SEMIANNUAL REPORT
- -------------------------
December 31, 1996
INVESCO
FREE
INCOME
FUNDS,
INC.
Tax-Free Long-Term Bond Fund
Tax-Free Intermediate Bond Fund
Two Smart Choices
For Seeking Tax-Exempt Income
INVESCO FUNDS
<PAGE>
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 first quarter of 1996.
Economic Overview January 1997
Overheating -- or headed into a recession? That's the question analysts have
posed for months about the U.S. economy. During the third quarter of 1996,
growth moderated to a "normal/dull" level of 2.2%. Representing a slowdown from
the second quarter's relatively torrid pace of 4.7%, the current level of
economic expansion should be moderate enough to stave off inflation fears. The
rate of increase in wages, benefits, and prices for consumer and industrial
goods has not accelerated over the past 12 months; the Consumer Price Index will
likely end 1996 up at an annualized rate of about 3.0% -- in line with the
historical average.
The moderate inflation level represents a positive factor for the economy.
At the same time, though, the longevity of the current expansion -- over six
years -- remains a cause for concern; the post-World War II average is only four
and a half years. Negative growth hasn't been experienced since the first
quarter of 1993. If the growth rate again approaches 5%, many economists expect
the Federal Reserve Board to launch a preemptive strike against inflation, with
the concomitant danger of cutting the expansion short.
Last summer, concern about the Fed and the national elections caused a
pullback in equity markets. Since then, with the political status quo generally
maintained vis-a-vis the president and Congress, and the economy slowing on its
own, the S&P 500 resumed its upward hike.
In comparison, investors in fixed-income securities experienced a bumpier
ride in 1996. The second half of the year was smoother, as inflation fears waned
and interest rates stabilized.
1997 is a post-presidential election year, when the stock market typically
drops, and volatility may well continue. Currently, valuations for many
individual stocks appear high. Moderate action from the Fed over the winter --
an increase of 0.25% in short-term interest rates, for example -- might be
interpreted by investors in a positive light, with a subsequent calming
influence on price swings. Conversely, heavy-handed measures could be viewed as
likely to trigger a recession, with negative consequences for corporate earnings
estimates -- and stock prices; securities markets around the globe immediately
dropped following Fed Chairman Alan Greenspan's December remark that current
stock prices may reflect "irrational exuberance."
Strategic Overview Of Municipal Investments
1996 proved to be a difficult year for the municipal market and,
regrettably, your funds. Over the last 12 months, interest rates rose in
reaction to fears that the economy might be overheating or heading into a
recession. These changing expectations about interest rates have caused the
municipal market to experience a consolidation in its trading range (a
tightening in the interest rate spread), thus changing the risk/reward
relationship for municipal bond investors.
Not surprisingly, under these market conditions, the Lehman Brothers
Municipal Bond Index and Intermediate Municipal Bond Index posted total returns
for 1996 of 4.43% and 4.54%, respectively.(2) Professional municipal bond
<PAGE>
managers also experienced difficulty in this market as most funds
underperformed their competitive index. Consequently, the General Municipal Debt
Fund average return for 1996 was 3.30%; and the Intermediate Municipal Debt Fund
average return for 1996 was 3.70%, as reported by independent mutual fund
analyst Lipper Analytical Services, Inc. Consolidation within municipal bonds'
trading range, coupled with changing expectations in interest rates and an
unprecedented sixth year of expansion for the economy, forced many managers to
play market momentum and short-term trends in order to enhance performance in
1996. However, we instead took a cautious approach in this unstable environment.
As a result, in the last 12 months, we shortened the duration of the funds. This
cautious approach in managing interest rate risk caused your funds to
underperform their competitive universe in the last six months and past year.
However, we feel our defensive approach was justified in 1996, as the rewards
for taking on additional risks were minimal.
For 1997, we will continue to focus on liquidity, credit quality, and
managing interest rate risk. We are waiting for the municipal market to break
out of its tight trading range and develop some clear and meaningful trends.
However, until then, we will maintain a cautious approach in this uncertain
environment.
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.
Graph: Geographical Diversification
by value as of 12/31/96
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 - 28% Midwest - 33%
Northeast - 25% South Central - 10% Southeast - 4% Net Cash and
Short Term.
Composition of holdings is subject to change.
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 12/31/96, and in
Tax-Free Intermediate Bond Fund for the period from inception through 12/31/96.
Tax-Free Long-Term Bond Fund
Average Annualized Total Return
as of 12/31/96(1)
1 year 2.36%
-----------------------------------------
5 years 6.40%
-----------------------------------------
10 years 7.33%
-----------------------------------------
<PAGE>
At the end of these respective periods, the Tax-Free Long-Term Bond Fund
account would have had a value of $20,280 and Tax-Free Intermediate Bond Fund,
$12,470. 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. (Of course, past performance is not a
guarantee of future results.)(1),(2)
Graph: Tax-Free Long-Term Bond Fund 10-Year Total Return
vs. Lehman Municipal Bond Index
This line graph illustrates the value of a $10,000 investment in INVESCO
Tax-Free Long-Term Bond Fund, plus reinvested dividends and capital gain
distributions, for the 10-year period ended 12/31/96.
For the six-month period ended 12/31/96, Tax-Free Long-Term Bond fund
achieved a total return of 3.78%. During the same period, the Lehman Municipal
Bond Index had a total return of 4.90%.(1),(2)
Tax-Free Intermediate Bond Fund
Average Annualized Total Return
as of 12/31/96(1)
1 year 2.90%
-----------------------------------------
Since inception (12/93) 3.88%
-----------------------------------------
For the six-month period ended 12/31/96, Tax-Free Intermediate Bond fund
achieved a total return of 3.55%. During the same period, the Lehman
Intermediate Municipal Bond Index had a total return of 4.90%.(1),(2)
Graph: Tax-Free Intermediate Bond Fund Total Return
vs. Lehman Municipal Bond Index
This line graph illustrates the value of a $10,000 investment in INVESCO
Tax-Free Intermediate Bond Fund, plus reinvested dividends and capital
gain distributions, for the period 12/31/93 (inception) through 12/31/96.
*Commencement of investment operations at 12/1/93.
Graph: Geographical Diversification
by value as of 12/31/96
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 - 36% Midwest - 16% Northeast - 20%
South Central - 13% Southeast - 9% Puerto Rico - 6%.
Composition of holdings is subject to change.
(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.
<PAGE>
(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.
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Statement of Investment Securities
December 31, 1996
UNAUDITED
- -------------------------------------------------------------------------------
Principal
Description Amount Value
- -------------------------------------------------------------------------------
TAX-FREE INTERMEDIATE BOND Fund
MUNICIPAL BONDS 84.01%
ALASKA 6.96%
Alaska Indl Dev & Export Auth,
Ref Revolving Fund, Series 1994A,
Lots 1-29, 5.700%, 4/1/2004 $ 200,000 $ 206,750
Municipality of Anchorage, Alaska,
Gen Oblig Ref, Gen Purpose,
1993 Series B, 4.900%, 8/1/2003 25,000 25,313
Municipality of Anchorage, Alaska,
Port Rev Ref, 1995, 6.000%, 2/1/2004 150,000 159,562
-------------
391,625
-------------
ARIZONA 1.84%
Pinal Cnty, Arizona (Mammoth-San
Manuel Unified School Dist #8),
Ref, Series 1994, 6.000%, 7/1/2001 100,000 103,625
-------------
CALIFORNIA 2.98%
California, Various Purpose Gen
Oblig, 6.300%, 9/1/2008 150,000 167,625
-------------
COLORADO 6.44%
Arapahoe Cnty Public Hwy Auth,
Colorado (E-470 Proj), Cap Impt
Trust Fund, Hwy Rev, Veh Regn Fee,
5.300%, 8/31/2006 200,000 205,250
Montrose Cnty Bldg Auth, Colorado,
Ctfs of Participation,
6.350%, 6/15/2006 150,000 157,312
-------------
362,562
-------------
DISTRICT OF COLUMBIA 0.43%
District of Columbia, Gen Oblig Ref,
Series 1994A, 5.200%, 6/1/2003 25,000 24,313
-------------
FLORIDA 5.18%
Dade County, Florida, Solid
Waste System Rev Ref, Series 1996,
6.000%, 10/1/2006 200,000 214,250
<PAGE>
Miami Beach Redev Agency, Florida
(City Ctr/Historic Convention
Village), Tax Increment Rev,
Series 1993, 5.100%, 12/1/2003 80,000 77,500
------------
291,750
------------
GEORGIA 0.53%
Muni Elec Auth of Georgia, Pwr Rev,
Series CC, 4.500%, 1/1/2002 30,000 29,588
------------
ILLINOIS 3.68%
Illinois, Gen Oblig, Series 1995,
5.125%, 12/1/2005 125,000 127,187
Illinois Hsg Dev Auth, Hsg Dev Rev,
1993 Series A, 5.000%, 1/1/2001 20,000 19,800
Illinois Toll Hwy Auth, Toll Hwy
Ref Rev, 1993 Series A,
4.700%, 1/1/2001 60,000 60,075
-------------
207,062
-------------
LOUISIANA 3.72%
Louisiana Pub Facils Auth, Student
Ln Rev, Series 1992A-1,
6.200%, 3/1/2001 200,000 209,250
------------
MASSACHUSETTS 0.38%
Massachusetts Muni Wholesale Elec,
Pwr Supply System Rev, 1992
Series B, 6.375%, 7/1/2001 20,000 21,175
------------
NEVADA 2.57%
Nevada Hsg Div (Single Family Prog),
Rev, 1994 Issue B-1,
5.900%, 4/1/2003 140,000 144,725
------------
NEW HAMPSHIRE 4.01%
New Hampshire Hsg Fin Auth, Single
Family Residential Mtg, 1994
Series D, 5.850%, 1/1/2001 220,000 225,500
------------
NEW YORK 7.98%
New York, New York (AMBAC Proj),
Gen Oblig, 1996 Series B,
7.250%, 8/15/200 200,000 232,500
New York Muni Assistance, New York,
Rev, 1991 Gen Resolution Series E,
6.000%, 7/1/2003 200,000 216,500
-----------
449,000
-----------
OHIO 0.88%
Ohio Bldg Auth, State Correctional
Facils Rev Ref, 1994 Series A,
4.600%, 10/1/2003 50,000 49,563
-----------
<PAGE>
OREGON 0.44%
Oregon Hsg & Cmnty Svcs Dept (Single
Family Mtg Prog), Mtg Rev, 1993
Series A, 4.500%, 7/1/2001 25,000 24,688
----------
PENNSYLVANIA 7.77%
Philadelphia, Pennsylvania, Gas
Works Rev, Fifteenth Series-Sub
Series 3, 5.000%, 8/1/2003 65,000 63,700
Philadelphia, Pennsylvania, Wtr &
Wastewtr Rev, Series 1995,
6.750%, 8/1/2005 150,000 170,437
Philadelphia Hosps & Higher Ed Facils
Auth, Pennsylvania (Northwestern Corp),
Rev, 1994 Series, 6.500%, 6/1/2004 200,000 203,250
----------
437,387
----------
PUERTO RICO 5.97%
Commonwealth of Puerto Rico, Gen Oblig,
Pub Impt Ref, Series 1995,
6.500%, 7/1/2003 150,000 166,687
Puerto Rico Elec Pwr Auth, Pwr Rev
Ref, Series W, 6.500%, 7/1/2006 150,000 169,125
-----------
335,812
-----------
SOUTH DAKOTA 5.65%
Sioux Falls, South Dakota, Sales Tax
Rev, Series 1991B,
6.300%, 11/15/2001 60,000 64,275
South Dakota, Student Ln Fin Rev,
Series 1994-A, 5.850%, 8/1/2000 250,000 253,750
-----------
318,025
-----------
TENNESSEE 0.36%
Knoxville, Tennessee, Wtr Rev Ref &
Impt, Series M-1993,
4.500%, 3/1/1999 20,000 20,125
-----------
TEXAS 0.45%
Trinity River Indl Dev Auth, Texas
(Intl Paper Proj), Rev Ref, 1993
Series, 4.900%, 12/1/2002 25,000 25,063
-----------
VIRGINIA 2.67%
Rivanna Wtr & Swr Auth, Virginia,
Regl Wtr & Swr System Ref Rev,
Series of 1993, 4.500%, 10/1/2000 50,000 50,375
Southeastern Pub Svc Auth, Virginia,
Regl Solid Waste System, Sr Rev Ref,
Series 1993A, 5.150%, 7/1/2009 100,000 100,000
-----------
150,375
-----------
<PAGE>
WASHINGTON 11.22%
Clark Cnty, Washington (Pub Util Dist #1),
Generating System Rev, Series 1995,
6.000%, 1/1/2006 200,000 213,500
Tacoma, Washington, Swr Rev, 1995
Series B, 5.500%, 12/1/2011 200,000 199,500
Washington Pub Pwr Supply System,
Ref Elec Rev,
Nuclear Proj #1, Series 1993-1A,
5.100%, 7/1/2000 20,000 20,200
Nuclear Proj #3, Series 1993-3A,
4.900%, 7/1/2004 135,000 132,806
Wenatchee, Washington, Wtr & Swr Rev
Ref, 1994, 4.600%, 12/1/2002 65,000 65,325
-----------
631,331
-----------
WISCONSIN 1.90%
Wisconsin, Gen Oblig, 1992 Series A,
6.1000%, 5/1/2004 100,000 107,000
-----------
TOTAL MUNICIPAL BONDS
(Cost $4,650,754) 4,727,169
-----------
SHORT-TERM INVESTMENTS -
MUNICIPAL NOTES 15.99%
CALIFORNIA 3.55%
Los Angeles Regl Airports Impt,
California (American Airlines/
Los Angeles Intl Airport Proj), FR,
Corp Lease Rev, Series B,
4.950%, 12/1/2024~ 200,000 200,000
----------
MICHIGAN 3.55%
Delta Cnty Econ Dev, Michigan
(Mead-Escanaba Paper Proj),
Env Impt Rev Ref, VR, Series 1992,
5.000%, 12/1/2023~ 200,000 200,000
----------
TENNESSEE 1.78%
Nashville Metro Airport Auth,
Tennessee, (American Airlines Proj),
AR, Special Facil Rev, Ref,
Series 1995A, 4.950%, 10/1/2012~ 100,000 100,000
----------
TEXAS 7.11%
Grapevine Indl Dev, Texas (American
Airlines Proj), VR, Multiple Mode
Rev, Series B-2, 4.950%, 12/1/2024~ 200,000 200,000
North Central Texas Hlth Facil Dev,
(Presbyterian Med Ctr), DATES,
Rev, Series 1985 C,
4.950%, 12/1/2015~ 200,000 200,000
----------
400,000
----------
<PAGE>
TOTAL MUNICIPAL SHORT-TERM NOTES
(Cost $900,000) 900,000
----------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $5,550,754#) 5,627,169
==========
TAX-FREE LONG-TERM BOND Fund
MUNICIPAL BONDS 77.66%
ALASKA 0.24%
Alaska Hsg Fin
(Veterans Mtg Prog),
Collateralized Gen Oblig, 1990
First Series, 7.500%, 12/1/2030 $ 570,000 $ 592,800
----------
ARIZONA 0.43%
Arizona Edl Ln Mktng, 1992 Edl Ln Rev,
Series B, 7.000%, 3/1/2005 1,000,000 1,053,750
----------
CALIFORNIA 9.24%
Big Bear Lake Dept of Wtr & Pwr,
California, Wtr Rev Ref, Series
1996, 6.000%, 4/1/2022 2,000,000 2,145,000
California, Various Purpose Gen
Oblig, 5.250%, 10/1/2018 8,000,000 7,680,000
California Wtr Resources Dept
(Cent Valley Proj), Wtr System
Rev, Series O, 4.750%,
12/1/2019 5,000,000 4,375,000
12/1/2025 5,000,000 4,368,750
Southern California Metro Wtr Dist,
Wtr Rev, 1996 Series C, 5.000%,
7/1/2027 4,600,000 4,220,500
----------
22,789,250
----------
COLORADO 2.30%
Denver City & Cnty Aviation Dept,
Colorado, Airport System Rev,
Series 1996A, 5.500%, 11/15/2025 4,400,000 4,284,500
<PAGE>
Fountain Valley Auth, Colorado,
Wtr Treatment Ref Rev, Series 1991,
6.800%, 12/1/2019 $ 1,140,000 1,238,325
Montrose Cnty Bldg Auth, Colorado,
Ctfs of Participation, 6.350%,
6/15/2006 150,000 157,312
----------
5,680,137
----------
FLORIDA 1.10%
Greater Orlando Aviation Auth,
Florida, Airport Facils Rev,
Series 1988, 8.375%, 10/1/2016 490,000 532,262
Orange Cnty Hlth Facils Auth, Florida
(Orlando Regl Hlthcare System),
Hosp Rev, Series 1996A,
6.250%, 10/1/2018 2,000,000 2,187,500
----------
2,719,762
----------
GEORGIA 2.17%
Atlanta, Georgia, Airport Facils Rev,
Series 1990, 7.250%, 1/1/2017 2,000,000 2,167,500
Atlanta, Georgia (Delta Air Lines
Proj), Special Purpose Facils Rev,
Series 1989B, 7.400%, 12/1/1999 3,000,000 3,172,500
----------
5,340,000
----------
ILLINOIS 12.68%
Chicago, Illinois, Gen Oblig, Proj
& Ref, Series B, 5.125%, 1/1/2022 2,465,000 2,295,531
Chicago, Illinois, Wastewtr
Transmission Rev, Series 1995,
5.125%, 1/1/2025> 10,000,000 9,212,500
Chicago, Illinois (Peoples Gas
Light & Coke), 1st & Ref Mtg,
Series CC, Medium Term Notes,
6.875%, 3/1/2015 2,875,000 3,130,156
Cook & DuPage Cntys, Illinois
(Lemont-Bromberek Combined School
Dist #113A), School Bldg,
Series 1995B, Cap Appreciation,
12/1/2015 5,060,000 1,695,100
Illinois, Gen Oblig, Series 1995,
5.250%, 12/1/2020 1,500,000 1,410,000
Illinois Dev Fin Auth (Catholic
Charities), Hsg Dev Rev,
6.350%, 1/1/2025> 1,500,000 1,485,000
Illinois Hlth Facils Auth
(Northwestern Mem Hosp), Rev,
Series 1991, 6.750%, 8/15/2011 5,000,000 5,350,000
Metro Pier & Exposition Auth, Illinois
(McCormick Pl Expansion Proj),
<PAGE>
Rev Ref, Series 1994A, Cap
Appreciation,
12/15/2012 $ 5,000,000 2,031,250
6/15/2020 6,000,000 1,545,000
6/15/2025 1,200,000 231,000
6/15/2026 1,500,000 268,125
6/15/2027 1,000,000 168,750
Univ of Illinois Brd of Trustees,
Illinois, Auxiliary Facils
System Rev, Series 1991,
Cap Appreciation, 4/1/2012 5,795,000 2,441,144
----------
31,263,556
----------
INDIANA 9.73%
Dekalb Cnty Redev Auth, Indiana
(Mini-Mill Loc Pub Impt Proj),
Rev, Series A 1995,
6.500%, 1/15/2014 900,000 946,125
Indiana Bond Bank (State Revolving
Fund Prog), State Match Rev,
Series 1993A, 6.000%, 2/1/2015 4,500,000 4,623,750
Indiana Transn Fin Auth, Airport
Facils Lease Rev, Series A,
6.750%, 11/1/2011 1,500,000 1,593,750
Indiana Transn Fin Auth, Hwy Rev,
Series 1993A, Cap Appreciation,
12/1/2017 3,000,000 892,500
Indianapolis Airport Auth, Indiana,
Rev, Series 1988, 8.400%, 7/1/2008 2,000,000 2,140,000
Indianapolis Local Pub Impt Bond Bank,
Indiana, Impt Rev, Series 1991C,
6.700%, 1/1/2017 3,750,000 4,157,812
Petersburg, Indiana (Indianapolis Pwr
& Light Proj), PCR Ref, Series 1993B,
5.400%, 8/1/2017> 9,850,000 9,640,688
----------
23,994,625
----------
MASSACHUSETTS 7.72%
Boston Wtr & Swr Commn, Massachusetts,
Gen Rev, 1993 Series A,
5.250%, 11/1/2019> 5,385,000 5,176,331
Commonwealth of Massachusetts, Gen
Oblig, Consolidated Ln of 1992,
Series D, 8.000%, 5/1/2006> 5,000,000 6,137,500
Massachusetts Bay Transn Auth,
Gen Transn System Rev,
1995 Series A, 5.600%, 3/1/2008 3,000,000 3,135,000
1995 Series B, 5.250%, 3/1/2026 3,000,000 2,835,000
<PAGE>
Massachusetts Wtr Resources Auth,
Gen Rev, 1995 Series B,
4.750%, 12/1/2021 $ 2,000,000 1,760,000
----------
19,043,831
----------
MICHIGAN 4.05%
Battle Creek Tax Increment Fin Auth,
Michigan, Dev, Rev, 1994,
7.300%, 5/1/2010 1,195,000 1,333,919
Michigan Underground Storage Tank
Finl Assurn Auth, 1996 Rev Ref,
Series I,
6.000%, 5/1/2005 4,500,000 4,860,000
6.000%, 5/1/2006 3,500,000 3,793,125
----------
9,987,044
----------
MISSISSIPPI 0.34%
Claiborne Cnty, Mississippi (System
Energy Resources Proj), A/FR, PCR,
Series A, 9.500%, 12/1/2013 750,000 825,937
----------
NEW HAMPSHIRE 0.41%
New Hampshire Hsg Fin Auth, Single
Family Residential Mtg, 1994
Series D, 6.850%, 7/1/2006 950,000 1,001,062
----------
NEW MEXICO 1.90%
Bernalillo Cnty, New Mexico, Gross
Rcpts Tax Rev, Series A,
5.750%, 4/1/2026 4,735,000 4,687,650
----------
NEW YORK 9.68%
New York, New York, Gen Oblig, 1997
Series G, 6.000%, 10/15/2026 10,000,000 9,712,500
New York Dorm Auth (State Univ Dorm
Facils Issue), Lease Rev, Series
1995A, 6.000%, 7/1/2010 1,550,000 1,652,688
Port Auth of New York & New Jersey,
Consolidated Gen Oblig, Rev,
Ninety-Third Series,
6.125%, 6/1/2094> 5,250,000 5,551,875
One Hundred Fourth Series,
4.750%,1/15/2026 2,500,000 2,193,750
Triborough Bridge & Tunnel Auth,
New York, Gen Purpose Rev,
Series 1993B, 5.000%, 1/1/2020 1,935,000 1,811,644
Series Y, 5.500%, 1/1/2017 2,900,000 2,932,625
----------
23,855,082
----------
<PAGE>
NORTH DAKOTA 2.00%
Fargo, North Dakota (Meritcare
Obligated Group), Hlth System Rev,
Series 1996A, 5.375%, 6/1/2027 5,185,000 4,925,750
----------
PENNSYLVANIA 1.99%
Philadelphia, Pennsylvania, Wtr &
Wastewtr Rev, Series 1995,
6.250%, 8/1/2012 2,050,000 2,234,500
Philadelphia Hosps & Higher Ed
Facils Auth, Pennsylvania
(Northwestern Corp), Rev, 1994 Series,
7.000%, 6/1/2012 1,530,000 1,568,250
6.500%, 6/1/2004 1,080,000 1,097,550
----------
4,900,300
----------
RHODE ISLAND 1.49%
Rhode Island Depositors Econ
Protection, Special Oblig Ref,
1992 Series A, 6.950%, 8/1/2022 1,500,000 1,695,000
1993 Series A, 5.750%, 8/1/2012 2,000,000 1,970,000
----------
3,665,000
----------
SOUTH CAROLINA 1.31%
South Carolina School Fing (School
District #2 of Sumter Cnty Proj),
Ctfs of Participation,
Series 1990A, 8.125%, 4/1/2010 3,000,000 3,221,250
----------
TEXAS 3.07%
Austin, Texas, Combined Util Systems,
Rev Ref, Series 1992, Cap Appreciation,
11/15/2009 5,020,000 2,484,900
11/15/2011 1,400,000 609,000
Austin, Texas, Wtr, Swr & Elec Ref
Rev, Series 1982, 14.000%,
11/15/2001 500,000 631,851
Harris Cnty, Texas (Galena Park
Indpt School Dist), Unlimited Tax
School Bldg & Ref, Series 1996,
Cap Appreciation, 8/15/2023 3,220,000 696,325
Texas Muni Pwr Agency, Ref Rev,
Series 1989, Cap Appreciation,
9/1/2010 6,650,000 3,142,125
----------
7,564,201
----------
<PAGE>
UTAH 0.76%
Utah Hsg Fin Agency (Federally
Insured or Gtd Mtg Lns), Single
Family Mtg, 1994 Issue D-1
Term Mezzanine, 6.450%, 7/1/2011 $ 1,805,000 1,877,200
----------
VERMONT 0.42%
Vermont Hsg Fin Agency, Single Family
Hsg Rev, Series 5, 6.875%, 11/1/2016 1,000,000 1,047,500
----------
VIRGINIA 1.47%
Fredericksburg Indl Dev Auth,
Virginia (MediCorp Hlth System
Obligated Group), Hosp Facils
Rev Ref, Series 1996, 5.250%,
6/15/2023 2,000,000 1,890,000
Upper Occoquan Sewage Auth,
Virginia, Regl Sewerage System Rev,
Series 1995A, 4.750%, 7/1/2029 2,000,000 1,737,500
----------
3,627,500
----------
WASHINGTON 2.56%
Grant Cnty Pub Util Dist #2, Washington,
Hydro-Elec Dev Rev, Second Series 1990,
(Priest Rapids), 7.700%,1/1/2018 3,000,000 3,243,750
(Wanapum), 7.700%, 1/1/2018 1,050,000 1,135,313
Vancouver, Washington, Wtr & Swr Rev,
Series 1993, 5.500%, 6/1/2013 1,955,000 1,923,231
----------
6,302,294
----------
WISCONSIN 0.60%
Adams Cnty, Wisconsin (Adams-Friendship
School Dist), Gen Oblig Ref,
6.500%, 4/1/2015 1,340,000 1,490,750
----------
TOTAL MUNICIPAL BONDS
(Cost $184,461,883) 191,456,231
-----------
SHORT-TERM INVESTMENTS-
MUNICIPAL NOTES 22.34%
ALABAMA 0.81%
Huntsville Hlth Care Auth, Alabama,
VR, Hlth Care Facils Rev,
Series 1994-B, 4.000%, 6/1/2024~ 2,000,000 2,000,000
----------
CALIFORNIA 2.80%
Los Angeles Regl Airports Impt Auth,
California, Corp Lease Rev,
(American Airlines/Los Angeles
Intl Airport Proj), FR,
4.950%, 12/1/2024~ 1,000,000 1,000,000
<PAGE>
(LAX Two/Los Angeles Intl Airport
Proj), VR, 4.950%, 12/1/2025~ 5,900,000 5,900,000
----------
6,900,000
----------
COLORADO 3.16%
Colorado Hlth Facils Auth, Hosp Rev,
(North Colorado Med Cntr), VRD,
Series 1990, 4.150%, 5/15/2020~ 1,200,000 1,200,000
(Sisters of Charity Hlth Care
Systems), VR, Series 1995,
4.150%, 5/15/2025~ 3,000,000 3,000,000
Colorado Student Oblig Auth, A/FR,
Student Ln Rev,
Series 1989A, 4.100%, 3/1/2024~ 2,400,000 2,400,000
Series 1993C-2, 4.000%, 9/1/2002~ 1,200,000 1,200,000
----------
7,800,000
----------
GEORGIA 1.34%
Burke Cnty Dev Auth, Georgia
(Oglethorpe Pwr Vogtle Proj), ATS,
PCR, Series 1994A, 4.000%, 1/1/2019~ 3,300,000 3,300,000
----------
ILLINOIS 0.24%
Illinois Hlth Facils Auth (Cent
DuPage Hosp Proj), VRD, Rev, Series
1990, 5.250%, 11/1/2020~ 600,000 600,000
----------
KANSAS 0.81%
Burlington, Kansas (Kansas City Pwr
& Light Proj), TECP, Customized
Purchase, PCR Ref, Series A,
3.600%, 1/7/1997 2,000,000 2,000,000
----------
KENTUCKY 0.41%
Ashland, Kentucky (Ashland Oil Proj),
A/FR, 7&7 PCR Ref, Series 1985,
4.050%, 4/1/2009~ 1,000,000 1,000,000
----------
LOUISIANA 1.14%
DeSoto Parish, Louisiana (Cent
Louisiana Elec Proj), ATS, PCR Ref,
Series 1991B, 4.050%, 7/1/2018~ 1,900,000 1,900,000
East Baton Rouge Parish, Louisiana
(Georgia-Pacific Proj), A/FR, 7&7
PCR, Series 1984, 4.150%, 10/1/1999~ 500,000 500,000
Louisiana Pub Facils Auth (Kenner Hotel
Ltd), AR, IDR, 5.000%, 12/1/2015~ 400,000 400,000
----------
2,800,000
----------
<PAGE>
MASSACHUSETTS 1.46%
Commonwealth of Massachusetts, Gen
Oblig, UPDATES, Fiscal Recovery Ln,
Series B, 4.800%, 12/1/1997 3,600,000 3,600,000
----------
MISSISSIPPI 0.16%
Jackson Cnty, Mississippi (Chevron
USA Proj), VR, PCR Ref, Series 1992,
5.000%, 12/1/2016~ 400,000 400,000
----------
MISSOURI 0.61%
Missouri Hlth & Ed Facils Auth
(Christian Hlth Svcs Dev-Christian
Hosp Northeast-Northwest), F/FR,
Rev, Series 1989A, 4.050%, 11/1/2019~ 1,500,000 1,500,000
----------
NEBRASKA 0.80%
Buffalo Cnty Hosp Auth #1, Nebraska
(Sisters of Charity-Richard H. Young
Mem Hosp Proj), ATS, Rev,
Series 1988A, 4.050%, 5/1/2018~^ 1,970,000 1,970,000
----------
NEVADA 0.87%
Clark Cnty, Nevada, AR, Airport
System Rev Ref, Series 1993A,
4.000%, 7/1/2012~ 2,150,000 2,150,000
----------
NEW MEXICO 0.61%
Univ of New Mexico Regents, New
Mexico, ATS, Sub Lien System
Rev Ref, Series 1996,
4.000%, 6/1/2006~ 1,500,000 1,500,000
----------
NEW YORK 1.14%
New York Muni Wtr Fin Auth, New York,
AR, Wtr & Swr Syst Rev,
1994 Series C, 5.000%, 6/15/2023~ 300,000 300,000
1994 Series G, 5.000%, 6/15/2024~ 2,500,000 2,500,000
----------
2,800,000
----------
NORTH CAROLINA 0.16%
North Carolina Med Care Commn (Pooled
Fing Proj), ACES, Hosp Rev,
Series 1991B, 5.000%, 10/1/2013~ 400,000 400,000
----------
OREGON 0.20%
Port Portland, Oregon (Reynolds Metals),
DATES, PCR, Series 1985,
4.950%, 12/1/2009~ 500,000 500,000
----------
<PAGE>
TENNESSEE 1.41%
Clarksville Pub Bldg Auth, Tennessee
(Tennessee Muni Bd Fund), AR,
Pooled Fing Rev, Series 1990,
4.000%, 7/1/2013~ $ 1,885,000 $1,885,000
Nashville Metro Airport Auth,
Tennessee (American Airlines Proj),
AR, Special Facils Rev Ref,
Series 1995B, 4.950%, 10/1/2012~ 1,000,000 1,000,000
Sullivan Cnty Indl Dev Brd, Tennessee
(Mead Corp Proj), DATES, PCR Ref,
Series 1986, 4.950%, 10/1/2016~ 600,000 600,000
----------
3,485,000
----------
TEXAS 2.64%
Dallas, Texas, Area Rapid Transit
Sales Tax Rev, TECP, Series A,
3.400%, 1/30/1997 1,000,000 1,000,000
Grapevine Indl Dev, Texas (American
Airlines Proj), VR, Multiple Mode Rev,
Series A-4, 4.950%, 12/1/2024~ 1,200,000 1,200,000
Series B-3, 4.950%, 12/1/2024~ 2,000,000 2,000,000
Series B-4, 4.950%, 12/1/2024~ 300,000 300,000
Panhandle-Plains Higher Ed Auth, Texas,
Student Ln Rev, AR, Series 1993A,
4.100%, 6/1/2023~ 1,000,000 1,000,000
VR, Series 1995A, 4.100%, 6/1/2025~ 1,000,000 1,000,000
----------
6,500,000
----------
WASHINGTON 0.90%
Washington Hlth Care Facils Auth
(Sisters of Providence), VRD, Rev,
Series 1985B, 5.000%, 10/1/2005~^ 1,000,000 1,000,000
Series 1985E, 5.000%, 10/1/2005~ 500,000 500,000
Washington Hsg Fin Commn (Inglenook
Court Proj), VR, Multi Family Mtg
Rev, Series 1995, 5.450%, 7/1/2025~^ 725,000 725,000
----------
2,225,000
----------
WISCONSIN 0.10%
Wisconsin Hlth Facils Auth (Franciscan
Hlth Care System Fing), VRD, Series
1985A-2, 4.100%, 1/1/2016~ 240,000 240,000
----------
WYOMING 0.57%
Lincoln Cnty, Wyoming, (Exxon Proj),
AR, PCR, Series 1987A,
5.100%, 7/1/2017~ 800,000 800,000
Uinta Cnty, Wyoming (Chevron USA Proj),
VR, PCR Ref, Series 1992,
5.000%, 12/1/2022~ 600,000 600,000
----------
1,400,000
----------
<PAGE>
TOTAL MUNICIPAL SHORT-TERM NOTES
(Cost $55,070,000) 55,070,000
----------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $239,531,883#) 246,526,231
===========
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 of less. Rate shown reflects current rate.
# 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 December 31, 1996:
- -------------------------------------------------------------------------------
Number of Market Unrealized
Position Contracts Value Loss
- -------------------------------------------------------------------------------
US Treasury Bonds Long 300 $33,787,500 $(320,850)
(Expires March 1997)
See Notes to Financial Statements
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Statement of Assets and Liabilities
December 31, 1996
UNAUDITED
Tax-Free Tax-Free
Intermediate Long-Term
Bond Fund Bond Fund
---------------------------------------
ASSETS
Investment Securities:
At Cost $5,550,754 $239,531,883
======================================
At Value 5,627,169 246,526,231
Cash 57,723 0
Receivables:
Fund Shares Sold 906 132,177
Interest 90,162 3,108,316
Prepaid Expenses and Other Assets 55,405 225,332
--------------------------------------
TOTAL ASSETS 5,831,365 249,992,056
--------------------------------------
LIABILITIES
Payables:
Custodian 0 188,055
Distributions to Shareholders 1,168 205,441
Investment Securities Purchased 214,856 9,571,930
Fund Shares Repurchased 1,521 2,251,534
Variation Margin on Futures
Contracts 0 375,000
Accrued Distribution Expenses 1,087 590,887
Accrued Expenses and Other Payables 160 23,467
--------------------------------------
TOTAL LIABILITIES 218,792 13,206,314
--------------------------------------
Net Assets at Value 5,612,573 236,785,742
======================================
NET ASSETS
Paid-in Capital* 5,671,452 229,017,450
Accumulated Undistributed Net
Realized Gain (Loss) on
Investment Securities and
Futures Contracts (135,294) 1,094,794
Net Appreciation of Investment
Securities and Futures Contracts 76,415 6,673,498
--------------------------------------
Net Assets at Value 5,612,573 236,785,742
======================================
Shares Outstanding 567,854 15,587,856
Net Asset Value, Offering
and Redemption
Price per Share 9.88 15.19
======================================
<PAGE>
* 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
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Statement of Operations
Six Months Ended December 31, 1996
UNAUDITED
Tax-Free Tax-Free
Intermediate Long-Term
Bond Fund Bond Fund
---------------------------------------
INVESTMENT INCOME
INTEREST INCOME $ 123,225 $ 6,623,563
---------------------------------------
EXPENSES
Investment Advisory Fees 12,565 667,210
Distribution Expenses 6,282 303,277
Transfer Agent Fees 7,797 166,806
Administrative Fees 5,404 23,224
Custodian Fees and Expenses 1,075 18,332
Directors' Fees and Expenses 3,675 11,040
Pricing Expenses 3,032 7,547
Professional Fees and Expenses 6,127 18,274
Registration Fees and Expenses 12,318 27,011
Reports to Shareholders 661 18,710
Other Expenses 351 4,916
---------------------------------------
TOTAL EXPENSES 59,287 1,266,347
Fees and Expenses Absorbed
by Investment Adviser (38,109) (164,904)
Fees and Expenses Paid Indirectly (1,075) (9,748)
---------------------------------------
NET EXPENSES 20,103 1,091,695
---------------------------------------
NET INVESTMENT INCOME 103,122 5,531,868
---------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on:
Investment Securities 1,801 2,653,707
Futures Contracts 0 (2,346,111)
---------------------------------------
Total Net Realized Gain 1,801 307,596
---------------------------------------
Change in Net Appreciation of:
Investment Securities 66,503 2,595,656
Futures Contracts 0 466,553
---------------------------------------
Total Net Appreciaton 66,503 3,062,209
---------------------------------------
NET GAIN ON INVESTMENT SECURITIES 68,304 3,369,805
---------------------------------------
Net Increase in Net Assets
from Operations 171,426 8,901,673
=======================================
See Notes to Financial Statements
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Tax-Free Tax-Free
Intermediate Long-Term
Bond Fund Bond Fund
------------------------------ ------------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
December 31 June 30 December 31 June 30
------------------------------ ------------------------------
1996 1996 1996 1996
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $103,122 $237,430 $5,531,868 $12,005,770
Net Realized Gain on Investment Securities
and Futures Contracts 1,801 410 307,596 4,270,433
Change in Net Appreciation of Investment
Securities and Futures Contracts 66,503 24,371 3,062,209 1,464,794
------------------------------ ------------------------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS 171,426 262,211 8,901,673 17,740,997
------------------------------ ------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (103,122) (237,430) (5,531,868) (12,005,770)
Net Realized Gain on Investment Securities 0 0 (3,483,894) (3,155,247)
------------------------------ ------------------------------
TOTAL DISTRIBUTIONS (103,122) (237,430) (9,015,762) (15,161,017)
------------------------------ ------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 1,768,325 6,425,590 35,984,194 108,499,300
Reinvestment of Distributions 95,031 217,904 7,117,741 11,902,452
------------------------------ ------------------------------
1,863,356 6,643,494 43,101,935 120,401,752
Amounts Paid for Repurchases of Shares (1,316,111) (6,578,315) (57,092,162) (126,675,962)
------------------------------ ------------------------------
<PAGE>
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 547,245 65,179 (13,990,227) (6,274,210)
------------------------------ ------------------------------
Total Increase (Decrease) in Net Assets 615,549 89,960 (14,104,316) (3,694,230)
NET ASSETS
Beginning of Period 4,997,024 4,907,064 250,890,058 254,584,288
------------------------------ ------------------------------
End of Period 5,612,573 4,997,024 236,785,742 250,890,058
============================== ==============================
FUND SHARE TRANSACTIONS
Shares Sold 179,423 653,804 2,359,738 7,077,690
Shares Issued from Reinvestment of
Distributions 9,667 22,084 467,353 770,451
------------------------------ ------------------------------
189,090 675,888 2,827,091 7,848,141
Shares Repurchased (134,052) (669,109) (3,746,280) (8,237,343)
------------------------------ ------------------------------
Net Increase (Decrease) in Fund Shares 55,038 6,779 (919,189) (389,202)
============================== ==============================
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Notes to Financial Statements
UNAUDITED
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 intitial 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
<PAGE>
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.
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.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - All of the Fund's net
investment income is distributed to shareholders by dividends declared
daily and paid monthly. 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:
<PAGE>
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%
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 receives a transfer agent fee at an annual rate of $26.00 per
shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month.
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 six months
ended December 31, 1996, Tax-Free Intermediate Bond and Tax-Free Long-Term Bond
Funds paid the Distributor $6,147 and $70,505, 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 six months
ended December 31, 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 $ 722,405 $ 261,495
Tax-Free Long-Term Bond Fund 114,132,863 125,601,988
There were no purchases or sales of U.S. Government securities.
NOTE 4 - APPRECIATION AND DEPRECIATION. At December 31, 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:
<PAGE>
Gross Gross Net
Fund Appreciation Depreciation Appreciation
- -------------------------------------------------------------------------------
Tax-Free Intermediate
Bond Fund $83,397 $6,982 $76,415
Tax-Free Long-Term Bond Fund 7,300,015 305,667 6,994,348
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 deferred compensation plan covering all
independent directors of the Fund who will have served as an independent
director for at least five years at the time of retirement. Benefits under this
plan are based on an annual rate equal to 40% of the retainer fee at the time of
retirement.
Pension expenses for the six months ended December 31, 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 $47 $28 $114
Tax-Free Long-Term Bond Fund 2,200 11,324 22,034
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
six months ended December 31, 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>
Six Months Year Period
Ended Ended Ended
December 31 June 30 June 30
----------- ---------------------- -------
1996 1996 1995 1994^
UNAUDITED
Tax-Free Intermediate Bond Fund
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $ 9.74 $ 9.70 $ 9.52 $10.00
----------- --------------------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.20 0.43 0.44 0.19
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.14 0.04 0.18 (0.48)
----------- --------------------- -------
Total from Investment Operations 0.34 0.47 0.62 (0.29)
----------- --------------------- -------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.20 0.43 0.44 0.19
----------- --------------------- -------
Net Asset Value - End of Period $ 9.88 $ 9.74 $ 9.70 $ 9.52
=========== ===================== =======
TOTAL RETURN 3.55%* 4.89% 6.67% (2.93%)*
RATIOS
Net Assets - End of Period ($000 Omitted) $ 5,613 $4,997 $4,907 $5,083
Ratio of Expenses to Average Net Assets# 0.43%*@ 0.76%@ 0.70% 0.70%~
Ratio of Net Investment Income to
Average Net Assets# 2.07%* 4.40% 4.56% 3.75%~
Portfolio Turnover Rate 5%* 49% 23% 55%*
^ 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
six months ended December 31, 1996 and for the years ended June 30, 1996, 1995
and for the period ended June 30, 1994. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net asset would have been
1.19% (not annualized), 2.34%, 2.45% and 3.09% respectively, and ratio of net
investment income to average net assets would have been 1.31% (not annualized),
2.82%, 2.81% and 1.36%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by the
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
</TABLE>
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Six Months
Ended
December 31 Year Ended June 30
----------- -------------------------------------------------------
1996 1996 1995 1994 1993 1992
UNAUDITED
Tax-Free Long-Term Bond Fund
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value - Beginning of Period $15.20 $15.07 $15.29 $16.35 $15.69 $15.05
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INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.35 0.73 0.80 0.83 0.87 0.92
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.22 0.32 0.09 (1.00) 1.04 0.95
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Total from Investment Operations 0.57 1.05 0.89 (0.17) 1.91 1.87
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LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.35 0.73 0.80 0.83 0.87 0.92
Distributions from Capital Gains 0.23 0.19 0.31 0.06 0.38 0.31
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Total Distributions 0.58 0.92 1.11 0.89 1.25 1.23
------ -------------------------------------------------------
Net Asset Value - End of Period 15.19 15.20 15.07 15.29 16.35 15.69
====== =======================================================
TOTAL RETURN 3.78%* 7.01% 6.16% (1.16%) 12.57% 12.79%
RATIOS
Net Assets - End of Period
($000 Omitted) $236,786 $250,890 $254,584 $282,407 $332,239 $272,382
Ratio of Expenses to Average Net Assets# 0.46%*@ 0.91%@ 0.92% 1.00% 1.03% 1.02%
Ratio of Net Investment Income to
Average Net Assets# 2.31%* 4.76% 5.31% 5.14% 5.43% 5.90%
Portfolio Turnover Rate 59%* 146% 99% 28% 30% 28%
* 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 for the six
months ended December 31, 1996 and 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 0.53% (not annualized), 1.04% and 1.05%,
respectively, and ratio of net investment income to average net assets would
have been 2.24% (not annualized), 4.63% and 5.18%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by the
Investment Adviser, which is before any expense offset arrangements.
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INVESCO FUNDS
We're easy to stay in touch with:
Investor Services Representatives,
1-800-525-8085
PAL(R), your Personal Account Line,
1-800-424-8085
On the World Wide Web:
http://www.invesco.com
Denver Investors Centers:
Cherry Creek, 155-B Fillmore Street;
Denver Tech Center, 7800 E. Union
Avenue, Lobby Level
INVESCO Funds Group, Inc.,(SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or accompanied by a current prospectus.
