ANNUAL REPORT
June 30, 1997
INVESCO
TAX-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 Change
This bar graph illustrates the quarterly growth rate for the Gross Domestic
Product, for the period from the third quarter of 1994 through the second
quarter of 1997.
Economic Overview July 1997
We are currently in the greatest bull market of all time, and wealth has
been created on a scale that has never been seen before. The strength and
longevity of this market have surprised even the staunchest market advocates. A
preemptive strike against inflation by the Federal Reserve Board in March -- a
25 basis point increase in the Fed Funds Rate -- produced a pullback in the
stock market. However, since that minor correction, the broad equity market has
produced approximately 20% returns in several large-capitalization stock
indexes. This has left many investment professionals wondering if we have
reached a nearly perfect investment environment -- and how long it might last.
The fixed-income market, although producing gains over the last six months,
has not enjoyed the jubilance experienced on the equity side. Concerns over
potential wage inflation, a slowing economy, and an increase in the Fed Funds
Rate have kept fixed-income securities in what appears to be a consolidated
trading range.
Why have the domestic equity market and economy been so strong over the last
10 years? The driving force behind the overall strength of the markets during
the last 10 years has been low inflation, strong economic growth, and increased
worker productivity. These factors have led to above-average increases in
corporate profits and earnings, sending stock prices higher. Meanwhile, prices
across the economy (as measured by the Gross Domestic Product price deflator)
rose only 1.8% in 1996 -- the smallest gain since 1964. Currently, the inflation
rate for the U.S. economy is at 2.2%, and producer prices actually declined over
the first six months in 1997.
Gains in worker productivity have helped curb inflation. Over the last 10
years, corporate restructuring, downsizing, and investments in technology have
increased the efficiency of American companies and workers. These gains have
outpaced wage increases. Coupled with increased international competition,
improved productivity has put downward pressure on prices -- which is beneficial
for the economy as it stimulates consumer demand.
As a result, the U.S. economy has re-established itself as the global
leader. In turn, the demand for skilled labor has risen, and unemployment in May
1997 was at 4.8% (the lowest level since 1973). Some naysayers suggest that the
tight labor market will eventually lead to increased wages and inflation, which
may have negative consequences for corporate stock prices.
Strategic Overview
Of Municipal Investments
Fears of strong global growth (especially from emerging and developing
economies) versus a potential slowdown in the U.S. economy increased the
volatility of domestic interest rates over the last year. Expanding economies
overseas may produce increased demand for commodities and the potential for
inflation and higher interest rates. On the other hand, a slowdown here in the
U.S. might lead to a decrease in consumer demand and, potentially, lower prices
- - which could lead to lower interest rates.
These changing expectations for interest rates have also caused a tightening
in interest rate spreads and a consolidation in the trading range of municipal
<PAGE>
bonds. That is the risk/reward trade-off for investors has changed as the
yield difference between longer and shorter municipal bond maturities has
narrowed to 150 basis points. Furthermore, the increased demand for
higher-yielding municipal bonds caused a compression in the premium that
investors are willing to pay for municipal bonds - as the increased yield for
riskier municipal bonds is presently negligible.
Within this difficult environment, we have been successful by limiting our
credit exposure, while aggressively managing duration. (Duration is the measure
of the average life of a bond taking into account the present value of future
payments.)
For the last three years, the U.S. bond market lagged the domestic equity
market. This is unusual from a historical standpoint, and we may eventually
enter a period in which bonds outperform stocks. However, it presently appears
that the municipal bond market may be fully valued. Until the economy and
fixed-income market develop clear trends, we will be cautious with our
investment approach.
Tax-Free Long-Term Bond Fund
Average Annualized Total Return
as of 6/30/97
1 year 7.05%
----------------------------------
5 years 6.24%
----------------------------------
10 years 8.19%
----------------------------------
INVESCO Tax-Free Income Funds, Inc.
The line graphs on pages 2 and 3 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 6/30/97, and in
Tax-Free Intermediate Bond Fund for the period from inception (12/93) through
6/30/97.
At the end of these respective periods, the Tax-Free Long-Term Bond Fund
account would have had a value of $21,976 and Tax-Free Intermediate Bond Fund,
$11,508. The charts 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
Bond Portfolio Quality By Value
as of 6/30/97
This pie chart shows the allocation of the portfolio's net
assets for each of the following ratings categories: Aaa -
57.56%, Aa - 20.19%, A - 16.61%, Baa - 2.48%, Ba - 2.23%, NR
- 0.93%.
Ratings are S&P's or Moody's. (3)
INVESCO Tax-Free Long-Term Bond Fund
For the one-year period ended 6/30/97, the fund achieved a return of 7.05%,
and 3.15% for the six-month period. The Lehman Municipal Bond Index had a total
return of 8.27% for the same one-year period, and 3.22% for the six-month
period. (Of course, past performance is not a guarantee of future results.)(1),
(2)
<PAGE>
Graph: Tax-Free Long-Term Bond Fund 10-Year Total Return
vs. Lehman Municipal Bond Index
This line graph illustrates a comparison of the value
of a $10,000 investment in 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 10-year period ended 6/30/97.
Graph: Geographical Diversification
by market value as of 6/30/97
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 - 19% Midwest - 26% Northeast - 24% South Central - 7%
Southeast - 3% Puerto Rico - 1% Cash and Cash Equivalents
- 20% Composition of holdings is subject to change.
Tax-Free Intermediate Bond Fund
Average Annualized Total Return
as of 6/30/97
1 year 5.96%
--------------------------------
Since inception (12/93) 4.00%
--------------------------------
INVESCO Tax-Free Intermediate Bond Fund
For the one-year period ended 6/30/97, the fund achieved a total return of
5.96%, and 2.32% for the six-month period. The Lehman Intermediate Municipal
Bond Index had a total return of 6.72% for the same one-year period, and 1.74%
for the six-month period. (Of course, past performance is not a guarantee of
future results.)(1),(2)
Graph: Tax-Free Intermediate Bond Fund 10-Year Total Return
vs. Lehman Intermediate Municipal Bond Index
This line graph illustrates 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 since inception and ended
June 30, 1997.
Graph: Tax-Free Intermediate Bond Fund
Bond Portfolio Quality By Value
as of 6/30/97
This pie chart shows the allocation of the portfolio's net
assets for each of the following ratings categories: Aaa -
51.27%, Aa - 22.40%, A - 15.72%, Baa - 10.03%, Ba - 0.58%.
Ratings are S&P's or Moody's. (3)
<PAGE>
Graph: Geographical Diversification
by market value as of 6/30/97
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 - 41% Midwest - 15% Northeast - 15% South Central - 9%
Southeast - 11% Cash and Cash Equivalents - 9% Composition
of holdings is subject to change.
FUND MANAGEMENT
INVESCO Tax-Free Income Funds have been managed by INVESCO Vice President
James S. Grabovac since 1995. An industry veteran with 15 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.
(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 Municipal Bond Index and Intermediate Municipal Bond Index are
unmanaged indexes indicative of the broad tax-exempt bond market.
(3)S&P and Moody are independent bond rating services.
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
STATEMENT OF INVESTMENT SECURITIES
June 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Principal
Description Amount Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
TAX-FREE INTERMEDIATE BOND Fund
MUNICIPAL BONDS 93.37%
ALASKA 8.72%
Alaska Indl Dev & Export Auth,
Ref Revolving Fund, Series 1994A,
Lots 1-29, 5.700%, 4/1/2004 $ 200,000 $ 209,750
Municipality of Anchorage, Alaska,
Gen Oblig Ref, Gen Purpose, 1993
Series B, 4.900%, 8/1/2003^ 25,000 25,312
Municipality of Anchorage, Alaska,
Port Rev Ref, 1995, 6.000%, 2/1/2004 150,000 159,563
------------
394,625
------------
ARIZONA 2.28%
Pinal Cnty, Arizona (Mammoth-San Manuel
Unified School Dist #8), Ref, Series 1994,
6.000%, 7/1/2001 100,000 103,250
------------
CALIFORNIA 3.71%
California, Various Purpose Gen Oblig,
6.300%, 9/1/2008 150,000 168,000
------------
COLORADO 8.05%
Arapahoe Cnty Public Hwy Auth, Colorado
(E-470 Proj), Cap Impt Trust Fund, Hwy Rev,
Veh Regn Fee, 5.300%, 8/31/2006> 200,000 206,500
Montrose Cnty Bldg Auth, Colorado,
Ctfs of Participation, 6.350%, 6/15/2006 150,000 157,688
------------
364,188
------------
DISTRICT OF COLUMBIA 0.54%
District of Columbia, Gen Oblig Ref,
Series 1994A, 5.200%, 6/1/2003 25,000 24,625
------------
FLORIDA 6.48%
Dade Cnty, Florida, Solid Waste System
Rev Ref, Series 1996, 6.000%, 10/1/2006 200,000 215,500
Miami Beach Redev Agency, Florida
(City Ctr/Historic Convention Village),
Tax Increment Rev, Series 1993,
5.100%, 12/1/2003 80,000 77,600
------------
293,100
------------
<PAGE>
GEORGIA 0.66%
Muni Elec Auth of Georgia, Pwr Rev,
Series CC, 4.500%, 1/1/2002 30,000 29,700
------------
ILLINOIS 4.59%
Illinois, Gen Oblig, Series 1995,
5.125%, 12/1/2005 125,000 127,500
Illinois Hsg Dev Auth, Hsg Dev Rev,
1993 Series A, 5.000%, 1/1/2001 20,000 19,900
Illinois Toll Hwy Auth, Toll Hwy Ref Rev,
1993 Series A, 4.700%, 1/1/2001 60,000 60,150
------------
207,550
------------
LOUISIANA 4.60%
Louisiana Pub Facils Auth, Student
Ln Rev, Series 1992A-1, 6.200%, 3/1/2001 200,000 208,250
------------
MASSACHUSETTS 0.47%
Massachusetts Muni Wholesale Elec,
Pwr Supply System Rev, 1992 Series B,
6.375%, 7/1/2001 20,000 21,075
------------
NEVADA 3.10%
Nevada Hsg Div (Single Family Prog),
Sr Rev, 1994 Issue B-1, 5.900%, 4/1/2003 135,000 140,231
------------
NEW HAMPSHIRE 4.88%
New Hampshire Hsg Fin Auth, Single Family
Residential Mtg, 1994 Series D,
5.850%, 1/1/2001 215,000 220,644
------------
NEW YORK 4.72%
New York Muni Assistance, New York, Rev,
1991 Gen Resolution Series E,
6.000%, 7/1/2003 200,000 213,500
------------
OHIO 1.11%
Ohio Bldg Auth, State Correctional
Facils Rev Ref, 1994 Series A,
4.600%, 10/1/2003 50,000 50,000
------------
OREGON 0.55%
Oregon Hsg & Cmnty Svcs Dept (Single Family
Mtg Proj), Mtg Rev, 1993 Series A,
4.500%, 7/1/2001 25,000 24,844
------------
PENNSYLVANIA 5.15%
Philadelphia, Pennsylvania, Gas Wks Rev,
Fifteenth Series, 5.000%, 8/1/2003 65,000 63,944
Philadelphia, Pennsylvania, Wtr & Wastewtr
Rev, Series 1995, 6.750%, 8/1/2005 150,000 168,938
------------
232,882
------------
<PAGE>
SOUTH DAKOTA 5.61%
South Dakota, Student Ln Fin Rev, Series
1994-A, 5.850%, 8/1/2000> 250,000 253,750
------------
TENNESSEE 0.44%
Knoxville, Tennessee, Wtr Rev Ref & Impt,
Series M-1993, 4.500%, 3/1/1999 20,000 20,050
------------
TEXAS 4.46%
Katy Independent School Dist, Texas,
Limited Tax School Bldg Bnds, Series 1996,
7.500%, 2/15/2006 150,000 176,812
Trinity River Indl Dev Auth, Texas
(Intl Paper Proj), Rev Ref, 1993
Series, 4.900%, 12/1/2002 25,000 25,218
------------
202,030
------------
VIRGINIA 3.33%
Rivanna Wtr & Swr Auth, Virginia, Regl
Wtr & Swr System Ref Rev, Series of 1993,
4.500%, 10/1/2000 50,000 50,250
Southeastern Pub Svc Auth, Virginia, Regl
Solid Waste System, Sr Rev Ref, Series 1993A,
5.150%, 7/1/2009 100,000 100,625
------------
150,875
------------
WASHINGTON 10.94%
Clark Cnty, Washington (Pub Util Dist #1),
Generating System Rev, Series 1995,
6.000%, 1/1/2006 200,000 214,250
Washington Pub Pwr Supply System, Ref Elec Rev,
Nuclear Proj #1, Series 1993-1A,
5.100%, 7/1/2000^ 20,000 20,150
Nuclear Proj #2, Series 1994A,
5.000%, 7/1/2009 200,000 195,250
Wenatchee, Washington, Wtr & Swr Rev Ref,
1994, 4.600%, 12/1/2002 65,000 65,569
------------
495,219
------------
WISCONSIN 4.57%
Wisconsin Hlth & Ed Facils Auth
(Franciscan Skemp Med Ctr), Rev,
Series 1995, 5.750%, 11/15/2008 200,000 206,750
------------
WYOMING 4.41%
Platte Cnty, Wyoming (Basin Elec Power
Cooperative - Laramie River Station Proj),
PCR, Series 1994, 5.100%, 1/1/2008 200,000 199,750
------------
TOTAL MUNICIPAL BONDS
(Cost $4,154,198) 4,224,888
------------
<PAGE>
SHORT-TERM INVESTMENTS - MUNICIPAL NOTES 6.63%
ALABAMA 2.21%
North Alabama Env
Impt Auth (Reynolds Metals
Proj), DATES, PCR Ref, Series 1985,
4.100%, 12/1/2000~ 100,000 100,000
------------
CALIFORNIA 2.21%
Los Angeles Regl Airports Impt, California
(American Airlines/Los Angeles Intl Airport
Proj), FR, Corp Lease Rev, Series B,
4.100%, 12/1/2024~ 100,000 100,000
------------
TENNESSEE 2.21%
Nashville Metro Airport Auth, Tennessee
(American Airlines Proj), AR, Special
Facil Rev, Ref,
Series 1995A, 4.100%, 10/1/2012~ 100,000 100,000
------------
TOTAL MUNICIPAL SHORT-TERM NOTES
(Cost $300,000) 300,000
------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $4,454,198#) $ 4,524,888
============
TAX-FREE LONG-TERM BOND Fund
MUNICIPAL BONDS 76.42%
ALABAMA 1.93%
Birmingham Special Care Facils Fing Auth,
Alabama (Daughters of Charity Natl Hlth
System - Providence Hosp & St Vincent Hosp),
Hosp Rev, Series 1995, 5.000%, 11/1/2025> 5,000,000 4,487,500
------------
ALASKA 2.42%
Alaska Hsg Fin, Gen Mtg Rev, 1997 Series A,
6.000%, 6/1/2027 + 5,000,000 5,081,250
Alaska Hsg Fin (Veterans Mtg Prog),
Collateralized Gen Oblig, 1990 First
Series, 7.500%, 12/1/2030 510,000 532,312
------------
5,613,562
------------
ARIZONA 0.46%
Arizona Edl Ln Mktng, 1992 Edl Ln Rev,
Series B, 7.000%, 3/1/2005 1,000,000 1,067,500
------------
CALIFORNIA 6.24%
Anaheim Pub Fing Auth, California
(Anaheim Pub Impts Proj), Sub Lease Rev,
1997 Series C, Cap Appreciation, 9/1/2025 18,170,000 3,520,437
Big Bear Lake Dept of Wtr & Pwr,
California, Wtr Rev Ref, Series 1996,
6.000%, 4/1/2022 2,000,000 2,132,500
<PAGE>
California Wtr Resources Dept (Central
Valley Proj), Wtr System Rev,
Series O, 4.750%,
12/1/2019 5,000,000 4,437,500
12/1/2025 5,000,000 4,387,500
------------
14,477,937
------------
COLORADO 0.60%
Fountain Valley Auth, Colorado, Wtr
Treatment Ref Rev, Series 1991,
6.800%, 12/1/2019 1,140,000 1,229,775
Montrose Cnty Bldg Auth, Colorado,
Ctfs of Participation, 6.350%, 6/15/2006 150,000 157,688
------------
1,387,463
------------
FLORIDA 0.23%
Greater Orlando Aviation Auth, Florida,
Airport Facils Rev, Series 1988,
8.375%, 10/1/2016 490,000 523,688
------------
GEORGIA 2.29%
Atlanta, Georgia, Airport Facils Rev,
Series 1990, 7.250%, 1/1/2017 2,000,000 2,152,500
Atlanta, Georgia (Delta Air Lines Proj),
Special Purpose Facils Rev, Series 1989B,
7.400%, 12/1/1999 3,000,000 3,150,000
------------
5,302,500
------------
ILLINOIS 13.03%
Chicago, Illinois, Gen Oblig, Ref,
Series 1993B, 5.125%, 1/1/2022 2,465,000 2,320,181
Chicago, Illinois, Wastewtr Transmission
Rev, Series 1995, 5.125%, 1/1/2025 > 10,000,000 9,225,000
Chicago, Illinois (Peoples Gas Light &
Coke), 1st & Ref Mtg, Series CC,
Medium-Term Notes, 6.875%, 3/1/2015 2,875,000 3,126,562
Cook & DuPage Cntys, Illinois (Lemont-
Bromberek Combined School Dist #113A),
School Bldg, Series 1995B, Cap
Appreciation, 12/1/2015 5,060,000 1,764,675
Illinois Dev Fin Auth (Catholic Charities
Hsg Dev Proj), Rev, Series 1995,
6.350%, 1/1/2025 1,500,000 1,496,250
Illinois Hlth Facils Auth (Northwestern
Mem Hosp), Rev, Series 1991,
6.750%, 8/15/2011> 5,000,000 5,350,000
Illinois Metro Pier & Exposition Auth
(McCormick Pl Expansion Proj),
Dedicated Tax Rev Ref, Series 1994A,
Cap Appreciation,
12/15/2012 5,000,000 2,118,750
<PAGE>
6/15/2020 6,000,000 1,605,000
6/15/2025 1,200,000 240,000
6/15/2026 1,500,000 283,125
6/15/2027 1,000,000 178,750
Univ of Illinois Brd of Trustees,
Auxiliary Facils System Rev,
Series 1991, Cap Appreciation, 4/1/2012 5,795,000 2,535,313
------------
30,243,606
------------
INDIANA 8.38%
Dekalb Cnty Redev Auth, Indiana
(Mini-Mill Loc Pub Impt Proj),
Rev, Series A 1995,
6.500%, 1/15/2014 900,000 949,500
Indiana Transn Fin Auth, Airport
Facils Lease Rev, Series A,
6.750%, 11/1/2011 1,500,000 1,674,375
Indiana Transn Fin Auth, Hwy Rev,
Series 1993A, Cap Appreciation,
12/1/2017 3,000,000 922,500
Indianapolis Airport Auth, Indiana,
Rev, Series 1988, 8.400%, 7/1/2008 2,000,000 2,108,660
Indianapolis Loc Pub Impt Bd Bank,
Indiana, Impt Rev, Series 1991C,
6.700%, 1/1/2017 3,750,000 4,134,375
Petersburg, Indiana (Indianapolis Pwr
& Light Proj), PCR Ref, Series 1993B,
5.400%, 8/1/2017> 9,850,000 9,665,313
------------
19,454,723
------------
MASSACHUSETTS 6.87%
Boston Wtr & Swr Commn, Massachusetts,
Gen Rev, 1993 Sr Series A,
5.250%, 11/1/2019> 5,385,000 5,223,450
Commonwealth of Massachusetts, Gen Oblig,
Consolidated Ln of 1992, Series D,
8.000%, 5/1/2006> 5,000,000 6,106,250
Massachusetts Wtr Resources Auth,
Gen Rev, 1995 Series B,
4.750%, 12/1/2021> 5,250,000 4,620,000
------------
15,949,700
------------
MISSISSIPPI 0.35%
Claiborne Cnty, Mississippi (System
Energy Resources Proj), PCR, Series A,
9.500%, 12/1/2013 750,000 812,812
------------
NEBRASKA 2.14%
Nebraska Invt Fin Auth, Single Family
Hsg Rev, 1997 Series B,
5.850%, 9/1/2028~~ 5,000,000 4,968,750
------------
<PAGE>
NEW HAMPSHIRE 0.42%
New Hampshire Hsg Fin Auth, Single Family
Residential Mtg, 1994 Series D,
6.850%, 7/1/2006 910,000 965,737
------------
NEW MEXICO 2.28%
Los Alamos Cnty, New Mexico, Util System
Rev, Series 1994A, 6.000%, 7/1/2009> 5,000,000 5,287,500
------------
NEW YORK 10.89%
New York, New York, Gen Oblig, 1997
Series L, 5.250%, 8/1/2009 > 2,500,000 2,503,125
New York & New Jersey Port Auth,
Consolidated Gen Oblig, Rev,
Ninety-Third Series, 6.125%, 6/1/2094 5,250,000 5,591,250
One Hundred Fourth Series,
4.750%, 1/15/2026 2,500,000 2,203,125
New York Dorm Auth (State Univ Dorm
Facils Issue), Lease Rev, Series 1995A,
6.000%, 7/1/2010 1,550,000 1,674,000
New York Muni Wtr Fin Auth, New York,
Wtr & Swr System Rev, 1997 Series B,
5.750%, 6/15/2029 7,625,000 7,605,938
Triborough Bridge & Tunnel Auth,
New York, Gen Purpose Rev,
Series 1993B, 5.000%, 1/1/2020 1,935,000 1,818,900
Series 1996B, 5.200%, 1/1/2027 1,000,000 946,250
Series Y, 5.500%, 1/1/2017 2,900,000 2,929,000
------------
25,271,588
------------
PENNSYLVANIA 2.54%
Philadelphia, Pennsylvania (Philadelphia
Airport System), Airport Rev,
Series 1997B, 5.250%, 6/15/2010~~ 5,985,000 5,901,928
------------
PUERTO RICO 1.01%
Puerto Rico Pub Bldgs Auth (Commonwealth
of Puerto Rico), Govt Facils Rev,
Series B, 5.250%, 7/1/2021 2,500,000 2,353,125
------------
RHODE ISLAND 1.60%
Rhode Island Depositors Econ Protection,
Special Oblig, 1992 Series A,
6.950%, 8/1/2022 1,500,000 1,683,750
Special Oblig Ref, 1993 Series A,
5.750%, 8/1/2012 2,000,000 2,037,500
------------
3,721,250
------------
<PAGE>
TEXAS 4.78%
Austin, Texas, Combined Util Systems,
Rev Ref, Series 1992, Cap Appreciation,
11/15/2009+ 5,020,000 2,622,950
11/15/2011 1,400,000 644,000
Austin, Texas, Wtr, Swr & Elec Ref Rev,
Series 1982, 14.000%, 11/15/2001 500,000 621,825
Harris Cnty, Texas (Galena Park Indpt
School Dist), Unltd Tax School Bldg & Ref,
Series 1996, Cap Appreciation, 8/15/2023 3,220,000 740,600
Texas Muni Pwr Agency, Ref Rev, Series 1989,
Cap Appreciation, 9/1/2010 6,650,000 3,275,125
Tyler Hlth Facils Dev, Texas (East Texas
Med Ctr Regl Hlthcare System Proj),
Hosp Rev, Series 1997,
5.600%, 11/1/2027~~ 3,250,000 3,180,938
------------
11,085,438
------------
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 1,690,000 1,770,275
------------
VERMONT 0.46%
Vermont Hsg Fin Agency, Single Family
Hsg Rev, Series 5, 6.875%, 11/1/2016 1,000,000 1,055,000
------------
VIRGINIA 0.75%
Upper Occoquan Sewage Auth, Virginia,
Regl Sewerage System Rev, Series 1995A,
4.750%, 7/1/2029 2,000,000 1,742,500
------------
WASHINGTON 5.07%
Chelan Cnty Pub Util Dist #1, Washington,
Columbia River-Rock Island Hydro-Elec
System Rev Ref, Series 1997A,
Cap Appreciation, 6/1/2023> 22,685,000 5,132,481
Grant Cnty Pub Util Dist #2, Washington,
Hydroelectric Dev Rev, Second Series
1990, (Priest Rapids), 7.700%, 1/1/2018 3,000,000 3,225,000
(Wanapum), 7.700%, 1/1/2018 1,050,000 1,128,750
King Cnty, Washington (King Street
Ctr Proj), Lease Rev, 5.250%, 6/1/2026 2,425,000 2,288,594
------------
11,774,825
------------
WISCONSIN 0.92%
Adams Cnty, Wisconsin (Adams-Friendship
School Dist), Gen Oblig Ref,
6.500%, 4/1/2015 1,340,000 1,499,125
Southeast Wisconsin Professional
Baseball Park Dist, Sales Tax Rev,
Series 1997, Cap Appreciation,
12/15/2020 1,500,000 390,000
12/15/2021 1,000,000 246,250
------------
<PAGE>
2,135,375
------------
TOTAL MUNICIPAL BONDS
(Cost $169,805,424) 177,354,282
------------
SHORT-TERM INVESTMENTS -
MUNICIPAL NOTES 23.58%
ALABAMA 0.43%
North Alabama Environmental Impt Auth
(Reynolds Metals Proj), DATES, PCR Ref,
Series 1985, 4.100%, 12/1/2000 ~ 1,000,000 1,000,000
------------
CALIFORNIA 0.30%
Los Angeles Regl Airports Impt,
California (American Airlines/
Los Angeles Intl Airport),
Facils Sublease FDR, Issue 1984,
Series D, 4.100%, 12/1/2024 ~ 700,000 700,000
------------
COLORADO 2.28%
Colorado Hlth Facils Auth, Hosp Rev,
(North Colorado Med Ctr), VRD,
Series 1990, 4.150%, 5/15/2020~+ 1,200,000 1,200,000
(Sisters of Charity Hlth Care Systems),
VR, Rev, Series 1995, 4.150%, 5/15/2025~ 2,900,000 2,900,000
Colorado Student Oblig Auth, A/FR,
Student Ln Rev, 1993 Series C-2,
4.150%, 9/1/2002~ 1,200,000 1,200,000
------------
5,300,000
------------
FLORIDA 0.43%
Dade Cnty Hlth Facils Auth, Florida
(Miami Children's Hosp Proj), AR,
Hosp Rev, Series 1995, 4.150%, 9/1/2025~ 1,000,000 1,000,000
------------
ILLINOIS 0.65%
Illinois Hlth Facils Auth (Hlthcorp
Affiliates Proj), VRD, Rev, Series 1985B,
4.200%, 11/1/2015~ 1,500,000 1,500,000
------------
INDIANA 0.68%
Indiana Hosp Equip Fing Auth, VR, Rev,
Series A, 4.250%, 12/1/2015~ 1,565,000 1,565,000
------------
KENTUCKY 0.43%
Ashland, Kentucky (Ashland Oil Proj),
A/FR, 7&7 PCR Ref, Series 1985,
4.000%, 4/1/2009~ 1,000,000 1,000,000
------------
LOUISIANA 1.03%
DeSoto Parish, Louisiana (Cent Louisiana
Elec Proj), ATS, PCR Ref, Series 1991B,
4.150%, 7/1/2018~+ 1,900,000 1,900,000
<PAGE>
East Baton Rouge Parish, Louisiana
(Georgia-Pacific Proj), A/FR, 7&7 PCR,
Series 1984, 4.150%, 10/1/1999~ 500,000 500,000
------------
2,400,000
------------
MASSACHUSETTS 0.56%
Commonwealth of Massachusetts, Gen Oblig,
UPDATES, Dedicated Income Tax,
Recovery Ln, Series B,
4.000%, 12/1/1997 1,300,000 1,300,000
------------
MISSOURI 1.72%
Columbia, Missouri, AR, Special Oblig
Ins Reserve, Series 1988A,
4.200%, 6/1/2008~+ 2,500,000 2,500,000
Missouri Hlth & Edl 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
------------
4,000,000
------------
NEBRASKA 0.84%
Buffalo Cnty Hosp Auth #1, Nebraska
(Sisters of Charity-Richard H.
Young Mem Hosp Proj), ATS, Series 1988A,
4.050%, 5/1/2018~ 1,940,000 1,940,000
------------
NEW MEXICO 1.59%
Albuquerque, New Mexico, Gross Receipts/
Lodgers' Tax, ATS, Ref Rev, Series 1991A,
4.200%, 7/1/2022~ 3,700,000 3,700,000
------------
NEW YORK 0.56%
New York, New York, VR, Gen Oblig,
1995 Series B, Subseries B-7,
4.150%, 8/15/2018~ 100,000 100,000
New York Muni Wtr Fin Auth, New York,
AR, Wtr & Swr System Rev, 1994 Series G,
4.050%, 6/15/2024~ 1,200,000 1,200,000
------------
1,300,000
------------
NORTH CAROLINA 0.22%
North Carolina Med Care Commn (Pooled
Fing Proj), ACES, Hosp Rev, Series 1991B,
4.150%, 10/1/2013~ 500,000 500,000
------------
OREGON 0.26%
Port Portland, Oregon (Reynolds Metals),
DATES, PCR Ref, Series 1985,
4.100%, 12/1/2009~ 600,000 600,000
------------
<PAGE>
PENNSYLVANIA 1.46%
Delaware Valley Regl Fin Auth, Pennsylvania
(Bucks, Chester, Delaware & Montgomery
Cntys), AR, Loc Govt Rev, Series 1985B,
4.150%, 12/1/2020~ 2,400,000 2,400,000
Emmaus Gen Auth, Pennsylvania
(Pennsylvania VR Ln Prog), VRD,
Series 1996, 4.450%, 12/1/2028~ 1,000,000 1,000,000
------------
3,400,000
------------
TENNESSEE 3.36%
Clarksville Pub Bldg Auth, Tennessee
(Tennessee Muni Bd Fund), AR, Pooled
Fing Rev, Series 1990, 4.150%, 7/1/2013~+ 4,400,000 4,400,000
Knox Cnty Indl Dev Brd, Tennessee
(Professional Plaza Ltd Proj), FRD, IDR,
3.850%, 12/1/2014~ 1,100,000 1,100,000
Nashville & Davidson Cnty Metro Govt
Indl Dev Brd, Tennessee (Nashville
Office Bldg 1, Ltd Proj), FRD, IDR,
3.850%, 12/1/2014~ 1,800,000 1,800,000
Nashville Metro Airport Auth, Tennessee
(American Airlines Proj), AR, Special
Facils Rev Ref, Series 1995B,
4.100%, 10/1/2012~ 500,000 500,000
------------
7,800,000
------------
TEXAS 1.75%
Dallas, Texas, Area Rapid Transit Sales
Tax Rev, TECP, Series A,
3.750%, 7/17/1997 1,000,000 1,000,000
Panhandle-Plains Higher Ed Auth,
Texas, Student Ln Rev,
AR, Series 1993A, 4.250%, 6/1/2023~ 1,000,000 1,000,000
VR, Series 1995A, 4.250%, 6/1/2025~ 1,000,000 1,000,000
Texas Port Dev (Stolt Terminals Proj),
ATS, Marine Terminal Ref Rev, Series
1989, 4.200%, 1/15/2014~ 1,065,000 1,065,000
------------
4,065,000
------------
VIRGINIA 0.13%
Alexandria Indl Dev Auth, Virginia, AR,
Rev, Series 1986, 4.250%, 12/1/2016~ 300,000 300,000
------------
WASHINGTON 2.64%
Seattle, Washington, AR, Muni Light & Pwr,
Rev, 4.100%, 11/1/2018~ 1,000,000 1,000,000
Seattle, Washington, AR, Water System
Rev, Series 1995, 4.100%, 9/1/2025~+ 2,300,000 2,300,000
Washington Hlth Care Facils Auth
<PAGE>
(Sisters of Providence), DATES, Rev,
Series 1985B, 4.050%, 10/1/2005~^ 1,000,000 1,000,000
Series 1985D, 4.050%, 10/1/2005~ 1,100,000 1,100,000
Washington Hsg Fin Commn (Inglenook
Court Proj), VRD, Multifamily Mtg Rev,
Series 1995, 4.550%, 7/1/2025~^ 725,000 725,000
------------
6,125,000
------------
WISCONSIN 0.10%
Wisconsin Hlth Facils Auth (Franciscan
Hlth Care System Fing), VRD, Rev,
Series 1985A-2, 4.150%, 1/1/2016~ 240,000 240,000
------------
WYOMING 2.16%
Lincoln Cnty, Wyoming (Exxon Proj), AR,
PCR, Series B, 4.250%, 7/1/2017~ 3,000,000 3,000,000
Uinta Cnty, Wyoming (Chevron USA Proj),
AR, PCR Ref, Series 1992,
4.000%, 4/1/2010~ 2,000,000 2,000,000
------------
5,000,000
------------
TOTAL MUNICIPAL SHORT-TERM NOTES
(Cost $54,735,000) 54,735,000
------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $224,540,424#) $232,089,282
============
</TABLE>
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
FDR* - Flexible Demand Revenue
FR - Fixed Rate
F/FR - Floating/Fixed Rate
FRD* - Floating Rate Demand
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.
<PAGE>
^ Security has been designated as collateral for margin account on futures
contracts.
> Security has been designated as collateral for futures contracts.
~ 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 when-issued securities.
~~ Security is a when issued security.
<TABLE>
<CAPTION>
Futures Contracts
Open at June 30, 1997:
- ----------------------------------------------------------------------------------------------
Number of Market Unrealized
Position Contracts Value Loss
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax-Free Intermediate
Bond Fund
US Treasury Notes
(Expire September
1997) Short 4 $431,500 $(2,528)
Tax-Free Long-Term
Bond Fund
US Treasury Bonds
(Expire September
1997) Short 500 $55,531,250 $ (575,375)
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Statement of Assets and Liabilities
June 30, 1997
<TABLE>
<CAPTION>
Tax-Free Tax-Free
Intermediate Long-Term
Bond Fund Bond Fund
-------------------------------------
<S> <C> <C>
ASSETS
Investment Securities:
At Cost $4,454,198 $224,540,424
=====================================
At Value $4,524,888 $232,089,282
Cash 29,752 45,288
Receivables:
Investment Securities Sold 0 681
Fund Shares Sold 785 14,040
Interest 83,085 2,593,519
Variation Margin on Futures Contracts 1,375 281,250
Prepaid Expenses and Other Assets 8,757 32,915
-------------------------------------
TOTAL ASSETS 4,648,642 235,056,975
-------------------------------------
LIABILITIES
Payables:
Distributions to Shareholders 1,748 178,043
Investment Securities Purchased 0 14,111,302
Fund Shares Repurchased 0 288,420
Accrued Distribution Expenses 906 43,979
Accrued Expenses and Other Payables 539 24,909
-------------------------------------
TOTAL LIABILITIES 3,193 14,646,653
-------------------------------------
Net Assets at Value $4,645,449 $220,410,322
=====================================
NET ASSETS
Paid-in Capital* $4,700,940 $210,551,446
Accumulated Undistributed Net
Realized Gain (Loss) on Investment
Securities and Futures Contracts (123,653) 2,885,393
Net Appreciation of Investment
Securities and Futures Contracts 68,162 6,973,483
-------------------------------------
Net Assets at Value $4,645,449 $220,410,322
=====================================
Shares Outstanding 469,281 14,368,509
Net Asset Value, Offering and
Redemption Price per Share $9.90 $15.34
=====================================
* 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
</TABLE>
<PAGE>
INVESCO Tax-Free Income Funds, Inc.
Statement of Operations
Year Ended June 30, 1997
<TABLE>
<CAPTION>
Tax-Free Tax-Free
Intermediate Long-Term
Bond Fund Bond Fund
-------------------------------------
<S> <C> <C>
INVESTMENT INCOME
INTEREST INCOME $235,485 $12,196,712
-------------------------------------
EXPENSES
Investment Advisory Fees 23,630 1,275,473
Distribution Expenses 11,815 579,761
Transfer Agent Fees 15,084 317,800
Administrative Fees 10,709 44,786
Custodian Fees and Expenses 2,073 35,740
Directors' Fees and Expenses 7,464 17,578
Pricing Expenses 6,664 19,693
Professional Fees and Expenses 12,146 34,242
Registration Fees and Expenses 22,674 49,578
Reports to Shareholders 1,871 42,897
Other Expenses 755 11,998
-------------------------------------
TOTAL EXPENSES 114,885 2,429,546
Fees and Expenses Absorbed by
Investment Adviser (74,941) (348,199)
Fees and Expenses Paid Indirectly (2,073) (18,702)
-------------------------------------
NET EXPENSES 37,871 2,062,645
-------------------------------------
NET INVESTMENT INCOME 197,614 10,134,067
-------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on:
Investment Securities 15,835 3,475,084
Futures Contracts (2,393) (1,281,927)
-------------------------------------
Total Net Realized Gain 13,442 2,193,157
-------------------------------------
Change in Net Appreciation (Depreciation) of:
Investment Securities 60,778 3,150,166
Futures Contracts (2,528) 212,028
-------------------------------------
Total Net Appreciation 58,250 3,362,194
-------------------------------------
NET GAIN ON INVESTMENT SECURITIES 71,692 5,555,351
-------------------------------------
Net Increase in Net Assets
from Operations $269,306 $15,689,418
=====================================
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
--------------------------- ------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $197,614 $237,430 $10,134,067 $12,005,770
Net Realized Gain on Investment
Securities and Futures Contracts 13,442 410 2,193,157 4,270,433
Change in Net Appreciation of Investment
Securities and Futures Contracts 58,250 24,371 3,362,194 1,464,794
----------------------------- -------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS 269,306 262,211 15,689,418 17,740,997
----------------------------- -------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (196,923) (237,430) (10,134,067) (12,005,770)
In Excess of Net Investment Income 0 0 (162,831) 0
Net Realized Gain on Investment Securities 0 0 (3,483,894) (3,155,247)
----------------------------- -------------------------------
TOTAL DISTRIBUTIONS (196,923) (237,430) (13,780,792) (15,161,017)
----------------------------- -------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 2,844,291 6,425,590 43,699,898 108,499,300
Reinvestment of Distributions 177,460 217,904 10,702,228 11,902,452
----------------------------- -------------------------------
3,021,751 6,643,494 54,402,126 120,401,752
Amounts Paid for Repurchases of Shares (3,445,709) (6,578,315) (86,790,488) (126,675,962)
----------------------------- -------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (423,958) 65,179 (32,388,362) (6,274,210)
----------------------------- -------------------------------
Total Increase (Decrease) in Net Assets (351,575) 89,960 (30,479,736) (3,694,230)
NET ASSETS
Beginning of Period 4,997,024 4,907,064 250,890,058 254,584,288
----------------------------- -------------------------------
End of Period $4,645,449 $4,997,024 $220,410,322 $250,890,058
============================= ===============================
FUND SHARE TRANSACTIONS
Shares Sold 288,509 653,804 2,869,165 7,077,690
Shares Issued from Reinvestment
of Distributions 18,030 22,084 703,719 770,451
----------------------------- -------------------------------
306,539 675,888 3,572,884 7,848,141
Shares Repurchased (350,074) (669,109) (5,711,420) (8,237,343)
----------------------------- -------------------------------
Net Increase (Decrease) in Fund Shares (43,535) 6,779 (2,138,536) (389,202)
============================= ===============================
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.
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 - The Fund may enter into futures contracts for hedging or
other non-speculative purposes. Upon entering into a contract, the 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 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 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 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 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
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. WHEN-ISSUED SECURITIES - When-issued securities held by the Fund are fully
collateralized by other securities which are notated in the Statement of
Investment Securities. Such collateral is in the possession of the Fund's
custodian. The collateral is evaluated daily to ensure its market value
equals or exceeds the current market value of the when-issued securities.
D. 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.
Effective January 13, 1997, the Fund began amortizing premiums on
purchases of portfolio securities as adjustments to income using the
effective interest method. This method of recording income more closely
reflects the economics of holding and disposing of debt instruments. Prior
to January 13, 1997, the Fund amortized premiums on purchases of portfolio
securities as adjustments to income using the straight-line method. Such
change in accounting method had no effect on net asset value per share.
E. 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, 1997, Tax-Free Intermediate Bond Fund had
$126,181 in net capital loss carryovers which expire in the year 2003.
Net capital loss carryovers utilized in 1997 by Tax-Free Intermediate
Bond Fund amounted to $6,259.
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, 1997, 99.59% and 97.36%
were exempt from federal income taxes for Tax-Free Intermediate Bond and
Tax- Free Long-Term Bond Funds, respectively.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - All of the Fund's net invest-
ment income is distributed to shareholders by dividends declared daily and
paid monthly. Income dividends are reinvested 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.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for market discounts, amortized premiums, net operation
losses and expired capital loss carryforwards.
<PAGE>
During the year ended June 30, 1997, the effect of such differences were
as follows:
Accumulated
Accumulated Undistributed
Undistributed Net Realized
Net Gain on
Investment Investment Paid-in
Fund Income Securities Capital
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund $ (691) $ 0 $ 691
Tax-Free Long-Term Bond Fund 162,831 (94,962) (67,869)
Net investment income, net realized gains and net assets were not affected.
G. 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%
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 provided for
reimbursement of marketing and advertising expenditures to IFG (the
"Distributor") to a maximum of 0.25% of annual average net assets. Amounts
accrued by the Fund are available to reimburse the Distributor for actual
<PAGE>
expenditures incurred within a rolling twelve-month period. For the year ended
June 30, 1997, Tax-Free Intermediate Bond and Tax-Free Long-Term Bond Funds paid
the Distributor $11,861 and $893,897, respectively, for reimbursement of
expenses incurred.
Effective January 1, 1997, the Rule 12b-1 distribution plan was modified by
action of the Board of Directors so that the Fund compensates IFG for
permissable activities and services in connection with the distribution of the
Fund's shares. Accordingly, the above amounts reflect reimbursements under the
plan for the six months ended December 31, 1996 and compensation under the plan
for the six months ended in June 30, 1997.
IFG has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by 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, 1997, 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 $ 1,688,763 $ 1,735,377
Tax-Free Long-Term Bond Fund 226,113,977 253,361,932
There were no purchases or sales of U.S. Government securities.
NOTE 4 - APPRECIATION AND DEPRECIATION. At June 30, 1997, 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 $ 78,418 $ 7,728 $ 70,690
Tax-Free Long-Term Bond Fund 7,640,556 91,698 7,548,858
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 year ended June 30, 1997, 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:
<PAGE>
Unfunded
Pension Accrued Pension
Fund Expenses Pension Costs Liability
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund $ 74 $ 28 $ 141
Tax-Free Long-Term Bond Fund 3,553 11,324 23,387
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. At June
30, 1997, there were no such borrowings.
Other Information
UNAUDITED
On January 31, 1997, a special meeting of the shareholders of the Fund was held
at which the eleven directors identified below were elected, the selection of
Price Waterhouse LLP as independent accountants (Proposal 1), the approval of a
new investment advisory agreement with IFG (Proposal 2) and a new sub-advisory
agreement between IFG and ITC (Proposal 3) were ratified. The following is a
report of the votes cast:
<TABLE>
<CAPTION>
Withheld/
Nominee/Proposal For Against Abstain Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax-Free Long-Term Bond Fund
Charles W. Brady 9,781,399 0 588,756 10,370,155
Dan J. Hesser 9,781,258 0 588,897 10,370,155
Fred A. Deering 9,771,464 0 598,691 10,370,155
Victor L. Andrews 9,780,727 0 589,428 10,370,155
Bob R. Baker 9,744,095 0 626,060 10,370,155
Lawrence H. Budner 9,784,106 0 586,049 10,370,155
Daniel D. Chabris 9,746,312 0 623,843 10,370,155
A.D. Frazier, Jr 9,790,462 0 579,693 10,370,155
Hubert L. Harris, Jr 9,786,875 0 583,280 10,370,155
Kenneth T. King 9,768,451 0 601,704 10,370,155
John W. McIntyre 9,788,424 0 581,731 10,370,155
Proposal 1 9,863,756 172,902 333,496 10,370,154
Proposal 2 9,461,595 435,239 473,321 10,370,155
Proposal 3 9,395,901 487,518 486,735 10,370,154
<PAGE>
Tax-Free Intermediate Bond Fund
Charles W. Brady 390,076 0 25,679 415,755
Dan J. Hesser 390,076 0 25,679 415,755
Fred A. Deering 390,076 0 25,679 415,755
Victor L. Andrews 388,983 0 26,772 415,755
Bob R. Baker 390,076 0 25,679 415,755
Lawrence H. Budner 388,936 0 26,819 415,755
Daniel D. Chabris 390,076 0 25,679 415,755
A.D. Frazier, Jr 390,076 0 25,679 415,755
Hubert L. Harris, Jr 390,076 0 25,679 415,755
Kenneth T. King 388,936 0 26,819 415,755
John W. McIntyre 390,076 0 25,679 415,755
Proposal 1 394,354 8,422 12,978 415,754
Proposal 2 384,384 8,728 22,644 415,756
Proposal 3 384,594 7,463 23,698 415,755
</TABLE>
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
--------------------------------------- --------
1997 1996 1995 1994^
<S> <C> <C> <C> <C>
Tax-Free Intermediate Bond Fund
PER SHARE DATA
Net Asset Value -
Beginning of Period $9.74 $9.70 $9.52 $10.00
-------------------------------------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.41 0.43 0.44 0.19
Net Gains or (Losses) on
Securities (Both
Realized and Unrealized) 0.16 0.04 0.18 (0.48)
--------------------------------------- --------
Total from Investment Operations 0.57 0.47 0.62 (0.29)
--------------------------------------- --------
<PAGE>
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.41 0.43 0.44 0.19
--------------------------------------- --------
Net Asset Value -
End of Period $9.90 $9.74 $9.70 $9.52
======================================= ========
TOTAL RETURN 5.96% 4.89% 6.67% (2.93%)*
RATIOS
Net Assets - End of Period
($000 Omitted) $4,645 $4,997 $4,907 $5,083
Ratio of Expenses to
Average Net Assets# 0.84%@ 0.76%@ 0.70% 0.70%~
Ratio of Net Investment
Income to Average
Net Assets# 4.18% 4.40% 4.56% 3.75%~
Portfolio Turnover Rate 41% 49% 23% 55%*
^ From December 1, 1993, commencement of investment 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, 1997, 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 2.43%, 2.34%, 2.45% and 3.09%, respectively,
and ratio of net investment income to average net assets would have been 2.59%,
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
</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
-------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Tax-Free Long-Term Bond Fund
PER SHARE DATA
Net Asset Value -
Beginning of Period $15.20 $15.07 $15.29 $16.35 $15.69
-------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.66 0.73 0.80 0.83 0.87
Net Gains or (Losses)
on Securities (Both
Realized and
Unrealized) 0.38 0.32 0.09 (1.00) 1.04
-------------------------------------------------------------
Total from Investment
Operations 1.04 1.05 0.89 (0.17) 1.91
-------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.66 0.73 0.80 0.83 0.87
In Excess of Net
Investment Income 0.01 0.00 0.00 0.00 0.00
Distributions from
Capital Gains 0.23 0.19 0.31 0.06 0.38
-------------------------------------------------------------
Total Distributions 0.90 0.92 1.11 0.89 1.25
-------------------------------------------------------------
Net Asset Value -
End of Period $15.34 $15.20 $15.07 $15.29 $16.35
=============================================================
TOTAL RETURN 7.05% 7.01% 6.16% (1.16%) 12.57%
RATIOS
Net Assets -
End of Period
($000 Omitted) $220,410 $250,890 $254,584 $282,407 $332,239
Ratio of Expenses to
Average Net Assets# 0.90%@ 0.91%@ 0.92% 1.00% 1.03%
Ratio of Net Investment
Income to Average
Net Assets# 4.36% 4.76% 5.31% 5.14% 5.43%
Portfolio Turnover Rate 123% 146% 99% 28% 30%
<PAGE>
# Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended June 30, 1997, 1996 and 1995. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.05%, 1.04%
and 1.05%, respectively, and ratio of net investment income to average net
assets would have been 4.21%, 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.
</TABLE>
<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, 1997, the results of each of
their operations for the year then ended, the changes in each of their net
assets for each of 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, 1997 by correspondence with the custodian
and brokers and the application of alternative auditing procedures for unsettled
transactions, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
August 1, 1997
<PAGE>
EasiVest makes it easy to pay yourself first.
It seems that for most of us the hardest part of investing at regular
intervals comes down to simply writing the check, finding the stamp, and putting
it in the mail. But with INVESCO's EasiVest it's so easy that we'll do almost
all the work for you.
After you fill out the authorization and return it with a voided check, the
exact dollar amount you specify will be electronically transferred from your
bank account to your designated fund on the same day each month.
Using EasiVest is one of the few time when you'll find the easy way may also be
one of the best.
For years smart investors have used an investment strategy known as
dollar-cost averaging. It only makes sense that when prices are high an investor
will want to buy fewer shares, and when prices are low he will want to buy more.
By investing a fixed amount at regular intervals with INVESCO's EasiVest, you
can take advantage of these market fluctuations.
Over a sufficient period of time, dollar-cost averaging may make the average
price you pay per share less than the actual average price per share. So follow
the lead of successful investors and take advantage of dollar-cost averaging
with INVESCO's EasiVest.
Like other investment systems, periodic investment plans to not insure a
profit, nor do they protect against loss in a falling market. Since these plans
involve continuous investment in securities regardless of fluctuating price
levels in the market, you should consider your financial ability to continue
purchases through low price levels. Finally, be aware that you will incur a loss
under the plan if you decide to liquidate your account when the market value of
accumulated shares is less than their cost.
Just follow these simple authorization instructions and let INVESCO's
EasiVest help you build for your future.
1. Call your bank for their ABA and account numbers. Then complete the
EasiVest authorization and sign it the same way you would your personal
checks.
2. Enclose an unsigned, personal check or savings deposit slip marked
"Void."
3. Place a voided check or savings deposit slip and signed authorization
form in an envelope; then mail it to us.
It's that easy to start building your mutual fund portfolio. And you can
take advantage of INVESCO's EasiVest with as little as $50 a month.
Questions? Call us at 1-800-525-8085.
Start building for your future today.
<PAGE>
EASIVEST AUTHORIZATION FOR AUTOMATIC INVESTMENTS
Before returning this Authorization, please be sure to contact your bank
for the correct
ABA number and account number.
I authorize INVESCO Funds Group to transfer money from my checking or savings
account on or about the 7th or 21st (check one) day of each month for the
amounts and funds indicated below:
Fund___________________________________ Acct.#_______________________________
$__________________________ ($50 minimum) ___ 7th ___21st
____________________________________________________________________________
Bank Name
____________________________________________________________________________
Bank Street Address
____________________________________________________________________________
City, State, Zip
____________________________________________________________________________
ABA Number (available from your bank) Bank Phone Number
__________________________________This is a __Checking Account __ Savings
Account Bank Account Number
____________________________________________________________________________
Owner's Name (First, Middle Initial, Last)
____________________________________________________________________________
Joint Owner's Name (First, Middle Initial, Last)
____________________________________________________________________________
Owner Street Address
____________________________________________________________________________
City, State, Zip
____________________________________________________________________________
Signature
Date
____________________________________________________________________________
Signature
Date
____________________________________________________________________________
Daytime Telephone Number Evening Telephone Number
Don't forget to attach a voided check or deposit slip.
<PAGE>
This authority is to remain in effect until I revoke it in writing and, until
INVESCO receives such notification, I agree INVESCO will be fully protected in
honoring any such electronic debit. I further agree that if any such electronic
debit is not honored, whether with cause or without cause and whether
intentionally or unintentionally, INVESCO will not be liable whatsoever. This
authorization will become a part of the fund application subject to the terms,
representations and conditions thereof.
Like other investment systems, period investment plans do not insure a
profit, nor do they protect against loss in a falling market. Since these plans
involve continuous investment in securities regardless of fluctuating price
levels in the market, you should consider your financial ability to continue
purchases through low price levels. Finally, be aware that you will incur a loss
under the plan if you decide to liquidate your account when the market value of
accumulated shares is less than their cost.
<PAGE>
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 Investor 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.
<PAGE>
