ANNUAL REPORT
June 30, 1996
INVESCO
TAX-FREE
INCOME
FUNDS,
INC.
Tax-Free Intermediate Bond Fund
Tax-Free Long-Term Bond Fund
Two Smart Choices
For Seeking Tax-Exempt Income
INVESCO FUNDS
<PAGE>
Economic Overview July 1996
Graph: Gross Domestic Product
Quarterly Growth Rate (Annualized)
This bar graph illustrates the annualized quarterly growth rate for the
Gross Domestic Product, for the period from the first quarter of 1992
through the second quarter of 1996.
The U.S. economy has strengthened in recent months. There had been a sharp
drop-off in the Gross Domestic Product growth rate during the last quarter of
1995. The Federal Reserve Board helped kick-start the expansion by cutting
short-term interest rates twice in the winter of 1995-1996. Since then,
statistics for factory orders, inventories, housing sales, and U.S. exports all
point to renewed vigor.
First quarter 1996 growth in GDP was estimated at an annualized rate of
2.2%. During the second quarter, the economy picked up speed; GDP expanded by
4.2%. According to the Bureau of Labor Statistics, about 230,000 new jobs were
created in June 1996. With unemployment running at a relatively modest 5.3%,
inflation is considered a threat by many economists. Hence, there is the
possibility that the central bank will tighten credit by raising short-term
interest rates, in the event the economy does appear to be overheating.
Given this potential for higher rates, securities investors have pulled
back slightly, leading to intensified volatility in the securities markets. The
S&P 500 had advanced by 9.60% for the five months ended 5/31/96, only to turn in
a flat performance in June. Bond prices dropped throughout the first six months
of 1996 in response to the overall uncertainty. For the six months ended
6/30/96, the Lehman Government/Corporate Bond Index had a total return of
- -1.88%.(1,2)
On a relative basis, tax-exempt securities have outperformed Treasuries
and corporate obligations in 1996. But this superiority reflected an imbalance
in supply and demand, due to a slowdown in the number of new issues of municipal
bonds, rather than greater inherent price strength on the part of the
tax-exempts.
INVESCO Tax-Free Income Funds, Inc.
The line graphs on the following pages illustrate the value of a $10,000
investment, plus reinvested dividends and capital gain distributions, in
Tax-Free Long-Term Bond Fund for the 10-year period ended 6/30/96, and in
Tax-Free Intermediate Bond Fund for the period from inception through 6/30/96.
At the end of these respective periods, the Tax-Free Long-Term Bond Fund
account would have had a value of $21,555 and Tax-Free Intermediate Bond Fund,
$10,861. The chart and other total return figures cited reflect the funds'
operating expenses, but the indexes do not have expenses, which would, of
course, have lowered their performance. (Past performance is not a guarantee of
future results.)(1,2)
<PAGE>
Strategic Overview
Of Municipal Investments
Over the past 12 months, the fixed-income markets experienced two distinct
phases. The first began in 1995 with a bond rally that ran through January 1996.
Price advances were fueled by moderate economic growth and low inflation. For
all of 1995, the broad fixed-income market had a total return of 19.24%, as
measured by the Lehman Government/Corporate Bond Index.(1,2)
Tax-exempt securities also performed well last year, despite fears that
Congress might mandate a "flat tax" (which would have deprived municipals of
their federally tax-free investment edge); for the 12-month period ended
12/31/95, the Lehman Municipal Bond Index achieved a total return of 17.46%. At
the same time, the supply of municipal bonds increased through refunding of
various projects: Just as many home mortgage-holders did, cities, counties and
states reacted to declining interest rates by replacing outstanding debt with
lower-yielding obligations.
The second market phase was initiated in February of this year. The
environment shifted to one of stronger economic growth, with the concomitant
potential for upward spirals in wages and prices. Fixed- income investors
responded to the positive economic news by sending prices tumbling.
As of mid-summer, signs of accelerating inflation were largely confined to
some upward pressure on wages. Nonetheless, since 1994 the Federal Reserve Board
has actively manipulated short-term rates, seeking to maintain economic
expansion without sparking inflation. This strategy is unlikely to alter in the
near-term, given an impending presidential election and the recent reappointment
of Alan Greenspan as Fed chairman.
In managing INVESCO Tax-Free Long-Term Bond Fund and INVESCO Tax-Free
Intermediate Bond Fund, our strategy focuses on interest rate risk management.
During the 1995 market advance, we restructured both portfolios to take
advantage of the generally positive market environment.
Tax-Free Long-Term Bond Fund
Average Annual Total Return
as of 6/30/96(1)
1 year 7.01%
-----------------------------------
5 years 7.35%
-----------------------------------
10 years 7.98%
-----------------------------------
Among other key steps, we lengthened bond duration. Duration is an
expression of a bond's volatility -- generally speaking, longer duration
reflects greater market risk. However, as interest rates declined last year,
bond prices concurrently rose, and the funds' holdings appreciated in value. (Of
course, past performance is not a guarantee of future results.)
<PAGE>
With evidence of a reviving economic expansion in February
1996, the market cycle shifted and interest rates began to rise. In
response to this change, we began to shorten duration.
As this report was written, we had taken a neutral stance on interest
rates. Our goal is to maintain flexibility so that we may react promptly to the
key variables -- data on the leading economic indicators, potential action by
the Fed, a shift in market sentiment, and other factors.
Graph:
This line graph represents a comparison of the value of a $10,000
investment in the INVESCO Tax-Free Long-Term Bond Fund to the value of a
$10,000 investment in the Lehman Municipal Bond Index, assuming in each
case reinvestment of all dividends and capital gain distributions, for the
ten year period ended 6/30/96.
Graph: Geographical Diversification
by market value as of 6/30/96
This map of the United States is divided by region to show the
geographical diversification of the issuers of securities in the Tax-Free
Long-Term Bond Fund portfolio. West - 18% Midwest - 37% Northeast - 20%
South Central - 13% Southeast - 10% Net Cash - 2% Composition of holdings
is subject to change.
INVESCO Tax-Free Long-Term Bond Fund
For the one-year period ended 6/30/96, Lipper Analytical Services ranked
INVESCO Tax-Free Long-Term Bond Fund #19 of 229 general municipal debt funds,
based on total return performance unadjusted for commissions. For the five-year
period, the fund was ranked #53 of 101 funds, and for the 10-year period, #15 of
60.(1,3)
For the one-year period ended 6/30/96, the fund achieved a total return of
7.01%. During the same period, the Lehman Municipal Bond Index had a total
return of 4.66%.(1,2)
As the map above shows, the fund remains well-diversified geographically.
We should note that holdings are of generally high quality. This bias reflects
the present narrow spread between investment grade quality and high yield
municipals; in our opinion, the additional risk of "junk bonds" cannot be
justified by the incremental yield advantage.
Additional factors we normally consider in reviewing fund holdings include
strong price/performance characteristics -- for instance, call protection.
INVESCO Tax-Free Intermediate Bond Fund
For the one-year period ended 6/30/96, Lipper Analytical Services ranked
INVESCO Tax-Free Intermediate Bond Fund #60 of 137 intermediate municipal debt
funds, based on total return performance unadjusted for commissions.(1,3)
<PAGE>
Tax-Free Intermediate Bond Fund
Average Annual Total Return
as of 6/30/96(1)
1 year 4.89%
-----------------------------------
Since Inception (12/93) 3.25%
-----------------------------------
For the one-year period ended 6/30/96, the fund achieved a total return of
4.89%. During the same period, the Lehman Intermediate Municipal Bond Index also
had a total return of 4.89%.(1,2)
Reflecting the fund's focus on stability of principal, it typically
maintains a shorter portfolio duration than Tax-Free Long- Term Bond Fund. While
a shorter duration results in lower yields under normal market conditions,
short-term volatility is effectively reduced.
At the end of the fiscal year, over 80% of assets were invested in bonds
with a quality rating of A or better. This allocation reflects somewhat more
emphasis on lower quality credit issues than seen in the long-term fund's
portfolio.
However, given the inherently lower volatility represented by Tax-Free
Intermediate Bond Fund's duration levels, we consider this modest additional
risk justified in seeking higher yields for shareholders.
Graph: Geographical Diversification
by market value as of 6/30/96
This map of the United States is divided by region to show the
geographical diversification of the issuers of securities in the Tax-Free
Intermediate Bond Fund portfolio. West - 35% Midwest - 13% Northeast - 24%
South Central - 9% Southeast - 9% Puerto Rico - 7% Net Cash - 3%
Composition of holdings is subject to change.
Graph:
This line graph represents a comparison of the value of a $10,000
investment in INVESCO Tax-Free Intermediate Bond Fund to the value of a
$10,000 investment in the Lehman Intermediate Municipal Bond Index,
assuming in each case reinvestment of all dividends and capital gain
distributions, for the period from inception (12/1/93) through 6/30/96.
Fund Management
INVESCO Tax-Free Income Funds have been managed by INVESCO Vice President
James S. Grabovac since 1995. An industry veteran with 14 years of investment
experience, he earned an MBA from the University of Michigan and a BA from
Lawrence University. He is a Chartered Financial Analyst. Previously, Jim was a
portfolio manager for Stein, Roe & Farnham Inc.
<PAGE>
(1) Total return assumes reinvestment of dividends and capital gain
distributions for the periods indicated. Past performance is not a
guarantee of future results. Investment return and principal value will
fluctuate so that, when redeemed, an investor's shares may be worth more
or less than when purchased.
(2) The Lehman Government/Corporate Bond Index is an unmanaged index
reflecting the performance of the broad fixed-income market. The Lehman
Municipal Bond Index and Intermediate Municipal Bond Index are unmanaged
indexes indicative of the broad tax-exempt bond market. The S&P 500 is an
unmanaged index of common stocks illustrating broad market performance.
(3) Ratings by Lipper, an independent fund analyst, are provided for one-,
five-, and 10-year periods, except for funds introduced more recently.
Past performance is not a guarantee of future results.
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Statement of Investment Securities
June 30, 1996
<TABLE>
<CAPTION>
Principal
Description Amount Cost Value
- ----------------------------------------------------------------------------------------------
TAX-FREE INTERMEDIATE BOND Fund
<S> <C> <C> <C>
MUNICIPAL BONDS 86.61%
ALASKA 7.97%
Alaska Indl Dev & Export Auth,
Ref Revolving Fund, Series 1994A,
Lots 1-29, 5.700%, 4/1/2004 $200,000 $200,000 $204,500
Municipality of Anchorage, Alaska,
Gen Oblig Ref, Gen Purpose,
1993 Series B, 4.900%, 8/1/2003 25,000 25,000 24,812
Municipality of Anchorage, Alaska,
Port Rev Ref, 1995, 6.000%, 2/1/2004 150,000 159,239 157,500
-------------------------
384,239 386,812
-------------------------
ARIZONA 2.08%
Pinal Cnty, Arizona (Mammoth-San
Manuel Unified School Dist #8), Ref,
Series 1994, 6.000%, 7/1/2001 100,000 100,000 100,875
-------------------------
COLORADO 7.34%
Arapahoe Cnty Pub Hwy Auth, Colorado
(E-470 Proj), Cap Impt Trust Fund,
Hwy Rev, Veh Regn Fee, 5.300%,
8/31/2006 200,000 200,000 201,250
Montrose Cnty Bldg Auth, Colorado,
Ctfs of Participation, 6.350%,
6/15/2006 150,000 148,500 154,875
-------------------------
348,500 356,125
DISTRICT OF COLUMBIA 0.48%
District of Columbia, Gen Oblig Ref,
Series 1994A, 5.200%, 6/1/2003 25,000 24,815 23,250
-------------------------
FLORIDA 1.57%
Miami Beach Redev Agency, Florida
(City Ctr/Historic Convention Village),
Tax Increment Rev, Series 1993, 5.100%,
12/1/2003 80,000 80,000 76,400
-------------------------
GEORGIA 0.60%
Muni Elec Auth of Georgia, Pwr Rev,
Series CC, 4.500%, 1/1/2002 30,000 29,840 29,062
-------------------------
GUAM 0.60%
Guam Pwr Auth, Rev, 1993 Series A,
5.200%, 10/1/2004 30,000 29,700 28,913
-------------------------
<PAGE>
ILLINOIS 4.19%
Illinois, Gen Oblig, Series 1995,
5.125%, 12/1/2005 125,000 127,073 124,375
Illinois Hsg Dev Auth, Hsg Dev Rev,
1993 Series A, 5.000%, 1/1/2001 20,000 20,154 19,625
Illinois Toll Hwy Auth, Toll Hwy Ref
Rev, 1993 Series A, 4.700%, 1/1/2001 60,000 60,541 59,550
-------------------------
207,768 203,550
-------------------------
LOUISIANA 4.30%
Louisiana Pub Facils Auth, Student
Ln Rev, Series 1992A-1, 6.200%,
3/1/2001 200,000 203,417 208,750
-------------------------
MASSACHUSETTS 0.44%
Massachusetts Muni Wholesale Elec,
Pwr Supply System Rev, 1992 Series B,
6.375%, 7/1/2001 20,000 21,152 21,125
-------------------------
NEVADA 2.96%
Nevada Hsg Div (Single Family Prog),
Sr Rev, 1994 Issue B-1, 5.900%,
4/1/2003 140,000 140,000 143,675
-------------------------
NEW HAMPSHIRE 4.62%
New Hampshire Hsg Fin Auth, Single
Family Residential Mtg, 1994 Series D,
5.850%, 1/1/2001 220,000 220,000 224,400
-------------------------
NEW YORK 4.35%
New York Muni Assistance, New York,
Rev, 1991 Gen Resolution Series E,
6.000%, 7/1/2003 200,000 213,695 211,250
-------------------------
OHIO 1.01%
Ohio Bldg Auth, State Correctional
Facils, Ref, 1994 Series A, 4.600%,
10/1/2003 50,000 49,671 48,750
-------------------------
OREGON 0.51%
Oregon Hsg & Cmnty Svcs Dept (Single
Family Mtg Prog), Mtg Rev,
1993 Series A, 4.500%, 7/1/2001 25,000 24,875 24,687
-------------------------
PENNSYLVANIA 12.31%
Philadelphia, Pennsylvania, Gas Wks
Rev, Fifteenth Series-Sub Series 3,
5.100%, 8/1/2004 175,000 164,726 168,438
5.000%, 8/1/2003 65,000 64,756 62,806
Philadelphia, Pennsylvania, Wtr &
Wastewtr Rev, Series 1995, 6.750%,
8/1/2005 150,000 164,758 166,875
<PAGE>
Philadelphia Hosps & Higher Ed Facils
Auth, Pennsylvania (Northwestern Corp),
Rev, 1994 Series, 6.500%, 6/1/2004 200,000 198,546 199,500
-------------------------
592,786 597,619
-------------------------
PUERTO RICO 6.81%
Commonwealth of Puerto Rico, Gen Oblig,
Pub Impt Ref, Series 1995,
6.500%, 7/1/2003 150,000 162,338 165,000
Puerto Rico Elec Pwr Auth, Pwr Rev Ref,
Series W, 6.500%, 7/1/2006 150,000 164,751 165,563
-------------------------
327,089 330,563
-------------------------
SOUTH DAKOTA 6.51%
Sioux Falls, South Dakota, Sales Tax Rev,
Series 1991B, 6.300%, 11/15/2001 60,000 64,558 63,975
South Dakota, Student Ln Fin & Rev,
Series 1994-A, 5.850%, 8/1/2000 250,000 250,000 252,187
-------------------------
314,558 316,162
-------------------------
TENNESSEE 0.41%
Knoxville, Tennessee, Wtr Rev Ref & Impt,
Series M-1993, 4.500%, 3/1/1999 20,000 20,093 20,025
-------------------------
TEXAS 0.51%
Trinity River Indl Dev Auth, Texas
(Intl Paper Proj), Rev Ref, 1993 Series,
4.900%, 12/1/2002 25,000 24,813 24,625
-------------------------
VIRGINIA 3.01%
Rivanna Wtr & Swr Auth, Virginia,
Regl Wtr & Swr System Rev Ref,
Series of 1993, 4.500%, 10/1/2000 50,000 50,470 49,750
Southeastern Pub Svc Auth, Virginia,
Regl Solid Waste System, Sr Rev Ref,
Series 1993A, 5.150%, 7/1/2009 100,000 96,711 96,125
-------------------------
147,181 145,875
-------------------------
WASHINGTON 12.75%
Clark Cnty, Washington (Pub Util Dist #1),
Generating System Rev,
Series 1995, 6.000%, 1/1/2006 200,000 213,197 210,000
Tacoma, Washington, Swr Rev, 1995
Series B, 5.500%, 12/1/2011 200,000 196,806 194,750
Washington Pub Pwr Supply System,
Ref Elec Rev, Nuclear Proj #1,
Series 1993-1A, 5.100%, 7/1/2000 20,000 20,246 19,975
Nuclear Proj #3, Series 1993-3A,
4.900%, 7/1/2004 135,000 129,303 129,769
Wenatchee, Washington, Wtr & Swr
Rev Ref, 1994, 4.600%, 12/1/2002 65,000 65,000 64,350
-------------------------
624,552 618,844
-------------------------
<PAGE>
WISCONSIN 1.28%
Saint Croix Cnty, Wisconsin, Gen Oblig
Govt Ctr Ref, Series 1994A,
4.650%, 10/1/2003 65,000 65,000 62,319
-------------------------
TOTAL MUNICIPAL BONDS 4,193,744 4,203,656
-------------------------
SHORT-TERM INVESTMENTS - MUNICIPAL
NOTES 13.39%
DELAWARE 4.12%
Wilmington, Delaware (Franciscan Hlth
System/Saint Francis Hosp), DATES,
Hosp Rev, 1986 Series A, 3.650%,
7/1/2011~ 200,000 200,000 200,000
-------------------------
LOUISIANA 4.12%
Louisiana Recovery Dist, VR, Sales
Tax Rev, Series 1988, 3.650%, 7/1/1998~ 200,000 200,000 200,000
-------------------------
NEW YORK 3.09%
Saint Lawrence Cnty Indl Dev Agency,
New York (Reynolds Metals), DATES, PCR,
Series 1985, 3.600%, 12/1/2007~ 150,000 150,000 150,000
-------------------------
WASHINGTON 2.06%
Washington Hlth Care Facils Auth
(Sisters of Providence), VRD, Rev,
Series 1985B, 3.550%, 10/1/2005~ 100,000 100,000 100,000
-------------------------
TOTAL MUNICIPAL SHORT-TERM NOTES 650,000 650,000
-------------------------
TOTAL INVESTMENT SECURITIES 100.00% 4,843,744# 4,853,656
-------------------------
TAX-FREE LONG-TERM BOND Fund
MUNICIPAL BONDS 79.22%
ALASKA 0.27%
Alaska Hsg Fin
(Veterans Mtg Prog),
Collateralized Gen Oblig, 1990
First Series, 7.500%, 12/1/2030 650,000 647,562 671,937
-------------------------
ARIZONA 0.43%
Arizona Edl Ln Mktng, 1992 Edl Ln Rev,
Series B, 7.000%, 3/1/2005 1,000,000 988,750 1,063,750
-------------------------
CALIFORNIA 1.69%
Alameda & Contra Costa Cntys East Bay
Muni Util Dist, California, Wtr Sys
Sub Rev Ref, Series 1996, 4.750%,
6/1/2021 5,000,000 4,198,565 4,212,500
-------------------------
COLORADO 0.56%
Fountain Valley Auth, Colorado,
Wtr Treatment Ref Rev, Series 1991,
6.800%, 12/1/2019 1,140,000 1,166,019 1,234,050
Montrose Cnty Bldg Auth, Colorado,
Ctfs of Participation, 6.350%,
6/15/2006 150,000 148,500 154,875
-------------------------
1,314,519 1,388,925
-------------------------
<PAGE>
FLORIDA 0.22%
Greater Orlando Aviation Auth, Florida,
Airport Facils Rev, Series 1988,
8.375%, 10/1/2016 490,000 88,666 540,837
-------------------------
GEORGIA 3.20%
Atlanta, Georgia, Airport Facils Rev,
Series 1990, 7.250%, 1/1/2017 2,000,000 2,051,180 2,150,000
Atlanta, Georgia (Delta Air Lines
Proj), Special Purpose Facils Rev,
Series 1989B, 7.900%, 12/1/2018 2,500,000 2,550,400 2,650,000
7.400%, 12/1/1999 3,000,000 3,077,178 3,168,750
-------------------------
7,678,758 7,968,750
-------------------------
ILLINOIS 17.76%
Chicago, Illinois, Gen Oblig,
Proj & Ref, Series 1995A-1, 5.125%,
1/1/2025 5,000,000 4,256,157 4,375,000
Series B, 5.125%, 1/1/2022 2,465,000 2,125,046 2,200,012
Series B, 5.125%, 1/1/2025 3,000,000 2,585,429 2,625,000
10,000,000 8,630,415 8,775,000
Chicago, Illinois (Chicago-O'Hare
Intl Airport), Gen Airport Rev,
1990 Series A, 7.500%, 1/1/2016 3,000,000 2,880,000 3,236,250
Chicago, Illinois (Peoples Gas Light
& Coke), 1st & Ref Mtg, Series CC,
Medium Term Notes, 6.875%, 3/1/2015 2,875,000 2,971,827 3,097,812
Cook & DuPage Cntys, Illinois
(Lemont-Bromberek Combined School
Dist #113A), School Bldg, Series
1995B, Cap Appreciation, 12/1/2015 5,060,000 1,683,102 1,555,950
Illinois, Gen Oblig, Series 1995,
5.250%, 12/1/2020 1,500,000 1,357,004 1,350,000
-------------------------
8,000,000 7,226,844 7,370,000
-------------------------
Illinois Dev Fin Auth (Catholic
Charities), Hsg Dev Rev, 6.350%,
1/1/2025 1,500,000 1,470,780 1,451,250
Illinois Hlth Facils Auth
(Northwestern Mem Hosp), Rev,
Series 1991,
5,000,000 4,950,000 5,306,250
Metro Pier & Exposition Auth, Illinois
(McCormick Pl Expansion Proj),
Rev Ref, Series 1994A, Cap Appreciation,
6/15/2025 1,200,000 223,646 204,000
6/15/2026 1,500,000 263,789 238,125
6/15/2027 1,000,000 165,948 150,000
Univ of Illinois Brd of Trustees,
Illinois, Auxiliary Facils System
Rev, Series 1991, Cap Appreciation,
4/1/2012 5,795,000 2,332,521 2,281,781
-------------------------
43,122,508 44,216,430
-------------------------
<PAGE>
INDIANA 11.51%
Dekalb Cnty Redev Auth, Indiana
(Mini-Mill Loc Pub Impt Proj), Rev,
Series A 1995, 6.500%, 1/15/2014 900,000 852,131 929,250
Indiana Bond Bank (State Revolving
Fund Prog), State Match Rev,
Series 1993A, 4,500,000 4,220,181 4,511,250
Indiana Transn Fin Auth, Airport
Facils Lease Rev, Series A,
6.750%, 11/1/2011 1,500,000 1,479,940 1,563,750
Indiana Transn Fin Auth, Hwy Rev,
Series 1993A, Cap Appreciation,
12/1/2017 3,000,000 898,638 825,000
Indianapolis Airport Auth, Indiana,
Rev, 1988, 8.400%, 7/1/2008 2,000,000 2,079,784 2,162,500
Indianapolis Airport Auth, Indiana
(United Air Lines/Indianapolis
Maintenance Ctr Proj), Special Facil
Rev, Series 1995A, 6.500%, 11/15/2031 2,750,000 2,646,875 2,688,125
Indianapolis Local Pub Impt Bond Bank,
Indiana, Impt Rev, Series 1991C,
6.700%, 1/1/2017 3,750,000 3,578,437 4,129,687
Petersburg, Indiana (Indianapolis Pwr &
Light Proj), PCR Ref, Series 1993B,
5.400%, 8/1/2017 9,850,000 9,180,693 9,332,875
Princeton, Indiana (PSI Energy Proj),
PCR, 1979 Series, 6.625%, 3/1/2004 2,500,000 2,071,220 2,508,575
-------------------------
27,007,899 28,651,012
-------------------------
LOUISIANA 2.11%
Louisiana, Gen Oblig Ref, Series A,
6.000%, 8/1/2002 5,000,000 5,285,928 5,262,500
-------------------------
MASSACHUSETTS 3.16%
Massachusetts Bay Transn Auth, Gen
Transn System, 1995 Series A,
5.600%, 3/1/2008 3,000,000 2,986,170 3,052,500
Massachusetts Hlth & Ed Facils Auth
(Williams College), Rev, Series F,
5.500%, 7/1/2026 3,325,000 3,090,421 3,167,062
Massachusetts Wtr Resources Auth, Gen
Rev, 1995 Series B, 4.750%, 12/1/2021 2,000,000 1,847,262 1,660,000
-------------------------
7,923,853 7,879,562
-------------------------
MICHIGAN 5.66%
Battle Creek Tax Increment Fin Auth,
Michigan, Rev, 1994 Dev, 7.300%,
5/1/2010 1,195,000 1,193,068 1,318,981
Ingham Cnty, Michigan (Okemos Pub
Schools), Gen Oblig Unlimited Tax
Ref, 1993, Cap Appreciation,
5/1/2014 1,625,000 600,191 562,656
5/1/2015 1,000,000 349,279 323,750
5/1/2016 3,500,000 1,156,032 1,067,500
<PAGE>
Michigan, State Trunk Line Fund, Rev,
Series 1992A, Cap Appreciation,
10/1/2012 4,635,000 1,753,131 1,778,681
Michigan Underground Storage Tank Finl
Assurn Auth, 1996 Rev Ref, Series I, 4,500,000 4,719,065 4,747,500
6.000%, 5/1/2006 3,500,000 3,657,971 3,696,875
Wayne Cnty, Michigan (Romulus Cmnty
Schools), Gen Oblig Unlimited Tax Ref,
1993, Cap Appreciation, 5/1/2018 2,150,000 639,467 588,562
-------------------------
14,068,204 14,084,505
-------------------------
MISSISSIPPI 0.33%
Claiborne Cnty, Mississippi (System
Energy Resources Proj), A/FR, PCR,
Series A, 9.500%, 12/1/2013 750,000 750,000 832,500
-------------------------
NEW HAMPSHIRE 0.41%
New Hampshire Hsg Fin Auth, Single
Family Residential Mtg, 1994 Series D,
6.850%, 7/1/2006 970,000 970,000 1,011,225
-------------------------
NEW MEXICO 0.78%
Bernalillo Cnty, New Mexico, Gross
Rcpts Tax Rev, Series A, 5.750%,
4/1/2026 2,000,000 1,922,760 1,950,000
-------------------------
NEW YORK 9.47%
New York, New York (AMBAC Proj), Gen
Oblig, Series B, 7.250%, 8/15/2007 2,500,000 2,827,191 2,881,250
New York Dorm Auth (State Univ Dorm
Facils Issue), Lease Rev,
Series 1995A, 6.000%, 7/1/2010 1,550,000 1,648,588 1,619,750
New York Muni Assistance, New York,
Sales Tax Rev, Series E,
6.000%, 7/1/2006 3,000,000 3,208,481 3,176,250
4.800%, 7/1/2003 3,910,000 3,902,727 3,875,787
Port Auth of New York & New Jersey,
Consolidated Gen Oblig, Rev, 5,250,000 5,470,048 5,400,938
One Hundred Fourth Series, 4.750%,
1/15/2026 2,500,000 2,085,376 2,081,250
Triborough Bridge & Tunnel Auth,
New York, Gen Purpose Rev,
Series 1993B, 5.000%, 1/1/2020 1,935,000 1,762,475 1,724,569
Series Y, 5.500%, 1/1/2017 2,900,000 2,778,339 2,831,125
-------------------------
23,683,225 23,590,919
-------------------------
PENNSYLVANIA 3.28%
Allegheny Cnty Indl Dev Auth,
Pennsylvania (FHA Insured
Mtg-Baldwin Hlth Ctr),
Specialized Enterprise Rev, Series
1986, 8.350%, 2/1/2016 630,000 650,257 643,652
<PAGE>
Montgomery Cnty Higher Ed & Hlth Auth,
Pennsylvania (Northwestern Corp), Rev,
1994 Series,
7.125%, 6/1/2018 2,050,000 2,020,993 2,044,875
7.000%, 6/1/2012 700,000 691,180 693,875
Philadelphia, Pennsylvania, Wtr &
Wastewtr Rev, Series 1995, 6.250%,
8/1/2012 2,050,000 2,160,053 2,180,688
Philadelphia Hosps & Higher Ed Facils
Auth, Pennsylvania (Northwestern
Corp), Rev, 1994 Series,
7.000%, 6/1/2012 1,530,000 1,510,722 1,530,000
6.500%, 6/1/2004 1,080,000 1,072,148 1,077,300
-------------------------
8,105,353 8,170,390
-------------------------
RHODE ISLAND 1.45%
Rhode Island Depositors Econ
Protection, Special Oblig Ref,
1992 Series A, 6.950%, 8/1/2022 1,500,000 1,500,000 1,681,875
1993 Series A, 5.750%, 8/1/2012 2,000,000 1,907,412 1,935,000
-------------------------
3,407,412 3,616,875
-------------------------
SOUTH CAROLINA 3.09%
Greenville Cnty, South Carolina
(Greenville Hosp System-Brd of
Trustees), Hosp Rev, S 5,000,000 4,427,184 4,487,500
South Carolina School Fing (School
District #2 of Sumter Cnty Proj),
Ctfs of Participation, Series 1990A,
8.125%, 4/1/2010 3,000,000 3,221,400 3,213,750
-------------------------
7,648,584 7,701,250
-------------------------
TEXAS 4.51%
Austin, Texas, Combined Util Systems,
Rev Ref, Cap Appreciation, Series 1992,
11/15/2009 5,020,000 2,431,672 2,346,850
11/15/2011 1,400,000 618,216 575,750
Austin, Texas, Wtr, Swr & Elec Ref Rev,
Series 1982, 14.000%, 11/15/2001 500,000 499,063 650,701
Dallas-Fort Worth Intl Airport Facil
Impt, Texas (Delta Air Lines),
Rev Ref, Series 1993, 6.250%,
11/1/2013 1,375,000 1,375,000 1,366,406
Texas Muni Pwr Agency, Ref Rev,
Series 1989, Cap Appreciation,
9/1/2010 6,650,000 2,848,572 2,950,938
Travis Cnty Hlth Facils Dev, Texas
(Daughters of Charity Natl Hlth
System), Hosp
Rev, Series 1995, 5.000%, 11/1/2020 3,850,000 3,222,822 3,335,063
-------------------------
10,995,345 11,225,708
-------------------------
<PAGE>
UTAH 0.80%
Utah Hsg Fin Agency (Federally Insured
or Gtd Mtg Lns), Single Family Mtg,
1994 Issue D-1 Term Mezzanine,
6.450%, 7/1/2011 1,940,000 1,940,000 1,989,638
-------------------------
VERMONT 0.42%
Vermont Hsg Fin Agency, Single Family
Hsg Rev, Series 5, 6.875%, 11/1/2016 1,000,000 1,000,000 1,035,000
-------------------------
VIRGINIA 0.66%
Upper Occoquan Sewage Auth, Virginia,
Regl Sewerage System Rev,
Series 1995A, 4.750%, 7/1/2029 2,000,000 1,660,134 1,650,000
-------------------------
WASHINGTON 7.45%
Grant Cnty Pub Util Dist #2,
Washington, Hydro-Elec Dev Rev,
Second Series 1990, 3,000,000 2,985,000 3,225,000
(Wanapum), 7.700%, 1/1/2018 1,050,000 1,036,875 1,135,313
Univ of Washington, Washington, Hsg &
Dining System Rev Ref, Jr Lien
Series 1996,
5.000%, 12/1/2021 1,790,000 1,683,746 1,566,250
Vancouver, Washington, Wtr & Swr Rev,
Series 1993, 5.500%, 6/1/2013 1,955,000 1,943,153 1,871,913
Washington, Gen Oblig, Motor Vehicle
Fuel Tax Rev, Series 1993B, 5,205,000 5,056,882 5,016,319
Washington Pub Pwr Supply System,
Ref Elec Rev, Nuclear Proj #2,
Series 1990B, 7.000%, 7/1/2012 2,800,000 2,834,577 2,996,000
Nuclear Proj #3, Series 1990B,
7.250%, 7/1/2015 2,500,000 2,524,933 2,746,875
-------------------------
18,065,166 18,557,670
-------------------------
TOTAL MUNICIPAL BONDS 192,873,191 197,271,883
-------------------------
SHORT-TERM INVESTMENTS -
MUNICIPAL NOTES 20.78%
ALABAMA 0.80%
Huntsville Hlth Care Auth, Alabama,
VR, Hlth Care Facils Rev, Series
1994-B, 3.300%, 6/1/2024~ 2,000,000 2,000,000 2,000,000
-------------------------
ARIZONA 0.88%
Maricopa Cnty Ind Dev Auth, Arizona
(Samaritan Hlth Svc Hosp System), VRD,
Rev Ref, Series 1985B-2, 3.550%,
12/1/2008~ 2,200,000 2,200,000 2,200,000
-------------------------
<PAGE>
CALIFORNIA 0.32%
Los Angeles Regl Airports Impt Auth,
California (American Airlines/Los Angeles
Intl Airport Proj), FR, Corp Lease Rev,
Series B, 3.650%, 12/1/2024~ 800,000 800,000 800,000
-------------------------
COLORADO 3.13%
Colorado Hlth Facils Auth, Hosp Rev,
(North Colorado Med Cntr), VRD,
Series 1990, 3.250%, 5/15/2020~ 1,200,000 1,200,000 1,200,000
(Sisters of Charity Hlth Care Systems),
VR, Series 1995, 3.250%, 5/15/2025~ 3,000,000 3,000,000 3,000,000
Colorado Student Oblig Auth, A/FR,
Student Ln Rev, Series 1989A,
3.400%, 3/1/2024~ 2,400,000 2,400,000 2,400,000
Series 1993C-2, 3.300%, 9/1/2002~ 1,200,000 1,200,000 1,200,000
-------------------------
7,800,000 7,800,000
-------------------------
FLORIDA 0.67%
Broward Cnty Indian Trace Cmnty Dev
Dist, Florida, UPDATES, Basin I Wtr Mgmt
Special Benefit, Series 1991A, 3.300%,
11/1/1999~ 1,670,000 1,670,000 1,670,000
-------------------------
GEORGIA 0.92%
Burke Cnty Dev Auth, Georgia
(Oglethorpe Pwr Vogtle Proj), ATS,
PCR, Series 1994A, 3.300%, 1/1/2019~ 2,300,000 2,300,000 2,300,000
-------------------------
KANSAS 0.40%
Burlington, Kansas (Kansas City Pwr
& Light Proj), TECP, Customized Purchase
PCR Ref, 3.250%, 7/8/1996 1,000,000 1,000,000 1,000,000
-------------------------
KENTUCKY 0.40%
Ashland, Kentucky (Ashland Oil Proj),
A/FR, 7&7 PCR Ref, Series 1985, 3.150%,
4/1/2009~ 1,000,000 1,000,000 1,000,000
-------------------------
LOUISIANA 2.89%
DeSoto Parish, Louisiana (Cent
Louisiana Elec Proj), ATS, PCR Ref,
Series 1991B, 3.250%, 7/1/2018~ 1,900,000 1,900,000 1,900,000
East Baton Rouge Parish, Louisiana
(Georgia-Pacific Proj), A/FR, 7&7 PCR,
Series 1984, 3.250%, 10/1/1999~ 500,000 500,000 500,000
Louisiana Offshore Terminal Auth
(Deepwtr Port Loop-1st Stage), ACES,
Rev Ref, 3.550%, 9/1/2006~ 1,800,000 1,800,000 1,800,000
Louisiana Pub Facils Auth (School Hlth
Care System), TECP, Rev, 3.350%,
7/9/1996 3,000,000 3,000,000 3,000,000
-------------------------
7,200,000 7,200,000
-------------------------
<PAGE>
MASSACHUSETTS 1.21%
Massachusetts Hlth & Ed Facils Auth
(Cap Asset Prog), VRD, Rev, Series G-1,
3.000%, 1/1/2019~ 3,000,000 3,000,000 3,000,000
-------------------------
MICHIGAN 0.40%
Delta Cnty Econ Dev, Michigan, Env
Impt Rev Ref,
(Mead-Escanaba Paper Proj), ATS,
Series C, 3.600%, 12/1/2023~ 500,000 500,000 500,000
(Mead-Escanaba Paper Proj), VR,
Series 1992, 3.650%, 12/1/2023~ 500,000 500,000 500,000
-------------------------
1,000,000 1,000,000
-------------------------
MISSISSIPPI 1.37%
Jackson Cnty, Mississippi (Chevron
USA Proj), AR, PCR Ref, Series 1993,
3.500%, 6/1/2023~ 600,000 600,000 600,000
Perry Cnty, Mississippi (Leaf River
Forest Prods Proj), VR, PCR Ref,
3.550%, 3/1/2002~ 2,800,000 2,800,000 2,800,000
-------------------------
3,400,000 3,400,000
-------------------------
MISSOURI 0.60%
Missouri Hlth & Ed Facils Auth
(Christian Hlth Svcs Dev-Christian
Hosp Northeast-Northwest), F/FR, Rev,
Series 1989A, 3.250%, 11/1/2019~ 1,500,000 1,500,000 1,500,000
-------------------------
NEBRASKA 0.79%
Buffalo Cnty Hosp Auth #1, Nebraska
(Sisters of Charity-Richard H. Young
Mem Hosp Proj), ATS, Rev, Series
1988A, 3.200%, 5/1/2018~ 1,970,000 1,970,000 1,970,000
-------------------------
NEW YORK 1.17%
New York Muni Wtr Fin Auth, New York,
AR, Wtr & Swr Syst Rev,
1994 Series C, 3.600%, 6/15/2022~ 1,300,000 1,300,000 1,300,000
1994 Series C, 3.600%, 6/15/2023~ 600,000 600,000 600,000
Series G, 3.550%, 6/15/2024~ 1,000,000 1,000,000 1,000,000
-------------------------
2,900,000 2,900,000
-------------------------
NORTH CAROLINA 0.16%
North Carolina Med Care Commn (Pooled
Fing Proj), ACES, Hosp Rev,
Series 1991B, 3.600%, 10/1/2013~ 400,000 400,000 400,000
-------------------------
TENNESSEE 0.84%
Clarksville Pub Bldg Auth, Tennessee
(Tennessee Muni Bd Fund), AR, Pooled
Fing Rev, Series 1990, 3.300%,
7/1/2013~ 2,080,000 2,080,000 2,080,000
-------------------------
<PAGE>
TEXAS 1.25%
Dallas, Texas, Area Rapid Transit
Sales Tax Rev, TECP, Series A,
3.600%, 7/17/1996 1,000,000 1,000,000 1,000,000
Grapevine Indl Dev, Texas (American
Airlines Proj), VR, Multiple
Mode Rev, Series B-2, 3.650%,
12/1/2024~ 100,000 100,000 100,000
Panhandle-Plains Higher Ed Auth,
Texas, Student Ln Rev, AR,
Series 1993A, 3.400%, 6/1/2023~ 1,000,000 1,000,000 1,000,000
VR, Series 1995A, 3.400%, 6/1/2025~ 1,000,000 1,000,000 1,000,000
-------------------------
3,100,000 3,100,000
-------------------------
VIRGINIA 0.68%
Virginia Peninsula Ports Auth
(Dominion Term Proj), DATES,
Coal Term Rev Ref,
1987 Series C, 3.600%, 7/1/2016~ 700,000 700,000 700,000
1987 Series D, 3.600%, 7/1/2016~ 1,000,000 1,000,000 1,000,000
-------------------------
1,700,000 1,700,000
-------------------------
WASHINGTON 0.89%
Washington Hlth Care Facils Auth
(Sisters of Providence), VRD,
Rev, Series 1985B, 3.550%,
10/1/2005~^ 1,500,000 1,500,000 1,500,000
Washington Hsg Fin Commn
(Inglenook Court Proj), VR,
Multi Family Mtg Rev,
Series 1995, 3.850%, 7/1/2025~^ 725,000 725,000 725,000
-------------------------
2,225,000 2,225,000
-------------------------
WYOMING 1.01%
Lincoln Cnty, Wyoming, PCR,
(Exxon Proj), AR, Series 1987A,
3.700%, 7/1/2017~ 300,000 300,000 300,000
(Exxon Proj), DATES, Series 1984B,
3.600%, 11/1/2014~ 600,000 600,000 600,000
(PacifiCorp Proj), TECP, Ref, Series
1991, 3.250%, 7/8/1996 1,600,000 1,600,000 1,600,000
-------------------------
2,500,000 2,500,000
-------------------------
TOTAL MUNICIPAL SHORT-TERM NOTES 51,745,000 51,745,000
-------------------------
TOTAL INVESTMENT SECURITIES 100.00%< 244,618,191# 249,016,883
===========================
<PAGE>
<FN>
The following abbreviations may be used in portfolio descriptions:
A/FR* - Adjustable/Fixed Rate
ACES* - Adjustable Convertible Extendable Securities
AR* - Adjustable Rate
ATS* - Adjustable Tender Securities
DATES* - Daily Adjustable Tax-Exempt Securities
FR - Fixed Rate
F/FR - Floating/Fixed Rate
IDR - Industrial Development Revenue
PCR - Pollution Control Revenue
RAC - Revenue Anticipation Certificates
TEAMS* - Tax-Exempt Adjustable Mode Securities
TECP - Tax-Exempt Commercial Paper
TRAN - Tax & Revenue Anticipation Notes
UPDATES* - Unit Price Demand Tax-Exempt Securities
VR* - Variable Rate
VRD* - Variable Rate Demand
* Rate is subject to change. Rate shown reflects current rate.
~ All securities with a maturity date greater than one year have either a
variable rate, demand feature, optional or mandatory put resulting in an
effective maturity of one year or less. Rate shown reflects current rate.
< Percentages are expressed in relation to total investment value.
# Also represents cost for income tax purposes.
> Security has been designated as collateral for futures contracts.
^ Security has been designated as collateral for margin account on futures
contracts.
Tax-Free Long-Term Bond Fund Futures Contracts open June 30, 1996:
- --------------------------------------------------------------------------------
Number of Market Unrealized
Type Position Contracts Value Loss
- --------------------------------------------------------------------------------
US Treasury Bonds
(Expires September 1996) Short 400 $43,812,505 $(787,403)
See Notes to Financial Statements
</FN>
</TABLE>
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Statement of Assets and Liabilities
June 30, 1996
<TABLE>
<CAPTION>
Tax-Free Tax-Free
Intermediate Long-Term
Bond Fund Bond Fund
----------------------------------
ASSETS
<S> <C> <C>
Investment Securities:
At Cost $4,843,744 $244,618,191
==================================
At Value 4,853,656 249,016,883
Cash 74,774 96,868
Receivables:
Fund Shares Sold 849 2,445,269
Interest 81,788 3,487,416
Prepaid Expenses and Other Assets 10,510 49,658
----------------------------------
TOTAL ASSETS 5,021,577 255,096,094
----------------------------------
LIABILITIES
Payables:
Distributions to Shareholders 1,270 195,489
Investment Securities Purchased 0 1,923,079
Fund Shares Repurchased 21,921 1,261,107
Variation Margin on Futures Contracts 0 450,000
Accrued Distribution Expenses 952 358,115
Accrued Expenses and Other Payables 410 18,246
----------------------------------
TOTAL LIABILITIES 24,553 4,206,036
----------------------------------
Net Assets at Value 4,997,024 250,890,058
==================================
NET ASSETS
Paid-in Capital* 5,124,207 243,007,677
Accumulated Undistributed Net
Realized Gain (Loss) on Investment
Securities and Futures Contracts (137,095) 4,271,092
Net Appreciation of Investment
Securities and Futures Contracts 9,912 3,611,289
----------------------------------
Net Assets at Value 4,997,024 250,890,058
==================================
Shares Outstanding 512,816 16,507,045
Net Asset Value, Offering and
Redemption Price per Share 9.74 15.20
==================================
<FN>
* The Fund has 500 million authorized shares of common stock, par value of
$0.01 per share. Of such shares, 100 million have been allocated to each
individual Fund.
See Notes to Financial Statements
</FN>
</TABLE>
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Statement of Operations
Year Ended June 30, 1996
<TABLE>
<CAPTION>
Tax-Free Tax-Free
Intermediate Long-Term
Bond Fund Bond Fund
----------------------------------
INVESTMENT INCOME
<S> <C> <C>
INTEREST INCOME $276,055 $14,278,601
----------------------------------
EXPENSES
Investment Advisory Fees 26,991 1,389,027
Distribution Expenses 13,495 631,376
Transfer Agent Fees 14,234 324,030
Administrative Fees 10,810 47,882
Custodian Fees and Expenses 2,215 41,827
Directors' Fees and Expenses 8,249 21,442
Pricing Expenses 10,110 22,874
Professional Fees and Expenses 12,216 34,866
Registration Fees and Expenses 24,511 44,771
Reports to Shareholders 2,783 58,430
Other Expenses 663 17,500
----------------------------------
TOTAL EXPENSES 126,277 2,634,025
Fees and Expenses Absorbed by
Investment Adviser (85,437) (331,713)
Fees and Expenses Paid Indirectly (2,215) (29,481)
----------------------------------
NET EXPENSES 38,625 2,272,831
----------------------------------
NET INVESTMENT INCOME 237,430 12,005,770
----------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on:
Investment Securities 410 276,718
Futures Contracts 0 3,993,715
----------------------------------
Total Net Realized Gain 410 4,270,433
----------------------------------
Change in Net Appreciation
(Depreciation) of:
Investment Securities 24,371 2,252,197
Futures Contracts 0 (787,403)
----------------------------------
Total Net Appreciation 24,371 1,464,794
----------------------------------
NET GAIN ON INVESTMENT SECURITIES 24,781 5,735,227
----------------------------------
Net Increase in Net Assets
from Operations 262,211 17,740,997
==================================
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Statement of Changes in Net Assets
Year Ended June 30
<TABLE>
<CAPTION>
Tax-Free Tax-Free
Intermediate Long-Term
Bond Fund Bond Fund
---------------------------- ----------------------------
1996 1995 1996 1995
OPERATIONS
<S> <C> <C> <C> <C>
Net Investment Income $237,430 $217,051 $12,005,770 $14,194,473
Net Realized Gain (Loss) on Investment Securities
and Futures Contracts 410 (56,737) 4,270,433 4,076,999
Change in Net Appreciation (Depreciation) of
Investment Securities and Futures Contracts 24,371 136,725 1,464,794 (2,732,724)
---------------------------- ----------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS 262,211 297,039 17,740,997 15,538,748
---------------------------- ----------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (237,430) (217,051) (12,005,770) (14,194,473)
Net Realized Gain on Investment Securities 0 0 (3,155,247) (5,294,008)
---------------------------- ----------------------------
TOTAL DISTRIBUTIONS (237,430) (217,051) (15,161,017) (19,488,481)
---------------------------- ----------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 6,425,590 6,937,416 108,499,300 79,885,898
Reinvestment of Distributions 217,904 200,954 11,902,452 15,594,840
---------------------------- ----------------------------
6,643,494 7,138,370 120,401,752 95,480,738
Amounts Paid for Repurchases of Shares (6,578,315) (7,394,573) (126,675,962) (119,353,364)
---------------------------- ----------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 65,179 (256,203) (6,274,210) (23,872,626)
---------------------------- ----------------------------
Total Increase (Decrease) in Net Assets 89,960 (176,215) (3,694,230) (27,822,359)
---------------------------- ----------------------------
<PAGE>
NET ASSETS
Beginning of Period 4,907,064 5,083,279 254,584,288 282,406,647
---------------------------- ----------------------------
End of Period 4,997,024 4,907,064 250,890,058 254,584,288
============================ ============================
FUND SHARE TRANSACTIONS
Shares Sold 653,804 726,499 7,077,690 5,319,259
Shares Issued from Reinvestment
of Distributions 22,084 21,115 770,451 1,046,647
---------------------------- ----------------------------
675,888 747,614 7,848,141 6,365,906
Shares Repurchased (669,109) (775,587) (8,237,343) (7,938,397)
---------------------------- ----------------------------
Net Increase (Decrease) in Fund Shares 6,779 (27,973) (389,202) (1,572,491)
============================ ============================
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Tax-Free
Income Funds, Inc. (the "Fund"), was incorporated in Maryland and presently
consists of two separate Funds: Tax-Free Intermediate Bond Fund and Tax-Free
Long-Term Bond Fund. The investment objective of each Fund is to seek as high a
level of current income exempt from federal income taxes as is consistent with
preservation of capital. The Fund is registered under the Investment Company Act
of 1940 (the "Act") as a diversified, open-end management investment company.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
A. SECURITY VALUATION - The Fund values municipal securities (including
commitments to purchase such securities on a when-issued basis) on the
basis of prices provided by a pricing service approved by the Fund's board
of directors which, in determining values, uses information with respect
to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities. Under these procedures, municipal securities are valued based
upon market quotations, if available. Non-tax-exempt securities for which
market quotations are readily available are valued at market value based
upon such quotations.
If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good faith
by the Fund's board of directors.
Short-term securities are stated at amortized cost (which
approximates market value) if maturity is 60 days or less at the time of
purchase, or market value if maturity is greater than 60 days.
B. FUTURES CONTRACTS - Tax-Free Long-Term Bond Fund may enter into futures
contracts for hedging or other non-speculative purposes. Upon entering
into a contract, the Tax-Free Long-Term Bond Fund deposits and maintains
as collateral such initial margin as may be required by the exchanges on
which the transaction is affected. Pursuant to the contracts, the Tax-Free
Long-Term Bond Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as "variation margin" and are recorded by
the Tax-Free Long-Term Bond Fund as variation margin receivable or payable
on futures contracts. During the period the futures contracts are open,
changes in the value of the contracts are recognized on a daily basis to
reflect the market value of the contracts at the end of each day's trading
and are recorded as unrealized gain or loss. When the contract is closed,
the Tax-Free Long-Term Bond Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened
and the value at the time it was closed. The Tax-Free Long-Term Bond
Fund's use of futures contracts may subject it to certain risks as a
result of unanticipated movements in the market. A lack of correlation
between the value of an instrument underlying a futures contract and the
asset being hedged, or unexpected adverse price movements, could render
the Tax-Free Long-Term Bond Fund's hedging strategy unsuccessful and
result in losses. In addition, there can be no assurance that a liquid
secondary market will exist for any contract purchased or sold.
<PAGE>
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are accounted for on the trade date. Securities purchased or
sold on a when-issued or delayed-delivery basis may be settled a month or
more after trade date. Interest income, which may be comprised of stated
coupon rate, market discount, amortized premium and original issue
discount, is recorded on the accrual basis. The Fund amortizes discounts
and premiums paid on purchases of securities as adjustments to interest
income. Cost is determined on the specific identification basis.
D. FEDERAL AND STATE TAXES - The Fund has complied and continues to comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies and, accordingly, has made or intends to make
sufficient distributions of net investment income and net realized capital
gains, if any, to relieve it from all federal and state income taxes and
federal excise taxes. At June 30, 1996, Tax-Free Intermediate Bond Fund
had $132,440 in net capital loss carryovers which expire in the year 2003.
Net capital loss carryovers utilized in 1996 by the Tax-Free
Intermediate Bond Fund amounted to $4,255.
Tax-Free Intermediate Bond Fund incurred and elected to defer post-
October 31 net capital losses of $4,654 to the year ended June 30, 1997.
To the extent future capital gains are offset by capital loss carryovers
and deferred post-October 31 losses, such gains will not be distributed to
shareholders.
Dividends paid by the Fund from net investment income and
distributions of net realized short-term capital gains are, for federal
income tax purposes, taxable as ordinary income to shareholders. Of the
ordinary income distributions declared for the year ended June 30, 1996,
98.58% and 98.92% were exempt from federal income taxes for Tax-Free
Intermediate Bond and Tax-Free Long-Term Bond Funds, respectively.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - All the Fund's net
investment income is distributed to shareholders by dividends declared
daily and paid monthly. Reinvestment of dividends is effected at the
month-end net asset value. The Fund distributes net realized capital
gains, if any, to its shareholders at least annually, if not offset by
capital loss carryovers.
F. EXPENSES - Each of the Funds bears expenses incurred specifically on its
behalf and, in addition, each Fund bears a portion of general expenses,
based on the relative net assets of each Fund.
Under an agreement between each Fund and the Fund's Custodian,
agreed upon Custodian Fees and Expenses are reduced by credits granted by
the Custodian from any temporarily uninvested cash. Such credits are
included in Fees and Expenses Paid Indirectly in the Statement of
Operations.
NOTE 2 - INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group, Inc.
("IFG") serves as the Fund's investment adviser. As compensation for its
services to the Fund, IFG receives an investment advisory fee which is accrued
daily at the applicable rate and paid monthly. The fee is based on the annual
rate of each Fund's average net assets as follows:
AVERAGE NET ASSETS
----------------------------------------
$0 to $300 Million Over
$300 to $500 $500
Fund Million Million Million
- -----------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund 0.50% 0.40% 0.30%
Tax-Free Long-Term Bond Fund 0.55% 0.45% 0.35%
<PAGE>
In accordance with a Sub-Advisory Agreement between IFG and INVESCO Trust
Company ("ITC"), a wholly owned subsidiary of IFG, investment decisions of each
Fund are made by ITC. Fees for such sub-advisory services are paid by IFG. In
accordance with an Administrative Agreement, each Fund pays IFG an annual fee of
$10,000, plus an additional amount computed at an annual rate of 0.015% of
average net assets to provide administrative, accounting and clerical services.
The fee is accrued daily and paid monthly.
IFG received a transfer agent fee at an annual rate of $20.00 per
shareholder account, or per participant in an omnibus account through April 30,
1996. IFG may pay such fee for participants in omnibus accounts to affiliates or
third parties. The fee is paid monthly at one-twelfth of the annual fee and is
based upon the actual number of accounts in existence during each month. As of
May 1, 1996, the transfer agent fee became $26.00 per shareholder account or,
where applicable, per participant in an omnibus account, per year, computed in a
manner similar to the previous fee.
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
reimbursement of marketing and advertising expenditures to IFG (the
"Distributor") to a maximum of 0.25% of average annual net assets. Amounts
accrued by the Fund are available to reimburse the Distributor for actual
expenditures incurred within a rolling twelve-month period. For the year ended
June 30, 1996, Tax-Free Intermediate Bond and Tax-Free Long-Term Bond Funds paid
the Distributor $13,576 and $326,810, respectively, for reimbursement of
expenses incurred.
IFG has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by the Tax-Free Long-Term Bond Fund. IFG and ITC have
voluntarily agreed, in some instances, to absorb certain fees and expenses
incurred by Tax-Free Intermediate Bond Fund.
NOTE 3 - PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended June
30, 1996, the aggregate cost of purchases and proceeds from sales of investment
securities (excluding all U.S. Government securities and short-term securities)
were as follows:
Fund Purchases Sales
- ------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund $2,347,616 $2,604,894
Tax-Free Long-Term Bond Fund 321,326,778 367,051,198
There were no purchases or sales of U.S. Government securities.
NOTE 4 - APPRECIATION AND DEPRECIATION. At June 30, 1996, the gross appreciation
of securities in which there was an excess of value over tax cost, the gross
depreciation of securities in which there was an excess of tax cost over value
and the resulting net appreciation by Fund were as follows:
Gross Gross Net
Fund Appreciation Depreciation Appreciation
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund $39,318 $29,406 $9,912
Tax-Free Long-Term Bond Fund 5,739,926 1,341,234 4,398,692
<PAGE>
NOTE 5 - TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or ITC.
The Fund has adopted an unfunded noncontributory defined benefit pension
plan covering all independent directors of the Fund who will have served as an
independent director for at least five years at the time of retirement. Benefits
under this plan are based on an annual rate equal to 25% of the retainer fee at
the time of retirement. As of July 1, 1996, benefits will be based on an annual
rate of 40% of the retainer fee at the time of retirement. Pension expenses for
the year ended June 30, 1996, included in Directors' Fees and Expenses in the
Statement of Operations, and unfunded accrued pension costs and pension
liability included in Prepaid Expenses and Accrued Expenses, respectively, in
the Statement of Assets and Liabilities were as follows:
Unfunded
Pension Accrued Pension
Fund Expenses Pension Costs Liability
- -------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund $39 $(43) $(4)
Tax-Free Long-Term Bond Fund 2,958 7,814 16,324
NOTE 6 - LINE OF CREDIT. The Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the Net Assets at Value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. For the
year ended June 30, 1996, there were no such borrowings.
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Financial Highlights
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Period
Ended Year Ended
June 30 June 30
------------ ---------------------------
1996 1995 1994^
Tax-Free Intermediate Bond Fund
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $9.70 $9.52 $10.00
------------ ---------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.43 0.44 0.19
Net Gains or (Losses)
on Securities (Both
Realized and Unrealized) 0.04 0.18 (0.48)
------------ ---------------------------
Total from Investment Operations 0.47 0.62 (0.29)
------------ ---------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.43 0.44 0.19
------------ ---------------------------
Net Asset Value -
End of Period 9.74 9.70 9.52
============ ===========================
TOTAL RETURN 4.89% 6.67% (2.93%)*
RATIOS
Net Assets -End of Period
($000 Omitted) 4,997 4,907 5,083
Ratio of Expenses to Average
Net Assets# 0.76%@ 0.70% 0.70%~
Ratio of Net Investment Income to
Average Net Assets# 4.40% 4.56% 3.75%~
Portfolio Turnover Rate 49% 23% 55%*
<PAGE>
<FN>
^ From December 1, 1993, commencement of operations, to June 30, 1994.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG and ITC for the
years ended June 30, 1996 and 1995, and for the period ended June 30, 1994.
If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 2.34%, 2.45% and 3.09%, respectively, and
ratio of net investment income to average net assets would have been 2.82%,
2.81% and 1.36%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
</FN>
</TABLE>
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Year Ended June 30
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
Tax-Free Long-Term Bond Fund
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $15.07 $15.29 $16.35 $15.69 $15.05
-----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.73 0.80 0.83 0.87 0.92
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.32 0.09 (1.00) 1.04 0.95
-----------------------------------------------------------------------
Total from Investment Operations 1.05 0.89 (0.17) 1.91 1.87
-----------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.73 0.80 0.83 0.87 0.92
Distributions from Capital Gains 0.19 0.31 0.06 0.38 0.31
-----------------------------------------------------------------------
Total Distributions 0.92 1.11 0.89 1.25 1.23
-----------------------------------------------------------------------
Net Asset Value - End of Period 15.20 15.07 15.29 16.35 15.69
=======================================================================
TOTAL RETURN 7.01% 6.16% (1.16%) 12.57% 12.79%
RATIOS
Net Assets - End of Period ($000 Omitted) 250,890 254,584 282,407 332,239 272,382
Ratio of Expenses to Average Net Assets# 0.91%@ 0.92% 1.00% 1.03% 1.02%
Ratio of Net Investment Income to
Average Net Assets# 4.76% 5.31% 5.14% 5.43% 5.90%
Portfolio Turnover Rate 146% 99% 28% 30% 28%
<FN>
# Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended June 30, 1996 and 1995. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.04% and
1.05%, respectively, and ratio of net investment income to average net assets
would have been 4.63% and 5.18%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
</FN>
</TABLE>
Other Information
UNAUDITED
On October 19, 1995, a special meeting of the shareholders of the Tax-Free Long
Term Bond Fund was held at which approval to modify the fundamental investment
policies concerning futures and options was ratified. The total votes were
9,771,729: 7,784,333 - for; 1,443,453 - against; and 543,942 - abstained.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
INVESCO Tax-Free Income Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Tax-Free Intermediate Bond Fund and
Tax-Free Long-Term Bond Fund (constituting INVESCO Tax-Free Income Funds, Inc.,
hereafter referred to as the "Fund") at June 30, 1996, the results of each of
their operations for the year then ended, the changes in each of their net
assets for the two years in the period then ended and the financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1996 by correspondence with the custodian
and brokers and the application of alternative auditing procedures for unsettled
security transactions, provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Denver, Colorado
August 1, 1996
<PAGE>
FAMILY OF FUNDS
Newspaper
Fund Name Fund Code Ticker Symbol Abbreviation
- --------------------------------------------------------------------------------
International
Latin American Growth 34 IVSLX LatinAmGr
European Small Company 37 IVECX EuroSmCo
European 56 FEURX Europ
Pacific Basin 54 FPBSX PcBas
International Growth 49 FSIGX IntlGr
Asian Growth 41 IVAGX AsianGr
- --------------------------------------------------------------------------------
Sector
Energy 50 FSTEX Enrgy
Environmental Services 59 FSEVX Envirn
Financial Services 57 FSFSX FinSvc
Gold 51 FGLDX Gold
Health Sciences 52 FHLSX HlthSc
Leisure 53 FLISX Leisur
Technology 55 FTCHX Tech
Worldwide Capital Goods 38 ISWGX WldCap
Worldwide Communications 39 ISWCX WldCom
- --------------------------------------------------------------------------------
Growth, Value
Emerging Growth 60 FIEGX Emgrth
Value Equity 46 FSEQX ValEq
Small Company 74 IDSCX DivSmCo
Dynamics 20 FIDYX Dynm
Growth 10 FLRFX Grwth
- --------------------------------------------------------------------------------
Equity-Income
Industrial Income 15 FIIIX IndInc
Utilities 58 FSTUX Util
- --------------------------------------------------------------------------------
Balanced/Multiple-Asset
Multi-Asset Allocation 70 IMAAX MulAstAl
Balanced 71 IMABX Bal
Total Return 48 FSFLX TotRtn
- --------------------------------------------------------------------------------
Bond
High Yield 31 FHYPX HiYld
Select Income 30 FBDSX SelInc
U.S. Government Securities 32 FBDGX USGvt
Intermediate Government Bond 47 FIGBX IntGov
Short-Term Bond 33 INIBX ShTrBd
- --------------------------------------------------------------------------------
Tax-Exempt
Tax-Free Long-Term Bond 35 FTIFX TxFre
Tax-Free Intermediate Bond 36 * *
- --------------------------------------------------------------------------------
Money Market
Tax-Free Money Fund 40 FFRXX N/A
Cash Reserves 25 FDSXX N/A
U.S. Government Money Fund 44 FUGXX N/A
* This fund does not meet size requirements to be assigned a ticker symbol in
newspaper listings.
For more information about any of the INVESCO Funds, including management fees
and expenses, please call us at 1-800-525-8085 for a prospectus. Read it
carefully before you invest or send money.
<PAGE>
INVESCO FUNDS
To receive general information and prospectuses
on any of INVESCO's funds or retirement plans,
or to obtain current account or price information,
call toll-free:
1-800-525-8085
To reach PAL(R), your 24-hour Personal
Account Line call: 1-800-424-8085
Or write to:
INVESCO Funds Group, Inc.,(SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
Find us on the World Wide Web:
http://www.invesco.com
If you're in Denver, please visit one of our
convenient Investor Centers:
Cherry Creek, 155-B Fillmore Street;
Denver Tech Center
7800 East Union Avenue, Lobby Level
This information must be preceded or
accompanied by an effective prospectus.
