As filed on November 15, 1999                                File No. 002-57151


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


     REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933               X
              Pre-Effective Amendment No.  __                              _
              Post-Effective Amendment No. 42                              X
     REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940       X
              Amendment No. 31                                             X


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

Approximate Date of Proposed Public Offering:  As soon as practicable after this
post-effective amendment becomes effective.
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
___ on _____________, pursuant to paragraph (b)
___  60 days after filing pursuant to paragraph (a)(1)
 X  on January 14, 2000, pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on _________, pursuant to paragraph (a)(2) of rule 485


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

<PAGE>


                                      NOTE


This Post-Effective Amendment (Form N-1A) is being filed to add [Class C] shares
of INVESCO High Yield Fund,  INVESCO Select Income Fund,  INVESCO  Tax-Free Bond
Fund and INVESCO U.S. Government Securities Fund and does not affect the current
class of shares of those Funds.


<PAGE>

PROSPECTUS | January ___, 2000

--------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
--------------------------------------------------------------------------------

INVESCO  BOND FUNDS,  INC.


INVESCO HIGH YIELD FUND - [CLASS C]
INVESCO SELECT INCOME FUND - [CLASS C]
INVESCO TAX-FREE BOND FUND - [CLASS C]
INVESCO U.S. GOVERNMENT SECURITIES FUND - [CLASS C]

FOUR NO-LOAD  MUTUAL FUNDS  SEEKING A HIGH LEVEL OF CURRENT  INCOME.  [[CLASS C]
SHARES ARE SOLD EXCLUSIVELY THROUGH THIRD PARTIES,  SUCH AS BROKERS,  BANKS, AND
FINANCIAL PLANNERS.]


 TABLE OF CONTENTS

 Investment Goals, Strategies And Risks.............4
 Fund Performance...................................7
 Fees And Expenses..................................9
 Investment Risks..................................11
 Risks Associated With Particular Investments......12
 Temporary Defensive Positions.....................16
 Portfolio Turnover ...............................16
 Fund Management...................................16
 Portfolio Managers................................17
 Potential Rewards.................................17
 Share Price.......................................18
 How To Buy Shares.................................19
 Your Account Services.............................22
 How To Sell Shares................................23
 Taxes.............................................25
 Dividends And Capital Gain Distributions..........26
 Financial Highlights..............................27




                                 [INVESCO ICON]
                                     INVESCO


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

<PAGE>

This Prospectus will tell you more about:

[KEY ICON]     Investment Objectives & Strategies

[ARROW ICON]   Potential Investment Risks

[GRAPH ICON]   Past Performance

[INVESCO ICON] Working With Invesco
-------------------------------------------------------------------------------
[KEY ICON][ARROW ICON] INVESTMENT GOALS, STRATEGIES AND RISKS

FACTORS COMMON TO ALL THE FUNDS


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

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

[The Funds' [Class C] shares are sold exclusively through third parties, such as
brokers, banks, and financial planners. You cannot purchase the Funds' [Class C]
shares  directly  from INVESCO or its  affiliated  companies.]  This  Prospectus
contains  important  information about the Funds' [Class C] shares.  One or more
additional classes of shares are offered directly to the public through separate
prospectuses.  Those  other  classes of shares  have  lower  sales  charges  and
expenses,  with resulting positive 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 how long you plan to hold  your  shares.  To obtain  additional  information
about other classes of shares,  contact INVESCO  Distributors,  Inc.  ("IDI") at
1-800-_______________.  You may also obtain information concerning other classes
offered from your broker,  bank, or financial planner who is offering the [Class
C] shares offered in this Prospectus.

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


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

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

Other  principal  risks  involved in investing  in the funds are interest  rate,
credit, debt securities, foreign securities,  duration, liquidity,  counterparty
and lack of timely  information  risks.  These risks are described and discussed
later in the  Prospectus  under  the  headings  "Investment  Risks"  and  "Risks
Associated With Particular Investments." As with any other mutual fund, there is
always a risk that you can lose money on your investment in a Fund.


[KEY ICON]  INVESCO HIGH YIELD FUND - [CLASS C]


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

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


[KEY ICON] INVESCO SELECT INCOME FUND - [CLASS C]


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

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

[KEY ICON] INVESCO TAX-FREE BOND FUND - [CLASS C]


The Fund invests primarily in municipal  securities issued by state, county, and
city  governments,  including  industrial  development  obligations  and private
activity  bonds which  generally are not guaranteed by the  governmental  entity
that issues them.  The  interest on these  securities  is generally  exempt from
federal income tax,  although the interest may be included in your income if you
are  subject to the  federal  alternative  minimum  tax.  The  interest on these
securities  may be subject to state  and/or  local  income  taxes.  Portions  of
capital gains  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)
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 - [CLASS C]


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

In  addition  to U.S.  government  debt,  the  Fund may  invest  in bank CDs and
municipal  obligations.  Normally, the Fund invests primarily in debt securities
maturing at least three years after they are issued. There are no limitations on
the  maturities  of the  securities  held by the Fund,  and the  Fund's  average
maturity will vary as INVESCO responds to changes in interest rates.
<PAGE>
[GRAPH ICON] FUND PERFORMANCE


Since the Funds' [Class C] shares did not commence  investment  operations until
January __, 2000, the bar charts below show the Funds' [Class II] shares' actual
yearly  performance  for the years ended  December 31  (commonly  known as their
"total return") over the past decade.  [Class II] shares are not offered in this
Prospectus.  The bar charts do not reflect contingent  deferred sales charges or
asset based sales  charges in excess of 0.25% of net  assets;  if they did,  the
total returns shown would be lower.  The table below shows average  annual total
returns for various  periods ended December 31 for each [Class II] Fund compared
to the Merrill Lynch High Yield Master, Lehman Government/Corporate Bond, Lehman
Municipal Bond and Lehman  Government Long Bond Indexes.  The information in the
charts and table  illustrates  the  variability of each [Class II] Fund's return
and how its  performance  compared  to a broad  measure  of market  performance.
Remember,  past  performance  does not  indicate  how a Fund will perform in the
future.


The four charts below contain the following plot points:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------

                                    HIGH YIELD FUND - [CLASS II]
                                   ACTUAL ANNUAL TOTAL RETURN(1),(2)

-------------------------------------------------------------------------------------------------
'89      '90        '91       '92       '93       '94        '95        '96       '97      '98
<S>       <C>       <C>       <C>       <C>       <C>        <C>        <C>       <C>       <C>
3.75%    (4.57%)    23.51%    14.53%    15.81%    (4.98%)    17.90%     14.08%    17.10%    0.15%


Best Calendar Qtr.  3/91    7.85%
Worst Calendar Qtr. 9/98   (7.12%)
-------------------------------------------------------------------------------------------------


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

                                    SELECT INCOME FUND - [CLASS II]
                                   ACTUAL ANNUAL TOTAL RETURN(1),(2)

-------------------------------------------------------------------------------------------------
'89       '90       '91       '92       '93       '94        '95        '96       '97       '98
8.17%     4.86%     18.57%    10.38%    11.43%    (1.20%)    20.61%     4.87%     11.72%    7.13%


Best Calendar Qtr.  6/95    6.75%
Worst Calendar Qtr. 3/94   (2.01%)
-------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------

                                    TAX-FREE BOND FUND - [CLASS II]
                                   ACTUAL ANNUAL TOTAL RETURN(1),(2)

--------------------------------------------------------------------------------------------------
'89       '90       '91       '92       '93       '94        '95        '96       '97       '98
<S>       <C>       <C>       <C>       <C>       <C>        <C>        <C>       <C>       <C>
11.70%    7.10%     12.53%    8.77%     12.11%    (5.52%)    15.64%     2.36%     8.67%     4.72%


Best Calendar Qtr.  6/89    8.29%
Worst Calendar Qtr. 3/94   (5.76%)
--------------------------------------------------------------------------------------------------


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

                               U.S. GOVERNMENT SECURITIES FUND - [CLASS II]
                                   ACTUAL ANNUAL TOTAL RETURN(1),(2)

--------------------------------------------------------------------------------------------------
'89       '90        '91       '92       '93       '94        '95        '96       '97      '98
12.40%    7.23%      15.56%    5.68%     10.28%    (7.20%)    22.13%     0.47%     12.26%   10.11%


Best Calendar Qtr.  6/95    7.68%
Worst Calendar Qtr. 3/94   (4.53%)
--------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------
                                                   AVERAGE ANNUAL TOTAL RETURN(1),(2)
                                                             AS OF 12/31/99
---------------------------------------------------------------------------------------------
                                                   1 YEAR       5 YEARS      10 YEARS
---------------------------------------------------------------------------------------------
<S>     <C>    <C>    <C>
High Yield Fund - [Class II]                        ___           ___          ___
Select Income Fund - [Class II]                     ___           ___          ___
Tax-Free Bond Fund - [Class II]                     ___           ___          ___
U.S. Government Securities Fund - [Class II]        ___           ___          ___
Merrill Lynch High Yield Master Index(3)            ___           ___          ___
Lehman Government/Corporate Bond Index(3)           ___           ___          ___
Lehman Municipal Bond Index(3)                      ___           ___          ___
Lehman Government Long Bond Index(3)                ___           ___          ___
</TABLE>

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

     (2)The total and average  annual returns are for a separate class of shares
     that is not offered in this  Prospectus.  Total returns of [Class C] shares
     will  differ  only to the  extent  that  the  classes  do not have the same
     expenses.

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

<PAGE>
FEES AND EXPENSES

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

SHAREHOLDER  FEES PAID DIRECTLY FROM YOUR ACCOUNT


[CLASS C] SHARES
     Maximum Sales Charge (Load) Imposed on Purchases
          (as a percentage of offering  price)                   None
     Maximum Deferred Sales Charge (Load)                        1.00%*
     Maximum Sales Charge (Load) Imposed on Reinvested
          Dividends  and  Other Distributions                    None
     Redemption  Fee (as a percentage of amount redeemed)        None
     Exchange Fee                                                None
     Maximum Account Fee                                         None

* A 1% contingent  deferred  sales charge is charged on redemptions or exchanges
of shares  held  thirteen  months or less,  other than shares  acquired  through
reinvestment of dividends and other distributions.


ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS


HIGH YIELD FUND - [CLASS C]
      Management Fees                                     0.40%
      Distribution and Service (12b-1) Fees(1)            1.00%
      Other Expenses(2)                                       %
                                                          -----
      Total Annual Fund Operating Expenses(2)                 %
                                                          =====

SELECT INCOME FUND - [CLASS C]
      Management Fees                                     0.50%
      Distribution and Service (12b-1) Fees(1)            1.00%
      Other Expenses(2)                                       %
                                                          -----
      Total Annual Fund Operating Expenses(2)                 %
                                                          =====

TAX-FREE BOND FUND - [CLASS C]
      Management Fees                                     0.55%
      Distribution and Service (12b-1) Fees(1)            1.00%
      Other Expenses(2)                                       %
                                                          -----
      Total Annual Fund Operating Expenses(2)                 %
                                                          =====

U.S. GOVERNMENT SECURITIES FUND - [CLASS C]
      Management Fees                                     0.55%
      Distribution and Service (12b-1) Fees(1)            1.00%
      Other Expenses(2)                                       %
                                                          -----
      Total Annual Fund Operating Expenses(2)                 %
                                                          =====

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

     (2)Based on  estimated  expenses  for the current  fiscal year which may be
        more or less than actual  expenses.  Actual  expenses  are not  provided
        because the Funds did not begin a public  offering of their shares until
        January __, 2000.  If necessary,  certain  expenses of the Funds will be
        absorbed  by INVESCO  for at least the first  fiscal year of each Fund's
        operations in order to ensure that expenses for High Yield --[Class C],

<PAGE>


        Select Income --[Class C], Tax-Free Bond --[Class C] and U.S. Government
        Securities  --[Class C] Funds will not exceed  ____%,  ____%,  ____% and
        ____%,  respectively,  of each Fund's average net assets  pursuant to an
        agreement  between  the  Funds and  INVESCO.  These  commitments  may be
        changed at any time following  consultation with the board of directors.
        After absorption,  High Yield Fund--[Class C]'s Other Expenses and Total
        Annual Fund  Operating  Expenses for the fiscal year ending  August 31,
        2000 are  estimated to be ____% and ____%,  respectively,  of the Fund's
        average net assets;  Select Income  Fund--[Class C's] Other Expenses and
        Total Annual Fund Operating  Expenses for the fiscal year ending August
        31,  2000 are  estimated  to be ____% and  ____%,  respectively,  of the
        Fund's  average  net  assets;  Tax-Free  Bond  Fund--[Class  C's]  Other
        Expenses  and Total Annual Fund  Operating  Expenses for the fiscal year
        ending   August  31,  2000  are   estimated  to  be  ____%  and  ____%,
        respectively,  of the Fund's  average  net assets;  and U.S.  Government
        Securities  Fund--[Class  C's]  Other  Expenses  and Total  Annual  Fund
        Operating  Expenses  for the fiscal  year  ending  August  31, 2000 are
        estimated to be ____% and ____%, respectively, of the Fund's average net
        assets.

EXAMPLES

These  Examples  are  intended to help you compare the cost of  investing in the
Funds to the cost of investing in other mutual funds.

The Examples assume that you invested  $10,000 in [Class C] shares of a Fund for
the time periods  indicated.  The first  Example  assumes that you redeem all of
your shares at the end of those  periods.  The second  Example  assumes that you
keep  your  shares.  Both  Examples  also  assume  that  your  investment  had a
hypothetical  5% return each year,  and assume  that the [Class  C]'s  operating
expenses  remained the same.  Although a Fund's actual costs and performance may
be higher or lower, based on these assumptions your costs would have been:


 IF SHARES ARE REDEEMED                         1 year       3 years
 High Yield Fund--[Class C]                     $____        $____
 Select Income Fund--[Class C]                  $____        $____
 Tax-FreeBond Fund--[Class C]                   $____        $____
 U.S. Government Securities Fund--[Class C]     $____        $____


 IF SHARES ARE NOT REDEEMED                     1 year       3 years
 High Yield Fund--[Class C]                     $____        $____
 Select Income Fund--[Class C]                  $____        $____
 Tax-FreeBond Fund--[Class C]                   $____        $____
 U.S. Government Securities Fund--[Class C]     $____        $____


<PAGE>

[ARROW ICON] INVESTMENT RISKS

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:

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.

NOT  INSURED.  Mutual  funds are not  insured  by the FDIC or any other  agency,
unlike bank deposits such as CDs or savings accounts.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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


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

--------------------------------------------------------------------------------
 INVESTMENT                 RISKS                     APPLIES TO THESE FUNDS
--------------------------------------------------------------------------------
 AMERICAN DEPOSITORY
 RECEIPTS (ADRS)            Market,                   High Yield
 These are securities       Information,              Selected Income
 issued by U.S. banks that  Political,
 represent shares of        Regulatory,
 foreign corporations held  Diplomatic,
 by those banks.  Although  Liquidity and
 traded in U.S. securities  Currency Risks
 markets and valued in
 U.S. dollars, ADRs carry
 most of the risks of
 investing directly in
 foreign securities.
--------------------------------------------------------------------------------
 DEBT SECURITIES
 Securities issued by       Market, Credit,           High Yield
 private companies or       Interest Rate             Select Income
 governments representing   and Duration              Tax-Free Bond
 an obliga tion to pay      Risks                     U.S. Government Securites
 interest and to repay
 princi pal when the
 security matures.
--------------------------------------------------------------------------------
 EUROBONDS AND YANKEE
 BONDS                      Market,                   High Yield
 bonds issued by            Information,              Select Income
 foreign branches of        Currency
 U.S. banks ("Euro-         Political,
 bonds") and bonds          Diplomatic,
 issued by a U.S.           Regulatory,
 branch of a foreign        Liquidity,
 bank and sold in the       Credit,
 United States ("Yankee     Interest
 bonds"). These bonds       Rate and
 are bought and sold in     Duration
 U.S. dollars, but          Risks
 generally carry with
 them the same risks as
 investing in foreign
 securities.
--------------------------------------------------------------------------------
 JUNK BONDS
 Debt securities that are   Market, Credit,          High Yield
 rated BB or lower by S&P   Interest Rate            Select Income
 or Ba or lower by          and Duration             Tax-Free Bond
 Moody's.  Tend to pay      Risks
 higher interest rates
 than higher-rated debt
 securities, but carry a
 higher credit risk.
--------------------------------------------------------------------------------

<PAGE>

[ARROW ICON] TEMPORARY DEFENSIVE POSITIONS

When securities markets or economic conditions are unfavorable or unsettled,  we
might try to protect the assets of a Fund by  investing in  securities  that are
highly liquid,  such as high quality money market  instruments  like  short-term
U.S. government  obligations,  commercial paper or repurchase  agreements,  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.

[ARROW ICON] PORTFOLIO TURNOVER

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

INVESCO High Yield Fund                              154%
INVESCO Select Income Fund                           135%
INVESCO U.S. Government Securities Fund              114%


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  result  in  higher  brokerage
commissions and taxable capital gain distributions to a Fund's shareholders.

[INVESCO ICON] FUND MANAGEMENT

INVESTMENT  ADVISER


INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL  INVESTMENT MANAGEMENT
COMPANY THAT MANAGES  MORE THAN $291  BILLION IN ASSETS  WORLDWIDE.  AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.

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


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

INVESCO and IDI are subsidiaries of AMVESCAP PLC.



Since the Funds' [Class C] shares did not commence  operations until January __,
2000,  [Class C] shares paid no fees to INVESCO for its advisory services in the
year ended August 31, 1999.

<PAGE>

[INVESCO ICON] PORTFOLIO MANAGERS

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

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

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

RICHARD R. HINDERLIE is the portfolio manager of U.S. Government Securities Fund
and a vice president of INVESCO.  Dick has been a portfolio manager with INVESCO
since 1993. Dick received his M.B.A.  from Arizona State University and his B.A.
in Economics from Pacific Lutheran University.

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

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

[INVESCO ICON] POTENTIAL REWARDS

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

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

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

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

[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 and
national holidays in the U.S.


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

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

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

<PAGE>

[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.


Many  of  the  INVESCO  Funds  have  multiple  classes  of  shares,  each  class
representing an interest in the same portfolio of  investments.  When choosing a
share class,  you should  consider which class best meets your  situation.  Your
investment   representative  can  help  you  decide.   Contact  your  investment
representative  for several  convenient ways to invest in the Funds.  [[Class C]
shares are available only through your investment  representative.]  There is no
charge to invest directly  through INVESCO.  However,  with respect to [Class C]
shares,  upon redemption or exchange of [Class C] shares held thirteen months or
less (other than [Class C] shares acquired through  reinvestment of dividends or
other  distributions),  a contingent  deferred sales charge of 1% of the current
net asset  value of the [Class C] shares  will be  assessed.  If you invest in a
Fund through a securities broker, you may be charged a commission or transaction
fee for either purchases or sales of Fund shares.  For all new accounts,  please
send a  completed  application  form,  and specify the fund or funds you wish to
purchase.The following chart shows several convefunds you wish to purchase.


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

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

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


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


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

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

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 12-month  period,  but
  you may be subject to the contingent deferred sales 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 termination that affect
  all shareholders of the Fund will be  given  at  least  60 days  prior to the
  effective  date  of the change, except  in  unusual  instances,  including  a
  suspension of redemption of the exchanged  security under Section 22(e) of the
  Investment Company Act of 1940.

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


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



CONTINGENT  DEFERRED  SALES CHARGE  (CDSC).  If you exchange or redeem [Class C]
shares of any Fund after holding them thirteen months or less (other than shares
acquired through reinvestment of dividends or other distributions), a CDSC of 1%
of the current net asset value of the shares being  exchanged  will be assessed.
The fee applies to redemptions from the Fund and exchanges (other than exchanges
into [Class C] shares) into any of the other mutual funds which are also advised
by INVESCO and distributed by IDI. We will use the "first-in,  first-out" method
to determine your holding period.  Under this method,  the date of redemption or
exchange will be compared with the earliest purchase date of shares held in your
account.  If your holding  period is less than twelve  months,  the CDSC will be
assessed on the current net asset value of those shares.

The CDSC for [Class C] shares generally will be waived:

o to pay account fees;
o for IRA distributions due to death or disability or upon 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.

<PAGE>

METHOD                   INVESTMENT MINIMUM               PLEASE REMEMBER
--------------------------------------------------------------------------------

THROUGH YOUR INVEST-     Contact your investment
MENT REPRESENTATIVE      representative

--------------------------------------------------------------------------------
BY CHECK                 $1,000 for regular
Mail to:                 accounts;
INVESCO Funds Group,     $250 for an IRA;
Inc.,                    $50 minimum for
P.O. Box 173706,         each subsequent
Denver, CO 80217-3706.   investment.
You may send your check
by overnight courier to:
7800 E. Union Ave.
Denver, CO 80237.
--------------------------------------------------------------------------------
BY WIRE                  $1,000
You may send your
payment by bank wire
(call INVESCO for
instructions).
--------------------------------------------------------------------------------
BY TELEPHONE WITH ACH    $50                              You must forward your
Call 1-800-525-8085 to                                    bank account
request your purchase.                                    information to
INVESCO will move money                                   INVESCO prior to
from your designated                                      using this option.
bank/credit union
checking or savings
account in order to
purchase shares, upon
your telephone instructions,
whenever you wish.

--------------------------------------------------------------------------------
REGULAR INVESTING WITH   $50 per month for EasiVest; $50  Like all regular
EASIVEST OR DIRECT       per pay period for Direct        plans, neither Easi-
PAYROLL PURCHASE         Payroll Purchase. you may        Vest nor Direct
You may enroll on your   start or stop your regular       Payroll Purchase en-
fund application, or     investment plan at any time,     sures a profit or pro-
call us for a a          with two weeks' notice to        tects against loss in
separate form and more   INVESCO.                         a falling market.
details. Investing the                                    Because you'll invest
same amount on a monthly                                  continually,
basis allows you to buy                                   regardless of varying
more shares when prices                                   price levels.
are low and fewer shares                                  Remember that you will
when prices are high.                                     lose money if you
This "dollar cost                                         redeem your shares
averaging" may help                                       when the market value
offset market                                             of all your shares is
fluctuations. Over a                                      less than their cost.
period of time, your
average cost per share
may be less than the
actual average value
per share.
--------------------------------------------------------------------------------
BY PAL(R)                $1,000 (The                      Be sure to write down
Your "Personal Account   exchange minimum                 the confirmation
Line" is                 is $250 for                      number provided by
available for subsequent subsequent                       PAL(R). You must
purchases                purchases                        forward your bank
and exchanges 24 hours a requested by tele-               account information to
day.                     phone.)                          INVESCO prior to using
Simply call                                               this option.
1-800-424-8085.
<PAGE>
METHOD                   INVESTMENT MINIMUM               PLEASE REMEMBER
--------------------------------------------------------------------------------

THROUGH YOUR INVEST-     Contact your investment
MENT REPRESENTATIVE      representative

--------------------------------------------------------------------------------
BY EXCHANGE              $1,000 to open a                 See "Exchange Policy."
Between two INVESCO      new account; $50
funds. Call              for written
1-800-525-8085 for       requests to pur
prospectuses of          chase additional
other INVESCO funds.     shares for an
Exchanges                existing account.
may be made by phone or  (The exchange
at our                   minimum is $250
Web site at              for exchanges
www.invesco.com. You     requested by tele
may also establish an    phone.)
automatic monthly
exchange service between
two INVESCO funds; call
us for further details
and the correct form.


DISTRIBUTION  EXPENSES.  We have adopted a Master  Distribution  Plan  (commonly
known as a "12b-1 Plan") for the Funds' [Class C] shares. The 12b-1 fees paid by
each Fund's  [Class C] shares are used to pay  distribution  fees to IDI for the
sale  and  distribution  of  its  shares  and  fees  for  services  provided  to
shareholders,  all or a  substantial  portion of which are paid to the dealer of
record.  Because the Funds'  [Class C] shares pay these fees out of their assets
on an  ongoing  basis,  over  time  these  fees will  increase  the cost of your
investment.


[INVESCO ICON] YOUR ACCOUNT SERVICES

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

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

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

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

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

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

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

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

[INVESCO ICON] HOW TO SELL SHARES


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


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.  Remember  that any sale or  exchange  of  shares in a
non-retirement account will likely result in a taxable gain or loss.

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

INVESCO usually mails you the proceeds from the sale of Fund shares within seven
days after we receive your request to sell in proper form. However,  payment may
be postponed under unusual  circumstances -- for instance,  if normal trading is
not  taking  place on the  NYSE,  or  during  an  emergency  as  defined  by the
Securities and Exchange  Commission.  If your INVESCO fund shares were purchased
by a check which has not yet cleared,  payment will be made  promptly  when your
purchase check does clear; which can take up to 15 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  structure,  it costs as much to handle a small
account  as it does to handle a large one.  If the value of your  account in any
Fund falls below $250 as a result of your  actions  (for  example,  sale of your
Fund shares),  each Fund reserves the right to sell all of your shares, send the
proceeds of the sale to you and close your  account.  Before  this is done,  you
will be notified and given 60 days to increase the value of your account to $250
or more.
<PAGE>

METHOD                   REDEMPTION MINIMUM               PLEASE REMEMBER
--------------------------------------------------------------------------------

THROUGH YOUR INVEST-     Contact your investment
MENT REPRESENTATIVE      representative

--------------------------------------------------------------------------------
BY TELEPHONE             $250 (or, if less,               INVESCO's telephone
Call us toll-free at:    full liquidation of              redemption privileges
1-800-525-8085.          the account) for a               may be modified or
                         redemption check;                terminated in the
                         $1,000 for a wire to             future at INVESCO's
                         your bank of record.             discretion.
                         The maximum amount
                         which may be redeemed
                         by telephone is
                         generally $25,000.
--------------------------------------------------------------------------------
IN WRITING               Any amount.                      The redemption
Mail your request to                                      request must be
INVESCO Funds Group,                                      signed by all
Inc., P.O. Box                                            registered account
173706, Denver, CO                                        owners. Payment will
80217-3706. You may                                       be mailed to your
also send your                                            address as it appears
request by overnight                                      on INVESCO's records,
courier to 7800 E.                                        or to a bank
Union Ave.,                                               designated by you in
Denver, CO 80237.                                         writing.
--------------------------------------------------------------------------------
BY TELEPHONE WITH ACH    $50                              You must forward your
Call 1-800-525-8085                                       bank account
to request your                                           information to
redemption.  INVESCO                                      INVESCO prior to
will automatically                                        using this option.
pay the proceeds into
your designated bank
account.
--------------------------------------------------------------------------------

BY EXCHANGE              $250 for exchanges               See "Exchange Policy."
Between two INVESCO      requested                        When opening a new
funds. Call              by telephone.                    account, investment
1-800-525-8085 for                                        minimums apply.
prospectuses of other
INVESCO  funds.
Exchanges  may  be
made  by  phone  or
at  our  Web  site  at
www.invesco.com.  You
may also establish an
automatic  monthly
exchange service
between two INVESCO
funds; call us for
further details and
the correct form.
--------------------------------------------------------------------------------
PERIODIC WITHDRAWAL      $100 per payment on a            You must have at
PLAN                     monthly or quarterly             least $10,000 total
You may call us to       basis. The redemption            invested with the
request the              check may be made                INVESCO funds with at
appropriate form and     payable to any party             least $5,000 of that
more informa tion at     you designate.                   total invested in the
1-800-525-8085.                                           fund from which
                                                          withdrawals will be
                                                          made.
<PAGE>

METHOD                   REDEMPTION MINIMUM               PLEASE REMEMBER
--------------------------------------------------------------------------------

THROUGH YOUR INVEST-     Contact your investment
MENT REPRESENTATIVE      representative

--------------------------------------------------------------------------------
PAYMENT TO THIRD         Any amount.                      All registered
PARTY                                                     account owners must
Mail your request to                                      sign the request,
INVESCO                                                   with signature
Funds Group, Inc.,                                        guarantees from an
P.O. Box 173706,                                          eligible guarantor
Denver, CO 80217-3706.                                    financial
                                                          institution, such as
                                                          a commercial bank or a
                                                          recognized national or
                                                          regional securities
                                                          firm.


[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 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  each  Fund's  shares  that  you  own.  These
distributions  are required under federal tax laws governing mutual funds. It is
the policy of each Fund to distribute all investment  company taxable income and
net capital gains. As a result of this policy and each Fund's qualification as a
regulated  investment company, it is anticipated that none of the Funds will pay
any federal income or excise taxes.  Instead, each Fund will be accorded conduit
or "pass through" treatment for federal income tax purposes.

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

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

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

[GRAPH ICON] DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS

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

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

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

Under present federal income tax laws, capital gains may be taxable at different
rates,  depending  on how  long a  Fund  has  held  the  underlying  investment.
Short-term capital gains which are derived from the sale of assets held one year
or less are taxed as ordinary income.  Long-term capital gains which are derived
from the sale of  assets  held  for  more  than one year are  taxed at 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.  Most
shareholders  want to avoid this. And, if you sell your shares at a loss for tax
purposes and purchase a substantially identical investment within 30 days before
or after that sale, the transaction is usually  considered a "wash sale" and you
will not be able to claim a tax loss.

Dividends  and capital gain  distributions  paid by each Fund are  automatically
reinvested in  additional  Fund shares at the NAV on the  ex-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, may be subject
to federal income tax.

<PAGE>

FINANCIAL HIGHLIGHTS


The financial  highlights table is intended to help you understand the financial
performance  of [Class  II]  shares of a Fund for the past five  years.  Certain
information  reflects financial results for a single Fund share. Since [Class C]
shares are new, financial  information is not available for that class as of the
date of this Prospectus.  The total returns in the table represent the rate that
an investor  would have earned (or lost) on an investment in the Fund  (assuming
reinvestment  of all dividends and  distributions).  This  information  has been
audited by  PricewaterhouseCoopers  LLP, independent accountants,  whose report,
along with the financial  statements,  is included in INVESCO Bond Funds, Inc.'s
1999 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.


<TABLE>
<CAPTION>

                                                  YEAR ENDED AUGUST 31
--------------------------------------------------------------------------------------
<S>                                     <C>       <C>       <C>       <C>       <C>

HIGH YIELD FUND - [CLASS II]            1999      1998      1997      1996      1995

PER SHARE DATA
Net Asset Value-Beginning of Period     $6.76     $7.45     $6.84     $6.73     $6.73
--------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                    0.60      0.64      0.62      0.63      0.66
Net Gains or (Losses) on Securities
 (Both Realized and Unrealized)         (0.19)    (0.29)     0.64      0.11      0.03
--------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS         0.41      0.35      1.26      0.74      0.69
--------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment            0.60      0.64      0.62      0.63      0.66
 Income(a)
Distributions from Capital Gains         0.00      0.40      0.03      0.00      0.00
In Excess of Capital Gains               0.17      0.00      0.00      0.00      0.03
--------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS                      0.77      1.04      0.65      0.63      0.69
--------------------------------------------------------------------------------------
Net Asset Value -- End of Period        $6.40     $6.76     $7.45     $6.84     $6.73
======================================================================================

TOTAL RETURN                            6.53%     4.44%    19.27%    11.38%    11.12%

RATIOS
Net Assets-End of Period             $793,337  $641,394  $470,965  $375,201  $288,959
 ($000 Omitted)
Ratio of Expenses to                  0.99%(c)  0.86%(c)  1.00%(c)  0.99%(c)    1.00%
   Average Net Assets(b)
Ratio of Net Investment Income to       9.13%     8.72%     8.71%     9.13%    10.01%
   Average Net Assets(b)
Portfolio Turnover Rate                  154%      282%      129%      266%      201%
</TABLE>


(a) Distributions  in excess of net investment  income for the year ended August
    31, 1996, aggregated less than $0.01 on a per share basis.
(b) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
    years ended August 31, 1996 and 1995. If such expenses had not been
    voluntarily absorbed,  ratio of expenses to average net assets would have
    been 0.99% and 1.07%, respectively, and ratio of net investment income to
    average net assets would have been 9.13% and 9.94%, respectively.
(c) Ratio is based on Total  Expenses  of the Fund,  less  Expenses  Absorbed by
    INVESCO, if applicable, which is before any expense offset arrangements.
<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
                                                  YEAR ENDED AUGUST 31
--------------------------------------------------------------------------------------
<S>                                     <C>       <C>       <C>       <C>       <C>

SELECT INCOME FUND - [CLASS II]         1999      1998      1997      1996      1995

PER SHARE DATA
Net Asset Value-Beginning of Period     $6.68     $6.66     $6.35     $6.54     $6.18
--------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                    0.43      0.43      0.45      0.47      0.47
Net Gains or (Losses) on Securities
 (Both Realized and Unrealized)         (0.41)     0.19      0.34     (0.17)     0.36
--------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS         0.02      0.62      0.79      0.30      0.83
--------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment
 Income                                  0.43      0.43      0.45      0.46      0.47
In Excess of Net Investment
 Income(a)                               0.00      0.00      0.00      0.01      0.00
Distributions from Capital Gains         0.02      0.17      0.03      0.02      0.00
In Excess of Capital Gains               0.10      0.00      0.00      0.00      0.00
--------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS                      0.55      0.60      0.48      0.49      0.47
--------------------------------------------------------------------------------------
Net Asset Value -- End of Period        $6.15     $6.68     $6.66     $6.35     $6.54
======================================================================================

TOTAL RETURN                            0.15%     9.58%    12.89%     4.78%    14.01%

RATIOS
Net Assets-End of Period             $549,438   $502,624  $287,618  $258,093 $216,597
 ($000 Omitted)
Ratio of Expenses to                  1.06%(c)  1.06%(c)  1.03%(c)  1.01%(c)    1.00%
   Average Net Assets(b)
Ratio of Net Investment Income to       6.56%     6.36%     6.98%     7.14%     7.38%
   Average Net Assets(b)
Portfolio Turnover Rate                  135%      140%      263%      210%      181%
</TABLE>


(a) Distributions  in excess of net investment  income for the year ended August
    31, 1995, aggregated less than $0.01 on a per share basis.
(b) Various  expenses of the Fund were  voluntarily  absorbed by INVESCO for the
    years ended August 31, 1999, 1998, 1997, 1996 and 1995. If such expenses had
    not been voluntarily absorbed, ratio of expenses to average net assets would
    have been 1.16%, 1.10%, 1.21%, 1.16% and 1.22%, respectively, and ratio of
    net investment income to average net assets would have been 6.46%,  6.32%,
    6.80%, 6.99% and 7.16%, respectively.
(c) Ratio is based on Total  Expenses  of the Fund,  less  Expenses  Absorbed by
    INVESCO, if applicable, which is before any expense offset arrangements.

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
                                     PERIOD ENDED
                                     AUGUST 31                  YEAR ENDED JUNE 30
-----------------------------------------------------------------------------------------------
<S>                                  <C>        <C>       <C>       <C>       <C>       <C>

TAX-FREE BOND FUND - CLASS [II]      1999(a)    1999      1998      1997      1996      1995

PER SHARE DATA
Net Asset Value-Beginning of Period  $14.71     $15.57    $15.34    $15.20    $15.07    $15.29
-----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                  0.10       0.62      0.63      0.66      0.73      0.80
Net Gains or (Losses) on Securities
 (Both Realized and Unrealized)       (0.18)     (0.40)     0.40      0.38      0.32      0.09
-----------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS      (0.08)      0.22      1.03      1.04      1.05      0.89
-----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment
 Income                                0.10       0.62      0.63      0.66      0.73      0.80
In Excess of Net Investment            0.00       0.01      0.00      0.01      0.00      0.00
 Income
Distributions from Capital Gains       0.00       0.46      0.17      0.23      0.19      0.31
-----------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS                    0.10       1.08      0.80      0.90      0.92      1.11
-----------------------------------------------------------------------------------------------
Net Asset Value -- End of Period     $14.53     $14.71    $15.57    $15.34    $15.20    $15.07
===============================================================================================

TOTAL RETURN                      (0.53%)(b)      1.30%     6.87%     7.05%     7.01%     6.16%

RATIOS
Net Assets-End of Period           $191,836   $201,791  $211,471  $220,410  $250,890  $254,584
 ($000 Omitted)
Ratio of Expenses to
 Average Net Assets(c)           0.90%(d)(e)   0.91%(d)  0.91%(d)  0.90%(d)  0.91%(d)     0.92%
Ratio of Net Investment Income      4.08%(e)      4.03%     4.06%     4.36%     4.76%     5.31%
 to Average Net Assets(c)
Portfolio Turnover Rate                3%(b)        66%      173%      123%      146%       99%
</TABLE>


(a) From July 1, 1999 to August 31,  1999,  the Fund's new fiscal year end.
(b) Based on operations for the period shown and, accordingly, are not
    representative of a full year.
(c) Various  expenses of the Fund were  voluntarily  absorbed by INVESCO for the
    period ended August 31, 1999 and for the years ended June 30,  1999,  1998,
    1997, 1996 and 1995. If such expenses had not been voluntarily absorbed,
    ratio of expenses to average net assets would have been 1.14%  (annualized),
    1.06%, 1.04%, 1.05%, 1.04%, and 1.05%, respectively, and ratio of net
    investment income to average net assets would have been 3.84% (annualized),
    3.88%, 3.93%, 4.21%, 4.63% and 5.18%, respectively.
(d) Ratio is based on Total  Expenses  of the Fund,  less  Expenses  Absorbed by
    INVESCO, which is before any expense offset arrangements.
(e) Annualized.

<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
                                                  YEAR ENDED AUGUST 31
--------------------------------------------------------------------------------------
<S>                                     <C>       <C>       <C>       <C>       <C>

U.S. GOVERNMENT SECURITIES
 FUND - [CLASS II]                      1999      1998      1997      1996      1995

PER SHARE DATA
Net Asset Value-Beginning of Period     $7.99     $7.49     $7.15     $7.49     $7.10
--------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income                    0.35      0.40      0.43      0.44      0.45
Net Gains or (Losses) on Securities
 (Both Realized and Unrealized)         (0.58)     0.67      0.34     (0.34)     0.39
--------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS        (0.23)     1.07      0.77      0.10      0.84
--------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment
 Income                                  0.35      0.40      0.43      0.43      0.45
In Excess of Net Investment
 Income(a)                               0.00      0.00      0.00      0.01      0.00
Distributions from Capital Gains         0.56      0.17      0.00      0.00      0.00
In Excess of Capital Gains               0.04      0.00      0.00      0.00      0.00
--------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS                      0.95      0.57      0.43      0.44      0.45
--------------------------------------------------------------------------------------
Net Asset Value -- End of Period        $6.81     $7.99     $7.49     $7.15     $7.49
======================================================================================

TOTAL RETURN                            (3.40%)   14.75%    11.01%     1.31%    12.37%

RATIOS
Net Assets-End of Period              $79,899   $79,485   $51,581   $54,614   $38,087
 ($000 Omitted)
Ratio of Expenses to                  1.01%(c)  1.01%(c)  1.01%(c)  1.02%(c)    1.00%
   Average Net Assets(b)
Ratio of Net Investment Income to       4.80%     5.22%     5.78%     5.76%     6.24%
   Average Net Assets(b)
Portfolio Turnover Rate                  114%      323%      139%      212%       99%
</TABLE>


(a) Distributions  in excess of net investment  income for the year ended August
    31, 1995, aggregated less than $0.01 on a per share basis.
(b) Various  expenses of the Fund were  voluntarily  absorbed by INVESCO for the
    years ended August 31, 1999, 1998, 1997, 1996 and 1995. If such expenses had
    not been voluntarily  absorbed,  ratio of expenses to average net assets
    would have been 1.60%, 1.41%, 1.32%, 1.48% and 1.51%, respectively, and
    ratio of net investment income to average net assets would have been 4.21%,
    4.82%,  5.47%, 5.30% and 5.73%, respectively.
(c) Ratio is based on Total  Expenses  of the Fund,  less  Expenses  Absorbed by
    INVESCO, which is before any expense offset arrangements.

<PAGE>


JANUARY ___, 2000

     INVESCO BOND FUNDS, INC.
     INVESCO HIGH YIELD FUND - [CLASS C]
     INVESCO  SELECT INCOME FUND - [CLASS C]
     INVESCO TAX-FREE BOND FUND - [CLASS C]
     INVESCO U.S. GOVERNMENT SECURITIES FUND - [CLASS 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 January __, 2000 is a
     supplement to this Prospectus and has detailed  information about the Funds
     and their investment policies and practices. A current SAI for the Funds is
     on file with the  Securities and Exchange  Commission  and is  incorporated
     into this  Prospectus  by reference;  in other words,  the SAI is legally a
     part of this Prospectus, and you are considered to be aware of the contents
     of the SAI.

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


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



































     811-2674

<PAGE>
                       STATEMENT OF ADDITIONAL INFORMATION

                            INVESCO BOND FUNDS, INC.


                INVESCO High Yield Fund - [Class II and Class C]
              INVESCO Select Income Fund - [Class II and Class C]
              INVESCO Tax-Free Bond Fund - [Class II and Class C]
        INVESCO U.S. Government Securities Fund - [Class II and Class C]



Address:                                  Mailing Address:

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

                                   Telephone:

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




                                January ___, 2000

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


A Prospectus  for INVESCO High Yield Fund - [Class II],  INVESCO  Select  Income
Fund - [Class II],  INVESCO  Tax-Free Bond Fund - [Class II]  (formerly  INVESCO
Tax-Free  Long-Term Bond Fund),  and INVESCO U.S.  Government  Securities Fund -
[Class II] dated October 31, 1999 and a Prospectus for INVESCO High Yield Fund -
[Class C], INVESCO Select Income Fund - [Class C], INVESCO  Tax-Free Bond Fund -
[Class C] and INVESCO U.S. Government  Securities Fund - [Class C] dated January
__, 2000,  provide the basic  information you should know before  investing in a
Fund.  This  Statement of  Additional  Information  ("SAI") is  incorporated  by
reference into the Funds' Prospectuses, in other words, this SAI is legally part
of the Funds' Prospectuses.  Although this SAI is not a prospectus,  it contains
information in addition to that set forth in the Prospectuses. It is intended to
provide  additional  information  regarding the activities and operations of the
Funds and should be read in conjunction with the Prospectuses.

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

<PAGE>


TABLE OF CONTENTS

The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Investments, Policies and Risks. . . . . . . . . . . . . . . . . . . 34

Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . 53

Management of the Funds. . . . . . . . . . . . . . . . . . . . . . . 56

Other Service Providers. . . . . . . . . . . . . . . . . . . . . . . 80

Brokerage Allocation and Other Practices . . . . . . . . . . . . . . 81

Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Tax Consequences of Owning Shares of a Fund. . . . . . . . . . . . . 85

Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 90

Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

<PAGE>

THE COMPANY

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


The Company is an open-end, diversified, management investment company currently
consisting of four portfolios of  investments:  INVESCO High Yield Fund - [Class
II and Class C],  INVESCO  Select Income Fund - [Class II and Class C],  INVESCO
Tax-Free  Bond  Fund -  [Class  II and  Class  C] and  INVESCO  U.S.  Government
Securities  Fund - [Class II and Class 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. The Funds do not charge
sales fees to purchase their shares. However, the [Class II] shares of each Fund
pay a 12b-1  distribution  fee which is computed  and paid  monthly at an annual
rate of 0.25% of average  net assets  attributable  to [Class  II]  shares.  The
[Class  C] shares  of each  Fund pay a 12b-1  distribution/service  fee which is
computed  and paid  monthly  at an annual  rate of 1.00% of  average  net assets
attributable to [Class C] shares.


INVESTMENTS, POLICIES AND RISKS

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

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

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

<PAGE>

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

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

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

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

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

<PAGE>

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

A significant  economic downturn or increase in interest rates may cause issuers
of debt  securities  to  experience  increased  financial  problems  which could
adversely  affect their ability to pay principal  and interest  obligations,  to
meet  projected  business  goals,  and to  obtain  additional  financing.  These
conditions  more severely  impact issuers of lower-rated  debt  securities.  The
market for  lower-rated  straight  debt  securities  may not be as liquid as the
market for higher-rated straight debt securities.

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

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

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

<PAGE>

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 a Fund  until the  maturity  or call  date of a bond,  in
order  for a Fund  to  maintain  its  qualification  as a  regulated  investment
company.  These required distributions could reduce the amount of cash available
for  investment by a Fund.  Mortgage-backed  securities  represent  interests in
pools of mortgages while asset-backed  securities  generally represent interests
in pools of consumer  loans.  Both of these are  usually set up as  pass-through
securities.  Interest and principal payments ultimately depend on payment of the
underlying loans, although the securities may be supported, at least in part, by
letters   of  credit  or  other   credit   enhancements   or,  in  the  case  of
mortgage-backed  securities,  guarantees by the U.S. government, its agencies or
instrumentalities.  The  underlying  loans are subject to  prepayments  that may
shorten the securities' weighted average lives and may lower their returns.

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

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

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

<PAGE>

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

FUTURES, OPTIONS AND OTHER FINANCIAL INSTRUMENTS

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.

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

<PAGE>

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

<PAGE>

"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
are subject to margin deposit and maintenance requirements.  Rather than meeting
additional  margin deposit  requirements,  investors may close futures contracts
through  offsetting  transactions,  which could distort the normal  relationship
between the cash and  futures  markets.  Second,  the  liquidity  of the futures
market depends on participants entering into offsetting transactions rather than
making or taking  delivery.  To the extent  participants  decide to make or take

<PAGE>

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

<PAGE>

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
cap or a floor  entitles  the  purchaser,  to the extent that a specified  index
exceeds  in the  case  of a cap,  or  falls  below  in the  case of a  floor,  a
predetermined value, to receive payments on a notional principal amount from the
party selling such  instrument.  A collar combines  elements of buying a cap and
selling a floor.

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

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

INVESTMENT COMPANY SECURITIES -- To manage their daily cash positions, the Funds
may invest in securities  issued by other  investment  companies  that invest in
short-term  debt  securities and seek to maintain a net asset value of $1.00 per
share  ("money  market  funds").  The Funds also may invest in Standard & Poor's
Depository  Receipts ("SPDRs") and shares of other investment  companies.  SPDRs
are investment  companies whose  portfolios  mirror the compositions of specific

<PAGE>

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.  As a  shareholder  of another
investment  company,  a Fund  would  bear  its pro  rata  portion  of the  other
investment  company's  expenses,  including  advisory  fees,  in addition to the
expenses the Fund bears directly in connection with its own operations.

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

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

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

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

<PAGE>

      Municipal  Commercial  Paper -- Municipal  commercial  paper is short-term
      debt  obligations  issued  by  municipalities  which  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.

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

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

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

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

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

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

Other United  States  government  debt  securities,  such as  securities  of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury.  Others, such as bonds issued by Fannie Mae, a federally chartered
private corporation, are supported only by the credit of the corporation. In the

<PAGE>

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

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

INVESTMENT RESTRICTIONS

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

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

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

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

<PAGE>

      3. underwrite  securities of other  issuers,  except insofar as it may be
      deemed to be an underwriter under the 1933 Act, as amended,  in connection
      with the disposition of the Fund's portfolio securities;


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

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

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

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

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

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

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

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

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

<PAGE>

      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.

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.

<PAGE>
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%
                                  if
                                  denominated
                                  and pay
                                  interest
                                  in U.S. dollars
-----------------------------------------------------------------------------------------------
                                                       Normally,
DEBT SECURITIES                                        at least 90%
    Corporate Debt
-----------------------------------------------------------------------------------------------
    Those maturing at             At least 65%         At least 65%              At least 65%
    least three years
    after issuance
-----------------------------------------------------------------------------------------------
    Investment Grade                                   At least 50%
-----------------------------------------------------------------------------------------------
    Junk Bonds                    Primarily,           Up to 50%     Up to 10%;
                                  but never                          never below
                                  below Caa                          Caa by
                                  by Moody's                         Moody's or
                                  or CCC by                          CCC by S&P
                                  S&P
-----------------------------------------------------------------------------------------------
TEMPORARY TAXABLE                                      Up to 100%
-----------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS                                                      At least 65%
-----------------------------------------------------------------------------------------------
MUNICIPAL BONDS                                                      Normally,
                                                                     at least 80%
-----------------------------------------------------------------------------------------------
ALTERNATIVE MINIMUM                                                  No more
    TAX BONDS                                                        than 20%
-----------------------------------------------------------------------------------------------
</TABLE>

MANAGEMENT OF THE FUNDS

THE INVESTMENT ADVISER

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


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

As of  _____________,  1999,  INVESCO  managed ___ mutual funds having  combined
assets of $____ billion, on behalf of more than __________ shareholders.

<PAGE>


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 $291 billion in assets under management on September 30, 1999.


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

AMVESCAP PLC's North American subsidiaries include:

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

      INVESCO Retirement Plan Services ("IRPS"), Atlanta, Georgia, a division of
    IRBS,  provides  recordkeeping and investment  selection services to defined
    contribution plan sponsors of plans with between $2 million and $200 million
    in assets.  Additionally,  IRPS provides  investment  consulting services to
    institutions seeking to provide retirement plan products and services.


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


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

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

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

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

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

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

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

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

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

THE INVESTMENT ADVISORY AGREEMENT

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

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

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

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

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

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

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

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

<PAGE>

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 the prospectus,  statement
     of additional  information,  proxy  statements,  shareholder  reports,  tax
     returns, reports to the SEC, and other corporate documents of the Funds)

   o supplying basic telephone service and other utilities

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

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

High Yield Fund

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

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

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

<PAGE>

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

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

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

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


During the periods  outlined in the table below, the Funds paid INVESCO advisory
fees in the dollar  amounts  shown below.  Since the Funds' [Class C] shares did
not commence investment operations until January___, 2000, no advisory fees were
paid  with  respect  to  [Class  C]  shares  for the  periods  shown  below.  If
applicable, the advisory fees were offset by credits in the amounts shown below,
so that  INVESCO's  fees  were not in excess of the  expense  limitations  shown
below, which have been voluntarily agreed to by the Company and INVESCO.





                        Advisory            Total Expense          Total Expense
                        Fee Dollars         Reimbursements         Limitations

High Yield Fund - [Class II]
August 31, 1999         $3,245,140          $0                     1.25%
August 31, 1998          2,842,990           0                     1.25%
August 31, 1997          1,964,043           0                     1.25%

Select Income Fund - [Class II]
August 31, 1999         $2,670,224          $536,940               1.05%
August 31, 1998          2,023,679           151,971               1.05%
August 31, 1997          1,477,302           490,039               1.05%

Tax-Free Bond Fund - [Class II]
August 31, 1999(a)      $  185,151          $ 80,439               0.90%
June 30, 1999            1,149,834           310,487               0.90%
June 30, 1998            1,195,773           282,742               0.90%
June 30, 1997            1,275,473           348,199               0.90%

U.S. Government Securities Fund -[Class II]
August 31, 1999         $  395,611          $422,317               1.00%
August 31, 1998            284,609           207,740               1.00%
August 31, 1997            312,851           176,398               1.00%


(a) For the period July 1, 1999 through August 31, 1999.
<PAGE>

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  February  28,  1997  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 0.015% per year of the  average net assets of each
Fund prior to May 13,  1999,  and 0.045% per year of the  average  net assets of
each Fund effective May 13, 1999.

TRANSFER AGENCY AGREEMENT


INVESCO also performs  transfer agent,  dividend  disbursing agent and registrar
services for the Funds pursuant to a Transfer  Agency  Agreement  dated February
28, 1997 with the Company.


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

FEES PAID TO INVESCO


For the periods outlined in the table below for each Fund, the Funds' [Class II]
shares paid the following  fees to INVESCO  (prior to the  absorption of certain
Fund  expenses by INVESCO).  Since the Funds'  [Class C] shares did not commence
investment operations until January___,  2000, no fees were paid with respect to
[Class C] shares for the periods shown below.


HIGH YIELD FUND - [CLASS II]

                                              Year Ended August 31,
Type of Fee                      1999              1998              1997
-----------                      ----              ----              ----
Advisory                         $3,245,140        $2,842,990        $1,964,043
Administrative Services             204,752           112,212            72,410
Transfer Agency                   1,560,584           778,174           651,471
<PAGE>

SELECT INCOME FUND - [CLASS II]

                                              Year Ended August 31,
Type of Fee                      1999              1998              1997
-----------                      ----              ----              ----
Advisory                         $2,670,224        $2,023,679        $1,477,302
Administrative Services             140,510            67,475            50,289
Transfer Agency                   1,519,741           895,360           786,616


TAX-FREE BOND FUND - [CLASS II]

                             Period Ended
                             August 31        Year Ended June 30,
Type of Fee                  1999(a)         1999         1998         1997
-----------                  ------------    ----         ----         ----
Advisory                     $185,151       $1,149,834   $1,195,773   $1,275,473
Administrative Services        16,815           49,494       42,612       44,786
Transfer Agency                43,473          252,005      266,096      317,800


U.S. GOVERNMENT SECURITIES FUND - [CLASS II]

                                              Year Ended August 31,
Type of Fee                      1999              1998              1997
-----------                      ----              ----              ----
Advisory                         $  395,611        $ 284,609         $  312,851
Administrative Services              27,813           17,762             18,532
Transfer Agency                     333,566          186,705            178,192


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


DIRECTORS AND OFFICERS OF THE COMPANY

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

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

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

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

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

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

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


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


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

<PAGE>


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


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


Fred A. Deering +#          Director and Vice         Trustee of INVESCO Glo-
Security Life Center        Chairman of the Board     bal Health Sciences
1290 Broadway                                         Fund; formerly,
Denver, Colorado                                      Chairman of the
Age:  72                                              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.



Mark H. Williamson *+       President, Chief          President, Chief Execu-
7800 E. Union Avenue        Executive Officer         tive Officer and
Denver, Colorado            and Director              Director of INVESCO
Age:  48                                              Funds     Group,     Inc.;
                                                      President, Chief Executive
                                                      Officer  and  Director  of
                                                      INVESCO      Distributors,
                                                      Inc.;  President,  Chief
                                                      Operating    Officer   and
                                                      Trustee of INVESCO  Global
                                                      Health    Sciences   Fund;
                                                      formerly,   Chairman   and
                                                      Chief Executive  Officer
                                                      of NationsBanc  Advisors,
                                                      Inc.;  formerly,  Chairman
                                                      of NationsBanc
                                                      Investments, Inc.
<PAGE>

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

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


Bob R. Baker +**            Director                  President and Chief
AMC Cancer Research Center                            Executive Officer of
1600 Pierce Street                                    AMC Cancer Research
Denver, Colorado                                      Center, Denver,
Age:  63                                              Colorado,   since  January
                                                      1989;  until  mid-December
                                                      1988, Vice Chairman of the
                                                      Board  of  First  Columbia
                                                      Financial     Corporation,
                                                      Englewood,       Colorado;
                                                      formerly, Chairman of the
                                                      Board and Chief  Executive
                                                      Officer of First  Columbia
                                                      Financial Corporation.


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

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


Wendy L. Gramm, Ph.D.**!    Director                  Self-employed (since
4201 Yuma Street, N.W.                                1993); Professor of
Washington, DC                                        Economics and Public
Age: 55                                               Administration,
                                                      University   of  Texas  at
                                                      Arlington;    formerly,
                                                      Chairman,    Commodity
                                                      Futures            Trading
                                                      Commission; Administrator
                                                      for     Information    and
                                                      Regulatory  Affairs at the
                                                      Office of  Management  and
                                                      Budget;   Executive Direc-
                                                      tor  of  the  Presidential
                                                      Task  Force on  Regulatory
                                                      Relief;  and  Director  of
                                                      the Federal Trade Commis-
                                                      sion's  Bureau  of Econom-
                                                      ics;  also,   Director  of
                                                      Chicago         Mercantile
                                                      Exchange,   Enron Corpora-
                                                      tion,  IBP,  Inc.,   State
                                                      Farm  Insurance   Company,
                                                      Independent    Women's
                                                      Forum,       International
                                                      Republic  Institute,   and
                                                      the  Republican  Women's
                                                      Federal    Forum.    Also,
                                                      Member    of    Board   of
                                                      Visitors,    College    of
                                                      Business  Administration,
                                                      University  of  Iowa,  and
                                                      Member    of    Board   of
                                                      Visitors, Center for Study
                                                      of Public  Choice,  George
                                                      Mason University.

<PAGE>

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


Kenneth T. King +#@         Director                  Retired. Formerly,
4080 North Circulo                                    Chairman of the Board
  Manzanillo Tucson,                                  of The Capitol Life
Tucson, Arizona                                       Insurance Company,
Age:  74                                              Providence      Washington
                                                      Insurance    Company   and
                                                      Director of numerous  U.S.
                                                      subsidiaries   thereof;
                                                      formerly,  Chairman of the
                                                      Board  of  The  Providence
                                                      Capitol  Companies  in the
                                                      United     Kingdom     and
                                                      Guernsey;  Chairman of the
                                                      Board   of   the   Symbion
                                                      Corporation until 1987.


John W. McIntyre + #@       Director                  Retired. Formerly,
7 Piedmont Center                                     Vice Chairman of the
Suite 100                                             Board of Directors of
Atlanta, Georgia                                      the Citizens and
Age:  69                                              Southern  Corporation  and
                                                      Chairman  of the Board and
                                                      Chief  Executive  Officer
                                                      of   the    Citizens   and
                                                      Southern Georgia Corp. and
                                                      the  Citizens and Southern
                                                      National Bank;  Trustee of
                                                      INVESCO   Global  Health
                                                      Sciences   Fund,    Gables
                                                      Residential         Trust,
                                                      Employee's      Retirement
                                                      System   of   GA,    Emory
                                                      University  and J.M.  Tull
                                                      Charitable     Foundation;
                                                      Director  of Kaiser Foun-
                                                      dation   Health  Plans  of
                                                      Georgia, Inc.

<PAGE>

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

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


Glen A. Payne               Secretary                 Senior Vice President,
7800 E. Union Avenue                                  General Counsel and
Denver, Colorado                                      Secretary of INVESCO
Age:  52                                              Funds Group,  Inc.; Senior
                                                      Vice President,  Secretary
                                                      and  General   Counsel  of
                                                      INVESCO      Distributors,
                                                      Inc.;  Secretary,  INVESCO
                                                      Global   Health   Sciences
                                                      Fund;  formerly,   General
                                                      Counsel of  INVESCO  Trust
                                                      Company   (1989   to1998);
                                                      formerly,  employee  of  a
                                                      U.S.  regulatory  agency,
                                                      Washington,  D.C. (1973 to
                                                      1989).

<PAGE>

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

Ronald L. Grooms            Chief Accounting          Senior Vice President,
7800 E. Union Avenue        Officer, Chief Finan-     Treasurer and Director
Denver, Colorado            cial Officer and          of INVESCO Funds
Age:  53                    Treasurer                 Group, Inc.; Senior
                                                      Vice President,
                                                      Treasurer and Direc-
                                                      tor of INVESCO
                                                      Distributors, Inc.;
                                                      Treasurer, Principal
                                                      Financial and
                                                      Accounting Officer of
                                                      INVESCO Global Health
                                                      Sciences Fund;
                                                      formerly, Senior Vice
                                                      President and
                                                      Treasurer of INVESCO
                                                      Trust Company (1988 to
                                                      1998).

William J. Galvin, Jr.      Assistant Secretary       Senior Vice President
7800 E. Union Avenue                                  and Assistant
Denver, Colorado                                      Secretary of INVESCO
Age: 43                                               Funds Group, Inc.;
                                                      Senior Vice President
                                                      and Assistant
                                                      Secretary of INVESCO
                                                      Distributors, Inc.;
                                                      formerly, Trust
                                                      Officer of INVESCO
                                                      Trust Company.


Pamela J. Piro              Assistant Treasurer       Vice President and
7800 E. Union Avenue                                  Assistant Treasurer
Denver, Colorado                                      of INVESCO Funds
Age:  39                                              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).

<PAGE>

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


Alan I. Watson              Assistant Secretary       Vice President of
7800 E. Union Avenue                                  INVESCO Funds Group,
Denver, Colorado                                      Inc.;  formerly, Trust
Age:  58                                              Officer of INVESCO
                                                      Trust Company.


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


#     Member of the audit committee of the Company.

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

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

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

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

!     Member of the derivatives committee of the Company.

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

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

<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Name of Person        Aggregate Compen-       Benefits Accrued       Estimated Annual     Total Compensation
and Position          satio From Company(1)   As Part of Company     Benefits Upon        From INVESCO Complex
                                              Expenses(2)            Retirement(3)        Paid To Directors(6)
--------------------------------------------------------------------------------------------------------------
<S>                         <C>                     <C>                  <C>                    <C>
Fred A. Deering, Vice       $6,717                  $4,641               $3,135                 $103,700
Chairman of the Board
--------------------------------------------------------------------------------------------------------------
Victor L. Andrews            6,254                   4,440                3,456                   80,350
--------------------------------------------------------------------------------------------------------------
Bob R. Baker                 6,343                   3,965                4,631                   84,000
--------------------------------------------------------------------------------------------------------------
Lawrence H. Budner           6,162                   4,440                3,456                   79,350
--------------------------------------------------------------------------------------------------------------
Daniel D. Chabris(4)         2,049                   4,537                2,843                   70,000
--------------------------------------------------------------------------------------------------------------
Wendy L. Gramm               6,133                       0                    0                   79,000
--------------------------------------------------------------------------------------------------------------
Kenneth T. King              6,509                   4,737                2,843                   77,050
--------------------------------------------------------------------------------------------------------------
John W. McIntyre             6,595                       0                    0                   98,500
--------------------------------------------------------------------------------------------------------------
Larry Soll                   6,133                       0                    0                   96,000
--------------------------------------------------------------------------------------------------------------
Total                      $52,895                 $26,760              $20,364                 $767,950
--------------------------------------------------------------------------------------------------------------
% of Net Assets          0.0033%(5)              0.0017%(5)                                    0.0035%(6)
--------------------------------------------------------------------------------------------------------------
</TABLE>


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

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

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

<PAGE>

these  directors has served as a director or trustee 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 Defined  Benefit  Deferred  Compensation  Plan.  Although Mr.
McIntyre  became  eligible  to  participate  in  the  Defined  Benefit  Deferred
Compensation Plan as of November 1, 1998, he was not included in the calculation
of retirement benefits until November 1, 1999.

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

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

(6) Total as a  percentage  of the net assets of the INVESCO  Complex as of
December 31, 1998.

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

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

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

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS

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


High Yield Fund

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

Charles Schwab & Co. Inc.       Record                      36.00%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn:  Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------
Nat'l Financial Services Corp   Record                      9.20%
The Exclusive Benefit of Cust
One World Financial Center
200 Liberty Street, 5th Floor
Attn:  Kate Recon
New York, NY 10281-1003

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

<PAGE>


Select Income Fund

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

Charles Schwab & Co. Inc.       Record                      15.40%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn:  Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------
Nat'l Financial Services Corp   Record                      6.56%
The Exclusive Benefit of Cust
One World Financial Center
200 Liberty Street, 5th Floor
Attn:  Kate Recon
New York, NY 10281-1003
--------------------------------------------------------------------------------
INVESCO Trust Company TR        Record                      6.33%
Morris Communications Corp
Employees' Profit Sharing Ret
Plan
725 Broad Street
Augusta, GA 30901-1336
--------------------------------------------------------------------------------
Prudential Securities Inc.      Record                      5.43%
Acct 910-404559-000
Attn:  Mutual Funds
1 New York Plaza
New York, NY 10004-1901

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


Tax-Free Bond Fund

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

<PAGE>

U.S. Government Securities Fund

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

Charles Schwab & Co. Inc.       Record                      15.40%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn:  Mutual Funds
101 Montgomery St
--------------------------------------------------------------------------------
Resources Trust Co Cust For     Record                      8.22%
The Exclusive Benefit of The
Various Customers of IMS
P.O. Box 3865
Englewood, CO 80155-3865

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



As of  November 11,  1999,  officers and  directors of the Company, as a group,
beneficially owned less than 1% of any Fund's outstanding shares.


DISTRIBUTOR

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


[Class II]. The Company has adopted a Plan and  Agreement of  Distribution  (the
"[Class II] Plan") with  respect to [Class II] shares which  provides  that each
Fund will make  monthly  payments  to IDI  computed at an annual rate no greater
than  0.25% of average  net assets  attributable  to [Class  II]  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  shares to
investors. Payments by the Fund under the [Class II] Plan, for any month, may be
made to  compensate  IDI for  permissible  activities  engaged  in and  services
provided.

[CLASS C]. The Company has adopted a Master  Distribution  Plan 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.
<PAGE>

The [Class C] Plan is designed to  compensate  IDI,  on a quarterly  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 C] shares of a Fund.  Payments  can also be  directed  by IDI to
selected  institutions who have entered into service  agreements with respect to
[Class C] shares of each Fund and who provide  continuing  personal  services to
their  customers  who own such  [Class  C] shares of a Fund.  The  service  fees
payable to selected  institutions  are calculated at the annual rate of 0.25% of
the  average  daily net assets  value of those Fund shares that are held in such
institution's  customers' accounts.  Activities  appropriate for financing under
the [Class C] Plan include,  but are not limited to, the following:  printing of
prospectuses and statements of additional information and reports for other than
existing  shareholders;  overhead;  preparation and  distribution of advertising
material and sales  literature;  expenses of  organizing  and  conducting  sales
seminars;  supplemental  payments  to  dealers  and other  institutions  such as
asset-based  sales  charges or as  payments  of service  fees under  shareholder
service arrangements; and costs of administering the [Class C] Plan.

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  the  Fund  attributable  to the  customers  of  such  dealers  or  financial
institutions  are  characterized  as a service  fee, and 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.
Payments  pursuant  to  the  [Class  C]  Plan  are  subject  to  any  applicable
limitations imposed by rules of the National  Association of Securities Dealers,
Inc.  ("NASD").  The [Class C] Plan  conforms  to rules of the NASD by  limiting
payments made to dealers and other financial institutions who provide continuing
personal  shareholder services to their customers who purchase and own [Class C]
shares  of the Funds to no more than  0.25% per annum of the  average  daily net
assets of the [Class C] shares of the funds  attributable  to the  customers  of
such dealers or financial institutions, and by imposing a cap on the total sales
charges, including asset-based sales charges, that may be paid by the Funds.

IDI may pay sales  commissions  to dealers and  institutions  who 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
attributable to [Class C] shares 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.

A significant expenditure under the [Class II and Class C] Plans (collectively,
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
<PAGE>

the payments  made to obtain  those  services.  Payments  will be made by IDI to
broker-dealers  who sell shares of a Fund and may be made to banks,  savings and
loan associations and other depository institutions. Although the Glass-Steagall
Act limits the ability of certain  banks to act as  underwriters  of mutual fund
shares, INVESCO does not believe that these limitations would affect the ability
of such banks to enter into  arrangements with IDI, but can give no assurance in
this regard.  However,  to the extent it is determined  otherwise in the future,
arrangements  with banks might have to be modified or  terminated,  and, in that
case, the size of the Funds possibly could decrease to the extent that the banks
would no longer invest customer assets in the Funds. Neither the Company nor its
investment  adviser  will  give any  preference  to  banks  or other  depository
institutions which enter into such arrangements when selecting investments to be
made by a Fund. 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 over another.

During the fiscal  year ended  August  31,  1999,  the High Yield - [Class  II],
Select Income [Class II] and U.S. Government  Securities - [Class II] Funds made
payments to IDI under the Plans in the  amounts of  $2,032,749,  $1,321,787  and
$176,399,  respectively.  During the period ended August 31, 1999 and the fiscal
year ended June 30, 1999,  the Tax-Free  Bond Fund - [Class II] made payments to
IDI under the Plan in the  amounts of $85,752  and  $524,866,  respectively.  In
addition,  as of August 31,  1999,  $158,254,  $113,017,  $40,196 and $16,426 of
additional  distribution accruals had been incurred for High Yield - [Class II],
Select  Income - [Class  II],  Tax-Free  Bond - [Class  II] and U.S.  Government
Securities - [Class II] Funds, respectively,  and will be paid during the fiscal
year ended August 31, 2000.  Since the Funds'  [Class C] shares did not commence
investment operations until January___, 2000, the Funds' - [Class C] shares made
no payments to IDI under the Plans during the period ended August 31, 1999.  For
the fiscal year ended August 31, 1999 for High Yield - [Class II], Select Income
- [Class II] and U.S.  Government  Securities  - [Class II] Funds and the period
ended August 31, 1999 and the fiscal year ended June 30, 1999 for Tax-Free  Bond
Fund -  [Class  II],  allocation  of 12b-1  amounts  paid by the  Funds  for the
following categories of expenses were:

High Yield Fund - [Class II]

                                         Year Ended
                                         August 31, 1999

Advertising                              $526,714
Sales literature, printing, and postage   219,853
Direct Mail                                82,680
Public Relations/Promotion                114,478
Compensation to securities dealers
 and other organizations                  720,738
Marketing personnel                       368,286

<PAGE>

Select Income Fund - [Class II]

                                         Year Ended
                                         August 31, 1999

Advertising                              $317,336
Sales literature, printing, and postage   118,551
Direct Mail                                49,357
Public Relations/Promotion                 55,990
Compensation to securities dealers
  and other organizations                 618,053
Marketing personnel                       162,500


Tax-Free Bond Fund - [Class II]

                                         Period Ended           Year Ended
                                         August 31, 1999(a)     June 30, 1999

Advertising                              $11,904                $232,757
Sales literature, printing, and postage   30,914                  63,087
Direct Mail                                3,948                  18,290
Public Relations/Promotion                 6,713                  35,630
Compensation to securities dealers
   and other organizations                13,659                  64,692
Marketing personnel                       18,614                 110,410


U.S. Government Securities Fund - [Class II]

                                         Year Ended
                                         August 31, 1999

Advertising                              $40,932
Sales literature, printing, and postage   17,723
Direct Mail                                5,814
Public Relations/Promotion                 8,756
Compensation to securities dealers
  and other organizations                 72,870
Marketing personnel                       30,304

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

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


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 also 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 a Fund,  vote to terminate the Plan. The Company
may, in its absolute discretion,  suspend,  discontinue or limit the offering of
its shares at any time. In determining  whether any such action should be taken,
the board of  directors  intends to consider  all  relevant  factors  including,
without  limitation,  the size of a Fund,  the  investment  climate  for a Fund,
general market  conditions,  and the volume of sales and redemptions of a Fund's
shares. The Plans may continue in effect and payments may be made under the Plan
following any temporary suspension or limitation of the offering of Fund shares;
however,  the Company is not contractually  obligated to continue 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, 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 the holders of a majority of the Fund's  outstanding
voting  securities,  may terminate such agreement  without penalty upon 30 days'
written  notice to the other party.  No further  payments will be made by a Fund
under a Plan in the event of its termination.

To the extent that the Plan constitutes a plan of distribution  adopted pursuant
to Rule 12b-1  under the 1940 Act, it shall  remain in effect as such,  so as to
authorize  the use of Fund assets in the amounts and for the  purposes set forth
therein, notwithstanding the occurrence of an assignment, as defined by the 1940
Act, and rules thereunder. To the extent it constitutes an agreement pursuant to
a  plan,  a  Fund's   obligation  to  make  payments  to  IDI  shall   terminate
automatically,  in the event of such  "assignment."  In this  event,  a Fund may
continue  to make  payments  pursuant  to 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 the Plan should be
continued  and, if so, whether any amendment to the Plan,  including  changes in
the amount of 12b-1 fees paid by each Fund, should be made.

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

<PAGE>

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

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

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

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

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

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

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

OTHER SERVICE PROVIDERS

INDEPENDENT ACCOUNTANTS

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

CUSTODIAN

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

TRANSFER AGENT

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

LEGAL COUNSEL

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

<PAGE>

BROKERAGE ALLOCATION AND OTHER PRACTICES

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

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

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

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

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

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

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 underwriting  discounts and brokerage commissions
paid by each Fund for the periods outlined in the table below were:

High Yield Fund
      Year Ended August 31, 1999                  $1,665,183
      Year Ended August 31, 1998                  $3,324,014
      Year Ended August 31, 1997                  $2,922,214

Select Income Fund
      Year Ended August 31, 1999                  $  553,125
      Year Ended August 31, 1998                  $  686,913
      Year Ended August 31, 1997                  $1,171,410

Tax-Free Bond Fund
      Period ended August 31, 1999(a)             $        0
      Year Ended June 30, 1999                    $        0
      Year Ended June 30, 1998                    $  623,244
      Year Ended June 30, 1997                    $  748,918

U.S. Government Securities Fund
      Year Ended August 31, 1999                  $        0
      Year Ended August 31, 1998                  $        0
      Year Ended August 31, 1997                  $        0

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


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

<PAGE>

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


--------------------------------------------------------------------------------
         Fund                 Broker or Dealer               Value of Securities
                                                             at August 31, 1999
================================================================================
High Yield
--------------------------------------------------------------------------------
                              State Street Bank &            $ 4,500,000
                              Trust
--------------------------------------------------------------------------------
                              Associates                     $39,000,000
                              Corporation of North
                              America
--------------------------------------------------------------------------------
Select Income
--------------------------------------------------------------------------------
                              State Street Bank &            $ 1,389,000
                              Trust
--------------------------------------------------------------------------------
                              General Electric                 9,000,000
--------------------------------------------------------------------------------
Tax-Free Bond
--------------------------------------------------------------------------------
                              None
--------------------------------------------------------------------------------
U.S. Government
Securities
--------------------------------------------------------------------------------
                              State Street Bank              $ 1,210,000
                              Trust
--------------------------------------------------------------------------------

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

CAPITAL STOCK


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

      High Yield Fund - [Class II]                          ----
      High Yield Fund - [Class C]                             0
      Select Income Fund - [Class II]                       ----
      Select Income Fund - [Class C]                          0
      Tax-Free Bond Fund - [Class II]                       ----
      Tax-Free Bond Fund - [Class C]                          0
      U.S. Government Securities Fund - [Class II]          ----
      U.S. Government Securities Fund - [Class C]             0


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, other distributions and the proceeds of any liquidation of
that Fund. However, due to the differing expenses of the classes,  dividends and
liquidation proceeds on [Class II and Class C] 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 related 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.
<PAGE>

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 tax on the amount that is not distributed.  If a Fund does not qualify as
a regulated  investment  company,  it will be subject to corporate tax on all of
its net investment income and net capital gains at the corporate tax rates.

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

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

Except, generally, for Tax-Free Bond Fund, all dividends and other distributions
are  taxable  income  to the  shareholder,  whether  or not such  dividends  and
distributions  are  reinvested in additional  shares or paid in cash. If the net
asset value of a Fund's shares should be reduced below a shareholder's cost as a
result of a distribution,  such distribution would be taxable to the shareholder
although a portion would be a return of invested capital. The net asset value of
<PAGE>

shares of a Fund  reflects  accrued  net  investment  income  and  undistributed
realized capital and foreign currency gains;  therefore,  when a distribution is
declared,  the net asset value is reduced by the amount of the distribution.  If
shares of a Fund are purchased shortly before a distribution, the full price for
the shares  will be paid and some  portion of the price may then be  returned to
the shareholder as a taxable  dividend or capital gain.  However,  the net asset
value per share will be reduced by the amount of the  distribution,  which would
reduce  any gain (or  increase  any loss)  for tax  purposes  on any  subsequent
redemption of shares.

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

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

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

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

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

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
<PAGE>

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.

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).  Total  return  figures  show the rate of return on a $10,000
investment in a Fund,  assuming  reinvestment  of all dividends and capital gain
distributions for the periods cited.
<PAGE>

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


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

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

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

<TABLE>
<CAPTION>
Name of Fund                                      1 Year            5 Year        10 Year
<S>                                               <C>               <C>           <C>

High Yield Fund - [Class II]                      6.53%             10.43%        9.10%
Select Income Fund - [Class II]                   0.15%              8.15%        8.55%
Tax-Free Bond Fund - [Class II]                  -1.00%(a)           5.12%        6.59%
U.S. Government Securities Fund - [Class II]     -3.40%              6.98%        7.08%
</TABLE>

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

Average  annual total return  performance is not provided for each Fund's [Class
C] shares since they did not commence  investment  operations  until January __,
2000.  Average annual total return performance for each of the periods indicated
was computed by finding the average annual compounded rates of return that would
equate the initial amount invested to the ending redeemable value,  according to
the following formula:


                                 P(1 + T)n = ERV

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

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

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

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


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


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
<PAGE>

LIPPER INC.'S MUTUAL FUND PERFORMANCE ANALYSIS
MONEY
MORNINGSTAR
MUTUAL FUND FORECASTER
NO-LOAD ANALYST
NO-LOAD FUND X
PERSONAL INVESTOR
SMART MONEY
THE NEW YORK TIMES
THE NO-LOAD FUND INVESTOR
U.S. NEWS AND WORLD REPORT
UNITED MUTUAL FUND SELECTOR
USA TODAY
THE WALL STREET JOURNAL
WIESENBERGER INVESTMENT COMPANIES SERVICES
WORKING WOMAN
WORTH




FINANCIAL STATEMENTS

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



<PAGE>


APPENDIX A

BOND RATINGS

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

Moody's Corporate Bond Ratings

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

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

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

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

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

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

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

S&P Corporate Bond Ratings

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

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

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

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

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

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

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

<PAGE>
                          PART C. OTHER INFORMATION

ITEM 23.    EXHIBITS

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


                    (1) Articles of Amendment to Articles of Incorporation filed
                    May 14, 1998.(6)


                    (2) Articles of Amendment to Articles of Incorporation filed
                    October 28, 1998.(3)

                    (3) Articles Supplementary to Articles of Incorporation
                    filed May 28, 1999.(4)

                    (4) Articles of Amendment to Articles of Incorporation filed
                    August 13, 1999.(5)

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

               (b)  Bylaws.(1)

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

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

                    (a) Amendment dated August 13, 1999 to Advisory
                    Agreement.(5)

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


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


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

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

                    (2) Data Access Services Addendum.(2)


                    (3) Additional Fund Letter dated August 18, 1999.(6)

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

                        (a)  Amendment  dated October 29, 1998 to Transfer
                        Agency Agreement.(5)

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

                         (a) Amendment dated May 13, 1999 to Administrative
                         Services Agreement.(5)

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

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

               (j)  Consent of Independent Accountants.

               (k)  Not applicable.

               (l)  Not applicable.

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

               (n)  Not Applicable.


               (o)  (1) Form of Plan Pursuant to Rule 18f-3 under the Investment
                        Company  Act of 1940 by the  Company  with  respect to
                        INVESCO High Yield Fund  adopted by the board of
                        directors on November __, 1999.
                    (2) Form  of  Plan   Pursuant  to  Rule  18f-3  under  the
                        Investment  Company Act of 1940 by the Company with
                        respect to INVESCO  Select  Income Fund adopted by the
                        board of directors on November __, 1999.
                    (3) Form  of  Plan   Pursuant  to  Rule  18f-3  under  the
                        Investment  Company Act of 1940 by the Company with
                        respect to INVESCO  Tax-Free  Bond Fund adopted by the
                        board of directors on November __, 1999.
                    (4) Form  of  Plan   Pursuant  to  Rule  18f-3  under  the
                        Investment  Company Act of 1940 by the Company with
                        respect to INVESCO U.S.  Government Securities Fund
                        adopted by the board of directors on November __, 1999.


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

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

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

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

(5)  Previously filed with Post-Effective Amendment No. 40 to the Registration
Statement on August 30, 1999, and incorporated by reference herein.


(6)  Previously filed with Post-Effective Amendment No. 41 to the Registration
Statement on October 29, 1999, and incorporated by reference herein.


ITEM 24.   PERSONS  CONTROLLED BY OR UNDER COMMON  CONTROL WITH INVESCO BOND
           FUNDS, INC. (THE "COMPANY")

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

ITEM 25.   INDEMNIFICATION


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


ITEM 26.   BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

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

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


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------

Name                          Position with Adviser         Principal Occupation and Company Affiliation
--------------------------------------------------------------------------------------------------------
<S>                           <C>                           <C>
Mark H. Williamson            Chairman, Director and        President & Chief Executive Officer
                              Officer                       INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------
Raymond R. Cunningham         Officer                       Senior Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------
William J. Galvin, Jr.        Officer                       Senior Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------

<PAGE>
--------------------------------------------------------------------------------------------------------
Ronald L. Grooms              Officer & Director            Senior Vice President & Treasurer
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Richard W. Healey             Officer & Director            Senior Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
William R. Keithler           Officer                       Senior Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------
Charles P. Mayer              Officer & Director            Senior Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Timothy J. Miller             Officer & Director            Senior Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Donovan J. (Jerry) Paul       Officer                       Senior Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Glen A. Payne                 Officer                       Senior Vice President, Secretary
                                                            & General Counsel
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
John R. Schroer, II           Officer                       Senior Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Marie E. Aro                  Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Ingeborg S. Cosby             Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------

<PAGE>
--------------------------------------------------------------------------------------------------------
Stacie Cowell                 Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Dawn Daggy-Mangerson          Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Elroy E. Frye, Jr.            Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Linda J. Gieger               Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Mark D. Greenberg             Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Brian B. Hayward              Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Richard R. Hinderlie          Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Thomas M. Hurley              Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Patricia F. Johnston          Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Campbell C. Judge             Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------
Peter M. Lovell               Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
James F. Lummanick            Officer                       Vice President & Assistant
                                                            General Counsel
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------

<PAGE>
--------------------------------------------------------------------------------------------------------
Thomas A. Mantone, Jr.        Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Trent E. May                  Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Corey M. McClintock           Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------
Douglas J. McEldowney         Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------
Frederick R. (Fritz) Meyer    Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Stephen A.  Moran             Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------
Jeffrey G. Morris             Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Laura M. Parsons              Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Jon B. Pauley                 Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Pamela J. Piro                Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Anthony R. Rogers             Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------

<PAGE>
--------------------------------------------------------------------------------------------------------
Gary L. Rulh                  Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
James B. Sandidge             Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------
John S. Segner                Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Terri B. Smith                Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Tane T. Tyler                 Officer                       Vice President & Assistant
                                                            General Counsel
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------
Thomas R. Wald                Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Alan I. Watson                Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Judy P. Wiese                 Officer                       Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Thomas H. Scanlan             Officer                       Regional Vice President
                                                            INVESCO Funds Group, Inc.
                                                            12028 Edgepark Court
                                                            Potomac, MD 20854
--------------------------------------------------------------------------------------------------------
Reagan A. Shopp               Officer                       Regional Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO  80237
--------------------------------------------------------------------------------------------------------
Michael D. Legoski            Officer                       Assistant Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------

<PAGE>
--------------------------------------------------------------------------------------------------------
Donald R. Paddack             Officer                       Assistant Vice President
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------
Kent T. Schmeckpeper          Officer                       Assistant Vice President
                                                            Account Relationship Manager
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------
Jeraldine E. Kraus            Officer                       Assistant Secretary
                                                            INVESCO Funds Group, Inc.
                                                            7800 East Union Avenue
                                                            Denver, CO 80237
--------------------------------------------------------------------------------------------------------
</TABLE>


ITEM 27.    (A)   PRINCIPAL UNDERWRITERS


                  INVESCO BOND FUNDS, INC.
                  INVESCO COMBINATION STOCK & BOND FUNDS, INC.
                  INVESCO INTERNATIONAL FUNDS, INC.
                  INVESCO MONEY MARKET FUNDS, INC.
                  INVESCO SECTOR FUNDS, INC.
                  INVESCO STOCK FUNDS, INC.
                  INVESCO TREASURER'S SERIES FUNDS, INC.
                  INVESCO VARIABLE INVESTMENT FUNDS, INC.


            (c)

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

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

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

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


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

<PAGE>

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

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

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

Judy P. Wiese           Assistant               Assistant Secretary
7800 E. Union Avenue    Secretary
Denver, CO  80237

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


            (c)   Not applicable.


ITEM 28.    LOCATION OF ACCOUNTS AND RECORDS
            --------------------------------

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


ITEM 29.    MANAGEMENT SERVICES
            -------------------

            Not applicable.


ITEM 30.    UNDERTAKINGS
            ------------

            Not applicable

<PAGE>

Pursuant to the  requirements  of the  Securities Act of 1933 and the Investment
Company Act of 1940, the Company has duly caused this  post-effective  amendment
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Denver,  County of  Denver,  and State of  Colorado,  on the 15th day of
November, 1999.


Attest:                                   INVESCO Bond Funds, Inc.

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

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

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

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

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

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

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

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



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

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

<PAGE>


                                  Exhibit Index


                                          Page in
Exhibit Number                            Registration Statement
--------------                            ----------------------

   j                                         104
   o(1)                                      105
   o(2)                                      108
   o(3)                                      112
   o(4)                                      116