PROSPECTUS | FEBRUARY 28, 2002
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YOU SHOULD KNOW WHAT INVESCO KNOWS(R)
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INVESCO BOND FUNDS, INC.

INVESCO HIGH YIELD FUND--INVESTOR CLASS, CLASS A, B, C, AND K
INVESCO SELECT INCOME FUND--INVESTOR CLASS, CLASS A, B, C, AND K
INVESCO TAX-FREE BOND FUND--INVESTOR CLASS, CLASS A, B, AND C
INVESCO U.S. GOVERNMENT SECURITIES FUND--INVESTOR CLASS, CLASS A, B, AND C

FOUR MUTUAL FUNDS DESIGNED FOR INVESTORS SEEKING A HIGH LEVEL OF CURRENT INCOME.

EFFECTIVE APRIL 1, 2002, THE INVESTOR CLASS SHARES OFFERED BY THIS PROSPECTUS
WILL BE OFFERED ONLY TO GRANDFATHERED INVESTORS. PLEASE SEE THE SECTION OF THE
PROSPECTUS ENTITLED "HOW TO BUY SHARES."

CLASS A, B, AND C SHARES ARE SOLD PRIMARILY THROUGH FINANCIAL INTERMEDIARIES.
CLASS K SHARES ARE SOLD TO QUALIFIED RETIREMENT PLANS, RETIREMENT SAVINGS
PROGRAMS, EDUCATIONAL SAVINGS PROGRAMS AND WRAP PROGRAMS PRIMARILY THROUGH
FINANCIAL INTERMEDIARIES.

            CLASS A AND B SHARES WILL BE AVAILABLE ON APRIL 1, 2002.

TABLE OF CONTENTS
Investment Goals, Strategies And Risks.....................................2
Fund Performance...........................................................4
Fees And Expenses..........................................................6
Investment Risks...........................................................9
Principal Risks Associated With The Funds..................................9
Temporary Defensive Positions.............................................11
Portfolio Turnover........................................................12
Fund Management...........................................................12
Portfolio Managers........................................................12
Potential Rewards.........................................................13
Share Price...............................................................13
How To Buy Shares.........................................................14
Your Account Services.....................................................19
How To Sell Shares........................................................19
Taxes.....................................................................21
Dividends And Capital Gain Distributions..................................22
Financial Highlights......................................................23


No dealer,  salesperson,  or any other  person has been  authorized  to give any
information or to make any  representations  other than those  contained in this
Prospectus and you should not rely on such other information or representations.

                           [INVESCO ICON] INVESCO(R)

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>
INVESCO Funds Group, Inc.  ("INVESCO") is the investment  advisor for the Funds.
Together with our affiliated companies,  we at INVESCO direct all aspects of the
management and sale of the Funds.

This Prospectus contains important  information about the Funds' Investor Class,
Class A , B, C and, if applicable,  K shares.  Class A, B, and C shares are sold
primarily through financial intermediaries. Class K shares are sold to qualified
retirement plans, retirement savings programs,  educational savings programs and
wrap programs primarily through financial intermediaries.  If you invest through
a financial  intermediary,  please contact your financial  intermediary or, with
respect  to  Class  K  shares,  your  plan  or  program  sponsor,  for  detailed
information on suitability and  transactional  issues (i.e.,  how to purchase or
sell shares,  minimum investment  amounts,  and fees and expenses).  Each of the
Fund's  classes  has  varying   expenses,   with  resulting   effects  on  their
performance.  You can choose the class of shares that is best for you,  based on
how much you plan to invest and other relevant factors  discussed in "How To Buy
Shares."

THIS PROSPECTUS WILL TELL YOU MORE ABOUT:

[KEY ICON]      INVESTMENT GOALS & STRATEGIES
[ARROWS ICON]   POTENTIAL INVESTMENT RISKS
[GRAPH ICON]    PAST PERFORMANCE
[INVESCO ICON]  WORKING WITH INVESCO

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[KEY ICON] [ARROWS ICON]  INVESTMENT GOALS, STRATEGIES AND RISKS

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 The Funds seek to provide you with a high level
of current  income by investing  primarily  in bonds and other debt  securities.
High  Yield,  Select  Income,  and U.S.  Government  Securities  Funds also seek
capital appreciation.

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 are usually more
sensitive to interest rate movements. There are no limitations on the maturities
of the securities  held by a Fund, and the Fund's average  maturity will vary as
INVESCO responds to changes in interest rates.

The Funds are subject to other principal risks such as credit,  debt securities,
duration, liquidity, prepayment, foreign securities, lack of timely information,
and portfolio  turnover risks.  These risks are described and discussed later in
the  Prospectus  under the  headings  "Investment  Risks" and  "Principal  Risks
Associated With The Funds." 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 may lose money on your investment in a Fund.

[KEY ICON] INVESCO HIGH YIELD FUND - INVESTOR CLASS, CLASS A, B, C, AND K

The Fund  normally  invests at least 65% (80%  effective  July 31,  2002) of its
assets in a  diversified  portfolio  of high yield  corporate  bonds rated below
investment  grade,  commonly  known as "junk bonds," and  preferred  stocks with
investment grade and below investment grade ratings. These investments generally
offer higher rates of return,  but are riskier than investments in securities of
issuers with higher credit ratings.
<PAGE>
A portion  of the Fund's  assets may be  invested  in other  securities  such as
corporate short-term notes, repurchase agreements and money market funds.

At any given  time,  the Funds may be subject  to sector  risk.  Companies  with
similar  lines  of  business  (for  example,   financial  services,  health,  or
technology) are grouped together in broad categories called sectors. Sector risk
is the possibility that a certain sector may  underperform  other sectors or the
market as a whole.  The Fund is not limited  with respect to sectors in which it
can invest.  If the portfolio  manager  allocates  more of the Fund's  portfolio
holdings to a particular economic sector, the Fund's overall performance will be
more  susceptible  to  the  economic,  business,  or  other  developments  which
generally affect that sector.  The Fund can still be diversified,  even if it is
heavily weighted in one or more sectors.

[KEY ICON] INVESCO SELECT INCOME FUND - INVESTOR CLASS, CLASS A, B, C, AND K

The Fund  normally  invests  at least 80% of it  assets in bonds and other  debt
securities and preferred stocks. Normally, at least 50% of the Fund's assets are
invested  in  investment  grade  securities  at the time of  purchase.  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 or preferred stocks rated below investment grade ("junk bonds").

A  portion  of the  Fund's  assets  may be  invested  in  securities  issued  or
guaranteed by the U.S. government, its agencies or instrumentalities,  bank CDs,
and municipal obligations, repurchase agreements and money market funds.

At any given  time,  the Fund may be  subject  to sector  risk.  Companies  with
similar  lines  of  business  (for  example,   financial  services,  health,  or
technology) are grouped together in broad categories called sectors. Sector risk
is the possibility that a certain sector may  underperform  other sectors or the
market as a whole.  The Fund is not limited  with respect to sectors in which it
can invest.  If the portfolio  manager  allocates  more of the Fund's  portfolio
holdings to a particular economic sector, the Fund's overall performance will be
more  susceptible  to  the  economic,  business,  or  other  developments  which
generally affect that sector.  The Fund can still be diversified,  even if it is
heavily weighted in one or more sectors.

[KEY ICON] INVESCO TAX-FREE BOND FUND - INVESTOR CLASS, CLASS A, B, AND C

The Fund  normally  invests at least 80% of its assets 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.
Portions of capital gain  distributions  made by the Fund may be taxable.  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 of sales of portfolio
securities; (b) pending settlement of purchases of portfolio securities; and (c)
<PAGE>
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.

[KEY ICON]  INVESCO U.S. GOVERNMENT SECURITIES FUND - INVESTOR CLASS,
            CLASS A, B, AND C

The Fund  normally  invests at least 65% (80%  effective  July 31,  2002) of its
assets 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
Government  National  Mortgage  Association  (GNMA),  Federal National  Mortgage
Association (FNMA) and Federal Home Loan Mortgage  Corporation  (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.

[GRAPH ICON] FUND PERFORMANCE

Performance  information in the bar charts below is that of the Funds'  Investor
Class  shares  which has the longest  operating  history of the Funds'  classes.
Information  included in the table is that of Investor  Class,  Class C, and, if
applicable,  Class K shares.  Performance  information for Class A and B and, if
applicable, Class K shares is not shown in the table as those classes do not yet
have a full calendar year of performance.  Investor Class and Class A, B, C, and
K returns  would be similar  because  all  classes of shares  invest in the same
portfolio of securities.  The returns of the classes would differ,  however,  to
the  extent of  differing  levels  of  expenses.  In this  regard,  the  returns
reflected  in the bar charts and table  reflect  only the total  expenses of the
class shown.  If the effect of the other classes' total expenses were reflected,
the returns  would be lower than those  shown  because  the other  classes  have
higher total expenses.

The bar charts below show the Funds'  Investor  Class actual yearly  performance
(commonly  known as their "total  return") for the years ended  December 31 over
the past  decade.  The returns in the bar chart do not reflect the sales  charge
for Class A shares or the applicable contingent deferred sales charge (CDSC) for
Class B or Class C shares;  if they did, the total returns shown would be lower.
The table below shows average annual total returns of Investor  Class,  Class C,
and, if applicable, Class K for various periods ended December 31, 2001 for each
class  compared to the  Merrill  Lynch High Yield  Master  Trust  Index,  Lehman
Government/Credit Bond Index, Lehman Municipal Bond Index, and Lehman Government
Long Bond  Index.  The  information  in the  charts  and table  illustrates  the
variability  of each Fund's total 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.

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                        HIGH YIELD FUND - INVESTOR CLASS
                        ACTUAL ANNUAL TOTAL RETURN(1),(2)
================================================================================
                               [GRAPHIC OMITTED]

'92     '93     '94      '95     '96     '97     '98    '99    '00      '01
14.53%  15.81%  (4.98%)  17.90%  14.08%  17.10%  0.15%  9.30%  (12.06%) (19.01%)
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Best Calendar Qtr.    9/97      6.99%
Worst Calendar Qtr.   9/01    (15.03%)
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<PAGE>
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                       SELECT INCOME FUND - INVESTOR CLASS
                        ACTUAL ANNUAL TOTAL RETURN(1),(2)
================================================================================
                                [GRAPHIC OMITTED]

'92     '93     '94      '95     '96     '97     '98    '99     '00    '01
10.38%  11.43%  (1.20%)  20.61%  4.87%   11.72%  7.13%  (1.37%) 5.12%  (2.86%)
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Best Calendar Qtr.    6/95      6.75%
Worst Calendar Qtr.   9/01     (3.25%)
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                       TAX-FREE BOND FUND - INVESTOR CLASS
                        ACTUAL ANNUAL TOTAL RETURN(1),(2)
================================================================================
                               [GRAPHIC OMITTED]

'92     '93     '94      '95     '96     '97     '98    '99      '00     '01
8.77%   12.11%  (5.52%)  15.64%  2.36%   8.67%   4.72%  (3.36%)  12.07%  3.19%
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Best Calendar Qtr.   12/95      5.65%
Worst Calendar Qtr.   3/94     (5.76%)
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                        U.S. GOVERNMENT SECURITIES FUND -
                                 INVESTOR CLASS
                        ACTUAL ANNUAL TOTAL RETURN(1),(2)
--------------------------------------------------------------------------------
                                [GRAPHIC OMITTED]

'92     '93     '94      '95     '96     '97     '98     '99     '00    '01
5.68%   10.28%  (7.20%)  22.13%  0.47%   12.26%  10.11%  (5.97%) 14.65% 5.41%
--------------------------------------------------------------------------------
Best Calendar Qtr.    6/95      7.68%
Worst Calendar Qtr.   3/94     (4.53%)
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                                                AVERAGE ANNUAL TOTAL RETURN(3)
                                                       AS OF 12/31/01
--------------------------------------------------------------------------------
                                                  1 YEAR    5 YEARS  10 YEARS
INVESTOR CLASS
High Yield Fund(1)                               (19.01%)   (1.81%)    4.46%
Merrill Lynch High Yield Master Trust Index(4)     6.20%     3.95%     8.26%

Select Income Fund(1)                             (2.86%)    3.81%     6.36%
Lehman Government/Credit Bond Index(4)             8.50%     7.37%     7.27%

Tax-Free Bond Fund(1)                              3.19%     4.93%     5.66%
Lehman Municipal Bond Index(4)                     5.13%     5.98%     6.63%

U.S. Government Securities Fund(1)                 5.41%     7.03%     6.43%
Lehman Government Long Bond Index(4)               4.34%     8.38%     8.56%

CLASS C (INCLUDING CDSC)
High Yield Fund(1)                               (20.65%)     N/A    (16.96%)(5)
Merrill Lynch High Yield Master Trust Index(4)     6.20%      N/A      1.41%(5)

Select Income Fund(1)                             (4.60%)     N/A      0.36%(5)
Lehman Government/Credit Bond Index(4)             8.50%      N/A     10.40%(5)
<PAGE>
Tax-Free Bond Fund(1)                              1.22%      N/A     14.27%(5)
Lehman Municipal Bond Index(4)                     5.13%      N/A      8.72%(5)

U.S. Government Securities Fund(1)                 3.61%      N/A      8.94%(5)
Lehman Government Long Bond Index(4)               4.34%      N/A     10.61%(5)

CLASS K
High Yield Fund(1)                               (19.53%)     N/A    (19.76%)(6)
Merrill Lynch High Yield Master Trust Index(4)     6.20%      N/A      7.83%(6)

Select Income Fund(1)                             (2.99%)     N/A     (2.66)(6)
Lehman Government/Credit Bond Index(4)             8.50%      N/A      9.79%(6)

(1)  Total  return  figures  include  reinvested   dividends  and  capital  gain
distributions and the effect of each class' expenses.
(2) The year-by-year  returns are for Investor Class only and do not include the
effect of a 12b-1 fee in excess of  0.25%,  Class A's  front-end  sales  charge,
Class B's or Class C's CDSC, or other expenses specific to the other classes. If
the effect of the other classes' total expenses, including 12b-1 fees, front-end
sales charge for Class A, and CDSC for Class B and C, were  reflected,  returns
would be lower than those shown.
(3) The total  returns are for those classes of shares with a full calendar year
of performance.  If the effect of the other classes' total  expenses,  including
12b-1  fees,  front-end  sales  charge  for  Class A and CDSC for  Class B were
reflected, returns would be lower than those shown.
(4) The Merrill  Lynch High Yield Master Trust Index,  Lehman  Government/Credit
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,
respectively.  Please  keep in  mind  that  the  indexes  do not pay  brokerage,
management,  administrative or distribution  expenses,  all of which are paid by
the classes and are reflected in their annual returns. Index returns also do not
include sales charges or CDSC that are paid by the shareholder.
(5) Since  inception of Class C shares on February 15,  2000.  Index  comparison
begins on February 29, 2000.
(6) Since  inception  of Class K shares on  December 14, 2000. Index  comparison
begins on November 30, 2000.

FEES AND EXPENSES

This table  describes the fees and expenses that you may pay if you buy and hold
Investor  Class,  Class A, Class B, Class C, or Class K shares of the Funds.  If
you invest in the Funds through a financial  intermediary,  you may be charged a
commission or transaction  fee by the financial  intermediary  for purchases and
sales of Fund shares.

SHAREHOLDER FEES PAID DIRECTLY FROM YOUR ACCOUNT

ALL FUNDS
<TABLE>
<CAPTION>
                                          Investor Class       Class A       Class B        Class C     Class K
<S>                                        <C>                 <C>            <C>            <C>         <C>
Maximum Front-End Sales Charge
  on purchases as a percentage of
  offering price                               None             4.75%         None           None        None
Maximum Contingent Deferred
  Sales Charge (CDSC) as a  percentage
  of the total original cost of the shares     None             None(1)      5.00%(2)        1.00%(2)    None
Maximum Sales Charge on reinvested
  dividends/distributions                      None             None          None           None        None

HIGH YIELD FUND ONLY
Redemption Fee (as a percentage of
  amount redeemed)                             2.00%(3)         None          None           None        None
Exchange Fee                                   2.00%(3)         None          None           None        None
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS

HIGH YIELD FUND                           Investor Class       Class A       Class B        Class C     Class K
<S>                                        <C>                 <C>            <C>            <C>         <C>
Management Fees                                0.42%            0.42%         0.42%          0.42%       0.42%
Distribution and Service (12b-1) Fees(4)       0.25%            0.35%         1.00%          1.00%       0.45%
Other Expenses(5)                              0.41%            0.41%(6)      0.41%(6)       0.27%       0.41%(7)
                                               -----            -----         -----          -----       -----
Total Annual Fund Operating Expenses(5)        1.08%            1.18%(6)      1.83%(6)       1.69%       1.28%(7)
                                               =====            =====         =====          =====       =====

SELECT INCOME FUND                        Investor Class       Class A       Class B        Class C     Class K
Management Fees                                0.48%            0.48%         0.48%          0.48%       0.48%
Distribution and Service (12b-1) Fees(4)       0.25%            0.35%         1.00%          1.00%       0.45%
Other Expenses(5)                              0.59%(8)         0.59%(6),(9)  0.59%(6),(10)  0.31%(11)   0.59%(7),(12)
                                               -----            -----         -----          -----       -----
Total Annual Fund Operating Expenses(5)        1.32%(8)         1.42%(6)      2.07%(6),(10)  1.79%(11)   1.52%(7),(12)
                                               =====            =====         =====          =====       =====

TAX-FREE BOND FUND                        Investor Class       Class A       Class B        Class C
Management Fees                                0.55%            0.55%         0.55%          0.55%
Distribution and Service (12b-1) Fees(4)       0.25%            0.35%         1.00%          1.00%
Other Expenses(5)                              0.28%(8)         0.28%(6),(9)  0.28%(6),(10)  0.29%(11)
                                               -----            -----         -----          -----
Total Annual Fund Operating Expenses(5)        1.08%(8)         1.18%(6),(9)  1.83%(6),(10)  1.84%(11)
                                               =====            =====         =====          =====

U.S. GOVERNMENT SECURITIES FUND           Investor Class       Class A       Class B        Class C
Management Fees                                0.55%            0.55%         0.55%          0.55%
Distribution and Service (12b-1) Fees(4)       0.25%            0.35%         1.00%          1.00%
Other Expenses(5)                              0.63%(8)         0.63%(6),(9)  0.63%(6),(10)  0.27%(11)
                                               -----            -----         -----          -----
Total Annual Fund Operating Expenses(5)        1.43%(8)         1.53%(6),(9)  2.18%(6),(10)  1.82%(11)
                                               =====            =====         =====          =====
</TABLE>
(1) If you buy  $1,000,000  or more of Class A shares  and redeem  those  shares
within  eighteen  months from the date of purchase,  you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) A 5% and 1% CDSC may be charged on Class B and Class C shares, respectively.
Please see the section entitled "How To Buy Shares."
(3) A 2% fee is charged on  redemptions or exchanges of shares held three months
or less,  other than shares  acquired  through  reinvestment  of  dividends  and
distributions.
(4) Because the Funds pay 12b-1  distribution  and service  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.
(5) Each Fund's actual Other Expenses and Total Annual Fund  Operating  Expenses
were, with the exception of Class A and B, lower than the figures shown, because
their custodian fees were reduced under expense offset arrangements.
(6) Based on estimated expenses for the current fiscal year.
(7) Based on estimated  expenses for the current fiscal year,  which may be more
representative than actual expenses shown in the financial highlights due to the
relatively  short  period from  inception of Class K shares on December 14, 2000
through August 31, 2001.
(8) Certain expenses of Select Income Fund - Investor Class,  Tax-Free Bond Fund
- Investor  Class and U.S.  Government  Securities  Fund -  Investor  Class were
absorbed  voluntarily by INVESCO pursuant to  commitments  between the Funds and
INVESCO.  These  commitments  may be changed at any time following  consultation
with the board of directors.  After absorption, but excluding any expense offset
arrangements,  Select Income Fund's  Investor  Class shares' Other  Expenses and
Total Annual Fund Operating Expenses were 0.32% and 1.05%, respectively,  of the
Fund's average net assets  attributable to Investor Class shares;  Tax-Free Bond
Fund's  Investor  Class shares' Other  Expenses and Total Annual Fund  Operating
Expenses were 0.10% and 0.90%,  respectively,  of the Fund's  average net assets
attributable to Investor Class shares;  and U.S.  Government  Securities  Fund's
<PAGE>
Investor Class shares' Other  Expenses and Total Annual Fund Operating  Expenses
were  0.20%  and  1.00%,   respectively,   of  the  Fund's  average  net  assets
attributable to Investor Class shares.
(9) Certain expenses of Select Income Fund - Class A, Tax-Free Bond Fund - Class
A and U.S. Government  Securities Fund - Class A will be absorbed voluntarily by
INVESCO  pursuant  to    commitments  between  the  Funds  and  INVESCO.   These
commitments may be changed at any time following  consultation with the board of
directors.  After  absorption,  but excluding any expense  offset  arrangements,
Select  Income  Fund's  Class A shares'  Other  Expenses  and Total  Annual Fund
Operating  Expenses are  estimated to be 0.32% and 1.15%,  respectively,  of the
Fund's average net assets  attributable to Class A shares;  Tax-Free Bond Fund's
Class A shares'  Other  Expenses  and Total Annual Fund  Operating  Expenses are
estimated to be 0.10% and 1.00%, respectively,  of the Fund's average net assets
attributable to Class A shares;  and U.S.  Government  Securities Fund's Class A
shares' Other Expenses and Total Annual Fund Operating Expenses are estimated to
be 0.20% and 1.10%, respectively,  of the Fund's average net assets attributable
to Class A shares.
(10)  Certain  expenses of Select  Income Fund - Class B,  Tax-Free  Bond Fund -
Class  B and  U.S.  Government  Securities  Fund  -  Class  B will  be  absorbed
voluntarily by INVESCO  pursuant to  commitments  between the Funds and INVESCO.
These  commitments  may be changed at any time following  consultation  with the
board  of  directors.   After  absorption,  but  excluding  any  expense  offset
arrangements,  Select  Income  Fund's Class B shares'  Other  Expenses and Total
Annual  Fund   Operating   Expenses  are   estimated  to  be  0.32%  and  1.80%,
respectively,  of the Fund's average net assets  attributable to Class B shares;
Tax-Free  Bond  Fund's  Class B shares'  Other  Expenses  and Total  Annual Fund
Operating  Expenses are  estimated to be 0.10% and 1.65%,  respectively,  of the
Fund's average net assets  attributable to Class B shares;  and U.S.  Government
Securities Fund's Class B shares' Other Expenses and Total Annual Fund Operating
Expenses  are  estimated  to be 0.20% and  1.75%,  respectively,  of the  Fund's
average net assets attributable to Class B shares.
(11)  Certain  expenses of Select  Income Fund - Class C,  Tax-Free  Bond Fund -
Class C and U.S. Government  Securities Fund - Class C were absorbed voluntarily
by  INVESCO  pursuant  to   commitments  between  the Funds and  INVESCO.  These
commitments may be changed at any time following  consultation with the board of
directors.  After  absorption,  but excluding any expense  offset  arrangements,
Select  Income  Fund  Class C  shares'  Other  Expenses  and Total  Annual  Fund
Operating  Expenses  were  insignificant,  Tax-Free  Bond Fund's Class C shares'
Other  Expenses and Total Annual Fund  Operating  Expenses were 0.11% and 1.66%,
respectively,  of the Fund's average net assets  attributable to Class C shares;
and U.S.  Government  Securities Fund's Class C shares' Other Expenses and Total
Annual Fund Operating Expenses were 0.15% and 1.70%, respectively, of the Fund's
average net assets attributable to Class C shares.
(12)  Certain  expenses  of  Select  Income  Fund -  Class  K will  be  absorbed
voluntarily  by INVESCO  pursuant to a commitment  between the Fund and INVESCO.
This commitment may be changed at any time following consultation with the board
of directors.  After absorption,  but excluding any expense offset arrangements,
Select  Income  Fund's  Class K shares'  Other  Expenses  and Total  Annual Fund
Operating  Expenses are  estimated to be 0.32% and 1.25%,  respectively,  of the
Fund's average net assets attributable to Class K shares.

EXPENSE EXAMPLE
The  Example  is  intended  to help you  compare  the cost of  investing  in the
Investor Class, Class A, Class B, Class C and, if applicable,  Class K shares of
the Funds to the cost of investing in other mutual funds.

The Example assumes that you invested $10,000 in Investor Class,  Class A, Class
B, Class C, or Class K shares of a Fund for the time periods  indicated.  Within
each Example,  there is an assumption  that you redeem all of your shares at the
end of those  periods and that you keep your  shares.  The Example  also assumes
that your  investment had a hypothetical  5% return each year, and that a Fund's
Investor  Class,  Class A,  Class B,  Class C,  and  Class K  shares'  operating
expenses remain the same.  Although the actual costs and performance of a Fund's
Investor  Class,  Class A, Class B, Class C, and Class K shares may be higher or
lower, based on these assumptions your costs would be:
<PAGE>
<TABLE>
<CAPTION>
                                         1 YEAR     3 YEARS     5 YEARS     10 YEARS
<S>                                      <C>        <C>         <C>          <C>
HIGH YIELD FUND
     Investor Class                      $ 110       $ 343       $ 595       $1,317
     Class A(1)                          $ 664       $ 904      $1,163       $1,903
     Class B - With Redemption(1)        $ 686       $ 876      $1,190       $1,978(2)
     Class B - Without Redemption        $ 186       $ 576       $ 990       $1,978(2)
     Class C - With Redemption(1)        $ 272       $ 533       $ 918       $1,998
     Class C - Without Redemption        $ 172       $ 533       $ 918       $1,998
     Class K                             $ 130       $ 406       $ 702       $1,545
SELECT INCOME FUND
     Investor Class                      $ 134       $ 418       $ 723       $1,590
     Class A(1)                          $ 687       $ 975      $1,284       $2,158
     Class B - With Redemption(1)        $ 710       $ 949      $1,314       $2,234(2)
     Class B - Without Redemption        $ 210       $ 649      $1,114       $2,234(2)
     Class C - With Redemption(1)        $ 282       $ 563       $ 970       $2,105
     Class C - Without Redemption        $ 182       $ 563       $ 970       $2,105
     Class K                             $ 155       $ 480       $ 829       $1,813
TAX-FREE BOND FUND
     Investor Class                      $ 110       $ 343       $ 595       $1,317
     Class A(1)                          $ 664       $  90      $1,163       $1,903
     Class B - With Redemption(1)        $ 686       $  87      $1,190       $1,978(2)
     Class B - Without Redemption        $ 186       $ 576       $ 990       $1,978(2)
     Class C - With Redemption(1)        $ 287       $ 579       $ 995       $2,159
     Class C - Without Redemption        $ 187       $ 579       $ 995       $2,159
U.S. GOVERNMENT SECURITIES FUND
     Investor Class                      $ 146       $ 452       $ 782       $1,713
     Class A(1)                          $ 697      $1,007      $1,338       $2,273
     Class B - With Redemption(1)        $ 721       $ 982      $1,369       $2,349(2)
     Class B - Without Redemption        $ 221       $ 682      $1,169       $2,349(2)
     Class C - With Redemption(1)        $ 285       $ 573       $ 985       $2,137
     Class C - Without Redemption        $ 185       $ 573       $ 985       $2,137

</TABLE>
(1)  Based on initial  sales charge for Class A shares at the  beginning of each
     period shown and CDSC charges for Class B and C shares based on  redemption
     at the end of each period shown. Please see "How To Buy Shares."
(2)  Assumes conversion of Class B to Class A at the end of the eighth year.

[ARROWS 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 FDIC or any other  government
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.
<PAGE>
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.

[ARROWS ICON] PRINCIPAL RISKS ASSOCIATED WITH THE FUNDS

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

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
changes in interest  rates.  An  increase in interest  rates tends to reduce the
market values of debt securities in which a Fund invests.  A decline in interest
rates tends to increase  the market  values of debt  securities  in which a Fund
invests.

Moody's  Investors  Service,  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  affect 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  incapacity 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.

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.

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.

PREPAYMENT RISK
The Funds invest in Government Agency mortgage-backed  securities.  In the event
that a high  volume of  mortgages  are  prepaid,  thereby  reducing  income from
interest on the principal of such  mortgages,  the  opportunity  for the Fund to
earn income may be decreased.

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.
Securities of Canadian issuers and American  Depository Receipts are not subject
to this 25% limitation.

     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, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, and
     Spain are  presently  members of the European  Economic and Monetary  Union
     (the  "EMU"),  which  has  adopted  the  euro as a common  currency.  Other
     European countries may adopt the euro in the future.

     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 may
     affect the fiscal and monetary levels of those participating countries. The
     outcome of these and other uncertainties  could have unpredictable  effects
     on trade and commerce and result in increased  volatility for all financial
     markets.
<PAGE>
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.

PORTFOLIO TURNOVER RISK
A Fund's  investments  may be  bought  and sold  relatively  frequently.  A high
turnover  rate may  affect a Fund's  performance  because  it  results in higher
brokerage  commissions and may result in taxable gain  distributions to a Fund's
shareholders.

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

Although  each Fund  generally  invests in debt  securities,  the Funds also may
invest in other types of securities and other financial instruments as indicated
in the chart below.  Although  these  investments  typically are not part of any
Fund's principal investment strategy,  they may constitute a significant portion
of a Fund's portfolio, thereby possibly exposing a Fund and its investors to the
following additional risks.

--------------------------------------------------------------------------------
INVESTMENT                      RISKS                     APPLIES TO THESE FUNDS
--------------------------------------------------------------------------------

EUROBONDS AND YANKEE BONDS
Bonds issued by foreign         Information, Currency,    High Yield
branches of U.S. banks          Political, Diplomatic,    Select Income
("Eurobonds") and bonds issued  Regulatory, Liquidity,
by a U.S. branch of a foreign   Credit, Interest Rate,
bank and sold in the United     Debt Securities, and
States ("Yankee bonds"). These  Duration Risks
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 are rated  Credit, Interest          High Yield
BB or lower by S&P or Ba or     Rate, Debt Securities,    Select Income
lower by Moody's or unrated     and Duration Risks        Tax-Free Bond
securities of comparable
quality. Tend to pay higher
interest rates than
higher-rated debt securities,
but carry a higher credit
risk.

--------------------------------------------------------------------------------
GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
These are securities issued by  Prepayment and            Select Income
FHLMC and the FNMA or           Interest Rate             U.S. Government
guaranteed  by GNMA and backed  Risks                     Securities
by mortgages. The Fund receives
payments out of the interest
and principal on the underlying
mortgages.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT                      RISKS                     APPLIES TO THESE FUNDS
--------------------------------------------------------------------------------

PIK (PAYMENT IN KIND)
SECURITIES
A type of bond or preferred     Credit, Interest          High Yield
stock that pays interest        Rate, and
and/or dividends in the form    Duration Risks
of additional bonds or
preferred stock.
--------------------------------------------------------------------------------
STEP-UP BONDS
A bond that states one coupon   Credit, Interest          High Yield
rate  which typically could     Rate, and                 Select Income
be as low as 0% for an initial  Duration Risks
period followed by a higher
coupon rate.

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

[ARROWS 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,  even
though that is not the normal investment strategy of any Fund. 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.

[ARROWS 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 with  higher-than-average  portfolio  turnover  rates for the fiscal  year
ended August 31, 2001, were:

        High Yield Fund           111%(1)

        (1) Portfolio turnover was higher due to trading undertaken in response
        to market conditions.

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 turnover rate may affect a Fund's performance because
it results in higher  brokerage  commissions  and may result in taxable  capital
gain distributions to a Fund's shareholders.
<PAGE>
[INVESCO ICON] FUND MANAGEMENT

INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL  INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $397.9 BILLION IN ASSETS  WORLDWIDE.  AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.

INVESTMENT ADVISOR

INVESCO,  located  at  4350  South  Monaco  Street,  Denver,  Colorado,  is  the
investment  advisor of the Funds.  INVESCO was founded in 1932 and manages  over
$28 billion for more than  2,818,463  shareholder  accounts of 46 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 I M Capital Management, Inc. ("AIM"), located at 11 Greenway Plaza, Suite 100,
Houston, Texas, is the sub-advisor to Tax-Free Bond Fund.

A wholly  owned  subsidiary  of INVESCO,  IDI is the Funds'  distributor  and is
responsible for the sale of the Funds' shares.

INVESCO, AIM 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, 2001.

--------------------------------------------------------------------------------
                                       ADVISORY FEE AS A PERCENTAGE OF
FUND                           AVERAGE ANNUAL NET ASSETS UNDER  MANAGEMENT
--------------------------------------------------------------------------------
High Yield Fund                                      0.42%
Select Income Fund                                   0.48%
Tax-Free Bond Fund                                   0.55%
U.S. Government Securities Fund                      0.55%

[INVESCO ICON] PORTFOLIO MANAGERS

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

FUND                            PORTFOLIO MANAGER(S)
High Yield                      Robert J. Hickey
Select Income                   Robert J. Hickey
                                Richard R. Hinderlie
Tax-Free Bond                   Richard A. Berry
                                Stephen D. Turman
U.S. Government Securities      Richard R. Hinderlie
<PAGE>
RICHARD A. BERRY, a vice president and senior  portfolio  manager of AIM, is the
portfolio  manager of Tax-Free  Bond Fund.  Richard  manages  several  other AIM
fixed-income  funds.  Before  joining AIM in 1987, he served at various times as
senior vice president for InterFirst Investment  Management Company,  manager of
investor relations at Texas Industries,  Inc., vice president of Banc Texas, and
investment  officer  at  Southwestern  Life  Insurance  Company.  Richard  is  a
Chartered  Financial  Analyst.  He holds an M.B.A. in finance and a B.B.A.  from
Texas Christian University.

ROBERT J. HICKEY, a vice president of INVESCO,  is the portfolio manager of High
Yield Fund and a  co-portfolio  manager of Select  Income Fund.  Before  joining
INVESCO in 2001,  Bob served in various  capacities  at Van Kampen  Investments,
including director of corporate bonds and senior portfolio  manager.  He holds a
Masters  of  Management  from the  Kellogg  Graduate  School  of  Management  of
Northwestern  University and a B.A. in Economics and International  Affairs from
the University of Wisconsin - Madison.

RICHARD R. HINDERLIE,  a vice president of INVESCO,  is the portfolio manager of
U.S. Government  Securities Fund and co-portfolio manager of Select Income Fund.
Dick joined  INVESCO in 1993. He holds an M.B.A.  from Arizona State  University
and a B.A. in Economics from Pacific Lutheran University.

STEPHEN D.  TURMAN,  a vice  president  and  portfolio  manager  of AIM,  is the
co-portfolio  manager of Tax-Free Bond Fund.  Stephen  manages several other AIM
fixed-income funds. Before joining AIM in 1985, he worked in institutional sales
for Dean Witter.  Stephen is a Chartered Financial Analyst. He holds a B.B.A. in
finance from the University of Texas at Arlington.

[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  potential  for current  income;  High Yield,
Select Income, and U.S.  Government  Securities Funds also offer the opportunity
for capital  growth.  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 many  different
companies in 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 primarily  seeking higher current income;  and, for High Yield,  Select
     Income and U.S.  Government  Securities Funds, a secondary  opportunity for
     capital growth.
o    understand  that shares of a Fund can,  and likely  will,  have daily price
     fluctuations.
o    are investing through 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  growth or total return  (although
     High Yield, Select Income, and U.S. Government  Securities Funds do seek to
     provide capital growth in addition to income).
o    unwilling to accept  potentially  significant  changes in the price of Fund
     shares.
o    speculating on short-term fluctuations in the stock markets.
<PAGE>
[INVESCO ICON] SHARE PRICE

CURRENT 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 the  regular  trading  day 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, most
national holidays in the U.S. and Good Friday.

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, your
financial  intermediary,  or your plan or program sponsor.  Instructions must be
received  by INVESCO no later than the close of the NYSE to effect  transactions
at that day's NAV. If INVESCO  receives  instructions  from you, your  financial
intermediary,  or your plan or program sponsor after that time, the instructions
will  be  processed  at  the  NAV  next   calculated   after  receipt  of  these
instructions.

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 the Funds 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 Funds offer  multiple  classes of shares.  The chart in this  section  shows
several  convenient  ways to  invest in the  shares  of the Funds if you  invest
directly  through  INVESCO.  If  you  invest  in  a  Fund  through  a  financial
intermediary,  please  consult the  financial  intermediary,  or with respect to
Class K shares,  the plan or program  sponsor,  for more  information  on how to
purchase shares of a Fund. You may be charged a commission or transaction fee by
the  financial  intermediary,  or plan or program  sponsor for purchases of Fund
shares.

With the  exception  of Class A shares,  there is no  charge to invest  directly
through  INVESCO.  Class A shares are subject to a front-end  sales charge.  For
more  information  on this charge,  please see the  subsection  entitled  "Sales
Charges." If you buy  $1,000,000 or more of Class A shares and redeem the shares
within eighteen  months from the date of purchase,  you may pay a 1% CDSC at the
time of  redemption.  With respect to Class B and C shares,  upon  redemption of
Class B shares held six years or less or Class C shares held thirteen  months or
less,  a CDSC of 1%-5% for Class B shares or 1% for Class C shares of the amount
of the  total  original  cost of the  Class B or Class C  shares  at the time of
purchase may be assessed. In determining whether a CDSC applies to a redemption,
it is  assumed  that the  shares  being  redeemed  first  are any  shares in the
shareholder's  Fund account  that are not subject to a CDSC,  followed by shares
held the longest in the  shareholder's  account.  These charges are not assessed
upon Class A, B, or C shares acquired through reinvestment of dividends or other
distributions,  or  Class  A, B, or C shares  exchanged  for the  same  class of
another INVESCO Fund.
<PAGE>
For all new accounts,  please send a completed application form, and specify the
fund or funds and class or classes of shares you wish to purchase. If you do not
specify a fund or funds,  your initial  investment and any subsequent  purchases
will  automatically  go into INVESCO Cash  Reserves  Fund - Class A, a series of
INVESCO  Money  Market  Funds,  Inc.  You will  receive a  confirmation  of this
transaction and may contact INVESCO to exchange into the fund you choose.

A share of each class  represents  an  identical  interest in a Fund and has the
same rights,  except that each class bears its own  distribution and shareholder
servicing charges, and other expenses. The income attributable to each class and
the dividends  payable on the shares of each class will be reduced by the amount
of the distribution  fee, if applicable,  and the other expenses payable by that
class.

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.

Please remember that if you pay by check,  Automated Clearing House ("ACH"),  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).

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.)

The  following  chart  shows  several  ways to  invest  in a Fund if you  invest
directly through INVESCO.
<TABLE>
<CAPTION>
METHOD                          INVESTMENT MINIMUM         PLEASE REMEMBER
----------------------------------------------------------------------------------------
<S>                             <C>                        <C>
BY CHECK                        $1,000 for regular         INVESCO does not accept
Mail to:                        accounts;                  cash, credit cards,
INVESCO Funds Group, Inc.,      $250 for an IRA;           travelers' cheques, credit
P.O. Box 173706                 $50 for each subsequent    card checks, instant loan
Denver, CO 80217-3706.          investment.                checks, money orders, or
You may send your check by                                 third party checks unless
overnight courier to:                                      they are from another
4350 South Monaco Street,                                  financial institution
Denver, CO 80237.                                          related to a retirement
                                                           plan transfer.
----------------------------------------------------------------------------------------
BY WIRE                         $1,000 for regular
You may send your payment by    accounts; $250 for an IRA;
bank wire (call                 $50 for each subsequent
1-800-525-8085 for              investment.
instructions).
----------------------------------------------------------------------------------------
BY TELEPHONE WITH ACH           $1,000 for regular         You must provide your bank
Call 1-800-525-8085 to          accounts; $250 for an IRA; account information to
request your purchase.  Upon    $50 for each subsequent    INVESCO prior to using
your telephone instructions,    investment.                this option.
INVESCO will move money from
your designated bank/credit
union checking or savings
account in order to purchase
shares.
<PAGE>
METHOD                          INVESTMENT MINIMUM         PLEASE REMEMBER
----------------------------------------------------------------------------------------
BY INTERNET (INVESTOR CLASS -   $1,000 for regular         You will need a Web browser
GRANDFATHERED INVESTORS ONLY)   accounts; $250 for         to use this service.
Go to the INVESCO Web site      an IRA; $50 for each       Internet purchase
at invescofunds.com.            subsequent investment.     transactions are limited to
                                                           a maximum of $25,000.
----------------------------------------------------------------------------------------
REGULAR INVESTING WITH          $50 per month for          Like all regular investment
EASIVEST OR DIRECT              EasiVest; $50 per pay      plans, neither EasiVest
PAYROLL PURCHASE                period for Direct Payroll  nor Direct Payroll Purchase
You may enroll on your fund     Purchase. You may start    ensures a profit or
application, or call us for     or stop your regular       protects against loss in a
a separate form and more        investment plan at         falling market. Because
details. Investing the same     any time, with two weeks'  you'll invest continually,
amount on a monthly basis       notice to INVESCO.         regardless of varying
allows you to buy more                                     price levels, consider your
shares when prices are low                                 financial ability to keep
and fewer shares when prices                               buying through low price
are high. This "dollar cost                                levels. And remember that
averaging" may help offset                                 you will lose money if you
market fluctuations. Over a                                redeem your shares when the
period of time, your average                               market value of all your
cost per share may be less                                 shares is less than their
than the actual average net                                cost.
asset value per share.
----------------------------------------------------------------------------------------

BY PERSONAL ACCOUNT LINE        $50 for subsequent         You must provide your bank
WITH ACH                        investments.               account information to
Automated transactions by                                  INVESCO prior to using this
phone are available for                                    option. Automated
subsequent purchases and                                   transactions are limited to
exchanges 24 hours a day.                                  a maximum of $25,000.
Simply call 1-800-424-8085.

----------------------------------------------------------------------------------------
BY EXCHANGE                     $1,000 for regular         See "Exchange Policy."
Between the same class of       accounts; $250 for an IRA;
any two INVESCO funds. Call     $50 for each subsequent
1-800-525-8085 for              investment.
prospectuses of other
INVESCO funds. Exchanges may
be made by phone or at our
Web site at invescofunds.com.
You may also establish an
automatic monthly exchange
service between two INVESCO
funds; call us for further
details and the correct form.
</TABLE>

GRANDFATHERED  INVESTORS.  Investor Class shares of a Fund can be purchased only
by:

o    Persons  or  entities  who have  established  account  in any of the  funds
     managed and distributed by INVESCO (the "INVESCO  Funds") in Investor Class
     shares prior to April 1, 2002 and have continuously maintained such account
     in Investor Class shares since April 1, 2002;
o    Any person or entity  listed in the  account  registration  for any INVESCO
     Funds account in Investor Class shares that has been  established  prior to
     April 1, 2002 and  continuously  maintained  since  April 1, 2002,  such as
     joint owners, trustees, custodians, and designated beneficiaries;
o    Customers  of  certain  financial  institutions,  wrap  accounts  or  other
     fee-based advisory programs, or insurance company separate accounts,  which
     have had  relationships  with  INVESCO  and/or  any of the  INVESCO  Funds'
     Investor  Class shares prior to April 1, 2002 and  continuously  maintained
     such  relationships  since April 1, 2002;
<PAGE>
o    Defined benefit, defined contribution and deferred compensation plans; and
o    INVESCO employees,  INVESCO Funds directors,  AMVESCAP employees,  AMVESCAP
     directors, and their immediate families.

For more detailed information about eligibility, please call 1-800-525-8085.  If
you hold INVESCO Funds Investor Class shares  through a  broker/dealer  or other
financial  institution,  your eligibility to purchase  Investor Class shares may
differ depending on that institution's policies.

EXCHANGE POLICY.  You may exchange your shares in any of the Funds for shares of
the same class in another INVESCO 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.

You may be required to pay an initial sales charge when  exchanging  from a fund
with a lower  initial  sales charge than the one into which you are  exchanging.
You will not pay a sales charge when exchanging Class B shares for other Class B
shares or Class C shares  for  other  Class C  shares.  If you make an  exchange
involving  Class B or Class C shares,  the amount of time you held the  original
shares  will be added to the  holding  period  of the Class B or Class C shares,
respectively,  into which you exchanged for the purpose of calculating  any CDSC
that may be assessed upon a subsequent redemption.

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 twelve-month period,
     but you may be subject to a redemption  fee or front-end  charge  described
     below.
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 terminations
     that affect all  shareholders of the Fund will be given at least sixty 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  FEES  (HIGH  YIELD  FUND - INVESTOR  CLASS  ONLY).  If you redeem or
exchange  Investor  Class  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  redeemed or  exchanged  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 the Fund, to avoid transaction and other expenses caused
by  early  redemptions,  and to  facilitate  portfolio  management.  The  fee is
currently  waived  for  institutional,  qualified  retirement  plan,  and  other
shareholders  investing  through  omnibus  accounts,  due to  certain  economies
associated with these accounts.  However,  the Fund reserves the right to impose
redemption  fees  on  shareholder  held  by  such  shareholders  at any  time if
warranted by the Fund's future cost of processing  redemptions.  The  redemption
fee may be modified or  discontinued  at any time or from time to time. This fee
is not a deferred sales charge, is not a commission paid to INVESCO and does not
<PAGE>
benefit  INVESCO in any way.  The fee applies to  redemptions  from the Fund and
exchanges  into any of the other  mutual  funds that are also advised by INVESCO
and  distributed by IDI. The 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.

CHOOSING A SHARE  CLASS.  In  deciding  which class of shares to  purchase,  you
should consider,  among other things,  (i) the length of time you expect to hold
your shares,  (ii) the  provisions of the  distribution  plan  applicable to the
class, if any, (iii) the eligibility  requirements  that apply to purchases of a
particular  class,  and  (iv)  any  services  you may  receive  in  making  your
investment determination.  Your financial intermediary can help you decide among
the various  classes.  Please  contact your financial  intermediary  for several
convenient  ways to invest  in a Fund.  Class A, B, C, and K shares of the Funds
are available primarily through financial intermediaries.

In addition, you should also consider the factors below:
<TABLE>
<CAPTION>
                              Investor
                              Class       Class A                 Class B        Class C       Class K
                              -----       -------                 -------        -------       -------
<S>                           <C>         <C>                     <C>            <C>           <C>
Initial Sales Charge          None        4.75%                   None           None          None

CDSC                          None        1% if you purchase      1% - 5% for    1% for        None
                                          $1,000,000 or more      shares held    shares held
                                          and hold those shares   less than 6    less than 13
                                          less than 18 months     years          months

12b-1 Fee                     0.25%       0.35%                   1.00%          1.00%         0.45%

Conversion                    No          No                      Yes(1)         No            No

Purchase Order Maximum        None        None                    $250,000       $1,000,000    None

</TABLE>
(1)Converts  to Class A shares after eight years along with the pro rata portion
of its reinvested dividends and distributions.


INTERNET TRANSACTIONS (INVESTOR CLASS - GRANDFATHERED INVESTORS ONLY). Investors
may open new  accounts,  and  exchange and redeem  Investor  Class shares of any
INVESCO fund through the INVESCO Web site. To use this service,  you will need a
web  browser  (presently  Netscape  version  4.0 or higher,  Microsoft  Internet
Explorer version 4.0 or higher, or AOL version 5.0 or higher) and the ability to
use the INVESCO Web site.  INVESCO will accept  Internet  purchase  instructions
only for exchanges or if the purchase price is paid to INVESCO through  debiting
your bank account,  and any Internet cash  redemptions  will be paid only to the
same bank account from which the payment to INVESCO originated.  INVESCO imposes
a limit of $25,000 on  Internet  purchase  and  redemption  transactions.  Other
minimum  transaction  amounts are  discussed  in this  Prospectus.  You may also
download an  application  to open an account  from the Web site,  complete it by
hand, and mail it to INVESCO, along with a check.

INVESCO employs reasonable  procedures to confirm that transactions entered into
over the Internet are genuine.  These procedures include the use of alphanumeric
passwords, secure socket layering,  encryption, and other precautions reasonably
designed to protect the integrity,  confidentiality, and security of shareholder
information.  In order to enter into a transaction  on the INVESCO Web site, you
will need an account number,  your Social Security  number,  and an alphanumeric
password.  If INVESCO follows these procedures,  neither INVESCO, its affiliates
nor any INVESCO fund will be liable for any loss,  liability,  cost,  or expense
for following  instructions  communicated  via the Internet that are  reasonably
<PAGE>
believed to be genuine or that follow INVESCO's security procedures. By entering
into the user's  agreement with INVESCO to open an account through our Web site,
you lose certain rights if someone gives fraudulent or unauthorized instructions
to INVESCO that result in a loss to you.

SALES CHARGES (CLASS A, B AND C, ONLY)
Sales charges on Class A shares of the Funds are detailed  below. As used below,
the term  "offering  price" with respect to Class A shares  includes the initial
sales charge.

INITIAL SALES CHARGES.  Class A shares of the Funds are subject to the following
initial sales charges:

                                               INVESTOR'S SALES CHARGE
AMOUNT OF INVESTMENT                        AS A % OF           AS A % OF
IN A SINGLE TRANSACTION                   OFFERING PRICE        INVESTMENT

Less than                      $25,000      4.75%               4.99%
$25,000     but less than      $50,000      4.75%               4.99%
$50,000     but less than     $100,000      4.00%               4.17%
$100,000    but less than     $250,000      3.75%               3.90%
$250,000    but less than     $500,000      2.50%               2.56%
$500,000    but less than   $1,000,000      2.00%               2.04%
$1,000,000  or more                          NAV                 NAV

CONTINGENT  DEFERRED  SALES CHARGE  (CDSC) FOR CLASS A SHARES.  You can purchase
$1,000,000 or more of Class A shares at net asset value, and the distributor may
pay a dealer  concession  and/or a service fee for  purchases of  $1,000,000  or
more.  However,  if you purchase  shares worth  $1,000,000 or more,  they may be
subject to a CDSC of 1% if you redeem  them prior to eighteen  months  after the
date of purchase. We will use the "first-in, first-out" method to determine your
holding period.  Under this method, the date of redemption will be compared with
the  earliest  purchase  date of shares held in your  account.  If your  holding
period is less than eighteen  months,  the CDSC may be assessed on the amount of
the total original cost of the shares.

CDSC FOR CLASS B AND CLASS C SHARES. You can purchase Class B and Class C shares
at their net asset  value per share.  However,  when you redeem  them,  they are
subject to a CDSC in the following  percentages.  If your holding period is less
than six years for Class B shares and  thirteen  months for Class C shares,  the
CDSC may be assessed on the amount of the total original cost of the shares.

YEAR SINCE
PURCHASE MADE           CLASS B         CLASS C

First                   5%              1%(1)
Second                  4%              None
Third                   3%              None
Fourth                  3%              None
Fifth                   2%              None
Sixth                   1%              None
Seventh and following   None(2)         None

(1) The first year will consist of the first thirteen months.
(2) Class B shares convert to Class A shares after eight years.

REDUCED SALES CHARGES AND SALES CHARGE  EXCEPTIONS.  You may qualify for reduced
sales  charges or sales charge  exceptions.  To qualify for these  reductions or
exceptions,   you  or  your  financial   intermediary  must  provide  sufficient
information  at the time of purchase to verify that your purchase  qualifies for
such treatment.

     REDUCED SALES CHARGES. You may be eligible to buy Class A shares at reduced
     initial sales charge rates under Right of  Accumulation or Letter of Intent
     under certain circumstances.
<PAGE>
          RIGHT OF  ACCUMULATION.  You may combine your new purchases of Class A
          shares  with Class A shares  that were  previously  purchased  for the
          purpose of  qualifying  for the lower  initial sales charge rates that
          apply to larger purchases. The applicable initial sales charge for the
          new  purchase is based on the total of your  current  purchase and the
          current value of all Class A shares you own.

          LETTER  OF  INTENT.  Under a Letter  of Intent  (LOI),  you  commit to
          purchase  a  specified  dollar  amount  of Class A shares  of the Fund
          during  thirteen-month  period.  The  amount  you  agree  to  purchase
          determines  the initial  sales charge you pay. If the full face amount
          of the LOI is not  invested by the end of the  thirteen-month  period,
          your account will be adjusted to the higher initial sales charge level
          for the amount actually invested.

    INITIAL SALES CHARGE/CDSC EXCEPTIONS
    You will not pay initial sales charges:
    o  on shares purchased by reinvesting dividends and distributions;
    o  when exchanging shares among certain INVESCO funds;
    o  when using the reinstatement privilege;
    o  when a merger, consolidation, or acquisition of assets of an INVESCO
       fund occurs; and
    o  upon automatic conversion of Class B shares to Class A shares.

    You will not pay a CDSC:
    o  if you purchase less than $1,000,000 of Class A shares;
    o  if you purchase $1,000,000 or more of Class A shares and hold those
       shares for more than eighteen months;
    o  if you redeem Class B shares you held for more than six years;
    o  if you redeem Class C shares you held for more than thirteen months;
    o  if you  participate in the periodic  withdrawal  program and withdraw up
       to 10% of the value of your shares that are subject to a CDSC in any
       twelve-month period. The value of your shares, and applicable twelve-
       month period, will be calculated based upon the value of your account
       on, and the date of, the first periodic withdrawal.
    o  if you redeem shares acquired through  reinvestment  of  dividends  and
       distributions;
    o  on increases in the net asset value of your shares;
    o  to pay account fees;
    o  for IRA distributions due to death or disability or periodic
       distributions based on life expectancy;
    o  to return excess contributions (and  earnings, if applicable) from
       retirement plan accounts; or
    o  for redemptions following the death of a shareholder or beneficial owner.

There may be other  situations when you may be able to purchase or redeem shares
at reduced or no sales  charges.  Consult  the Funds'  Statement  of  Additional
Information for further details.

DISTRIBUTION  EXPENSES. We have adopted Master Distribution Plans and Agreements
(commonly  known as a "12b-1  Plan") for each class of shares of the Funds.  The
12b-1 fees paid by each  Fund's  classes of shares are used to pay  distribution
fees to IDI for the sale and  distribution of the Funds' shares and for services
provided to  shareholders.  These services  include  compensation to third party
brokers, financial  advisors, and financial  services  companies  that sell Fund
shares and/or service shareholder accounts. Because each Fund's shares pay these
fees out of their assets on an ongoing  basis,  these fees  increase the cost of
your investment.

Under the Plan,  each Fund's  payments are limited to an amount computed at each
class's  applicable 12b-1 fee. If distribution  expenses for a Fund exceed these
computed amounts, IDI pays the difference.  Conversely, if distribution fees are
less than computed amounts, IDI retains the difference.

<PAGE>
[INVESCO ICON] YOUR ACCOUNT SERVICES

With the exception of householding,  the following  information pertains only to
shareholders who hold their shares directly through INVESCO.

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

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

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.

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 and your financial intermediary or plan or program
sponsor may buy,  exchange,  and sell Fund  shares by  telephone,  unless  these
privileges are specifically declined when the INVESCO new account Application is
filled out.

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, INVESCOFUNDS.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.

HOUSEHOLDING.  To save money for the Funds,  you may receive  only one copy of a
prospectus or financial report to each household address. This process, known as
"householding,"  is used for most  required  shareholder  mailings.  It does not
apply to account statements. You may, of course, request an additional copy of a
prospectus or financial  report at any time by calling or writing  INVESCO.  You
may also  request  that  householding  be  eliminated  from  all  your  required
mailings.

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 ICONS] HOW TO SELL SHARES

The chart in this section shows several convenient ways to sell your Fund shares
if you  invest  directly  through  INVESCO.  If you  invest in a Fund  through a
financial  intermediary,  please  consult the  financial  intermediary,  or with
respect to Class K shares,  the plan or program sponsor,  for information on how
to sell shares of a Fund. You may be charged a commission or transaction  fee by
your  financial  intermediary,  or plan or  program  sponsor  for  sales of Fund
shares.  Shares of the Funds may be sold at any time at the next NAV  calculated
after your request to sell is received by INVESCO in proper  form.  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.
<PAGE>
Various  fees may apply to Fund  redemptions.  You may be  charged a CDSC at the
time of redemption,  depending on how long you have held your shares. If you buy
$1,000,000 or more Class A shares and redeem the shares within  eighteen  months
from the date of purchase, you may pay a 1% CDSC at the time of redemption. With
respect  to Class B and C shares,  upon  redemption  of Class B shares  held six
years or less or Class C shares held  thirteen  months or less,  a CDSC of 1%-5%
for Class B shares or 1% for Class C shares of the amount of the total  original
cost of the  shares at the time of  purchase  may be  assessed.  In  determining
whether a CDSC  applies to a  redemption,  it is assumed  that the shares  being
redeemed  first are any shares in the  shareholder's  Fund  account that are not
subject to a CDSC,  followed  by shares  held the  longest in the  shareholder's
account.  These charges are not assessed  upon Class A, B, or C shares  acquired
through  reinvestment  of dividends or other  distributions  or Class A, B, or C
shares exchanged for the same class of another INVESCO Fund.

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

If you own shares in more than one INVESCO fund,  please  specify the fund whose
shares you wish to sell and specify the class of shares.  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 telephone.

INVESCO usually  forwards 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 twelve business days.

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  structures,  it costs as much to handle a small
account as it does to handle a large one. If the value of your account in a Fund
falls below $250 as a result of your  actions  (for  example,  sale of your Fund
shares),  the 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 sixty days to increase  the value of your account to
$250 or more.

REDEMPTION  FEES  (HIGH  YIELD  FUND - INVESTOR  CLASS  ONLY).  If you redeem or
exchange  Investor  Class  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  redeemed or  exchanged  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 the Fund, to avoid transaction and other expenses caused
by  early  redemptions,  and to  facilitate  portfolio  management.  The  fee is
currently  waived  for  institutional,   qualified  retirement  plan, and  other
shareholders  investing  through  omnibus  accounts,  due to  certain  economies
associated with these accounts.  However,  the Fund reserves the right to impose
redemption fees on shares held by such  shareholders at any time if warranted by
the Fund's  future cost of processing  redemptions.  The  redemption  fee may be
modified  or  discontinued  at any time or from time to time.  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  mutual  funds  that  are also  advised  by  INVESCO  and
distributed  by IDI.  The 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.
<PAGE>

REINSTATEMENT  PRIVILEGE  (CLASS A ONLY).  You may, within ninety days after you
sell Class A shares, reinvest all or part of your redemption proceeds in Class A
shares of a Fund at net asset value in an identically  registered  account.  You
will not pay any sales charges on the amount reinvested. In addition, if you had
paid a CDSC on any reinstated  amount,  you will not be subject to a CDSC if you
later  redeem that  amount.  You must notify  INVESCO in writing at the time you
reinstate that you are exercising your reinstatement privilege. You may exercise
this privilege only once per calendar year.

The  following  chart shows several ways to sell your shares of the Funds if you
invest directly through INVESCO.
<TABLE>
<CAPTION>
METHOD                         REDEMPTION MINIMUM       PLEASE REMEMBER
-------------------------------------------------------------------------------------
<S>                          <C>                        <C>

BY TELEPHONE                   $250 (or, if less,       INVESCO's telephone
Call us toll-free at:          full liquidation of      redemption privileges may
1-800-525-8085.                the account) for a       be modified or terminated
                               redemption check.        in the future at INVESCO's
                               IRA redemptions are      discretion. The maximum
                               not permitted.           amount which may be
                                                        redeemed by telephone is
                                                        generally $25,000.

-------------------------------------------------------------------------------------
IN WRITING                     Any amount.              The redemption request must
Mail your request to                                    be signed by all registered
INVESCO Funds Group, Inc.,                              account owners. Payment
P.O. Box 173706,                                        will be mailed to your
Denver, CO 80217-3706.                                  address as it appears on
You may also send your                                  INVESCO's records, or to a
request by overnight                                    bank designated by you in
courier to 4350 South Monaco                            writing.
Street, Denver, CO 80237.
-------------------------------------------------------------------------------------
BY TELEPHONE WITH ACH          $50. IRA redemptions     You must provide your bank
Call 1-800-525-8085 to         are not permitted.       account information to
request your redemption.                                INVESCO prior to using this
                                                        option. INVESCO will
                                                        automatically pay the
                                                        proceeds into your
                                                        designated bank account.
-------------------------------------------------------------------------------------
BY INTERNET (INVESTOR CLASS-   $50. IRA redemptions     You will need a Web browser
GRANDFATHERED INVESTORS ONLY)  are not permitted.       to use this service.
Go to the INVESCO Web site                              Internet transactions are
at invescofunds.com.                                    limited to a maximum of
                                                        $25,000. INVESCO will
                                                        automatically pay the
                                                        proceeds into your
                                                        designated bank account.
--------------------------------------------------------------------------------
BY PERSONAL ACCOUNT LINE       $50.                     Be sure to write down the
WITH ACH (INVESTOR CLASS-                               confirmation number
GRANDFATHERED INVESTORS ONLY)                           provided to you. You must
Automated transactions by                               forward your bank account
phone are available for                                 information to INVESCO
redemptions and exchanges 24                            prior to using this option.
hours a day. Simply call
1-800-424-8085.
<PAGE>
METHOD                         REDEMPTION MINIMUM       PLEASE REMEMBER
-------------------------------------------------------------------------------------
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 with
the appropriate form and       basis. The redemption    the INVESCO funds with at
more information at            check may be made        least $5,000 of that total
1-800-525-8085.                payable to any party     invested in the fund from
                               you designate.           which withdrawals will be
                                                        made.
-------------------------------------------------------------------------------------
PAYMENT TO THIRD PARTY         Any amount.              All registered account
Mail your request to                                    owners must sign the
INVESCO Funds Group, Inc.,                              request, with signature
P.O. Box 173706                                         guarantees from an eli-
Denver, CO 80217-3706.                                  gible guarantor financial
                                                        institution, such as a
                                                        commercial bank or a
                                                        recognized national or
                                                        regional securities firm.
</TABLE>
[GRAPH ICON] TAXES

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

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

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 a 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,  the
Funds are  required by law to withhold  from your  distributions,  and any money
that you receive from the sale of shares of the Funds, backup withholding tax at
the rate in effect on the date of the transaction.

Unless your  account is held through a financial  intermediary,  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.

[GRAPH ICON] DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS

The Funds earn ordinary or investment income from interest on their investments.
The Funds expect to distribute their  respective  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.
<PAGE>
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 OR TAX-DEFERRED
ACCOUNTS).

A Fund also  realizes  capital  gains or 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 November or 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 up to 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
is  declared,  you may wind up "buying a  distribution."  This means that if the
Fund declares a dividend or capital gain distribution shortly after you buy, you
will receive some of your  investment back as a taxable  distribution.  Although
purchasing  your shares at the resulting  higher NAV may mean a smaller  capital
gain or greater loss upon sale of the shares,  most  shareholders  want to avoid
the purchase of shares immediately before the distribution record date. However,
keep in mind that your basis in the Fund will be  increased  to the extent  such
distributions are reinvested in the Fund. If you sell your shares of a Fund at a
loss for tax  purposes  and  then  replace  those  shares  with a  substantially
identical  investment  either  thirty  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-distribution  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,  are generally
subject to federal income tax.
<PAGE>
FINANCIAL HIGHLIGHTS

The financial  highlights table is intended to help you understand the financial
performance of the various classes of each Fund for the past five years. Certain
information  reflects  financial results for a single Fund share.  Since Class A
and B shares of the Funds are new,  financial  information  is not available for
those classes as of the date of this Prospectus.  The total returns in the table
represent the annual percentages that an investor would have earned (or lost) on
an  investment  in  a  Fund   (assuming   reinvestment   of  all  dividends  and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants,  whose report, along with the financial statements,  is
included in INVESCO Bond Funds, Inc.'s 2001 Annual Report to Shareholders, which
is incorporated by reference into the Statement of Additional Information.  This
Report is available without charge by contacting IDI at the address or telephone
number on the back cover of this  Prospectus.

HIGH YIELD FUND - INVESTOR  CLASS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
                                                       YEAR ENDED AUGUST 31
-----------------------------------------------------------------------------------------
                                          2001       2000      1999       1998      1997
<S>                                       <C>      <C>     <C>      <C>     <C>
PER SHARE DATA
Net Asset Value--Beginning of Period      $5.98      $6.40     $6.76      $7.45     $6.84
=========================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                      0.59       0.60      0.60       0.64      0.62
Net Gains or (Losses) on Securities
   (Both Realized and Unrealized)         (1.72)     (0.42)    (0.19)     (0.29)     0.64
=========================================================================================
TOTAL FROM INVESTMENT OPERATIONS          (1.13)      0.18      0.41       0.35      1.26
=========================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income       0.59       0.60      0.60       0.64      0.62
Distributions from Capital Gains           0.00       0.00      0.00       0.40      0.03
In Excess of Capital Gains                 0.00       0.00      0.17       0.00      0.00
=========================================================================================
TOTAL DISTRIBUTIONS                        0.59       0.60      0.77       1.04      0.65
=========================================================================================
Net Asset Value--End of Period            $4.26      $5.98     $6.40      $6.76     $7.45
=========================================================================================

TOTAL RETURN                           (19.96%)      2.89%     6.53%      4.44%    19.27%

RATIOS
Net Assets--End of Period
  ($000 Omitted)                       $516,687   $787,537  $793,337   $641,394  $470,965
Ratio of Expenses to Average
  Net Assets(a)                           1.08%      1.00%     0.99%      0.86%     1.00%
Ratio of Net Investment Income
  to Average Net Assets                  11.31%      9.60%     9.13%      8.72%     8.71%
Portfolio Turnover Rate                    111%        98%      154%       282%      129%
</TABLE>
(a) Ratio is based on Total  Expenses of the Class,  which is before any expense
    offset arrangements (which may include custodian fees).
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
HIGH YIELD FUND - CLASS C
--------------------------------------------------------------------------------
                                              YEAR ENDED          PERIOD ENDED
                                               AUGUST 31             AUGUST 31
--------------------------------------------------------------------------------
                                                    2001               2000(a)
PER SHARE DATA
Net Asset Value--Beginning of Period               $5.97                 $6.31
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                               0.55                  0.30
Net Losses on Securities
  (Both Realized and Unrealized)                   (1.72)                (0.34)
================================================================================
TOTAL FROM INVESTMENT  OPERATIONS                  (1.17)                (0.04)
================================================================================
LESS DISTRIBUTIONS
DIVIDENDS FROM NET INVESTMENT INCOME                0.55                  0.30
================================================================================
Net Asset Value--End of Period                     $4.25                 $5.97
================================================================================

TOTAL RETURN(b)                                 (20.70%)            (0.52%)(c)

RATIOS
Net Assets--End of Period ($000 Omitted)         $7,770                 $4,843
Ratio of Expenses to Average Net Assets(d)        1.69%               1.60%(e)
Ratio of Net Investment Income
  to Average Net Assets                          10.75%               9.20%(e)
Portfolio Turnover Rate                            111%                 98%(f)

(a) From February 15, 2000, inception of Class C, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
(c) Based  on  operations  for  the  period  shown  and,  accordingly,  is  not
    representative of a full year.
(d) Ratio is based on Total  Expenses of the Class,  which is before any expense
    offset arrangements (which may include custodian fees).
(e) Annualized
(f) Portfolio  Turnover  is  calculated  at  the  Fund  level,  and  therefore
    represents the year ended August 31, 2000.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)

HIGH YIELD FUND - CLASS K

                                                                 PERIOD ENDED
                                                                    AUGUST 31
--------------------------------------------------------------------------------
                                                                       2001(a)
PER SHARE DATA
Net Asset Value--Beginning of Period                                    $5.20
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                                                    0.40
Net Losses on Securities
   (Both Realized and Unrealized)                                       (0.94)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS                                        (0.54)
================================================================================
LESS DISTRIBUTIONS
DIVIDENDS FROM NET INVESTMENT INCOME                                     0.40
================================================================================
Net Asset Value--End of Period                                          $4.26
================================================================================

TOTAL RETURN                                                       (11.15%)(b)

RATIOS
Net Assets--End of Period ($000 Omitted)                                   $3
Ratio of Expenses to Average Net Assets(c)(d)                         1.48%(e)
Ratio of Net Investment Income to
  Average Net Assets(d)                                              10.77%(e)
Portfolio Turnover Rate                                                111%(f)

(a) From December 14, 2000, since inception of Class K, to August 31, 2001.
(b) Based  on  operations  for  the  period  shown  and,  accordingly,  is  not
    representative of a full year.
(c) Ratio is based on Total  Expenses of the Class,  less  Expenses  Absorbed by
    INVESCO, which is before any expense offset arrangements  (which may include
    custodian fees).
(d) Various Expenses of the Class were  voluntarily  absorbed by INVESCO for the
    period ended August 31, 2001. If such expenses had not been  absorbed, ratio
    of expenses to average net assets would have been 3.56% (annualized) and
    ratio of net investment income would have been 8.69% (annualized).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level, and therefore represents
    the year ended August 31, 2001.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)

SELECT INCOME FUND - INVESTOR CLASS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
                                                       YEAR ENDED AUGUST 31
-----------------------------------------------------------------------------------------
                                          2001       2000      1999       1998      1997
<S>                                       <C>      <C>     <C>      <C>     <C>
PER SHARE DATA
Net Asset Value--Beginning of Period     $6.06      $6.15     $6.68      $6.66     $6.35
=========================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                     0.43       0.43      0.43       0.43      0.45
Net Gains or (Losses) on Securities
  (Both Realized and  Unrealized)       (0.27)     (0.09)    (0.41)       0.19      0.34
=========================================================================================
TOTAL FROM INVESTMENT OPERATIONS          0.16       0.34      0.02       0.62      0.79
=========================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income(a)   0.43       0.43      0.43       0.43      0.45
Distributions from Capital Gains          0.00       0.00      0.02       0.17      0.03
In Excess of Capital Gains(b)             0.00       0.00      0.10       0.00      0.00
=========================================================================================
TOTAL DISTRIBUTIONS                       0.43       0.43      0.55       0.60      0.48
=========================================================================================
Net Asset Value--End of Period           $5.79      $6.06     $6.15      $6.68     $6.66
=========================================================================================

TOTAL RETURN                             2.73%      5.78%     0.15%      9.58%    12.89%

RATIOS
Net Assets--End of Period
  ($000 Omitted)                      $593,629   $574,518  $549,438   $502,624  $287,618
Ratio of Expenses to
  Average Net Assets(c)(d)               1.05%      1.06%     1.06%      1.06%     1.03%
Ratio of Net Investment Income
  to Average Net Assets(d)               7.18%      7.10%     6.56%      6.36%     6.98%
Portfolio Turnover Rate                    79%        82%      135%       140%      263%
</TABLE>
(a) Distributions in Excess of Net Investment Income aggregated less than $0.01
    on a per share basis for the year ended August 31, 2001.
(b) Distribution In Excess of Capital Gains aggregated less than $0.01 on a per
    share basis for the year ended August 31, 2000.
(c) Ratio is based on Total  Expenses of the Class,  less  Expenses  Absorbed by
    INVESCO, which is before any expense offset arrangements  (which may include
    custodian fees).
(d) Various expenses of the Class were  voluntarily  absorbed by INVESCO for the
    years ended August 31, 2001, 2000, 1999, 1998, and 1997. If such expenses
    had not been voluntarily absorbed, ratio of expenses to average net assets
    would have been 1.32%, 1.19%, 1.16%, 1.10%, and 1.21%, respectively, and
    ratio of net investment income to average net assets would have been 6.91%,
    6.97%, 6.46%, 6.32%, and 6.80%, respectively.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)

SELECT INCOME FUND - CLASS C
--------------------------------------------------------------------------------
                                                    YEAR ENDED     PERIOD ENDED
                                                     AUGUST 31        AUGUST 31
--------------------------------------------------------------------------------
                                                          2001          2000(a)
PER SHARE DATA
Net Asset Value--Beginning of Period                     $6.06            $6.02
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                                    0.39             0.21
Net Gains or (Losses) on Securities
  (Both Realized and Unrealized)                        (0.27)             0.04
================================================================================
TOTAL FROM INVESTMENT OPERATIONS                          0.12             0.25
================================================================================
LESS DISTRIBUTIONS
DIVIDENDS FROM NET INVESTMENT INCOME(b)                   0.39             0.21
================================================================================
Net Asset Value--End of Period                           $5.79            $6.06
================================================================================

TOTAL RETURN(c)                                          1.97%         4.24%(d)

RATIOS
Net Assets--End of Period ($000 Omitted)                $2,839             $377
Ratio of Expenses to Average Net Assets(e)(f)            1.79%         1.83%(g)
Ratio of Net Investment Income
  to Average Net Assets(f)                               6.23%         6.42%(g)
Portfolio Turnover Rate                                    79%           82%(h)

(a) From February 15, 2000, inception of Class C, to August 31, 2000.
(b) Distributions in Excess of Net Investment Income aggregated less than $0.01
    on a per share basis for the year ended August 31, 2001.
(c) The applicable CDSC fees are not included in the Total Return calculation.
(d) Based  on  operations  for  the  period  shown  and,  accordingly,  is  not
    representative of a full year.
(e) Ratio is based on Total  Expenses of the Class,  less  Expenses  Absorbed by
    INVESCO, if applicable, which is before any expense offset arrangements
    (which may include custodian fees).
(f) Various expenses of the Class were  voluntarily  absorbed by INVESCO for the
    year ended August 31, 2001. If such expenses had not been voluntarily
    absorbed, ratio of expenses to average net assets would have been 1.79%
    (annualized) and ratio of net investment income to average net assets would
    have been 6.23% (annualized).
(g) Annualized
(h) Portfolio  Turnover  is  calculated  at  the  Fund  level,  and  therefore
    represents the year ended August 31, 2000.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)

SELECT INCOME FUND - CLASS K

                                                                 PERIOD ENDED
                                                                    AUGUST 31
--------------------------------------------------------------------------------
                                                                       2001(a)
PER SHARE DATA
Net Asset Value--Beginning of Period                                    $5.93
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                                                    0.28
Net Losses on Securities (Both Realized and Unrealized)                 (0.15)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS                                         0.13
================================================================================
LESS DISTRIBUTIONS
DIVIDENDS FROM NET INVESTMENT INCOME                                     0.28
================================================================================
Net Asset Value--End of Period                                          $5.78
================================================================================

TOTAL RETURN                                                         2.25%(b)

RATIOS
Net Assets--End of Period ($000 Omitted)                                   $2
Ratio of Expenses to Average Net Assets(c)(d)                        1.24%(e)
Ratio of Net Investment Income to
  Average Net Assets(d)                                              6.60%(e)
Portfolio Turnover Rate                                                79%(f)

(a) From December 14, 2000, since inception of Class K, to August 31, 2001.
(b) Based  on  operations  for  the  period  shown  and,  accordingly,  is  not
    representative of a full year.
(c) Ratio is based on Total  Expenses of the Class,  less  Expenses  Absorbed by
    INVESCO, which is before any expense offset arrangements  (which may include
    custodian fees).
(d) Various expenses of the Class were  voluntarily  absorbed by INVESCO for the
    period ended August 31, 2001.  If such  expenses  had not  been  voluntarily
    absorbed, ratio of expenses to average  net  assets  would  have been  3.63%
    (annualized) and ratio of net  investment   income  would  have  been  4.21%
    (annualized).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level, and therefore represents
    the year ended August 31, 2001.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)

TAX-FREE BOND FUND - INVESTOR CLASS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                  YEAR        PERIOD
                                                 ENDED         ENDED
                                             AUGUST 31     AUGUST 31      YEAR ENDED JUNE 30
-------------------------------------------------------------------------------------------------
<S>                                       <C>       <C>      <C>         <C>      <C>      <C>
                                          2001      2000     1999(a)     1999     1998     1997
PER SHARE DATA
Net Asset Value--Beginning of Period     $14.72    $14.53    $14.71     $15.57   $15.34    $15.20
-------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                      0.68      0.64      0.10       0.62     0.63      0.66
Net Gains or (Losses) on Securities
   (Both Realized and Unrealized)          0.77      0.24    (0.18)     (0.40)     0.40      0.38
=================================================================================================
TOTAL FROM INVESTMENT OPERATIONS           1.45      0.88    (0.08)       0.22     1.03      1.04
=================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income       0.68      0.64      0.10       0.62     0.63      0.66
In Excess of Net Investment Income         0.00      0.00      0.00       0.00     0.00      0.01
Distributions from Capital Gains           0.00      0.00      0.00       0.46     0.17      0.23
In Excess of Capital Gains                 0.00      0.05      0.00       0.00     0.00      0.00
=================================================================================================
TOTAL DISTRIBUTIONS                        0.68      0.69      0.10       1.08     0.80      0.90
=================================================================================================
Net Asset Value--End of Period           $15.49    $14.72    $14.53     $14.71   $15.57    $15.34
=================================================================================================

TOTAL RETURN                             10.07%     6.32%   (0.53%)(b)   1.30%    6.87%     7.05%

RATIOS
 Net Assets--End of Period
  ($000 Omitted)                       $214,617  $178,154  $191,836   $201,791 $211,471  $220,410
Ratio of Expenses to
  Average Net Assets(c)(d)                0.90%     0.91%  0.90%(e)      0.91%    0.91%     0.90%
Ratio of Net Investment Income
  to Average Net Assets(d)                4.46%     4.45%  4.08%(e)      4.03%    4.06%     4.36%
Portfolio Turnover Rate                     33%       50%     3%(b)        66%     173%      123%
</TABLE>
(a) From July 1, 1999 to August 31, 1999.
(b) Based  on  operations  for  the  period  shown  and,  accordingly,  is  not
    representative of a full year.
(c) Ratio is based on Total  Expenses of the Class,  less  Expenses  Absorbed by
    INVESCO, which is before any expense offset arrangements  (which may include
    custodian fees).

(d) Various  expenses of the Class were voluntarily  absorbed by INVESCO for the
    years ended  August 31, 2001 and 2000, the period ended August 31, 1999 and
    the years  ended June 30, 1999, 1998, and 1997.  If such  expenses had not
    been  voluntarily  absorbed, ratio of expenses to average net assets would
    have  been  1.08%, 1.11%, 1.14% (annualized), 1.06%, 1.04%, and 1.05%,
    respectively, and ratio of net  investment  income to  average  net assets
    would have been 4.28%, 4.25%, 3.84% (annualized),  3.88%, 3.93%, and 4.21%,
    respectively.
(e) Annualized
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)

TAX-FREE BOND FUND - CLASS C
--------------------------------------------------------------------------------
                                                    YEAR ENDED     PERIOD ENDED
                                                     AUGUST 31        AUGUST 31
--------------------------------------------------------------------------------
                                                          2001          2000(a)
PER SHARE DATA
Net Asset Value--Beginning of Period                    $14.71          $14.05
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                                     0.58            0.29
Net Gains on Securities
  (Both Realized and Unrealized)                          2.79            0.66
================================================================================
TOTAL FROM INVESTMENT OPERATIONS                          3.37            0.95
================================================================================
LESS DISTRIBUTIONS
DIVIDENDS FROM NET INVESTMENT INCOME                      0.58            0.29
================================================================================
Net Asset Value--End of Period                          $17.50          $14.71
================================================================================

TOTAL RETURN(b)                                         23.26%        6.86%(c)

RATIOS
Net Assets--End of Period ($000 Omitted)                $1,279              $1
Ratio of Expenses to Average Net Assets(d)(e)            1.66%        1.66%(f)
Ratio of Net Investment Income
  to Average Net Assets(e)                               3.58%        3.79%(f)
Portfolio Turnover Rate                                    33%          50%(g)

(a) From February 15, 2000, inception of Class C, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return  calculation.
(c) Based  on  operations  for  the  period  shown  and,  accordingly,  is  not
    representative  of a full  year.
(d) Ratio is based on Total  Expenses of the Class,  less  Expenses  Absorbed by
    INVESCO, which is before any expense offset arrangements  (which may include
    custodian fees).
(e) Various expenses of the Class were  voluntarily  absorbed by INVESCO for the
    year ended August 31, 2001 and the period ended  August  31,  2000.  If such
    expenses had not been voluntarily absorbed, ratio of expenses to average net
    assets would have been 1.84% and 6.90% (annualized), respectively and ratio
    of net investment income (loss) to average net assets would have been 3.40%
    and (1.45%) (annualized), respectively.
(f) Annualized
(g) Portfolio  Turnover  is  calculated  at  the  Fund  level,  and  therefore
    represents the year ended August 31, 2000.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)

U.S. GOVERNMENT SECURITIES FUND - INVESTOR CLASS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
                                                       YEAR ENDED AUGUST 31
-----------------------------------------------------------------------------------------
                                          2001       2000      1999       1998      1997
<S>                                       <C>      <C>        <C>        <C>       <C>
PER SHARE DATA
Net Asset Value--Beginning of Period     $7.05      $6.81     $7.99      $7.49     $7.15
=========================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                     0.36       0.36      0.35       0.40      0.43
Net Gains or (Losses) on Securities
  (Both Realized and  Unrealized)         0.36       0.24     (0.58)      0.67      0.34
=========================================================================================
TOTAL FROM INVESTMENT OPERATIONS          0.72       0.60     (0.23)      1.07      0.77
=========================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income      0.36       0.36      0.35       0.40      0.43
Distributions from Capital Gains          0.00       0.00      0.56       0.17      0.00
In Excess of Capital Gains(a)             0.00       0.00      0.04       0.00      0.00
=========================================================================================
TOTAL DISTRIBUTIONS                       0.36       0.36      0.95       0.57      0.43
=========================================================================================
Net Asset Value--End of Period           $7.41      $7.05     $6.81      $7.99     $7.49
=========================================================================================

TOTAL RETURN                            10.45%      9.12%   (3.40%)     14.75%    11.01%

RATIOS
Net Assets--End of Period
  ($000 Omitted)                      $130,510    $74,870   $79,899    $79,485   $51,581
Ratio of Expenses to
  Average Net Assets(b)(c)               1.00%      1.02%     1.01%      1.01%     1.01%
Ratio of Net Investment
  Income to Average Net Assets(c)        4.87%      5.28%     4.80%      5.22%     5.78%
Portfolio Turnover Rate                    90%        21%      114%       323%      139%
</TABLE>
(a) Distributions in Excess of Capital Gains aggregated less than $0.01 on a per
    share basis for the year ended August 31, 2000.
(b) Ratio is based on Total  Expenses of the Class,  less  Expenses  Absorbed by
    INVESCO, which is before any  expense offset arrangements (which may include
    custodian fees).
(c) Various expenses of the Class were  voluntarily  absorbed by INVESCO for the
    years ended August 31, 2001, 2000, 1999, 1998, and 1997. If such expenses
    had not been voluntarily absorbed, ratio of expenses to average net assets
    would have been 1.43%, 1.61%, 1.60%, 1.41%, and 1.32%, respectively,  and
    ratio of net investment income to average net assets would have been 4.44%,
    4.69%,  4.21%, 4.82%, and 5.47%, respectively.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)

U.S. GOVERNMENT SECURITIES FUND - CLASS C

--------------------------------------------------------------------------------
                                                    YEAR ENDED     PERIOD ENDED
                                                     AUGUST 31        AUGUST 31
--------------------------------------------------------------------------------
                                                          2001          2000(a)
PER SHARE DATA
Net Asset Value--Beginning of Period                     $7.06           $6.72
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                                     0.30            0.17
Net Gains on Securities (Both Realized and Unrealized)    0.34            0.34
================================================================================
TOTAL FROM INVESTMENT OPERATIONS                          0.64            0.51
================================================================================
LESS DISTRIBUTIONS
DIVIDENDS FROM NET INVESTMENT INCOME                      0.30            0.17
================================================================================
Net Asset Value--End of Period                           $7.40           $7.06
================================================================================

TOTAL RETURN(b)                                          9.23%        7.64%(c)

RATIOS
Net Assets--End of Period ($000 Omitted)                $7,431            $241
Ratio of Expenses to Average Net Assets(d)(e)            1.70%        1.94%(f)
Ratio of Net Investment Income to
  Average Net Assets(e)                                  3.81%        4.65%(f)
Portfolio Turnover Rate                                    90%          21%(g)

(a) From February 15, 2000, inception of Class C, to August 31, 2000.
(b) The applicable  CDSC fees are not included in the Total Return  calculation.
(c) Based  on  operations  for  the  period  shown  and,  accordingly,  is  not
    representative of a full year.
(d) Based on Total  Expenses of the Class,  less  Expenses  Absorbed by INVESCO,
    which is before any expense offset arrangements (which may include
    custodian fees).
(e) Various expenses of the Class were  voluntarily  absorbed by INVESCO for the
    year ended  August 31,  2001 and the period ended August 31,  2000.  If such
    expenses had not been voluntarily  absorbed, ratio of expenses to average
    net assets would have been 1.82% and 2.29% (annualized), respectively and
    ratio of net investment income to average net assets would have been 3.69%
    and 4.30% (annualized), respectively.
(f) Annualized
(g) Portfolio  Turnover  is  calculated  at  the  Fund  level,  and  therefore
    represents the year ended August 31, 2000.
<PAGE>
FEBRUARY 28, 2002

INVESCO BOND FUNDS, INC.
INVESCO HIGH YIELD FUND--INVESTOR CLASS, CLASS A, B, C, AND K
INVESCO SELECT INCOME FUND--INVESTOR CLASS, CLASS A, B, C, AND K
INVESCO TAX-FREE BOND FUND--INVESTOR CLASS, CLASS A, B, AND C
U.S. GOVERNMENT SECURITIES FUND--INVESTOR CLASS, CLASS A, B, AND C

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  February  28,  2002 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 invescofunds.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. 20549-0102.  You can obtain information on
the  operation  of  the  Public  Reference  Room,  including  information  about
duplicating  fee charges,  by calling  1-202-942-8090.  This  information can be
obtained   by   electronic    request   at   the   following   E-mail   address:
publicinfo@sec.gov.  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 - Investor Class, Class A, B, C, and K
        INVESCO Select Income Fund - Investor Class, Class A, B, C, and K
         INVESCO Tax-Free Bond Fund - Investor Class, Class A, B, and C
   INVESCO U.S. Government Securities Fund - Investor Class, Class A, B, and C


              Class A and B shares will be available April 1, 2002


<TABLE>
<CAPTION>
Address:                                        Mailing Address:
<S>                                             <C>
4350 South Monaco Street, Denver, CO 80237      P.O. Box 173706, Denver, CO 80217-3706
</TABLE>
                                   Telephone:

                           In continental U.S., call:

                      1-800-525-8085 for Investor Class and
                     1-800-328-2234 for Class A, B, C, and K

                                February 28, 2002
--------------------------------------------------------------------------------

A Prospectus for the Investor Class, Class A, B, C, and, if applicable, K shares
of INVESCO High Yield, INVESCO Select Income, INVESCO Tax-Free Bond, and INVESCO
U.S.  Government  Securities  Funds dated February 28, 2002,  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,  the current  Prospectus,  SAI and annual and
semiannual reports of the Funds by writing to INVESCO  Distributors,  Inc., P.O.
Box 173706,  Denver, CO 80217-3706 , or by calling  1-800-525-8085  for Investor
Class  and  1-800-328-2234  for  Class  A, B, C, and K.  The  Prospectus  of the
Investor  Class,  Class  A, B, C, and K shares  of the  Funds is also  available
through the INVESCO Web site at invescofunds.com.
<PAGE>
TABLE OF CONTENTS

The Company...........................................................3

Investments, Policies,and Risks.......................................3

Investment Restrictions...............................................25

Management of the Funds...............................................29

Other Service Providers...............................................67

Brokerage Allocation and Other Practices..............................67

Capital Stock.........................................................70

Tax Consequences of Owning Shares of a Fund...........................71

Performance...........................................................74

Code of Ethics........................................................78

Financial Statements..................................................78

Appendix A............................................................79
<PAGE>
THE COMPANY

INVESCO Bond Funds,  Inc. (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, management investment company currently
consisting of four portfolios of investments: INVESCO High Yield Fund - Investor
Class,  Class A, B, C, and K; INVESCO Select Income Fund - Investor Class, Class
A, B, C, and K; INVESCO Tax-Free Bond Fund - Investor Class,  Class A, B, and C;
and INVESCO U.S. Government  Securities Fund - Investor Class, Class A, B, and C
(each a "Fund" and collectively 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 the
portfolio of each Fund 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.

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 receipts  typically issued by U.S. 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.

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
certificates  of deposit  ("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.
<PAGE>
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 commercial 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"),  the Funds' investment  advisor,
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.

Moody's  Investors  Service,  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,  each at the time
of purchase.  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 at the time of purchase. 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.
<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, or 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, or Caa) are
of poorer quality and also have speculative characteristics. Bonds rated Caa may
be in  default  or there may be  present  elements  of danger  with  respect  to
principal  or  interest.  While such bonds  likely  will have some  quality  and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. Bonds having equivalent ratings from other
rating 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
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 the Fund until the  maturity  or call date of a bond,  in
order for the 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
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 the
Funds'  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.
<PAGE>
EQUITY  SECURITIES -- The Funds may invest in common,  preferred and convertible
preferred  stocks,  and securities whose values are tied to the price of stocks,
such as rights, warrants, and  convertible  debt  securities.  Common stocks and
preferred stocks  represent equity ownership in a corporation.  Owners of stock,
such as the Funds, share in a corporation's earnings through dividends which may
be declared by the  corporation,  although  the receipt of  dividends is not the
principal  benefit  that the Funds seek when they  invest in stocks and  similar
instruments.

Instead,  the Funds seek to invest in stocks that will  increase in market value
and may be sold for more  than a Fund paid to buy  them.  Market  value is based
upon  constantly  changing  investor  perceptions  of what the  company is worth
compared to other  companies.  Although  dividends  are a factor in the changing
market  value  of  stocks,   many  companies  do  not  pay  dividends,   or  pay
comparatively  small  dividends.  The  principal  risk of  investing  in  equity
securities  is that  their  market  values  fluctuate  constantly,  often due to
factors  entirely  outside the  control of the Funds or the company  issuing the
stock.  At any  given  time,  the  market  value of an  equity  security  may be
significantly higher or lower than the amount paid by a Fund to acquire it.

From time to time,  the Funds may hold common  stock that they  acquire  when an
issuing company converts its debt securities held by the Fund into common stock.
This occurs when issuing companies  recapitalize.  Although the Funds ordinarily
will not hold stock acquired in this manner for extended  periods of time, there
is nothing to prevent  them from holding the stock if they believe that it is in
the best interest of Fund shareholders to hold the stock rather than liquidating
it immediately in an unfavorable market.

Owners  of  preferred  stocks  are  entitled  to  dividends   payable  from  the
corporation's  earnings,  which  in some  cases  may be  "cumulative"  if  prior
dividends  on the  preferred  stock  have not been  paid.  Dividends  payable on
preferred stock have priority over distributions to holders of common stock, and
preferred  stocks generally have a priority on the distribution of assets in the
event of the corporation's liquidation. Preferred stocks may be "participating,"
which  means  that they may be  entitled  to  dividends  in excess of the stated
dividend in certain cases. The holders of a company's debt securities  generally
are  entitled  to be  paid  by  the  company  before  it  pays  anything  to its
stockholders.

Rights and  warrants  are  securities  which  entitle the holder to purchase the
securities of a company (usually,  its common stock) at a specified price during
a specified time period.  The value of a right or warrant is affected by many of
the same factors that determine the prices of common stocks. Rights and warrants
may  be  purchased   directly  or  acquired  in  connection   with  a  corporate
reorganization or exchange offer.
<PAGE>
The Funds also may purchase convertible  securities  including  convertible debt
obligations and convertible preferred stock. A convertible security entitles the
holder to  exchange  it for a fixed  number of shares of common  stock (or other
equity  security),  usually at a fixed price within a specified  period of time.
Until  conversion,  the owner of  convertible  securities  usually  receives the
interest  paid on a convertible  bond or the dividend  preference of a preferred
stock.

A convertible  security has an "investment  value" which is a theoretical  value
determined  by the yield it  provides  in  comparison  with  similar  securities
without  the  conversion  feature.  Investment  value  changes  are  based  upon
prevailing  interest rates and other factors.  It also has a "conversion value,"
which  is the  market  value  the  convertible  security  would  have if it were
exchanged for the  underlying  equity  security.  Convertible  securities may be
purchased  at varying  price levels  above or below their  investment  values or
conversion values.

Conversion value is a simple  mathematical  calculation that fluctuates directly
with the price of the underlying  security.  However, if the conversion value is
substantially  below the investment  value,  the market value of the convertible
security is governed  principally  by its  investment  value.  If the conversion
value is near or above the investment value, the market value of the convertible
security  generally will rise above the  investment  value.  In such cases,  the
market  value of the  convertible  security  may be higher  than its  conversion
value,  due to the combination of the convertible  security's  right to interest
(or dividend  preference) and the possibility of capital  appreciation  from the
conversion  feature.  However,  there is no  assurance  that any  premium  above
investment  value or conversion  value will be recovered  because  prices change
and, as a result, the ability to achieve capital appreciation through conversion
may be eliminated.

SECTOR RISK -- Companies with similar characteristics may be grouped together in
broad categories  called sectors.  Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. If the portfolio
managers  allocate  more of their  respective  Fund's  portfolio  holdings  to a
particular  sector,  the  Fund's  performance  will be more  susceptible  to the
economic, business or other developments which generally affect that sector.

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
investments 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.
<PAGE>
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.  Investments 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.

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,  the Funds' 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.  The  advisor  or  sub-advisor  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, the hedge 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 a Fund."
<PAGE>
In addition to the instruments and strategies  described  below,  the advisor or
sub-advisor 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 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 advisor
or sub-advisor 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. A Fund 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 advisor
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.
<PAGE>
(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.

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.
<PAGE>
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 from 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
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.
<PAGE>
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.

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.
<PAGE>
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  advisor or  sub-advisor
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 advisor 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
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 deposits. 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
<PAGE>
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
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
extraordinary market conditions,  liquidity of such futures contracts also could
be reduced.  Additionally,  the advisor or  sub-advisor  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 advisor  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
larger amounts than those involved in the use of such Financial  Instruments,  a
<PAGE>
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.

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 advisor  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.
<PAGE>
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 advisor anticipates. There is no assurance that
the advisor'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.
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
<PAGE>
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.

HOLDRS -- Holding  Company  Depository  Receipts,  or HOLDRs,  are  trust-issued
receipts that  represent a Fund's  beneficial  ownership of a specific  group of
stocks.  HOLDRs involve risks similar to the risks of investing in common stock.
For example,  a Fund's investment will decline in value if the underlying stocks
decline in value.  Because HOLDRs are not subject to concentration  limits,  the
relative weight of an individual stock may increase  substantially,  causing the
HOLDRs to be less diverse and creating more risk.

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.  A Fund 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 Standard & Poor's
Depository  Receipts  ("SPDRs")  and shares of other  investment  companies  and
exchange-traded  funds.  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 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, as amended (the "1940 Act"),
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,  and a Fund may
not own more than 3% of the outstanding shares of any 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.
<PAGE>

MUNICIPAL  OBLIGATIONS  (Tax-Free Bond Fund Only) -- 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.  Although  done  so  infrequently,
     municipal  commercial paper may be issued at a 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.
<PAGE>
     MUNICIPAL  LEASE  OBLIGATIONS  Also included in "municipal  securities" are
     municipal  lease  obligations,  which  may take  the  form of a  lease,  an
     installment  purchase or a  conditional  sales  contract.  Municipal  lease
     obligations  are issued by state and local  governments  and authorities to
     acquire  land,  equipment  and  facilities  such  as  state  and  municipal
     vehicles,  telecommunications  and computer  equipment,  and other  capital
     assets.  Interest  payments on qualifying  municipal leases are exempt from
     federal income taxes. The Funds may purchase these obligations directly, or
     they may purchase  participation  interests in such obligations.  Municipal
     leases are generally  subject to greater  risks than general  obligation or
     revenue  bonds.   State  laws  set  forth   requirements   that  states  or
     municipalities must meet in order to issue municipal obligations,  and such
     obligations   may   contain  a  covenant  by  the  issuer  to  budget  for,
     appropriate,  and make payments due under the obligation.  However, certain
     municipal lease obligations may contain  "non-appropriation"  clauses which
     provide that the issuer is not obligated to make payments on the obligation
     in future years unless funds have been  appropriated  for this purpose each
     year.  Accordingly,  such  obligations  are subject to  "non-appropriation"
     risk. While municipal  leases are secured by the underlying  capital asset,
     it  may  be   difficult   to  dispose  of  such  assets  in  the  event  of
     non-appropriation  or other default. All direct investments by the Funds in
     municipal  lease  obligations  shall be deemed illiquid and shall be valued
     according to each Fund's Procedures for Valuing  Securities  current at the
     time of such valuation.

REAL ESTATE  INVESTMENT  TRUSTS - To the extent  consistent  with its investment
objectives  and  policies,  the Funds may  invest in  securities  issued by real
estate investment trusts ("REITs").

REITs are trusts which sell equity or debt  securities  to investors and use the
proceeds  to invest in real  estate or  interests  therein.  A REIT may focus on
particular projects, such as apartment complexes, or geographic regions, such as
the Southeastern United States, or both.

To the extent that the Funds have the  ability to invest in REITs,  a Fund could
conceivably  own real estate directly as a result of a default on the securities
it owns. The Funds,  therefore,  may be subject to certain risks associated with
the direct  ownership  of real  estate  including  difficulties  in valuing  and
trading real  estate,  declines in the value of real  estate,  risks  related to
general and local economic  conditions,  adverse changes in the climate for real
estate, environmental liability risks, increases in property taxes and operating
expenses,  changes in zoning laws, casualty or condemnation losses,  limitations
on rents,  changes in neighborhood  values, the appeal of properties to tenants,
and increases in interest rates.

In addition to the risks described  above,  REITs may be affected by any changes
in the value of the underlying property in their portfolios. REITs are dependent
upon management  skill,  are not diversified,  and are therefore  subject to the
risk of financing single or a limited number of projects. REITs are also subject
to heavy cash flow dependency, defaults by borrowers,  self-liquidation, and the
possibility  of failing to maintain an exemption  from the 1940 Act.  Changes in
interest rates may also affect the value of debt  securities  held by a Fund. By
investing in REITs  indirectly  through a Fund, a shareholder will bear not only
his/her  proportionate  share of the expenses of a Fund,  but also,  indirectly,
similar expenses of the REITs.
<PAGE>
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
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 INVESCO 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.

SECURITIES  LENDING -- Each Fund may from time to time loan  securities from its
portfolio  to brokers, dealers,  and  financial  institutions  to earn income or
generate  cash for  liquidity.  When the Fund lends  securities  it will receive
collateral in cash or U.S. Treasury  obligations  which will be maintained,  and
with regard to cash, invested,  at all times in an amount equal to at least 100%
of the current  market  value of the loaned  securities.  All such loans will be
<PAGE>
made  according  to the  guidelines  of the  SEC  and  the  Company's  board  of
directors.  A Fund may at any time call  such  loans to  obtain  the  securities
loaned.  If the borrower of the  securities  should default on its obligation to
return the securities borrowed,  the value of the collateral may be insufficient
to permit the Fund to reestablish its position by making a comparable investment
due to  changes  in market  conditions,  or the Fund may be  unable to  exercise
certain  ownership  rights.  A Fund will be entitled to earn  interest paid upon
investment of the cash  collateral or to the payment of a premium or fee for the
loan. A Fund may pay reasonable  fees in connection  with such loans,  including
payments to the borrower and to one or more  securities  lending agents (each an
"Agent").

INVESCO  provides  the  following  services in  connection  with the  securities
lending  activities of each Fund: (a) oversees  participation  in the securities
lending  program  to  ensure  compliance  with  all  applicable  regulatory  and
investment  guidelines;  (b) assists  the Agent in  determining  which  specific
securities are available for loan;  (c) monitors the Agent's loan  activities to
ensure  that  securities   loans  are  effected  in  accordance  with  INVESCO's
instructions and with procedures adopted by the board of directors; (d) prepares
appropriate  periodic  reports for, and seeks  appropriate  approvals  from, the
board of directors with respect to securities lending  activities;  (e) responds
to Agent  inquiries;  and (f) performs such other duties as  necessary.  INVESCO
intends  to seek  necessary  approvals  to  enable it to earn  compensation  for
providing such services.

The Funds have obtained an exemptive  order from the SEC allowing them to invest
uninvested  cash  balances  and cash  collateral  received  in  connection  with
securities  lending in money  market  funds that have INVESCO or an affiliate of
INVESCO as an investment advisor.

TEMPORARY  TAXABLE  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
<PAGE>
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
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 -- The Funds normally 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 investment restrictions set forth below have been adopted by each respective
Fund and,  unless  identified as  non-fundamental  policies,  may not be changed
without the affirmative vote of a majority of the outstanding  voting securities
of that Fund. As provided in the Investment Company Act of 1940, as amended (the
"1940 Act"), a "vote of a majority of the outstanding  voting  securities of the
Fund"  means  the  affirmative  vote of the  lesser  of (1) more than 50% of the
outstanding  shares of the Fund or (2) 67% or more of the  shares  present  at a
meeting,  if more than 50% of the  outstanding  shares  are  represented  at the
meeting in person or by proxy.  Except  with  respect to  borrowing,  changes in
values of a particular Fund's assets will not cause a violation of the following
investment  restrictions so long as percentage restrictions are observed by such
Fund at the time it purchases any security. 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 the Fund's
     total assets would be invested in the  securities  of that issuer,  or (ii)
     the Fund would hold more than 10% of the outstanding  voting  securities of
     that issuer;
<PAGE>
     3. underwrite  securities of other  issuers,  except  insofar as it may be
     deemed to be an  underwriter  under the 1933 Act,  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
     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.
<PAGE>
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. With respect to a Fund that
     is not a money market fund,  securities  issued or  guaranteed by a bank or
     subject to financial  guaranty insurance are not subject to the limitations
     set forth in the preceding sentence.

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, at least
    Debt                                                 80%. Nonrated up
                                                         to 25%.
--------------------------------------------------------------------------------------------------------------
    Investment Grade                                     At least 50%
--------------------------------------------------------------------------------------------------------------

    Junk Bonds                     At least 65% (80%     Up to 50%;           Up to 10%;
                                   effective July 31,    never below B        never below B
                                   2002), but never      by Moody's or        by Moody's or
                                   below Caa by Moody's  B- by S&P            B- by S&P
                                   or CCC by S&P at the  at the time          at the time
                                   time of purchase.     of purchase.         of purchase.

--------------------------------------------------------------------------------------------------------------
TEMPORARY TAXABLE                                                             Up to 100% when
                                                                              defensive. Nor-
                                                                              mally, to 20%
                                                                              including AMT.
--------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS                                                                     At least 65%
-------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS                                                               Normally, at
                                                                              least 80%
--------------------------------------------------------------------------------------------------------------
ALTERNATIVE MINIMUM                                                           Normally, no more
    TAX BONDS                                                                 more than 20%
                                                                              including other
                                                                              taxable invest-
                                                                              ments.
--------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MANAGEMENT OF THE FUNDS

THE INVESTMENT ADVISOR

INVESCO, located at 4350 South Monaco Street, Denver, Colorado, is the Company's
investment  advisor.  INVESCO  was  founded in 1932 and serves as an  investment
advisor to:

      INVESCO Bond Funds, Inc.
      INVESCO Combination Stock & Bond Funds, Inc.
      INVESCO Counselor Series Funds, Inc.
        (formerly, INVESCO Advantage Series Funds, Inc.)
      INVESCO International Funds, Inc.
      INVESCO Money Market Funds, Inc.
      INVESCO Sector Funds, Inc.
      INVESCO Stock Funds, Inc.
      INVESCO Treasurer's Series Funds, Inc.
      INVESCO Variable Investment Funds, Inc.

As of January 31, 2002,  INVESCO  managed 46 mutual funds having combined assets
of over $28 billion, on behalf of more than 2,818,463 shareholder accounts.

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 $397.9 billion in assets under management as of December 31, 2001.

AMVESCAP PLC's North American subsidiaries include:

     INVESCO Retirements,  Inc. ("IRI"), 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.

          AMVESCAP National Trust Company (formerly known as Institutional Trust
          Company doing business as INVESCO Trust  Company),  a division of IRI,
          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.  AMVESCAP  National  Trust Company acts as trustee or
          custodian to these plans.  AMVESCAP  National  Trust  Company  accepts
          contributions   and  provides   complete  transfer  agency  functions:
          correspondence,    sub-accounting,    telephone   communications   and
          processing of distributions.

     INVESCO,  Inc.,  Atlanta,   Georgia,   manages  individualized   investment
     portfolios  of  equity,   fixed-income  and  real  estate   securities  for
     institutional clients, including mutual funds and the collective investment
     entities. INVESCO, Inc. includes the following Divisions:

          INVESCO  Capital  Management  Division,   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  Division,   Boston,   Massachusetts,
          primarily manages pension and endowment accounts.

          PRIMCO Capital Management Division, Louisville,  Kentucky, specializes
          in  managing  stable  return  investments,  principally  on  behalf of
          Section 401(k) retirement plans.
<PAGE>
          INVESCO Realty Advisors  Division,  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)  Division,  New  York,  is  an  investment  advisor  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 advisor to several closed-end investment companies,  and as
          sub-advisor  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-advisor 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 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.

The corporate  headquarters of AMVESCAP PLC are located at 11 Devonshire Square,
London, EC2M 4YR, England.

THE INVESTMENT ADVISORY AGREEMENT

INVESCO serves as investment  advisor 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-advisor,  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  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
          advisor or any sub-advisor;

     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
<PAGE>
     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;

     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   prospectus,
          statements 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; and

     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.  Since the Funds' Class A and B shares are not
offered  until April 1, 2002, no advisory fees were paid with respect to Class A
and B shares for the periods shown. If applicable, the advisory fees were offset
by credits in the amounts  shown,  so that  INVESCO's fees were not in excess of
the expense  limitations  shown,  which have been  voluntarily  agreed to by the
Company and INVESCO.

<PAGE>
                                    Advisory      Total Expense    Total Expense
                                    Fee Dollars   Reimbursements   Limitations
                                    -----------   --------------   -----------

INVESTOR CLASS
--------------

HIGH YIELD FUND
Year Ended August 31, 2001          $2,865,241     $     0             1.25%
Year Ended August 31, 2000           3,063,648           0             1.25%
Year Ended August 31, 1999           3,245,140           0             1.25%

SELECT INCOME FUND
Year Ended August 31, 2001          $2,911,139      $1,635,595         1.05%
Year Ended August 31, 2000           2,701,447         720,362         1.05%
Year Ended August 31, 1999           2,670,224         536,940         1.05%

TAX-FREE BOND FUND
Year Ended August 31, 2001          $  998,287      $  324,502         0.90%
Year Ended August 31, 2000             973,112         356,522         0.90%
Period Ended August 31, 1999(1)        185,151          80,439         0.90%
Year Ended June 30, 1999             1,149,834         310,487         0.90%

U.S. GOVERNMENT SECURITIES FUND
Year Ended August 31, 2001          $  564,241      $  445,439         1.00%
Year Ended August 31, 2000             415,569         449,886         1.00%
Year Ended August 31, 1999             395,611         422,317         1.00%

CLASS C
-------

HIGH YIELD FUND
Year Ended August 31, 2001          $   33,305      $    0             2.00%
Period Ended August 31, 2000(2)          5,707           0             2.00%

SELECT INCOME FUND
Year Ended August 31, 2001          $   10,512      $    0             1.80%
Period Ended August 31, 2000(2)            374           0             1.80%

TAX-FREE BOND FUND
Year Ended August 31, 2001          $    2,354      $      775         1.65%
Period Ended August 31, 2000(2)              4              30         1.65%

U.S. GOVERNMENT SECURITIES FUND
Year Ended August 31, 2001          $    9,953      $    2,223         1.75%
Period Ended August 31, 2000(2)            108              66         1.75%

CLASS K
-------

HIGH YIELD FUND
Period Ended August 31, 2001(3)     $        3      $       16         1.45%

SELECT INCOME FUND
Period Ended August 31, 2001(3)     $        3      $       18         1.25%

(1) For the period July 1, 1999 through August 31, 1999.
(2) For the period February 15, 2000 through August 31, 2000.
(3) For the period December 14, 2000 through August 31, 2001.

THE SUB-ADVISORY AGREEMENT
With  respect to Tax-Free  Bond Fund,  A I M Capital  Management,  Inc.  ("AIM")
serves as sub-advisor to the Fund pursuant to a sub-advisory agreement dated May
10, 2000 (the "Sub-Agreement") with INVESCO.
<PAGE>
The  Sub-Agreement  provides that AIM,  subject to the  supervision  of INVESCO,
shall manage the investment  portfolio of the Fund in conformity with the Fund's
investment  policies.  These  management  services  include:  (a)  managing  the
investment and reinvestment of all the assets, now or hereafter acquired, of the
Fund,  and  executing  all  purchases  and sales of  portfolio  securities;  (b)
maintaining a continuous  investment  program for the Fund,  consistent with (i)
the  Fund's  investment  policies  as set  forth in the  Company's  Articles  of
Incorporation,  Bylaws and Registration Statement, as from time to time amended,
under the 1940 Act,  as  amended,  and in any  prospectus  and/or  statement  of
additional  information  of the Fund,  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;  (c)  determining
what  securities  are to be  purchased  or sold for the Fund,  unless  otherwise
directed by the directors of the Company or INVESCO, and executing  transactions
accordingly;  (d)  providing  the  Fund  the  benefit  of all of the  investment
analysis and research,  the reviews of current  economic  conditions and trends,
and the consideration of long-range investment policy now or hereafter generally
available to investment  advisory customers of AIM; (e) determining what portion
of the Fund's  assets  should be  invested in the  various  types of  securities
authorized  for purchase by the Fund; and (f) making  recommendations  as to the
manner in which voting rights, rights to consent to Company action and any other
rights  pertaining to the  portfolio  securities of the Fund shall be exercised.
The  Sub-Agreement  provides that, as compensation  for its services,  AIM shall
receive  from  INVESCO,  at the end of each month,  a fee based upon the average
daily value of the Fund's net assets. The sub-advisory fees are paid by INVESCO,
NOT the Fund. The fees are calculated at the following annual rates:

Tax-Free Bond Fund

     o    0.22% on the first $300 million of the Fund's average net assets;

     o    0.18% on the next $200 million of the Fund's average net assets;

     o    0.14% of the Fund's average net assets from $500 million;

ADMINISTRATIVE SERVICES AGREEMENT

INVESCO,  either  directly or through  affiliated  companies,  provides  certain
administrative, sub-accounting, and recordkeeping services to the Funds pursuant
to an Administrative Services Agreement dated June 1, 2000 with the Company.

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 0.045% of the  average  net  assets of each Fund.
Prior to May 13,  1999,  the rate was 0.015% of the  average  net assets of each
Fund.

TRANSFER AGENCY AGREEMENT

INVESCO also performs  transfer agent,  dividend  disbursing agent and registrar
services for the Funds  pursuant to a Transfer  Agency  Agreement  dated June 1,
2000 with the Company.
<PAGE>
The Transfer Agency Agreement provides that each Fund pays INVESCO an annual fee
of $28.50  ($26.00  prior to June 1, 2000) 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

During the periods  outlined in the table  below,  the Funds paid the  following
fees to INVESCO (in some  instances,  prior to the  absorption  of certain  Fund
expenses by INVESCO and the sub-advisor, if applicable).  Since the Funds' Class
A and B  shares  are not  offered  until  April 1, 2002,  no fees were paid with
respect to Class A and B shares for the periods shown.

                                                Administrative      Transfer
                                      Advisory     Services          Agency
                                      --------     --------          ------

INVESTOR CLASS
--------------

HIGH YIELD FUND
Year Ended August 31, 2001          $2,865,241      $  321,065    $2,058,682
Year Ended August 31, 2000           3,063,648         349,751     1,799,501
Year Ended August 31, 1999           3,245,140         204,752     1,560,584

SELECT INCOME FUND
Year Ended August 31, 2001          $2,911,139      $  284,060    $2,886,015
Year Ended August 31, 2000           2,701,447         254,484     1,795,050
Year Ended August 31, 1999           2,670,224         140,510     1,519,741

TAX-FREE BOND FUND
Year Ended August 31, 2001          $  998,288      $   91,656    $  234,034
Year Ended August 31, 2000             973,112          89,618       244,611
Period Ended August 31, 1999(1)        185,151          16,815        43,473
Year Ended June 30, 1999             1,149,834          49,494       252,005

U.S. GOVERNMENT SECURITIES FUND
Year Ended August 31, 2001          $  564,241      $   56,011    $  420,155
Year Ended August 31, 2000             415,569          43,999       410,580
Year Ended August 31, 1999             395,611          27,813       333,566

CLASS C
-------

HIGH YIELD FUND
Year Ended August 31, 2001          $   33,305      $    3,717    $   13,472
Period Ended August 31, 2000(2)          5,707             652         1,514

SELECT INCOME FUND
Year Ended August 31, 2001          $   10,512      $    1,034    $    4,667
Period Ended August 31, 2000(2)            374              36           163

TAX-FREE BOND FUND
Year Ended August 31, 2001          $    2,354      $      215    $      816
Period Ended August 31, 2000(2)              4               0            30

U.S. GOVERNMENT SECURITIES FUND
Year Ended August 31, 2001          $    9,953      $      968    $    3,285
Period Ended August 31, 2000(2)            108              11            79

CLASS K
-------

HIGH YIELD FUND
Period Ended August 31, 2001(3)     $        3      $        0    $       19
<PAGE>
SELECT INCOME FUND
Period Ended August 31, 2001(3)     $        3      $        0    $       19

(1) For the period July 1, 1999 through August 31, 1999.
(2) For the period February 15, 2000 through August 31, 2000.
(3) For the period December 14, 2000 through August 31, 2001.

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  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 an  investments  &  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 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 derivative investments made by the Funds. It monitors derivative 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.

The  Company has a legal  committee,  an  insurance  committee,  a  compensation
committee and a retirement plan committee.  These committees meet when necessary
to  review  legal,  insurance, compensation,  and  retirement  plan  matters  of
importance to the Company.

The Company has a nominating  committee.  The committee  meets  periodically  to
review and nominate  candidates for positions as  independent  directors to fill
vacancies on the board of directors.

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.
      INVESCO Combination Stock & Bond Funds, Inc.
      INVESCO Counselor Series Funds, Inc.
        (formerly, INVESCO Advantage Series Funds, Inc.)
      INVESCO International Funds, Inc.
<PAGE>
      INVESCO Money Market Funds, Inc.
      INVESCO Sector Funds, Inc.
      INVESCO Stock Funds, Inc.
      INVESCO Treasurer's Series Funds, Inc.
      INVESCO Variable Investment Funds, Inc.

The table below provides  information about each of the Company's  directors and
officers. Their affiliations represent their principal occupations.

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

Mark H. Williamson         President, Chief           Chief Executive Officer,
(2)(3)(11)                 Executive Officer          Managed Products, AMVESCAP
4350 South Monaco Street   and Chairman of the        PLC. Chief Executive
Denver, Colorado           Board                      Officer and Chairman
Age: 50                                               of the Board of
                                                      INVESCO Funds Group,
                                                      Inc.; Chief Executive
                                                      Officer and Chairman
                                                      of the Board of
                                                      INVESCO Distributors,
                                                      Inc.; formerly,
                                                      President of INVESCO
                                                      Funds Group, Inc.;
                                                      formerly, President of
                                                      INVESCO Distributors,
                                                      Inc.; formerly,
                                                      President, Chief
                                                      Operating Officer and
                                                      Chairman of the Board
                                                      of INVESCO Global
                                                      Health Sciences Fund;
                                                      formerly, Chairman and
                                                      Chief Executive
                                                      Officer of Nations-
                                                      Banc Advisors, Inc.;
                                                      formerly, Chairman of
                                                      NationsBanc
                                                      Investments, Inc.

Fred A. Deering             Vice Chairman of the      Formerly, Trustee of
(1)(2)(7)(8)                Board                     INVESCO Global Health
1551 Larimer Street, #1701                            Sciences Fund;
Denver, Colorado                                      Chairman of the
Age: 74                                               Executive Committee and
                                                      Chairman of the Board of
                                                      Security Life of Denver
                                                      Insurance Company;
                                                      Director of ING American
                                                      Holdings Company and
                                                      First ING Life Insurance
                                                      Company of New York.
<PAGE>
                           Position(s) Held           Principal Occupation(s)
Name, Address, and Age     With Company               During Past Five Years

Victor L. Andrews, Ph.D.   Director                   Professor Emeritus,
(4)(6)(10)(11)                                        Chairman Emeritus,
34 Seawatch Drive                                     Chairman and CFO of the
Savannah, Georgia                                     Roundtable of the
Age: 71                                               Department of Finance
                                                      of Georgia State
                                                      University; President,
                                                      Andrews Financial
                                                      Associates, Inc. (con-
                                                      sulting firm);
                                                      Director of The
                                                      Sheffield Funds, Inc.;
                                                      formerly, member of
                                                      the faculties of the
                                                      Harvard Business
                                                      School and the Sloan
                                                      School of Management
                                                      of MIT.

Bob R. Baker               Director                   Consultant (since
(2)(4)(5)(9)(10)(11)                                  2000); formerly,
37 Castle Pines Dr., N.                               President and Chief
Castle Rock, Colorado                                 Executive Officer
Age:  65                                              (1989 to 2000) of AMC
                                                      Cancer Research Center,
                                                      Denver, Colorado; until
                                                      mid-December 1988, Vice
                                                      Chairman of the Board of
                                                      First Columbia Financial
                                                      Corporation, Englewood,
                                                      Colorado; Chairman of the
                                                      Board and Chief Executive
                                                      Officer of First Columbia
                                                      Financial Corporation.


Lawrence H. Budner         Director                   Trust Consultant;
(1)(5)(10)(11)                                        prior to June 30,
7608 Glen Albens Circle                               1987, Senior Vice
Dallas, Texas                                         President and Senior
Age: 71                                               Trust Officer of
                                                      InterFirst Bank,
                                                      Dallas, Texas.


James T. Bunch(4)(5)(9)    Director                   Principal and Founder
3600 Republic Plaza                                   of Green Manning &
370 Seventeenth Street                                Bunch Ltd., Denver,
Denver, Colorado                                      Colorado, since August
Age: 59                                               1988; Director and
                                                      Secretary of Green
                                                      Manning & Bunch Securi-
                                                      ties, Inc., Denver,
                                                      Colorado, since
                                                      September 1993; Vice
                                                      President and Director
                                                      of Western Golf
                                                      Association and Evans
                                                      Scholars Foundation;
                                                      formerly, General
                                                      Counsel and Director
                                                      of Boettcher & Co.,
                                                      Denver, Colorado;
                                                      formerly, Chairman and
                                                      Managing Partner of
                                                      Davis Graham & Stubbs,
                                                      Denver, Colorado.
<PAGE>
                           Position(s) Held           Principal Occupation(s)
Name, Address, and Age     With Company               During Past Five Years


Raymond R. Cunningham(3)    Vice President and        Director, President
4350 South Monaco Street    Director                  and Chief Operating
Denver, Colorado                                      Officer of INVESCO
Age: 50                                               Funds Group, Inc.;
                                                      Director and Presi-
                                                      dent of INVESCO
                                                      Distributors, Inc.;
                                                      formerly, Senior Vice
                                                      President of INVESCO
                                                      Funds Group, Inc.;
                                                      formerly, Senior Vice
                                                      President of GT Global-
                                                      North America (1992-1998).


Richard W. Healey(3)        Director                  Director and Senior
4350 South Monaco Street                              Vice President of
Denver, Colorado                                      INVESCO Funds Group,
Age: 47                                               Inc.; Director and
                                                      Senior Vice President
                                                      of INVESCO
                                                      Distributors, Inc.;
                                                      formerly, Senior Vice
                                                      President of GT
                                                      Global-North America
                                                      (1996 to 1998) and The
                                                      Boston Company (1993
                                                      to 1996).

Gerald J. Lewis(1)(6)(7)   Director                   Chairman of Lawsuit
701 "B" Street                                        Resolution Services,
Suite 2100                                            San Diego, California
San Diego, California                                 since 1987; Director
Age:  68                                              of General Chemical
                                                      Group, Inc., Hampdon,
                                                      New Hampshire, since
                                                      1996; formerly,
                                                      Associate Justice of
                                                      the California Court
                                                      of Appeals; Director
                                                      of Wheelabrator
                                                      Technologies, Inc.,
                                                      Fisher Scientific,
                                                      Inc., Henley
                                                      Manufacturing, Inc.,
                                                      and California Coastal
                                                      Properties, Inc.; Of
                                                      Counsel, Latham &
                                                      Watkins, San Diego,
                                                      California (1987 to
                                                      1997).
<PAGE>
                           Position(s) Held           Principal Occupation(s)
Name, Address, and Age     With Company               During Past Five Years

John W. McIntyre           Director                   Retired. Formerly,
(1)(2)(5)(7)                                          Vice Chairman of the
7 Piedmont Center                                     Board of Directors of
Suite 100                                             The Citizens and
Atlanta, Georgia                                      Southern Corporation and
Age: 71                                               Chairman of the Board and
                                                      Chief Executive Officer
                                                      of The Citizens and
                                                      Southern Georgia Corp. and
                                                      The Citizens and Southern
                                                      National Bank; formerly,
                                                      Trustee of INVESCO Global
                                                      Health Sciences Fund and
                                                      Employee's Retirement
                                                      System of GA, Emory
                                                      University; Trustee of
                                                      Gables Residential Trust,
                                                      and Trustee and Chairman
                                                      of the J.M. Tull
                                                      Charitable Foundation;
                                                      Director of Kaiser Foun-
                                                      dation Health Plans of
                                                      Georgia, Inc.

Larry Soll, Ph.D.          Director                   Retired. Formerly,
(4)(6)(9)(10)(11)                                     Chairman of the Board
2358 Sunshine Canyon Drive                            (1987 to 1994), Chief
Boulder, Colorado                                     Executive Officer
Age: 59                                               (1982 to 1989 and 1993
                                                      to 1994) and Presi-
                                                      dent (1982 to 1989) of
                                                      Synergen Inc.;
                                                      Director of Synergen
                                                      since incorporation
                                                      in 1982; Director of
                                                      Isis Pharmaceuticals,
                                                      Inc.; formerly,
                                                      Trustee of INVESCO
                                                      Global Health Sciences
                                                      Fund.

Glen A. Payne              Secretary                  Senior Vice President,
4350 South Monaco Street                              General Counsel and
Denver, Colorado                                      Secretary of INVESCO
Age: 54                                               Funds Group, Inc.;
                                                      Senior Vice President,
                                                      Secretary and General
                                                      Counsel of INVESCO
                                                      Distributors, Inc.;
                                                      formerly, Secretary of
                                                      INVESCO Global Health
                                                      Sciences Fund; for-
                                                      merly, General Counsel
                                                      of INVESCO Trust Com-
                                                      pany (1989 to 1998) and
                                                      employee of a U.S.
                                                      regulatory agency,
                                                      Washington, D.C. (1973
                                                      to 1989).
<PAGE>
                           Position(s) Held           Principal Occupation(s)
Name, Address, and Age     With Company               During Past Five Years


Ronald L. Grooms           Chief Accounting           Senior Vice President,
4350 South Monaco Street   Officer, Chief Finan-      Treasurer and Director
Denver, Colorado           cial Officer and           of INVESCO Funds
Age: 54                    Treasurer                  Group, Inc.; Senior
                                                      Vice President,
                                                      Treasurer and Direc-
                                                      tor of INVESCO
                                                      Distributors, Inc.;
                                                      formerly, Treasurer
                                                      and 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,
4350 South Monaco Street                              Assistant Secretary
Denver, Colorado                                      and Director of
Age: 45                                               INVESCO Funds Group,
                                                      Inc.; Senior Vice
                                                      President, Assistant
                                                      Secretary and Director
                                                      of INVESCO
                                                      Distributors, Inc.;
                                                      formerly, Trust
                                                      Officer of INVESCO
                                                      Trust Company (1995 to
                                                      1998).

Pamela J. Piro              Assistant Treasurer       Vice President and
4350 South Monaco Street                              Assistant Treasurer
Denver, Colorado                                      of INVESCO Funds
Age: 41                                               Group, Inc.; Assistant
                                                      Treasurer of INVESCO
                                                      Distributors, Inc.;
                                                      formerly, Assistant
                                                      Vice President (1996
                                                      to 1997), Director -
                                                      Portfolio Accounting
                                                      (1994 to 1996),
                                                      Portfolio Accounting
                                                      Manager (1993 to 1994)
                                                      and Assistant
                                                      Accounting Manager
                                                      (1990 to 1993).

Tane T. Tyler              Assistant Secretary        Vice President and
4350 South Monaco Street                              Assistant General
Denver, Colorado                                      Counsel of INVESCO Funds
Age: 36                                               Group, Inc.

(1) Member of the audit committee of the Company.
<PAGE>
(2) 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.

(3) These  directors are  "interested  persons" of the Company as defined in the
1940 Act.

(4) Member of the investments & management liaison committee of the Company.

(5) Member of the brokerage committee of the Company.

(6) Member of the derivatives committee of the Company.

(7) Member of the legal committee of the Company.

(8) Member of the insurance committee of the Company.

(9) Member of the nominating committee of the Company.

(10) Member of the compensation committee of the Company.

(11) Member of the retirement plan committee of the Company.

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
Retirement  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, 2001.

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 or trustees for services rendered in their
capacities as directors or trustees  during the year ended December 31, 2001. As
of December 31, 2001, there were 46 funds in the INVESCO Complex.
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------
Name of Person          Aggregate        Benefits Accrued  Estimated         Total Compensa-
and Position            Compensation     As Part of        Annual            tion From
                        From Company(1)  Company           Benefits Upon     INVESCO Com-
                                         Expenses(2)       Retirement(3)     plex Paid To
                                                                             Directors(6)
--------------------------------------------------------------------------------------------
<S>                         <C>            <C>                  <C>             <C>
Fred A. Deering,          $6,314          $3,008             $1,160        $  116,000
Vice Chairman
of  the Board
--------------------------------------------------------------------------------------------
Victor L. Andrews          6,207           2,770              1,343            99,700
--------------------------------------------------------------------------------------------
Bob R. Baker               6,334           2,381              1,800           102,700
--------------------------------------------------------------------------------------------
Lawrence H. Budner         6,165           2,770              1,343            98,700
--------------------------------------------------------------------------------------------
James T. Bunch             5,963               0                  0            92,350
--------------------------------------------------------------------------------------------
Daniel D. Chabris(4)           0           2,522              1,160            43,000
--------------------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------------------

Wendy L. Gramm(4)          6,069               0                  0            94,850

--------------------------------------------------------------------------------------------
Kenneth T. King(4)             0           2,871              1,160            46,000
--------------------------------------------------------------------------------------------
Gerald J. Lewis            6,015               0                  0            95,350
--------------------------------------------------------------------------------------------
John W. McIntyre           6,303           1,615              1,343           117,050
--------------------------------------------------------------------------------------------
Larry Soll                 6,143               0                  0           111,900
--------------------------------------------------------------------------------------------
Total                    $55,513         $17,937             $9,309        $1,017,600
--------------------------------------------------------------------------------------------
% of Net Assets          0.0037%(5)      0.0012%(5)                           0.0035%(6)
--------------------------------------------------------------------------------------------
</TABLE>

(1) The vice chairman of the board, the chairs 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 Retirement 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. With the exception of Drs.
Soll and Gramm and Messrs.  Bunch and Lewis,  each of these directors has served
as a director of one or more of the funds in the  INVESCO  Funds for the minimum
five-year period  required to be eligible to participate in the Retirement Plan.

(4) Mr. Chabris  retired as a director of the Company on September 30, 1998. Mr.
King retired as a director of the Company on December 31, 1999. Ms. Gramm
retired as a director of the Company on February 7, 2002.

(5) Total as a percentage of the Company's net assets as of August 31, 2001.

(6) Total as a  percentage  of the net  assets  of the  INVESCO  Complex  as of
December 31, 2000.

Messrs. Cunningham, Healey and Williamson, as "interested persons" of the
Company and the 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 INVESCO Funds have adopted a Retirement 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 a retirement  benefit.  Commencing
with attainment of age 72 by a Qualified Director who voluntarily  retires prior
to reaching age 72 and  commencing  with the date of  retirement  of a Qualified
Director who retires upon reaching age 72 or at any time subsequent to age 72 up
to the  mandatory  retirement  age of 75, a  Qualified  Director  shall  receive
quarterly  payments  at an  annual  rate  of  $34,000  (the  "Annual  Benefit").
Directors who became Qualified Directors on or before January 1, 2001 who retire
upon  reaching age 72 (or age 73 or 74, if the Director  extends his  retirement
date for one or two years,  but less than three  years) are  entitled to payment
for one year of twice the Annual  Benefit.  Payment of the Annual  Benefit  will
continue  for the  remainder  of the  Qualified  Director's  life or ten  years,
whichever is longer.  If a Qualified  Director  becomes disabled before the date
upon which his or her Annual  Benefit  payments would  normally  commence,  such
benefit  payments will begin. If a Qualified  Director dies prior to the receipt
of the Annual Benefit for ten years,  the Annual Benefit will be paid to his/her
beneficiary  or estate  until an  aggregate  of ten years of  payments  has been
received.  The Plan is  administered  by a committee of three  directors who are
<PAGE>
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 an earlier Plan to Mr.  Chabris as of October 1, 1998 and to Mr.
King as of January 1, 2000.  Messrs.  Chabris  and King are  entitled to receive
quarterly  payments at an annual rate equal to 50% of the annual  retainer  fees
and annual board meeting fees which are paid to an active Fund Director.  Annual
payments made to Messrs.  Chabris and King exceed  $34,000 per year. 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.

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.  Each of the  Independent
Directors has agreed to invest a minimum of $100,000 of his or her own resources
in  shares  of  the  INVESCO  Funds.  Compensation  contributed  to  a  deferred
compensation plan may constitute all or a portion of this $100,000 commitment.

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS

As of  January  31,  2002,  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:

Investor Class
--------------

High Yield Fund

--------------------------------------------------------------------------------
     Name and Address                    Basis of Ownership     Percentage Owned
                                         (Record/Beneficial)
================================================================================

Charles Schwab & Co. Inc.                    Beneficial             44.68%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn:  Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------
Salomon Smith Barney                         Beneficial              7.28%
Attn: Mutual Funds
c/o Deepa Bhashyam
333 W. 34th Street 7th Floor
New York, NY 10001-2483
--------------------------------------------------------------------------------
Nat'l Financial Services Corp
The Exclusive Benefit of Cust                Beneficial              6.10%
One World Financial Center
200 Liberty Street, 5th Floor
Attn:  Kate Recon
New York, NY 10281-5500
--------------------------------------------------------------------------------
<PAGE>
Select Income Fund

--------------------------------------------------------------------------------
     Name and Address                    Basis of Ownership     Percentage Owned
                                         (Record/Beneficial)
================================================================================
Charles Schwab & Co. Inc.                    Beneficial             15.27%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn:  Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------

Tax-Free Bond Fund

--------------------------------------------------------------------------------
     Name and Address                    Basis of Ownership     Percentage Owned
                                         (Record/Beneficial)
================================================================================
Charles Schwab & Co. Inc.                    Beneficial              5.21%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn:  Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------

U.S. Government Securities Fund

--------------------------------------------------------------------------------
     Name and Address                    Basis of Ownership     Percentage Owned
                                         (Record/Beneficial)
================================================================================
Charles Schwab & Co. Inc.                    Beneficial             16.65%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn:  Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------

Class C
-------

High Yield Fund

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

Select Income Fund

--------------------------------------------------------------------------------
     Name and Address                    Basis of Ownership     Percentage Owned
                                         (Record/Beneficial)
================================================================================
Raymond James & Assoc Inc                    Beneficial              9.91%
FBO Care Consistenc
BIN# 43576436
880 Carillon Pkwy.
St. Petersburg, FL 33716-1100
--------------------------------------------------------------------------------
<PAGE>
Tax-Free Bond Fund

--------------------------------------------------------------------------------
     Name and Address                    Basis of Ownership     Percentage Owned
                                         (Record/Beneficial)
================================================================================
American Enterprise Investment              Beneficial              30.22%
SVCS
FBO 168376921
PO Box 9446
Minneapolis, MN 55440-9446
--------------------------------------------------------------------------------
Elizabeth Brody                             Record                  13.12%
116 Pinehurst Ave. #S33
New York, NY 10033-1755
--------------------------------------------------------------------------------
Donald Lufkin Jenrette                      Beneficial              10.23%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-2052
--------------------------------------------------------------------------------
Brenda Himmel Stationary                    Beneficial               5.80%
A Partnership
1126 Montana Ave.
Santa Monica, CA 90403-1610
--------------------------------------------------------------------------------

Tax-Free Bond Fund

--------------------------------------------------------------------------------
     Name and Address                    Basis of Ownership     Percentage Owned
                                         (Record/Beneficial)
================================================================================
American Enterprise Investment              Beneficial               5.76%
SVCS
FBO 178429311
P.O. Box 9446
Minneapolis, MN 55440-9446
--------------------------------------------------------------------------------
Brenda M. Heller                            Record                   5.29%
418 S Westgate Ave.
Los Angeles, CA 90049-4210
--------------------------------------------------------------------------------

U.S. Government Securities Fund

--------------------------------------------------------------------------------
     Name and Address                    Basis of Ownership     Percentage Owned
                                         (Record/Beneficial)
================================================================================
Kidney Cancer Association                    Record                  6.65%
1234 Sherman Ave. Ste 203
Evanstan, IL 60202-1375
--------------------------------------------------------------------------------

Class K
-------

High Yield Fund

--------------------------------------------------------------------------------
     Name and Address                    Basis of Ownership     Percentage Owned
                                         (Record/Beneficial)
================================================================================
Saxon & Co                                   Beneficial             97.51%
FBO 20-01-302-9912426
PO Box 7780-1888
Philadelphia, PA 19182-0001
--------------------------------------------------------------------------------
<PAGE>
Select Income Fund

--------------------------------------------------------------------------------
     Name and Address                    Basis of Ownership     Percentage Owned
                                         (Record/Beneficial)
================================================================================
Saxon & Co                                   Beneficial             98.78%
FBO 20-01-302-9912426
PO Box 7780-1888
Philadelphia, PA 19182-0001
--------------------------------------------------------------------------------

As of February 6, 2002,  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 bears all expenses, including the cost of printing
and  distributing  the  prospectus,  incident to marketing of the Funds' shares,
except for such  distribution  expenses as are paid out of Fund assets under the
Company's Plans of  Distribution  (collectively,  the "Plans"),  which have been
adopted by each Fund pursuant to Rule 12b-1 under the 1940 Act.


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

CLASS A. The  Company  has adopted a Master  Distribution  Plan and  Agreement -
Class A pursuant to Rule 12b-1 under the 1940 Act relating to the Class A shares
of the Funds (the "Class A Plan"). Under the Class A Plan, Class A shares of the
Funds  pay  compensation  to IDI at an  annual  rate of 0.35%  per  annum of the
average  daily net  assets  attributable  to Class A shares  for the  purpose of
financing  any  activity  which is  primarily  intended to result in the sale of
Class A shares.  During  any  period in which a Fund is closed due to high asset
levels,  the Class A shares of the Fund will  reduce  this  payment  of 0.35% to
0.25% per annum.

The Class A Plan is designed to compensate IDI, on a monthly basis,  for certain
promotional and other  sales-related  costs, and to implement a dealer incentive
program  which  provides for periodic  payments to selected  dealers who furnish
continuing personal shareholder services to their customers who purchase and own
Class A shares of the Funds.  Payments  can also be  directed by IDI to selected
institutions  that have entered into service  agreements with respect to Class A
shares of the Funds  and that  provide  continuing  personal  services  to their
customers  who own Class A shares of the  Funds.  The  service  fees  payable to
selected  institutions are calculated at the annual rate of 0.25% of the average
daily net asset value of those Fund  shares that are held in such  institutions'
customers' accounts.

Of the aggregate amount payable under the Class A Plan,  payments to dealers and
other  financial  institutions  that  provide  continuing  personal  shareholder
services to their customers who purchase and own Class A shares of the Funds, in
amounts  up to 0.25% of the  average  daily net  assets of the Class A shares of
each  Fund   attributable   to  the  customers  of  such  dealers  or  financial
institutions,  are characterized as service fees.  Payments to dealers and other
financial  institutions  in excess of such  amount and  payments to IDI would be
characterized  as an asset-based  sales charge pursuant to the Class A Plan. The
Class A Plan also imposes a cap on the total amount of sales charges,  including
asset-based  sales charges,  that may be paid by the Company with respect to the
Class A shares of a Fund.

<PAGE>
CLASS B. The  Company  has adopted a Master  Distribution  Plan and  Agreement -
Class B pursuant to Rule 12b-1 under the 1940 Act  relating to Class B shares of
the Funds (the  "Class B Plan").  Under the Class B Plan,  Class B shares of the
Funds pay  compensation  monthly to IDI at an annual  rate of 1.00% per annum of
the average daily net assets  attributable  to Class B shares for the purpose of
financing  any  activity  which is  primarily  intended to result in the sale of
Class B shares.  Of such  amount,  each Fund pays a service  fee of 0.25% of the
average daily net assets  attributable to Class B shares to selected dealers and
other  institutions which furnish continuing  personal  shareholder  services to
their  customers who purchase and own Class B shares.  Any amounts not paid as a
service fee would  constitute  an  asset-based  sales  charge.  The Class B Plan
imposes a cap on the total amount of sales charges,  including asset-based sales
charges, that may be paid by the Company with respect to the Class B shares of a
Fund.

The Class B Plan may obligate the Class B shares to continue to make payments to
IDI  following  termination  of the Class B shares' Plan with respect to Class B
shares sold by or attributable to the  distribution  efforts of IDI unless there
has been a complete  termination  of the Class B Plan (as defined in such Plan).
Additionally,  the Class B Plan expressly authorizes IDI to assign,  transfer or
pledge its rights to  payments  pursuant to the Class B Plan.  As a result,  the
contingent  deferred  sales charge  (CDSC) on Class B shares will continue to be
applicable  even in the event of a complete  termination of the Class B Plan (as
defined in such Plan).

CLASS C. The  Company  has adopted a Master  Distribution  Plan and  Agreement -
Class C pursuant to Rule 12b-1 under the 1940 Act relating to the Class C shares
of the Funds (the "Class C Plan"). Under the Class C Plan, Class C shares of the
Funds  pay  compensation  to IDI at an  annual  rate of 1.00%  per  annum of the
average  daily net  assets  attributable  to Class C shares  for the  purpose of
financing  any  activity  which is  primarily  intended to result in the sale of
Class C shares.  The Class C Plan is  designed  to  compensate  IDI for  certain
promotional and other  sales-related  costs, and to implement a dealer incentive
program  which  provides for periodic  payments to selected  dealers who furnish
continuing personal shareholder services to their customers who purchase and own
Class C shares  of a Fund.  Payments  can also be  directed  by IDI to  selected
institutions  that have entered into service  agreements with respect to Class C
shares of each  Fund and that  provide  continuing  personal  services  to their
customers who own such Class C shares of a Fund.

Of the aggregate amount payable under the Class C Plan,  payments to dealers and
other  financial  institutions  that  provide  continuing  personal  shareholder
services to their  customers  who purchase and own Class C shares of a Fund,  in
amounts of up to 0.25% of the average  daily net assets of the Class C shares of
each  Fund   attributable   to  the  customers  of  such  dealers  or  financial
institutions are  characterized as a service fee.  Payments to dealers and other
financial  institutions  in excess of such  amount and  payments to IDI would be
characterized  as an asset-based  sales charge pursuant to the Class C Plan. The
Class C Plan also imposes a cap on the total amount of sales charges,  including
asset-based  sales charges,  that may be paid by the Company with respect to the
Class C shares of a Fund.

IDI may pay sales  commissions  to dealers  and  institutions  that sell Class C
shares of the Funds at the time of such sales.  Payments with respect to Class C
shares will equal 1.00% of the purchase  price of the Class C shares sold by the
dealer or  institution,  and will consist of a sales  commission of 0.75% of the
purchase  price of Class C shares sold plus an advance of the first year service
fee of 0.25% with respect to such shares.  IDI will retain all payments received
by it relating to Class C shares for the first  thirteen  months  after they are
purchased.  The  portion  of the  payments  to IDI under the Class C Plan  which
constitutes  an  asset-based  sales charge (0.75%) is intended in part to permit
IDI to recoup a portion of on-going sales  commissions to dealers plus financing
costs,  if any.  After the first  thirteen  months,  IDI will make such payments
quarterly  to dealers and  institutions  based on the average net asset value of
Class C shares which are  attributable to shareholders  for whom the dealers and
institutions are designated as dealers of record. These commissions are not paid
on sales to  investors  who may not be  subject  to  payment  of the CDSC and in
circumstances where IDI grants an exemption on particular  transactions.  Should
the dealer or institution  elect to waive the sales  commission,  the 12b-1 fees
will begin to be paid by IDI to the dealer or institution immediately.
<PAGE>
CLASS K (High Yield and Select Income  Funds).  The Company has adopted a Master
Distribution  Plan and Agreement - Class K pursuant to Rule 12b-1 under the 1940
Act  relating to Class K shares  (the  "Class K Plan").  Under the Class K Plan,
Class K shares of the Funds pay  compensation  to IDI at an annual rate of 0.45%
of  average  net  assets  attributable  to Class K  shares  for the  purpose  of
financing  any  activity  which is  primarily  intended to result in the sale of
Class K shares.  The Class K Plan is  designed  to  compensate  IDI for  certain
promotional and other  sales-related  costs, and to implement a dealer incentive
program  which  provides for periodic  payments to selected  dealers who furnish
continuing personal shareholder services to their customers who purchase and own
Class K shares  of a Fund.  Payments  can also be  directed  by IDI to  selected
institutions  that have entered into service  agreements with respect to Class K
shares of each  Fund and that  provide  continuing  personal  services  to their
customers who own such Class K shares of a Fund.

Of the aggregate amount payable under the Class K Plan,  payments to dealers and
other  financial  institutions  that  provide  continuing  personal  shareholder
services to their customers who purchase and own Class K shares of a Fund may be
characterized as a service fee.

ALL PLANS. Activities appropriate for financing under the Plans include, but are
not limited to, the  following:  printing of the  prospectus  and  statements of
additional  information  and  reports  for  other  than  existing  shareholders;
preparation  and  distribution  of  advertising  material and sales  literature;
expenses of organizing and conducting sales seminars;  and supplemental payments
to  dealers  and other  institutions  such as  asset-based  sales  charges or as
payments of service fees under shareholder service arrangements.

A significant  expenditure  under the Plans 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 a Plan
to use its assets to finance the  payments  made to obtain those  services  from
selected securities companies and other financial institutions and organizations
which may  enter  into  agreements  with  IDI.  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 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  advisor will give any  preference to banks or other
depository  institutions  which  enter  into such  arrangements  when  selecting
investments to be made by a Fund.  Financial  institutions  and any other person
entitled to receive  compensation for selling Fund shares may receive  different
compensation for selling shares of one particular class instead of another.

Since the Funds'  Class A and B shares are not offered  until April 1, 2002,  no
payments were made under those Plans for the periods shown below.

The Funds  made  payments  to IDI  under the  Investor  Class,  Class C and,  if
applicable, Class K Plans during the fiscal year/period ended August 31, 2001 in
the following amounts:

                                   Investor Class     Class C         Class K(1)
                                   --------------     -------         -------

High Yield Fund                    $    1,778,060     $ 77,197        $     3
Select Income Fund                      1,503,221       19,874              3
Tax-Free Bond Fund                        448,010        3,071            N/A
U.S. Government Securities Fund           243,788       12,313            N/A

(1) For the period December 14, 2000 through August 31, 2001.
<PAGE>
In  addition,  as of August 31,  2001,  the  following  additional  distribution
accruals  had been  incurred  by the Funds and will be paid  during  the  fiscal
year/period ended August 31, 2002:

                                   Investor Class     Class C         Class K(1)
                                   --------------     -------         -------

High Yield Fund                    $      114,907     $ 7,127         $     1
Select Income Fund                        127,198       2,437               0
Tax-Free Bond Fund                         43,331       1,129             N/A
U.S. Government Securities Fund            28,441       5,669             N/A

(1) For the period December 14, 2000 through August 31, 2001.

For the fiscal  year/period  ended August 31, 2001,  allocation of 12b-1 amounts
paid by the Funds for the following categories of expenses were:

                                   Investor Class     Class C         Class K(1)
                                   --------------     -------         -------

HIGH YIELD FUND

Advertising                        $      253,333     $     0         $     0
Sales literature, printing,
  and postage                             130,528           0               0
Public relations/promotion                135,148           0               0
Compensation to securities dealers
   and other organizations                896,641      77,197               3
Marketing personnel                       362,410           0               0

SELECT INCOME FUND

Advertising                        $      204,802     $     0         $     0
Sales literature, printing,
  and postage                             133,064           0               0
Public relations/promotion                109,074           0               0
Compensation to securities dealers
   and other organizations                758,280      19,874               3
Marketing personnel                       298,001           0               0

TAX-FREE BOND FUND

Advertising                        $      109,106     $     0              N/A
Sales literature, printing,
  and postage                              53,234           0              N/A
Public relations/promotion                 59,174           0              N/A
Compensation to securities dealers
   and other organizations                 64,785       3,071              N/A
Marketing personnel                       161,711           0              N/A

U.S. GOVERNMENT SECURITIES FUND

Advertising                        $       39,500     $     0              N/A
Sales literature, printing,
  and postage                              19,476           0              N/A
Public relations/promotion                 20,278           0              N/A
Compensation to securities dealers
   and other organizations                110,047      12,313              N/A
Marketing personnel                        54,487           0              N/A

(1) For the period December 14, 2000 through August 31, 2001.
<PAGE>
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 Plans  provide that they 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.  A Plan can be terminated at any time by a Fund, without
penalty,  if a majority of the  Independent  Directors,  or  shareholders of the
relevant class of shares of the Fund, vote to terminate a 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 Plans may continue in effect and payments may be made under a Plan following
any temporary suspension or limitation of the offering of Fund shares;  however,
the Company is not contractually obligated to continue a 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.

So long as the Plans are 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 Plans may not be  amended  to  increase  the amount of a Fund's
payments  under a Plan  without  approval  of the  shareholders  of that  Fund's
respective  class of  shares,  and all  material  amendments  to a Plan  must be
approved by the board of directors  of the Company,  including a majority of the
Independent  Directors.  Under the agreement  implementing  the Plans,  IDI or a
Fund,  the  latter by vote of a  majority  of the  Independent  Directors,  or a
majority of the holders of the  relevant  class of a 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 a
Plan in the event of its termination.

To the extent that a 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 a Plan only upon the  approval  of new
arrangements  regarding  the use of the amounts  authorized to be paid by a Fund
under a 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 a Plan should be
continued and, if so, whether any amendment to a Plan,  including changes in the
amount of 12b-1 fees paid by each class of a 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 Plans 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 Plans 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;
<PAGE>
     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 a Plan.

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.

SALES CHARGES AND DEALER CONCESSIONS

Class A shares of the Funds are currently  sold with a sales charge ranging from
4.75% to 2.00% of the offering price on purchases of less than $1,000,000.


                                                                  Dealer
                                                                  Concession
                                    Investor's Sales Charge       ----------
                                    ----------------------        As a
                                    As a            As a          Percentage
                                    Percentage      Percentage    of the
                                    of the Public   of the Net    Public
Amount of Investment in             Offering        Amount        Offering
Single Transaction(1)               Price           Invested      Price
---------------------               -----           --------      -----
Less than               $   25,000  4.75%           4.99%         4.00%
$ 25,000 but less than  $   50,000  4.75            4.99          4.00
$ 50,000 but less than  $  100,000  4.00            4.17          3.25
$100,000 but less than  $  250,000  3.75            3.90          3.00
$250,000 but less than  $  500,000  2.50            2.56          2.00
$500,000 but less than  $1,000,000  2.00            2.04          1.60

(1) There is no sales charge on purchases of  $1,000,000 or more;  however,  IDI
may pay a dealer concession and/or advance a service fee on such transactions as
set forth below.

IDI may elect to re-allow  the entire  initial  sales  charge to dealers for all
sales with  respect to which  orders  are  placed  with IDI during a  particular
period.  Dealers to whom substantially the entire sales charge is re-allowed may
be deemed to be  "underwriters" as that term is defined under the Securities Act
of 1933.

In addition to amounts paid to dealers as a dealer concession out of the initial
sales charge paid by investors, IDI may, from time to time, at its expense or as
an  expense  for  which it may be  compensated  under a  distribution  plan,  if
applicable,  pay a bonus or other consideration or incentive to dealers who sell
a minimum  dollar  amount of the shares of the INVESCO  Funds during a specified
period of time. At the option of the dealer,  such  incentives may take the form
of payment for travel expenses,  including lodging,  incurred in connection with
<PAGE>
trips  taken by  qualifying  registered  representatives  and their  families to
places within or outside the United States.  The total amount of such additional
bonus  payments  or other  consideration  shall not  exceed  0.25% of the public
offering price of the shares sold. Any such bonus or incentive programs will not
change the price paid by investors  for the  purchase of a Fund's  shares or the
amount a Fund will  receive as  proceeds  from such  sales.  Dealers may not use
sales of a Fund's  shares to qualify for any  incentives to the extent that such
incentives may be prohibited by the laws of any state.

IDI may make payments to dealers and institutions that are dealers of record for
purchases  of $1 million  or more of Class A shares  which are sold at net asset
value and are subject to a contingent deferred sales charge as follows: 1.00% of
the first $2 million of such purchase, plus 0.80% of the next $1 million of such
purchase,  plus 0.50% of the next $17  million of such  purchase,  plus 0.25% of
amounts in excess of $20 million of such purchase.

IDI may pay sales  commissions  to dealers  and  institutions  that sell Class B
shares of the Funds at the time of such sales.  Payments with respect to Class B
shares will equal 4.00% of the purchase  price of the Class B shares sold by the
dealer or institution,  and will consist of a sales commission equal to 3.75% of
the purchase  price of the Class B shares sold plus an advance of the first year
service fee of 0.25% with respect to such shares. The portion of the payments to
IDI under the Class B Plan which constitutes an asset-based sales charge (0.75%)
is intended in part to permit IDI to recoup a portion of such sales  commissions
plus financing costs.

IDI may pay sales  commissions  to dealers  and  institutions  that sell Class C
shares of the Funds at the time of such sales.  Payments with respect to Class C
shares will equal 1.00% of the purchase  price of the Class C shares sold by the
dealer or  institution,  and will consist of a sales  commission of 0.75% of the
purchase  price of Class C shares sold plus an advance of the first year service
fee of 0.25% with respect to such shares.  IDI will retain all payments received
by it relating to Class C shares for the first  thirteen  months  after they are
purchased.  The  portion  of the  payments  to IDI under the Class C Plan  which
constitutes  an  asset-based  sales charge (0.75%) is intended in part to permit
IDI to recoup a portion of on-going sales  commissions to dealers plus financing
costs,  if any.  After the first  thirteen  months,  IDI will make such payments
quarterly  to dealers and  institutions  based on the average net asset value of
Class C shares which are  attributable to shareholders  for whom the dealers and
institutions are designated as dealers of record. These commissions are not paid
on sales to  investors  who may not be  subject  to  payment  of the CDSC and in
circumstances where IDI grants an exemption on particular  transactions.  Should
the dealer or institution  elect to waive the sales  commission,  the 12b-1 fees
will begin to be paid by IDI to the dealer or institution immediately.

IDI may pay  investment  dealers  or other  financial  service  firms  for share
purchases  (measured on an annual  basis) of Class A shares of all Funds sold at
net asset value to an employee  benefit  plan as follows:  1.00% of the first $2
million of such purchases,  plus 0.80% of the next $1 million of such purchases,
plus 0.50% of the next $17 million of such  purchases,  plus 0.25% of amounts in
excess of $20 million of such purchases.

REDUCTIONS IN INITIAL SALES CHARGES (CLASS A ONLY)

Reductions  in the  initial  sales  charges  shown in the  sales  charges  table
(quantity  discounts) apply to purchases of Class A shares of the Funds that are
otherwise  subject to an initial sales charge,  provided that such purchases are
made by a "purchaser" as hereinafter defined.

The term "purchaser" means:

     o    an individual and his or her spouse and children,  including any trust
          established  exclusively  for the  benefit  of any such  person;  or a
          pension, profit-sharing, or other benefit plan established exclusively
          for the  benefit  of any such  person,  such as an IRA,  Roth  IRA,  a
          single-participant money purchase/profit sharing plan or an individual
          participant in a 403(b) Plan (unless such 403(b) plan qualifies as the
          purchaser as defined below);
<PAGE>
     o    a 403(b)  plan,  the  employer/sponsor  of  which  is an  organization
          described  under  Section  501(c)(3) of the  Internal  Revenue Code of
          1986, as amended (the "Code"), if:

          a.   the employer/sponsor  submits contributions for all participating
               employees in a single  contribution  transmittal (i.e., the Funds
               will  not  accept   contributions   submitted   with  respect  to
               individual participants);

          b.   each  transmittal  is  accompanied  by a  single  check  or  wire
               transfer; and

          c.   all new  participants  are added to the 403(b) plan by submitting
               an  application  on  behalf  of each  new  participant  with  the
               contribution transmittal;

     o    a trustee or fiduciary purchasing for a single trust, estate or single
          fiduciary  account  (including  a  pension,  profit-sharing  or  other
          employee  benefit trust  created  pursuant to a plan  qualified  under
          Section 401 of the Code) and 457 plans,  if more than one  beneficiary
          or participant is involved;

     o    a  Simplified  Employee  Pension  (SEP),  Salary  Reduction  and other
          Elective  Simplified  Employee  Pension  account  (SAR-SEP) or Savings
          Incentive  Match  Plans for  Employees  IRA  (SIMPLE  IRA),  where the
          employer has notified IDI in writing that all of its related  employee
          SEP, SAR-SEP or SIMPLE IRA accounts should be linked; or

     o    any other  organized  group of persons,  whether  incorporated or not,
          provided  the  organization  has been in  existence  for at least  six
          months and has some  purpose  other than the purchase at a discount of
          redeemable securities of a registered investment company.

Investors  or  dealers  seeking to qualify  orders for a reduced  initial  sales
charge must identify such orders and, if necessary,  support their qualification
for the  reduced  charge.  IDI  reserves  the  right to  determine  whether  any
purchaser is entitled,  by virtue of the  foregoing  definition,  to the reduced
sales charge.  No person or entity may distribute  Class A shares of the INVESCO
Funds without  payment of the  applicable  sales charge other than to persons or
entities that qualify for a reduction in the sales charge as provided herein.

1. LETTER OF INTENT (CLASS A ONLY). A purchaser,  as previously defined, may pay
reduced  initial  sales  charges by completing  the  appropriate  section of the
account  application  and by  fulfilling  a Letter  of Intent  ("LOI").  The LOI
confirms  such  purchaser's  intention as to the total  investment to be made in
shares of the Funds within the following thirteen consecutive months. By marking
the  LOI  section  on  the  account  application  and  by  signing  the  account
application,  the purchaser  indicates that he/she understands and agrees to the
terms of the LOI and is bound by the provisions described below.

Each  purchase of fund shares  normally  subject to an initial sales charge made
during  the  thirteen-month  period  will be made at the public  offering  price
applicable to a single  transaction of the total dollar amount  indicated by the
LOI,  as  described  under  "Sales  Charges and Dealer  Concessions."  It is the
purchaser's  responsibility  at the time of  purchase  to  specify  the  account
numbers that should be considered in determining the  appropriate  sales charge.
The  offering  price  may be  further  reduced  as  described  under  "Right  of
Accumulation" if the Transfer Agent is advised of all other accounts at the time
of the investment. Shares acquired through reinvestment of dividends and capital
gains  distributions  will not be  applied  to the LOI.  At any time  during the
thirteen-month  period after  meeting the original  obligation,  a purchaser may
revise his or her intended  investment amount upward by submitting a written and
signed request. Such a revision will not change the original expiration date. By
signing  an LOI, a  purchaser  is not making a binding  commitment  to  purchase
additional shares, but if purchases made within the thirteen-month period do not
<PAGE>
total the amount specified,  the investor will pay the increased amount of sales
charge as described  below.  Purchases made within ninety days before signing an
LOI will be applied toward completion of the LOI. The LOI effective date will be
the date of the first purchase within the ninety-day  period. The transfer agent
will process necessary adjustments upon the expiration or completion date of the
LOI.  Purchases made more than ninety days before signing an LOI will be applied
toward  completion  of the  LOI  based  on the  value  of the  shares  purchased
calculated at the public offering price on the effective date of the LOI.

To assure  compliance  with the  provisions  of the 1940 Act, out of the initial
purchase (or  subsequent  purchases if necessary) the transfer agent will escrow
in the form of shares an appropriate dollar amount (computed to the nearest full
share).  All dividends and any capital gain distributions on the escrowed shares
will be  credited  to the  purchaser.  All  shares  purchased,  including  those
escrowed,  will be registered in the purchaser's  name. If the total  investment
specified  under this LOI is completed  within the  thirteen-month  period,  the
escrowed  shares will be promptly  released.  If the intended  investment is not
completed,  the purchaser will pay the transfer agent the difference between the
sales charge on the specified amount and the amount actually  purchased.  If the
purchaser  does not pay such  difference  within  twenty days of the  expiration
date, he/she irrevocably  constitutes and appoints the transfer agent as his/her
attorney  to  surrender  for  redemption  any or all  shares,  to  make  up such
difference within sixty days of the expiration date.

If at any time before completing the LOI Program, the purchaser wishes to cancel
the  agreement,  he/she must give  written  notice to IDI. If at any time before
completing  the LOI  Program  the  purchaser  requests  the  transfer  agent  to
liquidate  or  transfer   beneficial   ownership  of  his/her  total  shares,  a
cancellation  of the LOI will  automatically  be  effected.  If the total amount
purchased is less than the amount  specified in the LOI, the transfer agent will
redeem an appropriate  number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.

2. RIGHT OF  ACCUMULATION  (CLASS A ONLY). A "purchaser" as previously  defined,
may also qualify for reduced  initial sales charges based upon such  purchaser's
existing  investment  in Class A shares of the Funds at the time of the proposed
purchase.  To determine  whether a reduced  initial  sales  charge  applies to a
proposed  purchase,  IDI takes into account not only the money which is invested
upon  such  proposed  purchase,  but also the value of all Class A shares of the
Funds owned by such  purchaser,  calculated at the then current public  offering
price. If a purchaser so qualifies for a reduced sales charge, the reduced sales
charge  applies  to the  total  amount  of money  then  being  invested  by such
purchaser, calculated at the then current public offering price, and not just to
the portion  that  exceeds the  breakpoint  above which a reduced  sales  charge
applies. For example, if a purchaser already owns Class A shares with a value of
$20,000  and wishes to invest an  additional  $20,000 in Class A shares,  with a
maximum initial sales charge of 5.50%, the reduced initial sales charge of 5.25%
will apply to the full $20,000 purchase and not just to the $15,000 in excess of
the $25,000  breakpoint.  To qualify for obtaining the discount  applicable to a
particular purchase, the purchaser or his dealer must furnish IDI with a list of
the account  numbers and the names in which such  accounts of the  purchaser are
registered at the time the purchase is made.

PURCHASES AT NET ASSET VALUE (CLASS A ONLY).  Purchases of Class A shares of the
Funds at net asset value  (without  payment of an initial  sales  charge) may be
made in connection  with: (a) the  reinvestment  of dividends and  distributions
from  a  Fund;  (b)  exchanges  of  shares  of  certain  funds;  (c)  use of the
reinstatement privilege; or (d) a merger, consolidation or acquisition of assets
of a fund.

The  following  purchasers  will not pay initial  sales  charges on purchases of
Class A shares  because  there is a reduced  sales  effort  involved in sales to
these purchasers:

     o    INVESCO and its affiliates, or their clients;
<PAGE>
     o    Any current or retired  officer,  director or employee (and members of
          their  immediate  family) of INVESCO,  its  affiliates  or the INVESCO
          Funds and any foundation,  trust or employee  benefit plan established
          exclusively for the benefit of, or by, such persons;

     o    Sales  representatives  and employees (and members of their  immediate
          family) of selling group members or financial  institutions  that have
          arrangements with such selling group members;

     o    Investment  advisors or financial planners that place trades for their
          own  accounts  or the  accounts  of their  clients  and that  charge a
          management, consulting or other fee for their services; and clients of
          such  investment  advisors or financial  planners who place trades for
          their own accounts if the accounts are linked to the master account of
          such investment  advisor or financial planner on the books and records
          of a broker or agent;

     o    Employee  benefit plans designated as purchasers as defined above, and
          non-qualified  plans offered in  conjunction  therewith,  provided the
          initial investment in the plan(s) is at least $1 million;  the sponsor
          signs a $1 million  LOI; the  employer-sponsored  plan(s) has at least
          100 eligible employees;  or all plan transactions are executed through
          a single  omnibus  account and the  financial  institution  or service
          organization  has entered  into the  appropriate  agreements  with the
          distributor.  Section  403(b) plans  sponsored  by public  educational
          institutions  are not eligible for a sales charge  exception  based on
          the  aggregate  investment  made by the plan or the number of eligible
          employees. Purchases of the Funds by such plans are subject to initial
          sales charges; and

     o    A  shareholder  of a fund that merges or  consolidates  with a Fund or
          that sells its assets to a Fund in exchange for shares of that Fund.

As used above,  immediate  family  includes an individual and his or her spouse,
children, parents and parents of spouse.

CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS

In addition to the  exceptions  described  in the Class A, B, and C  Prospectus,
CDSCs will not apply to the following:

     o    Redemptions following the death or post-purchase disability of (1) any
          registered  shareholders  on an  account  or (2) a settlor of a living
          trust,  of shares  held in the account at the time of death or initial
          determination of post-purchase disability;

     o    Certain  distributions from individual  retirement  accounts,  Section
          403(b) retirement plans,  Section 457 deferred  compensation plans and
          Section  401  qualified  plans,  where  redemptions  result  from  (i)
          required minimum  distributions to plan  participants or beneficiaries
          who are age 70-1/2 or older,  and only with respect to that portion of
          such   distributions   that  does  not  exceed  10%  annually  of  the
          participant's or  beneficiary's  account value in a Fund; (ii) in kind
          transfers of assets where the participant or beneficiary  notifies the
          distributor  of the  transfer  not  later  than the time the  transfer
          occurs;  (iii)  tax-free  rollovers  or transfers of assets to another
          plan of the type described  above invested in Class B or C shares of a
          Fund;  (iv)  tax-free  returns of excess  contributions  or returns of
          excess  deferral  amounts;  and  (v)  distributions  on the  death  or
          disability  (as  defined  in the  Internal  Revenue  Code of 1986,  as
          amended) of the participant or beneficiary;

     o    Liquidation  by a Fund when the account  value falls below the minimum
          required account size of $250;
<PAGE>
     o    Investment account(s) of INVESCO; and

     o    Class C shares if the investor's  dealer of record  notifies IDI prior
          to the time of investment that the dealer waives the payment otherwise
          payable to it.

Upon the  redemption  of Class A shares  purchased  in  amounts of $1 million or
more, no CDSC will be applied in the following situations:

     o    Shares held more than eighteen months;

     o    Redemptions  from  employee  benefit  plans  designated  as  qualified
          purchasers,  as defined above, where the redemptions are in connection
          with employee  terminations or withdrawals,  provided the total amount
          invested in the plan is at least  $1,000,000;  the sponsor  signs a $1
          million LOI; or the employer-sponsored  plan has at least 100 eligible
          employees;  provided,  however,  that 403(b) plans sponsored by public
          educational  institutions  shall  qualify  for the CDSC  waiver on the
          basis of the value of each plan participant's  aggregate investment in
          a Fund, and not on the aggregate investment made by the plan or on the
          number of eligible employees;

     o    Private foundations or endowment funds;

     o    Redemption  of shares by the  investor  where  the  investor's  dealer
          waives the  amounts  otherwise  payable to it by the  distributor  and
          notifies the distributor prior to the time of investment; and

     o    Shares  acquired by exchange  from Class A shares of a Fund unless the
          shares  acquired are redeemed  within  eighteen months of the original
          purchase of Class A shares.

HOW TO PURCHASE AND REDEEM SHARES

A  complete  description  of the  manner  by which  shares  of the  Funds may be
purchased appears in the Prospectus under the caption "How To Buy Shares."

The sales charge  normally  deducted on purchases of Class A shares of the Funds
is used to compensate IDI and participating  dealers for their expenses incurred
in  connection  with the  distribution  of such  shares.  Since  there is little
expense  associated with unsolicited orders placed directly with IDI by persons,
who  because  of their  relationship  with the  Funds  or with  INVESCO  and its
affiliates,  are familiar with the Funds, or whose programs for purchase involve
little expense (e.g.,  because of the size of the  transaction  and  shareholder
records  required),  IDI believes that it is appropriate  and in the Funds' best
interests that such persons be permitted to purchase Class A shares of the Funds
through  IDI without  payment of a sales  charge.  The persons who may  purchase
Class A shares of the Funds  without a sales  charge are set forth  herein under
the  Caption  "Reductions  in Initial  Sales  Charges -  Purchases  at Net Asset
Value."

The  following  formula  may be used by an  investor  to  determine  the  public
offering price per Class A share of an investment:

  Net Asset Value / (1 - Sales Charge as % of Offering Price) = Offering Price

Information  concerning  redemption  of a  Fund's  shares  is set  forth  in the
Prospectuses  under the caption "How To Sell Shares." Shares of the Funds may be
redeemed  directly  through IDI or through  any dealer who has  entered  into an
agreement with IDI. In addition to the Funds'  obligation to redeem shares,  IDI
may also repurchase shares as an accommodation to the shareholders.  To effect a
repurchase,  those dealers who have executed Selected Dealer Agreements with IDI
must phone orders to the order desk of the Funds at 1-800-328-2234 and guarantee
delivery of all required  documents in good order.  A repurchase  is effected at
the net asset value of each Fund next  determined  after such order is received.
<PAGE>
Such  arrangement is subject to timely receipt by IDI of all required  documents
in good order. If such documents are not received within a reasonable time after
the order is placed,  the order is subject to  cancellation.  While  there is no
charge  imposed by the Funds or by IDI  (other  than any  applicable  CDSC) when
shares are  redeemed or  repurchased,  dealers may charge a fair service fee for
handling the  transaction.  INVESCO intends to redeem all shares of the Funds in
cash.

The right of redemption  may be suspended or the date of payment  postponed when
(a) trading on the New York Stock Exchange ("NYSE") is restricted, as determined
by applicable rules and regulations of the SEC, (b) the NYSE is closed for other
than customary weekend and holiday closings,  (c) the SEC has by order permitted
such  suspension,  or (d) an emergency as  determined  by the SEC exists  making
disposition of portfolio securities or the valuation of the net assets of a Fund
not reasonably practicable.

OTHER SERVICE PROVIDERS

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP, 1670 Broadway, Suite 1000, 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, 4350 South Monaco Street,  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.

BROKERAGE ALLOCATION AND OTHER PRACTICES

As the investment  advisor 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.
<PAGE>
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.

Certain of the INVESCO Funds utilize fund  brokerage  commissions to pay custody
fees for each  respective  fund.  This program  requires that the  participating
funds receive favorable execution.

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

HIGH YIELD FUND
    Year Ended August 31, 2001                         $  138,297
    Year Ended August 31, 2000                            555,962
    Year Ended August 31, 1999                          1,665,183

SELECT INCOME FUND
    Year Ended August 31, 2001                         $  107,603
    Year Ended August 31, 2000                            402,166
    Year Ended August 31, 1999                            553,125

TAX-FREE BOND FUND
    Year Ended August 31, 2001                         $        0
    Year Ended August 31, 2000                                  0
    Period ended August 31, 1999(1)                             0
    Year Ended June 30, 1999                                    0

U.S. GOVERNMENT SECURITIES FUND
    Year Ended August 31, 2001                         $        0
    Year Ended August 31, 2000                                  0
    Year Ended August 31, 1999                                  0

(1) For the period July 1, 1999 through August 31, 1999.

For the fiscal years ended August 31, 2001 and 2000 brokers  providing  research
services received $87,872 and $98,139, respectively, in commissions on portfolio
transactions  effected  for the  Funds.  The  aggregate  dollar  amount  of such
portfolio   transactions   was   $36,536,238  and   $64,729,441,   respectively.
<PAGE>
Commissions totaling $0 and $0, respectively,  were allocated to certain brokers
in recognition  of their sales of shares of the Funds on portfolio  transactions
of the Funds effected during the fiscal years ended August 31, 2001 and 2000.

For the fiscal  year ended  August 31, 1999 with  respect to High Yield,  Select
Income and U.S. Government  Securities Funds and for the period ended August 31,
1999 and year ended June 30, 1999,  with respect to Tax-Free Bond Fund,  brokers
providing  research  services  received  $918,  $0  and  $0,  respectively,   in
commission  on  portfolio  transactions  effected for the Funds.  The  aggregate
dollar  amount  of  such  portfolio   transactions  was  $775,745,  $0  and  $0,
respectively.  Commissions  totaling  $0 were  allocated  to certain  brokers in
recognition of their sales of shares of the Funds on portfolio  transactions  of
the Funds effected  during the fiscal year ended August 31, 1999 with respect to
High Yield,  Select Income and U.S.  Government  Securities  Funds.  Commissions
totaling $0 and $0 were  allocated to certain  brokers in  recognition  of their
sales of shares of  Tax-Free  Bond Fund on  portfolio  transactions  of the Fund
during the period ended August 31, 1999 and the fiscal year ended June 30, 1999,
respectively.

At August 31,  2001,  each Fund held debt and equity  securities  of its regular
brokers or dealers, or their parents, as follows:

--------------------------------------------------------------------------------
     Fund                     Broker or Dealer               Value of Securities
                                                             at  August 31, 2001
================================================================================
High Yield             State Street Corporation                 3,613,000
--------------------------------------------------------------------------------
Select Income          State Street Corporation                 4,868,000
--------------------------------------------------------------------------------
Tax-Free Bond          None
--------------------------------------------------------------------------------
U.S. Government
Securities             State Street Corporation                 3,282,000
--------------------------------------------------------------------------------

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 4.5 billion shares of common stock with
a par value of $0.01 per share. As of January 31, 2002, the following  shares of
each Fund were outstanding:

      High Yield Fund - Investor Class                      107,705,383
      High Yield Fund - Class A                                       0
      High Yield Fund - Class B                                       0
      High Yield Fund - Class C                               1,702,319
      High Yield Fund - Class K                                 280 022
      Select Income Fund - Investor Class                    82,855,358
      Select Income Fund - Class A                                    0
      Select Income Fund - Class B                                    0
      Select Income Fund - Class C                              354,496
      Select Income Fund - Class K                            1,182,105
      Tax-Free Bond Fund - Investor Class                    12,682,836
      Tax-Free Bond Fund - Class A                                    0
      Tax-Free Bond Fund - Class B                                    0
      Tax-Free Bond Fund - Class C                               55,930
      U.S. Government Securities Fund - Investor Class       18,519,470
      U.S. Government Securities Fund - Class A                       0
      U.S. Government Securities Fund - Class B                       0
      U.S. Government Securities Fund - Class C               1,212,855
<PAGE>
A share of each class of a Fund represents an identical  interest in that Fund's
investment  portfolio  and has the  same  rights,  privileges  and  preferences.
However,  each  class  may  differ  with  respect  to  sales  charges,  if  any,
distribution  and/or service fees, if any, other expenses allocable  exclusively
to each class,  voting rights on matters  exclusively  affecting that class, and
its exchange  privilege,  if any. The different sales charges and other expenses
applicable  to the  different  classes  of shares of the Funds  will  affect the
performance  of those  classes.  Each share of a Fund is entitled to participate
equally in dividends for that class, other distributions and the proceeds of any
liquidation of a class of that Fund.  However,  due to the differing expenses of
the classes, dividends and liquidation proceeds on Investor Class, Class A, B, C
and K shares will differ.  All shares of a Fund will be voted  together,  except
that only the  shareholders of a particular  class of a Fund may vote on matters
exclusively  affecting that class,  such as the terms of a Rule 12b-1 Plan as it
relates to the class.  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, net
tax-exempt  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 taxes on the amount that is not  distributed.  If a Fund does not qualify
as a regulated  investment  company,  it will be subject to income tax on all of
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
<PAGE>
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  percentage of  distributions  paid by Tax-Free
Bond Fund which are exempt from Federal tax and 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 gains 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.

With the  exception of  tax-exempt  dividends  paid by Tax-Free  Bond Fund,  all
dividends  and  other  distributions  are  taxable  income  to the  shareholder,
regardless  of whether  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.  If a shareholder  reinvests the distribution
in a Fund,  the  shareholder's  basis in the Fund increases by the amount of the
distribution  and the  value  of the  Fund's  investments  is  unchanged  by the
distribution.

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.

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.
<PAGE>
INVESCO may provide Fund  shareholders  with information  concerning the average
cost basis of their shares in order to help them prepare their tax returns. This
information  is  intended  as a  convenience  to  shareholders  and  will not be
reported to the Internal Revenue Service (the "IRS"). The IRS permits the use of
several  methods to  determine  the cost basis of mutual fund  shares.  The cost
basis information provided by INVESCO will be computed using the single-category
average  cost  method,  although  neither  INVESCO nor the 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.  Even if you have reported
gains or losses for a Fund in past years using another basis method,  you may be
able to use the  average  cost  method  for  determining  gains or losses in the
current year. However, once you have elected to use the average cost method, you
must  continue  to use it 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.  Similarly, if you sell Fund shares at a loss after holding them for six
months or less,  your  loss  will be  disallowed  to the  extent  of any  exempt
interest dividends 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.

Tax-Free Bond Fund intends to qualify to pay "exempt-interest  dividends" to its
shareholders.  The Fund will so qualify if at least 50% of its total  assets are
invested  in  municipal  securities  at the close of each  quarter of the Fund's
fiscal year. The exempt interest  portion of the income dividend that is payable
monthly  may be based on the ratio of the  Fund's  tax-exempt  income to taxable
income for the entire  taxable year. In such case, the ratio would be determined
and reported to  shareholders  after the close of each taxable year.  Thus,  the
exempt-interest  portion  of any  particular  dividend  may be  based  upon  the
tax-exempt  portion of all  distributions for the taxable year, rather than upon
the tax-exempt portion of that particular dividend. Exemption of exempt-interest
dividends  for  federal  income  tax  purposes  does not  necessarily  result in
exemption  under  the  income  or other  tax laws of any  state or local  taxing
authority.  Although these dividends generally may be subject to state and local
income taxes,  the laws of the several states and local taxing  authorities vary
with respect to the taxation of exempt-interest dividends, taxable dividends and
distributions of capital gains.

A corporation includes exempt-interest  dividends in calculating its alternative
taxable  income in  situations  where the  "adjusted  current  earnings"  of the
corporation exceed its alternative minimum taxable income.

AMT bonds are "private  activity  bonds" issued after August 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.

Entities  or  persons  who  are  "substantial  users"  (or  persons  related  to
"substantial  users")  of  facilities  financed  by  private  activity  bonds or
individual development bonds should consult their tax advisers before purchasing
shares  of the Fund  because,  for users of  certain  of these  facilities,  the
interest  on those  bonds is not  exempt  from  federal  income  tax.  For these
purposes,  the term  "substantial  user"  is  defined  generally  to  include  a
"non-exempt person" who regularly uses in trade or business a part of a facility
financed from the proceeds of such bonds.
<PAGE>
Up to 85% of social security and railroad retirement benefits may be included in
taxable income for recipients whose adjusted gross income (including income from
tax-exempt  sources  such as a mutual  fund) plus 50% of their  benefits  exceed
certain  base  amounts.  Exempt-interest  dividends  from  the  Fund  still  are
tax-exempt  to the  extent  described  above - they  are  only  included  in the
calculation of whether a recipient's income exceeds the established 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.

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).  Most  advertisements  of the Funds will disclose the maximum
front-end  sales charge  imposed on purchases of a Fund's Class A shares  and/or
the  applicable  CDSC imposed on applicable  redemptions of a Fund's Class B and
Class C shares. If any advertised  performance data does not reflect the maximum
front-end sales charge (if any) or the applicable CDSC, such  advertisement will
disclose  that the sales charge or CDSC has not been  deducted in computing  the
performance  data,  and that,  if  reflected,  such  charges  would  reduce  the
performance quoted.

Each Fund's total return is calculated in accordance with a standardized formula
for computation of annualized total return.  Standardized total return for Class
A shares  reflects the  deduction of the maximum  front-end  sales charge at the
time of  purchase.  Standardized  total  return  for  Class B and Class C shares
reflects the deduction of the maximum  applicable CDSC on a redemption of shares
held for the  period.  A 1% - 5% CDSC may be charged on  redemptions  of Class B
shares held six years or less, other than shares acquired  through  reinvestment
of dividends and other distributions. A 1% CDSC may be charged on redemptions of
Class C shares held thirteen months or less,  other than shares acquired through
reinvestment  of  dividends  and other  distributions.  Please  see the  section
entitled "Distributor" for additional information on CDSCs. Total returns quoted
in advertising reflect all aspects of the Fund's return, including the effect of
reinvesting  dividends  and capital  gain  distributions,  and any change in the
Fund's net asset value per share over the  period.  Average  annual  returns are
calculated  by  determining  the growth or  decline  in value of a  hypothetical
investment in a Fund over a stated  period,  and then  calculating  the annually
compounded  percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. Because average
annual returns tend to even out variations in a Fund's returns, investors should
realize that the Fund's  performance is not constant over time, but changes from
year to year,  and that  average  annual  returns  do not  represent  the actual
year-to-year performance of the Fund.

In addition to average annual returns, a Fund may quote unaveraged or cumulative
total returns  reflecting  the simple  change in value of an  investment  over a
stated  period.  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.  Total returns may be quoted with or without
taking a Fund's maximum  applicable Class A front-end sales charge or Class B or
Class  C  CDSC  into  account.  Excluding  sales  charges  from a  total  return
calculation produces a higher total return figure.

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 telephone  number or address on the back
cover of the Funds' Prospectus.
<PAGE>
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 is not provided for the Funds' Class A
and B shares  since  Class A and B shares are not  offered  until April 1, 2002.
Average  annual  total return  performance  for the one-,  five-,  and ten- year
periods ended August 31, 2001 was:

                                                                   10 YEAR OR
FUND AND CLASS                         1 YEAR       5 YEAR       SINCE INCEPTION
--------------                         ------       ------       ---------------

INVESTOR CLASS
--------------

High Yield Fund                       (19.96%)       1.79%           6.22%
Select Income Fund                      2.73%        6.13%           7.64%
Tax-Free Bond Fund                     10.07%        5.97%           6.44%
U.S. Government Securities Fund        10.45%        8.20%           7.26%

CLASS C(1)
-------

High Yield Fund                       (21.70%)       N/A           (14.23%)
Select Income Fund                      0.97%        N/A             4.03%
Tax-Free Bond Fund                     22.26%        N/A            19.52%
U.S. Government Securities Fund         8.23%        N/A            11.05%

CLASS K(2)
-------

High Yield Fund                        N/A           N/A           (11.15%)
Select Income Fund                     N/A           N/A             2.25%

(1) Class C commenced operations on February 15, 2000.
(2) Class K  commenced  operations  on  December  14,  2000.   (Since  inception
performance is not annualized).

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:
                                              n
                                      P(1 + T)  = ERV

where:      P = a hypothetical initial payment of $1,000
            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.
<PAGE>
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, S&P,
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:

Fund                                Lipper Mutual Fund Category
----                                ---------------------------
High Yield Fund                     High Current Yield Funds
Select Income Fund                  Corporate Debt Funds BBB-Rated
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
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
<PAGE>
CODE OF ETHICS

INVESCO  permits  investment and other personnel to purchase and sell securities
for their own  accounts,  subject  to a  compliance  policy  governing  personal
investing.  This policy requires  INVESCO's  personnel to conduct their personal
investment  activities in a manner that INVESCO  believes is not  detrimental to
the Funds or INVESCO's  other  advisory  clients.  The Code of Ethics is on file
with, and may be obtained from, the Commission.

FINANCIAL STATEMENTS

The financial statements for the Funds for the fiscal year ended August 31, 2001
are  incorporated  herein by reference  from INVESCO Bond Funds,  Inc.'s  Annual
Report to Shareholders dated August 31, 2001.
<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.