SEMIANNUAL REPORT
December 31, 1996
INVESCO
INDUSTRIAL
INCOME
FUND,
INC.
A Smart Choice For
The Foundation
of Your Portfolio
INVESCO FUNDS
<PAGE>
Economic Overview January 1997
Overheating -- or headed into a recession? That's the question analysts have
posed all year about the U.S. economy. During the third quarter of 1996, growth
moderated to a "normal/dull" level of 2.2%. Representing a slowdown from the
second quarter's relatively torrid pace of 4.7%, the current level of economic
expansion should be moderate enough to stave off inflation fears. The rate of
increase in wages, benefits, and prices for consumer and industrial goods has
not accelerated over the past 12 months; the Consumer Price Index will likely
end 1996 up at an annualized rate of about 3.0% -- in line with the historical
average.
A moderate inflation level represents a positive factor for the economy. At
the same time, though, the longevity of the current expansion -- over six years
- -- remains a cause for concern; the post-World War II average is only four and a
half years. Negative growth hasn't been experienced since the first quarter of
1993. If the growth rate accelerates, many economists expect the Federal Reserve
Board to launch a preemptive strike against inflation, with the concomitant
danger of cutting the expansion short.
Last summer, concern about the Fed and the national elections caused a
pullback in equity markets. Since then, with the political status quo generally
maintained vis-a-vis the president and Congress, and the economy slowing on its
own, the S&P 500 resumed its upward hike.(2)
1997 is a post-presidential election year, when the stock market has
typically dropped, and volatility may well continue. Currently, valuations for
many individual stocks appear high. Moderate action from the Fed over the winter
- -- an increase of .25% in short-term interest rates, for example -- might be
interpreted by investors in a positive light, with a subsequent calming
influence on price swings. Conversely, heavy-handed measures could be viewed as
likely to trigger a recession, with negative consequences for corporate earnings
estimates -- and stock prices; securities markets around the globe immediately
dropped following Fed Chairman Alan Greenspan's December remark that current
stock prices may reflect "irrational exuberance."
INVESCO Industrial Income Fund
Industrial Income Fund
Average Annual Total Return
as of 11/31/96(1)
1 year 16.72%
-----------------------------------------
5 years 10.99%
-----------------------------------------
10 years 14.78%
-----------------------------------------
For the six-month period ended 12/31/96, INVESCO Industrial Income Fund
achieved a total return of 10.61%. During the same period, the S&P 500 had a
total return of 11.67%, and the Lehman Government/Corporate Bond index had a
total return of 4.88%. (Of course, past performance is not a guarantee of future
results.)(1), (2)
<PAGE>
As the line graph illustrates, for the 10-year period ended 12/31/96, the
value of a $10,000 investment in INVESCO Industrial Income Fund, plus reinvested
dividends and capital gain distributions, would have risen to $39,676. The chart
and other total return figures cited reflect the fund's operating expenses, but
the indexes do not have expenses, which would, of course, have lowered their
performance. (Of course, past performance is not a guarantee of future
results.)(1),(2)
Graph: Industrial Income Fund Total Return from 12/86 through 12/96
This line graph compares the value of a $10,000 investment in INVESCO
Industrial Income Fund to the value of a $10,000 investment in the S&P 500
Index and the Lehman Government/Corporate Bond Index, assuming in each case
reinvestment of all dividends and capital gain distributions, for the period
12/86 through 12/96.
Strategic Summary
Equity Strategy
During 1996, we maintained broad diversification across various market
sectors. However, as the bull market matures, stock selectivity within certain
sectors will be more crucial. We will continue to use a "top down" approach in
making equity investment decisions: first, examining economic variables to
determine sectors of the economy that may outperform the market, and then
selecting stocks within those sectors.
Companies with the following attributes are considered most attractive:
strong balance sheets, positive cash flows, excellent management, leadership
positions, and the ability to grow earnings. This selection criteria for stocks,
while providing the potential for capital appreciation, also seek to reduce
risk, as stocks are picked on fundamentals rather than market momentum.
Over the last 12 months, our disciplined, careful selection process has
uncovered some exciting stocks at low valuation levels, such as Biogen, Lucent
Technologies, and some of the baby bells -- Bell Atlantic, Nynex, SBC
Communications, and U.S. West Communications. In the case of the regional bells,
we saw companies that had underperformed the market for two years. However,
these same companies had established market share, superior management, strong
balance sheets, and the potential for growth in earnings. We feel companies like
the baby bells, which have solid fundamentals but are out of favor with the
investment community, offer an excellent investment opportunity at their current
valuation levels.
As we move forward into 1997, we have increased the fund's exposure to
consumer staples -- especially in food, household products, and pharmaceuticals,
as we feel stable earnings will be a crucial variable in 1997. We also see the
potential for positive earnings growth in the energy sector, particularly in oil
services. The technology sector might also provide positive surprises in
earnings in 1997.
The decision made by the fund's board of directors in April 1996 to permit
greater emphasis on stocks in the fund's portfolio started paying off over the
last six months. The fund increased its equity position from 69% of the fund's
portfolio on 3/31/96 to 80.9% on 12/31/96. This intensified focus on equities
helped improve the fund's performance over the six-month period ended 12/31/96.
(Of course, past performance is not a guarantee of future results.)(1)
<PAGE>
Graph: Industrial Income Fund Diversification by Value of Total Net Assets
This graph reflects the diversification of the Industrial Income Fund by
value of total net assets in fixed income, capital goods and construction,
consumer cyclical, consumer staples, energy, finance, technology, other
equity and net cash and short-term securities as of December 31, 1995, June
30, 1996 and December 31, 1996.
Fixed-Income Strategy
Even though we have currently reduced the fixed-income portion of the
portfolio, it remains an important component of the fund's overall strategy.
Holdings are managed to produce high current income while also seeking capital
appreciation. This investment objective is pursued by a value-oriented bond
management style which primarily focuses on corporate bonds, with an average
duration of the portfolio between four to six years.
Using a "bottom up" or value-approach analysis, we were able to identify
corporate issuers who experienced fundamental credit quality improvement or were
acquired by a better-quality issuer. Many of these credit improvements or
special situations occurred in the communications industry, where consolidation
was the name of the game in 1996. Companies such as Continental Cablevision
(which was acquired by US WEST Communication Group), MFS Communications (which
was acquired by WorldCom Inc.), and Nextel Communications are examples of firms
in the portfolio that have either been acquired or have the potential to be
acquired. As we move forward into 1997, fund management has started to rebalance
the fixed-income portion of the portfolio. We have begun replacing high-quality
bonds with investment grade putable bonds. (Putable bonds are debt obligations
that allow holders to redeem the issue at specified intervals before maturity
and receive full face value.) This reallocation to investment grade putable
bonds should allow for growth in an up market, while offering some protection in
a down market. This should help to reduce interest rate risk, as the
fixed-income market might again be volatile in 1997.
Looking Forward
As the economy moves into an unprecedented seventh year of expansion, 1997
could be a year of market volatility and a slowing economy. It is crucial to
remember that the fund's unique investment philosophy of combining a diversified
fixed-income segment with growth and income-oriented equity securities is
intended to produce a fund that is an "all-market" fund. The fund will seek
growth in bull markets, but also seeks to offer protection in an uncertain
market, which may enhance returns over the long run.
Fund Management
INVESCO Industrial Income Fund is co-managed by two INVESCO senior vice
presidents. Charles P. Mayer has been responsible for the equity side of the
portfolio since 1993. An industry veteran with 26 years of professional
experience, he earned an MBA from St. John's University and a BA from St.
Peter's College. Previously, Charlie was with Westinghouse Pension Investments
Corporation.
Charlie is assisted in choosing equity investments by INVESCO Trust Company
Vice President Albert M. Grossi. Al began his career as a securities analyst in
1974. Previously, he served as a portfolio manager/senior analyst with
Westinghouse Pension Investments Corporation. He holds both an MBA and BA from
Rutgers University.
<PAGE>
Donovan "Jerry" Paul has served as co-portfolio manager of the fund since
1994, concentrating on fixed-income securities. Jerry began his investment
career in 1976; before joining INVESCO, he worked for Stein, Roe & Farnham Inc.,
as well as Quixote Investment Management. He earned an MBA from the University
of Northern Iowa, and a BBA from the University of Iowa. He is a Chartered
Financial Analyst and Certified Public Accountant.
(1) Total return assumes reinvestment of dividends and capital gain
distributions for the periods indicated. Past performance is not a guarantee of
future results. Investment return and principal value will fluctuate so that,
when redeemed, an investor's shares may be worth more or less than when
purchased. (2) The S&P 500 is an unmanaged index considered representative of
the performance of the broad U.S. stock market. The Lehman Government/Corporate
Bond index is an unmanaged index indicative of the broad fixed-income market.
<PAGE>
INVESCO Industrial Income Fund, Inc.
Ten Largest Common Stock Holdings
December 31, 1996
Description Value
- --------------------------------------------------------------------------------
Bank of New York $81,000,000
General Electric 79,100,000
Warner-Lambert Co 75,000,000
Hilton Hotels 73,150,000
US WEST Communications Group 70,950,000
Exxon Corp 68,600,000
Allied Signal 67,000,000
Northrop Grumman 66,200,000
Anheuser-Busch Cos 64,000,000
International Business Machines 60,400,000
Composition of holdings is subject to change.
---------------------------------------------
INVESCO Industrial Income Fund, Inc.
Statement of Investment Securities
December 31, 1996
UNAUDITED
- --------------------------------------------------------------------------------
Shares or
Principal
Description Amount Value
- --------------------------------------------------------------------------------
COMMON STOCKS 80.82%
AEROSPACE & DEFENSE 3.95%
General Motors Class H 500,000 $ 28,125,000
Lockheed Martin 500,000 45,750,000
McDonnell Douglas 460,000 29,440,000
Northrop Grumman 800,000 66,200,000
------------
169,515,000
------------
AUTOMOBILE RELATED 1.66%
Borg-Warner Automotive 400,600 15,423,100
Chrysler Corp 650,000 21,450,000
Eaton Corp 150,000 10,462,500
Ford Motor 750,000 23,906,250
------------
71,241,850
------------
BANKING 6.59%
Bank of New York 2,400,000 81,000,000
BankAmerica Corp 400,000 39,900,000
Chase Manhattan 300,000 26,775,000
CoreStates Financial 600,000 31,125,000
<PAGE>
First Chicago NBD 943,000 50,686,250
Fleet Financial Group 500,000 24,937,500
Mellon Bank 400,000 28,400,000
------------
282,823,750
------------
BIOTECHNOLOGY 0.45%
Biogen Inc* 498,000 19,297,500
------------
BUILDING & CONSTRUCTION RELATED 1.10%
Fluor Corp 750,000 $ 47,062,500
------------
CHEMICALS 1.67%
Air Products & Chemicals 600,000 41,475,000
Olin Corp 800,000 30,100,000
------------
71,575,000
------------
CLEANING PRODUCTS 1.25%
Procter & Gamble 500,000 53,750,000
------------
COMPUTER RELATED 1.99%
Hewlett-Packard Co 500,000 25,125,000
International Business Machines 400,000 60,400,000
------------
85,525,000
------------
DIVERSIFIED COMPANIES 6.18%
Allied Signal 1,000,000 67,000,000
du Pont (E I) de Nemours 500,000 47,187,500
General Electric 800,000 79,100,000
Kansas City Southern Industries 1,100,000 49,500,000
Tenneco Inc 500,000 22,562,500
------------
265,350,000
------------
ELECTRICAL EQUIPMENT 2.26%
Emerson Electric 525,000 50,793,750
Honeywell Inc 700,000 46,025,000
------------
96,818,750
------------
ELECTRONICS 2.26%
Intel Corp 400,000 52,375,000
Texas Instruments 700,000 44,625,000
------------
97,000,000
------------
<PAGE>
FOOD PRODUCTS & BEVERAGES 5.17%
Anheuser-Busch Cos 1,600,000 64,000,000
General Mills 800,000 50,700,000
Heinz (H J) Co 1,100,000 39,325,000
Kellogg Co 800,000 52,500,000
Quaker Oats 400,000 15,250,000
------------
221,775,000
------------
FUNERAL SERVICES 0.52%
Service Corp International 800,000 22,400,000
------------
HOTELS 1.70%
Hilton Hotels 2,800,000 73,150,000
------------
INSURANCE 1.26%
Allmerica Property & Casualty 500,000 15,187,500
SAFECO Corp 460,000 18,141,250
St Paul Cos 350,000 20,518,750
------------
53,847,500
------------
MACHINERY 1.57%
Cummins Engine 400,000 18,400,000
Foster Wheeler 175,000 6,496,875
Ingersoll-Rand Co 650,000 28,925,000
TRINOVA Corp 370,000 13,458,750
------------
67,280,625
------------
MEDICAL EQUIPMENT & SUPPLIES 0.71%
Becton Dickinson & Co 700,000 30,362,500
------------
MEDICAL RELATED - DRUGS 7.14%
American Home Products 1,000,000 58,625,000
Glaxo Wellcome PLC Sponsored ADR 1,400,000 44,450,000
Novo-Nordisk A/S ADR 859,172 40,166,291
Pfizer Inc 400,000 33,150,000
Pharmacia & Upjohn 700,000 27,737,500
SmithKline Beecham PLC ADR
Representing Ord A Shrs 400,000 27,200,000
Warner-Lambert Co 1,000,000 75,000,000
------------
306,328,791
------------
MINING 0.83%
Newmont Mining 799,050 35,757,487
------------
<PAGE>
OIL & GAS RELATED 10.45%
Amoco Corp 400,000 32,200,000
Apache Corp 700,000 24,762,500
Atlantic Richfield 400,000 53,000,000
Chevron Corp 400,000 26,000,000
Dresser Industries 700,000 21,700,000
Exxon Corp 700,000 68,600,000
Halliburton Co 300,000 18,075,000
Royal Dutch Petroleum New York
Registry 5 Gldr Shrs 300,000 51,225,000
Schlumberger Ltd 400,000 39,950,000
Sonat Inc 500,000 25,750,000
USX-Marathon Group 1,000,000 23,875,000
Union Pacific Resources Group 1,188,778 34,771,757
Unocal Corp 700,000 28,437,500
------------
448,346,757
------------
PAPER & PAPER PRODUCTS 2.09%
Champion International 500,000 21,625,000
International Paper 500,000 20,187,500
James River 300,000 9,937,500
Kimberly-Clark Corp 400,000 38,100,000
------------
89,850,000
------------
PHOTOGRAPHY SERVICES 0.41%
Polaroid Corp 400,000 17,400,000
------------
PRINTING & PUBLISHING 0.94%
Donnelley (R R) & Sons 475,000 14,903,125
News Corp Ltd ADR 500,000 10,437,500
Time Warner 400,000 15,000,000
------------
40,340,625
------------
REAL ESTATE RELATED 2.27%
Health & Retirement Properties Trust SBI 1,600,000 31,000,000
Health Care Property Investors 550,000 19,250,000
Healthcare Realty Trust 400,000 10,600,000
Meditrust SBI 500,000 20,000,000
Omega Healthcare Investors 500,000 16,625,000
------------
97,475,000
------------
RETAIL 4.23%
Dayton Hudson 1,000,000 39,250,000
May Department Stores 650,000 30,387,500
Penney (J C) Co 800,000 39,000,000
Sears Roebuck & Co 800,000 36,900,000
Toys "R" Us* 1,200,000 $ 36,000,000
------------
181,537,500
------------
<PAGE>
SAVINGS & LOAN 0.49%
Charter One Financial 504,000 21,168,000
------------
SHIP BUILDING 0.04%
Newport News Shipbuilding* 100,000 1,500,000
------------
TELECOMMUNICATIONS 2.56%
AT&T Corp 800,000 34,800,000
Deutsche Telekom AG Sponsored ADR* 260,000 5,297,500
Lucent Technologies 209,267 9,678,599
Motorola Inc 600,000 36,825,000
Nokia Corp Sponsored ADR 400,000 23,050,000
------------
109,651,099
------------
TIRE & RUBBER COMPANIES 0.42%
Goodyear Tire & Rubber 350,000 17,981,250
------------
TOBACCO 1.31%
Philip Morris 500,000 56,312,500
------------
TRANSPORTATION 2.16%
Conrail Inc 419,943 41,836,821
Norfolk Southern 250,000 21,875,000
Overseas Shipholding Group 300,000 5,100,000
Union Pacific 400,000 24,050,000
------------
92,861,821
------------
UTILITIES 5.19%
Bell Atlantic 600,000 38,850,000
GTE Corp 600,000 27,300,000
K N Energy 403,000 15,817,750
NYNEX Corp 800,000 38,500,000
SBC Communications 500,000 25,875,000
US WEST Communications Group 2,200,000 70,950,000
US WEST Media Group* 300,000 5,550,000
------------
222,842,750
------------
TOTAL COMMON STOCKS
(Cost $2,577,406,675) 3,468,128,555
------------
PREFERRED STOCKS 0.27%
BROADCASTING 0.09%
Chancellor Radio Broadcasting Sr
Exchangeable Pfd** Series A, 12.250% 35,000 3,850,000
------------
CABLE TELEVISION 0.18%
Cablevision Systems, Depository Shrs
Representing 1/100 Pfd**
Series M, 11.125% 85,510 7,674,524
------------
<PAGE>
TOTAL PREFERRED STOCKS
(Cost $11,399,970) 11,524,524
------------
FIXED INCOME SECURITIES 14.58%
US Government Obligations 1.17%
US Treasury Notes 6.875%, 5/15/2006 20,000,000 20,618,740
6.750%, 4/30/2000 10,000,000 10,190,620
5.875%, 2/15/2004 20,000,000 19,475,000
------------
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $49,825,617) $ 50,284,360
------------
US Government Agency Obligations 5.78%
Federal Home Loan Mortgage
Gold, Participation Certificates
7.500%, 9/1/2024 $ 7,891,839 7,932,317
7.000%, 6/1/2024 $ 8,390,666 8,261,358
6.500%, 7/1/2008 $ 30,427,399 30,093,276
6.500%, 8/1/2008 $ 4,712,032 4,660,290
6.500%, 6/1/2010 $ 41,702,350 41,244,416
6.500%, 8/1/2010 $ 8,963,852 8,818,628
Federal National Mortgage
Association, Gtd Mortgage
Pass-Through Certificates
7.500%, 6/1/2024 $ 13,213,327 13,260,485
6.500%, 7/1/2008 $ 34,980,901 34,602,372
6.000%, 10/1/2009 $ 20,632,402 20,001,030
Government National Mortgage
Association I, Pass-Through Certificates
7.500%, 10/15/2023 $ 16,018,366 16,088,510
7.000%, 12/15/2023 $ 44,402,218 43,638,455
6.500%, 3/15/2026 $ 20,215,746 19,284,386
------------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $247,440,501) 247,885,523
------------
Corporate Bonds 7.63%
AUTOMOBILE RELATED 0.12%
General Motors Acceptance, Deb^
6.375%, 9/30/1998 $ 5,000,000 5,012,620
------------
BANKING 0.15%
Sovereign Bancorp, Medium-Term
Sub Notes, 8.000%, 3/15/2003 $ 6,500,000 6,595,186
------------
BROADCASTING 0.98%
Allbritton Communications Sr Sub Deb
11.500%, 8/15/2004 $ 12,650,000 13,345,750
9.750%, 11/30/2007^ $ 750,000 720,000
Argyle Television, Sr Sub Notes
9.750%, 11/1/2005 $ 7,100,000 7,171,000
<PAGE>
Benedek Broadcasting, Sr Notes
11.875%, 3/1/2005 $ 8,900,000 9,678,750
EZ Communications, Sr Sub
Notes, 9.750%, 12/1/2005 $ 6,400,000 6,672,000
Young Broadcasting, Sr Sub Notes
Series B, 9.000%, 1/15/2006 $ 4,650,000 4,522,125
------------
42,109,625
------------
BUILDING & CONSTRUCTION RELATED 0.19%
USG Corp, Sr Notes
8.500%, 8/1/2005 $ 8,000,000 8,260,000
------------
CABLE TELEVISION 0.87%
Century Communications, Sr Sub
Notes, 11.875%, 10/15/2003 $ 1,300,000 1,374,750
Continental Cablevision, Sr Sub Deb,
11.000%, 6/1/2007 $ 21,800,000 24,904,865
Marcus Cable LP/Marcus
Cable Capital III
Sr Discount Step-Up Notes
Zero Coupon^^, 12/15/2005 $ 7,000,000 5,022,500
<PAGE>
UIH Australia/Pacific, Sr Discount
Step-Up Notes, Series B Zero Coupon^^,
5/15/2006 $ 8,250,000 4,310,625
Videotron Holdings PLC Sr Discount Step-Up
Notes Zero Coupon^^, 7/1/2004 $ 2,000,000 1,755,000
------------
37,367,740
------------
GAMING 0.41%
Station Casinos, Sr Sub Notes
9.625%, 6/1/2003 $ 3,000,000 2,970,000
Trump Atlantic City Associates/
Trump Atlantic City Funding
1st Mortgage Notes
11.250%, 5/1/2006 $ 6,900,000 6,831,000
Trump Hotels & Casino Resorts
Holdings LP/Trump Hotels &
Casino Resorts Funding
Sr Secured Notes
15.500%, 6/15/2005 $ 4,000,000 4,580,000
Trump's Castle Funding
Mortgage Notes
11.750%, 11/15/2003 $ 3,750,000 3,328,125
------------
17,709,125
------------
HEALTH CARE RELATED 0.09%
Tenet Healthcare, Sr Sub Notes
10.125%, 3/1/2005 $ 3,500,000 3,867,500
------------
INDUSTRIAL 0.07%
Rayovac Corp, Sr Sub Notes^
10.250%, 11/1/2006 $ 3,000,000 3,075,000
------------
INVESTMENT BROKERS 0.13%
Donaldson Lufkin & Jenrette
Medium-Term Notes
5.625%, 2/15/2016 $ 6,000,000 5,748,396
------------
MOTION PICTURES & TELEVISION 0.48%
Viacom Inc, Sub Deb
8.000%, 7/7/2006 $ 10,800,000 10,333,688
Viacom International, Sub Deb
Series A, 7.000%, 7/1/2003 $ 7,500,000 7,075,575
Series B, 7.000%, 7/1/2003 $ 3,140,000 2,962,307
------------
20,371,570
------------
OIL & GAS RELATED 0.16%
Clark Oil & Refining, Sr Notes
10.500%, 12/1/2001 $ 5,200,000 5,382,000
USX-Marathon Group, Conv Sub Deb,
5.750%, 7/1/2001 $ 1,775,000 1,648,531
------------
7,030,531
------------
<PAGE>
PAPER & PAPER PRODUCTS 0.26%
SD Warren, Sr Sub Notes
Series B, 12.000%, 12/15/2004 $ 4,500,000 4,860,000
Tembec Finance, Gtd Sr Notes
9.875%, 9/30/2005 $ 6,600,000 6,220,500
------------
11,080,500
------------
PRINTING & PUBLISHING 0.27%
Affiliated Newspapers Investments
Sr Discount Step-Up Deb
Zero Coupon^^, 7/1/2006 $ 5,000,000 4,100,000
Time Warner, Putable Deb
6.850%, 1/15/2026 $ 7,500,000 7,351,838
------------
11,451,838
------------
RECREATION PRODUCTS & SERVICES 0.25%
AMF Group, Sr Sub Discount
Step-Up Notes, Series B
Zero Coupon^^, 3/15/2006 $ 6,000,000 3,967,500
United Artists Theatre Circuit
Sr Secured Notes 11.500%, 5/1/2002 $ 6,350,000 6,683,375
------------
10,650,875
------------
SAVINGS & LOAN 0.34%
Western Financial Savings Bank
Sub Capital Deb 8.500%, 7/1/2003 $ 14,000,000 14,340,774
------------
STEEL & IRON 0.07%
AK Steel, Sr Notes^
9.125%, 12/15/2006 $ 3,000,000 3,060,000
------------
TELECOMMUNICATIONS 1.89%
Centennial Cellular, Sr Notes
8.875%, 11/1/2001 $ 10,480,000 10,218,000
Comcast Cellular Sr Participating Notes
Series A, Zero Coupon, 3/5/2000 $ 3,000,000 2,156,250
Series B, Zero Coupon, 3/5/2000 $ 6,000,000 4,320,000
CommNet Cellular Sr Sub Discount
Step-Up Notes Zero Coupon^^, 9/1/2003 $ 9,700,000 8,827,000
International CableTel Conv Sub Notes,
7.000% 6/15/2008 $ 12,000,000 10,920,000
Sr Deferred Step-Up Notes Series B,
Zero Coupon^^ 2/1/2006 $ 9,600,000 6,528,000
MFS Communications
Sr Discount Step-Up Notes
Zero Coupon^^, 1/15/2006 $ 14,800,000 10,896,500
Nextel Communications
Sr Discount Step-Up Notes
Zero Coupon^^, 8/15/2004 $ 6,000,000 4,087,500
<PAGE>
Omnipoint Corp, Sr Notes
11.625%, 8/15/2006 $ 5,000,000 5,200,000
Paging Network, Sr Sub Notes^
10.000%, 10/15/2008 $ 9,000,000 9,123,750
PanAmSat LP/PanAmSat Capital
Sr Sub Discount Step-Up Notes
Zero Coupon^^, 8/1/2003 $ 9,700,000 8,996,750
------------
81,273,750
------------
TRANSPORTATION 0.47%
Delta Air Lines
Equipment Trust Certificates
Series 1992F, 9.300%, 1/2/2011 $ 4,585,000 5,257,661
Teekay Shipping
1st Pfd Ship Mortgage Notes
8.320%, 2/1/2008 $ 4,350,000 4,333,688
Viking Star Shipping
1st Pfd Ship Mortgage Notes
9.625%, 7/15/2003 $ 10,000,000 10,450,000
------------
20,041,349
------------
UTILITIES 0.43%
Camuzzi Gas^ 9.250%, 12/15/2001 $ 4,000,000 4,030,000
DQU-II Funding
Collateral Lease 8.700%, 6/1/2016 $ 9,600,000 10,375,862
Pennsylvania Power, 1st Mortgage Notes,
6.375%, 9/1/2004 $ 4,000,000 3,820,800
------------
18,226,662
------------
TOTAL CORPORATE BONDS
(Cost $325,503,517) 327,273,041
------------
TOTAL FIXED INCOME SECURITIES
(Cost $622,769,635) 625,442,924
------------
SHORT-TERM INVESTMENTS 4.33%
US Government Obligations 0.69%
US Treasury Notes
5.375%, 11/30/1997
(Cost $29,958,000) $ 30,000,000 29,850,000
------------
Corporate Bonds 0.05%
UTILITIES 0.05%
First PV Funding, Lease Obligation Deb,
Series 1986B 8.950%, 1/15/1997
(Cost $2,003,558) $ 2,003,000 2,003,000
------------
<PAGE>
Commercial Paper 3.59%
FINANCE RELATED 3.12%
Deere (John) Capital
5.950%, 1/3/1997 $ 45,313,000 45,313,000
Ford Motor Credit
5.910%, 1/6/1997 $ 43,813,000 43,813,000
General Motors Acceptance
5.920%, 1/2/1997 $ 25,201,000 25,201,000
Sears Roebuck Acceptance
6.100%, 1/7/1997 $ 19,789,000 19,789,000
------------
134,116,000
------------
LEASING COMPANIES 0.47%
Hertz Corp
5.580%, 1/6/1997 $ 20,000,000 20,000,000
------------
TOTAL COMMERCIAL PAPER
(Cost $154,116,000) 154,116,000
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $186,077,558) 185,969,000
------------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $3,397,653,838)
(Cost for Income Tax Purposes
$3,397,779,971) 4,291,065,003
------------
* Security is non-income producing.
** Security may make dividend payments in other types of securities or cash.
^^ Step up bonds are obligations which increase the interest payment rate at a
specific point in time. Rate shown reflects current rate which may step up at
a future date.
^ The following are restricted securities at December 31, 1996:
<PAGE>
<TABLE>
<CAPTION>
Value as
Acquisition Acquisition % of
Description Date(s) Cost Net Assets
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AK Steel, Sr Notes
9.125%, 12/15/2006 12/12/96 $3,000,000 0.07%
Allbritton Communications
Sr Sub Deb 9.750%,
11/30/2007 10/15/96 690,820 0.02
Camuzzi Gas 9.250%, 12/15/2001 12/6/96 3,992,000 0.09
General Motors Acceptance
Deb, 6.375%, 9/30/1998 9/25/96 4,992,100 0.12
Paging Network, Sr Sub Notes 10/10/96-
10.000%, 10/15/2008 10/11/96 9,018,750 0.21
Rayovac Corp, Sr Sub Notes
10.250%, 11/1/2006 10/18/96 3,033,750 0.07
----------
0.58%
==========
See Notes to Financial Statements
</TABLE>
INVESCO Industrial Income Fund, Inc.
Statement of Assets and Liabilities
December 31, 1996
UNAUDITED
ASSETS
Investment Securities at Value
(Cost $3,397,653,838) $4,291,065,003
Cash 31,235
Receivables:
Investment Securities Sold 9,163,657
Fund Shares Sold 3,309,724
Dividends and Interest 13,761,068
Prepaid Expenses and Other Assets 283,194
---------------
TOTAL ASSETS 4,317,613,881
---------------
<PAGE>
LIABILITIES
Payables:
Distributions to Shareholders 1,731,099
Investment Securities Purchased 14,643,579
Fund Shares Repurchased 11,681,701
Accrued Distribution Expenses 7,442,460
Accrued Expenses and Other Payables 350,971
---------------
TOTAL LIABILITIES 35,849,810
---------------
Net Assets at Value $4,281,764,071
===============
NET ASSETS
Paid-in Capital* $3,331,147,656
Accumulated Undistributed Net
Investment Income 150,971
Accumulated Undistributed Net Realized
Gain on Investment Securities and Foreign
Currency Transactions 57,054,279
Net Appreciation of Investment Securities
and Foreign Currency Transactions 893,411,165
---------------
Net Assets at Value $4,281,764,071
===============
Net Asset Value, Offering and Redemption
Price per Share $13.46
===============
* The Fund has one billion authorized shares of common stock, par value of $1.00
per share, of which 318,109,737 shares were outstanding at December 31, 1996.
See Notes to Financial Statements
<PAGE>
INVESCO Industrial Income Fund, Inc.
Statement of Operations
Six Months Ended December 31, 1996
UNAUDITED
INVESTMENT INCOME
INCOME
Dividends $ 42,435,396
Interest 33,671,947
Foreign Taxes Withheld (277,206)
---------------
TOTAL INCOME 75,830,137
---------------
EXPENSES
Investment Advisory Fees 10,752,768
Distribution Expenses 5,244,418
Transfer Agent Fees 3,498,928
Administrative Fees 319,665
Custodian Fees and Expenses 299,073
Directors' Fees and Expenses 131,638
Professional Fees and Expenses 75,190
Registration Fees and Expenses 44,494
Reports to Shareholders 330,235
Other Expenses 45,179
---------------
TOTAL EXPENSES 20,741,588
Fees and Expenses Absorbed by
Investment Adviser (590,324)
Fees and Expenses Paid Indirectly (134,221)
---------------
NET EXPENSES 20,017,043
---------------
NET INVESTMENT INCOME 55,813,094
---------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities
and Foreign Currency Transactions 111,589,283
Change in Net Appreciation of Investment
Securities and Foreign Currency Transactions 251,740,738
---------------
NET GAIN ON INVESTMENT SECURITIES 363,330,021
---------------
Net Increase in Net Assets from Operations $419,143,115
===============
See Notes to Financial Statements
<PAGE>
INVESCO Industrial Income Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
December 31 June 30
--------------- --------------
1996 1996
UNAUDITED
<S> <C> <C>
OPERATIONS
Net Investment Income $ 55,813,094 $ 133,033,543
Net Realized Gain on Investment
Securities and Foreign
Currency Transactions 111,589,283 291,155,395
Change in Net Appreciation of
Investment Securities and
Foreign Currency Transactions 251,740,738 217,662,186
--------------- --------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS 419,143,115 641,851,124
--------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (55,753,757) (133,792,249)
Net Realized Gain on
Investment Securities (284,011,114) (77,502,041)
--------------- --------------
TOTAL DISTRIBUTIONS (339,764,871) (211,294,290)
--------------- --------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 297,638,587 714,175,666
Reinvestment of Distributions 320,938,262 198,324,457
--------------- --------------
618,576,849 912,500,123
Amounts Paid for Repurchases
of Shares (586,726,825) (1,182,130,063)
--------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS FROM FUND SHARE
TRANSACTIONS 31,850,024 (269,629,940)
--------------- --------------
Total Increase in Net Assets 111,228,268 160,926,894
NET ASSETS
Beginning of Period 4,170,535,803 4,009,608,909
--------------- --------------
End of Period (Including
Accumulated Undistributed Net
Investment Income of $150,971
and $91,634, respectively) $ 4,281,764,071 $4,170,535,803
=============== ==============
--------------------------------------------------------
<PAGE>
FUND SHARE TRANSACTIONS
Shares Sold 21,912,297 55,792,000
Shares Issued from Reinvestment
of Distributions 23,933,058 15,483,292
--------------- --------------
45,845,355 71,275,292
Shares Repurchased (43,367,770) (92,077,091)
--------------- --------------
Net Increase (Decrease) in
Fund Shares 2,477,585 (20,801,799)
=============== ==============
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Industrial Income Fund, Inc.
Notes to Financial Statements
UNAUDITED
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Industrial
Income Fund, Inc. (the "Fund"), was incorporated in Maryland. The Fund is an
equity income fund that seeks the best possible current income. 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 - Equity securities traded on national securities
exchanges or in the over-the-counter market are valued at the last sales
price in the market where such securities are primarily traded. If last
sales prices are not available, securities are valued at the highest
closing bid price obtained from one or more dealers making a market for
such securities or by a pricing service approved by the Fund's board of
directors.
Debt securities are valued at evaluated bid prices as determined by a
pricing service approved by the Fund's board of directors. If evaluated
bid prices are not available, debt securities are valued by averaging the
bid prices obtained from one or more dealers making a market for such
securities.
Foreign securities are valued at the closing price on the principal
stock exchange on which they are traded. In the event that closing prices
are not available for foreign securities, prices will be obtained from
the principal stock exchange at or prior to the close of the New York
Stock Exchange. Foreign currency exchange rates are determined daily
prior to the close of the New York Stock Exchange.
If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good
faith by the Fund's board of directors. Restricted securities are valued
in accordance with 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.
Assets and liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the date of valuation.
The cost of securities is translated into U.S. dollars at the rates of
exchange prevailing when such securities are acquired. Income and
expenses are translated into U.S. dollars at rates of exchange prevailing
when accrued.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are accounted for on the trade date and dividend income is
recorded on the ex dividend date. Certain dividends from foreign
securities will be recorded as soon as the Fund is informed of the
dividend if such information is obtained subsequent to the ex dividend
date. Interest income, which may be comprised of stated coupon rate,
market discount and original issue discount, is recorded on the accrual
basis. Discounts on debt securities purchased are amortized over the
life of the respective security as adjustments to interest income. Cost
is determined on the specific identification basis.
The Fund may have elements of risk due to concentrated investments in
foreign issuers located in a specific country. Such concentrations may
subject the Fund to additional risks resulting from future political or
<PAGE>
economic conditions and/or possible impositions of adverse foreign
governmental laws or currency exchange restrictions. Net realized and
unrealized gain or loss from investments includes fluctuations from
currency exchange rates and fluctuations in market value.
Investments in securities of governmental agencies may only be
guaranteed by the respective agency's limited authority to borrow from
the U.S. Government and may not be guaranteed by the full faith and
credit of the United States.
The Fund's use of short-term forward foreign currency contracts may
subject it to certain risks as a result of unanticipated movements in
foreign exchange rates. The Fund does not hold short-term forward foreign
currency contracts for trading purposes. The Fund may hold foreign
currency in anticipation of settling foreign security transactions and
not for investment purposes.
Restricted securities held by the Fund may not be sold except in
exempt transactions or in a public offering registered under the
Securities Act of 1933. The risk of investing in such securities is
generally greater than the risk of investing in the securities of widely
held, publicly traded companies. Lack of a secondary market and resale
restrictions may result in the inability of the Fund to sell a security
at a fair price and may substantially delay the sale of the security
which the Fund seeks to sell. In addition, these securities may exhibit
greater price volatility than securities for which secondary markets
exist.
C. 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.
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.
Investment income received from foreign sources may be subject to
foreign withholding taxes. Dividend and interest income is shown gross of
foreign withholding taxes in the accompanying financial statements.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
to shareholders are recorded by the Fund on the ex dividend/distribution
date. 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 mortgage-backed securities, market discounts,
foreign currency transactions, nontaxable dividends, net operating losses
and expired capital loss carryforwards.
E. FORWARD FOREIGN CURRENCY CONTRACTS - The Fund enters into short-term
forward foreign currency contracts in connection with planned purchases
or sales of securities as a hedge against fluctuations in foreign
exchange rates pending the settlement of transactions in foreign
securities. A forward foreign currency contract is an agreement between
contracting parties to exchange an amount of currency at some future time
at an agreed upon rate. These contracts are marked-to-market daily and
the related appreciation or depreciation of the contracts is presented in
the Statement of Assets and Liabilities.
<PAGE>
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. Similarly, Transfer
Agent Fees are reduced by credits earned by the Fund from security
brokerage transactions under certain broker/service arrangements with
third parties. Such credits are included in Fees and Expenses Paid
Indirectly in the Statement of Operations.
For the six months ended December 31, 1996, Fees and Expenses
Paid Indirectly consisted of $129,865 included in Custodian Fees and
Expenses and $4,356 included in Transfer Agent Fees.
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 0.60% on the first $350 million of average net assets; reduced
to 0.55% on the next $350 million of average net assets; and 0.50% on average
net assets in excess of $700 million. Effective October 15, 1992, IFG
voluntarily agreed to waive a portion of its fee which exceeds 0.45% of average
net assets in excess of $2 billion. In addition, effective October 21, 1993,
IFG voluntarily agreed to waive a portion of its fee which exceeds 0.40% of
average net assets in excess of $4 billion.
In accordance with a Sub-Advisory Agreement between IFG and INVESCO Trust
Company ("ITC"), a wholly owned subsidiary of IFG, investment decisions of the
Fund are made by ITC. Fees for such sub-advisory services are paid by IFG.
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.
IFG receives a transfer agent fee at an annual rate of $20.00 per shareholder
account, or, where applicable, per participant in an omnibus account, per year.
IFG may pay such fee for participants in omnibus accounts to affiliates or third
parties. The fee is paid monthly at one-twelfth of the annual fee and is based
upon the actual number of accounts in existence during each month.
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
reimbursement of marketing and advertising expenditures to IFG (the
"Distributor") to a maximum of 0.25% of average annual net assets. Amounts
accrued by the Fund are available to reimburse the Distributor for actual
expenditures incurred within a rolling twelve-month period. For the six months
ended December 31, 1996, the Fund paid the Distributor $2,819,588 for
reimbursement of expenses incurred.
NOTE 3 - PURCHASES AND SALES OF INVESTMENT SECURITIES. For the six months ended
December 31, 1996, the aggregate cost of purchases and proceeds from sales of
investment securities (excluding all U.S. Government securities and short-term
securities) were $798,315,181 and $994,862,417, respectively.
For the six months ended December 31, 1996, the aggregate cost of purchases
and proceeds from sales of U.S. Government securities were $0 and $66,243,624,
respectively.
NOTE 4 - APPRECIATION AND DEPRECIATION. At December 31, 1996, the gross
appreciation of securities in which there was an excess of value over tax
cost amounted to $919,212,483 and the gross depreciation of securities in which
there was an excess of tax cost over value amounted to $25,927,451, resulting in
net appreciation of $893,285,032.
NOTE 5 - TRANSACTIONS WITH AFFILIATES AND AFFILIATED COMPANIES. Certain of the
Fund's officers and directors are also officers and directors of IFG or ITC.
<PAGE>
The Fund has adopted an unfunded deferred compensation plan covering all
independent directors of the Fund who will have served as an independent
director for at least five years at the time of retirement. Benefits
under this plan are based on an annual rate of 40% of the retainer fee at the
time of retirement.
Pension expenses for the six months ended December 31, 1996, included in
Directors' Fees and Expenses in the Statement of Operations were $35,675.
Unfunded accrued pension costs of $169,489 and pension liability of $330,273 are
included in Prepaid Expenses and Accrued Expenses, respectively, in the
Statement of Assets and Liabilities.
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 5% of the Net Assets at Value of the
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. For the
six months ended December 31, 1996, there were no such borrowings.
<PAGE>
INVESCO Industrial Income Fund, Inc.
Financial Highlights
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Six Months
Ended
December 31 Year Ended June 30
------------- ----------------------------------------------------------
1996 1996 1995 1994 1993 1992
UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -- Beginning of Period $13.21 $11.92 $11.32 $11.53 $10.67 $9.74
------------- ----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.18 0.41 0.42 0.36 0.31 0.28
Net Gains on Securities
(Both Realized and Unrealized) 1.20 1.53 1.14 0.02 1.33 1.38
------------- ----------------------------------------------------------
Total from Investment Operations 1.38 1.94 1.56 0.38 1.64 1.66
------------- ----------------------------------------------------------
<PAGE>
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.18 0.41 0.42 0.36 0.32 0.29
In Excess of Net Investment Income 0.00 0.00 0.00 0.11 0.00 0.00
Distributions from Capital Gains 0.95 0.24 0.54 0.12 0.46 0.44
------------- ----------------------------------------------------------
Total Distributions 1.13 0.65 0.96 0.59 0.78 0.73
------------- ----------------------------------------------------------
Net Asset Value -- End of Period $13.46 $13.21 $11.92 $11.32 $11.53 $10.67
============= ==========================================================
TOTAL RETURN 10.61%* 16.54% 14.79% 3.24% 15.66% 17.04%
RATIOS
Net Assets - End of Period
($000 Omitted) $4,281,764 $4,170,536 $4,009,609 $3,913,322 $3,412,527 $2,092,955
Ratio of Expenses to Average Net Assets# 0.48%* 0.93%@ 0.94% 0.92% 0.96% 0.98%
Ratio of Net Investment Income to Average
Net Assets# 1.34%* 3.17% 3.61% 3.11% 2.94% 2.75%
Portfolio Turnover Rate 20%* 63% 54% 56% 121% 119%
Average Commission Rate Paid^^ 0.0313* - - - - -
</TABLE>
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by IFG for the six
months ended December 31, 1996, and for the years ended June 30, 1996,
1995, 1994 and 1993. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 0.50% (not
annualized), 0.96%, 0.97%, 0.95% and 0.98%, respectively, and ratio of net
investment income to average net assets would have been 1.32% (not
annualized), 3.14%, 3.58%, 3.08% and 2.92%, respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased or sold which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
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<PAGE>
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<PAGE>
INVESCO FUNDS
We're easy to stay in touch with:
Investor Services Representatives,
1-800-525-8085
PAL(R), your Personal Account Line,
1-800-424-8085
On the World Wide Web:
http://www.invesco.com
Denver Investor Centers:
Cherry Creek, 155-B Fillmore Street;
Denver Tech Center, 7800 E. Union
Avenue, Lobby Level
INVESCO Funds Group, Inc., (SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or accompanied by a current prospectus.
