  limitations  on
investment in restricted securities.  The Company's board of directors has given
INVESCO  the  day-to-day  authority  to  determine  the  liquidity  of Rule 144A
Securities, according to guidelines approved by the board. The principal risk of
investing in Rule 144A Securities is that there may be an insufficient number of
qualified  institutional  buyers  interested  in purchasing a Rule 144A Security
held by a Fund,  and the Fund  might  be  unable  to  dispose  of such  security
promptly or at reasonable prices.


<PAGE>

SECURITIES LENDING -- Each Fund may lend its portfolio securities. The advantage
of lending  portfolio  securities is that a Fund  continues to have the benefits
(and  risks)  of  ownership  of the  loaned  securities,  while at the same time
receiving  interest  from the  borrower of the  securities.  The primary risk in
lending  portfolio  securities is that a borrower may fail to return a portfolio
security.

TEMPORARY  INVESTMENTS  (TAX-FREE BOND FUND ONLY) -- Tax-Free Bond Fund may from
time to time invest a portion of its assets on a temporary  basis in  "temporary
investments,"  the income from which may be subject to federal income tax. These
investments include AMT Bonds, short-term or taxable securities (the income from
which may be subject to federal  income  tax),  junk bonds and cash.  Short-term
taxable investments normally will consist of notes having quality ratings within
the two highest grades of Moody's,  S&P,  Fitch or D&P;  obligations of the U.S.
government,  its agencies or instrumentalities;  commercial paper rated at least
P-2 by Moody's and A-2 by S&P;  certificates of deposit of U.S.  domestic banks,
including foreign branches of domestic banks, with assets of $1 billion or more;
time deposits,  bankers  acceptances and other short-term bank obligations;  and
repurchase  agreements.  Temporary taxable  investment  normally will consist of
corporate bonds and other debt  obligations.  Any net interest income on taxable
temporary  investments  will be taxable to  shareholders as ordinary income when
distributed.

U.S.  GOVERNMENT  SECURITIES -- Each Fund may, from time to time,  purchase debt
securities  issued by the U.S.  government.  These  securities  include Treasury
bills,  notes and bonds.  Treasury  bills  have a maturity  of one year or less,
Treasury notes generally have a maturity of one to ten years, and Treasury bonds
generally have maturities of more than ten years.

U.S.  government debt securities also include securities issued or guaranteed by
agencies or instrumentalities  of the U.S. government.  Some obligations of U.S.
government  agencies,  which are  established  under the  authority of an act of
Congress,   such  as   Government   National   Mortgage   Association   ("GNMA")
participation  certificates,  are  supported by the full faith and credit of the
U.S. Treasury.  GNMA Certificates are  mortgage-backed  securities  representing
part  ownership  of a pool of mortgage  loans.  These loans -- issued by lenders
such as mortgage bankers,  commercial banks and savings and loan associations --
are either insured by the Federal  Housing  Administration  or guaranteed by the
Veterans  Administration.  A "pool" or group of such mortgages is assembled and,
after  being  approved  by GNMA,  is offered  to  investors  through  securities
dealers.  Once approved by GNMA, the timely payment of interest and principal on
each  mortgage is  guaranteed by GNMA and backed by the full faith and credit of
the U.S.  government.  The market value of GNMA  Certificates is not guaranteed.
GNMA  Certificates  are  different  from bonds  because  principal  is paid back
monthly by the borrower over the term of the loan rather than returned in a lump
sum at  maturity,  as is the case  with a bond.  GNMA  Certificates  are  called
"pass-through"   securities   because  both  interest  and  principal   payments
(including   prepayments)   are  passed  through  to  the  holder  of  the  GNMA
Certificate.

Other United  States  government  debt  securities,  such as  securities  of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury.  Others, such as bonds issued by Fannie Mae, a federally chartered
private corporation, are supported only by the credit of the corporation. In the
case of securities not backed by the full faith and credit of the United States,
a Fund  must  look  principally  to  the  agency  issuing  or  guaranteeing  the
obligation  in the  event  the  agency  or  instrumentality  does  not  meet its


<PAGE>

commitments.  A Fund will invest in  securities of such  instrumentalities  only
when  INVESCO  is  satisfied  that the  credit  risk  with  respect  to any such
instrumentality is comparatively minimal.

WHEN-ISSUED/DELAYED DELIVERY -- Ordinarily, the Funds buy and sell securities on
an ordinary settlement basis. That means that the buy or sell order is sent, and
a Fund actually takes  delivery or gives up physical  possession of the security
on the "settlement date," which is three business days later. However, the Funds
also may purchase  and sell  securities  on a  when-issued  or delayed  delivery
basis.

When-issued or delayed delivery transactions occur when securities are purchased
or sold by a Fund and payment and delivery take place at an agreed-upon  time in
the  future.  The Funds may  engage in this  practice  in an effort to secure an
advantageous  price  and  yield.  However,  the yield on a  comparable  security
available  when  delivery  actually  takes  place may vary from the yield on the
security at the time the when-issued or delayed delivery transaction was entered
into. When a Fund engages in when-issued and delayed delivery  transactions,  it
relies on the seller or buyer to consummate  the sale at the future date. If the
seller or buyer fails to act as  promised,  that  failure may result in the Fund
missing  the  opportunity  of  obtaining  a  price  or  yield  considered  to be
advantageous.  No  payment  or  delivery  is made by a Fund  until  it  receives
delivery  or  payment  from  the  other  party  to  the  transaction.   However,
fluctuation  in the  value of the  security  from the time of  commitment  until
delivery could adversely affect a Fund.

INVESTMENT RESTRICTIONS

The Funds  operate under certain  investment  restrictions.  For purposes of the
following  restrictions,  all percentage  limitations  apply immediately after a
purchase or initial investment. Any subsequent change in a particular percentage
resulting  from  fluctuations  in value  does  not  require  elimination  of any
security from a Fund.

The following  restrictions are fundamental and may not be changed without prior
approval  of a majority  of the  outstanding  voting  securities  of a Fund,  as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Each
Fund may not:

        1. purchase the securities of any issuer (other than  securities  issued
        or  guaranteed  by  the  U.S.  government  or any  of  its  agencies  or
        instrumentalities  or municipal  securities) if, as a result,  more than
        25% of the Fund's total assets  would be invested in the  securities  of
        companies whose principal business activities are in the same industry;

        2.  with  respect  to 75% of  the  Fund's  total  assets,  purchase  the
        securities of any issuer (other than securities  issued or guaranteed by
        the U.S.  government  or any of its  agencies or  instrumentalities,  or
        securities of other investment companies) if, as a result, (i) more than
        5% of a Fund's total assets would be invested in the  securities of that
        issuer,  or (ii) a Fund  would  hold  more  than 10% of the  outstanding
        voting securities of that issuer;

        3. underwrite  securities of other issuers,  except insofar as it may be
        deemed  to be an  underwriter  under  the  Securities  Act of  1933,  as


<PAGE>

        amended,  in connection  with the  disposition  of the Fund's  portfolio
        securities;

        4. borrow money,  except that the Fund may borrow money in an amount not
        exceeding 33 1/3% of its total assets  (including  the amount  borrowed)
        less liabilities (other than borrowings);

        5. issue senior securities, except as permitted under the 1940 Act;

        6. lend any security or make any loan if, as a result, more than 33 1/3%
        of its total assets would be lent to other parties,  but this limitation
        does not  apply to the  purchase  of debt  securities  or to  repurchase
        agreements;

        7. purchase or sell physical commodities; however, this policy shall not
        prevent the Fund from purchasing and selling foreign  currency,  futures
        contracts,  options, forward contracts, swaps, caps, floors, collars and
        other financial instruments; or

        8. purchase or sell real estate unless acquired as a result of ownership
        of securities or other  instruments (but this shall not prevent the Fund
        from investing in securities or other instruments  backed by real estate
        or securities of companies engaged in the real estate business).

        9. Each  Fund may,  notwithstanding  any  other  fundamental  investment
        policy or  limitation,  invest all of its assets in the  securities of a
        single open-end  management  investment company managed by INVESCO or an
        affiliate  or  a  successor   thereof,   with   substantially  the  same
        fundamental investment objective, policies and limitations as the Fund.

In addition, each Fund has the following  non-fundamental policies, which may be
changed without shareholder approval:

        A. The Fund may not sell  securities  short  (unless  it owns or has the
        right  to  obtain  securities  equivalent  in  kind  and  amount  to the
        securities sold short) or purchase securities on margin, except that (i)
        this policy does not prevent the Fund from entering into short positions
        in foreign currency,  futures  contracts,  options,  forward  contracts,
        swaps, caps, floors, collars and other financial  instruments,  (ii) the
        Fund  may  obtain  such  short-term  credits  as are  necessary  for the
        clearance of  transactions,  and (iii) the Fund may make margin payments
        in connection with futures contracts, options, forward contracts, swaps,
        caps, floors, collars and other financial instruments.

        B.  The Fund  may  borrow  money  only  from a bank or from an  open-end
        management  investment  company  managed by INVESCO or an affiliate or a
        successor   thereof  for  temporary  or  emergency   purposes  (not  for
        leveraging or investing) or by engaging in reverse repurchase agreements
        with  any  party  (reverse  repurchase  agreements  will be  treated  as
        borrowings for purposes of fundamental limitation (4)).

        C. The Fund does not currently  intend to purchase any security if, as a
        result,  more than 15% of its net assets would be invested in securities


<PAGE>

        that are  deemed to be  illiquid  because  they are  subject to legal or
        contractual  restrictions  on resale or because  they  cannot be sold or
        disposed of in the  ordinary  course of business  at  approximately  the
        prices at which they are valued.

        D.  The  Fund may  invest  in  securities  issued  by  other  investment
        companies to the extent that such  investments  are consistent  with the
        Fund's investment  objective and policies and permissible under the 1940
        Act.

        E. With  respect to  fundamental  limitation  (1),  domestic and foreign
        banking will be considered to be different industries.

In addition,  with  respect to a Fund that may invest in municipal  obligations,
the  following  non-fundamental  policy  applies,  which may be changed  without
shareholder approval:

        Each state  (including  the  District  of  Columbia  and  Puerto  Rico),
        territory  and   possession  of  the  United   States,   each  political
        subdivision,  agency,  instrumentality  and authority thereof,  and each
        multi-state  agency of which a state is a member is a separate "issuer."
        When the assets and revenues of an agency, authority, instrumentality or
        other political  subdivision  are separate from the government  creating
        the  subdivision  and the security is backed only by assets and revenues
        of the  subdivision,  such  subdivision  would be  deemed to be the sole
        issuer.  Similarly,  in the case of an  Industrial  Development  Bond or
        Private  Activity  bond,  if that bond is backed  only by the assets and
        revenues of the non-governmental  user, then that  non-governmental user
        would  be  deemed  to be the  sole  issuer.  However,  if  the  creating
        government or another entity  guarantees a security,  then to the extent
        that the value of all securities issued or guaranteed by that government
        or entity and owned by a Fund  exceeds 10% of the Fund's  total  assets,
        the  guarantee  would be  considered  a separate  security  and would be
        treated as issued by that government or entity.

Following  is  a  chart   outlining   some  of  the   limitations   pursuant  to
non-fundamental  investment  policies  set  by the  board  of  directors.  These
non-fundamental  policies  may be  changed  by the  board of  directors  without
shareholder approval:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                                  SELECT        TAX-FREE      U.S. GOVERNMENT
INVESTMENT                   HIGH YIELD           INCOME        BOND          SECURITIES
---------------------------------------------------------------------------------------------
<S>                          <C>                  <C>           <C>           <C>
FOREIGN DEBT SECURITIES      Up to 25%            Up to 25%
---------------------------------------------------------------------------------------------
DEBT SECURITIES                                   Normally,
     Corporate Debt                               90%
---------------------------------------------------------------------------------------------
     Those maturing at       At least 65%         At least 65%                At least 65%
     least three years
     after issuance
---------------------------------------------------------------------------------------------
     Investment Grade                             At least 50%
---------------------------------------------------------------------------------------------


<PAGE>

---------------------------------------------------------------------------------------------
        Junk Bonds           Primarily, but       Up to 50%     Up to 10%
                             never below
                             Caa by Moody's
                             or ccc by S&P
---------------------------------------------------------------------------------------------
TEMPORARY TAXABLE                                 Up to 30%
---------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS                                                   At least 65%
---------------------------------------------------------------------------------------------
</TABLE>


MANAGEMENT OF THE FUNDS

THE INVESTMENT ADVISER

INVESCO,  located at 7800 East Union Avenue, Denver,  Colorado, is the Company's
investment  adviser.  INVESCO  was  founded in 1932 and serves as an  investment
adviser to:

        INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
        INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO
        Flexible Funds, Inc.)
        IINVESCO International Funds, Inc.
        INVESCO Money Market Funds, Inc.
        INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic
        Portfolios, Inc.)
        INVESCO Specialty Funds, Inc.
        INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
        INVESCO Treasurer's Series Funds, Inc. (formerly, INVESCO
        Treasurer's Series Trust)
        INVESCO Variable Investment Funds, Inc.

As of August 31, 1999, INVESCO managed 42 mutual funds having combined assets of
$____ billion, on behalf of more than ________ shareholders.

INVESCO is an indirect  wholly  owned  subsidiary  of  AMVESCAP  PLC, a publicly
traded holding company.  Through its  subsidiaries,  AMVESCAP PLC engages in the
business of investment management on an international basis. AMVESCAP PLC is one
of the largest independent  investment  management businesses in the world, with
approximately $296 billion in assets under management on June 30, 1999.

AMVESCAP PLC's North American subsidiaries include:

        INVESCO  Retirement  and  Benefit  Services,  Inc.  ("IRBS"),   Atlanta,
     Georgia,   develops  and  provides  domestic  and   international   defined
     contribution  retirement  plan  services  to plan  sponsors,  institutional
     retirement  plan  sponsors,   institutional   plan  providers  and  foreign
     governments.

        INVESCO Retirement Plan Services ("IRPS"),  Atlanta, Georgia, a division
     of IRBS,  provides  recordkeeping  and  investment  selection  services  to


<PAGE>

     defined  contribution  plan  sponsors of plans with  between $2 million and
     $200 million in assets.  Additionally,  IRPS provides investment consulting
     services to  institutions  seeking to provide  retirement plan products and
     services.

        Institutional  Trust  Company,  doing  business as INVESCO Trust Company
     ("ITC"),  Denver, Colorado, a division of IRBS, provides retirement account
     custodian and/or trust services for individual retirement accounts ("IRAs")
     and  other  retirement  plan  accounts.  This  includes  services  such  as
     recordkeeping,  tax  reporting  and  compliance.  ITC  acts as  trustee  or
     custodian to these plans. ITC accepts  contributions and provides,  through
     INVESCO,    complete    transfer    agency    functions:    correspondence,
     sub-accounting, telephone communications and processing of distributions.

        INVESCO   Capital   Management,    Inc.,   Atlanta,   Georgia,   manages
     institutional investment portfolios,  consisting primarily of discretionary
     employee benefit plans for  corporations  and state and local  governments,
     and endowment funds.

        INVESCO Management & Research,  Inc., Boston,  Massachusetts,  primarily
     manages pension and endowment accounts.

        PRIMCO Capital Management,  Inc., Louisville,  Kentucky,  specializes in
     managing stable return investments, principally on behalf of Section 401(k)
     retirement plans.

        INVESCO  Realty  Advisors,  Inc.,  Dallas,  Texas,  is  responsible  for
     providing  advisory  services in the U.S. real estate  markets for AMVESCAP
     PLC's clients worldwide. Clients include corporate pension plans and public
     pension funds as well as endowment and foundation accounts.

        INVESCO (NY),  Inc.,  New York, is an investment  adviser for separately
     managed   accounts,   such  as  corporate  and  municipal   pension  plans,
     Taft-Hartley  Plans,  insurance  companies,   charitable  institutions  and
     private individuals. INVESCO  NY further  serves as investment adviser  to
     several  closed-end  investment companies, and as sub-adviser with respect
     to certain commingled  employee benefit trusts.

        A I M Advisors,  Inc., Houston,  Texas, provides investment advisory and
     administrative services for retail and institutional mutual funds.

        A I M Capital  Management,  Inc.,  Houston,  Texas,  provides investment
     advisory  services to  individuals,  corporations,  pension plans and other
     private  investment  advisory  accounts and also serves as a sub-adviser to
     certain retail and institutional mutual funds, one Canadian mutual fund and
     one portfolio of an open-end registered  investment company that is offered
     to separate accounts of variable insurance companies.

        A I M Distributors,  Inc. and Fund Management Company,  Houston,  Texas,
     are registered  broker-dealers  that act as the principal  underwriters for
     retail and institutional mutual funds.


<PAGE>

The corporate  headquarters of AMVESCAP PLC are located at 11 Devonshire Square,
London, EC2M4YR, England.

THE INVESTMENT ADVISORY AGREEMENT

INVESCO serves as investment  adviser to the Funds under an investment  advisory
agreement dated February 28, 1997 (the "Agreement") with the Company.

The Agreement requires that INVESCO manage the investment portfolio of each Fund
in a way that conforms with the Fund's investment policies. INVESCO may directly
manage a Fund itself,  or may hire a  sub-adviser,  which may be an affiliate of
INVESCO, to do so. Specifically, INVESCO is responsible for:

     o    managing  the  investment  and  reinvestment  of all the assets of the
          Funds, and executing all purchases and sales of portfolio securities;

     o    maintaining a continuous investment program for the Funds,  consistent
          with (i) each Fund's investment policies as set forth in the Company's
          Articles of Incorporation,  Bylaws and Registration Statement, as from
          time to time amended, under the 1940 Act, and in any prospectus and/or
          statement of additional information of the Funds, as from time to time
          amended and in use under the 1933 Act, and (ii) the  Company's  status
          as a regulated  investment  company under the Internal Revenue Code of
          1986, as amended;

     o    determining what securities are to be purchased or sold for the Funds,
          unless  otherwise  directed  by  the  directors  of the  Company,  and
          executing transactions accordingly;

     o    providing the Funds the benefit of all of the investment  analysis and
          research,  the reviews of current economic  conditions and trends, and
          the  consideration of a long-range  investment policy now or hereafter
          generally  available  to  the  investment  advisory  customers  of the
          adviser or any sub-adviser;

     o    determining  what portion of each Fund's  assets should be invested in
          the various types of securities  authorized  for purchase by the Fund;
          and

     o    making recommendations as to the manner in which voting rights, rights
          to consent to Fund action and any other rights  pertaining to a Fund's
          portfolio securities shall be exercised.

INVESCO also performs all of the following services for the Funds:

     o    administrative

     o    internal accounting (including computation of net asset value)

     o    clerical and statistical


<PAGE>

     o    secretarial

     o    all other services  necessary or incidental to the  administration  of
          the affairs of the Funds

     o    supplying  the  Company  with  officers,   clerical  staff  and  other
          employees

     o    furnishing  office  space,   facilities,   equipment,   and  supplies;
          providing  personnel and  facilities  required to respond to inquiries
          related to shareholder accounts

     o    conducting  periodic  compliance  reviews  of the  Funds'  operations;
          preparation and review of required  documents,  reports and filings by
          INVESCO's  in-house legal and accounting  staff or in conjunction with
          independent  attorneys  and  accountants  (including  the  prospectus,
          statement of additional  information,  proxy  statements,  shareholder
          reports,  tax  returns,  reports  to  the  SEC,  and  other  corporate
          documents of the Funds)

     o    supplying basic telephone service and other utilities

     o    preparing and maintaining certain of the books and records required to
          be prepared and maintained by the Funds under the 1940 Act

Expenses not assumed by INVESCO are borne by the Funds. As full compensation for
its advisory  services to the Company,  INVESCO receives a monthly fee from each
Fund. The fee is calculated at the annual rate of:

High Yield Fund


     o    0.50% on the first $300 million of the Fund's average net assets;

     o    0.40% on the next $200 million of the Fund's average net assets;

     o    0.30% of the Fund's average net assets from $500 million;

Select Income, Tax-Free Bond and U.S. Government Securities Funds

     o    0.55% on the first $300 million of each Fund's average net assets;

     o    0.45% on the next $200 million of each Fund's average net assets; and

     o    0.35% of each Fund's average net assets from $500 million.

During the periods  outlined in the table below, the Funds paid INVESCO advisory
fees in the dollar amounts shown below.  If  applicable,  the advisory fees were
offset by credits in the amounts shown below, so that INVESCO's fees were not in
excess of the  expense  limitations  shown  below,  which have been  voluntarily
agreed to by the Company and INVESCO.


<PAGE>

                             Advisory        Total Expense       Total Expense
                             Fee Dollars     Reimbursements      Limitations
High Yield Fund
August 31, 1999              $               $__________              1.25%
August 31, 1998               2,842,990       __________              1.25%
August 31, 1997               1,964,043       __________              1.25%

Select Income Fund
August 31, 1999              $__________     $__________              1.05%
August 31, 1998               2,023,679       __________              1.05%
August 31, 1997               1,477,302       __________              1.05%

Tax-Free Bond Fund
August 31, 1999(a)           $__________     $__________              0.90%
June 30, 1999                 __________      __________              0.90%
June 30, 1998                 1,195,773       __________              0.90%
June 30, 1997                 1,275,473       __________              0.90%

U.S. Government
  Securities Fund
August 31, 1999              $__________     $__________              1.00%
August 31, 1998               284,609         __________              1.00%
August 31, 1997               312,851         __________              1.00%


(a) From July 1, 1999 to August 31, 1999.

ADMINISTRATIVE SERVICES AGREEMENT

INVESCO,  either  directly or through  affiliated  companies,  provides  certain
administrative, sub-accounting, and recordkeeping services to the Funds pursuant
to an Administrative Services Agreement.

The Administrative  Services Agreement requires INVESCO to provide the following
services to the Funds:

     o    such  sub-accounting  and recordkeeping  services and functions as are
          reasonably necessary for the operation of the Funds; and

     o    such sub-accounting,  recordkeeping,  and administrative  services and
          functions,  which may be provided  by  affiliates  of INVESCO,  as are
          reasonably  necessary for the operation of Fund  shareholder  accounts
          maintained by certain  retirement plans and employee benefit plans for
          the benefit of participants in such plans.

As full  compensation for services  provided under the  Administrative  Services
Agreement,  each Fund pays a monthly fee to INVESCO  consisting of a base fee of
$10,000 per year,  plus an additional  incremental  fee computed  daily and paid
monthly at an annual  rate of 0.015% per year of the  average net assets of each


<PAGE>

Fund prior to May 13,  1999,  and 0.045% per year of the  average  net assets of
each Fund effective May 13, 1999.

TRANSFER AGENCY AGREEMENT

INVESCO also performs  transfer agent,  dividend  disbursing agent and registrar
services for the Funds pursuant to a Transfer Agency Agreement.

The Transfer Agency Agreement  provides that each Fund pay INVESCO an annual fee
of $26.00 per shareholder account,  or, where applicable,  per participant in an
omnibus account.  This fee is paid monthly at the rate of 1/12 of the annual fee
and is based upon the actual number of shareholder  accounts and omnibus account
participants in each Fund at any time during each month.

FEES PAID TO INVESCO

For the periods  outlined in the table below,  the Funds paid the following fees
to INVESCO (prior to the absorption of certain Fund expenses by INVESCO):

HIGH YIELD FUND
                                            Year Ended August 31,
Type of Fee                        1999            1998            1997
-----------                        ----            ----            ----
Advisory                                           $2,842,990      $1,964,043
Administrative Services                               112,212          72,410
Transfer Agency                                       778,174         651,471


SELECT INCOME FUND
                                            Year Ended August 31,
Type of Fee                        1999            1998            1997
-----------                        ----            ----            ----
Advisory                                           $2,023,679      $1,477,302
Administrative Services                                67,475          50,289
Transfer Agency                                       895,360         786,616


<PAGE>

<TABLE>
TAX-FREE BOND FUND
<CAPTION>
                            Period Ended
                            August 31,                 Year Ended August 31,
Type of Fee                 1999(a)               1999            1998            1997
-----------                 -----------------     ----            ----            ----
<S>                         <C>                   <C>             <C>             <C>
Advisory                    $                     $               $1,195,773      $1,275,473
Administrative Services                                               42,612          44,786
Transfer Agency                                                     266,096          317,800
</TABLE>


U.S. GOVERNMENT SECURITIES FUND
                                            Year Ended August 31,
Type of Fee                        1999            1998            1997
-----------                        ----            ----            ----
Advisory                                           $  284,609      $  312,851
Administrative Services                                17,762          18,532
Transfer Agency                                       186,705         178,192

(a) From July 1, 1999 to August 31, 1999.


DIRECTORS AND OFFICERS OF THE COMPANY

The overall  direction  and  supervision  of the Company  come from the board of
directors. The board of directors is responsible for making sure that the Funds'
general investment  policies and programs are carried out and that the Funds are
properly administered.

The board of directors has an audit committee comprised of four of the directors
who are not affiliated with INVESCO (the "Independent Directors"). The committee
meets  quarterly  with the  Company's  independent  accountants  and officers to
review  accounting  principles  used by the  Company,  the  adequacy of internal
controls,  the  responsibilities  and fees of the independent  accountants,  and
other matters.

The Company has a  management  liaison  committee  which  meets  quarterly  with
various   management   personnel  of  INVESCO  in  order  to  facilitate  better
understanding  of management and operations of the Company,  and to review legal
and  operational  matters which have been assigned to the committee by the board
of  directors,  in  furtherance  of the  board  of  directors'  overall  duty of
supervision.

The  Company  has  a  soft  dollar  brokerage  committee.  The  committee  meets
periodically  to review  soft  dollar and other  brokerage  transactions  by the
Funds,  and to review  policies  and  procedures  of  INVESCO  with  respect  to
brokerage  transactions.  It reports on these matters to the Company's  board of
directors.

The Company has a derivatives  committee.  The committee  meets  periodically to
review derivatives  investments made by the Funds. It monitors derivatives usage
by the Funds and the  procedures  utilized  by INVESCO to ensure that the use of
such  instruments  follows  the  policies  on such  instruments  adopted  by the
Company's board of directors. It reports on these matters to the Company's board
of directors.

<PAGE>

The officers of the Company,  all of whom are officers and employees of INVESCO,
are responsible for the day-to-day  administration of the Company and the Funds.
The officers of the Company receive no direct  compensation  from the Company or
the Funds for their services as officers. INVESCO has the primary responsibility
for  making  investment  decisions  on behalf  of the  Funds.  These  investment
decisions are reviewed by the investment committee of INVESCO.

All of the officers and directors of the Company hold comparable  positions with
the following funds,  which, with the Company,  are collectively  referred to as
the "INVESCO Funds":

        INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
        INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO
        Flexible Funds, Inc.)
        INVESCO International Funds, Inc.
        INVESCO Money Market Funds, Inc.
        INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic
        Portfolios, Inc.)
        INVESCO Specialty Funds, Inc.
        INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
        INVESCO Treasurer's Series Funds, Inc. (formerly, INVESCO
        Treasurer's Series Trust)
        INVESCO Variable Investment Funds, Inc.

The table below provides  information about each of the Company's  directors and
officers.  Unless otherwise indicated, the address of the directors and officers
is P.O. Box 173706,  Denver, CO 80217-3706 . Their affiliations  represent their
principal occupations.

<TABLE>
<CAPTION>
                                  Position(s) Held With         Principal Occupation(s)
Name, Address, and Age            Company                       During Past Five Years

<S>                               <C>                           <C>
Charles W. Brady *+               Director and Chairman of      Chairman  of the  Board of  INVESCO
1315 Peachtree St., N.E.          the Board                     Global Health Sciences Fund;  Chief
Atlanta, Georgia Age:  64                                       Executive  Officer and  Director of
                                                                AMVESCAP PLC,  London,  England and
                                                                various  subsidiaries  of  AMVESCAP
                                                                PLC.



<PAGE>

                                  Position(s) Held With         Principal Occupation(s)
Name, Address, and Age            Company                       During Past Five Years

Fred A. Deering +#                Director and Vice             Trustee  of INVESCO  Global  Health
Security Life Center              Chairman of the Board         Sciences Fund;  formerly,  Chairman
1290 Broadway                                                   of  the  Executive   Committee  and
Denver, Colorado                                                Chairman  of the Board of  Security
Age:  71                                                        Life of Denver  Insurance  Company;
                                                                Director of ING  American  Holdings
                                                                Company    and   First   ING   Life
                                                                Insurance Company of New York.


Mark H. Williamson *+             President, Chief              President,  Chief Executive Officer
7800 E. Union Avenue              Executive Officer and         and     Director     of     INVESCO
Denver, Colorado                  Director                      Distributors,    Inc.;   President,
Age:  48                                                        Chief    Executive    Officer   and
                                                                Director  of INVESCO  Funds  Group,
                                                                Inc.;  Presi dent,  Chief Operating
                                                                Officer   and  Trustee  of  INVESCO
                                                                Global   Health    Sciences   Fund;
                                                                formerly,  Chairman  and Chief Exec
                                                                utive   Officer  of  Nations   Banc
                                                                Advisors, Inc.; formerly,  Chairman
                                                                of NationsBanc Investments, Inc.



<PAGE>

                                  Position(s) Held With         Principal Occupation(s)
Name, Address, and Age            Company                       During Past Five Years

Victor L. Andrews, Ph.D. **!      Director                      Professor    Emeritus,     Chairman
34 Seawatch Drive                                               Emeritus  and  Chairman  of the CFO
Savannah, Georgia                                               Roundtable  of  the  Department  of
Age:  69                                                        Finance    of     Georgia     State
                                                                University;    President,   Andrews
                                                                Financial     Associates,      Inc.
                                                                (consulting firm); formerly, member
                                                                of the  faculties  of  the  Harvard
                                                                Business   School   and  the  Sloan
                                                                School   of   Management   of  MIT;
                                                                Director  of The  Sheffield  Funds,
                                                                Inc.


Bob R. Baker +**                  Director                      President   and   Chief   Executive
AMC Cancer Research Center                                      Officer  of  AMC  Cancer   Research
1600 Pierce Street                                              Center,  Denver,   Colorado,  since
Denver, Colorado                                                January  1989;  until  mid-December
Age:  62                                                        1988, Vice Chairman of the Board of
                                                                First      Columbia       Financial
                                                                Corporation,  Englewood,  Colorado;
                                                                formerly, Chairman of the Board and
                                                                Chief  Executive  Officer  of First
                                                                Columbia Financial Corporation.


Lawrence H. Budner # @            Director                      Trust Consultant; prior to June 30,
7608 Glen Albens Circle                                         1987,  Senior  Vice  President  and
Dallas, Texas                                                   Senior Trust  Officer of InterFirst
Age:  69                                                        Bank, Dallas, Texas.



<PAGE>

                                  Position(s) Held With         Principal Occupation(s)
Name, Address, and Age            Company                       During Past Five Years

Wendy L. Gramm, Ph.D. **!         Director                      Self-employed     (since     1993);
4201 Yuma Street, N.W.                                          Professor of  Economics  and Public
Washington, DC                                                  Administration, University of Texas
Age:  54                                                        at Arlington;  formerly,  Chairman,
                                                                Commodity      Futures      Trading
                                                                Commission;    Administrator    for
                                                                Information and Regulatory  Affairs
                                                                at the  Office  of  Management  and
                                                                Budget;  Executive  Director of the
                                                                Presidential    Task    Force    on
                                                                Regulatory  Relief; and Director of
                                                                the  Federal   Trade   Commission's
                                                                Bureau of Economics; also, Director
                                                                of  Chicago  Mercantile   Exchange,
                                                                Enron Corporation, IBP, Inc., State
                                                                Farm Insurance Company, Independent
                                                                Women's    Forum,     International
                                                                Republic    Institute,    and   the
                                                                Republican  Women's  Federal Forum.
                                                                Also,  Member of Board of Visitors,
                                                                College of Business Administration,
                                                                University  of Iowa,  and Member of
                                                                Board of Visitors, Center for Study
                                                                of  Public  Choice,   George  Mason
                                                                University.



<PAGE>

                                  Position(s) Held With         Principal Occupation(s)
Name, Address, and Age            Company                       During Past Five Years

Kenneth T. King +#@               Director                      Retired. Formerly, Chair man of the
4080 North Circulo                                              Board of The Capitol Life Insurance
  Manzanillo                                                    Company,    Providence   Washington
Tucson, Arizona                                                 Insurance  Company and  Director of
Age:  73                                                        numerous U.S. subsidiaries thereof;
                                                                formerly,  Chairman of the Board of
                                                                The Providence Capitol Companies in
                                                                the United  Kingdom  and  Guernsey;
                                                                Chairman   of  the   Board  of  the
                                                                Symbion Corporation until 1987.


John W. McIntyre +#@              Director                      Retired. Formerly, Vice Chairman of
7 Piedmont Center Suite 100                                     the  Board  of   Directors  of  the
Atlanta, Georgia                                                Citizens and  Southern  Corporation
Age:  68                                                        and Chairman of the Board and Chief
                                                                Executive  Officer of the  Citizens
                                                                and Southern  Georgia Corp. and the
                                                                Citizens  and   Southern   National
                                                                Bank;  Trustee  of  INVESCO  Global
                                                                Health   Sciences   Fund,    Gables
                                                                Residential    Trust,    Employee's
                                                                Retirement   System  of  GA,  Emory
                                                                University and J.M. Tull Charitable
                                                                Foundation;   Director   of  Kaiser
                                                                Foundation Health Plans of Georgia,
                                                                Inc.



<PAGE>

                                  Position(s) Held With         Principal Occupation(s)
Name, Address, and Age            Company                       During Past Five Years

Larry Soll, Ph.D.!**              Director                      Retired. Formerly, Chair man of the
345 Poorman Road                                                Board   (1987   to   1994),   Chief
Boulder, Colorado                                               Executive Officer (1982 to 1989 and
Age:  57                                                        1993 to 1994) and  President  (1982
                                                                to 1989) of Synergen Inc.; Director
                                                                of Synergen since  incorporation in
                                                                1982;      Director     of     Isis
                                                                Pharmaceuticals,  Inc.;  Trustee of
                                                                INVESCO   Global  Health   Sciences
                                                                Fund.



Glen A. Payne                     Secretary                     Senior  Vice   President,   General
7800 E. Union Avenue                                            Counsel  and  Secretary  of INVESCO
Denver, Colorado                                                Funds  Group,   Inc.;  Senior  Vice
Age:  51                                                        President,  Secretary  and  General
                                                                Counsel  of  INVESCO  Distributors,
                                                                Inc.;  Secretary,   INVESCO  Global
                                                                Health  Sciences  Fund;   formerly,
                                                                General  Counsel of  INVESCO  Trust
                                                                Company  (1989 to 1998);  formerly,
                                                                employee   of  a  U.S.   regulatory
                                                                agency,  Washington,  D.C. (1973 to
                                                                1989).


<PAGE>

                                  Position(s) Held With         Principal Occupation(s)
Name, Address, and Age            Company                       During Past Five Years

Ronald L. Grooms                  Chief Accounting              Senior Vice President and Treasurer
7800 E. Union Avenue              Officer, Chief Financial      of  INVESCO   Funds  Group,   Inc.;
Denver, Colorado                  Officer and Treasurer         Senior Vice President and Treasurer
Age:  52                                                        of  INVESCO   Distributors,   Inc.;
                                                                Treasurer,  Principal Financial and
                                                                Accounting   Officer   of   INVESCO
                                                                Global   Health    Sciences   Fund;
                                                                formerly, Senior Vice President and
                                                                Treasurer of INVESCO  Trust Company
                                                                (1988 to 1998).


William J. Galvin, Jr.            Assistant Secretary           Senior  Vice  President  of INVESCO
7800 E. Union Avenue                                            Funds  Group,   Inc.;  Senior  Vice
Denver, Colorado                                                President of INVESCO  Distributors,
Age: 42                                                         Inc.;  formerly,  Trust  Officer of
                                                                INVESCO Trust Company.


Pamela J. Piro                    Assistant Treasurer           Vice  President  of  INVESCO  Funds
7800 E. Union Avenue                                            Group,  Inc.;  formerly,  Assistant
Denver, Colorado                                                Vice  President   (1996  to  1997),
Age:  39                                                        Director  -  Portfolio   Accounting
                                                                (1994 to 1996),  Portfolio  Account
                                                                ing  Manager  (1993  to  1994)  and
                                                                Assistant  Accounting Manager (1990
                                                                to 1993).


Alan I. Watson                    Assistant Secretary           Vice  President  of  INVESCO  Funds
7800 E. Union Avenue                                            Group,   Inc.;   formerly,    Trust
Denver, Colorado                                                Officer of INVESCO Trust Company.
Age:  57



<PAGE>

                                  Position(s) Held With         Principal Occupation(s)
Name, Address, and Age            Company                       During Past Five Years

Judy P. Wiese                     Assistant Secretary           Vice  President  of  INVESCO  Funds
7800 E. Union Avenue                                            Group,   Inc.;   formerly,    Trust
Denver, Colorado                                                Officer of INVESCO Trust Company.
Age:  51


<FN>
# Member of the audit committee of the Company.

+ Member of the executive committee of the Company.  On occasion,  the executive
committee  acts upon the current and  ordinary  business of the Company  between
meetings of the board of  directors.  Except for  certain  powers  which,  under
applicable  law,  may only be  exercised  by the full  board of  directors,  the
executive  committee  may  exercise  all  powers and  authority  of the board of
directors in the  management  of the business of the Company.  All decisions are
subsequently submitted for ratification by the board of directors.

* These directors are "interested persons" of the Company as defined in the 1940
Act.

** Member of the management liaison committee of the Company.

@ Member of the soft dollar brokerage committee of the Company.

! Member of the derivatives committee of the Company.
</FN>
</TABLE>

The  following  table  shows  the  compensation  paid  by  the  Company  to  its
Independent  Directors for services rendered in their capacities as directors of
the  Company;  the  benefits  accrued as Company  expenses  with  respect to the
Defined Benefit  Deferred  Compensation  Plan discussed below; and the estimated
annual benefits to be received by these directors upon retirement as a result of
their service to the Company, all for the fiscal year ended August 31, 1999.

In  addition,  the table  sets forth the total  compensation  paid by all of the
INVESCO  Funds and  INVESCO  Global  Health  Sciences  Fund  (collectively,  the
"INVESCO  Complex") to these directors for services rendered in their capacities
as directors or trustees during the year ended December 31, 1998. As of December
31, 1998, there were 53 funds in the INVESCO Complex.



<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Name of             Aggregate Compen-  Benefits Accrued     Estimated Annual    Total Compensation
Person and          sation From        As Part of Company   Benefits Upon       From INVESCO Complex
Position            Company(1)         Expenses(2)          Retirement(3)       Paid To Directors(6)
----------------------------------------------------------------------------------------------------
<S>                 <C>                <C>                  <C>                 <C>
Fred A. Deering,                                                                $103,700
Vice Chairman of
the Board
----------------------------------------------------------------------------------------------------
Victor L. Andrews                                                               80,350
----------------------------------------------------------------------------------------------------
Bob R. Baker                                                                    84,000
----------------------------------------------------------------------------------------------------
Lawrence H. Budner                                                              79,350
----------------------------------------------------------------------------------------------------
Daniel D. Chabris(4)                                                            70,000
----------------------------------------------------------------------------------------------------
Wendy L. Gramm                                                                  79,000
----------------------------------------------------------------------------------------------------
Kenneth T. King                                                                 77,050
----------------------------------------------------------------------------------------------------
John W. McIntyre                                                                98,500
----------------------------------------------------------------------------------------------------
Larry Soll                                                                      96,000
----------------------------------------------------------------------------------------------------
Total                                                                          767,950
----------------------------------------------------------------------------------------------------
% of Net Assets     0.____%5           0.____%5                                 0.0035%(6)
----------------------------------------------------------------------------------------------------


<FN>
(1) The vice chairman of the board,  the chairmen of the Funds'  committees  who
are  Independent  Directors,  and the  members of the  Funds'committees  who are
Independent Directors,  each receive compensation for serving in such capacities
in addition to the compensation paid to all Independent Directors.

(2) Represents  estimated  benefits  accrued with respect to the Defined Benefit
Deferred Compensation Plan discussed below, and not compensation deferred at the
election of the directors.

(3) These amounts represent the Company's share of the estimated annual benefits
payable by the INVESCO Funds upon the directors'  retirement,  calculated  using
the current method of allocating director  compensation among the INVESCO Funds.
These estimated benefits assume retirement at age 72 and that the basic retainer
payable to the  directors  will be  adjusted  periodically  for  inflation,  for
increases  in the number of funds in the INVESCO  Funds,  and for other  reasons
during  the period in which  retirement  benefits  are  accrued on behalf of the
respective directors. This results in lower estimated benefits for directors who
are closer to  retirement  and higher  estimated  benefits for directors who are
further from  retirement.  With the  exception of Drs.  Soll and Gramm,  each of
these directors has served as a director or trustee of one or more of the funds


<PAGE>

in the INVESCO Funds for the minimum five-year period required to be eligible to
participate in the Defined  Benefit  Deferred  Compensation  Plan.  Although Mr.
McIntyre  became  eligible  to  participate  in  the  Defined  Benefit  Deferred
Compensation  Plan as of  November  1,  1998,  he will  not be  included  in the
calculation of retirement benefits until November 1, 1999.

(4) Mr. Chabris retired as a director of the Company on September 30, 1998.

(5) Totals as a percentage of the Company's net assets as of August 31, 1999.

(6)  Total as a  percentage  of the net  assets  of the  INVESCO  Complex  as of
December 31, 1998.
</FN>
</TABLE>

Messrs.  Brady and  Williamson,  as "interested  persons" of the Company and the
other INVESCO Funds, receive compensation as officers or employees of INVESCO or
its  affiliated  companies,  and do not  receive  any  director's  fees or other
compensation  from the Company or the other funds in the INVESCO Funds for their
service as directors.

The boards of directors of the mutual funds in the INVESCO  Funds have adopted a
Defined  Benefit  Deferred  Compensation  Plan (the "Plan") for the  Independent
Directors of the funds.  Under this Plan, each director who is not an interested
person of the funds (as defined in Section 2(a)(19) of the 1940 Act) and who has
served for at least five years (a "Qualified  Director") is entitled to receive,
upon termination of service as a director (normally, at the retirement age of 72
or the  retirement  age of 73 or 74, if the  retirement  date is extended by the
boards for one or two years, but less than three years), continuation of payment
for one year (the "First Year Retirement  Benefit") of the annual basic retainer
and annualized board meeting fees payable by the funds to the Qualified Director
at the time of his/her  retirement  (the "Basic  Benefit").  Commencing with any
such director's second year of retirement, and commencing with the first year of
retirement of any director  whose  retirement has been extended by the board for
up to three years, a Qualified  Director shall receive quarterly  payments at an
annual rate equal to 50% of the Basic Benefit.  These payments will continue for
the remainder of the Qualified Director's life or ten years, whichever is longer
(the  "Reduced  Benefit  Payments").  If a  Qualified  Director  dies or becomes
disabled after age 72 and before age 74 while still a director of the funds, the
First Year  Retirement  Benefit and  Reduced  Benefit  Payments  will be made to
him/her or to his/her  beneficiary or estate.  If a Qualified  Director  becomes
disabled or dies either prior to age 72 or during  his/her 74th year while still
a director of the funds,  the director will not be entitled to receive the First
Year Retirement Benefit;  however,  the Reduced Benefit Payments will be made to
his/her  beneficiary or estate. The Plan is administered by a committee of three
directors  who are also  participants  in the Plan and one director who is not a
Plan participant. The cost of the Plan will be allocated among the INVESCO Funds
in a manner  determined to be fair and equitable by the  committee.  The Company
began making  payments  under the Plan to Mr. Chabris as of October 1, 1998. The
Company has no stock options or other pension or retirement plans for management
or other personnel and pays no salary or compensation to any of its officers.  A
similar plan has been adopted by INVESCO Global Health  Sciences Fund's board of
trustees. All trustees of INVESCO Global Health Sciences Fund are also directors
of the INVESCO Funds.


<PAGE>

The  Independent  Directors have  contributed to a deferred  compensation  plan,
pursuant to which they have  deferred  receipt of a portion of the  compensation
which they would otherwise have been paid as directors of certain of the INVESCO
Funds.  Certain of the deferred  amounts have been invested in the shares of all
INVESCO Funds,  except Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally  precluded from investing . Each  Independent
Director  may,  therefore,  be deemed to have an indirect  interest in shares of
each such INVESCO Fund,  in addition to any INVESCO Fund shares the  Independent
Director may own either directly or beneficially.

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS

As of July 31, 1999, the following persons owned more than 5% of the outstanding
shares of the Funds indicated below. This level of share ownership is considered
to be a  "principal  shareholder"  relationship  with a Fund under the 1940 Act.
Shares that are owned "of record" are held in the name of the person  indicated.
Shares that are owned "beneficially" are held in another name, but the owner has
the full economic benefit of ownership of those shares:

High Yield Fund

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                        Basis of Ownership
          Name and Address              (Record/Beneficial)           Percentage Owned
--------------------------------------------------------------------------------------
<S>                                                                   <C>
Charles Schwab & Co. Inc.               Record                        35.72%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn:  Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------
Nat'l Financial Services Corp
The Exclusive Benefit of Cust           Record                         7.51%
One World Financial Center
200 Liberty Street, 5th Floor
Attn:  Kate Recon
New York, NY 10281-1003

--------------------------------------------------------------------------------------


<PAGE>

Select Income Fund

--------------------------------------------------------------------------------------
                                        Basis of Ownership
          Name and Address              (Record/Beneficial)           Percentage Owned
--------------------------------------------------------------------------------------
Charles Schwab & Co. Inc.               Record                        15.91%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn:  Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------
INVESCO Trust Company TR                Record                         6.38%
Morris Communications Corp
Employees' Profit Sharing Ret Plan
725 Broad Street
Augusta, GA 30901-1336
--------------------------------------------------------------------------------------
Nat'l Financial Services Corp           Record                         6.09%
The Exclusive Benefit of Cust
One World Financial Center
200 Liberty Street, 5th Floor
Attn:  Kate Recon
New York, NY 10281-1003
--------------------------------------------------------------------------------------
Prudential Securities Inc.              Record                         5.295%
Acct 910-404559-000
Attn:  Mutual Funds
1 New York Plaza
New York, NY 10004-1901
--------------------------------------------------------------------------------------



Tax-Free Bond Fund

--------------------------------------------------------------------------------------
                                        Basis of Ownership
          Name and Address              (Record/Beneficial)           Percentage Owned
--------------------------------------------------------------------------------------
None
--------------------------------------------------------------------------------------



<PAGE>

U.S. Government Securities Fund

--------------------------------------------------------------------------------------
                                        Basis of Ownership
          Name and Address              (Record/Beneficial)           Percentage Owned
--------------------------------------------------------------------------------------
Charles Schwab & Co. Inc.               Record                        15.73%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn:  Mutual Funds
101 Montgomery St
--------------------------------------------------------------------------------------
Resources Trust Co Cust For             Record                         8.97%
The Exclusive Benefit of The
Various Cusotmers of IMS
P.O. box 3865
Englewood, CO 80155-3865
--------------------------------------------------------------------------------------
</TABLE>

As of August  6,  1999,  officers  and  directors  of the  Company,  as a group,
beneficially owned less than 1% of any Fund's outstanding shares.

DISTRIBUTOR

INVESCO Distributors, Inc. ("IDI"), a wholly owned subsidiary of INVESCO, is the
distributor of the Funds.  IDI receives no compensation  and bears all expenses,
including  the cost of  printing  and  distributing  prospectuses,  incident  to
marketing of the Funds'  shares,  except for such  distribution  expenses as are
paid out of Fund assets under the Company's plan of distribution  which has been
adopted by each Fund pursuant to Rule 12b-1 under the 1940 Act.

The Company has adopted a Plan and Agreement of Distribution  (the "Plan") which
provides that each Fund will make monthly  payments to IDI computed at an annual
rate no greater than 0.25% of a Fund's average net assets. These payments permit
IDI, at its discretion,  to engage in certain activities and provide services in
connection with the distribution of a Fund's shares to investors.  Payments by a
Fund  under  the  Plan,  for  any  month,  may be  made  to  compensate  IDI for
permissible  activities  engaged in and  services  provided  during the  rolling
12-month period in which that month falls.

A  significant  expenditure  under the Plan is  compensation  paid to securities
companies and other financial institutions and organizations,  which may include
INVESCO-affiliated  companies,  in order to obtain various  distribution-related
and/or  administrative  services for the Funds.  Each Fund is  authorized by the
Plan to use its assets to finance the payments  made to obtain  those  services.
Payments will be made by IDI to broker-dealers who sell shares of a Fund and may
be  made  to  banks,   savings  and  loan   associations  and  other  depository
institutions.  Although  the  Glass-Steagall  Act limits the  ability of certain
banks to act as  underwriters  of mutual fund  shares,  INVESCO does not believe


<PAGE>

that these  limitations  would  affect  the  ability of such banks to enter into
arrangements with IDI, but can give no assurance in this regard. However, to the
extent it is determined  otherwise in the future,  arrangements with banks might
have to be modified  or  terminated,  and,  in that case,  the size of the Funds
possibly  could  decrease to the extent  that the banks  would no longer  invest
customer  assets in the Funds.  Neither the Company nor its  investment  adviser
will give any preference to banks or other depository  institutions  which enter
into such arrangements when selecting investments to be made by a Fund.

During the fiscal year ended August 31, 1999, the High Yield,  Select Income and
U.S.  Government  Securities  Funds made  payments  to IDI under the Plan in the
amounts of $_________,  $__________ and $__________ ,  respectively.  During the
period  ended  August 31,  1999 and the fiscal  year  ended June 30,  1999,  the
Tax-Free  Bond  Fund made  payments  to IDI  under  the Plan in the  amounts  of
$__________ and $__________,  respectively.  In addition, as of August 31, 1999,
$__________,  $________,  $_________  and $________ of  additional  distribution
accruals had been incurred for High Yield, Select Income, Tax-Free Bond and U.S.
Government  Securities Funds,  respectively,  and will be paid during the fiscal
year ended August 31,  2000.  For the fiscal year ended August 31, 1999 for High
Yield, Select Income and U.S.  Government  Securities Funds and the period ended
August 31, 1999, and the fiscal year ended June 30, 1999 for Tax-Free Bond Fund,
allocation of 12b-1  amounts paid by the Funds for the  following  categories of
expenses were:

High Yield Fund
                                                       Year Ended
                                                     August 31, 1999

Advertising                                        $_______________
Sales literature, printing, and postage             _______________
Direct Mail                                         _______________
Public Relations/Promotion                          _______________
Compensation to securities dealers
    and other organizations                         _______________
Marketing personnel                                 _______________


Select Income Fund
                                                       Year Ended
                                                     August 31, 1999

Advertising                                        $________________
Sales literature, printing, and postage             ________________
Direct Mail                                         ________________
Public Relations/Promotion                          ________________
Compensation to securities dealers
  and other organizations                           ________________
Marketing personnel                                 ________________



<PAGE>

Tax-Free Bond Fund
                                   Period Ended        Year Ended
                                 August 31, 1999(a)   June 30, 1999

Advertising                      $________________   $_______________
Sales literature, printing,
   and postage                    ________________    _______________
Direct Mail                       ________________    _______________
Public Relations/Promotion        ________________    _______________
Compensation to securities dealers
   and other organizations        ________________    _______________
Marketing personnel               ________________    _______________


U.S. Government Securities Fund
                                                       Year Ended
                                                     August 31, 1999

Advertising                                        $_______________
Sales literature, printing, and postage             _______________
Direct Mail                                         _______________
Public Relations/Promotion                          _______________
Compensation to securities dealers
    and other organizations                         _______________
Marketing personnel                                 _______________


(a) From July 1, 1999 to August 31, 1999.

The services  which are provided by securities  dealers and other  organizations
may vary by dealer but include,  among other things,  processing new shareholder
account applications, preparing and transmitting to the Company's Transfer Agent
computer-processable tapes of all Fund transactions by customers, serving as the
primary source of information to customers in answering questions concerning the
Funds, and assisting in other customer transactions with the Funds.

The Plan provides that it shall  continue in effect with respect to each Fund as
long as such  continuance is approved at least annually by the vote of the board
of directors  of the Company cast in person at a meeting  called for the purpose
of  voting  on  such  continuance,  including  the  vote  of a  majority  of the
Independent  Directors.  The Plan can also be  terminated at any time by a Fund,
without penalty, if a majority of the Independent Directors,  or shareholders of
the  Fund,  vote to  terminate  the  Plan.  The  Company  may,  in its  absolute
discretion,  suspend,  discontinue  or limit the  offering  of its shares at any
time.  In  determining  whether  any such action  should be taken,  the board of
directors   intends  to  consider  all  relevant  factors   including,   without
limitation,  the size of a Fund,  the  investment  climate  for a Fund,  general
market  conditions,  and the volume of sales and redemptions of a Fund's shares.
The  Plan may  continue  in  effect  and  payments  may be made  under  the Plan
following any temporary suspension or limitation of the offering of Fund shares;
however, the Company is not contractually obligated to continue the Plan for any
particular  period of time.  Suspension of the offering of a Fund's shares would
not, of course, affect a shareholder's ability to redeem his or her shares.




<PAGE>

So long as the Plan is in effect,  the  selection  and  nomination of persons to
serve  as  Independent  Directors  of the  Company  shall  be  committed  to the
Independent  Directors  then  in  office  at  the  time  of  such  selection  or
nomination.  The Plan may not be  amended  to  increase  the  amount of a Fund's
payments under the Plan without  approval of the  shareholders of that Fund, and
all material  amendments  to the Plan must be approved by the board of directors
of the Company,  including a majority of the  Independent  Directors.  Under the
agreement implementing the Plan, IDI or a Fund, the latter by vote of a majority
of the  Independent  Directors,  or the  holders  of a  majority  of the  Fund's
outstanding voting securities, may terminate such agreement without penalty upon
30 days' written notice to the other party. No further  payments will be made by
a Fund under the Plan in the event of its termination.

To the extent that the Plan constitutes a plan of distribution  adopted pursuant
to Rule 12b-1  under the 1940 Act, it shall  remain in effect as such,  so as to
authorize  the use of Fund assets in the amounts and for the  purposes set forth
therein, notwithstanding the occurrence of an assignment, as defined by the 1940
Act, and rules thereunder. To the extent it constitutes an agreement pursuant to
a  plan,  a  Fund's   obligation  to  make  payments  to  IDI  shall   terminate
automatically,  in the event of such  "assignment."  In this  event,  a Fund may
continue to make  payments  pursuant  to the Plan only upon the  approval of new
arrangements  regarding  the use of the amounts  authorized to be paid by a Fund
under  the  Plan.  Such new  arrangements  must be  approved  by the  directors,
including a majority of the Independent Directors, by a vote cast in person at a
meeting called for such purpose.  These new  arrangements  might or might not be
with IDI. On a quarterly  basis,  the  directors  review  information  about the
distribution  services  that have been  provided to each Fund and the 12b-1 fees
paid for such services.  On an annual basis, the directors  consider whether the
Plan  should  be  continued  and,  if so,  whether  any  amendment  to the Plan,
including changes in the amount of 12b-1 fees paid by each Fund, should be made.

The only Company  directors and interested  persons,  as that term is defined in
Section  2(a)(19)  of the 1940  Act,  who have a direct  or  indirect  financial
interest in the  operation  of the Plan are the  officers  and  directors of the
Company who are also officers either of IDI or other  companies  affiliated with
IDI. The benefits which the Company  believes will be reasonably  likely to flow
to a Fund and its shareholders under the Plan include the following:

     o    Enhanced  marketing  efforts,  if  successful,  should  result  in  an
          increase  in net  assets  through  the sale of  additional  shares and
          afford   greater   resources  with  which  to  pursue  the  investment
          objectives of the Funds;

     o    The sale of additional  shares reduces the likelihood  that redemption
          of shares will require the  liquidation  of securities of the Funds in
          amounts and at times that are disadvantageous for investment purposes;
          and

     o    Increased Fund assets may result in reducing each investor's  share of
          certain   expenses   through   economies  of  scale  (e.g.   exceeding
          established  breakpoints  in an advisory fee  schedule and  allocating
          fixed expenses over a larger asset base), thereby partially offsetting
          the costs of the plan.



<PAGE>

The positive effect which increased Fund assets will have on INVESCO's  revenues
could allow INVESCO and its affiliated companies:

     o    To have greater resources to make the financial  commitments necessary
          to improve the quality  and level of the Funds'  shareholder  services
          (in both systems and personnel);

     o    To increase the number and type of mutual funds available to investors
          from INVESCO and its  affiliated  companies (and support them in their
          infancy),  and thereby expand the investment  choices available to all
          shareholders; and

     o    To acquire and retain  talented  employees who desire to be associated
          with a growing organization.

OTHER SERVICE PROVIDERS

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers   LLP,  950  Seventeenth  Street,   Suite  2500,  Denver,
Colorado,  are the  independent  accountants  of the  Company.  The  independent
accountants are responsible for auditing the financial statements of the Funds.

CUSTODIAN

State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts, is the
custodian of the cash and investment securities of the Company. The custodian is
also  responsible  for, among other things,  receipt and delivery of each Fund's
investment  securities in accordance with procedures and conditions specified in
the custody agreement with the Company. The custodian is authorized to establish
separate accounts in foreign countries and to cause foreign  securities owned by
the Funds to be held outside the United States in branches of U.S. banks and, to
the extent  permitted by applicable  regulations,  in certain  foreign banks and
securities depositories.

TRANSFER AGENT

INVESCO,  7800 E. Union Avenue,  Denver,  Colorado,  is the  Company's  transfer
agent,  registrar,  and dividend disbursing agent.  Services provided by INVESCO
include the issuance,  cancellation and transfer of shares of the Funds, and the
maintenance of records regarding the ownership of such shares.

LEGAL COUNSEL

The firm of  Kirkpatrick & Lockhart LLP, 1800  Massachusetts  Avenue,  N.W., 2nd
Floor,  Washington,  D.C., is legal  counsel for the Company.  The firm of Moye,
Giles,  O'Keefe,  Vermeire & Gorrell LLP, 1225 17th Street,  Suite 2900, Denver,
Colorado, acts as special counsel to the Company.


<PAGE>

BROKERAGE ALLOCATION AND OTHER PRACTICES

As the investment  adviser to the Funds,  INVESCO places orders for the purchase
and sale of  securities  with  broker-dealers  based upon an  evaluation  of the
financial   responsibility  of  the   broker-dealers  and  the  ability  of  the
broker-dealers to effect transactions at the best available prices.

While INVESCO seeks reasonably  competitive  commission  rates, the Funds do not
necessarily pay the lowest commission or spread available.  INVESCO is permitted
to, and does, consider qualitative factors in addition to price in the selection
of brokers.  Among other  things,  INVESCO  considers  the quality of executions
obtained  on a Fund's  portfolio  transactions,  viewed  in terms of the size of
transactions,  prevailing market  conditions in the security  purchased or sold,
and general  economic and market  conditions.  INVESCO has found that a broker's
consistent ability to execute transactions is at least as important as the price
the broker charges for those services.

In seeking to ensure that the  commissions  charged a Fund are  consistent  with
prevailing and  reasonable  commissions,  INVESCO  monitors  brokerage  industry
practices and commissions charged by broker-dealers on transactions effected for
other institutional investors like the Funds.

Consistent  with the  standard  of  seeking  to obtain  favorable  execution  on
portfolio  transactions,  INVESCO  may  select  brokers  that  provide  research
services to INVESCO and the Company,  as well as other INVESCO  mutual funds and
other accounts managed by INVESCO.  Research  services  include  statistical and
analytical  reports  relating to issuers,  industries,  securities  and economic
factors and  trends,  which may be of  assistance  or value to INVESCO in making
informed  investment  decisions.  Research  services  prepared and  furnished by
brokers  through  which a Fund effects  securities  transactions  may be used by
INVESCO in servicing  all of its accounts and not all such  services may be used
by INVESCO in connection  with a particular  Fund.  Conversely,  a Fund receives
benefits  of  research  acquired  through the  brokerage  transactions  of other
clients of INVESCO.

In order to obtain reliable trade execution and research  services,  INVESCO may
utilize brokers that charge higher  commissions  than other brokers would charge
for the same transaction.  This practice is known as "paying up." However,  even
when paying up, INVESCO is obligated to obtain  favorable  execution of a Fund's
transactions.

Portfolio   transactions  also  may  be  effected  through  broker-dealers  that
recommend the Funds to their clients,  or that act as agent in the purchase of a
Fund's shares for their  clients.  When a number of  broker-dealers  can provide
comparable  best price and  execution on a particular  transaction,  INVESCO may
consider  the sale of a Fund's  shares by a  broker-dealer  in  selecting  among
qualified broker-dealers.

The aggregate dollar amount of underwriting  discounts and brokerage commissions
paid by each Fund for the periods outlined in the table below were:

High Yield Fund
        Year Ended August 31, 1999               $________
        Year Ended August 31, 1998               $________
        Year Ended August 31, 1997               $________


<PAGE>

Select Income Fund
        Year Ended August 31, 1999               $________
        Year Ended August 31, 1998               $________
        Year Ended August 31, 1997               $________


Tax-Free Bond Fund
        Period ended August 31, 1999(a)          $________
        Year Ended June 30, 1999                 $________
        Year Ended June 30, 1998                 $________
        Year Ended June 30, 1997                 $________


U.S. Government Securities Fund
        Year Ended August 31, 1999               $________
        Year Ended August 31, 1998               $________
        Year Ended August 31, 1997               $________

(a) From July 1, 1999 to August 31, 1999.


For the fiscal  year ended  August 31, 1999 with  respect to High Yield,  Select
Income and U.S.  Government  Securities Fund and for the period ended August 31,
1999 with respect to Tax-Free Bond Fund,  brokers  providing  research  services
received  $_____________ in commissions on portfolio  transactions  effected for
the Funds.  The  aggregate  dollar  amount of such  portfolio  transactions  was
$________________.  Commissions  totaling  $__________ were allocated to certain
brokers  in  recognition  of their  sales of shares  of the  Funds on  portfolio
transactions  of the Funds  effected  during the year ended August 31, 1999 with
respect to High  Yield,  Select  Income  and U.S.  Government  Securities  Fund.
Commissions   totaling  ___  and  ___  were  allocated  to  certain  brokers  in
recognition  of  their  sales of  shares  of  Tax-free  Bond  Fund on  portfolio
transactions  of Tax-Free  Bond Fund during the period ended August 31, 1999 and
the fiscal year ended June 30, 1999, respectively.

At August 31, 1999,  each Fund held debt  securities  of its regular  brokers or
dealers, or their parents, as follows:


--------------------------------------------------------------------------------
           Fund                 Broker or Dealer      Value of Securities
                                                      at August 31, 1999
================================================================================
High Yield
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------



<PAGE>

--------------------------------------------------------------------------------
           Fund                 Broker or Dealer      Value of Securities
                                                      at August 31, 1999
================================================================================

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Select Income
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Tax-Free Bond
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
U.S. Government Securities
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------


Neither INVESCO nor any affiliate of INVESCO receives any brokerage  commissions
on  portfolio  transactions  effected  on behalf of the  Funds,  and there is no
affiliation  between INVESCO or any person  affiliated with INVESCO or the Funds
and any broker-dealer that executes transactions for the Funds.

CAPITAL STOCK

The Company is authorized to issue up to one billion shares of common stock with
a par value of $0.01 per share.  As of July 31, 1999,  the  following  shares of
each Fund were outstanding:


<PAGE>

        High Yield Fund                     122,467,100
        Select Income Fund                   89,385,636
        Tax-Free Bond Fund                   13,583,936
        U.S. Government Securities Fund      11,858,949


All  shares of each  Fund are of one  class  with  equal  rights  as to  voting,
dividends and liquidation. All shares issued and outstanding are, and all shares
offered hereby,  when issued will be fully paid and nonassessable.  The board of
directors  has the  authority  to designate  additional  classes of common stock
without seeking the approval of shareholders and may classify and reclassify any
authorized but unissued shares.

Shares have no  preemptive  rights and are freely  transferable  on the books of
each Fund.

All shares of the Company  have equal  voting  rights based on one vote for each
share owned.  The Company is not generally  required and does not expect to hold
regular annual  meetings of  shareholders.  However,  when requested to do so in
writing by the holders of 10% or more of the  outstanding  shares of the Company
or  as  may  be  required  by  applicable  law  or  the  Company's  Articles  of
Incorporation,   the  board  of  directors   will  call   special   meetings  of
shareholders.

Directors  may  be  removed  by  action  of the  holders  of a  majority  of the
outstanding  shares  of the  Company.  The Funds  will  assist  shareholders  in
communicating with other shareholders as required by the 1940 Act.

Fund shares have noncumulative  voting rights, which means that the holders of a
majority of the shares of the Company  voting for the  election of  directors of
the  Company  can elect 100% of the  directors  if they choose to do so. If that
occurs, the holders of the remaining shares voting for the election of directors
will not be able to elect any  person  or  persons  to the  board of  directors.
Directors  may  be  removed  by  action  of the  holders  of a  majority  of the
outstanding shares of the Company.

TAX CONSEQUENCES OF OWNING SHARES OF A FUND

Each Fund intends to continue to conduct its business and satisfy the applicable
diversification  of assets,  distribution  and source of income  requirements to
qualify as a regulated  investment  company  under  Subchapter M of the Internal
Revenue Code of 1986, as amended.  Each Fund qualified as a regulated investment
company and intends to continue to qualify during its current fiscal year. It is
the policy of each Fund to distribute all investment  company taxable income and
net capital gains.  As a result of this policy and the Funds'  qualification  as
regulated  investment  companies,  it is anticipated that none of the Funds will
pay  federal  income or excise  taxes and that all of the Funds will be accorded
conduit or "pass through" treatment for federal income tax purposes.  Therefore,
any taxes that a Fund would  ordinarily  owe are paid by its  shareholders  on a
pro-rata basis.  If a Fund does not distribute all of its net investment  income
or net capital gains,  it will be subject to income and excise tax on the amount
that is not  distributed.  If a Fund does not qualify as a regulated  investment


<PAGE>

company,  it will be subject to corporate tax on its net  investment  income and
net capital gains at the corporate tax rates.

Dividends paid by a Fund from net investment  income as well as distributions of
net  realized  short-term  capital  gains and net  realized  gains from  certain
foreign  currency  transactions  are taxable for federal  income tax purposes as
ordinary income to shareholders.  After the end of each calendar year, the Funds
send  shareholders  information  regarding the amount and character of dividends
paid   in   the   year,    including    the    dividends    eligible   for   the
dividends-received-deduction  for  corporations.   Dividends  eligible  for  the
dividends-received-deduction   will  be  limited  to  the  aggregate  amount  of
qualifying dividends that a Fund derives from its portfolio investments.

A Fund  realizes a capital  gain or loss when it sells a portfolio  security for
more or less  than it paid for that  security.  Capital  gains  and  losses  are
divided into  short-term and long-term,  depending on how long the Fund held the
security  which gave rise to the gain or loss. If the security was held one year
or less the gain or loss is considered short-term,  while holding a security for
more  than one year will  generate  a  long-term  gain or loss.  A capital  gain
distribution  consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest  as  ordinary  income and are paid to  shareholders  as  dividends,  as
discussed  above.  If total  long-term  gains on sales exceed  total  short-term
losses,  including any losses carried  forward from previous  years, a Fund will
have a net capital  gain.  Distributions  by a Fund of net capital gain are, for
federal income tax purposes,  taxable to the shareholder as a long-term  capital
gain  regardless  of how long a  shareholder  has held shares of the  particular
Fund. Such distributions are not eligible for the  dividends-received-deduction.
After the end of each calendar year, the Funds send  information to shareholders
regarding the amount and character of distributions paid during the year.

All dividends and other  distributions  are taxable  income to the  shareholder,
whether or not such  dividends and  distributions  are  reinvested in additional
shares or paid in cash.  If the net  asset  value of a Fund's  shares  should be
reduced  below  a  shareholder's  cost  as  a  result  of a  distribution,  such
distribution  would be taxable to the shareholder  although a portion would be a
return of invested  capital.  The net asset  value of shares of a Fund  reflects
accrued net investment  income and  undistributed  realized  capital and foreign
currency gains; therefore,  when a distribution is declared, the net asset value
is reduced by the amount of the distribution.  If shares of a Fund are purchased
shortly  before a  distribution,  the full price for the shares will be paid and
some portion of the price may then be returned to the  shareholder  as a taxable
dividend or capital gain. However, the net asset value per share will be reduced
by the amount of the distribution,  which would reduce any gain (or increase any
loss) for tax purposes on any subsequent redemption of shares.

If it invests in foreign securities, a Fund may be subject to the withholding of
foreign  taxes on  dividends  or interest  it  receives  on foreign  securities.
Foreign taxes withheld will be treated as an expense of the Fund unless the Fund
meets the qualifications and makes the election to enable it to pass these taxes
through to  shareholders  for use by them as a foreign tax credit or  deduction.
Tax conventions  between  certain  countries and the United States may reduce or
eliminate such taxes.

A Fund  may  invest  in the  stock of  "passive  foreign  investment  companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following  tests:  (1) at least 75% of its gross  income  is  passive  or (2) an
average  value  of at  least  50% of its  assets  produce,  or are  held for the



<PAGE>

production of, passive  income.  Each Fund intends to "mark to market" its stock
in any PFIC.  In this context,  "marking to market" means  including in ordinary
income for each taxable year the excess, if any, of the fair market value of the
PFIC stock over the Fund's adjusted basis in the PFIC stock as of the end of the
year.  In certain  circumstances,  a Fund will also be  allowed  to deduct  from
ordinary income the excess, if any, of its adjusted basis in PFIC stock over the
fair  market  value of the PFIC stock as of the end of the year.  The  deduction
will only be allowed to the extent of any PFIC  mark-to-market  gains recognized
as ordinary  income in prior  years.  A Fund's  adjusted  tax basis in each PFIC
stock for which it makes this election will be adjusted to reflect the amount of
income included or deduction taken under the election.

Gains or losses (1) from the  disposition  of foreign  currencies,  (2) from the
disposition  of debt  securities  denominated  in  foreign  currencies  that are
attributable to fluctuations  in the value of the foreign  currency  between the
date of acquisition of each security and the date of  disposition,  and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues  interest,  dividends or other  receivables or accrues  expenses or
other  liabilities  denominated  in a  foreign  currency  and the  time the Fund
actually  collects the  receivables or pays the  liabilities,  generally will be
treated  as  ordinary  income or loss.  These  gains or losses may  increase  or
decrease  the  amount  of a  Fund's  investment  company  taxable  income  to be
distributed to its shareholders.

INVESCO may provide Fund  shareholders  with information  concerning the average
cost basis of their shares in order to help them prepare their tax returns. This
information  is  intended  as a  convenience  to  shareholders  and  will not be
reported to the Internal Revenue Service (the "IRS"). The IRS permits the use of
several  methods to  determine  the cost basis of mutual fund  shares.  The cost
basis information provided by INVESCO will be computed using the single-category
average  cost  method,  although  neither  INVESCO nor the Funds  recommend  any
particular  method of  determining  cost  basis.  Other  methods  may  result in
different tax  consequences.  If you have reported gains or losses for a Fund in
past years,  you must  continue to use the method  previously  used,  unless you
apply to the IRS for permission to change methods.

If you sell Fund  shares at a loss  after  holding  them for six months or less,
your loss will be treated as long-term  (instead of short-term)  capital loss to
the extent of any capital gain distributions that you may have received on those
shares.

Each Fund will be  subject  to a  nondeductible  4% excise  tax to the extent it
fails to  distribute by the end of any calendar  year  substantially  all of its
ordinary  income for that year and its net capital gains for the one-year period
ending on October 31 of that year, plus certain other amounts.

You should  consult  your own tax adviser  regarding  specific  questions  as to
federal,  state and local taxes.  Dividends and capital gain  distributions will
generally be subject to  applicable  state and local taxes.  Qualification  as a
regulated  investment  company  under  the  Internal  Revenue  Code of 1986,  as
amended,  for income tax  purposes  does not entail  government  supervision  of
management or investment policies.


<PAGE>

PERFORMANCE

To keep shareholders and potential investors informed, INVESCO will occasionally
advertise  the Funds' total  return for one-,  five-,  and ten-year  periods (or
since  inception).  Total  return  figures  show the rate of return on a $10,000
investment in a Fund,  assuming  reinvestment  of all dividends and capital gain
distributions for the periods cited.

Cumulative total return shows the actual rate of return on an investment for the
period  cited;  average  annual  total  return  represents  the  average  annual
percentage  change in the value of an  investment.  Both  cumulative and average
annual total returns tend to "smooth out"  fluctuations  in a Fund's  investment
results, because they do not show the interim variations in performance over the
periods  cited.   More  information  about  the  Funds'  recent  and  historical
performance is contained in the Company's Annual Report to Shareholders. You can
get a free copy by  calling or  writing  to  INVESCO  using the phone  number or
address on the back cover of the Funds' prospectus.

When we quote mutual fund  rankings  published by Lipper Inc.,  we may compare a
Fund to others in its appropriate  Lipper  category,  as well as the broad-based
Lipper general fund groupings. These rankings allow you to compare a Fund to its
peers.   Other  independent   financial  media  also  produce   performance-  or
service-related comparisons, which you may see in our promotional materials.

Performance  figures are based on  historical  earnings  and are not intended to
suggest future performance.

Average  annual  total  return  performance  for the one-,  five-,  and ten-year
periods (or since inception) ended August 31, 1999 was:


Name of Fund                       1 Year        5 Year        10 Year

High Yield Fund                    _____%        _____%         _____%
Select Income Fund                 _____%        _____%         _____%
Tax-Free Bond Fund                 _____% (a)    _____%         _____%
U.S. Government Securities Fund    _____%        _____%         _____%

(a) From July 1, 1999 to August 31, 1999.

Average annual total return  performance  for each of the periods  indicated was
computed  by finding the average  annual  compounded  rates of return that would
equate the initial amount invested to the ending redeemable value,  according to
the following formula:


<PAGE>

                               P(1 + T)n = ERV

where:         P = a hypothetical initial payment of $10,000
               T = average annual total return
               n = number of years
               ERV = ending redeemable value of initial payment

The average annual total return performance  figures shown above were determined
by solving the above formula for "T" for each time period indicated.

In  conjunction  with  performance  reports,  comparative  data between a Fund's
performance for a given period and other types of investment vehicles, including
certificates  of  deposit,   may  be  provided  to  prospective   investors  and
shareholders.

In conjunction with performance reports and/or analyses of shareholder  services
for a Fund,  comparative data between that Fund's performance for a given period
and  recognized  indices  of  investment  results  for the same  period,  and/or
assessments  of  the  quality  of  shareholder   service,  may  be  provided  to
shareholders.  Such  indices  include  indices  provided by Dow Jones & Company,
Standard  & Poor's,  Lipper  Inc.,  Lehman  Brothers,  National  Association  of
Securities  Dealers  Automated  Quotations,  Frank Russell  Company,  Value Line
Investment  Survey,   the  American  Stock  Exchange,   Morgan  Stanley  Capital
International,  Wilshire Associates, the Financial Times Stock Exchange, the New
York Stock Exchange,  the Nikkei Stock Average and Deutcher Aktienindex,  all of
which are unmanaged  market  indicators.  In addition,  rankings,  ratings,  and
comparisons  of  investment  performance  and/or  assessments  of the quality of
shareholder  service made by independent  sources may be used in advertisements,
sales literature or shareholder  reports,  including  reprints of, or selections
from,  editorials or articles about the Fund. These sources utilize  information
compiled  (i)  internally;  (ii) by Lipper  Inc.;  or (iii) by other  recognized
analytical services.  The Lipper Inc. mutual fund rankings and comparisons which
may be used by the Funds in performance reports will be drawn from the following
mutual fund  groupings,  in  addition to the  broad-based  Lipper  general  fund
groupings:

High Yield Fund                             High Current Yield Funds
Select Income Fund                          ________________ Funds
Tax-Free Bond Fund                          General Municipal Bond Funds
U.S. Government Securities Fund             U.S. Government Funds

Sources for Fund  performance  information and articles about the Funds include,
but are not limited to, the following:

AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS' JOURNAL
BANXQUOTE
BARRON'S
BUSINESS WEEK
CDA INVESTMENT TECHNOLOGIES
CNBC
CNN


<PAGE>

CONSUMER DIGEST
FINANCIAL TIMES
FINANCIAL WORLD
FORBES
FORTUNE
IBBOTSON ASSOCIATES, INC.
INSTITUTIONAL INVESTOR
INVESTMENT COMPANY DATA, INC.
INVESTOR'S BUSINESS DAILY
KIPLINGER'S PERSONAL FINANCE
LIPPER INC.'S MUTUAL FUND PERFORMANCE ANALYSIS
MONEY
MORNINGSTAR
MUTUAL FUND FORECASTER
NO-LOAD ANALYST
NO-LOAD FUND X
PERSONAL INVESTOR
SMART MONEY
THE NEW YORK TIMES
THE NO-LOAD FUND INVESTOR
U.S. NEWS AND WORLD REPORT
UNITED MUTUAL FUND SELECTOR
USA TODAY
THE WALL STREET JOURNAL
WIESENBERGER INVESTMENT COMPANIES SERVICES
WORKING WOMAN
WORTH



FINANCIAL STATEMENTS

The  financial  statements  for the Company for the fiscal year ended August 31,
1999 are  incorporated  herein by reference from the Company's  Annual Report to
Shareholders dated August 31, 1999.



<PAGE>

APPENDIX A

BOND RATINGS

The following is a description of Moody's and S&P's bond ratings:

Moody's Corporate Bond Ratings

Aaa - Bonds  rated Aaa are  judged  to be of the best  quality.  They  carry the
smallest   degree  of  investment   risk  and  are  generally   referred  to  as
"gilt-edged."  Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure.  While the various  protective  elements
are likely to change,  such changes as can be  visualized  are most  unlikely to
impair the fundamentally strong position of such issues.

Aa - Bonds rated Aa are judged to be of high quality by all standards.  Together
with the Aaa group,  they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because  margins of protection  may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater  amplitude or there may be other  elements  present  which make the long
term risk appear somewhat larger than in Aaa securities.

A - Bonds rated A possess many favorable  investment  attributes,  and are to be
considered  as upper  medium  grade  obligations.  Factors  giving  security  to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa - Bonds rated Baa are considered as medium grade obligations, i.e., they are
neither highly  protected nor poorly  secured.  Interest  payments and principal
security appear adequate for the present but certain protective  elements may be
lacking or may be  characteristically  unreliable over any great length of time.
Such  bonds  lack  outstanding  investment  characteristics  and  in  fact  have
speculative characteristics as well.

Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well  assured.  Often the  protection of interest and principal
payments may be very moderate and thereby not well safeguarded  during both good
and bad times over the future.  Uncertainty of position  characterizes  bonds in
this class.

B - Bonds rated B generally lack  characteristics  of the desirable  investment.
Assurance of interest and principal  payments or  maintenance  of other terms of
the contract over any longer period of time may be small.

Caa - Bonds  rated Caa are of poor  standing.  Such  issues may be in default or
there may be present elements of danger with respect to principal or interest.


<PAGE>

S&P Corporate Bond Ratings

AAA - This is the  highest  rating  assigned  by  Standard  &  Poor's  to a debt
obligation  and  indicates an extremely  strong  capacity to pay  principal  and
interest.

AA - Bonds rated AA also qualify as high-quality debt  obligations.  Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.

A - Bonds rated A have a strong capacity to pay principal and interest, although
they are  somewhat  more  susceptible  to the  adverse  effects  of  changes  in
circumstances and economic conditions than bonds in higher rated categories.

BBB - Bonds  rated BBB are  regarded  as having an  adequate  capability  to pay
principal  and  interest.  Whereas they  normally  exhibit  adequate  protection
parameters,  adverse  economic  conditions  or changing  circumstances  are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.

BB - Bonds  rated BB have less  near-term  vulnerability  to default  than other
speculative issues.  However,  they face major ongoing uncertainties or exposure
to adverse  business,  financial,  or  economic  conditions  which could lead to
inadequate capacity to meet timely interest and principal payments.

B - Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal  repayments.  Adverse business,
financial,  or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.

CCC - Bonds rated CCC have a currently identifiable vulnerability to default and
are dependent upon favorable  business,  financial,  and economic  conditions to
meet timely  payment of interest  and  repayment of  principal.  In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.



<PAGE>

                            PART C. OTHER INFORMATION
Item 23.    Exhibits

               (a)  Articles of Incorporation filed April 2, 1993.(1)

                    (1) Articles of Amendment to Articles of Incorporation filed
                    May 14, 1998.

                    (2) Articles of Amendment to Articles of Incorporation filed
                    October 29, 1998.

                    (3)  Articles  Supplementary  to Articles  of  Incorporation
                    filed May 28, 1999.(5)

                    (4) Articles of Amendment to Articles of Incorporation filed
                    August 13, 1999.

                    (5) Articles of Transfer of INVESCO  Tax-Free  Income Funds,
                    Inc. and INVESCO Bond Funds, Inc. filed August 13, 1999.

               (b)  Bylaws.(1)

               (c) Provisions of  instruments  defining the rights of holders of
               Registrant's  securities are contained in Articles II, IV, VI and
               VIII of the Articles of Incorporation  and Articles I, II, V, VI,
               VII, VIII, IX and X of the Bylaws of the Registrant.

               (d)(1)  Investment  Advisory  Agreement  between  Registrant  and
               INVESCO Funds Group, Inc. dated February 28, 1997.(2)

                    (a) Amendment dated August 13, 1999 to Advisory Agreement.

               (e)(1)  General  Distribution  Agreement  between  Registrant and
               INVESCO Distributors, Inc. dated September 30, 1997.(2)

               (f)  (1)  Defined   Benefit   Deferred   Compensation   Plan  for
               Non-Interested Directors and Trustees.(3)

                    (2) Amended Defined Benefit Deferred Compensation Plan for
                    Non-Interested Directors and Trustees.(3)

               (g) Custody  Agreement  between  Registrant and State Street Bank
               and Trust Company dated July 1, 1994.(1)

                    (1) Amendment to Custody Agreement dated October 25,1995.(1)

                    (2) Data Access Services Addendum.(2)

                    (3) Form of Additional Fund Letter dated August 18, 1999.


<PAGE>

               (h)  (1)  Transfer  Agency  Agreement  between  Registration  and
               INVESCO Funds Group, Inc. dated February 28, 1997.(2)

                    (a)  Amendment  dated  October 29,  1998 to Transfer  Agency
               Agreement.

                    (2) Administrative Services Agreement between Registrant and
               INVESCO Funds Group, Inc. dated February 28, 1997.(2)

                         (a)  Amendment  dated  May 13,  1999 to  Administrative
                    Services Agreement.

               (i)  (1) Opinion and consent of counsel as to the legality of the
               securities being registered,  indicating  whether they will, when
               sold, be legally issued, fully paid and non-assessable(2)

                    (2) Opinon and  Consent of Counsel  with  respect to INVESCO
               Tax-Free  Bond Fund as to the  legality of the  securities  being
               registered dated August 13, 1999(5)

               (j) Consent of Independent Accountants.

               (k) Not applicable.

               (l) Not applicable.

               (m)(1)  Amended Plan and  Agreement of  Distribution  pursuant to
               Rule  12b-1  under  the  Investment  Company  Act of  1940  dated
               September 30, 1997.(2)

               (n) Not Applicable.

               (o) Not Applicable.

(1)Previously  filed with  Post-Effective  Amendment No. 36 to the  Registration
Statement on October 30, 1996, and incorporated by reference herein.

(2)Previously  filed with  Post-Effective  Amendment No. 37 to the  Registration
Statement on October 30, 1997, and incorporated by reference herein.

(3)Previously  filed with  Post-Effective  Amendment No. 38 to the  Registration
Statement on October 28, 1998, and incorporated by reference herein.

(4)Previously  filed with  Post-Effective  Amendment No. 39 to the  Registration
Statement on August 13, 1999, and incorporated by reference herein.


Item 24.    Persons Controlled by or Under Common Control with the Fund

No person is presently controlled by or under common control with the Fund.


<PAGE>

Item 25.    Indemnification

Indemnification  provisions for officers,  directors and employees of Registrant
are set forth in  Article  Seventh of the  Articles  of  Incorporation,  and are
hereby  incorporated  by  reference.  See Item 24 above.  Under these  Articles,
directors and officers will be indemnified  to the fullest  extent  permitted to
directors  by the  Maryland  General  Corporation  Law,  subject  only  to  such
limitations  as may be  required  by the  Investment  Company  Act of  1940,  as
amended,  and the rules  thereunder.  Under the Investment  Company Act of 1940,
Fund directors and officers cannot be protected against liability to the Fund or
its shareholders to which they would be subject because of willful  misfeasance,
bad faith, gross negligence or reckless disregard of the duties of their office.
The Company also maintains  liability  insurance policies covering its directors
and officers.

Item 26.    Business and Other Connections of Investment Adviser

See "Fund  Management" in the Fund's Prospectus and "Management of the Funds" in
the Statement of Additional  Information for information  regarding the business
of the investment adviser, INVESCO.

Following are the names and principal  occupations  of each director and officer
of the investment adviser, INVESCO. Certain of these persons hold positions with
IDI, a subsidiary of INVESCO.

--------------------------------------------------------------------------------
                              Position with
Name                          Adviser         Principal Occupation and Company
                                              Affiliation
--------------------------------------------------------------------------------
Mark H. Williamson            Chairman,       President & Chief Executive
                              Director and    Officer
                              Officer         INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------
Raymond Roy Cunningham        Officer         Senior Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------
William J. Galvin, Jr.        Officer         Senior Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------
Ronald L. Grooms              Officer         Senior Vice President & Treasurer
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Richard W. Healey             Officer         Senior Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
William Ralph Keithler        Officer         Senior Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------


<PAGE>

--------------------------------------------------------------------------------
Charles P. Mayer              Officer &       Senior Vice President
                              Director        INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Timothy J. Miller             Officer         Senior Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Donovan J. (Jerry) Paul       Officer         Senior Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Glen A. Payne                 Officer         Senior Vice President, Secretary
                                              & General Counsel
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
John R. Schroer, II           Officer         Senior Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Marie E. Aro                  Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Ingeborg S. Cosby             Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Stacie Cowell                 Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Dawn Daggy-Mangerson          Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Elroy E. Frye, Jr.            Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Linda J. Gieger               Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------


<PAGE>

--------------------------------------------------------------------------------
Mark D. Greenberg             Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Brian B. Hayward              Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Richard R. Hinderlie          Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Thomas M. Hurley              Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Patricia F. Johnston          Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Campbell C. Judge             Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------
Peter M. Lovell               Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
James F. Lummanick            Officer         Vice President & Assistant
                                              General Counsel
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Thomas A. Mantone, Jr.        Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Trent E. May                  Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Corey M. McClintock           Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------


<PAGE>

--------------------------------------------------------------------------------
Douglas J. McEldowney         Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------
Frederick R. (Fritz) Meyer    Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Stephen A.  Moran             Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------
Jeffrey G. Morris             Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Laura M. Parsons              Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Jon B. Pauley                 Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Pamela J. Piro                Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Anthony R. Rogers             Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------
Gary L. Rulh                  Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
James B. Sandidge             Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------
John S. Segner                Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------


<PAGE>

--------------------------------------------------------------------------------
Terri B. Smith                Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Tane T. Tyler                 Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------
Thomas R. Wald                Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Alan I. Watson                Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Judy P. Wiese                 Officer         Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Thomas H. Scanlan             Officer         Regional Vice President
                                              INVESCO Funds Group, Inc.
                                              12028 Edgepark Court
                                              Potomac, MD 20854
--------------------------------------------------------------------------------
Reagan A. Shopp               Officer         Regional Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO  80237
--------------------------------------------------------------------------------
Michael D. Legoski            Officer         Assistant Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------
Donald R. Paddack             Officer         Assistant Vice President
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------
Kent T. Schmeckpeper          Officer         Assistant Vice President
                                              Account Relationship Manager
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------
Jeraldine E. Kraus            Officer         Assistant Secretary
                                              INVESCO Funds Group, Inc.
                                              7800 East Union Avenue
                                              Denver, CO 80237
--------------------------------------------------------------------------------


<PAGE>

Item 27.    Principal Underwriters

            INVESCO Bond Funds, Inc.
            INVESCO Combination Stock & Bond Funds, Inc.
            INVESCO International Funds, Inc.
            INVESCO Money Market Funds, Inc.
            INVESCO Sector Funds, Inc.
            INVESCO Specialty Funds, Inc.
            INVESCO Stock Funds, Inc.
            INVESCO Treasurer's Series Funds, Inc.
            INVESCO Variable Investment Funds, Inc.

               (b)

Positions and                                   Positions and
Name and Principal      Offices with            Offices with
Business Address        Underwriter             the Company

William J. Galvin, Jr.  Senior Vice             Assistant Secretary
7800 E. Union Avenue    President &
Denver, CO  80237       Asst. Secretary

Ronald L. Grooms        Senior Vice             Treasurer,
7800 E. Union Avenue    President,              Chief Fin'l
Denver, CO  80237       Treasurer, &            Officer, and
                        Director                Chief Acctg. Off.

Richard W. Healey       Senior Vice
7800 E. Union Avenue    President  &
Denver, CO  80237       Director

Charles P. Mayer        Director
7800 E. Union Avenue
Denver, CO 80237

Timothy J. Miller       Director
7800 E. Union Avenue
Denver, CO 80237

Glen A. Payne           Senior Vice             Secretary
7800 E. Union Avenue    President,
Denver, CO 80237        Secretary &
                        General Counsel

Pamela J. Piro          Asst. Treasurer         Asst. Treasurer
7800 E. Union Avenue
Denver, CO 80237

Judy P. Wiese           Vice President          Asst. Secretary
7800 E. Union Avenue    & Assistant
Denver, CO  80237       Secretary


<PAGE>

Mark H. Williamson      Chairman of the Board,  President,
7800 E. Union Avenue    President, & Chief      CEO & Director
Denver, CO 80237        Executive Officer


               (c)     Not applicable.

Item 28.       Location of Accounts and Records

               Mark H. Williamson
               7800 E. Union Avenue
               Denver, CO  80237

Item 29.       Management Services

               Not applicable.

Item 30.       Undertakings

               Not applicable











<PAGE>

Pursuant to the  requirements  of the  Securities Act of 1933 and the Investment
Company Act of 1940, the Fund has duly caused this  post-effective  amendment to
be signed on its behalf by the undersigned,  thereunto duly  authorized,  in the
City of Denver,  County of Denver,  and State of  Colorado,  on the 30th day of
August, 1999.

                                          INVESCO Bond Funds, Inc.
Attest:

 /s/ Glen A. Payne                        /s/ Mark H. Williamson
-------------------------------           ----------------------------------
Glen A. Payne, Secretary                  Mark H. Williamson, President

Pursuant to the  requirements of the Securities Act of 1933,  this  registration
statement has been signed below by the following  persons in the  capacities and
on the date indicated.

/s/ Mark H. Williamson                    /s/ Lawrence H. Budner
-------------------------------           -----------------------------
Mark H. Williamson, President &           Lawrence H. Budner, Director
Director (Chief Executive Officer)

/s/ Ronald L. Grooms                      /s/ John W. McIntyre
-------------------------------           -----------------------------
Ronald L. Grooms, Treasurer               John W. McIntyre, Director
(Chief Financial and Accounting
Officer)

/s/ Victor L. Andrews                     /s/ Fred A. Deering
-------------------------------           -----------------------------
Victor L. Andrews, Director               Fred A. Deering, Director

/s/ Bob R. Baker                          /s/ Larry Soll
-------------------------------           -----------------------------
Bob R. Baker, Director                    Larry Soll, Director

/s/ Charles W. Brady                      /s/ Kenneth T. King
-------------------------------           -----------------------------
Charles W. Brady, Director                Kenneth T. King, Director

/s/ Wendy L. Gramm
-------------------------------
Wendy L. Gramm, Director

By*_____________________________          By*  /s/ Glen A. Payne
                                          -------------------------
Edward F. O'Keefe                               Glen A. Payne
Attorney in Fact                                Attorney in Fact

* Original Powers of Attorney  authorizing  Edward F. O'Keefe and Glen A. Payne,
and each of them, to execute this  post-effective  amendment to the Registration
Statement of the Registrant on behalf of the above-named  directors and officers
of the Registrant have been filed with the Securities and Exchange Commission on
January 9, 1990,  January 16, 1990,  May 22, 1992,  March 31, 1994,  October 23,
1995, October 30, 1996 and October 30, 1997. respectively.



<PAGE>

                                  Exhibit Index

                                          Page in
Exhibit Number                            Registration Statement
   a(4)
   a(5)
   d(1)(a)
   g(3)
   h(1)(a)
   h(2)(a)
   j