KNOWLEDGE DISCIPLINE SERVICE CHOICE
- -----------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- -----------------------------------------------
INVESCO Tax-Free
Bond Fund
ANNUAL
[INVESCO LOGO]
INVESCO
ANNUAL REPORT June 30, 1999
<PAGE>
". . . INVESTORS MIGHT
WISH TO KEEP IN MIND
THAT THE MUNICIPAL
BOND MARKET HAS BEEN
MUCH MORE STABLE
THAN THE BOND
MARKET AS A WHOLE
OVER THE PAST YEAR."
(PAGE 4)
Graph: INVESCO Tax-Free Bond Fund 10-Year Total Return vs.
Lehman Municipal Bond Index
This line graph compares the value of a $10,000 investment in INVESCO
Tax-Free 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
6/30/99.
TOTAL RETURN,
PERIODS ENDED 6/30/99(1)
6 months 1 year 5 years* 10 years
- --------------------------------------------------------------------------------
Tax-Free Bond Fund (1.87%) 1.30% 5.65% 6.54%
- --------------------------------------------------------------------------------
*Average Annualized
The line graph illustrates the value of a $10,000 investment, plus reinvested
dividends and capital gain distributions, for the periods ended 6/30/99. The
chart and other total return figures cited reflect the fund's operating
expenses, but the index does not have expenses, which would, of course, have
lowered its performance.
(Of course, past performance is not a guarantee of future results.)(1),(2)
<PAGE>
Your Fund's Performance: A Report From The Manager
- --------------------------------------------------------------------------------
Dear Shareholder:
This past year has been a challenging one for fixed-income investors, and
perhaps especially for investors in municipal bonds. As our reporting year began
last summer, the financial crisis that enveloped many overseas economies caused
a "flight to quality" as investors headed toward the safety of U.S. Treasury
securities. While this had the effect of lowering U.S. interest rates, it also
caused the yield spread to narrow between municipal securities and the
lowest-risk bonds issued by the federal government.
In our last communication to you, we predicted that a return to economic
normalcy would help widen this yield spread --in other words, that municipal
securities would regain their attraction relative to U.S. Treasury bonds. This
in fact proved to be the case. Unfortunately, the welcome and surprisingly
robust rebound in the global economy had a negative side effect for all classes
of bond investors: Many began to worry that inflation would reappear.
Consequently, interest rates headed higher, sending bond prices lower.
As a result, our fund ended with a gain of just 1.30% over the past 12 months --
although this exceeded the average return of the general municipal debt funds
tracked by Lipper Analytical Services which rose only 1.14%. This can be
compared to the Lehman Municipal Bond Index, which fared better, rising 2.76%
over the same period. (Of course, past performance is not a guarantee of future
results.)(1),(2)
As I noted in the semiannual report, we implemented a new strategy last year. We
lowered the cash position of the fund and adjusted the duration to neutral
relative to its mutual fund peer group -- simply put, a strategy that means we
are not attempting to forecast the direction of interest rates. Instead, we seek
to exploit supply and demand imbalances in the market.
I am optimistic that this strategy will serve our shareholders well, and that
the underlying fundamentals of the municipal bond market will continue to
improve. Faced with growing infrastructure demand and enticed by lower interest
rates, states and municipalities flooded the market with new issuance last year.
By increasing supply, this resulted in a reduction of the prices on current
issues. Yet new issuance has slowed significantly in 1999 to normal levels,
which may help municipal bond prices.
- --------------------------------------------------------------------------------
FUND MANAGER
DAWN DAGGY-MANGERSON
VICE PRESIDENT, INVESCO FUNDS GROUP. BS, DEPAUL UNIVERSITY. BEGAN INVESTMENT
CAREER IN 1986. JOINED INVESCO IN 1998. HAS MANAGED THE FUND SINCE APRIL 1998.
<PAGE>
As always, the direction of interest rates will influence returns as well.
Well-informed observers can make the case for either increasing rates, which
would lower our performance, or decreasing rates, which would be to the fund's
advantage.
However, investors might wish to keep in mind that the municipal bond market has
been much more stable than the bond market as a whole over the past year. By
their nature, municipal bonds are less influenced by "hot money" rushing in and
out of equity markets and across national barriers. Additionally, despite the
recent improvement in the price of municipal bonds relative to U.S. Treasury
securities, we believe they are still attractively priced on a comparison basis.
Finally, our emphasis on high-quality, non-callable municipal bonds should help
us maintain an extra level of stability within the municipal bond market.
I look forward to reporting to you on our progress in six months.
/s/ Dawn Daggy-Mangerson
Dawn Daggy-Mangerson
Vice President
YEAR 2000 COMPUTER ISSUE.
Many computer systems in use today may not be able to recognize any date
after December 31, 1999. If these systems are not fixed by that date, it is
possible that they could generate erroneous information or fail altogether.
INVESCO has committed substantial resources in an effort to make sure that its
own major computer systems will continue to function on and after January 1,
2000. Of course, INVESCO cannot fix systems that are beyond its control. If
INVESCO's own systems, or the systems of third parties upon which it relies, do
not perform properly after December 31, 1999, the Funds could be adversely
affected.
In addition, the markets for, or values of, securities in which the Funds
invest may possibly be hurt by computer failures affecting portfolio investments
or trading of securities beginning January 1, 2000. For example, improperly
functioning computer systems could result in securities trade settlement
problems and liquidity issues, production issues for individual companies and
overall economic uncertainties. Individual issuers may incur increased costs in
making their own systems Year 2000 compliant. The combination of market
uncertainty and increased costs means that there is a possibility that Year 2000
computer issues may adversely affect the Funds' investments. At this time, it is
generally believed that foreign issues, particularly those in emerging and other
markets, may be more vulnerable to Year 2000 problems than will be issuers in
the U.S.
<PAGE>
INVESCO | Annual Report | June 30, 1999
Moving Forward
- --------------------------------------------------------------------------------
MARKET HEADLINES: JULY 1998 TO JUNE 1999
Although it already seems a distant memory to some, the turmoil of the fall of
1998 will not soon be forgotten by many investors. The Asian financial crisis
rolled across national boundaries, and virtually all world markets emerged
bloodied.
But the winter of 1998-1999 witnessed a welcome global healing for overseas
economies, while the U.S. economy remained as healthy as it had been in decades.
The results were generally very positive for world markets, although some
investors enjoyed much more robust returns than others.
Throughout the winter, the largest, fastest-growing companies led U.S. stock
market advances as investors kept one eye on the continuing problems overseas
and another on the blossoming technological promise of the American economy. The
firms most directly tied to technological innovations, such as
telecommunications companies and Internet providers, outdistanced the pack.
Meanwhile, cyclical issues suffered, as did many small or slower-growing company
stocks.
By spring, however, the threat of economic overheating rather than worldwide
depression loomed largest in many investors' minds. Signs of renewed economic
strength abroad and remarkable growth figures at home led many to believe that
the Federal Reserve Board would soon reverse course and tighten the money supply
to cool down the economy--and indeed, market interest rates crept upward. Too
much growth rather than too little encouraged many to head for cyclical
industries poised to benefit from improving markets.
As the "cyclical rotation" continued, the market averages seemed to bounce
against a ceiling, putting an end to their dizzying ascent since the fall. By
June, however, investors headed back into the market, reassured once again by
economic data that inflation was not an imminent threat. Indeed, while the Fed
raised rates by one-quarter of a percent at the end of the month, it announced
that it had no bias to raise them again in the near future. Market averages shot
upward as many investors determined that the "Goldilocks economy" of low
inflation and high growth was not going to be visited by the bears anytime soon.
SINCE THIS FUND IS ACTIVELY MANAGED, HOLDINGS WILL CHANGE OVER TIME.
(1) TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN INVESTOR'S
SHARES MAY BE WORTH MORE OR LESS THAN WHEN PURCHASED.
(2) THE LEHMAN MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX INDICATIVE OF THE
BROAD TAX-EXEMPT BOND MARKET. LIPPER ANALYTICAL SERVICES IS AN INDEPENDENT
MUTUAL FUND ANALYST.
<PAGE>
STATEMENT OF INVESTMENT SECURITIES
INVESCO Tax-Free Income Funds, Inc. -- Tax-Free Bond Fund
June 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
<S> <C> <C> <C>
92.20 MUNICIPAL BONDS
0.17 ALASKA
Alaska Hsg Fin (Veterans Mtg Prog)(GNMA/FNMA Insured),
Collateralized Rev, 1990 First Series, 7.500%, 12/1/2030 $ 130,000 $ 134,632
Alaska Indl Dev & Export Auth, Ref Revolving Fund,
Series 1994A, Lots 1-29, 5.700%, 4/1/2004 170,000 178,094
Municipality of Anchorage, Alaska (MBIA Insured), Gen
Oblig Ref, Gen Purpose, 1993 Series B, 4.900%, 8/1/2003 25,000 25,439
===================================================================================================
338,165
0.53 ARIZONA
Arizona Edl Ln Mktng (Student Lns Insured), Edl Ln Rev,
Series 1992 B, 7.000%, 3/1/2005 1,000,000 1,058,050
===================================================================================================
1.24 CALIFORNIA
Big Bear Lake Dept of Wtr & Pwr, California (MBIA
Insured), Wtr Rev Ref, Series 1996, 6.000%, 4/1/2022 2,000,000 2,183,840
California (MBIA Insured), Various Purpose Gen Oblig,
Series 1992, 6.300%, 9/1/2008 150,000 167,252
California Pub Wrks Brd (Dept of Corrections, California
State Prison - Monterey Cnty (Soledad II))(FSA
Insured), Lease Rev Ref, 1996 Series D, 5.375%,
11/1/2011 100,000 102,634
===================================================================================================
2,453,726
3.30 COLORADO
Arapahoe Cnty Pub Hwy Auth, Colorado (E-470 Proj)
(MBIA Insured), Cap Impt Trust Fund, Hwy Rev, Veh
Regn Fee, Series 1986, 5.300%, 8/31/2006 200,000 206,464
Denver City & Cnty, Colorado, Gen Oblig Ref, Series 1998A,
5.250%, 8/1/2006 3,500,000 3,627,190
Denver Hlth & Hosp Auth, Colorado, Hlthcare Rev, Series
1998A, 5.125%, 12/1/2005 1,205,000 1,210,290
Fountain Valley Auth, Colorado, Wtr Treatment Ref Rev,
Series 1991, 6.800%, 12/1/2019 1,140,000 1,194,241
Montrose Cnty Bldg Auth, Colorado, Ctfs of Participation,
Series 1994, 6.350%, 6/15/2006 300,000 318,018
===================================================================================================
6,556,203
0.01 DISTRICT OF COLUMBIA
District of Columbia, Gen Oblig Ref, Series 1994 A-3,
5.200%, 6/1/2003 25,000 25,529
===================================================================================================
<PAGE>
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
4.36 FLORIDA
Broward Cnty, Florida (AMBAC Insured), Airport System Rev,
Series G, 4.200%, 10/1/2008 $ 200,000 $ 187,452
Dade Cnty, Florida (AMBAC Insured), Solid Waste System
Rev Ref, Special Ltd Oblig, Series 1996, 6.000%,
10/1/2006 200,000 215,780
Miami Beach Redev Agency, Florida (City Ctr/Historic
Convention Village), Tax Increment Rev, Series 1993,
5.100%, 12/1/2003 80,000 80,712
Miami-Dade Cnty School Dist, Florida (FSA Insured), Gen
Oblig Ref, Series 1998, 5.375%, 8/1/2015 3,000,000 3,069,300
Sunrise, Florida (AMBAC Insured), Util System Ref Rev,
Series 1998, 5.500%, 10/1/2018 5,000,000 5,106,900
===================================================================================================
8,660,144
1.13 GEORGIA
Atlanta, Georgia (MBIA Insured), Airport Facils Rev,
Series 1990, 7.250%, 1/1/2017 2,000,000 2,107,920
Fulton Cnty School Dist, Georgia, Gen Oblig Ref, Series
1998, 5.250%, 1/1/2013 100,000 101,422
Georgia Muni Elec Auth, Pwr Rev, Series CC, 4.500%,
1/1/2002 30,000 30,112
===================================================================================================
2,239,454
4.20 HAWAII
Hawaii (MBIA Insured), Gen Oblig, 1998 Series CR,
5.500%, 4/1/2007 8,000,000 8,347,680
===================================================================================================
7.99 ILLINOIS
Boone, McHenry & DeKalb Cntys, Illinois (Cmnty Unit
School Dist #100 (Belvidere)) (FSA Insured), Gen Oblig,
Series 1997, Cap Appreciation,
12/1/2008 1,005,000 626,386
12/1/2009 1,000,000 589,760
12/1/2010 2,995,000 1,662,315
Chicago, Illinois (AMBAC Insured), Gen Oblig, Ref, Series
1993B, 5.125%, 1/1/2022 2,465,000 2,377,345
Chicago, Illinois (FGIC Insured), Proj & Ref, Series 1999A,
5.250%, 1/1/2010 2,110,000 2,144,815
Chicago, Illinois (Peoples Gas Light & Coke), Gas Supply
Rev, 1st & Ref Mtg, Medium-Term Notes, Series CC,
6.875%, 3/1/2015 2,875,000 3,099,336
Chicago Pub Bldg Commn (Chicago School Reform)
(FGIC Insured), Rev Ref, Series B, 5.250%, 12/1/2018 2,500,000 2,466,775
Illinois Dev Fin Auth (Catholic Charities Hsg Dev Proj)
Rev, Series 1995, 6.350%, 1/1/2025 1,500,000 1,533,870
Illinois Hlth Facils Auth (Northwestern Med Faculty Fndtn)
(MBIA Insured), Rev Ref, Series 1998, 5.000%, 11/15/2010 1,000,000 991,000
Illinois Hsg Dev Auth, Hsg Dev Rev, 1993 Series A,
5.000%, 1/1/2001 15,000 15,105
<PAGE>
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
Illinois Toll Hwy Auth, Toll Hwy Ref Rev, 1993 Series A,
4.700%, 1/1/2001 $ 60,000 $ 60,401
McCormick Place Receipts-Metro Pier & Exposition Auth,
Illinois (50% McCormick Place Expansion Proj #3)
(FGIC Insured), Dedicated State Tax Rev, Series 1998B,
Cap Appreciation, 6/15/2009 500,000 303,615
===================================================================================================
15,870,723
9.41 INDIANA
DeKalb Cnty Redev Auth, Indiana (Mini-Mill Loc Pub Impt
Proj), Rev, Series A 1995, 6.500%, 1/15/2014 900,000 966,177
Indiana Transn Fin Auth, Airport Facils Lease Rev, Series A,
6.750%, 11/1/2011 1,500,000 1,637,505
Indianapolis Loc Pub Impt Bank, Indiana, Rev, Series
1991C, 6.700%, 1/1/2017 3,750,000 4,025,663
Petersburg, Indiana (Indianapolis Pwr & Light Proj) (MBIA
Insured), PCR Ref, Series 1993B, 5.400%, 8/1/2017 9,850,000 9,893,832
Warren Township School Bldg, Indiana (Marion Cnty)
(FSA Insured), 1st Mtg Ref, Series 1998, 5.500%, 7/5/2006 2,075,000 2,165,387
===================================================================================================
18,688,564
0.09 LOUISIANA
Louisiana Pub Facils Auth (Student Lns Insured), Student Ln
Rev, Series 1992 A-1, 6.200%, 3/1/2001 165,000 169,620
===================================================================================================
1.76 MARYLAND
Maryland Transn Dept, Cons Transn Ref, Series 1998,
5.500%, 9/1/2006 3,315,000 3,492,817
===================================================================================================
8.61 MASSACHUSETTS
Boston Wtr & Swr Commn, Massachusetts (MBIA Insured),
Gen Rev, 1993 Sr Series A, 5.250%, 11/1/2019 5,385,000 5,291,947
Commonwealth of Massachusetts (MBIA Insured), Gen Oblig,
Cons Ln, Series 1992 D, 8.000%, 5/1/2006 5,000,000 5,939,650
Massachusetts Dev Fin Agency (Boston Univ Issue)(Institution
Insured), Rev, Series P,
6.000%, 5/15/2059 2,000,000 2,072,240
5.450%, 5/15/2059 4,000,000 3,786,600
Massachusetts Muni Wholesale Elec, Pwr Supply System Rev,
1992 Series B, 6.375%, 7/1/2001 20,000 20,728
===================================================================================================
17,111,165
0.10 MICHIGAN
Michigan, Comprehensive Transn Ref, Series 1992B,
5.750%, 5/15/2011 200,000 203,828
===================================================================================================
2.29 MINNESOTA
Minneapolis-St Paul Metro Airports Commn, Minnesota,
Gen Oblig Rev Ref, Series 13, 5.000%, 1/1/2009 2,000,000 2,004,980
Univ of Minnesota Regents, Minnesota (University Insured),
Gen Oblig, Series 1996A, 5.500%, 7/1/2021 2,500,000 2,551,500
===================================================================================================
4,556,480
<PAGE>
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
3.09 MISSISSIPPI
Mississippi (Mississippi Gaming Cntys Hwy Impts Proj), Gen
Oblig, Series A, 5.500%, 7/1/2008 $5,865,000 $ 6,132,620
===================================================================================================
3.11 MISSOURI
Missouri Hlth & Edl Facils Auth (Christian Hlth Svcs Dev-
Christian Hosp Northeast-Northwest), FRD Rev,
Series A 1989, 5.000%, 6/1/2005 4,670,000 4,754,714
Missouri Hlth & Edl Facils Auth (Lester E Cox Med Ctrs
Proj) (MBIA Insured), Hlth Facils Rev Ref, Series 1993-I,
5.350%, 6/1/2010 1,400,000 1,431,878
===================================================================================================
6,186,592
4.56 MONTANA
Forsyth, Montana (Portland Gen Elec Proj), VR, PCR Ref,
Series 1998B, 4.750%, 5/1/2033 9,000,000 9,052,470
===================================================================================================
0.15 NEBRASKA
Nebraska Pub Power Dist (MBIA Insured), Gen Rev,
1998 Series B, 5.250%, 1/1/2008 300,000 306,840
===================================================================================================
3.10 NEVADA
Nevada Hsg Div (Single Family Prog), Sr Rev, 1994
Issue B-1, 5.900%, 4/1/2003 95,000 98,331
Nevada (Nevada Muni Bank Projs #65 & R-6) (MBIA
Insured), Gen Oblig Ltd Tax, Series 1998, 6.750%,
5/15/2008 200,000 226,066
Nevada (Nevada Muni Bank Projs #66 & #67) (FGIC
Insured), Gen Oblig Ltd Tax, Series July 1, 1998A,
5.500%, 5/15/2007 5,580,000 5,829,593
===================================================================================================
6,153,990
0.41 NEW HAMPSHIRE
New Hampshire Hsg Fin Auth, Single Family Residential
Mtg, 1994 Series D,
6.850%, 7/1/2006 610,000 633,473
5.850%, 1/1/2001 170,000 172,506
===================================================================================================
805,979
0.53 NEW JERSEY
New Jersey Hlth Care Facils Fing Auth (Kennedy Hlth System
Obligated Group) (MBIA Insured), Rev & Ref, Series 1997B,
5.750%, 7/1/2008 1,000,000 1,058,440
===================================================================================================
2.69 NEW MEXICO
Los Alamos Cnty, New Mexico (FSA Insured), Util System Rev,
Series 1994A, 6.000%, 7/1/2009 5,000,000 5,349,750
===================================================================================================
9.62 NEW YORK
New York Dorm Auth, New York (Muni Hlth Facils Impt Prog)
(FSA Insured), Lease Rev, 1998 Series 1, 5.000%, 1/15/2010 5,000,000 4,957,350
New York Dorm Auth, New York, State Univ Edl Facils Rev,
Series 1997, 6.000%, 5/15/2008 2,500,000 2,679,400
<PAGE>
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
New York & New Jersey Port Auth, Consolidated Gen Oblig,
Rev, Ninety-Third Series, 6.125%, 6/1/2094 $5,250,000 $ 5,677,717
New York Transitional Fin Auth, New York, Future Tax
Secured Rev, Fiscal 1999 Series A, 5.250%, 11/15/2013 1,000,000 996,680
Triborough Bridge & Tunnel Auth, New York, Gen Purpose Rev,
Series 1993B, 5.000%, 1/1/2020 1,935,000 1,816,810
Series Y, 5.500%, 1/1/2017 2,900,000 2,975,081
===================================================================================================
19,103,038
3.74 OHIO
Ohio Bldg Auth (Admin Bldg Fund Proj), State Facils,
1995 Series A, 6.000%, 10/1/2006 150,000 161,549
Ohio Bldg Auth (AMBAC Insured), State Correctional Facils
Ref, 1994 Series A, 4.600%, 10/1/2003 50,000 50,414
Ohio (Major New State Infrastructure Proj), Rev, Series 1998-1,
5.000%, 12/15/2006 5,060,000 5,144,755
Ohio Tpk Comm, Tpk Rev Ref, 1998 Series A,
5.500%, 2/15/2016 2,000,000 2,065,840
===================================================================================================
7,422,558
0.08 PENNSYLVANIA
Philadelphia, Pennsylvania (MBIA Insured), Wtr & Wastewtr Rev,
Series 1995, 6.750%, 8/1/2005 150,000 166,633
===================================================================================================
0.83 RHODE ISLAND
Rhode Island Depositors Econ Protection, Special Oblig, 1992
Series A, 6.950%, 8/1/2022 1,500,000 1,638,525
===================================================================================================
0.13 SOUTH DAKOTA
South Dakota Student Ln Fin (Student Lns Insured),
Student Ln Rev, Series 1994-A, 5.850%, 8/1/2000 250,000 255,577
===================================================================================================
2.13 TENNESSEE
Shelby Cnty Hlth, Edl & Hsg Facil Brd, Tennessee (Methodist
Hlthcare) (MBIA Insured), Hosp Rev, Series 1998,
5.500%, 4/1/2008 4,075,000 4,238,693
===================================================================================================
3.81 TEXAS
Austin, Texas (AMBAC Insured), Combined Util Systems
Rev Ref, Series 1992, Cap Appreciation, 11/15/2011 1,400,000 737,912
Austin, Texas, Wtr Swr & Elec Ref Rev, Series 1982,
14.000%, 11/15/2001
Prerefunded 1995 5,000 5,359
Refunded 1998 5,000 5,574
Unrefunded Balance 1998 335,000 377,354
Galena Park Indpt School Dist, Texas (Harris Cnty)
(PSFG Insured), Unltd Tax School Bldg & Ref, Series
1996, Cap Appreciation, 8/15/2023 3,220,000 824,642
Goose Creek Cons Indpt School Dist, Texas (PSFG Insured),
Unltd Tax Ref, Series 1998, 5.000%, 2/15/2010 2,575,000 2,561,172
Harris Cnty, Texas (MBIA Insured), Toll Road Unltd Tax &
Sub Lien Rev, Series 1994A, 6.500%, 8/15/2013 500,000 566,445
<PAGE>
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
Katy Indpt School Dist, Texas (Fort Bend, Harris & Waller
Cntys) (PSFG Insured), Ltd Tax School Bldg, Series 1996,
7.500%, 2/15/2006 $ 150,000 $ 171,537
Lubbock Hlth Facils Dev, Texas (St Joseph Hlth System), Rev,
Series 1998, 5.250%, 7/1/2013 2,000,000 1,966,360
Texas Muni Pwr Agency (MBIA Insured), Ref Rev, Series 1993,
5.250%, 9/1/2006 325,000 335,127
Trinity River Indl Dev Auth, Texas (Intl Paper Proj), Rev Ref,
1993 Series, 4.900%, 12/1/2002 25,000 25,209
===================================================================================================
7,576,691
0.61 UTAH
Utah Hsg Fin Agency (FHA/VA/FHMA Insured),
Single Family Mtg, 1994 Issue D-1 Term Mezzanine,
6.450%, 7/1/2011 1,155,000 1,201,385
===================================================================================================
0.53 VERMONT
Vermont Hsg Fin Agency, Single Family Hsg Rev, Series 5,
6.875%, 11/1/2016 1,000,000 1,049,210
===================================================================================================
1.07 VIRGINIA
Rivanna Wtr & Swr Auth, Virginia, Regl Wtr & Swr System
Ref Rev, Series of 1993, 4.500%, 10/1/2000 50,000 50,428
Virginia Pub School Auth, School Fing & Ref, Series 1998 A,
5.250%, 8/1/2007 2,000,000 2,070,600
===================================================================================================
2,121,028
3.15 WASHINGTON
Grant Cnty Pub Util Dist #2, Washington, Hydroelectric Dev
Rev, Second Series 1990,
(Priest Rapids), 7.700%, 1/1/2018 3,000,000 3,114,690
(Wanapum), 7.700%, 1/1/2018 1,050,000 1,089,879
North Thurston Cnty School Dist #3, Washington,
Unlmtd Tax Gen Oblig, Series 1992, 6.500%, 12/1/2009 1,400,000 1,483,286
Washington Hlth Care Facils Auth (Catholic Hlth Initiatives)
(MBIA Insured), Rev, Series 1997A, 5.100%, 12/1/2009 100,000 100,351
Washington Pub Pwr Supply System (Nuclear Proj #1),
Ref Rev, Series 1993A, 5.300%, 7/1/2002 400,000 409,744
Wenatchee, Washington, Wtr & Swr Rev Ref, 1994 Series,
4.600%, 12/1/2002 65,000 65,424
===================================================================================================
6,263,374
3.57 WISCONSIN
Adams Cnty, Wisconsin (Adams-Friendship School Dist)
(AMBAC Insured), Gen Oblig Ref, 6.500%, 4/1/2015 1,340,000 1,517,630
Merrill Area Common Pub School Dist, Wisconsin (Lincoln,
Langlade & Marathon Cntys) (FSA Insured), Gen Oblig
Ref, 6.500%, 4/1/2007 100,000 110,812
<PAGE>
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
Southeast Wisconsin Professional Baseball Park Dist
(MBIA Insured), Sales Tax Rev Ref, Series 1998A,
5.500%, 12/15/2019 $5,370,000 $ 5,462,471
===================================================================================================
7,090,913
0.10 WYOMING
Platte Cnty, Wyoming (Basin Elec Pwr Cooperative-Laramie
River Station Proj) (MBIA Insured), PCR Ref, Series 1994,
5.100%, 1/1/2008 200,000 202,776
===================================================================================================
TOTAL MUNICIPAL BONDS (Cost $182,194,923) 183,149,230
===================================================================================================
7.80 SHORT-TERM INVESTMENTS -- MUNICIPAL NOTES
0.61 CALIFORNIA
Los Angeles Regl Airports Impt, California (American
Airlines/Los Angeles Intl Airport) (LOC-Wachovia Bank),
AR, Facils Sublease, FDR, Issue 1984,
Series A, 3.850%, 12/1/2024(a) 300,000 300,000
Series C, 3.850%, 12/1/2024(a) 200,000 200,000
Series F, 3.850%, 12/1/2024(a) 700,000 700,000
===================================================================================================
1,200,000
1.53 GEORGIA
Atlanta, Georgia (Delta Air Lines Proj), FR, Special Purpose
Facils, Rev, Series 1989B, 7.400%, 12/1/1999 3,000,000 3,035,250
===================================================================================================
0.15 INDIANA
Indiana Hosp Equip Fing Auth (MBIA Insured), VR, Rev,
Series A, 3.550%, 12/1/2015(a) 300,000 300,000
===================================================================================================
0.25 MICHIGAN
Delta Cnty Econ Dev, Michigan (Mead-Escanaba Paper Proj)
(LOC-Nova Scotia Bank), ATS, Environmental Impt Rev
Ref, 1985 Series C, 3.700%, 12/1/2023(a) 500,000 500,000
===================================================================================================
0.25 MINNESOTA
Beltrami, Minnesota (Northwood Panelboard Proj) (LOC-UBS),
VR, Environmental Ctl Rev Ref, Series 1991,
3.700%, 12/1/2021(a) 500,000 500,000
===================================================================================================
0.15 NEW YORK
St Lawrence Cnty Indl Dev Agency, New York (Reynolds
Metals Proj) (LOC-Nova Scotia Bank), DATES, PCR Ref,
Series 1985, 3.700%, 12/1/2007(a) 300,000 300,000
===================================================================================================
0.55 NORTH DAKOTA
Grand Forks, North Dakota (United Hosp Obligated Group)
(LOC-LaSalle Natl Bank), VR, Hlthcare Facils Rev,
Series 1992A, 3.850%, 12/1/2016(a) 600,000 600,000
Series 1996A, 3.850%, 12/1/2025(a) 500,000 500,000
===================================================================================================
1,100,000
<PAGE>
PRINCIPAL
% DESCRIPTION AMOUNT VALUE
0.50 PENNSYLVANIA
Delaware Valley Regl Fin Auth, Pennsylvania (Bucks, Chester,
Delaware & Montgomery Cntys) (LOC-Credit Suisse), AR,
Loc Govt Rev, Series 1985A, 3.350%, 12/1/2018(a) $1,000,000 $ 1,000,000
===================================================================================================
1.01 TENNESSEE
Chattanooga-Hamilton Cnty Hosp Auth, Tennessee (Erlanger
Med Ctr) (LOC-Morgan Gty Trust), VR, Hosp Rev Ref,
Series 1987, 3.500%, 10/1/2017(a) 1,500,000 1,500,000
Metro Nashville Airport Auth, Tennessee (American
Airlines Proj)(LOC-Credit Suisse), AR, Special Facil
Rev Ref, Series 1995A, 3.850%, 10/1/2012(a) 500,000 500,000
===================================================================================================
2,000,000
1.16 TEXAS
Grapevine Indl Dev, Texas (American Airlines Proj) (LOC-
Morgan Gty Trust), VR, Rev,
Series A3, 3.850%, 12/1/2024(a) 500,000 500,000
Series B1, 3.850%, 12/1/2024(a) 200,000 200,000
Harris Cnty Hlth Facils, Texas (St Luke's Episcopal Hosp)
(LOC-Morgan Gty Trust), UPDATES, Rev, Series 1997B,
3.850%, 2/15/2027(a) 1,300,000 1,300,000
North Cent Texas Hlth Facils Dev (Presbyterian Med Ctr
Proj) (MBIA Insured), DATES, Hosp Rev, Series 1985D,
3.850%, 12/1/2015(a) 300,000 300,000
===================================================================================================
2,300,000
1.44 WISCONSIN
La Crosse, Wisconsin (Dairyland Pwr Cooperative Proj)
(AMBAC Insured), ATS, PCR Rev,
Series 1997A, 3.700%, 9/1/2014(a) 1,200,000 1,200,000
Series 1997B, 3.700%, 2/1/2015(a) 1,650,000 1,650,000
===================================================================================================
2,850,000
0.20 WYOMING
Lincoln Cnty, Wyoming (Exxon Proj), DATES, PCR,
Series 1984B, 3.800%, 11/1/2014(a) 200,000 200,000
Series 1984D, 3.800%, 11/1/2014(a) 200,000 200,000
===================================================================================================
400,000
TOTAL MUNICIPAL SHORT-TERM NOTES
(Amortized Cost $15,460,465) 15,485,250
===================================================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $197,655,388)(b) $198,634,480
===================================================================================================
</TABLE>
<PAGE>
The following abbreviations may be used in portfolio descriptions:
AMBAC -- American Municipal Bond Assurance Corporation
AR(c) -- Adjustable Rate
ATS -- Adjustable Tender Securities
FGIC -- Flexible Guaranty Insurance Company
DATES(c) -- Daily Adjustable Tax-Exempt Securities
FDR(c) -- Flexible Demand Revenue
FRD(c) -- Floating Rate Demand
FSA -- Financial Security Assurance
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Association
PCR -- Pollution Control Revenue
PSFG -- Permanent School Fund Guarantee Program
UPDATES(c) -- Unit Price Demand Tax-Exempt Securities
VR(c) -- Variable Rate
(a) All securities with a maturity date greater than one year have either a
variable rate, demand feature, optional or mandatory put resulting in an
effective maturity of one year or less. Rate shown reflects current rate.
(b) Also represents cost for income tax purposes.
(c) Rate is subject to change. Rate shown reflects current rate.
See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
INVESCO Tax-Free Income Funds, Inc. -- Tax-Free Bond Fund
June 30, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment Securities at Value (Cost $197,655,388) $ 198,634,480
Cash 690
Receivables:
Fund Shares Sold 353,905
Interest 3,058,915
Prepaid Expenses and Other Assets 77,864
================================================================================
TOTAL ASSETS 202,125,854
================================================================================
LIABILITIES
Payables:
Distributions to Shareholders 181,992
Fund Shares Repurchased 73,649
Accrued Distribution Expenses 41,788
Accrued Expenses and Other Payables 37,515
================================================================================
TOTAL LIABILITIES 334,944
================================================================================
NET ASSETS AT VALUE $ 201,790,910
================================================================================
NET ASSETS
Paid-in Capital(a) $ 200,137,895
Accumulated Undistributed Net Investment Income 15,706
Accumulated Undistributed Net Realized Gain on Investment Securities 658,217
Net Appreciation of Investment Securities 979,092
================================================================================
NET ASSETS AT VALUE $ 201,790,910
================================================================================
NET ASSET VALUE, Offering and Redemption Price per Share $ 14.71
================================================================================
</TABLE>
(a) The Fund has 100 million authorized shares of common stock, par value of
$0.01 per share, of which 13,714,659 were outstanding at June 30, 1999.
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
INVESCO Tax-Free Income Funds, Inc. -- Tax-Free Bond Fund
Year Ended June 30, 1999
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
INTEREST INCOME $ 10,304,996
================================================================================
EXPENSES
Investment Advisory Fees 1,149,834
Distribution Expenses 522,652
Transfer Agent Fees 252,005
Administrative Fees 49,494
Custodian Fees and Expenses 25,248
Directors' Fees and Expenses 18,696
Professional Fees and Expenses 34,854
Registration Fees and Expenses 49,112
Reports to Shareholders 67,396
Other Expenses 38,396
================================================================================
TOTAL EXPENSES 2,207,687
Fees and Expenses Absorbed by Investment Adviser (310,487)
Fees and Expenses Paid Indirectly (15,280)
================================================================================
NET EXPENSES 1,881,920
================================================================================
NET INVESTMENT INCOME 8,423,076
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities 2,734,848
Change in Net Appreciation of Investment Securities (8,012,486)
================================================================================
NET LOSS ON INVESTMENT SECURITIES (5,277,638)
================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 3,145,438
================================================================================
</TABLE>
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
INVESCO Tax-Free Income Funds, Inc. -- Tax-Free Bond Fund
<TABLE>
<S> <C> <C>
YEAR ENDED JUNE 30
- --------------------------------------------------------------------------------------------------
1999 1998
OPERATIONS
Net Investment Income $ 8,423,076 $ 8,836,825
Net Realized Gain on Investment Securities and Futures Contracts 2,734,848 3,733,310
Change in Net Appreciation of Investment Securities and Futures
Contracts (8,012,486) 1,943,163
==================================================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS 3,145,438 14,513,298
==================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (8,422,999) (8,836,825)
Net Realized Gain on Investment Securities and Futures Contracts (6,238,148) (2,405,462)
==================================================================================================
TOTAL DISTRIBUTIONS (14,661,147) (11,242,287)
==================================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 76,105,580 73,871,498
Reinvestment of Distributions 11,143,364 8,527,627
Net Assets Received from Acquisition of Tax-Free
Intermediate Bond Fund (Note 3) 6,067,497 0
==================================================================================================
93,316,441 82,399,125
Amounts Paid for Repurchases of Shares (91,480,968) (94,609,312)
==================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS FROM FUND
SHARE TRANSACTIONS 1,835,473 (12,210,187)
==================================================================================================
TOTAL DECREASE IN NET ASSETS (9,680,236) (8,939,176)
NET ASSETS
Beginning of Period 211,471,146 220,410,322
==================================================================================================
End of Period (Including Accumulated Undistributed Net
Investment Income of $15,706 and $2,750, respectively) $201,790,910 $211,471,146
==================================================================================================
-----------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 4,882,612 4,748,107
Shares Issued from Reinvestment of Distributions 724,248 546,335
Shares Issued in Connection with Acquisition of Tax-Free
Intermediate Bond Fund (Note 3) 406,050 0
==================================================================================================
6,012,910 5,294,442
Shares Repurchased (5,883,609) (6,077,593)
==================================================================================================
NET INCREASE (DECREASE) IN FUND SHARES 129,301 (783,151)
==================================================================================================
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Notes to financial statements -- INVESCO Tax-Free
Income Funds, Inc. -- Tax-Free
Bond Fund
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Tax-Free
Income Funds, Inc. is incorporated in Maryland and presently consists of
Tax-Free Bond Fund (the "Fund")(formerly known as Tax-Free Long-Term Bond Fund).
On May 28, 1999, the board of directors of the Fund approved a name change to
Tax-Free Bond Fund. The investment objective of the 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.
On May 20, 1999, shareholders of the Fund approved an Agreement and Plan of
Conversion and Termination providing for the conversion of the Fund from a
separate series of INVESCO Tax-Free Income Funds, Inc. to a separate series of
INVESCO Bond Funds, Inc., with a fiscal year-end of August 31.
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 under procedures
established 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. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date. Interest income, which may be comprised of
stated coupon rate, market discount, original issue discount and amortized
premium, is recorded on the accrual basis. The Fund amortized 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, 1999, the Fund had $30,762 in net capital loss carryovers which
expire in the year 2002. The capital loss carryover from Tax-Free Intermediate
Bond Fund (which was acquired by the Fund on June 4, 1999), is subject to
certain limitations under the Internal Revenue Code.
Net capital loss carryovers utilized in 1999 by the Fund amounted to $20,962.
To the extent future capital gains are offset by capital loss carryovers, 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, 1999, 89.77% were exempt from federal
income taxes.
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. 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 operating losses and expired capital loss
carryforwards. For the year ended June 30, 1999, the Fund reclassified $51,724
from accumulated undistributed net realized gain on investment securities to
paid-in capital and reclassified $12,879 from paid-in capital to accumulated
undistributed net investment income. Net investment income, net realized gains
and net assets were not affected.
F. EXPENSES -- Under an agreement between the 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 0.55% on the first $300 million of average net assets; reduced to 0.45%
on the next $200 million of average net assets; and 0.35% on average net assets
in excess of $500 million.
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to INVESCO Distributors,
Inc. ("IDI" or the "Distributor"), a wholly owned subsidiary of IFG, to a
maximum of 0.25% of annual average net assets. For the year ended June 30, 1999,
the Fund paid the Distributor $524,866 under the plan of distribution.
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.
<PAGE>
In accordance with an Administrative Agreement, the 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. Effective May 13, 1999, the Fund pays
IFG an annual fee of $10,000 plus an additional amount computed at an annual
rate of 0.045% of average net assets.
IFG has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by the Fund.
NOTE 3 -- ACQUISITION OF INVESCO TAX-FREE INCOME FUNDS, INC. -- TAX-FREE
INTERMEDIATE BOND FUND ("TARGET FUND"). On June 4, 1999, Tax-Free Bond Fund
acquired all the net assets of the Target Fund pursuant to an Agreement and Plan
of Reorganization and Termination approved by the Target Fund shareholders on
May 20, 1999. The acquisition was accomplished by a tax-free exchange of 406,050
shares of Tax-Free Bond Fund (valued at $6,067,497) for 605,338 shares of the
Target Fund outstanding on June 4, 1999. The Target Fund's net assets at that
date ($6,067,497) including $74,932 of unrealized appreciation were combined
with those of Tax-Free Bond Fund. The aggregate net assets of Tax-Free Bond Fund
and the Target Fund immediately before the acquisition were $200,325,490 and
$6,067,497, respectively. The net assets of Tax-Free Bond Fund after the
acquisition were $206,392,987.
NOTE 4 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended June
30, 1999, the aggregate cost of purchases and proceeds from sales of investment
securities (excluding all U.S. Government securities and short-term securities)
were $132,326,142 and $152,635,892, respectively.
There were no purchases or sales of U.S. Government securities.
NOTE 5 -- APPRECIATION AND DEPRECIATION. At June 30, 1999, the gross
appreciation of securities in which there was an excess of value over tax cost
amounted to $3,888,545 and the gross depreciation of securities in which there
was an excess of tax cost over value amounted to $2,909,453, resulting in net
appreciation of $979,092.
NOTE 6 -- TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG or IDI.
The Fund has adopted an unfunded defined benefit 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 50% of the sum of the
retainer fee at the time of retirement plus the annual meeting fee.
Pension expenses for the year ended June 30, 1999, included in Directors' Fees
and Expenses in the Statement of Operations were $4,669. Unfunded accrued
pension costs of $14,516 and pension liability of $35,156 are included in
Prepaid Expenses and Accrued Expenses, respectively, in the Statement of Assets
and Liabilities.
The independent directors have contributed to a deferred fee agreement, pursuant
to which they have deferred receipt of a portion of the compensation which they
would otherwise have been paid as directors of selected INVESCO Funds. The
deferred amounts may be invested in the shares of any of the INVESCO Funds,
excluding the INVESCO Variable Investment Funds.
NOTE 7 -- 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 the respective
Fund. The 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, 1999, there were no such borrowings.
<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 INVESCO Tax-Free Bond Fund
(formerly known as INVESCO Tax-Free Long-Term Bond Fund), the sole portfolio
constituting INVESCO Tax-Free Income Funds, Inc., (hereafter referred to as the
"Fund") at June 30, 1999, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended, 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, 1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
July 29, 1999
<PAGE>
FINANCIAL HIGHLIGHTS
INVESCO Tax-Free Income Funds, Inc. -- Tax-Free Bond Fund
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
PER SHARE DATA
Net Asset Value-- Beginning of Period $ 15.57 $ 15.34 $ 15.20 $ 15.07 $ 15.29
============================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.62 0.63 0.66 0.73 0.80
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.40) 0.40 0.38 0.32 0.09
============================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.22 1.03 1.04 1.05 0.89
============================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.62 0.63 0.66 0.73 0.80
In Excess of Net Investment Income 0.00 0.00 0.01 0.00 0.00
Distributions from Capital Gains 0.46 0.17 0.23 0.19 0.31
============================================================================================================
TOTAL DISTRIBUTIONS 1.08 0.80 0.90 0.92 1.11
============================================================================================================
Net Asset Value-- End of Period $ 14.71 $ 15.57 $ 15.34 $ 15.20 $ 15.07
============================================================================================================
TOTAL RETURN 1.30% 6.87% 7.05% 7.01% 6.16%
RATIOS
Net Assets-- End of Period ($000 Omitted) $201,791 $211,471 $220,410 $250,890 $254,584
Ratio of Expenses to Average Net Assets(a) 0.91%(b) 0.91%(b) 0.90%(b) 0.91%(b) 0.92%
Ratio of Net Investment Income to
Average Net Assets(a) 4.03% 4.06% 4.36% 4.76% 5.31%
Portfolio Turnover Rate 66% 173% 123% 146% 99%
<FN>
(a) Various expenses of the Fund were voluntarily absorbed by IFG for the years ended June 30 1999,
1998, 1997, 1996 and 1995. If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 1.06%, 1.04%, 1.05%, 1.04% and 1.05%, respectively, and ratio of
net investment income to average net assets would have been 3.88%, 3.93%, 4.21%, 4.63% and 5.18%,
respectively.
(b) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by Investment Adviser, which is
before any expense offset arrangements.
</FN>
</TABLE>
<PAGE>
OTHER INFORMATION
UNAUDITED
On May 20, 1999, a special meeting of the shareholders of the Fund was held at
which the ten directors identified below were elected. The selection of
PricewaterhouseCoopers LLP as independent accountants (Proposal 1), the approval
of changes to the fundamental investment restrictions identified below (Proposal
2) and the approval of an Agreement and Plan of Conversion and Termination
providing for the conversion of the Fund from a separate series of INVESCO
Tax-Free Income Funds, Inc. to a separate series of INVESCO Bond Funds, Inc.
(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>
Charles W. Brady 10,046,027 0 440,810 10,486,837
Fred A. Deering 10,046,722 0 440,115 10,486,837
Mark H. Williamson 10,053,423 0 433,414 10,486,837
Dr. Victor L. Andrews 10,053,423 0 433,414 10,486,837
Bob R. Baker 10,053,423 0 433,414 10,486,837
Lawrence H. Budner 10,053,423 0 433,414 10,486,837
Dr. Wendy Lee Gramm 10,053,423 0 433,414 10,486,837
Kenneth T. King 10,053,423 0 433,414 10,486,837
John W. McIntyre 10,053,423 0 433,414 10,486,837
Dr. Larry Soll 10,057,844 0 428,993 10,486,837
Proposal 1 9,981,680 176,863 328,292 10,486,835
Proposal 2
Modification of Fundamental
Investment Restrictions on:
a -- Issuance of senior securities 8,400,931 790,426 1,295,480 10,486,837
b -- Borrowing and adoption of
non-fundamental restriction on
borrowing 8,399,704 791,653 1,295,480 10,486,837
c -- Investing in another
investment company and
adoption of non-fundamental
investment restriction regarding
investment in securities issued
by other investment companies 8,396,531 794,826 1,295,480 10,486,837
d -- Issuer diversification 8,400,931 790,426 1,295,480 10,486,837
e -- Loans 8,400,800 790,557 1,295,480 10,486,837
f -- Investing in commodities 8,393,793 797,564 1,295,480 10,486,837
g -- Real estate investments 8,400,097 791,260 1,295,480 10,486,837
h -- Underwriting securities 8,400,800 790,557 1,295,480 10,486,837
i -- Industry concentration 8,400,931 790,426 1,295,480 10,486,837
Elimination of Fundamental
Investment Restrictions on:
j -- Short sales and margin
purchases and adoption of
non-fundamental restriction
on short sales and margin
purchases 8,391,406 799,951 1,295,480 10,486,837
k -- Mortgaging, pledging or
hypothecating securities 8,400,931 790,426 1,295,480 10,486,837
l -- Investments for the purpose
of exercising control 8,399,704 791,653 1,295,480 10,486,837
<PAGE>
OTHER INFORMATION (CONTINUED)
WITHHELD/
NOMINEE/PROPOSAL FOR AGAINST ABSTAIN TOTAL
- ----------------------------------------------------------------------------------------------------
m -- Illiquid securities 8,396,050 795,307 1,295,480 10,486,837
n -- Fund ownership of securities
also owned by directors and
officers of the Fund or its
investment advisor 8,400,931 790,426 1,295,480 10,486,837
o -- Purchasing equity securities
and securities convertible into
equity securities 8,399,976 791,381 1,295,480 10,486,837
p -- Joint trading activities and
purchase of warrants 8,400,931 790,426 1,295,480 10,486,837
Proposal 3 8,728,716 718,096 1,040,025 10,486,837
</TABLE>
<PAGE>
<TABLE>
INVESCO Family of Funds
<CAPTION>
Newspaper
Fund Name Fund Code Ticker Symbol Abbreviation
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stock
Growth & Income 21 IVGIX Gro&Inc
Blue Chip Growth 10 FLRFX BlChpGro
Dynamics 20 FIDYX Dynm
Small Company Growth 60 FIEGX SmCoGth
INVESCO Endeavor 61 IVENX Endeavor
Value Equity 46 FSEQX ValEq
S&P 500 Index Fund-Class II 23 ISPIX SP500II
- -------------------------------------------------------------------------------------------
Bond
U.S. Government Securities 32 FBDGX USGvt
Select Income 30 FBDSX SelInc
High Yield 31 FHYPX HiYld
Tax-Free Bond (formerly,
Tax-Free Long-Term Bond) 35 FTIFX TxFre
- -------------------------------------------------------------------------------------------
Combination Stock & Bond
Equity Income 15 FIIIX EquityInc
Total Return 48 FSFLX TotRtn
Balanced 71 IMABX Bal
- -------------------------------------------------------------------------------------------
Sector
Energy 50 FSTEX Enrgy
Financial Services 57 FSFSX FinSvc
Gold 51 FGLDX Gold
Health Sciences 52 FHLSX HlthSc
Leisure 53 FLISX Leisur
Realty 42 IVSRX Realty
Technology-Class II 55 FTCHX Tech
Utilities 58 FSTUX Util
Telecommunications 39 ISWCX Telecomm
(formerly Worldwide Communications)
- -------------------------------------------------------------------------------------------
International
International Blue Chip 09 IIBCX ItlBlChp
Pacific Basin 54 FPBSX PcBas
European 56 FEURX Europ
Latin American Growth 34 IVSLX LtnAmerGr
- -------------------------------------------------------------------------------------------
Money Market
U.S. Government Money 44 FUGXX InvGvtMF
Cash Reserves 25 FDSXX InvCshR
Tax-Free Money 40 FFRXX InvTaxFree
Money Market Reserve 96 IMRXX INVESCOMMR
Tax-Exempt Reserve 95 ITTXX INVESCOTTE
</TABLE>
FOR MORE INFORMATION ABOUT ANY OF THE INVESCO FUNDS, INCLUDING MANAGEMENT FEES,
RISKS, AND EXPENSES, PLEASE CALL US AT 1-800-525-8085 FOR A PROSPECTUS. READ IT
CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
<PAGE>
[INVESCO LOGO]
INVESCO
YOU SHOULD
KNOW WHAT
INVESCO KNOWS (TM)
We're easy to stay in touch with:
Investor Services: 1-800-525-8085
PAL(R), your Personal Account Line: 1-800-424-8085
On the World Wide Web: www.invesco.com
In Denver, visit one of our convenient Investor Centers:
Cherry Creek, 3003 East Third Avenue, Suite 1
Denver Tech Center, 7800 East Union Avenue, Lobby Level
INVESCO Distributors, Inc.,(SM), Distributor
Post Office Box 173706
Denver, CO 80217-3706
This information must be preceded or accompanied by a current prospectus.
ATF 9010 7/99
