KNOWLEDGE DISCIPLINE SERVICE CHOICE
YOU SHOULD KNOW WHAT INVESCO KNOWS(TM)
Tax-Free Income Funds
Two no-load mutual funds seeking as high a level of current income exempt
from federal income taxes as is consistent with the preservation of capital.
TAX-FREE INTERMEDIATE BOND FUND
TAX-FREE LONG-TERM BOND FUND
SEMI-
ANN
UAL
INVESCO
SEMIANNUAL REPORT/December 31, 1998
<PAGE>
"NOW THAT MANY STATES ARE ACTUALLY RUNNING SURPLUSES AND HAVE IMPROVED
THEIR CREDIT RATINGS, THEY ARE IN A POSITION TO UNDERTAKE NEW PROJECTS. AND IF
YOU HAVE DRIVEN ON MANY HIGHWAYS LATELY, YOU KNOW THAT MANY OF THESE PROJECTS
ARE OVERDUE."
-- PAGE 4
INVESCO TAX-FREE
INTERMEDIATE BOND FUND
AVERAGE ANNUAL TOTAL RETURN,
PERIOD ENDING 12/31/98*
1 year 5.31%*
-------------------------------------------------
5 years 4.49%*
-------------------------------------------------
Since Inception (12/93) 4.65%*
-------------------------------------------------
INVESCO TAX-FREE
LONG-TERM BOND FUND
AVERAGE ANNUAL TOTAL RETURN,
PERIOD ENDING 12/31/98*
1 year 4.72%*
-------------------------------------------------
5 years 4.94%*
-------------------------------------------------
10 Years 7.65%*
-------------------------------------------------
Graph: Tax-Free Intermediate Bond Fund Total Return from Inception
(12/93) through 12/31/98
This line graph compares the value of a $10,000 investment in INVESCO
Tax-Free Intermediate Bond Fund to the value of a $10,000 investment in
the Lehman Intermediate Municipal Bond Index, assuming in each case
reinvestment of all dividends and capital gain distributions, for the
period from inception (12/93) through 12/31/98.
Graph: Tax-Free Long-Term Bond Fund Total Return for the ten year per-
iod ended 12/31/98
This line graph compares 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 ten year period ended
12/31/98.
The line graphs illustrate the value of a $10,000 investment, plus reinvested
dividends and capital gain distributions, for the 10-year period or from
inception through 12/31/98. 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.)*
*Total return figures include reinvested dividends and capital gain
distributions. 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.
The Lehman Municipal Bond Index and Intermediate Municipal Bond Index are
unmanaged indexes indicative of the broad tax-exempt bond market.
<PAGE>
Your Fund's Performance: A Report from the Manager
- -------------------------------------------------------------------------------
Dear Shareholders:
We hope that your investment in INVESCO's tax-free income funds served one of
its main purposes late this summer: helping you sleep a little better at night.
Certainly, the funds' minimal volatility in the latter half of this year
contrasted dramatically with the sharp swings endured by many investors.
As an investor in the Tax-Free Long-Term Bond Fund, you saw the value of your
investment rise 3.23% over the past six months ended 12/31/98, assuming
reinvestment of dividends and capital gains. As an investor in the Tax-Free
Intermediate-Term Bond Fund, you enjoyed a slightly higher gain of 3.30%.*
As part of the new strategy we implemented last April, we have lowered the cash
position of the funds and have moved the weighted-average maturities of the
bonds in both of the portfolios toward the middle of the yield curve. I am
pleased to report that this has helped both funds improve their performance
relative to similarly styled municipal bond funds, while reducing their
volatility. (Of course, past performance is not a guarantee of future results.)
While our results have been positive, two factors have prevented municipals from
participating fully in the broad bond market rally. First, with their fiscal
houses in order, thanks to a strong economy and widening tax base, many states
and localities have undertaken new infrastructure projects, resulting in a flood
of new municipal issues hitting the market.
Second, the dramatic "flight to quality" of late last summer led investors into
only the lowest-risk bonds, those issued by the United States Treasury. Even
though municipal yields declined, municipal yields as a percentage of Treasury
security yields increased.
Both of these factors create encouraging conditions for the future. Relative to
their risk, municipal bonds appear fairly inexpensive. Should the economy
continue to improve, the yield spread between their returns and those of
Treasuries should move in municipal bonds' favor. Also, the continued health of
the municipal bond issuance market should eventually benefit investors. Issuers
are doing well, indicating that credit quality should not be a problem.
Of course, the future direction of interest rates and a variety of other factors
that influence the market are harder to foresee. Still, I remain optimistic that
our new strategy will continue to serve your funds well.
I will look forward to reporting to you on our progress in six months.
/s/ Dawn Daggy-Mangerson
- --------------------------------------------------------
Dawn Daggy-Mangerson
Vice President
*Total return figures include reinvested dividends and capital gain
distributions. Past performance is not a guarantee of future results. Investment
return and principal value will fluctuate so that, when redeemed, an investor's
shares may be worth more or less than when purchased.
<PAGE>
INVESCO / Semiannual Report / December 31, 1998
Moving Forward
- --------------------------------------------------------------------------------
A REVIEW AND STRATEGY SESSION WITH DAWN DAGGY-MANGERSON
You have adjusted the funds' strategies since taking over their management in
April. What have you done, and how did it affect performance last year?
My background is as a bond trader. I look for differentials in the relative
values of bonds, and I buy those that are undervalued. The bond market is full
of temporary imbalances between supply and demand, and these present an
opportunity for profit.
For example, if Georgia comes out with a large municipal bond offering, chances
are it will not be immediately absorbed by the market at a price consistent with
its risk, because the number of Georgia residents eager to buy these bonds might
be fairly small. Eventually, though, the price of these bonds is likely to
converge toward a national median for their risk class.
On the other hand, I do not attempt to predict movements in interest rates; I
don't cluster investments on different parts of the yield curve; and I make use
of the futures markets only to maintain a neutral duration--the durations of the
funds, in fact, are now about equal with their peer groups.
This has helped make the funds less volatile.
Dawn, yields on long-term municipal bonds were almost equal to those of Treasury
securities for a good part of last year. But aren't interest rates on municipals
supposed to be lower, given that they are tax-free?
They usually are. It's important to keep in mind, however, that Treasury yields
were brought down by a global flight-to-quality. Obviously, foreign investors do
not distinguish between municipal bonds and Treasury bonds for tax purposes.
Also, some forced-selling by hedge funds kept rates up on the longer-term bonds,
as did the huge volume of new issuance.
How about that huge volume? Was it an aberration?
Probably not. Now that many states are actually running surpluses and have
improved their credit ratings, they feel as though they are in a position to
undertake new projects. And if you have driven on many highways lately, you know
that many of these projects are overdue. The good news for bond investors is
that most issuers should have no problem making payments on
their debt.
FUND MANAGER
DAWN DAGGY-MANGERSON
Portfolio Manager, INVESCO Funds Group. BS, DePaul University. Began
investment career in 1985. Joined INVESCO in 1998. Has managed these funds since
April 1998.
<PAGE>
Market Headlines:
July-December 1998
The latter half of 1998 was a period few market veterans will forget. Just when
the danger seemed to have passed, the tidal wave of the Asian economic crisis
finally pounded American shores in late summer, swamping financial markets. Wall
Street's sense of gloom deepened as the headlines warned of one global economic
calamity after another: Russian loan default, the ominous near-collapse of the
hedge fund Long-Term Capital Management, tumbling currencies in Latin America,
and a perilous banking situation in Japan.
Following the gut-wrenching declines, however, the markets began an equally
dizzying rebound in October. A series of three interest rate cuts by the Fed,
along with those by other central banks, pumped liquidity and confidence into
the international financial system. Despite profit warnings from large
multinational corporations, investors began to focus on the many sectors of
strength within the American economy: robust consumer spending, low interest
rates and unemployment, and subdued inflation. The mixed economic picture
resulted in mixed market performance, as the technology-and health care-heavy
S&P 500 Index outperformed the industrial-oriented Dow Jones. Large-cap stocks
continued to be favored over small-cap issues, and yield spreads widened to
favor low-risk bonds substantially. By the end of the year, many investors
enjoyed another round of sizeable gains, but few could avoid a sense of
trepidation as 1999 approached.*
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.
*The S&P 500 is an unmanaged index that reflects performance of the broad stock
market, while the Dow Jones Industrial Average reflects performance of
large-capitalization stocks.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
INVESCO Tax-Free Income Funds, Inc.
December 31, 1998
UNAUDITED
- ------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
% DESCRIPTION
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund
92.45 MUNICIPAL BONDS
2.85 ALASKA
Alaska Indl Dev & Export Auth,
Ref Revolving Fund, Series 1994A,
Lots 1-29, 5.700%, 4/1/2004 $ 175,000 $ 188,699
Municipality of Anchorage, Alaska
(MBIA Insured), Gen Oblig Ref,
Gen Purpose, 1993 Series B, 4.900%,
8/1/2003 25,000 26,048
===============================================================================
214,747
3.75 CALIFORNIA
California, Various Purpose
Gen Oblig (MBIA Insured),
Series 1992, 6.300%, 9/1/2008 150,000 175,630
Monterey Cnty Pub Wks Brd, California
(Dept of Corrections (Soledad II)),
Lease Rev Ref, 1996 Series D,
5.375%, 11/1/2011 100,000 107,740
===============================================================================
283,370
5.02 COLORADO
Arapahoe Cnty Pub Hwy Auth,
Colorado (E-470 Proj) (MBIA Insured), Cap Impt
Trust Fund, Hwy Rev, Veh Regn Fee,
5.300%, 8/31/2006 200,000 214,958
Montrose Cnty Bldg Auth, Colorado,
Ctfs of Participation, 6.350%, 6/15/2006 150,000 163,791
===============================================================================
378,749
0.34 DISTRICT OF COLUMBIA
District of Columbia, Gen Oblig Ref,
Series 1994A-3, 5.200%, 6/1/2003 25,000 25,820
===============================================================================
6.72 FLORIDA
Broward Cnty, Florida (AMBAC Insured),
Airport System Rev, Series G,
4.200%, 10/1/2008 200,000 198,948
Dade Cnty, Florida (AMBAC Insured),
Solid Waste System Rev Ref, Special
Ltd Oblig, Series 1996, 6.000%, 10/1/2006 200,000 225,416
Miami Beach Redev Agency, Florida
(City Ctr/Historic Convention Village),
Tax Increment Rev, Series 1993, 5.100%,
12/1/2003 80,000 82,556
===============================================================================
506,920
1.82 GEORGIA
Fulton Cnty School Dist, Georgia,
Gen Oblig Ref, Series 1998, 5.250%,
1/1/2013 100,000 106,524
Georgia Muni Elec Auth, Pwr Rev,
Series CC, 4.500%, 1/1/2002 30,000 30,511
===============================================================================
137,035
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
% DESCRIPTION
- --------------------------------------------------------------------------------
7.49 ILLINOIS
Boone, McHenry & DeKalb Cntys,
Illinois (Cmnty Unit School Dist #100
(Belvidere)) (FSA Insured), Gen Oblig,
Series 1997, Cap Appreciation,
12/1/2010 $ 300,000 $ 172,803
Illinois Hsg Dev Auth, Hsg Dev Rev,
1993 Series A, 5.000%, 1/1/2001 15,000 15,161
Illinois Toll Hwy Auth, Toll Hwy Ref Rev,
1993 Series A, 4.700%, 1/1/2001 60,000 60,897
McCormick Place Receipts -- Metro Pier &
Exposition Auth, Illinois (50%
McCormick Place Expansion Proj),
Dedicated State Tax Rev, Series 1998B,
Cap Appreciation, 6/15/2009 500,000 316,775
===============================================================================
565,636
2.27 LOUISIANA
Louisiana Pub Facils Auth,
Student Ln Rev, Series 1992A-1, 6.200%,
3/1/2001 165,000 171,369
===============================================================================
0.28 MASSACHUSETTS
Massachusetts Muni Wholesale Elec,
Pwr Supply System Rev, 1992 Series B,
6.375%, 7/1/2001 20,000 21,109
2.75 MICHIGAN
Michigan, Comprehensive Transn Ref,
Series 1992B, 5.750%, 5/15/2011 200,000 207,636
===============================================================================
3.38 MONTANA
Forsyth, Montana (Portland Gen Elec Proj),
VR, PCR Ref, Series 1998B, 4.750%,
5/1/2033 250,000 254,955
===============================================================================
8.28 NEBRASKA
Nebraska Pub Power Dist (MBIA Insured),
Gen Rev, 1998 Series B, 5.250%,
1/1/2008 300,000 323,466
Omaha, Nebraska, Various Purpose & Ref,
Series 1998, 4.250%, 12/15/2008 300,000 301,797
===============================================================================
625,263
4.70 NEVADA
Nevada Hsg Div (Single Family Prog),
Sr Rev, 1994 Issue B-1, 5.900%,
4/1/2003 110,000 116,117
Nevada (Nevada Muni Bank Proj #65 & #R-6),
Gen Oblig Ltd Tax, Series 1998, 6.750%,
5/15/2008 200,000 238,524
===============================================================================
354,641
2.59 NEW HAMPSHIRE
New Hampshire Hsg Fin Auth,
Single Family Residential Mtg, 1994 Series D,
5.850%, 1/1/2001 190,000 195,219
===============================================================================
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
% DESCRIPTION
- --------------------------------------------------------------------------------
2.92 OHIO
Ohio Bldg Auth, State Correctional
Facils Ref, 1994 Series A, 4.600%,
10/1/2003 50,000 51,544
Ohio Bldg Auth (Admin Bldg Fund Proj),
State Facils, 1995 Series A,
6.000%, 10/1/2006 150,000 169,062
===============================================================================
220,606
4.58 OKLAHOMA
Enid Muni Auth, Oklahoma (AMBAC Insured),
Util & Sales Tax Rev Ref, Series
1996, 5.500%, 2/1/2003 $ 325,000 $ 345,611
2.29 PENNSYLVANIA
Philadelphia, Pennsylvania (MBIA Insured),
Wtr & Wastewtr Rev, Series 1995,
6.750%, 8/1/2005 150,000 173,151
===============================================================================
3.43 SOUTH DAKOTA
South Dakota Student Ln Fin,
Student Ln Rev, Series 1994-A,
5.850%, 8/1/2000 250,000 258,503
===============================================================================
7.32 TEXAS
Katy Indpt School Dist, Texas
(Fort Bend, Harris & Waller Cntys)
(Permanent School Fund Guaranatee Prog),
Ltd Tax School Bldg, Series
1996, 7.500%, 2/15/2006 150,000 178,681
Texas Muni Pwr Agency (MBIA Insured),
Ref Rev, Series 1993, 5.250%,
9/1/2006 325,000 348,472
Trinity River Indl Dev Auth, Texas
(Intl Paper Proj), Rev Ref, 1993
Series, 4.900%, 12/1/2002 25,000 25,479
===============================================================================
552,632
4.63 VIRGINIA
Rivanna Wtr & Swr Auth, Virginia,
Regl Wtr & Swr System Rev Ref, Series of
1993, 4.500%, 10/1/2000 50,000 50,918
Southeastern Pub Svc Auth, Virginia
(MBIA Insured), Regl Solid Waste
System, Sr Rev Ref, Series 1993A,
5.150%, 7/1/2009 100,000 107,163
Virgina Pub School Auth, School Fing & Ref,
Series 1998A, 5.250%, 8/1/2009 175,000 191,469
===============================================================================
349,550
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
% DESCRIPTION
- --------------------------------------------------------------------------------
10.69 WASHINGTON
North Thurston School Dist #3,
Washington, Unlimited Tax Gen Oblig, 1992
Series, 6.500%, 12/1/2009 200,000 216,990
Washington Hlth Care Facils Auth
(Catholic Hlth Initiatives), Rev, Series
1997A, 5.100%, 12/1/2009 100,000 105,812
Washington Pub Pwr Supply System
(Nuclear Proj #1), Ref Rev, Series 1993A,
5.300%, 7/1/2002 400,000 417,556
Wenatchee, Washington, Wtr & Swr Rev Ref,
1994 Series, 4.600%, 12/1/2002 65,000 66,512
===============================================================================
806,870
1.53 WISCONSIN
Merrill Area Common Pub School Dist,
Wisconsin (Lincoln, Langlande &
Marathon Cntys) (FSA Insured),
Gen Oblig Ref, 6.500%, 4/1/2007 100,000 115,817
===============================================================================
2.82 WYOMING
Platte Cnty, Wyoming (Basin Elec Power
Cooperative -- Laramie River
Station Proj) (MBIA Insured), PCR Ref,
Series 1994, 5.100%, 1/1/2008 200,000 212,644
===============================================================================
TOTAL MUNICIPAL BONDS (Cost $6,763,223) 6,977,853
===============================================================================
7.55 SHORT-TERM INVESTMENTS -- MUNICIPAL NOTES
2.65 CALIFORNIA
Los Angeles Regl Airports Impt,
California (American Airlines/Los Angeles
Intl Airport) (LOC - Wachovia Bank), AR,
Facils Sublease FDR, Issue 1984,
Series D, 4.850%, 12/1/2024(a) $ 200,000 $ 200,000
===============================================================================
0.26 TENNESSEE
Knoxville, Tennessee, Wtr Rev Ref & Impt,
Series M-1993, 4.500%, 3/1/1999 20,000 20,038
===============================================================================
2.65 TEXAS
Lone Star Airport Imp Auth, Texas
(American Airlines Proj) (LOC - Royal
Bank of Canada), AR, Multi-Mode Demand Rev,
4.850%, 12/1/2013(a)
Series A-4 100,000 100,000
Series B-1 100,000 100,000
===============================================================================
200,000
1.99 WISCONSIN
La Crosse, Wisconsin (Dairyland Pwr
Cooperative Proj) (AMBAC Insured), AR,
Adj Tender PCR, Series 1997B, 5.100%,
2/1/2015(a) 150,000 150,000
===============================================================================
TOTAL MUNICIPAL SHORT-TERM NOTES (Cost $570,001) 570,038
===============================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $7,333,224)(c) $ 7,547,891
===============================================================================
<PAGE>
------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
% DESCRIPTION
- -------------------------------------------------------------------------------
Tax-Free Long-Term Bond Fund
97.73 MUNICIPAL BONDS
0.12 ALASKA
Alaska Hsg Fin (Veterans Mtg Prog),
Collateralized Gen Oblig, 1990 First
Series, 7.500%, 12/1/2030 $ 240,000 $ 250,826
===============================================================================
3.40 ARIZONA
Arizona Edl Ln Mktng, 1992 Edl Ln Rev,
Series B, 7.000%, 3/1/2005 1,000,000 1,077,970
Salt River Proj Agric Impt & Pwr Dist,
Arizona, Salt River Proj Elec
System Ref Rev, 1993 Series B, 7.000%,
1/1/2005 5,000,000 5,788,100
===============================================================================
6,866,070
1.48 ARKANSAS
Little River Cnty, Arkansas
(Georgia-Pacific Proj), Ref Rev, Series 1998,
5.600%, 10/1/2026 3,000,000 2,998,350
===============================================================================
1.14 CALIFORNIA
Big Bear Lake Dept of Wtr & Pwr,
California (MBIA Insured), Wtr Rev Ref,
Series 1996, 6.000%, 4/1/2022 2,000,000 2,306,620
===============================================================================
3.96 COLORADO
Denver City & Cnty, Colorado,
Gen Oblig Ref, Series 1998A, 5.250%,
8/1/2006 $ 5,000,000 $ 5,367,900
Denver Hlth & Hosp Auth, Colorado,
Hlthcare Rev, Series 1998A, 5.125%,
12/1/2005 1,205,000 1,254,959
Fountain Valley Auth, Colorado,
Wtr Treatment Ref Rev, Series 1991,
6.800%, 12/1/2019 1,140,000 1,220,484
Montrose Cnty Bldg Auth, Colorado,
Ctfs of Participation, 6.350%,
6/15/2006 150,000 163,791
===============================================================================
8,007,134
1.61 FLORIDA
Miami-Dade Cnty School Dist, Florida
(FSA Insured), Gen Oblig Ref, Series
1998, 5.375%, 8/1/2015 3,000,000 3,245,490
===============================================================================
1.06 GEORGIA
Atlanta, Georgia (MBIA Insured),
Airport Facils Rev, Series 1990,
7.250%, 1/1/2017 2,000,000 2,136,420
===============================================================================
<PAGE>
4.31 HAWAII
Hawaii (MBIA Insured),
Gen Oblig, 1998 Series CR, 5.500%,
4/1/2007 8,000,000 8,707,280
===============================================================================
5.70 ILLINOIS
Boone, McHenry & DeKalb Cntys,
Illinois (Cmnty Unit School Dist #100
(Belvidere)) (FSA Insured),
Gen Oblig, Series 1997,
Cap Appreciation, 12/1/2008 1,005,000 651,220
12/1/2009 1,000,000 610,410
12/1/2010 2,695,000 1,552,347
Chicago, Illinois (AMBAC Insured),
Gen Oblig, Ref, Series 1993B,
5.125%, 1/1/2022 2,465,000 2,507,102
Chicago, Illinois (Peoples Gas Light & Coke),
1st & Ref Mtg, Series CC,
Medium-Term Notes, 6.875%, 3/1/2015 2,875,000 3,134,038
Illinois Dev Fin Auth (Catholic Charities
Hsg Dev Proj) (Catholic Bishop
of Chicago), Rev, Series 1995, 6.350%,
1/1/2025 1,500,000 1,561,020
Illinois Hlth Facils Auth (Advocate Hlth
Care Network), Rev, Series 1998A, 5.200%,
8/15/2018 1,500,000 1,494,390
===============================================================================
11,510,527
13.02 INDIANA
DeKalb Cnty Redev Auth, Indiana
(Mini-Mill Loc Pub Impt Proj), Rev, Series
A 1995, 6.500%, 1/15/2014 900,000 993,114
Hamilton Cnty Pub Bldg, Indiana
(Hamilton Cnty), 1st Mtg Ref, Series B,
6.250%, 1/20/2013 4,300,000 4,673,111
Indiana Transn Fin Auth, Airport
Facils Lease Rev, Series A, 6.750%,
11/1/2011 1,500,000 1,684,680
Indianapolis Loc Pub Impt Bank,
Indiana, Impt Rev, Series 1991C, 6.700%,
1/1/2017 3,750,000 4,126,875
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
% DESCRIPTION
- --------------------------------------------------------------------------------
Petersburg, Indiana (Indianapolis Pwr
& Light Proj) (MBIA Insured), PCR
Ref, Series 1993B, 5.400%, 8/1/2017 $ 9,850,000 $ 10,383,870
Warren Township School Bldg,
Indiana (Marion Cnty) (FSA Insured), 1st Mtg
Ref, Series 1998 5.500%, 1/5/2006 2,020,000 2,177,803
5.500%, 7/5/2006 2,075,000 2,247,142
===============================================================================
26,286,595
0.54 KANSAS
Kansas Dev Fin Auth, Pub Wtr Supply
Revolving Ln Fund Rev, 1998 Series 2,
5.250%, 4/1/2014 1,055,000 1,088,686
===============================================================================
1.80 MARYLAND
Maryland Transn Dept, Cons Transn Ref,
Series 1998, 5.500%, 9/1/2006 3,315,000 3,637,980
===============================================================================
7.65 MASSACHUSETTS
Boston Wtr & Swr Commn, Massachusetts,
(MBIA Insured), Gen Rev, 1993 Sr
Series A, 5.250%, 11/1/2019 5,385,000 5,636,533
Commonwealth of Massachusetts (MBIA Insured),
Gen Oblig, Cons Ln of 1992,
Series D, 8.000%, 5/1/2006 5,000,000 6,194,150
Massachusetts Hlth & Edl Facils Auth
(Cooley Dickinson Hosp &
Mary Hitchcock Hops)(AMBAC Insured),
Rev, Series 1995B, 5.500%, 11/15/2018 3,500,000 3,635,345
===============================================================================
15,466,028
2.67 MINNESOTA
Minneapolis -- St Paul Metro Airports Commn,
Minnesota, Gen Oblig, Rev
Ref, Series 13, 5.000%, 1/1/2009 2,570,000 2,696,675
Univ of Minnesota Regents, Minnesota,
Gen Oblig, Series 1996A, 5.500%,
7/1/2021 2,500,000 2,696,325
===============================================================================
5,393,000
3.52 MISSISSIPPI
Claiborne Cnty, Mississippi (System Energy
Resources Proj), PCR, Series A,
9.500%, 12/1/2013 600,000 626,526
Mississippi (Mississippi Gaming
Cntys Hwy Impts Proj), Gen Oblig, Series
A, 5.500%, 7/1/2008 5,865,000 6,497,599
===============================================================================
7,124,125
3.18 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 4,911,999
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 1,509,914
===============================================================================
6,421,913
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
% DESCRIPTION
- --------------------------------------------------------------------------------
4.92 MONTANA
Forsyth, Montana (Portland Gen Elec
Proj), VR, PCR Ref, Series 1998B,
4.75%, 5/1/2033 9,750,000 9,943,245
================================================================================
0.49 NEBRASKA
Omaha, Nebraska, Various Purpose & Ref,
Series 1998, 4.250%, 12/15/2010 $ 1,000,000 $ 990,410
===============================================================================
3.01 NEVADA
Nevada (Nevada Muni Bd Bank Projs
#66 & #67) (FGIC Insured), Gen Oblig Ltd
Tax, Series July 1, 1998A, 5.500%,
5/15/2007 5,580,000 6,087,836
===============================================================================
0.39 NEW HAMPSHIRE
New Hampshire Hsg Fin Auth, Single
Family Residential Mtg, 1994 Series D,
6.850%, 7/1/2006 750,000 797,730
===============================================================================
3.37 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 1,113,190
Union Cnty Utils Auth (Ogden Martin Systems
of Union) (AMBAC Insured),
Solid Waste Facil Sr Lease Rev,
Series 1998A, 5.250%, 6/1/2006 5,375,000 5,706,369
===============================================================================
6,819,559
2.71 NEW MEXICO
Los Alamos Cnty, New Mexico (FSA Insured),
Util System Rev, Series 1994A,
6.000%, 7/1/2009 5,000,000 5,476,650
===============================================================================
9.62 NEW YORK
New York, New York, Gen Oblig, Series F,
5.000%, 8/1/2023 2,000,000 1,947,700
New York, New York Dorm Auth
(Muni Hlth Facils Impt Prog) (FSA Insured),
Lease Rev, 1998 Series 1, 5.000%,
1/15/2010 5,000,000 5,200,250
New York & New Jersey Port Auth,
Consolidated Gen Oblig, Rev, Ninety-Third
Series, 6.125%, 6/1/2094 5,250,000 6,154,890
New York Transitional Fin Auth,
New York, Future Tax Secured Rev, Fiscal
1999 Series A, 5.250%, 11/15/2013 1,000,000 1,045,020
Triborough Bridge & Tunnel Auth, New York,
Gen Purpose Rev, Series 1993B,
5.000%, 1/1/2020 1,935,000 1,937,574
Series Y, 5.500%, 1/1/2017 2,900,000 3,157,433
===============================================================================
19,442,867
0.25 NORTH CAROLINA
North Carolina Eastern Muni Pwr
Agency, Pwr System Rev Ref, Series 1993C,
5.000%, 1/1/2002 500,000 510,130
===============================================================================
2.66 OHIO
Ohio (Major New State Infrastructure Proj),
Rev, Series 1998-1, 5.000%,
12/15/2006 5,060,000 5,377,211
===============================================================================
1.10 PENNSYLVANIA
Philadelphia, Pennsylvania, Wtr & Swr Rev,
Sixteenth Series, 7.500%,
8/1/2010 2,000,000 2,223,600
===============================================================================
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
% DESCRIPTION
- --------------------------------------------------------------------------------
0.83 RHODE ISLAND
Rhode Island Depositors Econ Protection,
Special Oblig, 1992 Series A,
6.950%, 8/1/2022 $ 1,500,000 $ 1,685,190
===============================================================================
2.18 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 4,400,389
===============================================================================
2.37 TEXAS
Austin, Texas (AMBAC Insured), Combined Util
Systems Rev Ref, Series 1992,
Cap Appreciation, 11/15/2011 1,400,000 775,432
Austin, Texas, Wtr Swr & Elec Ref Rev,
Series 1982, 14.000%, 11/15/2001 395,000 455,921
Galena Park Indpt School Dist, Texas
(Harris Cnty) (PSFG Insured), Unltd
Tax School Bldg & Ref, Series 1996,
Cap Appreciation, 8/15/2023 3,220,000 919,535
Harris Cnty, Texas (MBIA Insured),
Toll Road Unltd Tax & Sub Lien Rev,
Series 1994A, 6.500%, 8/15/2013 500,000 595,450
Lubbock Hlth Facils Dev, Texas
(St Joseph Hlth System), Rev, Series 1998,
5.250%, 7/1/2013 2,000,000 2,047,800
===============================================================================
4,794,138
0.68 UTAH
Utah Hsg Fin Agency (Federally Insured or
Gtd Mtg Lns), Single Family Mtg,
1994 Issue D-1 Term Mezzanine, 6.450%,
7/1/2011 1,290,000 1,373,347
===============================================================================
0.53 VERMONT
Vermont Hsg Fin Agency, Single Family
Hsg Rev, Series 5, 6.875%, 11/1/2016 1,000,000 1,073,440
===============================================================================
1.07 VIRGINIA
Virginia Pub School Auth, School
Fing & Ref, Series 1998 A, 5.250%,
8/1/2007 2,000,000 2,168,240
===============================================================================
2.75 WASHINGTON
Grant Cnty Pub Util Dist #2, Washington,
Hydroelectric Dev Rev, Second
Series 1990, (Priest Rapids), 7.700%,
1/1/2018 3,000,000 3,145,710
(Wanapum), 7.700%, 1/1/2018 1,050,000 1,112,139
Thurston Cnty, Washington (North Thurston
School Dist #3), Unlimited Tax
Gen Oblig, 6.500%, 12/1/2009 1,200,000 1,301,940
===============================================================================
5,559,789
3.64 WISCONSIN
Adams Cnty, Wisconsin (Adams-Friendship
School Dist) (AMBAC Insured), Gen
Oblig Ref, 6.500%, 4/1/2015 1,340,000 1,593,073
Southeast Wisconsin Professional Baseball
Park Dist (MBIA Insured), Sales
Tax Rev Ref, Series 1998A, 5.500%,
12/15/2019 5,370,000 5,760,077
===============================================================================
7,353,150
TOTAL MUNICIPAL BONDS (Cost $188,489,218) 197,523,965
===============================================================================
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
% DESCRIPTION
- --------------------------------------------------------------------------------
2.27 SHORT-TERM INVESTMENTS -- MUNICIPAL NOTES
1.53 GEORGIA
Atlanta, Georgia (Delta Air Lines Proj),
Special Purpose Facils Rev,
Series 1989B, 7.400%, 12/1/1999 $ 3,000,000 $ 3,079,440
===============================================================================
0.15 INDIANA
Princeton, Indiana (PSI Energy Proj)
(LOC -- Morgan Gty Trust), AR, PCR
Ref, 1997 Series, 5.100%, 4/1/2022(a) 300,000 300,000
===============================================================================
0.05 NEW YORK
New York, New York (LOC -- Morgan Gty Trust),
AR, Gen Oblig, Fiscal 1994
Series A Subseries A-8, 5.100%,
8/1/2018(a) 100,000 100,000
===============================================================================
0.54 NORTH DAKOTA
Grand Forks, North Dakota (United Hosp
Obligated Group (LOC -- LaSalle
Natl Bank), AR, Hlthcare Facils Rev,
Series 1992B, 4.850%, 12/1/2016(a) 1,100,000 1,100,000
===============================================================================
TOTAL MUNICIPAL SHORT-TERM NOTES (Cost $4,523,409) 4,579,440
===============================================================================
100.00 TOTAL INVESTMENT SECURITIES AT VALUE
(Cost $193,012,627)(b) $ 202,103,405
===============================================================================
The following abbreviations may be used in portfolio descriptions:
AMBAC -- American Municipal Bond LOC -- Letter of Credit
Assurance Corporation MBIA -- Municipal Bond Investors
AR(c) -- Adjustable Rate Assurance Corporation
FGIC -- Flexible Guaranty Insurance PCR -- Pollution Control Revenue
Company PSFG -- Permanent School Fund
FRD(a) -- Floating Rate Demand Guarantee Program
FSA -- Financial Security Assurance 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 of 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.
December 31, 1998
UNAUDITED
Tax-Free Tax-Free
Intermediate Long-Term
Bond Fund Bond Fund
-------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost $ 7,333,224 $ 193,012,627
===============================================================================
At Value $ 7,547,891 $ 202,103,405
Cash 81,513 0
Receivables:
Investment Securities Sold 0 3,722,954
Fund Shares Sold 388 170,115
Interest 107,986 3,060,426
Prepaid Expenses and Other Assets 57,818 171,738
===============================================================================
TOTAL ASSETS 7,795,596 209,228,638
===============================================================================
LIABILITIES
Payables:
Custodian 0 5,307
Distributions to Shareholders 1,804 177,966
Investment Securities Purchased 199,042 0
Fund Shares Repurchased 63,523 167,262
Accrued Distribution Expenses 1,574 45,368
Accrued Expenses and Other Payables 4 23,806
===============================================================================
TOTAL LIABILITIES 265,947 419,709
===============================================================================
Net Assets at Value $ 7,529,649 $ 208,808,929
===============================================================================
NET ASSETS
Paid-in Capital(a) $ 7,380,213 $ 199,458,529
Accumulated Undistributed Net Investment Income 0 2,865
Accumulated Undistributed Net Realized Gain
(Loss) on Investment Securities and
Futures Contracts (65,231) 256,757
Net Appreciation of Investment Securities 214,667 9,090,778
===============================================================================
Net Assets at Value $ 7,529,649 $ 208,808,929
===============================================================================
Shares Outstanding 736,463 13,660,042
Net Asset Value, Offering and Redemption
Price per Share $ 10.22 $ 15.29
===============================================================================
(a) The Fund has 500 million authorized shares of common stock, par value of
$0.01 per share. Of such shares, 100 million have been allocated to each
individual Fund.
See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
INVESCO Tax-Free Income Funds, Inc.
Six Months Ended December 31, 1998
UNAUDITED
Tax-Free Tax-Free
Intermediate Long-Term
Bond Fund Bond Fund
-------------------------------------------------------------------------------
INVESTMENT INCOME
INTEREST INCOME $ 169,922 $ 5,258,050
===============================================================================
EXPENSES
Investment Advisory Fees 18,712 589,724
Distribution Expenses 9,356 268,056
Transfer Agent Fees 7,619 122,566
Administrative Fees 5,561 21,083
Custodian Fees and Expenses 1,011 13,277
Directors' Fees and Expenses 4,434 10,321
Pricing Expenses 4,327 15,434
Professional Fees and Expenses 6,450 18,604
Registration Fees and Expenses 13,984 18,137
Reports to Shareholders 707 13,880
Other Expenses 426 6,992
===============================================================================
TOTAL EXPENSES 72,587 1,098,074
Fees and Expenses Absorbed by Investment Adviser (37,735) (126,417)
Fees and Expenses Paid Indirectly (1,011) (6,040)
===============================================================================
NET EXPENSES 33,841 965,617
==============================================================================
NET INVESTMENT INCOME 136,081 4,292,433
===============================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES
Net Realized Gain on:
Investment Securities 10,755 2,281,967
Futures Contracts 45,939 0
===============================================================================
Total Net Realized Gain 56,694 2,281,967
===============================================================================
Change in Net Appreciation of Investment Securities 57,887 174,132
===============================================================================
NET GAIN ON INVESTMENT SECURITIES AND
FUTURES CONTRACTS 114,581 2,456,099
===============================================================================
Net Increase in Net Assets from Operations $ 250,662 $ 6,748,532
===============================================================================
See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund
Six Months Year
Ended Ended
December 31 June 30
-------------------------------------------------------------------------------
1998 1998
UNAUDITED
-------------------------------------------------------------------------------
OPERATIONS
Net Investment Income $ 136,081 $ 193,909
Net Realized Gain on Investment Securities
and Futures Contracts 56,694 1,728
Change in Net Appreciation of
Investment Securities 57,887 88,618
===============================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS 250,662 284,255
===============================================================================
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (136,081) (193,909)
===============================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 7,061,603 5,522,747
Reinvestment of Distributions 119,970 168,131
===============================================================================
7,181,573 5,690,878
Amounts Paid for Repurchases of Shares (5,440,608) (4,752,570)
===============================================================================
NET INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS 1,740,965 938,308
===============================================================================
Total Increase in Net Assets 1,855,546 1,028,654
NET ASSETS
Beginning of Period 5,674,103 4,645,449
===============================================================================
End of Period $ 7,529,649 $ 5,674,103
===============================================================================
----------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 694,216 549,380
Shares Issued from Reinvestment of Distributions 11,740 16,728
===============================================================================
705,956 566,108
Shares Repurchased (531,974) (472,908)
===============================================================================
Net Increase in Fund Shares 173,982 93,200
===============================================================================
See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
Tax-Free Long-Term Bond Fund
Six Months Year
Ended Ended
December 31 June 30
-------------------------------------------------------------------------------
1998 1998
UNAUDITED
-------------------------------------------------------------------------------
OPERATIONS
Net Investment Income $ 4,292,433 $ 8,836,825
Net Realized Gain on Investment
Securities and Futures Contracts 2,281,967 3,733,310
Change in Net Appreciation of Investment
Securities 174,132 1,943,163
===============================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS 6,748,532 14,513,298
===============================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (4,292,318) (8,836,825)
Net Realized Gain on Investment
Securities and Futures Contracts (6,238,451) (2,405,462)
===============================================================================
TOTAL DISTRIBUTIONS (10,530,769) (11,242,287)
===============================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 50,910,497 73,871,498
Reinvestment of Distributions 8,106,566 8,527,627
===============================================================================
59,017,063 82,399,125
Amounts Paid for Repurchases of Shares (57,897,043) (94,609,312)
===============================================================================
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 1,120,020 (12,210,187)
===============================================================================
Total Decrease in Net Assets (2,662,217) (8,939,176)
NET ASSETS
Beginning of Period 211,471,146 220,410,322
===============================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income of
$2,865 and $2,750, respectively) $208,808,929 $ 211,471,146
===============================================================================
----------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 3,228,799 4,748,107
Shares Issued from Reinvestment of Distributions 523,568 546,335
===============================================================================
3,752,367 5,294,442
Shares Repurchased (3,677,683) (6,077,593)
===============================================================================
Net Increase (Decrease) in Fund Shares 74,684 (783,151)
===============================================================================
See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
Notes to financial statements --
INVESCO Tax-Free Income Funds, Inc.
UNAUDITED
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO
Tax-Free Income Funds, Inc. (the "Fund") is 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 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 intitial 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
<PAGE>
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.
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, 1998, Tax-Free Intermediate Bond Fund had $121,925 in net capital
loss carryovers which expire in the year 2003.
Net capital loss carryovers utilized in 1998 by Tax-Free Intermediate Bond
Fund amounted to $4,256.
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.
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.
F. EXPENSES -- Each of the Funds bears expenses incurred specifically on
its behalf and, in addition, each Fund bears a portion of general expenses,
based on the relative net assets of each Fund.
<PAGE>
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 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%
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 six months ended December
31, 1998, Tax-Free Intermediate Bond and Tax-Free Long-Term Bond Funds paid the
Distributor $8,942 and $266,440, respectively, 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.
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 has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by each Fund.
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the six months
ended December 31, 1998, 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 $ 3,752,002 $ 2,161,201
Tax-Free Long-Term Bond Fund 89,503,167 97,680,540
There were no purchases or sales of U.S. Government securities.
<PAGE>
NOTE 4 -- APPRECIATION AND DEPRECIATION. At December 31, 1998, 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 $ 219,482 $ 4,815 $ 214,667
Tax-Free Long-Term Bond Fund 9,123,216 32,438 9,090,778
NOTE 5 -- TRANSACTIONS WITH AFFILIATES. Certain of the Funds' officers and
directors are also officers and directors of IFG or IDI.
Each 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.
<PAGE>
Pension expenses for the six months ended December 31, 1998, included in
Directors' Fees and Expenses in the Statement of Operations, and unfunded
accrued pension costs and pension liability included in Prepaid Expenses and
Accrued Expenses, respectively, in the Statement of Assets and Liabilities were
as follows:
UNFUNDED
PENSION ACCRUED PENSION
EXPENSES PENSION COSTS LIABILITY
-------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund $ 70 $ 197 $ 462
Tax-Free Long-Term Bond Fund 2,746 14,319 33,036
The independent directors have contributed to a deferred compensation plan,
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 are being invested in the shares of certain of the
INVESCO and Treasurer's Series Trust Funds.
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 December 31, 1998, there were no such borrowings.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund
(For a Fund Share Outstanding Throughout Each Period)
SIX MONTHS PERIOD
ENDED ENDED
DECEMBER 31 YEAR ENDED JUNE 30 JUNE 30
----------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994(a)
UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -- Beginning
of Period $ 10.09 $ 9.90 $ 9.74 $ 9.70 $ 9.52 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.19 0.40 0.41 0.43 0.44 0.19
Net Gains or (Losses)
on Securities (Both Realized and Unrealized) 0.13 0.19 0.16 0.04 0.18 (0.48)
======================================================================================================================
Total from Investment Operations 0.32 0.59 0.57 0.47 0.62 (0.29)
======================================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.19 0.40 0.41 0.43 0.44 0.19
======================================================================================================================
Net Asset Value -- End of Period $ 10.22 $ 10.09 $ 9.90 $ 9.74 $ 9.70 $ 9.52
======================================================================================================================
TOTAL RETURN 3.30%(b) 6.02% 5.96% 4.89% 6.67% (2.93%)(b)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 7,530 $ 5,674 $ 4,645 $ 4,997 $ 4,907 $ 5,083
Ratio of Expenses to Average Net Assets(c) 0.47%(b)(d) 0.95%(d) 0.84%(d) 0.76%(d) 0.70% 0.70%(e)
Ratio of Net Investment
Income to Average Net Assets(c) 1.83%(b) 3.96% 4.18% 4.40% 4.56% 3.75%(e)
Portfolio Turnover Rate 35%(b) 32% 41% 49% 23% 55%(b)
(a) From December 1, 1993, commencement of investment operations, to June 30,
1994.
(b) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(c) Various expenses of the Fund were voluntarily absorbed by IFG for the six
months ended December 31, 1998, for the years ended June 30, 1998, 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 0.98% (not annualized), 2.44%, 2.43%, 2.34%, 2.45% and
3.09%, respectively, and ratio of net investment income to average net
assets would have been 1.32% (not annualized), 2.47%, 2.59%, 2.82%, 2.81%
and 1.36%, respectively.
(d) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
(e) Annualized
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Tax-Free Long-Term Bond Fund
(For a Fund Share Outstanding Throughout Each Period)
SIX MONTHS
ENDED
DECEMBER 31 YEAR ENDED JUNE 30
--------------------------------------------------------------------------------------------------------------------------=
1998 1998 1997 1996 1995 1994
UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 15.57 $ 15.34 $ 15.20 $ 15.07 $ 15.29 $ 16.35
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.32 0.63 0.66 0.73 0.80 0.83
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.18 0.40 0.38 0.32 0.09 (1.00)
===========================================================================================================================
Total from Investment Operations 0.50 1.03 1.04 1.05 0.89 (0.17)
===========================================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.32 0.63 0.66 0.73 0.80 0.83
In Excess of Net Investment Income 0.00 0.00 0.01 0.00 0.00 0.00
Distributions from Capital Gains 0.46 0.17 0.23 0.19 0.31 0.06
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Total Distributions 0.78 0.80 0.90 0.92 1.11 0.89
===========================================================================================================================
Net Asset Value -- End of Period $ 15.29 $ 15.57 $ 15.34 $ 15.20 $ 15.07 $ 15.29
===========================================================================================================================
TOTAL RETURN 3.23%(a) 6.87% 7.05% 7.01% 6.16% (1.16%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 208,809 $ 211,471 $ 220,410 $ 250,890 $ 254,584 $ 282,407
Ratio of Expenses to Average Net Assets(b) 0.46%(a)(c) 0.91%(c) 0.90%(c) 0.91%(c) 0.92% 1.00%
Ratio of Net Investment Income to Average Net Assets(b) 2.02%(a) 4.06% 4.36% 4.76% 5.31% 5.14%
Portfolio Turnover Rate 44%(a) 173% 123% 146% 99% 28%
(a) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(b) Various expenses of the Fund were voluntarily absorbed by IFG for the six
months ended December 31, 1998 and for the years ended June 30 1998, 1997,
1996 and 1995. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 0.52% (not annualized),
1.04%, 1.05%, 1.04%, and 1.05%, respectively, and ratio of net investment
income to average net assets would have been 1.96% (not annualized), 3.93%,
4.21%, 4.63% and 5.18%, respectively.
(c) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
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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, 155-B Fillmore Street
Denver Tech Center, 7800 East Union Avenue, Lobby Level
INVESCO Distributors, Inc. (SM), Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or accompanied by a current prospectus.
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